Social enterprise shows the private sector how to do it

In our latest guest blog post, co-founder of the Fair for You social enterprise, Tom Levitt, reveals why companies that behave in ways which are more transparent, ethical and sustainable are more likely to be profitable…

In December 2016 the government produced a report which concluded that there were 140,000 ‘mission-led’ businesses in Britain. This came as an agreeable surprise to many, considering that the ‘official’ figures for social enterprises and co-operatives was only half of that, a total which itself included only about 15,000 registered Community Interest Companies, overlapping with a similar number of members of Social Enterprise UK, and 100 members of the B Corps movement. That leaves 70,000 private sector businesses whose first priority is not the maximisation of profit but commitment to a social or environmental purpose. However, there are 5 million companies in Britain, two thirds of which are employers.

For someone like me, who has spent the best part of a decade arguing that we should be doing more to use the tools of business to create public good, the news that only 3 per cent of all UK businesses were led by a ‘mission’ (other than a purely financial one) was disappointing but not a surprise. The good news is that this proportion is growing.

Which means that the business case for being a responsible company citizen is, at last, being heard. There is overwhelming evidence that companies which behave in ways which are more transparent, responsible, inclusive, ethical and sustainable are more profitable than others – in the long term, over ten years or more. Creating an acronym from those five values we could say that ‘the company which tries hardest, achieves most’. Social enterprises, through their mission and purpose, acknowledge such attributes as normal.

Having the ability to look and plan forward, not restricted by the short term demands of shareholders or quarterly reporting, for example, echoes the tradition of the family business; where each generation wishes to hand over their business to the stewardship of the next in at least as good a condition as they found it. The presence of that long term horizon gives such businesses a different perspective, one in which risk management in particular is dealt with differently compared to the short term thinker, who concentrates only on tomorrow, ignoring, perhaps feeling obliged to ignore, the demands of next year.

Social enterprises epitomise ‘using the tools of business to create public good’ because their purpose is unequivocally not one of profit maximisation or shareholder value. Nevertheless, the phrase ‘not for profit’ is a misnomer and the occasionally-used ‘not for dividend’ both pedantic and often also misleading. There are only two true not-for-profits – the charity and the bankrupt. It’s what a company does with its profits, its surplus earnings, that tells you about its values and its purpose.

Within social enterprise, and to some extent within mainstream smaller businesses too, leaders’ pay differentials and gender and racial diversity are more balanced and metrics like employee engagement (which promotes productivity) are higher than in the private sector. In these respects, there’s much that business can learn from the social economy. The one challenge not yet met by social enterprise is that of scale, though HCT (formerly Hackney Community Transport) demonstrates that larger such organisations are possible. The future, I believe, of sub-sectors like elderly care will not be delivered by social enterprise giants but by co-operative networks, enabled by modern communication technology, between smaller social businesses sharing common goals and working in harmony.

The passing of the 2012 Social Value Act created new opportunities for social enterprise and many local authorities now look to social enterprise to provide services; some big businesses too have taken the values of social enterprise to heart, either through their procurement policies (the ‘Buy Social’ campaign) or learning new ways of working from them. Fujitsu, for example, insists on its suppliers demonstrating social value criteria.

My book, ‘The Company Citizen: Good for Business, Planet, Nation and Community’, is not principally about social enterprise but it is about the values that drive that sector, and which could do more to create successful businesses throughout the economy. We need those values to pervade at all levels; what’s known as the ‘private sector’ can and must learn from the experiences of social enterprises as ‘businesses for good’. Perhaps, as the figures for mission-led business may show, it’s already starting.

Tom Levitt is a writer and consultant, co-founder of the social enterprise Fair for You and author of The Company Citizen.