Abstract of advisory report:
Summary of Council advisory report on social enterprises
June 2015
(Sociale ondernemingen: een verkennend advies)
Summary of Council advisory report on social enterprises
June 2015
A movement is under way in society that is giving rise to a new sort of enterprise. The
primary and explicit objective of these “social enterprises” is to solve social problems.
Successful social enterprises can help further social and public interests.
The Council sees great advantages in the rise of social enterprises. Their objectives are
often the same as those of government. The present advisory report explores what is
meant by a “social enterprise”, where they operate, what they contribute to solving
social problems, and what difficulties they themselves encounter. The Council concludes
by recommending key action points for the coming period.
Request for advice
The Council prepared the advisory report at the request of the Minister of Social Affairs
and Employment. He asked the Council to what extent and in what way national
government can align itself with the trend towards social entrepreneurship. This main
question consists of four constituent questions:
1) The nature of social enterprises: what are they / what should they be?
2) What role can social enterprises play in solving society’s problems?
3) What obstacles exist to their doing so?
4) What remains to be done, and who should be taking action?
Nature and focus of advisory report
The advisory report is exploratory in nature, reflecting the tenor of the Minister’s
questions.
The report focuses on the rise of social enterprises in the Netherlands; it does not
describe how best to solve a specific social problem.
The nature of social enterprises (Section 2)
In the view of the Council, the best response to the Minister’s broad, exploratory
question is to provide a working definition that describes the common characteristics of
social enterprises as accurately as possible without attempting a comprehensive and
conclusive definition. Such an attempt would be a complex matter and an unnecessary
one at this juncture.
Working definition (Section 2.2)
The Council has based its working definition on the available Dutch and international
literature, a survey among stakeholders, and the definition applied by the European
Commission.
2
Social enterprises have in common that they are independent enterprises providing a
product or rendering a service primarily and explicitly in pursuit of a social objective – in
other words, with a view to solving a social problem.
They are economically independent enterprises that do not rely entirely on grants, gifts
and donations. They are also organisationally independent enterprises that are able to
pursue a policy independent of government or “mainstream” enterprises.
The financial objective of a social enterprise is subordinate to its primary, social
objective. This is what distinguishes it from other enterprises.
In its definition of a social enterprise, the European Commission lists two other elements
in addition to the three essential characteristics (enterprise, social objective is
prioritised, and independence) that the Council regards as context-dependent: profitsharing options are explicitly restricted, and management and governance are subject to
strict criteria (stakeholder participation, democratic governance). The Council does not
see these two elements as necessary common attributes of social enterprises, although
most social entrepreneurs can be expected to find them important and to apply them.
Where social enterprises operate (Section 2.3)
Social enterprises operate in a multifaceted context of organisations whose objectives
include social ones. They are therefore viewed in the literature as part of an
entrepreneurial continuum. On the left end of that continuum are organisations that do
not qualify as enterprises, and on the right end is mainstream trade and industry.
Entrepreneurial continuum
Financial value
Social value
Charities/citizen
Traditional noninitiatives/
profits
civil society
Survive
Donations/su
Most revenue
purely
bsidies/mem
derived from
on the
bership fees
commercial
strength
and
transactions
of
commercial
(sale of goods or
donation
revenue
services).
s or
Objective is not
subsidies
to make a profit
Exclusively social impact
Social enterprises
Most
revenue
derived from
commercial
transactions.
All profits
reinvested
Most
revenue
derived from
commercial
transactions.
Limited
share of
profits paid
out
Social impact prioritised
“Mainstream” businesses
Most
revenue
derived from
commercial
transactions.
Core
business
includes CSR
Most
revenue
derived from
commercial
transactions.
Mainly
financially
driven
Financial value prioritised
Source: Based on Social Enterprise NL (2014) Iedereen winst, p. 13; adapted by the Council secretariat.
It is important to note here that the Council believes that corporate social responsibility
(CSR) should be the core business of every enterprise.
The Council is focusing on social enterprises in part because they are a relatively new
phenomenon that has not yet been addressed in its previous advisory reports.
Nevertheless, other organisations operating in the above context can also have a
considerable social impact. Added value can be generated precisely when social
enterprises, the rest of trade and industry, and other organisations collaborate and
share their knowledge and experience. The Council has also observed that non-profits
(including social welfare organisations) are increasingly operating as social enterprises
or that they are joining forces with grassroots organisations and with social enterprises
to generate added value for society.
Contribution to solving social problems (Section 3)
3
To get an idea of what social enterprises in the Netherlands contribute to solving social
problems, we would ideally want to calculate their social cost-benefit ratio (SCBR) at
macro level. Unfortunately, there is not enough data to perform a social cost-benefit
analysis of this kind. The Council therefore confines itself to a qualitative description of
the benefits of social enterprises based mainly on case studies. The case studies were
taken from the self-reports of enterprises that regard themselves as social enterprises
and that present themselves as such to their stakeholders (for example by being
members of the Social Enterprise NL platform).
Social enterprises are distinct from other businesses in that their primary and explicit
objective is to increase positive externalities, to reduce negative externalities, or to
assist disadvantaged employees or clients. Social enterprises deliberately and
consistently choose – where necessary – to prioritise social objectives over the financial
benefit for the organisation itself, and they act in accordance with this philosophy. Social
entrepreneurs often go farther than other business owners would, for example by
deliberately addressing an intractable social problem.
In other words, social enterprises serve social interests that are often also public
interests and therefore government objectives, and they do so for intrinsic reasons (and
not in response to policy measures). Nevertheless, in the Council’s view it is government
that bears the final responsibility for public interests.
The benefits of social enterprises are many and may vary depending on the sector and
area in which they aim to generate such benefits (such as employment participation,
social cohesion, and so on). Examples include better health, a safer neighbourhood, and
fewer unemployment or social welfare recipients. As mentioned earlier, the Council can
say nothing about the scale of the benefits.
Innovative solutions that social enterprises develop to address social problems can be
adopted by other businesses and by government. The scale at which these parties
operate can, by itself, increase the impact of an innovative solution. Social enterprises
therefore play an important role in alerting other organisations and in setting a good
example.
The difficulties encountered by social enterprises (Section 4)
The Council has identified the following key obstacles to improving the positive social
impact of social enterprises:
1.
2.
3.
4.
Problems related to impact measurement (Section 4.2)
Social enterprises are distinct because of their mission, but in the end they too
must be accountable for what they have actually contributed to achieving a
particular social objective, i.e. their social impact. There is clearly much work
ahead in that respect. Social impact measurement is a complex (and expensive)
affair.
Limited recognition and appreciation (Section 4.3)
Social enterprises feel that they do not get enough recognition and appreciation
for their work as distinct from the work of commercial enterprises or charitable
organisations. The general public is often unaware of their existence. Clients and
investors must be able to rely on social enterprises to continue prioritising their
social impact. The challenge lies not only in measuring that impact but also in
making it transparent and accessible to the general public.
Financing problems (Section 4.4)
It is often difficult for social enterprises to obtain financing. Compared to other
SMEs, social enterprises face a number of additional complications in this regard.
Because their social mission can raise costs and because their top priority is not to
make a profit, their financial return is often lower than that of other enterprises
(all other things being equal). Social enterprises and potential investors and
financing bodies often move in different circles and do not speak the same
language.
Obstructions in the law (Section 4.5)
4
5.
The world of entrepreneurs and the world of government are out of sync. For
example, the law leaves little scope for experimentation to allow for new trends,
or the scope that does exist is underutilised. In addition, social entrepreneurs
often have to deal with different municipal policies and, consequently, with
different municipal departments whose procedures are not properly coordinated.
Government procurement problems (Section 4.6)
If those in charge of procurement procedures look only at the lowest price offered,
then social enterprises may suffer a competitive disadvantage, with little scope for
innovative and enterprising approaches to social problems. Many municipalities
work with ‘social-return obligations’. This means that enterprises that take an
assignment from the municipality have to spend a certain percentage of the
contract value on employing vulnerable unemployed people. This social-return
obligation does not take into account whether the company in question already
employs people with a disadvantaged position in the labour market. As a result, it
works to the disadvantage of social enterprises and other businesses that – quite
apart from the procurement procedure – employ people with an occupational
disability. Finally, municipalities pursue different policies, creating impediments for
social enterprises looking to expand their activities.
The first two difficulties – social impact measurement and recognition/appreciation – are
especially important because they have a knock-on effect on the other three problems.
Only the second difficulty – recognition and appreciation – applies solely for social
enterprises. The other issues also apply to some degree for businesses aiming to set
themselves apart with their CSR efforts (specifically in the case of social impact
measurement and public procurement) or for SMEs in general (specifically in the case of
financing, public procurement, and obstructions in the law). In many cases, however,
these obstacles have different causes, dimensions or consequences for social enterprises
than for other enterprises.
Finally, the advisory report does not provide an exhaustive list of the potential
difficulties that social enterprises may come up against. For example, it does not cover
tax legislation, competition rules or sector-specific rules. The report discusses the
difficulties that have been identified as priorities in the literature and at a Council
working conference.
The most important action points for the coming period (Section 5)
Division of roles (Section 5.2)
It is up to the social enterprises, those who finance them, the commissioning bodies and
clients, and the platforms to tackle many of these difficulties. The Council believes
government’s role is mainly to get the issue on the agenda, to facilitate social
enterprises – for example by removing unnecessary obstacles, increasing knowledge,
and offering support in impact measurement – and to look critically at its own role in
procurement. This division of roles is described in greater detail in the recommendations
(Sections 5.3-5.8).
The Council advises government to act with restraint in developing a policy that requires
the strict delineation of social enterprises as a group. First of all, such policy will be
impossible without a strict, precise definition. Second, the Council believes it would be
disadvantageous to introduce incentives and other far-reaching policy measures for
social enterprises alone. The point is not to create and expand a separate sector for
social enterprises but to increase the benefits for society.
Action points
In this advisory report, the Council describes what it believes are the most important
action points for the coming period. In identifying these points, it has drawn inspiration
from recent Dutch and international reports, from the input of those invited to its
working conference, and from interviews with other actors in the field.
The most important action points identified in the advisory report are:
5






Invest as a group in social impact measurement (Section 5.3)
Boost cooperation between social enterprises (Section 5.4)
Improve knowledge within government and social enterprises (Section 5.5)
Investigate the possibility of introducing a “quality label” for social enterprises
(Section 5.6)
Improve the climate for financing (Section 5.7)
Create more flexibility in government procurement procedures (Section 5.8)
The table below provides a summary of the Council’s recommendations.
Table 1 Recommendations
Action point
Who should be taking
action?
Solution
5.3 Invest as a group in social impact measurement
Measure social impact as a
Social enterprises and
Impact measurement;
common core value of social
stakeholders that also
knock-on effect on all
enterprises and their
pursue a social objective
other problems
stakeholders
(e.g. investors and
clients). Government as
driver
Set up a national expertise
National government in
Impact measurement;
centre to foster cooperation,
cooperation with
knock-on effect on all
knowledge generation and scale
researchers, investors
other problems
economies for impact
and social enterprise
measurement (driving
platforms. Put issue on
cooperation, pooling knowledge,
the agenda during the
refining guidelines, advising
Dutch Presidency of the
individual social enterprises,
EU
collecting data)
6
Action point
Who should be taking
Solution
action?
5.4 Boost cooperation between social enterprises
Achieve cooperation between
Social enterprises and
Recognition and
social enterprises and closer
their platforms.
appreciation; knock-on
coordination between platforms;
Support by government
effect on all other
purpose is to get social
(putting issues on the
problems
enterprises on the map and to
agenda, participating in
develop instruments (e.g. for
networks, co-funding of
impact measurement)
projects, acting as a
commissioning body,
advising). Business
organisations can also
play a role
5.5 Improve knowledge within government and social enterprises
Improve awareness of social
Authorities, training
Recognition and
enterprises among policymakers
institutes, platforms and
appreciation,
and government procurement
social enterprises
obstructions in the law
officers
(scope for
experimentation,
partitions), government
procurement
Learn from international
National government,
Impact measurement,
initiatives, play a more active
researchers, platforms
recognition and
role in the EU’s Social Business
appreciation, financing
Initiative
Pay closer attention to social
entrepreneurship in mainstream
education: concentrate more on
social challenges in business
training and more on
entrepreneurship in civic service
internships and educational
programmes with a social focus
Government and schools,
work placement
mediators, in cooperation
with social and other
enterprises
Recognition and
appreciation, knock-on
effect on financing and
impact measurement
Cluster digital (government)
information relevant for social
enterprises
Authorities in cooperation
with social enterprise
platforms and industry
organisations
Recognition and
appreciation,
obstructions in the law,
government
procurement
Encourage cooperation in tackling
specific social challenges, for
example employment for people
who have difficulty accessing the
labour market
Authorities, social
enterprises, platforms,
researchers,
organisations that deal
with social problems (e.g.
employment
participation: sheltered
workshops, businesses
experienced in working
with this target group,
unions, etc.)
Recognition and
appreciation,
obstructions in the law
(scope for
experimentation,
partitions)
5.6 Investigate the possibility of introducing a “label” for social enterprises
Investigate a “label” for social
enterprises on top of their
existing (main) legal status for
purposes of recognition and
National government in
consultation with the
field; executed by civillaw notaries, for example
Recognition and
appreciation, knock-on
effect on financing and
government
7
Action point
Who should be taking
action?
appreciation
Solution
procurement
5.7 Improve the climate for financing
Experiment with innovative forms
of impact financing for social
enterprises
Add relevant information about
social enterprises to
www.ondernemerskredietdesk.nl
Authorities
Financing, government
procurement
Initiators of
ondernemerskredietdesk.
nl, social enterprise
platforms
See the relevant
recommendations
Financing, recognition
and appreciation
Create an easily identifiable
contact point in municipal
government
Municipal authorities
Use the flexibility provided for in
procurement legislation: direct
efforts to better apply
procurement rules and provide
extra training in innovative forms
of procurement, focus on social
objectives, optimise the use of
MEAT, make best practices
visible, utilise the opportunities
of the new EU directive.
Make changes to the
procurement-related social return
obligation
Align rules and procedures within
and between municipalities
The above recommendations
have a knock-on effect on:
impact measurement,
cooperation between platforms,
improving knowledge of social
entrepreneurship in government,
and investigation of a “quality
label” for social enterprises
National government and
lower governments,
platforms
Government
procurement,
recognition and
appreciation,
obstructions in the law
Government
procurement
The above recommendations
Financing
have a knock-on effect on:
impact measurement, improving
cooperation between social
enterprises, focus on social
entrepreneurship in education,
investigation of a “quality label”
for social enterprises, more
flexibility in government
procurement procedures
5.8 Create more flexibility in government procurement procedures
Municipal authorities,
labour market regions
See the relevant
recommendations
Government
procurement
Government
procurement,
obstructions in the law
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Translation: Balance, Maastricht/Amsterdam