When Denis Moriarty founded Our Community – the parent company of the Institute of Community Directors Australia – in 1999, the term “social enterprise” was almost unheard of.
“Back then it wasn’t even talked about,” Denis says.
Now, thousands of Australian organisations are calling themselves social enterprises, some of them relying on a definition as loose as Donald Trump’s suit.
Denis should know. He used to sit on the board of an organisation that wheeled out the term in many of its grant applications, because it appealed to funders. “But it was no closer to a social enterprise than a bag of chaff.”
While there is no legal definition of a social enterprise, more authorities are recognising the form’s value.
Both Victoria and Queensland have social enterprise strategies aimed at encouraging the sector, and NSW is understood to be in the process of developing one, while a new federal employment white paper, Working Future, mentions social enterprises 19 times.
Social enterprise leaders and their peak bodies continue to press for national, state and territory plans for the sector.
But back to Our Community and its fledgling years. Denis’s first battle wasn’t about definitions of social enterprise; it was about ideology.
A better way to do business
Through the 1990s, while working in government and sitting on NFP boards, Denis had observed insatiable demand from small not-for-profits for information about grants and other funding opportunities. He noticed groups demonstrating incredible resourcefulness, but he also witnessed widespread inefficiencies.
He saw an opportunity to share resources on the Internet, and decided to set up an organisation to meet the need.
“I naturally thought it was going to be a not-for-profit, because I assumed that anything that wanted to do good had to be a not-for-profit, and that business was ‘evil’.”
But first-hand exposure to US and UK models opened Denis’s eyes to another way, one in which a special kind of business could generate a big social benefit, and a profit.
“I knew in my heart that I didn’t want to run it as a not-for-profit, and I also didn’t want to run it as a business.
“I wanted to invent a new thing that was doing good, that could look after its employees, but also that I could make some money out of, if I invested all of my energy and effort into building it. So that the more effort that I put into it, the more money I would make, and the more money I could give back.
Social capitalism: the way forward
The social enterprise model helped to convince investors to chip in to kick-start Our Community.
“It was easier to attract investment,” Denis says. “The only difference was that they weren’t going to get the normal rate of return, if they’d invested in a mining company, say.”
Seven social investors, including business identity Carol Schwartz, now a Reserve Bank board member, poured $1.45 million into getting Our Community off the ground.
Ms Schwartz maintains her connection as the chair of the Our Community board.
Early on, the company set out its “manifesto”, declaring its belief in the power of the community sector, human capital and equality, among many other commitments to making the world a better place.
In 2007, Our Community was recognised as an “uber-cool social capitalist company” in the Cool Company Awards, which celebrated companies prepared to defy convention to bring about positive change.
Several years later, Our Community was certified as a B Corporation (or benefit corporation), for meeting social, environmental and financial impact criteria.
The certification is recognised legally in the US, and B Corporations in other countries can use the certification to demonstrate their ESG credentials.
Denis said the process of becoming certified helped Our Community “articulate its framework for doing good” and the company was named “Best for Community” among B Corps globally for four years in a row, representing the top 10% of such companies.
But Our Community also found the process too US-focused and too “rigid”, so the business elected to drop its B Corp certification in 2020.
“We didn’t want to just have an assessment, but we wanted that commitment to social values written into our constitution.
“We were one of the first companies in Australia to legally mandate our social mission by spelling out our values in our constitution,” Denis says.
Our Community’s objects now declare that the company’s “commercial imperatives are afforded equal priority to its social mission, commitment to employees, and our responsibility to the environment and the communities in which we work”.
Denis believes it’s a path that more businesses could follow to “stop the madness of corporate greed”.
“If say BHP had in their constitution that they had to give equal weight to environmental and social good, they would be fundamentally a far better and more admired Australian company, rather than making profit their sole priority.”
He said the recent PwC saga showed the folly of “profit at all costs”, with the report by Ziggy Switkowski highlighting the pursuit of profits ahead of ethical responsibilities as the key cause of its recent tax scandal.
“I would argue that every business is part of the community and they have an equal obligation to contribute to society, other than just paying taxes,” Denis says.
Other Australian social enterprises are seeking formal certification through not-for-profit business Social Traders. Many governments recognise the certification in social procurement and grant applications.
Enterprise focus: the business imperative, but not at any price
Denis says lack of incentive can be a hindrance to not-for-profits. “Even if you spent the rest of your life working 100 hours a week, you’re going to be stuck earning a wage, so there was no incentive to take a whole lot of risk and work your guts out like most pioneers have done.”
“In our case, the business imperative was there from day one,” says Denis. “At the end of the day, we had to make a return. We couldn’t just keep on spending the money.
“I’m concerned that this latest crop of social enterprises are often one- or two-person bands, and there will be a high rate of failure.
“I see so many not-for-profits getting millions of dollars of government funding, then they run a few training courses, and they think it’s going to bring in a lot of money, but it’s bugger-all return.
“A year in, many just fall over, because there’s just that total lack of understanding of what a commercial entity should do.”
Our Community’s social imperative means it provides many service for free or at a low cost. For example, the majority of help sheets and resources on its websites are free for community groups, including a relatively new weekly news service aimed at the not-for-profit and charity sector.
“That’s our way of giving back,” Denis says. “But it’s the revenue from paid products and services that allows us to do those things.”
The need to raise cash, though, shouldn’t involve compromising your values, he says.
“If you’re suddenly cutting a whole lot of poor people off from services and saying, ‘We’re becoming a social enterprise,’ you’ll lose your constituency, you’re probably not following your values, and you’re probably not following your mission.”
“I don’t think community groups should turn themselves into social enterprises when there’s no need to.”
New directions: government support for social enterprise
Despite a proliferation of strategy documents and government reports on social enterprise over the past decade, there’s still no concrete legislation in Australia defining or regulating the sector.
Denis says he hopes new strategies to encourage investment in social enterprise will eventually tip the balance.
For example, Australia currently has no “in between” tax status: you’re a not-for-profit or you’re a business. He’d like to see tax breaks to enable social enterprises to direct more money towards their cause.
“Social enterprises must be able to do good, while being realistic about returning on that investment. And if the any government is spending taxpayers’ money, there should be a return on that investment of doing good that doesn’t just last one year, but lasts a long time.”
He notes that organisations such as the RSPCA are effectively already involved in social enterprise, even if they don’t label it that way. “In the old days, you’d just describe it as ‘earned income’.”
He also points to schools and sports groups that sell equipment or uniforms to raise cash as a form of social enterprise.
“They’re doing the things a social enterprise should do: earning income, and creating a revenue base to make themselves more sustainable, and to create expanded services.”
He says he would be sorely disappointed if the current government support for social enterprises took funds from the pockets of existing charities and not-for-profits.
“Encouraging social enterprises shouldn’t be a higher priority than basic services, and community organisations delivering vital services should not be disadvantaged.”
A future for not-for-profits: Keep your eyes open
Denis has this advice for community directors considering the social enterprise path: “I would urge board members: don’t just trust the not-for-profits [model], but start creating a better governance structure for NFPs.”
“They should ask their CEOs or general managers: What are the areas of earned income that we could be doing, and what are the options around social enterprise that our organisation could become?”
Critically, any organisation making the leap must be united on revenue and purpose.
“Don’t be half-hearted. If they don’t do it 100 per cent, it’s probably doomed to failure. It has to be a culture right through the organisation. You have to convince everyone that this is where we’re heading through the board level, the staff, and volunteers.”
Limited resources: Be realistic about the leap
Our Community’s seed funding was a carefully cultivated and developed investment, with a strong connection between investors and the organisation’s purpose.
But Denis warns there is a very limited pool of cash splashed by genuine social entrepreneurs.
“There’s lots of sharks who are purporting to invest in good social enterprises, and I know when we went years ago looking for social investors, you could count them on two hands.”
Legitimate social investors are “committed to the social sector” and “committed to working long term with people, not just getting a quick buck”. It’s important they’re not in it just for the money, he says, and they should be ready for a lengthy relationship.
“It’s a long journey.”