Social enterprise: Many questions, who should answer?

publication date: Feb 24, 2014
 | 
author/source: David Oyler

David Oyler photoAs a consultant for registered charities, I want to provide strategic guidance on applying the social enterprise (SE) concept to social initiatives. First, I needed to find out how it was defined. After reading through many resources and speaking with numerous SE advocates, I haven’t been able to find an answer (at least one that is unambiguous enough to be able to apply the concept). Nor have I been able to get a sense of accountability, that social capital and resources would be stewarded for public benefit.

What is social enterprise? 

The most common answer, as the name implies, is a combination of meeting a social need (i.e. delivering a public benefit) and enterprise in the form of selling a good or service. Depending on whom you ask, the latter part takes on a broad spectrum of interpretation. Enterprise is generally separated into two themes, or perhaps more suitably, intentions:

  1. For-profit (or business or commercial) - activities that intentionally generate profits or surpluses which are then directed towards delivering a public benefit.
  2. Charitable (or cost defraying or program focused) - activities where goods and services are sold in the context of delivering a public benefit.

It is important to consider these on a theoretical level and as singular activities, and not to immediately connect these terms with the legal entities of the same name.    

The charitable activity’s purpose is to deliver a public benefit. The for-profit activity does not deliver a public benefit unless it is able to produce a surplus. These are two distinct philosophies and could be viewed as the basis for differentiating commercial businesses and registered charities.  

A common narrative is that SE blurs the lines between these concepts and calls for changes to the Canada Revenue Agency (CRA) policy for registered charities based on the ‘destination of profits’ test - that for-profit activity is acceptable as long as profits are directed towards social good. In my opinion, this argument only applies to a for-profit activity, not a charitable one.    

I have not seen any case put forward specific to charitable activity, that public benefit would be better served by switching from charitable intent to for-profit intent in the delivery of a public benefit program (e.g. a fee-for-service or employment-based program). In other words, instead of delivering a good or service using a cost defraying model (or program focused model for employment-based programs), profits would try to be intentionally generated.

The question of how public benefit would not be compromised by this switch of intentions is not answered.

Who is accountable for the social component of SE?

SE can benefit from social capital such as donations, grants, and volunteerism. Socially responsive consumers and investors should also be included in this group. Who is responsible for ensuring that social capital is stewarded for public benefit?

The ambiguous defining of SE has seen a few federal and provincial government agencies stepping into the arena of social program delivery, creating the impression that SE is not necessarily the mandate of the CRA. The inclusion of commercial activity and employment in SE dialogue has garnered the interest of agencies focused on economic development and job creation. While new funding and resources directed towards social good should be welcomed, it is important to recognize that these agencies do not have accountability mechanisms to ensure the SE’s they support are stewarding social capital for public good. 

The only agency that does have accountability mechanisms in place is the CRA, for organizations that are registered as charities. It is also the only agency to legally acknowledge the SE concept. In what seems to be an accurate reflection of SE’s vagueness, the CRA indicates that SE is not viewed as a charitable purpose and that there is no universally accepted definition of SE. 

Oyler Consulting works with registered charities and non-profit organizations to increase their effectiveness and capacity to deliver their programs and services.  Services include practical guidance on Canada Revenue Agency policy for registered charities, helping organizations build successful fundraising programs, program and service development, and social enterprise. Visit www.oylerconsulting.ca; contact David Oyler by email.



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