A new study has revealed that social enterprise demands a unique form of governance to tackle the tensions that management teams face through competing social and financial goals.
Dr Chris Mason of the Centre for Social Impact Swinburne, Swinburne University of Technology, co-authored the study with Bob Doherty of the York Management School, University of York, UK, which suggests corporate governance theories are inadequate to address the different missions and expectations of social enterprise.
“Social enterprise board members are exposed to institutional pressures to achieve financial sustainability, generate social value and build and maintain close relationships with a range of stakeholder groups,” Dr Mason said.
“We found that governance actors offset these challenges by using a mix of skills to negotiate through conflict, tensions and the pursuit of social mission.”
“The strength of social mission appears to have, at a rhetorical level at least, a powerful sway over how key actors work through issues.”
The study tracked three Fairtrade social enterprises, each operating and selling Fairtrade products in international markets, over a period of six years, in order to understand how management teams in social enterprises handled tensions.
Four core tensions arising in social enterprise governance narratives were identified: social/commercial benefits, conflicts of interest, producer participation, and resource pressures.
It was found that social enterprises are unlikely to resolve tensions by a reliance on new legal forms alone, and instead require explicit organisational processes and mechanisms that ensure overall direction, control and accountability for the dual mission.
The study recommends that social enterprise boards manage tensions with the following strategies:
- Clearly articulated short-term and long-term objectives
- Open discussion regarding tensions and trade-offs
- Flexible budgeting approaches
- The training of beneficiaries who have direct representation on the board
- Careful selection of board members to balance the boards with hybrid, social and commercial skills
- Socialisation of board members
- Avoid unanimous voting procedures
- Performance measurement that includes both financial and social performance measures (i.e. KPIs)
- New investment from social investors
A Fair Trade-off? Paradoxes in the Governance of Fair-trade Social Enterprises will be published in the Journal of Business Ethics later this year.