Social enterprise versus anti-social enterprise?

Lucy Findlay MBE, Social Enterprise Mark CIC

It is pretty clear that if we are to change society for the better and to tackle the climate emergency we need to challenge much more radically what it means to be a business, writes Lucy Findlay MBE, founding Managing Director of Social Enterprise Mark CIC, the international social enterprise accreditation authority. (This is a shortened version of the original post which can be found here).

There has been a flurry of news and a growing acceptance from the public that the brand of capitalism that puts the shareholders’ interest above all else, is broken. Indeed, the FT recently reported that City Fund managers are calling for a radical rethink and an end to the constant obsession with economic growth. We are in the middle of societal and environmental disaster, made evident by huge levels of income inequality and poverty (last year Oxfam reported that the world’s richest 1% bagged 82% of the world’s wealth) as well as the Climate Emergency.

A shocking new report written by the TUC and the High Pay Centre has highlighted just how broken the ‘shareholder first’ model really is. The evidence set out in it shows how, in the corporate world, delivery to the shareholder has become an obsession. Short-termism is factored indelibly into the corporate business model.

The evidence of the resulting behaviours leads to stark consequences not only for those working for those companies, but also to their wider stakeholders and communities. The more money that is extracted for shareholders, the less there is for anything else. Corporate Social Responsibility (CSR) budgets, increases in wages for workers and social and environmental impact come in as the ‘poor relatives’.

The following startling statistics illustrate the reality versus the hype:

  • In 2018, BP spent 14 times and Shell 11 times more on their shareholders than they invested in low carbon activity
  • Between 2014-18, while FTSE 100 returns to shareholders rose by 56%, the median wage for UK workers increased by just 8.8% (both nominal)
  • Gender inequality is much higher in FTSE 100 companies (the gender pay gap is double the national average) as cheaper women’s labour helps to support increased shareholder returns.

Shareholder primacy is reinforced in the Section 172 of the 2006 Companies Act, which requires company directors to act in the interest of shareholders, and only ‘have regard’ to a wider set of stakeholders. There are no significant examples of a director being held to account for their failure to ‘have regard’ for their wider stakeholders.

How Do Companies Act?

We are working with Social Value UK and other partners to change this. The How Do Companies Act campaign aims to change accounting behaviour to ensure that accounting practice also takes consideration of social and environmental impact.

It was interesting to see the recent announcement by the Labour Party regarding their intention to revise the Companies Act to “take on the excesses of the shareholder model and lay some of the foundations of a stakeholder economy”, should they win a majority at the upcoming election.

Social enterprise is part of the solution to this rampant anti-social/environmental trend. We have been saying this for a long time. Social enterprises (that hold the Social Enterprise Mark/Gold Mark) dedicate a majority (at least 51%) of their profits to social and environmental purpose, as well as being dedicated to changing society for the better in the way that they conduct their core business. Rather than shareholder gain being the sole driver, social enterprises focus on the three ‘P’s:

  • Purpose – social mission locked in through governance and legal form as well as creating social impact as a central tenet (including environmental objectives and impact)
  • Profit – profit and dividends shared by stakeholders for the benefit of the purpose. Check out my colleague Richard’s recent blog for more information on this
  • Power – the involvement of and dialogue with stakeholders around decisions making

It is pretty clear that if we are to change society for the better and to tackle the climate emergency we need to challenge much more radically what it means to be a business. We need see wealth in a much wider context – creating a better world for all.