Navigating Social Enterprise ‘Tensions’

Governance issues need to be more visible in social enterprise debates in Australia, according to a Swinburne University academic who has authored a new study revealing that social enterprise demands a unique form of governance to tackle the tensions that emerge through competing social and financial goals.

Chris Mason of the Centre for Social Impact Swinburne at Swinburne University of Technology, Melbourne, co-authored A Fair Trade-off? Paradoxes in the Governance of Fair-trade Social Enterprises with Bob Doherty of the York Management School, University of York, UK, which suggests corporate governance theories are inadequate to address the different missions and expectations of social enterprise.

“Governance issues need to be more visible in social enterprise debates in Australia. We ask how well equipped social enterprises are when confronting the new challenges and opportunities in the coming years, such as the NDIS,” Dr Mason told Pro Bono Australia News.

“Unlike other organisations, social enterprises perform a particular blend of hybridity (between social goals and entrepreneurial means) and these competing logics appear to influence managerial tensions and challenges, particularly in the areas of mission, finance and management of people.

“Social enterprise boards, such as those with complex board arrangements in our study, use a mix of skills to negotiate through conflict, tensions and the pursuit of social mission.

“Maximising social impact comes at a cost – including the ongoing management of board relationships and making sure that social mission is front of centre of the board’s decision-making.

“The study provides significant evidence showing the complexity of social enterprise governance, and the need to for greater awareness about the particular tensions that boards face. Existing research does not satisfactorily explain why social enterprises may struggle to deliver social value through their governance arrangements.”

The study, which is to be published in The Journal of Business Ethics, tracked three Fairtrade social enterprises, each operating and selling Fairtrade products in international markets, over a period of six years, in order to understand how management teams in social enterprises handled tensions.

The research showed that shared purpose and a focus on the benefits of social mission helped governance teams move past the frustration of trying to balance that social mission with their desire to address pressing commercial needs.

“Some informants tempered their views by weighing the difficulties against the benefits brought by the governance model, who despite a number of serious challenges from both internal and external tensions have managed to overcome these difficulties due to a joint belief in the social mission,” the report said.

“The strength of social mission appears to have, at a rhetorical level at least, powerful sway over how key actors work through issues.”

According to the report, conflicting interests between board members were another common source of tension, for example, where board members may also be suppliers, customers or competitors.

“A number of board members suggest this makes discussions regarding new products, new marketing campaigns and changes in procurement very difficult. Therefore, being clear at the outset about potential role conflicts is important for transparency,” it said.

Desire for producer participation, for example, the involvement of farmers in the case of Fairtrade, along with resource pressures were also identified as having the potential to cause difficulties in governance.

The study suggests social enterprises are unlikely to resolve these tensions by a reliance on new legal forms alone – a significant finding in an Australian context where there is no formal legal structure for social enterprise.

Rather, the report suggests social enterprises require explicit organisational processes that ensure overall direction, control and accountability for the dual mission.

The study recommends that social enterprise boards manage tensions with the following strategies:

• Clearly articulated short-term and long-term objectives
• Open discussion regarding tensions and trade-offs
• Flexible budgeting approaches
• The training of beneficiaries who have direct representation on the board
• Careful selection of board members to balance the boards with hybrid, social and commercial skills
• Socialisation of board members
• Avoid unanimous voting procedures
• Performance measurement that includes both financial and social performance measures (i.e. KPIs)
• New investment from social investors