The Social Enterprise Mark:a critical review of its conceptual

dimensionsRory Ridley-Duff

Sheffield Business School, Sheffield Hallam University, Sheffield, UK, and

Cliff SouthcombeSocial Enterprise Europe Ltd, Robin Hood’s Bay, UK

Abstract

Purpose – The Social Enterprise Mark (SEM) is claimed to be the first award that guarantees to thepublic that an organisation is a social enterprise. To date, there has been limited discussion of itsconceptual dimensions and legitimacy. This paper seeks to make a contribution to knowledge bycritically discussing its conceptual dimensions and exploring its impact.

Design/methodology/approach – This exploratory study uses feedback from participants on openaccess co-operative and social enterprise workshops. They were asked to study published SEM criteriathen rank ideal types of social enterprise activity (a worker co-operative, a trading charity and aself-employed consultant) in order of likelihood of obtaining the SEM.

Findings – Workshop participants from different backgrounds drew the conclusion that SEMcriteria favour trading charities and community interest companies with social and environmentalobjects, not enterprises that deliver social benefits through transforming labour relations and wealthsharing. Participants reacted to their own deliberations differently depending on their sectoralaffiliation.

Practical implications – Attempts by the academic community to define the social enterprisesector have run into linguistic and practical problems. Definitions tend to privilege one group of socialenterprises over another. The arrival of the SEM in the UK takes place amidst these conceptual andpractical difficulties.

Social implications – The SEM criteria contribute to social constructions of social enterprise thatfavour “social purpose” enterprises that explicitly target a beneficiary group or community, and not“socialised” enterprises that transform labour relations, promote participative democracy, and designnew wealth sharing arrangements.

Originality/value – The paper suggests there has been a shift away from the co-operative valuesadvanced by the founders of the UK social enterprise movement. To secure legitimacy, the paperproposes changes to the SEM to re-establish the conceptual alignment of social enterprise and thesocial economy.

Keywords Co-operatives, Social enterprise, Mutuality, Philanthropy, Social economy,Co-operative organizations, Social economics

Paper type Research paper

The current issue and full text archive of this journal is available at

www.emeraldinsight.com/1750-8614.htm

The authors would like to thank the participants who attended the workshops for their insightsand deliberations. This article has been improved with considerable input from reviewers andparticipants at the International Social Innovation Research Conference, and later at the Institutefor Small Business and Entrepreneurship Conference. The authors would also like to thank theSEJ reviewers for their helpful and considered feedback. Lastly, a special thank you is due toProfessor Susanne Tietze who reviewed early drafts and helped the authors navigate the politicalminefield that detonated during the writing of this article.

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Social Enterprise JournalVol. 8 No. 3, 2012pp. 178-200q Emerald Group Publishing Limited1750-8614DOI 10.1108/17508611211280746

IntroductionSocial enterprise has emerged as a new way to describe organisational forms andentrepreneurial approaches that prioritise social innovation and responsibility tosociety. As the concept has developed, repeated attempts to define this new sector havebeen plagued by linguistic and practical problems. Any fixed definition tends toprivilege one group of social enterprises over another (Lyon and Sepulveda, 2009; Dartet al., 2010), contributing to a dissensus about the contribution of co-operatives,employee-owned enterprises and public sector spin outs to social enterprisedevelopment (Ridley-Duff and Bull, 2011).

The arrival of the Social Enterprise Mark (SEM) in the UK takes place amidst theseconceptual and practical difficulties. The purpose of the SEM, according to the CEO ofthe company promoting it[1], is to defend the social enterprise “brand” fromgovernment-funded bodies and voluntary sector organisations that are neitherautonomous from the state, nor pursuing their social objects through trading (Finlay,2010, 2011). Another argument for the SEM is to prevent private corporations claimingthey are social enterprises on the basis of their PR and community-support activities. Itis, therefore, timely to engage in an analysis of its conceptual dimensions and considerthe implications should its legitimacy grow (Allan, 2005).

The motivation for writing this paper comes from a series of private conversationsin the social enterprise research community, and workshops at three co-operative andsocial enterprise courses[2], on the impact of applying the SEM criteria to differenttypes of social economy trading. As applicants have to provide evidence that they meetsix criteria before they achieve recognition, the SEM represents an attempt to create anindustry standard for social enterprise. To date, the attitude in the academiccommunity to a normalising framework has been one of ambivalence on the basis thatit would decrease innovation and devalue the contribution of social enterprises that donot fit neatly into standardised criteria (see Spear et al., 2007; Curtis, 2008).

Kincheloe and McClaren (1994) emphasise how the use of critical theory canrebalance accounts of a phenomenon so that hidden discourses can be brought to thesurface and dominant discourses can be re-evaluated. The authors will show how SEMcriteria produce a particular social construction of social enterprise that marginalisesassumptions important to its early development. Foregrounding these assumptionsthrough use of a learning activity allows discussion of the “distorted communication”that arises when powerful actors seek to establish hegemonic control over a field ofpractice (Habermas, 1984). The theoretical perspective of the paper, therefore, is similarto Curtis (2008) in that the application of critical theory is regarded as a useful strategyto prevent executive capture of the definition of social enterprise and promote criticalthinking in its conceptualisation.

This paper is divided into five sections. In the first, the authors draw attention toevidence on the origins of social enterprise in the UK to distinguish between the“socialisation of enterprise” (mutuality) and the “pursuit of social purposes throughenterprise” (philanthropy). Having made the theoretical connection to previous workdefining the social economy (Ellerman, 1984, 1990; Hirst, 1994; Defourny and Delvetere,1999, 2003; Arthur et al., 2003; Smith and Teasdale, 2012), the authors explore recentshifts in the conceptualisation of social enterprise using the SEM as an example. Theseshifts, it will be argued, are linked to the involvement of public, voluntary and

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charitable sector agencies in the consultations for a community interest company (CIC)and on-going reforms of public services.

The second section sets out the methodology used to explore the influence of SEMcriteria on the social construction of social enterprise. The third section presents thefindings from three groups of part-time students engaged in social enterprisedevelopment. Based on these, we argue that SEM criteria positively influenceperceptions of trading charities and not-for-profit organisations, but negativelyinfluence perceptions of worker co-operatives and employee-owned businesses. In thediscussion and conclusions, we explore this apparent contradiction and review howdifferent groups reacted to their own findings.

Rediscovering socialised enterprisesIt is helpful to distinguish between the member orientation of the co-operative andemployee-ownership movements and the beneficiary orientation of charities,non-governmental and non-profit organisations (Borzaga and Defourny, 2001; Kerlin,2010). The former emphasise: open membership schemes; changes in the role of sharecapital; one-person, one-vote systems for the election of governing body members, and;trading models that democratise control of capital (Beaubien, 2011). The latter, on theother hand, emphasise: legal models that do not issue share capital; non-profit andcharitable company governance that limit employee and beneficiary involvement, andphilanthropic sources of capital (Ridley-Duff and Bull, 2011).

While some academics frame social enterprise in terms of non-profit characteristics(see Haugh, 2005; Domenico et al., 2009; London and Morfopoulos, 2010), earlytheorisations of “social” in both social entrepreneurship and social enterprise owe adebt to Ellerman[3] (Ellerman, 1984, 1990) who has contributed for over 30 years toacademic and practitioner debates on workplace democracy and internationaldevelopment. He argued that entrepreneurship had been “socialised” in the Mondragonnetwork of co-operatives, then put forward a theory of social institutions based on theacquisition of citizen rights to capital and participation in governance. Firstly, heargued that social institutions adopt arrangements in which the people governed bythem have the capacity to influence both the governance system and the selection ofgoverning body members. This perspective on a “social economy” stems from anargument that worker co-operatives and employee-owned firms are “social” rather than“private” enterprises. As Arthur et al. (2003, p. 181) claim:

For an enterprise to be identified as forming part of the social economy, it must be locallybased and owned with a significant part of its value owned by its own employees.

Ellerman, however, went further by arguing that master-slave norms of employmentwould need to be replaced by forms of voluntary association and partnership working.This perspective was emphasized in early arguments for “associative democracy” inpublic service provision and transformation of the private sector (Hirst, 1994). This, inturn, influenced early social enterprise policy development and definitional debates inthe UK and EU that accepted Defourny and Delveterre’s (1999) argument that thesocial economy comprises autonomous associations of people who use democraticapproaches to ownership, governance and wealth sharing (Westall, 2001; Borzaga andDefourny, 2001; Ridley-Duff, 2008).

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Turnbull (1994, 1995, 2002), in supporting Ellerman’s perspective, considers thenature of other stakeholder relationships. He argues that suppliers can deliberately(and legally) diversify their customer base. Customers can (legally) shop around.Producers, however, have limited scope to do the same if they agree to an employmentcontract. Unlike a supplier who has legal support to organise their business so they cansell to anyone who wants to buy from them (and to purchase from any supplier whosegoods they can afford to buy), employment contracts typically prevent employees fromworking for anyone else without first seeking their employer’s permission.Employment law also permits the disciplining or sacking of employees who are not“loyal” to their employer (Erdal, 2011). The result is a governance system that impactson producers in fundamentally different ways to other stakeholders (Turnbull, 2002).

The lack of influence that members of the governing body have over the daily livesof customers, suppliers and financiers means that these groups are not governed by theenterprise in a meaningful sense. Their formal inclusion in governance, while helpful tothe balancing of multi-stakeholder interests, is not sufficient to claim that an enterpriseis “social” (Ridley-Duff, 2007). Nevertheless, Arthur et al. (2003) argues that mutualprinciples in ownership, control and financing invite all primary stakeholders(producers, customers, employees and service users) to participate in the ownershipand control of the enterprises on which they depend:

[. . .] it is most easily explained by reference to credit unions, which are required to have a“common bond” in order to achieve legal status. This common bond relates to the existence ofa common identity where the nature of social relationships stems from reciprocalinterdependence typical of traditional community relationships (Arthur et al., 2003, p. 183).

Arthur et al. (2003), therefore, extend the argument made by Ellerman to “users” oforganisations who are heavily dependent on the goods and services provided by them,by arguing that they also have a common bond. As Monzon and Chaves (2008)describe, the EU now accepts national accounting frameworks that give recognition toboth market and non-market production in the social economy. Where co-operatives,charities and voluntary organisations provide goods and services that no-one else willsupply, user and worker involvement in governing bodies can be seen as apre-requisite for recognition as part of the social economy (Smith and Teasdale, 2012).

The “reciprocal interdependence” and mutual care implicit in mutuality can bedistinguished from the charity implicit in philanthropy. Mutuality implies abi-directional or network relationship in which parties to an enterprise help, supportand supervise each other (Turnbull, 2002; Parnell, 2011). This is qualitatively differentfrom the uni-directional relationship between a philanthropist (or trustees) and theirbeneficiaries. While charity can be present in mutual relations, it is framed in law andpractice as a financial and managerial one-way relationship in which one party(trustee) gives/directs while the other (beneficiary) receives/obeys (Coule, 2008;Ridley-Duff and Bull, 2011). This asymmetry in obligations (i.e. the lack of “reciprocalinterdependence”) distinguishes mutuality from charity.

For the purposes of this paper, the authors recognise a distinction between asocialisation perspective on social enterprise based on advocacy of mutualism inworker co-operatives, employee-ownership and other societies and associations in thesocial economy (see Westall, 2001; Ridley-Duff, 2008; Teasdale, 2012) and a socialpurpose perspective that pervades social entrepreneurship and non-profit management(see Dees, 1998; Hudson, 2002; Martin and Osberg, 2007; Scofield, 2011). The social

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purpose perspective emphasises the philanthropic impulse of the social entrepreneur,and the social goals of their enterprise (see Chell, 2007; Galera and Borzaga, 2009). Inthe following discussion, we elaborate the concepts of “socialisation” and “socialpurpose” using both practitioner and academic definitions of social enterprise.

Early development of social enterprise in the UK and EUTo illustrate the gradual diversification of perspectives on social enterprise, theauthors now explore the way early practitioners attempted to balance the philanthropicimpulse of US/UK ideas on social entrepreneurship with the more commercial andmutual orientation of the EU’s social economy (Kerlin, 2006, 2010). The earliest knownformulation of social enterprise ideas in the UK came from a 1970s initiative to developa social audit framework for worker co-operatives at Beechwood College (Leeds, WestYorkshire). In the first social audit toolkit, it is claimed that:

An enterprise that is owned by those who work in it and/or reside in a given locality, isgoverned by registered social as well as commercial aims and objectives and runco-operatively may be termed a social enterprise. Traditionally capital hires labour withoverriding emphasis on making a profit over and above any benefit either to the businessitself or the workforce. Contrasted to this the social enterprise is where labour hires capitalwith the emphasis on social, environmental and financial benefit (Spreckley, 1981, p. 3).

Apparent in this definition are five concepts: worker and/or community ownership of theenterprise; social and commercial aims; co-operative management; social, environmentaland financial benefits; and the subordination of capital to the interests of labour. Theseideas were spread through community enterprise movements in Scotland and the NorthEngland (Pearce, 2003). The language stabilised around 1994 at a conference ofco-operative and community business activists (Southcombe, 2009; Spreckley, 2011)where the following definition was adopted by the social enterprise partnership (SEP)[4]:

. Being bound to a set of beneficiaries or community.

. Having a democratic structure.

. Having common and shared values.

. Being open and accountable.

. Concerned with empowering members.

. Using and developing volunteers.

. Offering workers ownership.

. Creating social wealth.

. Having an emphasis on co-operation and networking (Social Enterprise Europe,2011).

These practitioner-based definitions are strikingly similar to early empirical researchby the EMES network (Borzaga and Defourny, 2001). Between 1996-1999, 13 Europeanresearch centres concluded that social enterprises can be described using the followingcriteria:

(1) Social dimensions:. An explicit aim to benefit the community.. An initiative launched by a group of citizens.

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. A decision-making power not based on capital ownership.

. A participatory nature, which involves the persons affected by the activity.

. Limited profit distribution.

(2) Economic dimensions:. A continuous activity producing goods and/or selling services.. A high degree of autonomy.. A significant level of economic risk.. A minimum amount of paid work (i.e. at least some labour is compensated)

(Defourny, 2001).

These attempts at definition help to flesh out aspects that contribute towardssocialisation and social purposes. Table I shows the authors attempt to make sense ofdefinitions in terms of: socialisation of enterprise through granting public/social rightsto primary stakeholders so they become owners and controllers of (financial, social andhuman) capital; and public/community benefits through activities that have a socialpurpose. In contrast to the socialised co-operative model (see Table I), the authorsfound that early definitions of social enterprise attempt to balance “socialisation” and“social purpose” without abandoning the link to the social economy (Monzon andChaves, 2008; Smith and Teasdale, 2012).

The conceptual balance between socialisation and social purpose was maintainedwhen Social Enterprise London (SEL) formed in 1998. SEL’s memorandum and articlesprovide further clues to the context, motives and values amongst founders of earlysocial enterprise development agencies. Figure 1 shows the company objects (SEL,1998a, b).

In Figure 1, the influence of the co-operative movement and New Labour is evident,and terminology remains linked to the goal of socialisation (e.g. participatorydemocracy, co-operatives, co-operative solutions). This reflects the orientation of theco-operative development agencies and worker co-operatives that collaborated in itscreation (see Appendix). The inclusion of objects regarding “equal opportunity” and“social justice” are characteristically Blairite and “third way” (Haugh and Kitson,2007).

From 1995 onwards, US perspectives on social entrepreneurship developed by theASHOKA foundation (i.e. the creation of a large network of visionary socialentrepreneurs), started to surface in European debates (see Leadbeater, 1997;Ridley-Duff and Bull, 2011). Social entrepreneurship networks and regional supportagencies started to form in the late 1990s, and accelerated after the incorporation of theSocial Enterprise Coalition in 2002. In the context of the SEM, the incorporation ofRISE in March 2003, a social enterprise support agency for the South West of England,is particularly relevant. Interestingly, and perhaps significantly, the memorandum andarticles of both the Social Enterprise Coalition and RISE contain simpler statements ofsupport for social enterprise with no mention of co-operative values or participatorydemocracy. The Social Enterprise Coalition (registered in April 2002) lists only fourobjects (Social Enterprise Coalition, 2002):

(1) To promote the principles and values of the social enterprise economy.

(2) To promote social enterprise solutions.

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(3) To promote social enterprises.

(4) To promote regional access to resources for social enterprises throughout theUK.

When RISE was registered in March 2003, there was just one (RISE, 2003): to supportdevelopment of the social enterprise sector in the South West of England.

The connection of both SEC and RISE to the co-operative movement is maintainedthrough model rules created by ICOM (Industrial Common Ownership Movement),registered by Julie Woodfine at the Co-operative Union[5]. However, it is noteworthythat this move to vagueness regarding objects, values and principles coincides withconsultations on a community interest company (CIC) throughout 2003. As a result, the

Characteristic SocialisationSocial

purpose

Co-operative Enterprise (based on the International Co-operative Alliance definition in force during the1970s)Open, voluntary membership £Democratic governance £Limited return on equity £Surplus belongs to members £Education of members and public in co-operative principles £ £Cooperation between co-operatives £

Social Audit Toolkit (Spreckley, 1981)Worker and/or community ownership £Social and commercial aims £Co-operative management £Social, environmental and financial benefit £The hiring of capital by labour £

Social Enterprise Partnership (1994)Being bound to a set of beneficiaries or community £ £Having a democratic structure £Having common and shared values £ £Being open and accountable £Concerned with empowering members £ £Using and developing volunteers £ £Offering workers ownership £Creating social wealth £Emphasis on co-operation and networking £

EMES Research (1996-1999)An explicit aim to benefit the community £An initiative launched by a group of citizens £A decision-making power not based on capital ownership £A participatory nature, which involves the persons affected by the activity £Limited profit distribution £Producing goods and/or selling services £A high degree of autonomy £A significant level of economic risk £ £Minimum amount of paid work £

Table I.Theorising “social” inearly theories of socialenterprise

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government decided to jettison stakeholder democracy as a statutory requirement, andinstead introduce a statutory not-for-profit clause to prevent the transfer of residualassets from a CIC to private individuals upon dissolution (DTI, 2003; Ridley-Duff andBull, 2011).

The Social Enterprise MarkRISE’s thinking developed during a pilot study in which it consulted a wide range oforganisations (including representatives from the co-operative movement) to establishcriteria that would communicate the value of social enterprise to consumers and thewider community (Finlay, 2011). The SEM was launched nationally in 2010 with anattractive discount for early adopters (£99). From 2012, the annual fees increased tobetween £350 and £4,500 (depending on the annual income of the social enterprise).The Social Enterprise Mark Company (2011) listed approximately 450 SEM holders bySeptember 2011.

In the pilot programme (RISE, 2009), the statement of criteria cites two key bases ofevidence:

In order to be eligible for the Social Enterprise Mark, applicants must demonstrate that theyare a social enterprise whose key driver is trading and that they operate for widersocial/environmental benefit. Applicants will need to provide evidence in two key areas:

(1) Show through their constitution that a sufficient proportion of the profit made by thebusiness is spent on socially beneficial purposes, and that, on dissolution of the business,all residual assets are distributed for socially beneficial purposes.

(2) Show by their activities and their accounts that trading is a key driver and that profitgenerated is used for social or community benefit – whether by the social enterpriseitself or by another agency (RISE, 2009, p. 1).

Table II contains a summary of the six main criteria. In these, there has been adiscernable change of emphasis in the conceptualisation of social enterprise. Whilesome care has been taken not to exclude socialised enterprises unnecessarily – throughthe preservation of arrangements that allow the distribution of profits to members –the characteristics of socialised enterprises are no longer explicitly valued orevidenced. A number of characteristics from earlier definitions are absent: ownershipby the community or workforce is not a requirement; co-operative management and/or

Figure 1.Memorandum of

Association, SocialEnterprise London

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networking is no longer expected; there is no requirement to assess or report onworkforce and stakeholder democracy. Characteristics have also been added. There isnow an explicit requirement for a not-for-profit dissolution clause, and an expectationthat trading provides over 50 per cent income.

Even though guidance states that the SEM is not limited to specific legal forms, therequirement of a not-for-profit dissolution clause narrows the eligibility criteria. In theUK, only community interest companies, community benefit societies, credit unionsand charities are required by statute to have not-for-profit dissolution clauses in theirarticles of association. Other forms of social enterprise, in particular (worker)co-operatives, employee-owned businesses and wealth sharing social enterprises basedon a limited liability partnership, public limited company or company limited byshares, will find it harder to achieve recognition (see chapter 7, Ridley-Duff and Bull,2011).

With these issues in mind, the authors framed the following research question toguide the writing of this paper:

RQ1. Do the criteria of the Social Enterprise Mark provide an effective frameworkfor evaluating an enterprise’s claim to be social?

MethodologyResearch in the tradition of critical theory aims to have a transformative effect, ratherthan meet positivistic standards of generalisability, validity and reliability (Alvessonand Deetz, 2000). It proceeds from the assumption that participants can collectivelydeconstruct and evaluate dominant discourses by exploring the power relations andinterests that have influenced their development. In this study, therefore, theevaluation criteria of Kincheloe and McClaren (1994) are adopted and the authors makeexplicit how they are being applied:

Based on 2008 pilot project Based on voice 2010 launch

Be an eligible legal form (not a sole trader, not apartnership or traditional profit-distributingcompany, probably not a co-owed [employee-owned] company or limited liability partnership)Adhere to shareholder restrictions (only haveshareholders that “constitute a communitybenefit” or apply the dividend cap set out in theCommunity Interest Company legislation)Have own constitution and governing bodyProfit predominately used/distributed for social/environmental purposes (including residualassets)Have 50 per cent or more income from trading,and have traded for at least one yearEvidence that social/environmental objects arebeing achieved

Social and environmental objects can beevidenced in constitutional documentsMust be an “independent business”, legallyconstituted, with autonomous governanceMust earn 50 per cent or more from trading,evidenced using “standard accounting practices”Devote 50 per cent or more of the organisation’sprofits to “social/environmental purposes”Ensure that all residual assets are distributed for“social/environmental purposes” (if dissolved)Can demonstrate that social/environmentalobjects are being achieved

Table II.The conceptualdimensions of the SocialEnterprise Mark

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. Reflexive interrogation. Make research participants (including the researchers)more aware of limitations in knowledge about the SEM.

. Sensitisation. Enable research participants to understand the potentialhegemonic effects of the SEM and how this will influence notions of “true”social enterprise.

. Democratisation. Enable those affected by the SEM to explore why the definitionhas been constructed in a particular way.

. Accommodation. Introduce alternative perspectives so participants can evaluatethe legitimacy of the SEM and its constituent assumptions.

. Evaluation. Review how participants’ perspectives on the SEM have beenchanged by the research.

These research commitments were operationalised by designing a learning activitythat invited participants to study the criteria in Table 2, together with the guidancepublished by RISE/The SEM Company, and apply them to different types of socialeconomy trading. The activity was undertaken by three groups of students who werelearning about co-operative and social enterprises (total sample 42 participants).

The first group of participants comprised 16 people on a 2-day taught course. Themajority of this group were co-operative and social enterprise practitioners working tosupport or establish co-operatives and social enterprises. It included people from theCo-operative Group, Co-operative Party, Co-operatives Yorkshire and Humber andvarious community interest companies as well as academics establishing socialenterprise courses, and students undertaking dissertations in social entrepreneurship.The second group (also comprising 16 participants) was drawn primarily from thepublic sector. It included 14 people employed by a local authority controlled housingassociation supporting the creation of tenant-led social enterprises. The third groupcomprised ten senior managers/trustees in registered charities. Participants in thesecond and third groups were less familiar than the first group with the history anddevelopment of social enterprise.

Whilst opportunity samples run the risk of producing only a subset of perspectives,the diverse composition of the groups mitigated this danger. The selected groupsenable the researchers to explore how the SEM criteria influence differentconstituencies. The reaction of participants, if consistent across the groups, providesan authentic indication of the way the SEM influences the social construction of socialenterprise.

Participants were asked to study the SEM criteria then consider the followingquestions:

(1) “Would a democratically owned and controlled enterprise in which theworkforce decides for itself how to distribute its own surpluses (on aone-person, one vote basis) be eligible for the social enterprise mark?” (Case 1: asocialised enterprise).

(2) “Would a trading charity with a range of social and environmental projects, butin which members of the workforce are not permitted to participate ingovernance or strategic decision-making, be eligible for the social enterprisemark?” (Case 2: a social purpose enterprise).

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(3) “Would a sole trader making their living entirely from providing advice andguidance to social enterprises at below market rates be eligible for recognition?”(Case 3: commercial activity in support of social enterprises).

These examples represent extremes where the former emphasises mutual principlesand producer control without philanthropy, and the latter emphasises philanthropyand social outcomes without mutuality. Participants ranked the examples in order oftheir perceived eligibility for the SEM. The findings are not treated as “objective truth”but as “socially constructed truths” that emerge when the SEM criteria are studied andapplied to practice in conditions that seek to re-create an “ideal speech” situation( Johnson and Duberley, 2000).

In the first two groups, responses were written on a white board for groupdiscussion. The results puzzled the authors so the learning activity was modified tointerpret the impact of the researchers. Group 3 participants were divided into pairsand asked to write down their rankings on paper before reporting them to the widergroup. This strategy established whether the results from the first two groups wereplausible and confirmable without researcher input (Lincoln and Guba, 1986). Itconfirmed that insights were trustworthy and an authentic account of the likely impactof SEM criteria on the social construction of social enterprise. The learning activitysensitised the authors to the discursive and normative effects of the SEM as well aslikely reactions amongst different constituencies.

FindingsTable III presents the rankings of participants in each group. All groups, overall, putthe trading charity (case 2) ahead of the worker co-operative (case 1), and the workerco-operative ahead of the sole trader (case 3). Almost all participants felt that theworker co-operative (case 1) would need to add a not-for-profit dissolution clause andidentify an external beneficiary before being eligible for the SEM. The authors foundthat all groups were consistent in this view, irrespective of the economic sector inwhich they worked. The rankings provided by groups 1 and 2 were the product offacilitated discussions. In group 3, pairs of people were asked to declare their rankingsbefore facilitated discussions. These findings add weight to the conclusions of the firsttwo groups by confirming that socially constructed understandings were not a productof the way group discussions were facilitated (Lincoln and Guba, 1986).

Participants in the first workshop, who had much more experience of establishingand running social enterprises, objected strongly (angrily) to the way the criteria would

After group discussionbefore group discussion Case 1 (socialisation) Case 2 (social purpose) Case 3 (support for 1 and 2)

Group 1 2 1 3Group 2 2 1 3Group 3 – Pair 1 1 = 1 = 3Group 3 – Pair 2 2 1 3Group 3 – Pair 3 2 1 3Group 3 – Pair 4 2 1 3Group 3 – Pair 5 2 1 3

Table III.Case rankings for theSocial Enterprise Marklearning activity

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prevent award winning social enterprises that are employee-owned[6] from achievingrecognition (such as Sunderland Home Care Associates). Participants fromco-operative infrastructure bodies questioned whether the Mondragon Co-operativeCorporation (an enterprise network cited by them as one of the world’s leadingexamples of social enterprise) would satisfy SEM criteria. In group 3 (charity trusteesand managers) roughly half felt that their organisation would meet the SEM’s criteria(even those that had not previously considered their organisation to be a socialenterprise). In group 3 discussions, scepticism regarding the nature and motivesbehind social enterprise decreased and some participants were attracted to socialenterprise discourse.

One charity participant felt that an organisation should still not be awarded theSEM unless stakeholders were recognised in the governance system. Similar viewswere expressed amongst participants in the first group as they perceived that SEMcriteria had been reframed to advantage enterprises with charity-like characteristics(social purposes) instead those with co-operative characteristics (socialised processes).Participants noted the irony that the founders of Social Enterprise London (whichincluded four worker co-operatives and four co-operative development agencies) wouldprobably be ineligible for the SEM. This became such a talking point amongstexperienced practitioners that it continued in e-mail correspondence and meetings afterthe workshop (including one with Peter Holbrook, CEO of the Social EnterpriseCoalition).

Whilst only some co-operatives were thought likely to obtain the SEM, and onlythen if they modified their social objects and auditing to specifically acknowledgeexternal beneficiaries, participants felt that trading charities would qualify for the SEMeven if they made no changes in their relations with internal stakeholders (employeesand members). It was this realisation that prompted a participant to start work on analternative “mark” that emphasised business ethics and democratic accountability.

In the case of a sole trader (case 3), all three groups of participants felt he/she wouldbe the least likely to meet SEM criteria because of the requirement to incorporate andcontrol the distribution of residual assets. In practice, this means that a consultant,working solely in the social economy providing advice and training – perhapscounter-intuitively – cannot have their social enterprise accredited. Conceptually,however, participants did recognise that individuals can engage in socialentrepreneurship and have their work recognised by organisations like ASHOKAand UnLtd.

These findings indicate how participants’ conceptualisations of social enterprisewere influenced by the SEM criteria to consider the incorporation and autonomy oftrading organisations in pursuit of a social or environmental goal, but not to considerquestions related to socialisation of their enterprise ownership, governance and wealthsharing systems to increase their alignment with principles of social economy.

DiscussionThe SEM criteria, as interpreted by study participants, suggest there is a clearorientation towards charity-like (non-profit) criteria based on an external purpose,rather than participative democracy, co-operative management and social inclusion.This created a paradox that the first group of participants, in particular, foundtroubling (to the point of making some of them angry). The pursuit of democratic

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ownership, inclusive management practices and democratic control of capital, are notin themselves recognised as a social or community benefit. In light of the companyobjects of SEL, it is clear that the re-formulation of social enterprise using the SEM’scriteria removes participatory democracy as a core characteristic, and subverts socialenterprise discourse so that it fits the dominant discourses of business (Dart, 2004;Johnson, 2006) and the non-profit sector (see Carver, 1990; Hudson, 2002). It does this insuch a way that some co-operative enterprises can still achieve recognition.

In Table IV, social enterprise mark criteria are added to a composite list of socialenterprise characteristics identified earlier in this paper. Shaded rows show consistencywith SEM criteria/guidance, while darker rows show actual SEM criteria. It offers theauthors’ interpretation of the way SEM criteria contribute to “socialisation” and “socialpurpose” in social enterprise development. Unlike early approaches to social enterprise,the SEM criteria emphasise mostly “social purposes” and not “socialisation processes”.SEM criteria recognise philanthropic concepts such as “social objects” and“community/public benefit”, and private enterprise concepts such as “market trading”,“incorporation” and “accounting”, but not co-operative concepts such as “voluntaryassociation”, “participatory democracy” and “democratic control of capital”.

As things stand, trading, incorporation and profitability – previously the means(rather than the purposes) of the social economy – have been reframed as the ends ofsocial enterprise (Dart, 2004). While these ends might be important for evidencing“enterprise” in social purpose organisations, they do not evidence “socialisation” in acompany limited by shares (CLS), a public limited company (plc), or one limited by amembers’ guarantee (CLG). This being the case, the SEM paradoxically does notprovide a framework that meets the needs (or aspirations) of a significant part of thesocial economy, or provide recognition for organisations widely accepted as socialenterprises. Even award winning social enterprises have been denied the SEM[7].

The early formulations of social enterprise (see Table I) invite an assessment ofwhether Articles of Association include processes for the workforce and service users(customers) to participate in governance, ownership and wealth sharing, and evidencethat these processes are operating effectively. This point is noted in Westall’s (2009)comments on the SEM:The Social Enterprise Mark is “a label which tells customersabout the wider social or environmental impact they offer” [. . .] It is important to notethat the focus is on impacts not processes and that there are restrictions on profitdistribution. There is therefore little working through as yet on inherent values andsocial benefits as processes rather than external impacts which has resulted in someinteresting exclusions of particularly co-operatives and mutuals [. . .] organisationssuch as Cafe Direct would not be included at the time of writing (Westall, 2009,pp. 6-7).Given the co-operative roots of the movement (in the UK and EU), thisformulation of social enterprise is likely to be – and remain – divisive until it ischanged. Co-operatives UK recognise many types of co-operative enterprise, includinga number that have no dissolution clause that explicitly prevents the distribution ofresidual assets to members. The Employee Ownership Association also has awardwinning social enterprises amongst its members. The absence of a not-for-profitdissolution clause does not inhibit an enterprise from socialising systems of ownership,governance and wealth sharing. Indeed, the essence of mutual and co-operative modelsis their support for democratic control of capital (ICA, 1995, 2005). Attempts to removedemocratic controls (which statutory and regulated asset-locks encourage) place

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critique of SEMconceptual dimensions

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organisational assets under industry regulation and legal control. This reintroduceshierarchies of control that undermine the “principles of participatory democracy”characteristic of the social economy.

In respect of participants’ comments about the Mondragon co-operatives, there issufficient flexibility in the SEM criteria regarding profit sharing to stay within itsguidelines. However, at Mondragon, members contribute to personal capital accountsas well as collective reserves. These accounts were designed to receive trading profits(in the range of 40-70 per cent), but can only been withdrawn when a member leaves.This ensures high levels of reinvestment each year (BBC, 1980; Whyte and Whyte,1991). In practice, it is now rare to exceed the 50 per cent SEM threshold because profitsare contributed to infrastructure bodies as well as collective reserves (Ridley-Duff andBull, 2011). However, members’ capital accounts do represent a form of privateproperty, can be used as security for bank loans and mortgages, and appreciate whenfixed assets are re-valued. Furthermore, retained surpluses (i.e. reserves) remain thecollective property of members who retain democratic powers to decide how they willbe distributed if an enterprise is taken over or closed (Oakeshott, 1990; Ridley-Duff,2010). With these characteristics, it was reasonable for participants to questionwhether Mondragon-style co-operatives would meet the SEM criteria.

Whether the SEM provides appropriate identification criteria, however, is only onepart of a wider debate. Curtis (2008, p. 280) highlights how frameworks like the SEMact to normalise the regulation of social entrepreneurship and facilitate“state-sponsored social enterprise”. Regulated social enterprises that adopt a formsuitable for public and charitable investment provide a useful vehicle forquasi-markets, deregulation and the business-like management practices associatedwith new public management (Hood, 1995). This may explain why the SEM adoptsnorms established by the community interest company (e.g. dissolution clause,dividend caps and standard accounting practices). Curtis (2008) argues thatstandardised criteria will undermine self-emerging social enterprise grounded incommunity action, trade union activism and co-operative development. In these cases,he argues, it is “grit that makes the pearl” to describe how resistance to a dominantdiscourse acts as the catalyst for innovations in management practice, tolerance fordiversity, and more creative dialogue (compare Murray, 2010).

If the SEM does embed the assumptions of the CIC model in its own evaluationcriteria, this should make it easier for CICs to obtain the SEM. At the time of writing 72(of approximately 3,700) CICs were listed as SEM holders. In contrast, only 17 (ofapproximately 5,000) co-operatives were SEM holders (Finlay, 2011). Interestingly, theSEM (albeit not obviously) contains a clause that might limit the managerialismimplicit in NPM (Grey and Mitev, 1995). One evaluation criteria offers a pathway backto participative democracy by requiring that applicants provide evidence that socialand environmental objectives are being achieved. Depending on the way this isinterpreted and operationalised, this could be achieved through social audit andreporting by reviewing social and environmental impacts with stakeholders(Spreckley, 1981; Pearce and Kay, 2008). The Beechwood Model – and the SENmodel that followed – advocates a participative and inclusive approach to governance.This regards employees, volunteers and beneficiaries (i.e. customers and/or serviceusers) as primary stakeholders in organisation development. Even if social enterpriseshave hierarchical structures that initially exclude volunteers and/or workers from

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policy development and strategic decision-making, social audit acts as the catalyst fortheir reintegration into co-operative management.

In arriving at a response to the question “do the criteria of the social enterprise markprovide an effective framework for evaluating an enterprise’s claim to be social?” thispaper provides a mixed answer and has to be framed with reference to thetransformations in study participants’ understanding. Overall, the answer is “yes” inrespect of evidencing an enterprise’s claim to have a social purpose and make a socialimpact but “no” in respect of socialising ownership, governance and wealthdistribution. In our conclusion, we return to the evaluation criteria set out in themethodology section to review the transformative effects of studying SEM criteria.

ConclusionsAll participants socially constructed an understanding of SEM’s evaluation criteriathat placed more emphasis on achieving social purposes than socialising processes.Having done this, members of each group reacted in a number of ways to their newlydiscovered knowledge. The first group displayed some hostility. Prior to their study ofthe SEM, most participants in this group had constructed social enterprise as aparticipative form of enterprise based on the integration of mutual and charitableprinciples. After studying the SEM criteria, they were less sure that social enterprisesthey supported would achieve recognition, or even that award winning socialenterprises would achieve recognition. Increased hostility to the SEM triggeredpolarised responses including: active withdrawal from engaging with the SEM;intentions to remove all reference to social enterprise from promotional materials; butalso stronger commitments to politically engage with the SEM to change its criteria.

The second group were less affected. As public servants, they found the SEMconsistent with the discourse of new public management identified by Hood (1995) andthe business discourse identified by Dart (2004). The SEM provided aconceptualisation of social enterprise that sat alongside other conceptualisations thatmight assist their efforts to support its development. The third group had the mostpositive reaction. A number who were sceptical before studying the SEM criteria foundthat their study of it reduced any latent hostility: some became more receptive to asocial enterprise discourse. A number (about half) felt their charities could quality forthe SEM, opening up new opportunities for recognition and access to support.

The transformation in the authors’ understanding relates to the conceptualsignificance of the not-for-profit dissolution clause, and the way this becomes the hingeon which debates about philanthropic and mutual approaches to social enterpriseswing back and forth. Any statutory or regulated asset lock transforms the surplusvalue created by entrepreneurs, trading partners and workforce members intodonations towards a social goal or community benefit. Regulating a not-for-profitdistribution clause requires members to be philanthropic, which can clash with somesocial enterprise members’ commitment to mutual principles of “reciprocalinterdependence”. Similarly, eschewing an asset lock (leaving decisions undermember-control) requires members to embrace mutuality. This also clashes with somesocial enterprise members’ commitment to philanthropy. If members choosecollectively to gift their wealth, this is a different proposition (psychologically) tobeing required to gift it. This conceptual clarification returns us to the “branding” ofsocial enterprise. It raises the question “what brand image is the SEM trying to create?”

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Policy makers, legislators and regulators influencing social enterprise developmentface a choice between:

(1) Recognition of both “social purpose” (philanthropic) and “socialised” (mutual)enterprises as legitimate forms of social enterprise without requiring either toincorporate the others’ core characteristics.

(2) Recognition of only those social enterprises that integrate a “social purpose”with a “socialised” form (e.g. community interest companies, associations andco-operatives with an explicit social purpose).

(3) Recognition of social enterprises against a normative standard (such as theSEM).

Based on this study, the normative principles that underpin the SEM (3) are having theeffective of narrowing the definition and creating conflict with precisely theconstituency that provided the impetus for its initial development. In other Europeancountries, there was initially a drive towards (2) through laws that permittedincorporation under co-operative law. This is now broadening towards (1) through newlaws that accept additional forms of social enterprise (see Galera and Borzaga, 2009).While the UK is credited with leading the development of social enterprise, it still hasno legislation to define it. There have been, however, a series of updates to charity,community interest and co-operative law, and a promise of further consolidation ofco-operative laws before the next election.

For the SEM to retain legitimacy amongst all groups contributing to the socialeconomy, it may need to adopt sub-sector specific criteria and not insist that all SEMcriteria are met by all applicants. It can assist its own efforts by considering three changes:

(1) Including criteria on participatory democracy to evidence that “those affectedby the enterprise” can participate in decisions about its strategic direction andoperation, and influence the distribution of its surpluses.

(2) Relaxing criteria on asset and profit distribution to focus on evidencing whetherdistributions of assets and profits support the social and environmental goals ofthe enterprise.

(3) Making the application of the above criteria contingent on the principles thatguide the enterprise’s approach to social enterprise (i.e. philanthropy and/ormutuality).

The changes outlined above would end the conflict between the SEM and previouswork to define the social economy (see Arthur et al. 2003; Monzon and Chaves, 2008). Itwould be able to reconcile commitments to associative democracy and solidarity (Hirst,1994; Smith and Teasdale, 2012) with arguments for social innovation and impact(Nicholls, 2006; Martin and Osberg, 2007). It may also increase its international appealas a standard bearer for the social economy.

Finally, we consider how this paper meets Kinchloe and McClaren’s (1994) criteria:. Reflexive interrogation. All study participants became more aware of limitations

in their knowledge of the SEM.. Sensitisation. Study participants now understand the hegemonic effects of the

SEM.

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. Democratisation. The findings and conclusions are based on information andarguments put forward by study participants.

. Accommodation. The paper introduces alternative perspectives so readers canevaluate the legitimacy of the SEM and its constituent assumptions.

. Evaluation. The paper reviews how participants’ perceptions (including theauthors’ perceptions) of the SEM were changed through a study of its criteria.

Notes

1. The Social Enterprise Mark Company was founded in 2010 by The Social EnterpriseCoalition (now Social Enterprise UK) and RISE to promote the SEM.

2. Co-operative and Social Enterprise Summer School ( July 2010) held at Sheffield BusinessSchool; St Legers Co-operative and Social Enterprise School held at St Mary’s Church,Sheffield (March 2011); Charity Trading and Social Enterprise (MSc module), SheffieldBusiness School ( June 2011).

3. David Ellerman initially trained as an economist. He became the speech writer JosephStiglitz at the World Bank. His 2005 book, Helping People to Help Themselves exploreshuman relationship issues affecting the international development work at the World Bank.

4. The founders of Social Enterprise Partnership Ltd (SEP) – Cliff Southcombe and FreerSpreckley – incorporated their partnership between 1997 to 2001. Local Livelihoods(incorporated 2001) and Social Enterprise Europe (incorporated 2003) continued their work.In early 2011, the 1994 definition was still in use in their international work for the BritishCouncil.

5. This was established by retrieving incorporation documents from Companies House.

6. This is employee-owned in the sense of the workforce having an unambiguous entitlement toa share of the wealth created by the organisation and control over the distribution of theorganisation’s assets in cases of dissolution. This can be contrasted with workerco-operatives that have no share capital, and dissolution clauses that prevent the transfer toassets to members in cases of dissolution.

7. During dissemination of this paper, it was discovered the ESP Projects Ltd, whose MD waswinner of Social Entrepreneur of the Year Yorkshire & Humber 2008, and whose enterprisewas runner-up in the same year for the Social Enterprise of the Year Award, applied for andwas denied the Social Enterprise Mark. This was confirmed directly with the founder of ESPProjects Ltd, who happened also to be a steering group member when the Central Office forInformation were liaising with the sector over the criteria for the SEM.

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Appendix

Initial directors Occupation Employer

Sipi Hameenaho, Director Project Co-ordinator London Co-operative TrainingManuela Sykes, Director Director Doddington & Rollo Community Association

(Charitable Trust)Jean Whitehead Policy Officer Co-operative UnionGregory Cohn Manager London Co-operative TrainingMalcolm Corbett Sales Director Soft Solution Ltd (Poptel)

Source: Social Enterprise London (1998b)

Table AI.Founders and initial

directors/subscribers atSocial Enterprise London

Signatory name Subscribing organisation Classification

AnthoniaFaponnle

Hackney Co-operative Developments Ltd Co-operative developmentagency

S.M. Kelly Lambeth Co-operative Development Agency Co-operative developmentagency

Malcolm Corbett Poptel Worker co-operativeRory Ridley-Duff Computercraft Ltd Worker co-operativeRobert Smyth Calverts Press Worker co-operativeJ. Whitehead The Co-operative Party Political partyI Saray Artzone Co-operative Ltd Worker co-operativeGregory Cohn Tower Hamlets Co-operative Development

AgencyCo-operative developmentagency

Sipi Hameenaho Greenwich Co-operative Development Agency Co-operative developmentagency

Source: Social Enterprise London (1998b)

Table AII.Founders and initial

directors/subscribers atSocial Enterprise London

Director/secretary Occupation Registered office

Helen Barber Legal officer Co-operative UnionJohn Goodman Policy officer Co-operative Union

Source: Social Enterprise Coalition (2002)

Table AIII.Founders and initial

directors at SocialEnterprise Coalition

Director/secretary Occupation Registered office

Andrew Shadrake Business Strategy Manager Also director of: TheProtimos Foundation

25 Wolseley Close

Judith Reynolds Agency Director Also director of: AssociatedTraining Practitioners Ltd, Plymouth SRBPartnership Ltd

25 Wolseley Close

Source: RISE (2003)

Table AIV.Founders and initial

directors/subscribers atRISE

The SocialEnterprise Mark

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About the authorsDr Rory Ridley-Duff is a Senior Lecturer at Sheffield Business School who worked in London’ssocial economy throughout the 1990s. A founding subscriber to Social Enterprise London, hecompleted his PhD in 2005, and then established the MSc Co-operative and Social EnterpriseManagement at Sheffield Hallam University. He is lead author for Understanding SocialEnterprise: Theory and Practice (Sage Publications), an editorial board member of the SocialEnterprise Journal, and has just completed 18 months as an UnLtd “Ambassador for SocialEntrepreneurship in Higher Education”. Rory Ridley-Duff is the corresponding author and canbe contacted at: r.ridley-duff@shu.ac.uk

Cliff Southcombe was the co-founder of the Social Enterprise Partnership, the UK’s first socialenterprise development agency, and is now the Managing Director of Social Enterprise Europe.He was recently elected as a UK representative to the Euclid network of European Third SectorLeaders after forming many social enterprise agencies and networks throughout Europe, andbuilding an international profile through training and development work for the British Council.In addition to delivering social enterprise courses at Hull University, he has provided a range ofbespoke and accredited training courses for more than 20 years.

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