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Social Enterprise, Non-Profit and For Profit: The Differences
While the most important difference between a social enterprise and any non-profit or for profit company is an emphasis on the balancing act between the mission and the (profit) margin, there are many specific business attributes unique to a social enterprise.
Corporate Accountability: Along with traditional financial and legal accountability, a social enterprise is responsible for constructive and voluntary accountability measures. These measure provide stakeholders with information on resource efficiency and whether or not the organization has met its objectives.
Governance: Many governance issues can be addressed in the social enterprise’s corporate bylaws. Similar to a non-profit, there is the heightened responsibility for moral governance of your organization as to fulfilling the organization’s mission.
Transparency: Social enterprises face the challenge of building trust with their stakeholders and thus have an additional incentive to provide ample amounts of transparency in their success metrics.
Compensation & Wages: This issue is significant for a social enterprise. A social enterprise falls somewhere between these extremes of a non-profit, which is limited to executive compensation that is reasonable and often pays staff employees below their market value, and a for profit, which can practically pay their executives and staff whatever they think is necessary for top performance. It is important to pay staff employees a wage that is competitive with the compensation rate for the same work in the for profit sphere. However, when it comes to executive compensation, it would reflect poorly on the social enterprises’ pursuit of their mission if the executive compensation even remotely resembled that of the for profit sphere.
Employee Ownership: Offering an Employee Stock Ownership Plan (ESOP) is a means of raising finances and saving money on payroll by offering shares of company stock to employees. An ESOP allows business owners to offer equity in the company in exchange for, most often, a reduced salary. Offering ESOPs to employees has the added benefit of promoting employees to take a vested interest in the company and its success and may be a good way for a social enterprise to free up additional capital.
Management & Worker Communication: Social enterprises are more often characterized by participative management from the employees than a traditional for profit business. Similarly to a non-profit, the employees are often dedicated to the organization’s mission and are likely to want to be involved in deciding the direction of the company.
Local Involvement: If the social enterprise’s mission is to address a local issue, than local involvement is going to be especially important.
Diversity: Improving the diversity of a company’s workforce is becoming a popular issue for all companies, for profit, non-profit and social enterprise. But as a companies with a mission, both social enterprises and non-profits can make it their goal to bring diversity to a multitude of professional, social or other group settings.
Civic Engagement & Giving: Especially for customers of a social enterprise’s business, a social enterprise business model provides a way to both give back to the community while receiving a quality product. This may be more attractive to consumers who don’t have the resources to make an outright donation but want to feel good about what companies they give their business to.
Environment: One of the key tenants of a social enterprise is a commitment to the triple bottom line: profit, people and planet. Environmental stewardship is an important part of a social enterprise’s role in the corporate world.