Governance matters

The long-term success of social enterprise depends on establishing secure frameworks

The past few decades have seen a groundswell of initiatives, movements and networks emerge with the expressed goal of integrating social and environmental objectives into the very processes of enterprise and overall economic development. In the early 1990s there was a crystallisation around the concepts of the ‘social solidarity economy’, particularly present in Francophone and Hispanic regions of the globe, and of ‘social enterprise’ in Anglo-Saxon contexts.

Today, this expanding reality refers to a wide range of practices and legal forms of governance and ownership with diverse missions. In all cases, this approach to enterprise development questions the traditional cleavage between economic, social and ecological imperatives. While, in some cases, the ecosystems that support this shift are well integrated into the existing development model, in others, new or renewed business models form part of a more recent and broader movement to democratise the economy, responding to ecological and social transition. Examples range from the rapid growth of social enterprises in countries such as Australia and the UK, the increased recognition of the societal impact of the social and solidarity economy (SSE) – including the UN taskforce on SSE – as well as wider calls for a systems approach to addressing the root causes of socio-economic and environmental challenges worldwide.

In all cases, this context highlights the importance of governance and ownership – both within the enterprise and more broadly in economic development processes – as key determinants of the potential wider social impact of these new business models.

The social and solidarity economy

In the 1970s, the impact of neoliberal economics on deepening inequalities, poverty and social exclusion were at the root of a growing interest in new, community-driven business models. This movement gained force in the 1980s through the emergence of a diversity of initiatives, primarily territorial, to revitalise urban and rural zones. For example, in the US, the need to address the economic impacts of racism, growing poverty, social exclusion and the lack of access to affordable housing were driving forces behind the community economic development movement. In other parts of the world, the need for accessible social services (for example, childcare and homecare for a growing elderly population) and employment integration were the basis for both civil society and public service innovation.

The expression of this new entrepreneurial approach took on several forms. The social and solidarity economy emerged in Europe, some parts of North America and particularly in the global south in the 1990s. Its conceptualisation allowed stakeholders, including social movements, to create momentum by linking cooperatives, non-profit organisations,

mutuals and other forms of collective organisations and enterprises. Collective ownership and democratic governance were central to the cohesion of this movement, despite a diversity of realities and practices. Many young people were attracted to this perspective, as it offered alternatives to individualism and the drive for profit characteristic of the market economy.

The concept of social enterprise first appeared in the 1970s in the US and picked up steam in the 1990s, particularly in the UK and America. Social enterprise was rooted in intention, as a growing number of new and existing private entrepreneurs chose to integrate social or environmental objectives in the development of their business activities.

Meanwhile, the concept of corporate social responsibility, which had emerged earlier in the 1960s, took on new forms with several significant examples, such as Danone and The Body Shop. In the financial sector, the Rockefeller Foundation introduced impact investing in 2007, encompassing a wide variety of investment practices that integrated social and environmental impact into intention and expected outcomes.

Defining the boundaries

As more and more economic actors operationalised expressed social or environmental intentions in their business models, the need to define clear parameters through institutional frameworks became self-evident. At local, national and continental (in the case of the European Union) levels, new legislation and policy has been enacted to identify and support social enterprise or the social and solidarity economy. Traditional cooperative legislation has been expanded to include social cooperatives, allowing a wider diversity of stakeholders into governance structures. Associations or non-profits have taken on entrepreneurial approaches, requiring adjustments in an organisational structure that had operated primarily outside of the market.

At the same time, the need to establish clear parameters for privately owned social enterprise has been reflected in the emergence of ‘benefit corporations’, or B corps, enshrining stakeholder governance and commitment to the environment, communities, customers, suppliers and employees in law, while seeking to deliver profits for shareholders.

A contribution to economic transformation?

In many countries, the rise of this entrepreneurial movement was perceived from the outset as a means to compensate for the inadequacies of the current economic system, particularly around workforce integration for marginalised groups or the creation of services at a local level. Social movements, and particularly labour, tended to be wary of this approach, fearing its use as a means to weaken the role of universal public services. Through dialogue, both internationally and nationally, the clarification of the interdependence and complementary role of the public sector and SSE initiatives allowed for major advances on the ground and in public policy.

This landscape is rapidly evolving. The role of social and solidarity enterprises is increasingly accepted as part of a new paradigm, in which the objective of business goes beyond wealth creation to encompass social and environmental dimensions and in which a market-driven economic development model must concede its primacy to mitigate ecological and social crises worldwide.

Although this is encouraging news, it is important to recognise that the contribution of the social and solidarity economy to economic transformation cannot depend uniquely on good intentions. Based on our experience in Quebec and internationally, several key lessons provide guidance on what is necessary to ensure that it contributes to societal change in the short and long term.

Ownership and governance matter

While privately owned social enterprises are traditionally created by individuals who hope to ‘do good’ while generating financial return, collective enterprises within the SSE emerge as a response to the needs and aspirations of local communities. Numerous studies in North America and Europe have shown that these enterprises have a higher survival rate than traditional business; they are rooted in communities and are often part of a broad ecosystem of solidarity and mutual support. Though they must demonstrate economic viability, their principle motivation is to improve their capacity to respond to community needs. In this context, collective ownership is a determinant factor to assure that these businesses achieve their long-term positive societal impact.

The integration of a diversity of stakeholders in the governance of these enterprises – be they workers, service users or representatives of the community – is another strategic path to assuring benefits for the broader community. For example, the creation of social cooperatives, rooted in shared governance with community, was instrumental in the resurgence of cooperative development in nations such as Italy, Canada and Brazil. The mechanisms of collective multi-stakeholder governance are crucial to maintaining long-term commitment to the common good.

The achievement of transformative change within the economy must go beyond the creation of enterprises: the creation of ecosystems and new relationships with the state are essential. Territorial governance models involving civil society in partnership with government and other economic players, the co-construction of public policy through dynamic and institutionalised processes, and the recognition of the important role for citizen participation within the economy, are all crucial to these transformative objectives.

Today, a mainstream thinker like Harvard Business School’s Michael Porter predicts that: “The next transformation of business thinking lies in the principle of shared value: creating economic value in a way that also creates value for society by addressing its needs and challenges.” While this statement is welcome, history has taught us that tinkering with the dominant economic development model without questioning underlying principles of ownership and governance does not lead to the fundamental changes that the current social and ecological crises require. The social and solidarity movement is built upon a different vision, one that embeds the economic viability of the enterprise in societal needs and aspirations. It is no surprise that this movement continues to grow and deepen its roots in communities across the globe.

Nancy Neamtan works in the field of the social economy, community economic development and social finance. From 1996 to 2016 she was a founder and CEO of the Chantier de l’économie sociale, a Quebec-wide organisation that works to promote and develop the social economy as a component of a new development model

Marguerite Mendell is an economist and professor emeritus at Concordia University (Montreal), and a co-founder and director of the Karl Polanyi Institute of Political Economy

This article first appeared in the RSA Journal Issue 4 2022.