Governance and social enterprise

1
Governance and social enterprise

• Spear, Cornforth and Aiken Open University,
  Milton Keynes, UKSERConference July 07 at
  Southbank University
• Spear Founder member of EMES network
• EMES Network Projects and Books
• Social entrepreneurship projects
• Aiken EMES Work Integration - PERSE Project
• Cornforth, C. (ed.) (2003) The Governance of
  Public and Non-profit Organizations What Do
  Boards Do?, London Routledge.
• The Researchers would like to gratefully
  acknowledge the support of the Governance Hub in
  this ongoing research, and the support and
  well-considered guidance of the Steering Group
  for the research

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Overview of presentation

• Background
• characteristics of the social enterprise sector
• the nature of governance challenges and problems
• theoretically and from policy/practice
  perspective.
• review the evidence in different types of social
  enterprise,
• new framework for analysing governance issues

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Background main/typical governance problems and
challenges

• board recruitment such as problems
  recruiting/electing people with the right
  skills and experience and areas of expertise
  that are commonly lacking
• board roles some roles may be problematic for
  the board to fulfill (safeguarding values and
  mission shaping strategy risk assessment
  ensuring effective performance ensuring board
  operates in responsible and accountable manner
  maintaining an effective board compliance with
  external (government) demands and measures)
• problems in managing relationships with
  management boards becoming a rubber stamp or
  conversely interfering too much
• problems in managing relationships with funders
  (e.g. funders in public contracts)
• managing the tension between social and business
  goals
• managing member relations and involvement
• managing the demands of different stakeholders
  and regulators.

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Approach

• Commonly recognized types of social enterprise
• trading voluntary and community organisation
• Community businesses
• Co-operatives
• Credit unions
• Development Trusts
• Fair trade companies
• Work integration SEs
• Social firms, etc
• Legal Structures

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The social enterprise field

• 2005 statistics (research conducted in 2004)
• 15,000 social enterprises in the UK
• 2006 statistics (research conducted in 2005)
• This revealed at least 55,000 social enterprises
  in the UK
• Sole traders excluded
• Legal and Regulatory frameworks

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Relevant research in the field

• Context globalization and deregulation market
  for corporate control business ethics CSR
• main thrust of reform in the corporate sector
• strengthening the position of owner/shareholders
  in relation to senior managers (mainly drawing on
  principal/agency theory), via financial
  incentives for chief executives, better
  monitoring and reporting practices,
• emphasis on strengthening the market for
  corporate control or at least ensuring it is
  unrestricted (for mergers and acquisitions).

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Making sense of corporate governance and the role
of boards

• Main theories (often developed wrt the private
  sector)
• Managerial hegemony theory
• Agency theory
• Stewardship theory
• Stakeholder theory
• Resource dependency theory
• (all have their advocates, detractors and
  variants)

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THEORY Assumptions Board member role Main board function Key issues
Principal-Agent theory Owners interests may differ from managers interests Supervisor (Chosen to represent owners interests, and be independent of management) Conformance - Safeguard owners resources and interests - Supervise management/staff Emphasis on control may stifle innovation and risk taking, and reduce staff motivation
Stewardship theory Owners and managers have similar interests Partner (Chosen for expertise) Improving Performance - add value to top decisions/strategy - partner management Management proposals and systems may not be given adequate scrutiny.
Stakeholder theory Different stakeholder have legitimate but different interests in the organisation. Represent different stakeholder views Political - represent and balance different stakeholder interests - make policy - control executive Board members may promote stakeholder interests rather than the organisations. May be difficult to agree objectives.
Resource dependency theory Organisational survival depends on maintaining coalition of support to obtain resources and legitimacy Supporter (Chosen for influence or resources they may bring.) External influence - secure resources - improve stakeholder relations - bring external perspective External focus of board members may mean internal supervision is neglected. Board members may lack expertise.
Managerial hegemony theory Owners and managers have different interests, but managers control main levers of power. Symbolic Legitimacy ratify decisions support management -give legitimacy Management may pursue own interests at expense of owners, managers gain little of value from board.
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Key governance paradoxes

• Who governs experts vs stakeholders
• Board roles conformance vs performance
• Relationship with management supervision vs
  support
• Multiple or ambiguous accountability

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Research Findings

• Trading charities
• Cautious care vs risky entrepreneurship
• Social Firms
• Charity people usually dont recognise a SF is a
  business they often treat a SF as just another
  project
• contrasting views on paying board members
• board/manager poor performance are often
  interlocked - avoid rocking the boat
• issues about supporting board members with
  disabilities

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Research Findings

• Health social enterprise
• Board diversity rules KO (users, M-S,etc)
• Issue of clinicial governance clinicians
• Transitions constructing a field constructing
  markets
• Scale/partnership issues Gershon
• accountability issue -- it appears that the board
  is only accountable to itself
• pensions -- transferring of NHS pensions

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Research Findings

• Small business social enterprise
• transitions -- small businesses moving into
  social/community service sectors
• Governance for busy entrepreneurs - commercial
  people often come from situations where little in
  the way of governance structure. They only
  realise they need governance when applying for
  grants
• The more enterprising dont want to be hampered
  with all that (governance stuff).

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Research Findings

• Leisure Trusts
• multi-stakeholder boards the different hats
  people wear gtgt the board team
• tensions around managing the social mission one
  very clear line is that taken by one LT Our
  principle is that you cant give away what you
  dont have
• Board advise but CEO needs the power to act
• having an effective chair to the board is very
  important.
• sustaining core values expansion can cause
  tensions, especially around core democracy

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Member-based structures

• pragmatic advice, for example on best methods of
  voting how should they manage their AGM/members
• complexity of institutional choice, and poor or
  misleading advice which comes back to haunt the
  governance structure eg find they cant be on the
  board
• good provision for rotation/removal -
  founderitis where founders won't move on, and
  sitiritus where people like sitting on boards
• drawing the boundary deciding what is and what
  is not a board issue

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Credit unions

• Getting required skills and competencies on
  boards, (this could be through requiring more
  formalised training as in other countries). This
  applies particularly to financial management and
  strategic management skills. Many on the boards
  don't have financial skills.
• The struggle between different models of board
  operation ie representing members versus
  providing expertise.
• The development of a more professional sector -
  including succession planning for the board.
• Transitions, and problems with management -- some
  boards rubber stamp decisions. This is a
  particular problem with grassroots driven types
  of credit unions, where directors used to be
  hands-on where the credit union was informal
  with volunteers carrying out operational duties.
  As they grow and evolve boards are moving to
  more formal arrangements, where some find it
  difficult to allow staff to manage
• Two Models vol/informal vs larger professional
• Government policy to encourage prioritisation of
  financial inclusion and poverty goals, rather
  than normal business development.

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Football Supporters Trusts

• From the perspective of this research they are
  hybrid structures for enhancing user involvement,
  ownership and participation they represent a
  self-organising model for involving one type of
  stakeholder in this case users of the clubs
  services (football supporters) moving them
  beyond mere consumers of services (albeit often
  passionate and committed ones!), to more active
  stakeholders.

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Towards a new framework for understanding
governance

• the paradox of entrepreneurs driving improved
  governance
• small organisations boundaries between
  governance, management and operational matter can
  be very blurred. Often advice and support
  materials are not so appropriate for these
  organisations

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Towards a new framework for understanding
governance

• Member-led/mutual organisations
• Often problems in attracting people with
  appropriate skills to serve on board, people get
  involved because they are interested in the
  cause rather than governance
• Election process can mean boards to not have
  appropriate skill mix
• Problem of maintaining membership involvement and
  commitment, particularly as the organisation
  grows and becomes more professionally led.
• Public sector spin-offs/hybrids
• Managing multi-stakeholder boards
• Managing staff involvement and control
• Managing tensions between staff who are members
  and those who are not
• Developing appropriate mechanisms to involve
  users
• Managing contracting relationships

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Towards a new framework for understanding
governance

• Social enterprises with charitable origins
• Problem of moving away from charity culture
  may not be sufficiently business like e.g. may
  lack sustainable business model, be risk averse
• May find it difficult to recruit board with
  business skills
• Can be problems with contracting e.g. over
  full-cost recovery over dependence on key
  sources of funding.
• Social enterprises with small business origins
• business people moving into SE sector, not always
  recognising need for transparency and
  accountability getting pressure from funding
  requirements, and concerns about Governance.

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Towards a new framework for understanding
governance

• A common theme is the range of governance
  structures goes from Small informal to larger
  more formal professional, with different issues
  associated. Eg some issues of insularity with
  small informals
• Multi-stakeholder structures issues about how
  to manage different interests
• Influence of regulatory structures on boards
  can be quite demanding, requiring a number of
  changes
• Involving users a wide variety of ways of
  addressing this including users on boards
• Location and expertise? Eg Few inner city
  accountants ready to sit on SE boards?
• A lot of specific issues that can arise around
  different types (see types below)
• eg1 business people moving into SE sector,
  getting pressure to shape up through Governance
  requirements
• eg 2. Charities overdoing governance and
  procedural stuff, and so hampering
  entrepreneurial activity
• contracting issues not just public sector,
  but also subcontracting with private business
• Policy frameworks shaping/constraining business
  choices eg CUs focus on inner city financial
  exclusion.
• Transitions a lot of trends eg towards
  increasing emphasis on governance but also
  organisations in transition moving into
  contracting, moving from small business, spinning
  off from public sector

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Theoretically based Governance Differences

• Member based boards (user/producer controlled)
  insular, weaker expertise?
• Community controlled (multi stakeholder and
  democratic)
• Hybrids (particularly combination of member based
  and trust based structures)
• Multi stakeholder boards may have greater social
  capital, but are potentially more conflictual
• Trust based with strong missions, and self
  appointing boards less accountable

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Towards a Multi-stakeholder theory of governance

• Efficiency costs Transaction costs internalised
  and potential for goal conflicts, etc
• But social effectiveness
• Strength of community linkages (legitimacy)
• Incorporation of external stakeholders
• User involving structures
• Economic advantage Better link to multiple
  resources (incl. social capital)
• Greater legitimacy for redistributive resources
• Stakeholder involvement at municipal level
  governance vs corporate governance level

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Diagram 1 Governance Structure Vs origin of org/culture (include NSM)
Mutual Public sector spin offs Charity New social movement Small firms
Members
Hybirds
Trustee
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ConclusionsTowards a new framework for
understanding governance
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Critique of theories and possible way forward

• Critique
• one dimensional only illuminating a particular
  aspect of boards role
• need for integration
• One way forward - a paradox perspective
• Morgan (1986) need multi-paradigm perspective
  to understand organisational realities
• Many management problems require managing
  tensions and differences rather than choosing
  between them
• Contrasting theories or perspectives can act as
  sensitising device to highlight potential
  paradoxes (Lewis, 2000)