Can social enterprise still take the moral high ground? [Guest blog]

Posted in: Blog.

Jonathan Coburn from Social Value Lab reflects on the evidence arising from recent studies into social enterprise and socially responsible business behaviours in Scotland.

Business, for better or worse

No matter what your views on the ‘business’ community are, there’s certainly no way to ignore it. There are an estimated 361,345 private sector businesses operating in Scotland, 99% of which are Small and Medium Enterprises (SMEs).

All of these companies have some form of impact on the economy and society, whether positive or negative.

On the positive side, businesses of all shapes and sizes create wealth, support jobs, serve customer needs (largely), and benefit society (to some extent).

On the other hand, while still staying within the law, some businesses are too quick to offload costs onto the environment or society – emitting greenhouse gases, actively avoiding taxes, forcing employees onto zero hours contracts, and so on. This creates a race to the bottom, with companies being forced to put profit ahead of people simply to compete.

This has raised a fundamental issue of trust in established ways of doing business. We are constantly reminded that trust in business is at an all-time low, but it is not quite as simple as that. Most people would make some sort of distinction, for example, between the small family-run community café (seemingly hard working people trying to make ends meet while providing a socially useful service) and a large shoe manufacturer (apparently existing only to make profit). But, what if your local café was shown to be exploiting workers and dumping on the environment, and what if that big business was at the forefront of environmental sustainability efforts, a model of ethical and social responsibility?

Can we continue to make sweeping generalisations about what business is and what it stands for? As one contributor to our recent Better Business study commented “businesses simply don’t get up in the morning to do evil”. Of course this is true, companies are usually a reflection of people that own and run them. However, design of the conventional for-profit businesses means that the benefits they bring can sometimes be outweighed by the harm that they do.

The changing face of business

The Better Business study suggests that the face of business in Scotland is changing, however, at a gradual pace.

For most companies, the traditional notion that business is simply about making money no longer holds true. While 29% of business leaders hold onto the view that the sole responsibility of their company is to maximise profits, 89% agree that responsible behaviour drives business success, and a similar percentage characterise their company as socially and environmentally responsible. Just half go as far as to say that there is a clear business case for investing company resources in community, social and environmental issues.

Getting beyond the veneer of large ‘Corporate Social Responsibility’ programmes, the research offers the clearest understanding yet of the characteristics of responsible businesses. These businesses have been shown to aspire to the highest standards, demonstrating ethical leadership in their marketplace. They are inclusive, treat people fairly and celebrate diversity at all levels. They seek to maximise their social value, extending their positive contribution to the communities in which they operate. They reduce their environmental footprint as far as possible, and work collaboratively to achieve their wider goals.

The culture and behaviours of Scottish companies are changing for a variety of reasons. The public is more ethically motivated and less tolerant of corporate negligence and corruption. Millennials are starting to dominate the workforce – young people with a deeper appreciation of their social and environmental responsibilities. In turn, there is growing recognition among business leaders that people are more likely to admire, work for, buy from and support companies that they perceive to share their values. With the advent of social media, there is nowhere for businesses to hide – reputation is becoming everything.

Clearly there is a heavy dose of economic self-interest to all of this, but equally there are many business leaders that are trying to do the right thing in the face of intense competition, tight profit margins, and the costs of meeting existing responsibilities (Living Wage, pension auto-enrolments, etc.).

Social enterprises claiming the moral high ground

Quite rightly, Scotland is proud to put social enterprise forward as a better and fairer way of doing business. A group of profit-locked, purpose-driven enterprises, which some view as a radical alternative to business as usual.

Our recent work on the Social Enterprise Census describes the characteristics and contribution of this group of enterprises in some detail.

Although still a relatively small subset of the business community, these 5,200 Scottish social enterprises punch above their weight in economic terms. Some £3.63bn in annual income, supporting 112,409 jobs, and contributing £1.68bn GVA to the Scottish economy – an economic contribution that sits comfortably alongside and within some of Scotland’s growth industries.

The contribution of social enterprise is perhaps better understood in social and environmental terms. Social enterprises are impacting profoundly on Scotland both in relation to the services they deliver – housing, care, amenities, etc. – and the opportunities that they extend to people.

It’s also argued that it is not just what social enterprises do but how they do it. There is strong evidence that social enterprise represents a fairer, more equitable way of doing business. For example in regards to gender diversity, the evidence shows that 48% of board members and 60% of CEOs in the social enterprise sector are women (as compared with 13% of board members and 4% of CEOs in Scotland’s 500 leading companies).

Grey areas where profit meets purpose

What both the Social Enterprise Census and Better Business research tell us is that the world of business is no longer black and white.

We now see a spectrum of socially and ethically responsible business activity in Scotland. At one end are those enterprising charities and social enterprises that deliver on their social mission through business activity. At the other end are a growing number of businesses trying to do some social good if, often, in the periphery.

Somewhere in the middle seems to be an expanding group of entrepreneurs that are choosing to do business in a different way – increasingly through mission-driven, for-profit forms of business. This reflects the growing influence of an emerging generation of business leaders whose personal values are being reflected in how they want to do business.

In a recent piece, Kieron Boyle (ex- Cabinet Office) usefully describes these distinctions, recognising the emergence of these mission-led businesses as a good thing.

He comments: “In their potential to bring further scale, sustainability and talent to tackling social problems, they’re a powerful addition to the world of charities and social enterprises. And although names matter, it’s like with any good party: the more the merrier.”

It is still too early to elaborate on what these trends mean for Scotland, and whether it will ultimately prove to be a cause for celebration or concern.

However, Stateside where the trend is more developed, commentators such as Kevin Lynch of the Social Enterprise Alliance point to public confusion caused by the rise of the new ‘hybrid’ legal forms such as the Benefit Corporation and the L3C, and the spread of the B Corp brand. Fuelled by the flow of impact investment capital into this fledgling movement, this has led to concerns that the term ‘social enterprise’ is now more associated with for-profit businesses than the non-profit social enterprise model in which impact is part of the DNA. Gerry Higgins also reflected on this model following his return from the Social Enterprise Alliance conference in 2015.

Some choices and dilemmas

A central question in Scotland now is how government can most effectively use its influence to encourage business to do more of the good stuff and less of the bad.

What can and should be the role of business in creating a fairer, greener Scotland?

To what extent can we win the hearts and minds of business leaders, helping to accelerate the shift in business culture? How far should we prescribe or incentivise the types of socially responsible business behaviours that we aspire to as a country? How far should we be prioritising support for social and co-operative enterprises, both as a signal of intent and as an inspiration for others to follow?

Current mainstream Economic Policy in Scotland talks the language of ‘inclusive’ economic and business growth. This leads into policy initiatives such as the Scottish Business Pledge, which invites companies to consider a series of voluntary commitments that are both deemed good for business and good for society (e.g. working towards gender balance, playing an active role in communities). It has also led to strong support for employee-owned businesses.

In parallel, Third Sector Policy prioritises continued investment and support for enterprising charities and social enterprises. This is widely believed to have created a world-leading ecosystem of support.

At present, we see parallel choices however. For example, how does the investment of over £7m of public funding in Amazon weigh up against similar investment in new-start social enterprises? How can we better recognise the different types of value that we get from investment in social enterprises, employee owned businesses, traditional businesses and how can we measure and account for this value?

The evidence now available begins to raise some of these important questions, if not answer them. It also means that when forming policy, we are able to make evidence-informed choices rather than continue to rely on hunches and guesswork.



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