York St John UniversityUniversities Developing Social Entrepreneurship

1st – 3rd September 2015

The FairShares Model: an ethical approach to social enterprise development?

Published paper available from: http://hrcak.srce.hr/ojs/index.php/ekonomski-vjesnik/article/view/3157

Dr Rory Ridley-Duff, Reader in Co-operative and Social EnterpriseSheffield Business School, Sheffield Hallam University

Contact: r.ridley-duff@shu.ac.uk

Reader Director Co-Founder

Presentation Overview

• Starting Point: "What impact do ethical values in the FairShares Model have on social entrepreneurial behaviour?"

• Literature: articulate a theory of social enterprise based on three modes of trading underpinned by different ethical commitments.– mutual trading (cooperative and mutual enterprises) - CMEs

– responsible trading (socially responsible businesses) - SRBs

– philanthropic trading (charitable trading activities) - CTAs

• Case study: examine abstract conceptualisations and practical examples of the FairShares Model.

• Contribution: a fourth approach based on solidarity between stakeholders?

Ridley-Duff, R. (2015) “The FairShares Model: an ethical approach to social enterprise development? Econviews, 28(1).

Polanyi’s Three Economic Systems

• Reciprocity (‘Third System’ rooted in civil society) - Oldest

– Production for use (and exchange if surplus to requirements); production for family / community need; some provision for inter-community trading / support; little need for written records of market exchange.

• Redistribution (‘Second System’ rooted in public policy)

– Central taxation / philanthropic giving; spending according to political priorities; local, regional, national and international associations and governments; tax / donor contributions recorded, spending / receipts recorded.

• Market Exchange (‘First System’ based on markets) - Newest

– Production entirely for market exchange/profit; newest approach, previously peripheral, now dominant; all transaction costs and market prices recorded for decision-making and control.

Polanyi, K. (2001/1944). The Great Transformation. Boston: Beacon Press.

Polanyi’s Three Economic Systems

Source: Ridley-Duff and Bull (2015), Figure 2.6.

'Socialised Enterprises’and 'Social Purpose Enterprises’

• In research on The Social Enterprise Mark (2012), five social enterprise ‘theories in use’ were evaluated using the concepts of ‘socialisation’ and ‘social purpose’:

– Socialised enterprise (pluralist) as a process of developing public/social rights so that primary stakeholders* become owners and controllers of (financial, social and human) capital, and;

(socially rational business – relationship quality)

– Social purpose enterprise (unitary) as the pursuit of public/community benefit through business activity driven by social goals

(economic rationality – task efficiency)

Ridley-Duff, R. J. and Southcombe. C. (2012) “The Social Enterprise Mark: a critical review of its conceptual dimensions”, The Social Enterprise Journal, 8(3): 178-200

* Producers, Employees, Consumers and Service Users

Mutual Trading in Socialised Enterprises (CMEs)Legal Forms: Cooperatives, Mutuals, Employee-Owned Business, Social / Solidarity Economy Legal Forms

Distinguishing Characteristics and Ethical Commitments Socialisation Social Purpose

Is (co-)owned by one or more of its primary stakeholders (workforce, customers and/or service users)

129 38

Offers membership to primary stakeholders (workforce, customers, service users)

117 43

Ensures that most (or all) of its assets are used for member, community and public benefit

139 70

Governed by one or more of its primary stakeholders (workforce, customers, service users)

121 56

Continuously encourages cooperative working / networking 112 76 Allows members to equitably contribute to, and receive

distributions of, capital/surpluses82 53

Provides technical and political education/training to its members (staff, users and elected representatives)

95 69

Social enterprise as anethical commitment to mutual trading

Based on 136 responses from social enterprise lecturers, researchers and post-graduate students for Ridley-Duff and Bull (2015), Table 2.2

Responsible Trading in Socially Responsible Businesses (SRBs)Legal Forms: Social Welfare Corp (Asia), Social / Community Enterprises (EU), B-Corps, Low-Profit Corps (US)

Distinguishing Characteristics and Ethical Commitments Socialisation Social Purpose

Is not owned or controlled by a private company or public authority

87 78

States (and reviews) its ethical values and principles 76 70

Provides at least some paid employment 60 67

Provides evidence that it makes a positive social impact and/or runs for community benefit

69 83

Educates the public about the benefits of its business model

83 106

Receives most of its income from trading activities, not grants or donations

71 95

Social enterprise as an ethical commitment to responsible trading

Based on 136 responses from social enterprise lecturers, researchers and post-graduate students for Ridley-Duff and Bull (2015), Table 2.2

Charitable Trading Activities in Social Purpose Enterprises (CMEs)Legal Forms: Foundations, Trading Charities, NGOs, Non-Profit Associations / Companies

Distinguishing Characteristics and Ethical Commitments Socialisation Social Purpose

Continuously produces and/or sells goods and services to improve social/environmental well-being

67 98

Reinvests most of its surplus/profit back into its social/environmental purpose

71 104

Makes clear statements about its social and/or environmental purposes/objectives

59 97

Balances member (stakeholder) needs with sustainable development goals

44 88

Discourages a ‘for-profit’ mind-set by limiting the distribution of surpluses/profits for private benefit

52 114

Based on the actions of citizens voluntarily working together to meet a need

51 115

Has members/founders who bear a significant level of economic risk during venture/project creation.

56 121

Social enterprise as anethical commitment to charitable trading

Based on 136 responses from social enterprise lecturers, researchers and post-graduate students for Ridley-Duff and Bull (2015), Table 2.2

Social Enterprise – Theory Summary

• Cooperative and Mutual Enterprises (CMEs) that are defined by ethical commitments to (and innovative systems for advancing) trade through democratic / inclusive enterprises.

• Socially Responsible Businesses (SRBs) that are defined by ethical commitments to (and technologies for) sustainable development and the creation of ‘shared value’ in markets.

• Charitable Trading Activities (CTAs) that are defined by ethical commitments to produce only public benefits and the delivery of public / community services.

Using this theory to examine The FairShares Model

• Goal: see if ‘espoused theories’ (abstract conceptualisations) are influencing ‘theories in use’ (practice) (Argyris et al., 1985; Smith, 2001)

• Approach: naturalistic inquiry (Lincoln and Guba, 1985)

• Sensemaking: through engagement in reflexive analysis of research impacts on the inter-subjective construction of social enterprise practices (Van Maanen, 2011)

• Writing up: present as a realist ethnography to ‘objectify self’ and see impact more clearly? (Van Maanen, 1998)

• Key Test: If ‘espoused theories’ have catalytic validity they will have influence ‘theories in use’ (Kinchloe & McClaren,

1988; Johnson et al., 2006).

The FairShares Model(interview evidence of antecedent models)

Practitioner influences cited Theoretical influences cited

Stakeholder Model Ltd Kermase Food Co-operative Fair Trade Movement Renewable Energy Corporation Ltd Lippy People (Media/Arts) North East Music Co-operative Ltd Political debates (‘Clause 4’ and common ownership).

• Co-operative journals / readings • Paul Golan and Anthony Jensen’s writings on industrial

relations• (opposition to) Charlie Cattell’s single stakeholder / common

ownership model

Co-operative CIC Co-operative Legal Services Co-operative movement members UK Labour Government (1997 – 2003) Industrial and Provident Society Law

• Rochdale Principles• ICA Co-operative Values and Principles• Social Justice principles of New Labour

(N.B. no single author cited)

NewCo Model Sheffield Community Economic Development Unit ESP Projects Ltd

• Readings on ‘political economy’ • Karl Polanyi (“Great Transformation”)• "Third Way" Debates

Surplus Sharing Social Enterprise Model Democratic Business Ltd (Gavin Boby) Sheffield Co-op Development Group (Alan Dootson) School Trends Ltd (Peter Beeby and Rick Norris) Employee Ownership Association (under David Erdal) Mondragon Corporation (Mikel Lezamiz) Dr Poonam Thapa (Nepalese Social Entrepreneur)

• Co-operative and Social Enterprise Journals• Guy Major and Gavin Boby’s writings on ‘equity devaluation’

and ‘value added sharing’• Community Company Model (Coad and Cullen, 2001)

N.B. Major and Boby presented findings in a conference on Vanek’s work. They make specific mention of The Democratic Firm by David Ellerman as a key source.

Founder Shares

Espoused Theory (Impact of antecedents on design principles)

Social Entrepreneurship Worker Co-operationConsumer Co-operation

Case 7.2 - Co-operative CIC

Case 7.4 - Surplus Sharing Social Enterprise

Case 7.1 - Stakeholder Model Ltd

Labour SharesUser Shares

Investor Shares

Supporting Institutions

FairShares Model

Case 7.3 - NewCo

Espoused Theory (Values and Principles)

wealth and power sharing with primary stakeholders; ethical review of the choice of goods/services offered; ethical review of production and retailing processes; specification of social purpose(s) and auditing of social impact(s); a social democratic model for the ownership, governance and management of capital

Theory in Use: Impact on FairShares Association (FA) Governance

Taking a closer look: https://www.loomio.org – three stakeholder structure with evidence of voting extended to non-members for some decisions.

Theory in Use: Impact on FairShares Model Education (FME)

Taking a closer look: https://www.loomio.org – evidence of students deliberating in four stakeholder groups.

Theory in Use: FairShares Model adoption by Massmosaic (new)

Evidence of commitment to CME characteristics

Abstract Models Practice Examples

Mutual Trading (CMEs) Co-op Company Association FA FME

Co-owned by one or more of its primary stakeholders

Yes Yes No No Yes

Offers membership to primary stakeholders

Yes Yes Yes Yes Yes

Ensures that most (or all) of its assets are used for member, community and public benefit

All three All three Community and Public

Community and Public

All three

Governed by one or more of its primary stakeholders

Yes Yes Yes Yes Yes

Continuously encourages cooperative working / networking

Yes Yes Yes Yes Yes

Allows members to equitably contribute to, and receive distributions of, capital/surpluses

Yes Yes Contribute only

 

Contribute only

Yes

Provides technical and political education/training to its members

Yes Yes Yes Yes Yes

 Socialised Enterprise

Discussion• Very early days, but there is evidence that ‘espoused

theories’ are influencing ‘theories in use’.

• Three / four stakeholder model activity (Founders, Labour, Users) found at the FairShares Association (+community forum), and four stakeholder model (Founders, Labour, Users and Investor) carried into educational activities at two universities.

• Four stakeholder model (Founders, Employees, Customers, Investors) adopted by Massmosaic.

• One-person, one-vote occurring, and multi-stakeholder co-operation occurring.

• Research findings suggest practices can go beyond the abstract model (e.g. voting for non-members in FA example).

• ‘Catalytic validity’ of the FairShares Model established.

Key Finding / Contribution

The FairShares Model varies to fit the regulatory requirements of CMEs, SRBs and CTAs.

However, perhaps just as significant is the application of social solidarity amongst multiple stakeholders across all legal forms.

ReferencesSee published paper at:

http://hrcak.srce.hr/ojs/index.php/ekonomski-vjesnik/article/view/3157

Contact: r.ridley-duff@shu.ac.uk

For more on FairShares:

www.fairshares.coop