Social Enterprise: The Signals Not the Noise

Moderator: Bruce McAdam

Lead Presenter: Petra Kassun-Mutch

Panelists: Keddy Chandran, Acumen-Toronto

Ryan Locke .

This evening

• What is a Social Enterprise?

• Where did the idea come from?

• Why Now?

• Today’s Social Enterprise Landscape

• Why we need a new legal Social Enterprise Form

• Where to next?

What is a Social Enterprise

What is a Social Enterprise?

• Social Mission/Purpose

• Generates revenues to achieve that purpose

• Can be profit or non-profit

• Creates Stakeholder Value

• Is that it???

Approaches to Understanding SE

• Charities/NFP inherently SE’s

• Any organization that balances social and economic goals

• Develops social capital

• For profit/not for profit hybrid forms of organization

• The purpose of a project or activity

• Has potential to develop in all sectors of the economy

Where did this idea come from?

A MISSION FIRST, FINANCIALLY

SUSTAINABLE ORGANIZATION THAT

CAN EFFECTIVELY ATTRACT

CAPITAL AND HARNESS THE

POWER OF MARKET BASED

SOLUTIONS TO AFFECT POSITIVE

SOCIAL AND ENVIRONMENTAL

CHANGE

Where did this idea come from?

Social Enterprise

New Solution

CHG in Values

CRISIS

Movement

UK, US, and

now B.C......

Social

Media

“There is one and only one social

responsibility of business — to use

its resources and engage in

activities designed to increase its

profits so long as it … engages in

open and free competition, without

deception or fraud.”2

4 Pillars of Civil Society

Meanwhile....SOCIAL MEDIA

Social Enterprise

4 PHASES OF CAPITALISM

1800-1929

• Govt BAD

• Bus GOOD

1930-1985

• Govt GOOD

• Bus BAD

1986-2008

• Gov Bad

• Bus Good

2009-

Bus Good

Govt Good

Co-ops!

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CO-OP MOVEMENT (1920’s) SOCIAL ENTERPRISE (2000’s)

New legally recognized organizational forms

New legally recognized organizational form

Born out of a movement that developed in response to concerns about control over capital and concentration of power/ownership.

Born out of a movement that developed in response corporate corruption, environmental degradation and mounting social unrest.

MOVEMENTS IN THE PRIVATE SECTOR

The Spectrum of Options

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SPECTRUM

Grant Funded Non-Profits

(Charity)

RETURN Social

(Charitable) Financial

(Commercial)

Traditional Business Revenue

Generating NFPs

This sector looking for

access to new funds in

face of declining

Government funding

This sector looking new

license to operate

Opportunity

Another View

The Social Finance Census: Ontario Non-Profit Network and the

Social Venture Exchange, 2010

http://www.theonn.ca/social-finance-census-2010/

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Harnessing the Power of Business to Change The World: The Spectrum

Social Enterprises: The Target Range

Grant Funded Non-Profits

(Charity)

RETURN Social

(Charitable) Financial

(Commercial)

Traditional Business

Revenue Generating NFPs

Social Purpose Business

Social Ventures

CSR

Corp

Philanthropy

B Corporations

Honey Bee

Network

WHY NEW ORGANIZATIONAL FORM? • ENGENDER PUBLIC TRUST

– Not a traditional business

• PUT IN PLACE THE RIGHT CHECKS AND BALANCES

– Surplus distribution, reporting, asset locks, capped dividends etc to curb effects of sudden greed.

– Legal protection for stakeholders/shareholders.

• COMPETE FOR/ATTRACT CAPITAL TO THIS TYPE OF ENTERPRISE

– Tax incentives

– Risk Management

– Sustainability of enterprise=sustainability of capital

More “why”

• Allows government to stimulate social enterprises specifically, through policy initiatives and incentives such as favourable tax treatment;

• Offering clarity on limits of activity for investors, consumers

• The capacity of private sector businesses now practicing ‘more than Corporate Social Responsibility’ to further distinguish themselves from competition as authentic multiple bottom line enterprises;

Characteristics? • Are led by an economic, social, cultural, or

environmental mission consistent with a public or community benefit;

• Trade to fulfil their mission;

• Derive a substantial portion of their income from trade; and

• Reinvest the majority of their profit/surplus in the fulfilment of their mission

www.SocialTraders.au.com

And what else? • Social mission/stakeholder mandate in bylaws

• Stakeholders interests count

• Distribution of income or surpluses defined

• % of net profits assigned to community

• Asset locks

• Mission preservation in sale/transfer (Bylaws)

• 3rd Party Audit

• Integrated Report (Financial/ Social Mission)

• Reporting transparency

• Tax treatment (Enterprise, investors in Enterprise)

New Organizational Forms FORM

Community Interest Company (CIC)

BENEFIT CORPORATION

L3C CCC

Country UK (2005) 7 States/USA (2008)

9 States/USA (2008)

B.C Canada (2012)

# 3572 (2010) 519 0

Key Features Investment Meet Community Interest Test Cannot be a charity Asset Lock

Investment Articles of Incorp chg to recognize Stakeholders Reporting % to charity

Eligible for PIR/Foundation Funding

Assist communities with social issues Must devote portion of profits to community Asset lock

Favorable Tax? No No No No

Private/Public Yes Yes Yes Yes

Pay Dividends Yes but capped Yes Yes Yes but capped

Certifications?

And what about New Model/Social Entrepreneurs?

Social entrepreneurs play the role of change agents in the social sector, by:

• Adopting a mission to create and sustain social value (not just private value),

• Recognizing and relentlessly pursuing new opportunities to serve that mission,

• Engaging in a process of continuous innovation, adaptation, and learning,

• Acting boldly without being limited by resources currently in hand, and

• Exhibiting a heightened sense of accountability to the constituencies served and for the outcomes created.

• But there is are also three other factors that Dr. Dees misses in his definition. And that is: 1) Higher tolerance for risk and failure and 2) Understanding that efforts will not likely generate personal wealth 3) Ability secure capital investment.

Ecology of New Business Form & Stage of Development

Govt Policy

R & D

Educators

Consumers Social

Finance

Legal

Culture

Accounting

Principles

Micro Financi

Social Entrepren

eur

Certifications

Associatioms/Advocacy

Groups

• Any Legal form (except Charity)

• Public or Private

• Key Differentiator: Articles of Incorporation. – Social Mission & Purpose in Articles of Incorporation

– Differentiated Bylaws (Governance, Dispute Resolution, Dissolution. Reporting etc)

– Surplus (Profit) Distribution Defined

– Board Composition

– Integrated Reporting (based on GAP and SE industry reporting standards)

– Mission transfer and preservation (asset lock etc)

• Tax Code Differentiated

• 3rd Party Certification or Audits

Government

Tax incentives to investors in SEs

& SE’s themselves

Basic Reporting Principles Defined

Amend Incorporations Act to

include new legal form…

Educators There are unique operational and

leadership challenges related to SEs that

need to be researched and taught.

Financial Services Industry

Special Loan categories (RBC)

SEC Reporting Requirements (if

public)

Legal/Incorporations Act-

Std SE articles of incorporation

Transition services

Case Law around mission

preservation upon sale/exit

Social Enterprise: The signals not the noise

• ITS ABOUT CHANNELING CAPTIAL AND HARNESSING THE POWER OF BUSINESS TO BETTER OUR WORLD.

• That said, ll sectors will shift values in response to the movement towards greater responsibility to enviroment and society.

• SE need to be distinct organizational form to work—and for the sector to grow—just like Co-ops have....

• Rest of Canada needs to get going....we do have 53 companies so far who have made transition without legal recognition.

“Social Benefit” Built into DNA

Questions