Some challenges in social enterprise governance

Citation

Mason, C. (2010), "Some challenges in social enterprise governance", Social Enterprise Journal, Vol. 6 No. 2. https://doi.org/10.1108/sej.2010.37306baa.001

Some challenges in social enterprise governance

Article Type: Guest editorial From: Social Enterprise Journal, Volume 6, Issue 2

This special edition of the Social Enterprise Journal provides five interesting contributions to the social enterprise governance literature. Specifically, the authors are concerned with issues including the role of effective governance models, the impact of values and stakeholder engagement in governance, and the importance attached to more enterprising strategies fostered at board level. Furthermore, each of the papers in this issue is rooted in a different cultural context from which the highlighted governance issues should be judged. This highlights the global appeal not only of social entrepreneurship but also of governance research, and I outline some of the challenges encountered by practitioners, researchers and policy makers below.

Social enterprises maintain an important place in contemporary social, environmental and economic discourse. Indeed, many national governments are looking to all third sector organisations to play a role in recovery from the global financial tumult. Whether this is realistic diverts from the plain fact that many national governments are waking up to, or finally taking seriously the potential of public sector-social enterprise (as well as corporate) partnerships. Therefore, it is unsurprising that practitioners and academics, as well as policy makers, seek to create the conditions within which social enterprises can meet present challenges, and try to insulate against those in the future where possible.

In terms of social enterprise governance, there are several themes that occur in practice and subsequently appear investigated in academic literature. Some of the causes of these challenges derive from the political/legislative environment within which social enterprises exist and operate. For example, the creation of specific policies for social enterprises (as supposedly distinctive from other TSOs, i.e. the Department of Health in the UK – a debate I shall not be delving into in this editorial) marks them clearly as partners in Government and central to eroding barriers to social inclusion. This puts the boards of social enterprises serving in public markets in a fiduciary quandary – whose interests shall prevail? Social enterprise-corporate collaborations add another layer of vested interests to the “in whose interest do we serve?” debate, itself the subject of recent academic work (Di Domenico et al., 2009). The expansion of social enterprise into new terrains feasibly brings as many board-level management difficulties as it does potential income streams. Of course, this also brings to mind the broader issue of the locus of control over macro-level discourses, thereby indicating which groups have the most say over how a discourse with multiple participants and beneficiaries is shaped (Van Dijk, 2006). Do social enterprises risk ceding their independence by aligning closely with government/corporate interests? Prior academic writings on third sector organisations are equivocal on this matter (for this debate in the United Kingdom, see Carmel and Harlock, 2008; Kendall, 2000; Taylor and Bassi, 1998; Taylor and Warburton, 2003). Furthermore, the work of international support organisations (such as Ashoka) specifically targets raising the profile of social enterprises at government level as a key objective, so closer engagement in such markets appears inevitable if global growth of the social enterprise movement is to continue.

So how can social enterprises be helped to create and manage sustainable social benefit? In the UK, the development of specific legal forms to assist in initial start-up, a “light-touch” regulator and the protection of key stakeholders are deemed responses to this need, but are generally greeted with varied levels uptake by practitioners. This brings to light some key research problems: first, is “effective” governance a necessary aspect to the “maximisation of social benefit”. If this is true, which I am not easily suggesting, how and to what extent does a social enterprise legal form contribute to better governance? The central assumption behind the legal reform of social enterprises is often that board governance can be enhanced by appropriate legal choice. However, whether this helps social enterprise boards in managing a way around or through current issues is not clearly known. Furthermore, given the considerable attention afforded to transparency and accountability in corporate governance research, it would be valuable to understand quite how social enterprises manage fiduciary responsibilities to achieve accountability via transparent governance mechanisms. Therefore, it is evident that day-to-day management of social enterprises offer greater obstacles to surmount. While I acknowledge that governmental interest in social enterprise is a key driver to sector growth, the apparent dichotomy between social/enterprise presents numerous ideological challenges for boards of directors. Most boards of directors (or indeed trustees) in social enterprises are volunteers, with a significant personal interest in the social outcomes the organisation strives to produce. Potentially, social enterprise boards would be enhanced by the presence of “professional” board members, that is, individuals with either past or current functional expertise (say financial accounting or marketing). By working with social enterprise boards, these professional skills and knowledge can (perhaps) be transferred and effective operational strategies developed and put into place. However, many are those who understand the very real difficulties inherent in attempting board member recruitment of this kind, as well as securing the financial resources to invest in such development. So, should the board accept as a necessary risk the dilution the organisation’s social orientation in favour of developing their entrepreneurial capabilities? To reiterate the earlier point, to what extent can we make social progress while promoting transparency to ensure accountability to our most important stakeholder groups?

The papers included in this special edition do, to an extent, tackle this and many other key research problems concerning social enterprise governance. The majority of the papers combine theoretical contributions with empirically-based investigations, and it is pleasing that there is a significant international dimension to the contributions. The first paper in this issue presents an empirical study of North American social purpose organisations by Monica C. Diochon. In her work, the author uses a case study approach to explore the role of the board of directors in facilitating an enterprising approach to social business. Of the many interesting findings, we note the presence of empirical support for the board as a facilitator for change. This is through the enactment of robust fiduciary roles, as well as “leveraging social capital” and inculcating an entrepreneurial culture. To a degree, this addresses the governance issue of director roles, which for many small to medium sized social enterprises creates significant inter-organisational tensions (certainly between management and the board), where available resources for board development are often scarce. Inferred in the paper is the need to reflect, again, on the significance of enterprise to social enterprise legitimacy. Dart (2004) made a convincing case and prediction regarding the acquisition of legitimacy in social enterprises, focussing on the typically pro-business social enterprise prevalent in North America. This is not critical judgement on my part – in fact there are plentiful examples of successfully enterprising social enterprises around the world. Baring in mind the noted cultural differences in social enterprise practice that predominate between cultures perhaps the gradual shift to enterprise-dominant models will be culturally bounded, and pragmatic responses to the demands of organisations and their markets.

In the second paper, Benjamin Huybrechts explains his study of fair trade social enterprises, and considers the application of three different governance models to these organisations. Subsequently we are prompted to consider the role of governance models as a method of bringing together multiple interests in a coherent way. Social enterprise governance models tend to be undermined by the difficult task of reconciling a range of social and economic interests, and this paper offers an insight into how some organisations manage this process differently, embedding their approaches into a social enterprise strategy. This is an interesting contribution to the existing literature, and as the author suggests it provides the basis for further comparative studies. Hopefully, this paper will provide the impetus for other work which compares and contrasts the contemporary and dynamic operating challenges for fair trade organisations.

Our third paper addresses the institutionalisation of governance from a novel perspective. Building on previous theoretical work, Rory Ridley-Duff presents an empirically grounded analysis of communitarian governance structures, based on two case studies. In so doing, the author brings to the fore the Mondragon worker cooperative, an organisation of continuing interest to researchers (previous theoretical work includes Lutz (1997)). One of the major findings in Ridley-Duff’s work, that norms of governance practice supersede language commonalities, persuasively argues for recognition of the power of (social) values in governance structures. As I have suggested previously (Mason, 2009), one great strength of social enterprises is the presence of a specific, shared social values system which should mark them apart from other organisations. Although I would not describe this as a “unique selling proposition” for the social enterprise model, the author certainly makes a convincing statement for social entrepreneurs to recognise this specific value of their organisations. The paper suggests there are ways for social enterprises to develop structures to complement these values, offering a distinctive model for successful board-level leadership.

The fourth paper reported in the special issue builds on this general point and comprises a case study of indigenous, contextualised governance. Joanna Overall MCom and her colleagues explain the presence of a specific cultural form of social enterprise governance in Maori Maps, to encourage other indigenous groups to develop innovative, appropriate governance structures. Given the diverse “world” of social enterprise, it is apt that more groups (especially small start-up social enterprises) should be supported in developing unique social enterprise governance structures that match the prevailing sociocultural norms. This would be in tandem with legal/regulatory rules but adds an element of regional “flavour” to the process of governance socially-oriented businesses.

The final contribution moves the topic on from small, indigenous social enterprises to focus on some of the largest organisations, i.e. Japanese cooperatives. Social enterprise in Japan is a growing area of interest for academics and relatively little is known about the movement there beyond the few English language book chapters and papers (Atoda et al., 1998; Kawashima, 2000; Suda, 2006). The paper developed by two Japan-based academics, Sachiko Nakagawa and Rosario Laratta, goes some way to rectifying this by offering an investigative overview of Japanese cooperative banks. These institutions are highly influential for social investment in Japan, where social issues such as the growing number of older people require immediate attention from social policy makers. While the Japanese Government has enacted some legislative reforms to encourage sector development and growth, it has fallen to institutions such as those reported by Nakagawa and Laratta to promote the benefits of a diverse civil society movement. The key impact of their comparison of two cooperative banks was that the most successful bank in terms of civic engagement had a much stronger social enterprise presence at board level. Specifically, increasing the effectiveness of cooperative banks as “community organisers” is best achieved through dialogue and contributions from the local community.

As a final thought, I was impressed by the number and quality of the qualitative research methodologies adopted in the papers submitted for consideration in the special issue. So much prior work on governance has been quantitative which cannot always capture the importance of social values in social enterprises (a recent paper of my own published in this journal springs to mind). The unique qualities of qualitative approaches in capturing “values and voices” seems to have been harnessed in this issue, especially as many academics are concerned with identities and meanings in social entrepreneurship (Seanor and Meaton, 2007). Long may this trend continue.

I would like to extend my sincere thanks to numerous academic colleagues for their contributions and support in putting this special edition together: Chris Cornforth, Tim Curtis, Monica Diochon, Bob Doherty, Jon Griffith, Benjamin Huybrechts, Rosario Laratta, Mark Lutz, Sachiko Nakagawa, Joanna Overall, Rory Ridley-Duff, John Simmons, Roger Spear, Peter Tapsell and Christine Woods.

Chris MasonGuest Editor