What’s in a Word? The continuing debate about what is a social/impact enterprise

Recently I posted a blog applauding the G8 Social Impact Investment Taskforce (SITF). It published reports that dramatically advanced the development of a global social economy.  However, hidden beneath the pages of well-argued text rages an interminable debate: what do we call those endeavours generating social impact?

Writers have used “social enterprise” since the 70s, and “social investment”  since the 90s.  The SITF reports contain all these terms – plus “impact entrepreneur”, “impact investment”, “social impact investment” and many tortured derivations of.  At the core of this wordplay is American discomfort with the word “social”.  I cannot explain the intensity of this aversion, but it may help explain why in 2007 the Rockefeller Foundation felt it had to devise new terms.  Ever since, resources have been wasted on this debate.

Such arguments would be amusing if we were not approaching a time when naming begins to have significance.  After the SITF launch, Chi Onwurah, the Shadow Social Enterprise Minister, announced she would create a legally binding definition of a social enterprise.  The intention is a positive one, to favour social enterprises in government contract bidding.  I suppose the thinking goes, “to favour one class of enterprise, we have to be precise about who they are”.

I find this problematic and expect numerous unintended adverse consequences, but here I challenge the very nature of the term social (or impact) enterprise as a unique thing in itself.  Over the past two decades we have had extensive debates about what the taxonomy should be based upon.  Legal form?  Geographical HQ?  Beneficiaries served?  Types of employees or employee ownership Dividend caps/asset locks?  The intentions of the entrepreneurs/investors?  On it goes … and we have debated all of these at ClearlySo.

These categorisations come in and out of favour and the latter few have been in ascendance – partly due to the growing importance of Big Society Capital (BSC), which has legal limitations proscribed in law.  It makes sense for BSC to adhere to the conditions of its charter; it does not mean the entire sector must follow.  Surely these factors should be secondary to the impact generated.

Whatever the form/structure/intention, I would argue that we should weight our judgement (or dole out tax credits and bidding preferences) towards those firms generating the greatest impact.  Society is not helped if we restrict contract winners only (for example) to CICs and charities if a Limited Company were better able to deliver the sorts of results governments desire – such as reducing reoffending rates or helping NEETs find long term employment.

I am also not sure intentions should matter in this equation.  They are nearly impossible to divine, change frequently, and may well be irrelevant.  I am happy for a business that dramatically reduces CO2 emissions, or generates low-cost renewable power to prosper are receive state benefits even if the entrepreneur is mainly interested in getting rich.  Society is better off and in certain instances, such a model might prove the most ‘socially’ impactful.

I can see the risks of such a position, and can already hear the arguments around how this will lead to the abolition of the welfare state.  This is not my intention and I am confident it would not be the outcome.  Private sector contractors like Capita are in it for profit; maximising social impact is far lower on their agenda – and the existing system is absurdly stacked in their favour.  Such changes as I am proposing would harm, not aid, them in their efforts.   Unlike the Shadow Minister, I would award all contracts on this basis – not just a few.

First published in Third Sector in September 2014.

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