Social enterprise in charities

As the economic climate makes more charities look at how they operate, some are asking could they be more sustainable, and do more for their beneficiaries, if they were a social enterprise.

Becoming a social enterprise can be as much about cultural change as legal or structural.  After all, it is a cultural change within the organisation which will drive innovation in the delivery of services, with the aim of improving the value of what it offers.  Trustees need to move quickly past the common misconception that charities cannot be social enterprises. There may not be a need to set up a separate company to be one.

A social enterprise has no legal definition but could be described as, a business whose core aim is to use trading to achieve social goals.  It will reinvest at least a majority of its profits towards its objects, or for community benefit.  On this basis, a charity which trades to deliver services in direct furtherance of its objects could see itself as a social enterprise.  Indeed, a charity has an advantage over other forms of social enterprise, because its profits derived from such primary purpose trading would be exempt from corporation tax if reinvested towards its objects.

Some Boards may wish to pilot and ring fence a new social enterprise activity in a wholly owned trading company, but others may wish to fully integrate the social enterprise into the existing charity.  Where integration is the preference, here are some of the issues the Trustees will need to check:

(a) The objects may not be wide enough.  The Trustees should check that all its activities will be charitable and then seek the Charity Commission’s consent to amend the objects.

(b) A social enterprise may need a different skills set on the Board.  The Board may have not only to adopt new recruitment procedures, but first to amend its existing governing documents when this imposes restrictions on how new Trustees can be appointed.

(c) The charity should look at how it can involve users and any other stakeholders in a  two-way dialogue, to develop new services and to improve quality.  There are many ways of doing this, including stakeholder force, but if users are to be invited on to the Board, the charity should check that the governing document would not prohibit them receiving benefits as a user of the charity’s services.

(d) The Trustees may need to be prepared to accept and manage a higher level of risk in their dealings with customer, commissioners and funders.

(e) The Board will need to ensure that the values of social enterprise are shared throughout the organisation.  This can invigorate the staff who are encouraged to share and develop ideas, but it also may require training so that staff can deal robustly with funders and purchasers in negotiating and managing the delivery of contracts.

(f) A charity can charge fees for delivery of services within its objects, but if the charges for services become a significant part of its activities, the level of charges must not be so high as to fail the public benefit requirement.  If these are at a level which makes them unaffordable to many, the Trustees would need to look at other ways for those people to have the opportunity to benefit in a material way which is related to the charity’s aims.

(g) For unincorporated charities their Trustees may decide the time has come to incorporate where they have concerns about personal liability under trading contracts.