The sales of these businesses have certainly generated rich financial rewards for the entrepreneurs that founded them but have done little to further the social missions of those businesses. The argument that somehow the positive values and social intent of these companies percolates through the multinationals that bought them is nonsense akin to trickle down economics. It also ignores the fact that these social businesses were acquired for commercial reasons and for their potential to generate significant profits into the future.
Multinationals view "organic" and "ethical" companies like any market innovation or new technology that has the potential to make money. But they must achieve in line with the expectations of their new owners or face the consequences. The purchasing of MySpace by News Corp and the termination of the Flip camera by Cisco demonstrate clearly what happens if new acquisitions don't perform.
Of course, no social entrepreneur wants to see this fate befall their business. But it's hard enough for a social enterprise to guarantee the retention of its identity, purpose and focus even when the original owners are in charge. It becomes virtually impossible once its destiny is controlled by another more commercially driven entity. It would be easy to suggest that the solution is to restrict a social entrepreneur's capacity to sell their business, but it's not that simple. The government's creation of the Community Interest Company (CIC) classification in 2005 was effectively an attempt to do this, trying to ensure that the company's assets remained in the business long after its founders had departed and protecting the social mission of the company through law.
But over five years later, the number of registered CICs is a paltry 3,500, representing only about 6% of all the social enterprises that exist in the UK. There are many reasons why CICs have proved unpopular. They offer no tax benefits, are subject to increased regulation and until very recently inexplicably cost more to incorporate than regular limited companies (£35 compared to £20). The strict "asset lock" and a cap on available dividends to shareholders makes both attracting investors at the outset and selling the business in the future much more difficult.
CICs are effectively anti-entrepreneurial, placing social entrepreneurs at an unnecessary disadvantage by restricting their freedom to operate. Social entrepreneurs are not charity workers or public servants, they are entrepreneurs, taking risks, often with their own money. I've yet to meet a social entrepreneur that's "in it for the money" but neither do I know any that would voluntarily sign up to additional legal restrictions on their business. Most social entrepreneurs want to deliver social impact in parallel with a reasonable financial return and want to retain the freedom to determine when they exit their business and on terms that reflect their efforts and respect the original mission.
So what is a good model that allows the social entrepreneur to exit while protecting the mission? The recent example of the White Dog Cafe chain in the US points to a potential solution. Its founder Judy Wicks sold the business to a seasoned restaurateur with a key condition. Judy retains ownership of the brand name and licences it back to the new owner with a "social contract" that enshrines the key aspects of the company's social mission, including local purchasing, humanely raised meat and recycling. Failure to adhere to the contract would lead to a termination of the license.
This is innovative approach which could be enhanced by transferring the brand name to a not-for-profit company where Judy and number of the other original stakeholders are represented. Together they could monitor the brand's future use to ensure that it's remaining true to its social mission. Additionally, it would be good to see a percentage of any profit made directly from the sale go into a fund for reinvestment into social enterprise. That way, at least some of the profits are reinvested back into driving the social economy forward.
This "social license" solution proposed is not perfect and will certainly dissuade some buyers. But it does at least offer a social entrepreneur a way of cashing in without selling out. Continuing to motivate and incentivise top entrepreneurial talent to set up social enterprises is imperative, but as a movement we will have a challenge to innovate new ways of ensuring that the social businesses we create continue to serve the purpose for which they were intended long into the future. Just as social enterprise is shifting the paradigm of how business operates, so there will be a requirement to develop new models of ownership and new methods of sale. This will hopefully encourage social entrepreneurs to opt for exit strategies that don't necessarily maximise financial returns but do at least offer the possibility of a genuine social legacy for their business.
Source http://www.guardian.co.uk/
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