Enabling social enterprise through regulatory innovation: a case study from the United Kingdom

Abstract

Social enterprise, broadly defined as the innovative use of resources to achieve social goals, is an expanding part of the global economy that has the potential to address pressing social problems ranging from education to health care. It is a growing component of what is often referred to as the third sector; the part of the economy that encompasses organizations that are neither governmental nor for-profit business institutions. Within the last two decades, governments have begun to take note of this trend and make policy changes to support the sustained emergence of these enterprises. One policy option that has recently emerged in Europe and the United States is the creation of a separate regulatory framework for social enterprises via new forms of legal organization. This article explores the effectiveness of one new type of social enterprise legal organization, the UK's Community Interest Company. By analysing data collected from the UK's National Survey of Third Sector Organisations in 2009, this article asks whether organizations operating as Community Interest Companies exhibit some of the characteristics that policy makers intended to foster when drafting the new legislation? Our findings suggest that the hypothesized relationship is positive in both these cases but the results of the analysis support only a positive relationship between community interest companies and prioritization of earned income. Community interest companies are more likely to rely on earned income for at least 50% of their funding than any other organizational form among third sector organizations.

Keywords:

• social enterprise
• social entrepreneurship
• Community Interest Company
• innovation
• regulation
• third sector

Acknowledgements

This work would not have been possible without the support and guidance from Dr Gillette Hall. I would also like to express my special thanks to Dr Steven R. Smith and Dr Tessa Hebb for their invaluable feedback regarding the content of this research as well as Tom Neeley, Natalie Rico, Qursum Qasim, Rachel Bodily, Julie Biau, Rachel Bodily, Clifton Yin, Woubedle Alemayehu, and Erin Lynch-Klarup for their input during development.

Notes

This article acknowledges a recent controversy surrounding Muhammad Yunus and the Grameen Bank. However, this should not detract from the original power of the idea of micro-finance and the scale to which it has currently reached.

For a more in-depth description of these legal frameworks, refer to Appendix A.