Wednesday, 2 November 2011

Should social enterprise be regulated like other forms of business?

MOTIV CIC as seen on the new CIC website

That was the question I was asked yesterday as I spoke to the Local and National Regulators conference at the Department of Business Innovation and Skills (BIS). Delegates were regulators, not a natural audience for the subject of social enterprise you may think, but an important one in my view. It was interesting that as soon as I and my fellow speaker Sara Burgess, the community interest company (CIC) regulator, had finished speaking, that was the first question. I responded that yes they should be regulated the same, I can't imagine a world where social enterprises are treated differently and still taken seriously, but then I went on to ask about the motivation for the question. A discussion ensued and it seems that many regulators, at least those there, felt under political pressure to give social enterprise an easier ride.

I have no idea how this manifests itself or indeed if it actually true, but as a perception it is worrying. I pointed out that in my experience social enterprises feel highly regulated and that they often tell me of their struggles to be trusted and understood by regulatory authorities in areas such as planning, finance and health and safety. It seems to me that in fact social enterprises are being treated exactly the same as ordinary SMEs but that when very challenging regulatory issues arise, the valuable work they do for a wide community comes to the fore, potentially turning a process-based problem into a political one.

I know from my members how hard it is to comply with all statutory requirements, not least because small businesses don't get a how-to pack only a what-you-did-wrong notice. I also know we all have to play by the rules, but as our community matures - and hearing from Sara that the numbers of CICs were up to 5,800 was great news - and the business focus of what we do becomes more widely understood, I hope any sense from regulators that we are looking for special treatment will give way to a more considered view. To be fair, many of my audience at BIS made it clear they already have a lot of time for social enterprise and in fact the regulator who asked the killer question turned out to be a keen board member of his local allotment society. So over tea, talk of health and safety quickly gave way to an animated and hilarious discussion about the politics of fox control.


  1. I agree, social enterprises that are incorporated or registered charities are already regulated. The more sinister suggestion that needs squashing is that you can only describe your organisation as a social enteperprise if it meets some legal definition. Social enterprise is a philosophy, not a science!

  2. Absolutely Robert, social enterprise is a philosophy and as such describes activity and impact rather than entity which in its own right needs underpinning with an appropriate, independently regulated company/charity form.

  3. Whilst I would agree that social enterprise represents a unique opportunity for entrepeneurs to flex some creative muscle in laying a hotbed of positive social change through trading activity, the elephant in the corner is social reporting.

    Some may argue that we have sufficient regulation in place through vehicles like the CIC model, however we still lack the clarity and absolute credibility of agencies like Companies House, not least in the wider understanding and recognition of the CIC regulator in the private sector.

    As a sector, Social Enterprise has yet to establish clear and immediate tools for measuring our social impact in universal terms. This is extremely difficult to achieve given the complexity of 'shoe-horning' human impact into numerical representation.

    Social reporting isn't just about establishing the quality of the data being submitted - it has the potential to represent a tangible and marketable value to the extended network of stakeholders and clients surrounding Social Enterprises.

    If we can get this right, it will create a universal mechanism to create commercial value and long term social impact. And so by extention, there-in lies the very essence of social enterprise.

    Its not regulation in traditional format, but Social Reporting and the extended value via accreditation that needs addressing.

  4. Agree with Robert on the definitions front entirely, but one slightly contentious comment I would add is that regulation of investors and investors motives needs to change. CC14 has shown that the Charities Commission now recognised mixed motive investing, but yet Financial Promotions Regulation doesn't. A wider financial regulatory environment that doesnt recognise that social investments are not sold simply on financial outsomes require a different, less one-size fits all approach.

  5. This is shaping up to be my favourite debate which cuts to the very heart of why social enterprise? Jonathan in agreeing with Robert and I that social enterprise is a how not a what, he also asks, are we mature enough in our development to recognise the importance of regulation that understands mixed motive investing? I think we are but those that support our growing world often do not, and because they have the money they are often hard of hearing, so we will have to shout louder.
    Finally Charlie says.. "If we can get this (social reporting) right, it will create a universal mechanism to create commercial value and long term social impact. And so by extention, there-in lies the very essence of social enterprise." Yup it will. This conversation has laid out the flags that mark the outer perimeter of the foundations for a newer, bigger social enterprise facility. A more flexible definition, shored up by regulation that holds the various and varying different models to account, social reporting that could radicalise everything from investment to the way in which Government holds itself to account and finally mixed motive investment, cool, hard and right, getting the return but making the existence of all of the above possible. There, job done, now all we have to do is make it happen.....

  6. Darling - we need to talk - twitter is not enough! Coffee? Lx

  7. For us, the constraints on nonprofits in the US to comply with IRS rules on 'Program Related Investments' was part of the argument for a cause-driven business model. Charities also have constraints on lobbying I understand, which would have prohibited some of our activism for human rights.

    Our case for social enterprise of a business form is that we comply with all rules governing companies and contribute social value in addition to normal taxation, without grant dependency.

  8. Family Affairs, coffee sounds great, had a glass of fruit juice with Julie last night, don't know if your ears were burning!? and Jeff, as ever, thanks for that contribution. Whilst I agree that delivering social value through business is our primary purpose and ensuring we are compliant to all necessary regulatory authorities is essential I am always reluctant to be critical of grant dependency as for much of what is in societies best interests to see happen, it is the grant that is the most efficient way of achieving it. The world of social enterprise is a complex one.

  9. AWESOME operate. And amazing range of resources to be effective... Really great!!