The distinction between ethical business and social enterprise

Well, the 2018 Social Enterprise World Forum in Edinburgh is now upon us and in the past month or so I have ventured through the development of the social enterprise spectrum over the last 10 years, from out-and-out regulated charities involved in trading and through various forms of social enterprise structure that “lock in” or “partially lock in” the benefits of trading for a stated social purpose. I said I would finish up having a look at the “out-and-out business” end of the spectrum, and here I am.

Let’s be clear – at the out-and-out business end of the spectrum it is confusing to talk in terms of the businesses themselves being “social enterprises”. Instead, for those businesses that want to do more through their activities than simply generate profit but which use the “standard models” for out-and-out business activity, we tend to talk in terms of “ethical businesses”.

A clear distinction between an “ethical business” and a “social enterprise” would be that “ethical businesses” do not have a regulated or binding structural “asset lock” within their structure to lock in gains for a stated social purpose.

An ethical business, however, might seek to conduct their business “ethically” and by that I mean they may have objectives set out under, for example: a clear corporate social responsibility (CSR) policy; an agreement or understanding as between shareholders to gift profits to a particular cause; or a recognised status such as “B-Corp status” (the awarding of which is predicated on demonstrating that the aims of the business are broader than simply profit).

Let’s also be clear that, at times, there is unease amongst the social enterprise community as to whether “ethical businesses” are using whatever ethical credentials they may have as a marketing ploy and, linked to that, whether there is a genuine desire that the very ethos of the organisation is about more than profit. Those who are sceptical might say, “if that is the genuine intention, why not use one of the ‘asset-locked’ or partially asset-locking structures”.

For what it is worth, my take goes something like this:

  • we have moved a long way from binary “business equivalent” options of Gordon Gecko versus Ghandi;
  • much of that movement has been in the last 10 years – with the example of B-Corps being one area that has taken-off globally (including in the US) over that period;
  • if there are businesses (established and new) across the world that seek to move from “Gordon Gecko” to “ethical” then, for whatever reason, the outcome can only be positive;
  • there seems to be genuine momentum behind the pace of the “Gordon Gecko” to “ethical” shift, with all sorts of business (including law firms) obtaining B-Corp status and CSR being standard (indeed required by law in India); and
  • looking to the future, that momentum seems likely to continue if not increase given increasing demand for and growth in “ethical” investment – where there are exciting and innovative developments in Scotland, the UK and globally.

Looked at another way, and bringing things closer to home with a look at Scotland, there is a certain symbiosis in the activity of social enterprises and ethical business with the two, whilst distinct, together being stronger for growing awareness and impact. In particular, the two together increasingly draw in the gaze of the entire economy – importantly including financiers, funders and investors. That’s why we’ll not only have charities, social enterprises and ethical businesses from across Scotland, the UK and the globe at SEWF, we’ll also have representatives of Scottish, UK and global business and economic powerhouses.

I started these blogs with the notion that, against the backdrop of a painful summer in terms of global trade news and developments, SEWF is a huge positive in international collaboration to promote trading to achieve social gains. I’ll sign off on the same.

Charities & Third Sector

As a leading adviser to charities, the third sector and social enterprise in Scotland, MacRoberts has a deep understanding of the issues and challenges facing the sector.

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