In a blog last October, we discussed the pros and cons of defining the term ‘social enterprise’. As if to promote further discussion especially, last week the Department of Health presented its own definition of social enterprise to Parliament.
The definition applies to the appointment of new Healthwatch bodies under the NHS Bodies and Local Authorities Regulations 2012 and will potentially have legal standing – a first for the social enterprise term . New Healthwatch organisations, which promote the rights of health service users, must be social enterprises following this definition.
It defines a social enterprise as:
a charity or community interest company; or an organisation which has provisions in its constitution which ensure that it:
- distributes less than 50 per cent of its profit to shareholders,
- states that it is a body carrying out activities for the benefit of the community, and;
- has clauses that require it to pass on its assets to another social enterprise if it dissolves or winds up
This is an interesting development for the sector – and arguably a necessary one to drive forward awareness and acceptance of social enterprise in our economy and culture.
However, the lack of detail surrounding point ii may be an issue. As it stands, the definition is clear about the thorny issue of profit, but ambiguous about activities carried out for the benefit of the community. What activities are we talking about exactly and in what magnitude?
If what is meant by these activities is not tightened up, the obvious concern is that organisations with a very loose sense of community benefit could be tempted to adopt the label, particularly if legislation continues to create a more positive environment for social enterprise.
Public contracts could be bid for by ‘social enterprise’ entities that are essentially subsidiaries of commercial businesses, through their retention of a controlling interest. Economies of scale for large businesses could make the 49% profit distribution worthwhile and would undermine the efforts of enterprises more closely attuned to the spirit of social benefit – in theory at least.
Beyond what’s included in the definition, it’s worth noting that references to transparency – a characteristic commonly associated with social enterprise, and one that Social Enterprise UK includes in their definition – are absent. Combined with the above point, the suggested definition could be a doorway to obfuscating activities, contractual arrangements and delivery structures that are meant to keep public interest, and benefit, at their heart.
Having said this, it’s easy to criticise. If this is a starting point, then we should cautiously welcome it and not forget that good legislation is no mean feat. All too often, progress is hampered by technical debates that bog down initiative and harm momentum.
Nonetheless, the definition discussed here needs work. The sector needs to get a better handle on what social benefit is, how much of it we want and how it is to be delivered. If legal definition of social enterprise is the way forward, we should endeavour to get it right as early as possible.