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Conflicts of interest beset social enterprises

Conflicts of interest beset social enterprises
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Conflicts of interest beset social enterprises

Finance | Vibeka Mair | 26 Feb 2008

Social enterprises are unlikely to achieve financial sustainability and it is unreasonable to expect them to do so, according to a new report from the Charities Aid Foundation (CAF).

The report, Social Enterprise in Practice, tracked the development of five new social enterprises over a five-year period. It found the organisations struggled with the added burden of economic outputs and financial returns, which came into conflict with their social concerns.

“Where social enterprise is intended to have both social and economic outputs, financial sustainability may not be feasible at all,” the report concluded.

It found organisations resented supporting new business initiatives at a cost to social activities.

Economic success was also particularly difficult to achieve for groups that employed disadvantaged or marginalised people. The report used the example of one social enterprise that earned its income supplying fruit and vegetables to franchised traders with difficult backgrounds.

While some traders' behaviour, such as using bad language, threatened the organisation’s sales income, it struggled to suspend the offending traders because doing so would have clashed with its social mission.

Duncan Scott, research fellow at Manchester University and co-author of the report, said: “Social enterprises must not be judged on whether or not they rely too heavily on one form of funding, but whether they fulfil the goals they were set up to achieve. The prospects for social enterprises are mixed and it is imperative they acknowledge the tensions between the social and financial and not simply assume they can be organised out.”

Other problems identified in the report included the struggle for employees from outside the sector to accept a new economic mindset within a voluntary or community agency and the effectiveness of training and support for new social enterprises.

To address these tensions, the report recommended that staff receive training to understand the aims and objectives of the new social business with re-evaluation of the new vision at regular intervals.

It also said the social enterprise sector needed an extensive support network of trustees, advisers and business mentors, and that regional development agencies and local authorities should deliver socially-relevant support packages.

Richard Harrison, director of research at CAF, praised the report for raising awareness: “This research highlights how challenging it can be to juggle social altruism and trading. Even social enterprises experience ups and downs, and raising awareness of this can only lead to growth of an even stronger social enterprise sector in the future.”

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