Defending social enterprises in Europe

A few years ago, the concept of social enterprise was rarely discussed in Europe, however it is now making significant breakthroughs in European Union (EU) countries. The union can not escape the pressure of the current awful economic position so it has no way out to see the task of social involvement under eyes.

An orthographic projection of the world, highlighting the European Union and its Member States (green). (Photo credit: Wikipedia)

We could see some positive development in legal frameworks, public policies, supporting structures, public procurement policies supporting the development of social enterprises in the different EU countries. Relying on collective dynamics involving various types of stakeholders in their governing bodies, they place a high value on their autonomy and they bear economic risks linked to their activity, but some of them dared to stick out their neck, though they are still poorly understood in several of the EU countries.

The notion of social enterprise first appeared in Italy in the late 1980s, but it really began to be used at the European level in the mid 1990s, especially through the works of the EMES European Research Network. (EMES) {1}

Until recently, the notions of “social entrepreneur“, “social entrepreneurship” and “social enterprise” were used more or less along the same lines: simplifying a little, one could say that social entrepreneurship was seen as the process through which social entrepreneurs created social enterprises. In the last decade, however, a fast growing literature has produced various definitions and approaches of each of these three notions.

The concept of social enterprise is still fuzzy in Belgium, but it is more and more frequently used to stress the entrepreneurial approach adopted by an increasing number of organisations in the third sector. {2} The introduction of the “social purpose company” legal framework, in 1996, is clearly linked to this trend. This framework is not, strictly speaking, a new legal form; in fact, all types of business corporations can adopt the “social purpose company” label, provided they “are not dedicated to the enrichment of their members”, and their statutes comply with a series of conditions. {3} However, this
legal status (revised in 2007) has been adopted by no more than 400 enterprises between 1996 and 2006; this may be accounted for by the fact that it brings with it a considerable number of requirements, in addition to those associated with the traditional company legal form. Most initiatives that meet, to some extent, the criteria of the EMES definition of social enterprise have adopted the legal form of ASBL or VZW (Vereniging Zonder Winstoogmerk = Association without lucrative purpose or Non-Profit Association); this very flexible form allows developing commercial activities, provided that these activities are subordinated to the organisation’s social mission.

Moreover, the legal form of ASBL/VZW is necessary to qualify for several forms of public support.  However, some public schemes, such as the “work integration enterprises” scheme in the Walloon region, require that the organisation adopt the legal status of a social purpose company.

In Belgium we still face the problem that there is not enough seen forward in the future and that they do not enough work on preventive measure but have to look for solutions when the problems have gone far too deep. The emphasis has also been much more often put on the collective nature of the social enterprise, as well as on its associative or cooperative form, although the US approach is gaining some influence.

The conceptualisations of the “social entrepreneurship” have stressed the social innovation processes undertaken by social entrepreneurs. But a wide spectrum of initiatives can be seen, ranging from voluntary activism to corporate social responsibility. {4}

In Belgium, the “social purpose company” (société à finalité sociale, or SFS, in French; vennootschap zonder winstoogmerk, or VZW or VSO, in Dutch) legal framework, introduced in 1996, does not focus on the sole co-operative tradition, although it is often combined with the latter. More precisely, this framework is not, strictly speaking, a new legal form, as all types of business corporations can adopt the “social purpose company” label, provided they “are not dedicated to the enrichment of their members”. Therefore, the company must define a profit allocation policy in accordance with its social purpose and provide for procedures allowing each employee to participate in the enterprise’s governance through the ownership of capital shares.

Social enterprise association (Photo credit: Wikipedia)

Many people do think those legal innovations for the social purpose companies do  not bring any real added value for the concerned organizations. Unlike the concepts of social economy or solidarity-based economy, which have inspired coalitions of actors for the last twenty years, from both the world of associations and that of co-operatives, and which are increasingly characterised by a social entrepreneurial approach, the notion of social enterprise itself is far from having achieved general recognition in Belgium.

Although the work integration of disadvantaged people is often seen in Europe as a major field for social enterprises, the latter also experienced a significant development in a wide range of other areas. Yesterday it was announced that males born in 2010 will reach the age of 76 and females would reach the age of 83 and with the population getting older we shall need more healthcare workers.

In certain countries we have seen that  “A-type” social co-operatives”, providing social and personal services, underwent a rapid development and hired thousands of highly skilled professionals in the fields of health care, psychology, mental health care and training. Indeed, the number of enterprises and jobs created in such services has always been much larger than in “B-type” (work integration) social co-operatives.

In Belgium we are going to face many shortages in caring personnel. Childcare services are clearly a major field of activity for social enterprises, which more and more shall have to be  set up and managed by parents and professionals as a response to a public provision
shortage. We also are in urgent need of a fast growth of social enterprises in social housing and home care services, as well as in a wide spectrum of community and social services, including culture, arts and sports.

The contracting out of the provision of goods or services is a key channel for public authorities to support the mission of social enterprises. Indeed, empirical analysis highlights the importance of the sales of social enterprises to local public bodies. {5}

Under certain thresholds defined by European legislation, public bodies (usually at the local level) may simply “privilege” social enterprises they know in order to support the latter and their social mission; in the case of purchases over these threshold amounts, specific rules have to be respected, but these rules do not exclude the possibility to take into account social dimensions in the procedures for the award of public contracts. Indeed, two different types of award criteria are allowed: public authorities can award a contract to the tender with “the lowest price” (i.e. the bid with the lowest price, for the required level of quality, is chosen) or they can choose to award the contract to “the most economically advantageous tender”, i.e. take into consideration criteria other than price alone (such as
social or environmental criteria) in their purchasing decision. They can for example introduce social clauses regarding the integration of disadvantaged workers or a requirement to make services available for specific target groups or communities. {6}

Social Enterprise & CSR (Photo credit: sunitshrestha)

However, the practice of inserting social criteria into public contracts is not yet very common in the European Union.

At the Conference Social Enterprises and the Europe 2020 Strategy: Innovative solutions for a sustainable Europe, held on 3 October in Brussels, the Various Interest Group of the EESC analysed the present and future of social enterprises in Europe.

“Social enterprises have proven to be more resilient in the current crisis, and should therefore play a key role in Europe’s exit strategy from the crises while contributing to a faster and fairer recovery. We call on national and European policy-makers to politically support the social economy and social enterprises, and to create a level-playing field which will unleash the potential of this key economic sector”, stated Luca Jahier, President of the EESC Various Interests Group.

The social economy sector already employs more than 14 million people in the EU, which amounts to more than 6% of all workers. The social economy is a key element of the European social model, especially in times of crisis. However, social enterprises do not enjoy a level playing field with traditional economic operators. Without overcoming legal, administrative, financial and political obstacles, social enterprises will not be able to fully enjoy the benefits of the single market, despite the richness and the innovative leadership which exists at all levels of the sector.

“One billion people around the world cannot be wrong. One billion have chosen to run a cooperative business, and that’s something that must be taken into account in decision-making fora” added Pauline Green, President of the International Co-operative Alliance.

“We would like to help by providing a better picture of the situation of social enterprises in the EU. That is why we are about to launch a large project with the aim of mapping social enterprises. This is in fact in response to the Economic and Social Committee’s call for an EU-wide comparison of approaches to public financing that are particularly suitable for social enterprises”, stated László Andor, European Commissioner for Employment, Social Affairs and Inclusion.

The European Foundation Statute and access to public procurement

The EESC is determined to defend the role of social enterprises in providing services of general interest. According to the EESC, Member States should facilitate participation in public procurements to economic operators whose principal objective is the social and professional integration of disabled or disadvantaged workers, provided that a threshold of 30% of disabled or disadvantaged workers is respected.

The EESC also urges a rapid introduction of a European Foundation Statute, the adoption of a Statute for a European Association and a review of the value and usability of a European Social Enterprises label, that would definitely add value to the sector. These would help social enterprises to operate in different EU Member States without any extra administrative burden.

Finally, the EESC demands a mobilisation of the European Social Fund post 2014 to include “investment priority” for social enterprises and a better access to other funds such as capital for start-ups and growth, notably for young social entrepreneurs. “I am convinced that cohesion policy funds can be used even better in the future, especially if they would be employed in the context of a truly integrated strategy”, concluded László Andor, European Commissioner for Employment, Social Affairs and Inclusion.

It is important that the question of the value added of social enterprise models – which are driven by their explicit aim to benefit the community – be studied more thoroughly and that the local government spends more time and attention to this necessary group for the community.

+

Notes:

{1} These research works, mainly supported by the European Commission’s Research Directorate-General, resulted in a first book entitled The Emergence of Social Enterprise (Borzaga and Defourny 2001), a wide series of EMES Working Papers (available on http://www.emes.net) and, more recently, a second book, edited by Nyssens (2006), focusing on work integration social enterprises. The EMES Network has also extended its research area to Eastern and Central European countries, including some countries of the Community of Independent States, such as Ukraine (Borzaga and Spear 2004; EMES 2006).

{2} This interpretation of social enterprise can be linked to the “market social economy” concept, which is sometimes used in Belgium (see EMES European Research Network, 2007).

{3} Among other requirements, SFS statutes must stipulate that “the members seek little or no return on investment”. The articles must define a “profit allocation policy in accordance with the enterprise’s internal and external purposes”. The social purpose company’s articles must also provide for procedures allowing each employee to participate in the governance of the enterprise (as a shareholder or/and through a participation in the
management of the enterprise).

{4} See for instance Nicholls (2006); Nicholls, A. (ed.) (2006) Social Enterpreneurship. New Models of Sustainable Social Change, Oxford: Oxford University Press.

{5} Laville et al.( 2006); Lemaitre, A., Laville, J.-L. & Nyssens, M. (2006) “Public Policies and Social enterprises in Europe: the Challenge of Institutionalization” in Nyssens, M. (ed.) Social Enterprise, London & New York: Routledge, 259-271.; Evers, A. & Laville, J.-L. (eds) (2004) The Third Sector in Europe, Cheltenham: Edward Elgar.

{6} On the subject of the inclusion of criteria other than the price alone in public procurement, see Navez, F. (2005) “Marchés publics et évolution du droit européen : Quelles possibilités de soutien. pour les entreprises d’économie sociale ?” Presented at the 1st EMES-ISTR European conference, Paris, April 2005. Available at: http://www.emes.net

++

Please read also:

EMES European Research Network (1999) The Emergence of Social Enterprises In Europe. A Short Overview, Brussels: EMES.
EMES European Research Network (2006) Study on Promoting the Role of Social Enterprises in CEE and the CIS, Initial Overview Study for the UNDP-BRC (Bratislava Regional Centre).

+++

Related articles

• Social enterprises use market forces for good (denverpost.com)
  Many nonprofit organizations have made innovative social enterprises part of their daily operations to help them achieve their mission while creating sustainable sources of income to fund programs.Social enterprises don’t eliminate the need for charitable donations but, rather, supplement donations and grants by creating predictable revenue streams while serving the broader mission of the organization.
• Social enterprises in trademark row with Salesforce(telegraph.co.uk)

  The enterprise software giant has provoked an angry response from social enterprises – businesses that prioritise community and environmental goals over returning profits to shareholders – by attempting to trademark the term in the EU, US and Jamaica.

  Social enterprises have started a “not in our name” campaign to ask the software giant to drop the application. Social Enterprise UK, the trade body, accused the US company of a confusing “misappropriation” of the term.

  Salesforce said its application only related to “the information technology sector” because “companies are looking for new ways to connect with customers, partners and employees and [we are] empowering them with what we call social enterprise technologies”.

  It added that it “does not intend to own the rights for the term within the non-profit sector and is not seeking to restrict uses of the phrase by others in philanthropy, social responsibility, community involvement or mission-driven organisations”.

  However, Peter Holbrook, chief executive of Social Enterprise UK, said this showed that Salesforce “seems to fundamentally misunderstand what social enterprises are”.

• New ministry to provide better support for social enterprises (todayonline.com)
  Singapore – The new Ministry of Social and Family Development will provide better support for social enterprises, including more training and help for social enterprises to develop their capabilities.Minister of State for Community Development, Youth and Sports Halimah Yacob revealed this during a visit to MINDS Social Enterprise yesterday, which was started 12 years ago to create an alternative avenue of employment for its clients.
• Social Entrepreneurship: Is It Time? (eaagblog.wordpress.com)
  It has been a topic of discussion in the international spheres with several conferences tackling different aspects of it in the recent past. The debate is now here and with others choosing to embrace it wholly others are still reworking the mechanisms of its adoption. But what remains constant to all the groups partaking in the debate is that social entrepreneurship is more than the new approach towards solving societal problems.
  +
  Many corporate entities in East Africa have established CSR(Corporate Social Responsibility) and CSI(Corporate Social Investment) departments, while others have gone a step further to establish Foundations which aim to solve societal problems abounding to their respective consumers’ communities. Whether the principles of social entrepreneurship inform the running of the CSR & CSI programs is however open for discussion.Examples of renowned social entrepreneurs are Florence Nightingale (founder of the first nursing school and developer of modern nursing practices), Robert Owen (founder of the cooperative movement) and Vinoba Bhave (India) Founder and leader of the Land Gift Movement, who caused the redistribution of more than 7,000,000 acres of land to aid India’s untouchables and landless.
  +
  • Social Entrepreneurship and Volunteering: What’s the connection? (impactinvestistanbul.wordpress.com)
    Many universities in Turkey have bolstered efforts to promote and institutionalize social entrepreneurship. From business competitions, such as the Global Social Venture Competition at Koç University, to academic courses and awards, a flurry of social entrepreneurial activity abounds in the realm of higher education.
  • Q & A with Jason Lau, Social Entrepreneur Supervisor at the Özyeğin Center for Entrepreneurship (impactinvestistanbul.wordpress.com)
    In this Q&A, Jason talks more about his volunteer experiences in LA and throughout Turkey, and how they inform and guide his work with Turkey’s budding social entrepreneurs and volunteers.
• Sustainable Urban Development: the Role of the Civil Society (tonetaproject.wordpress.com)
• European Commission – Online survey: “Which are the TOP10 EU most burdensome legislative acts for SMEs? (richardcornelisse.com)
  the European Commission is calling upon businesses: “Let us know what could be done better – we would like your ideas for reducing red tape!” — the leitmotif of a consultation launched today by the Commission.This consultation process for Small and Medium Sized Enterprises (SMEs) and their representative organisationreduces, will help to identify the top ten EU legislative acts considered most burdensome by micro-companies and SMEs.It will run until 21 December 2012, and once complete, the Commission will analyse the results and consider how situation for SMEs could be improved.
• The CCO and the Social Enterprise (text100.com)
  This year, we have seen the social enterprise trend pick up some serious momentum. When talking about social enterprises, I’m referring to businesses that are embracing the use of digital and social technologies across their business; something that expands well beyond traditional communications. Social technologies provide an unprecedented and credible opportunity to tap into and understand key stakeholders as individuals, which has the power to transform and dramatically enhance relationships with these stakeholders, ultimately providing businesses with a competitive advantage. It’s an opportunity that many Chief Communications Officers have to embrace since their role is so crucial to this transformation.
• Let’s Support Both Charities And Social Enterprises (socialenterprisebuzz.com)
  A speaker at last month’s National Conference on Corporate Social Responsibility (CSR) and Social Business was reported to have called for companies to move away from charitable work and create social businesses instead.  He claimed that charity is a stop gap measure that merely mitigates socio-economic problems, but does not offer long term solutions to those problems.  He also added that charities could incur very high operational costs, with some as high as 70 percent, unlike social enterprises which can be more efficient.This is a dangerous and uncalled for statement that pits charities against social enterprises.  Nevertheless I do not believe that the statement was intended to be a call for civil war between the two sectors.  I think the speaker was sincerely excited by the concept of social entrepreneurship.
• Expert panel: Transform business with social enterprise (cloudave.com)
  As cloud computing and social business gain ground, the concept of “social enterprise” remains vague and elusive for many. For these folks, cloud translates into cost reduction and social collaboration means informal chats on Twitter. These perspectives miss a larger, far more important, point: the promise of social enterprise offers genuine opportunity for innovation and business transformation.
• How to be Socially-Conscious and an Entrepreneur (startupprofessionals.com)
  Whether the objective is to generate profits or social capital, the common element for all entrepreneurs is the recognition that there is a problem which needs solving, or there is an opportunity to improve the status quo.The vision is always to be a change agent, to invent and popularize new approaches, and to persuade people to take a leap forward. In every case this requires a committed ultimate realist with the determination to persist in the face of daunting odds.