A social enterprise is a business which operates for a social purpose which is broader than simply generating profits. Social enterprises embed the creation of social and environmental value directly into their business model and their very reason for being, which makes them distinct from traditional philanthropy or corporate social responsibility. There are many different kinds of social enterprise business models, and social enterprises can take any legal form, including charities operating a related business, enterprising non-profits, cooperatives and traditional corporations with an official social purpose. The evolving concept of a ‘benefit corporation’ is a new legal category to refer to businesses with a social mission, and many jurisdictions are adopting benefit corporation legislation to promote the development of social enterprise ecosystems. Social enterprises aim to accelerate social innovation, or the creation of new initiatives or projects aimed at wider social transformation. For more information about social enterprise and social innovation, see this series of articles from the Stanford Social Innovation Review. 

The rise of social enterprise is a key component of the growing movement for a Social and Solidarity Economy (SSE), recognized by the UN as an emerging framework of development which aims to empower communities and nurture local economies by creating new networks of purpose-driven, placed-based enterprises and organizations. SSE aims to move away from the traditional paradigm of neoliberal capitalism and instead focus on inclusive and sustainable development that reflects the needs of communities. At the foundation of this movement is a growing ecosystem of cooperative-owned, community-focused organizations aiming to create a more just and equitable economy that works for everyone, not just an elite class of owner-managers. As a key part of the SSE framework,  the community wealth-building movement is a new paradigm of community-controlled social enterprises and financial institutions which aim to reinvest in communities through broader democratic ownership and control of business and jobs. Such enterprises can include cooperative organizations, credit unions, and community development financial institutions, among others. Social enterprises that are part of the SSE should aim to be regenerative and distributive by design, helping to restore communities and natural systems while redistributing wealth in a way that promotes justice and well-being for all. An inspiring example of a social enterprise focused on systems change is the Boston Ujima Project, which has developed a democratically controlled impact investing fund operated by the community to create a constellation of purpose-driven organizations in the Boston area. For other examples of regenerative social enterprises, see these case studies from the Capital Institute. 

The growth of social enterprise also coincides with a wider trend of businesses recognizing the importance of stakeholder value creation, driven by the growing understanding that the shareholder primacy model of corporate governance (in which businesses operate exclusively to increase returns to shareholders) can no longer be supported in an age of intersecting social and environmental crises. In many jurisdictions, the legal concept of fiduciary duty is evolving to reflect a wider concern for the interests of stakeholders, defined as all parties affected by a corporation’s activities. In Canada, the Canada Business Corporations Act was amended in 2019 to reference the responsibility of corporate directors to consider wider stakeholders, such as employees or the environment, in decision-making processes. There has also been a wider push for the articulation of corporate purpose, with the underlying assumption that businesses should exist for a broader social purpose that extends beyond the need to deliver returns to shareholders. In the United Kingdom, reporting on corporate purpose has been enshrined in the corporate governance code since July 2018.

Social Innovation: Social innovation refers to the creation of new initiatives or projects aimed at wider social transformation and systems change. Social innovation was first defined by Frances Westley as “any initiative (product, process, program, project, or platform) that challenges and, over time, contributes to changing the defining routines, resource and authority flows or beliefs of the broader social system in which it is introduced.” 

Stakeholders: A company’s stakeholders include all parties that affect or can be affected by the company’s behavior. Shareholders are just one among many stakeholder groups, which also include employees, customers, suppliers, the general public, and the natural environment. In recent years, there has been a growing recognition that corporations must be accountable to all their stakeholders, not just shareholders. 

Fiduciary Duty: The concept of fiduciary duty refers to the legal responsibility that directors of a corporation have to advance its interests and the interests of its owners. Under the shareholder primacy interpretation of fiduciary duty, famously articulated by Milton Friedman in the 1970s, fiduciary duty was understood to mean solely the imperative to maximize shareholder value and increase returns to investors. However, interpretations of fiduciary duty are evolving, and there is a growing recognition that corporate directors have a fiduciary obligation to consider broader social and environmental impacts, such as their contribution to anthropogenic climate change. In Canada, the model of shareholder primacy has never been legally enshrined; rather, under the Canada Business Corporations Act, corporate directors are obliged to act with a “duty of care to the corporation,” not strictly to its shareholders. In 2019, Section 122 of the Canada Business Corporations Act was amended to include the stipulation that corporate directors may also consider the interests of employees, retirees and pensioners, creditors and governments, and the environment when making decisions in the best interest of the corporation. 

Benefit Corporation: A benefit corporation is a legal term used to refer to businesses which serve to create social and environmental value in addition to generating profit. There is a growing movement of jurisdictions that recognize benefit corporations as a distinct legal category separate from traditional corporations or non-profit organizations. In 2020, British Columbia became the first Canadian province to recognize benefit corporations, joining 38 US states in doing so. Benefit corporations can also be known as ‘dual purpose businesses’. 

B Corp: The B Corp movement is both a movement for purpose-driven businesses and the world’s largest network of social enterprises. The program is administered by the organization B Lab, which has developed a unique impact assessment scoring methodology to evaluate enterprises on their social and environmental performance. In order to qualify as an official B Corp, candidate organizations are required to achieve a B Impact Assessment score of 80 or higher, make a legal commitment to change their corporate governance structure to reflect all stakeholder interests, and allow their full assessment score breakdown to be shared publicly. There are nearly 5,000 B Corps worldwide. 

Social and Solidarity Economy: The Social and Solidarity Economy (SSE) is an emerging framework of development which aims to empower communities and nurture local economies by creating new networks of purpose-driven, placed-based enterprises and organizations. As a new development model, SSE aims to move away from the traditional paradigm of neoliberal capitalism and instead focus on inclusive and sustainable development that reflects the needs of communities and is predicated on social solidarity, wealth redistribution, and community empowerment. Organizations contributing to the SSE include social enterprises, cooperatives, mutual aid societies, and other organizational forms. The United Nations has established the UN Inter-Agency Task Force on the Social and Solidarity Economy (UNTFSSE) as a way to promote the concept at an international level and support the creation of global SSE ecosystems. 

Community Wealth-Building: The community wealth-building movement is a rapidly growing economic development movement which aims to strengthen communities through broader democratic ownership and control of business and jobs, a concept broadly known as ‘economic democracy’. Community wealth-building involves the creation and promotion of locally controlled community-based financial institutions which invest in local economies and promote local asset ownership. Examples of community wealth-building organizations include cooperative organizations and credit unions, community development financial institutions (CDFIs), community development corporations (CDCs), community land trusts (CLTs), and many others. Pioneering organizations in this movement include the Democracy Collaborative, Community Wealth, the Next System Project, and the New Economy Coalition. 

Social Ownership: Social ownership is a model of corporate governance in which workers and employees have a stake in the ownership and management of their employer. The Nordic model of social ownership, known as ‘co-management’, is a common feature of countries such as Germany, Norway, Denmark, and Austria, including worker representation on boards and institutionalized power-sharing between workers and shareholders. Today, a growing movement of employee stock ownership plans (ESOPs) is expanding co-management practices in the North American context, such as with the work of American Working Capital. 

Social Movement Investing: Social movement investing, and the ‘Movement Portfolio Theory’ that underlies it, is a new theory of impact investing in which capital is used to fund economic transformation, promote community wealth-building, and help develop the social solidarity economy through the democratization of wealth. 

Charity, Non-Profit, Not-for-Profit: In addition to being legally categorized as for-profit corporations or benefit corporations, social enterprises can also choose to be incorporated as charities, non-profits, or not-for-profits. Although often referred to interchangeably, there are differences between these three categories. In Canada, registered charities include charities, public foundations, and private foundations that are provided a registration number approved by the Canada Revenue Agency. They are legally obligated to operate exclusively for charitable purposes, which exempts them from paying income taxes. Non-profit organizations, whereas, do not have to go through this registration process, and can operate for purposes other than recognized charitable activities, such as sport, recreation, or civic improvement, although they cannot issue donation receipts for tax purposes. Although similar to non-profits, a not-for-profit organization is a corporate form that a business can acquire upon incorporation under the Canada Not-for-Profit Corporations Act, while a non-profit organization is a legal status that any organization can acquire by fulfilling certain requirements under the Income Tax Act. The federal not-for-profit designation allows business owners to operate a social enterprise like a for-profit corporation without awarding dividends. For more information about these differences, see this social enterprise guide from Innovation, Science, and Economic Development Canada. 

Enterprising Non-Profits: Enterprising non-profits are a form of social enterprise legally incorporated as non-profit organizations but that engage in some revenue-generating commercial activities as a way to fund their operations.

A major challenge for social enterprises is the lack of legal clarity as to the classification of their business. Because social enterprises are a relatively new type of organization, many firms have difficulty fitting into the dichotomy between for-profit businesses or non-profit charities. As a result, social enterprises often have difficulty attracting funds, because they cannot receive tax-deductible donations as if they were charities, but traditional investors can be often hesitant to provide money to a company they perceive as not being focused on generating returns. A major change in recent years has been the passing of benefit corporation legislation in many jurisdictions, which will hopefully help resolve some of the legal confusion. 

An issue for the B Corp movement is the fact that many of its member companies choose to decertify, or not to renew their certification, for a variety of reasons. Registering as a B Corp can be quite expensive, and for smaller firms, it is difficult to complete the process or even obtain the requisite information. One study found that the average attrition rate over the entire history of B Corps is 23.7%, and that the majority of decertifying companies have less than 10 employees. There are five common reasons why companies decertify.

Above all, social enterprises face the deeper problem that they threaten to displace public sector solutions by providing market-driven approaches to what are fundamentally public issues (i.e. of poverty alleviation, affordable housing, education, etc). For example, the Stanford Graduate School of Business, on its page describing social innovation, references two categories that have both faced significant criticism for their market-driven approach: charter schools and carbon markets. Charter schools are for-profit schools that have been found, in many districts, to displace public spending on education, resulting in poorer educational outcomes, and even help re-segregate school districts along racial and income lines. Carbon markets, while important, have been criticized by scholars like Mark Jaccard for being less effective than flexible regulations and other policy instruments. It is a well-documented fact that markets under-provide public goods, and creating new forms of socially conscious business to help markets self-correct is not going to address this. It is extremely important that social enterprises do not contribute to reinforcing the narrative that markets are more efficient than public sector actions, or that fundamental social issues related to distribution and equity can be solved profitably by investors (when, in many cases, they simply cannot).

To learn more about social enterprise and social innovation, the best online resource is the Stanford Social Innovation Review. Their article series on essentials for social innovation is the best primer to get started with learning about social innovation and how to make impactful interventions. They also have a podcast and newsletter.

To learn more about social innovation in Canada, see the federal government’s social innovation and social finance strategy, as well as this report on shaping Canada’s social innovation future. 

Other organizations focused on accelerating social enterprise that you might want to check out include:

• Social Enterprise Alliance
• Institute for Social Entrepreneurs
• StartingBloc
• Ashoka
• Social Enterprise UK
• NESsT
• Omidyar Network
• Root Cause
• Skoll Foundation

For more information about the Social and Solidarity Economy movement, see this primer from Non-Profit Quarterly. To learn more about the economic democracy and community wealth-building movement, see this article from the Next System Project on creating a thriving global commons economy, as well as this article from Democracy Collaborative. You can also check out this map from Real Economy Lab which aims to map out the organizations working towards a fairer, more democratic economy, and this policy toolkit from the Next Economy Coalition. Check out Community Wealth to learn more about terms such as community development finance institutions, community-based participatory planning, cooperativism, and more. For examples of communities living in accordance with regenerative values, see these case studies from the Capital Institute and their Regenerative Communities Network. To learn more about social ownership and economic democracy in the workplace, see this article from New Internationalist. 

To learn more about the global commons movement, and the organizations working to support it, see this article from OnTheCommons about Elinor Ostrom’s eight principles for managing the commons, and this article from the Schumacher Center on the commons program. Organizations to follow for news updates and trends include Commons Transition and OnTheCommons. For other organizations working in the economic democracy movement, see the following: 

• Seed Commons
• New Economy Coalition – Members
• Pathway to a People’s Economy
• Commonwealth UK
• Movement Generation
• Center for Economic Democracy
• Real Economy Lab
• The Working World
• Participatory Budgeting Project
• European Commons Assembly
• Platform Cooperativism Consortium