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Governance and social enterprise Spear, Cornforth and Aiken Open University, Milton Keynes, UK SERConference July 07 at Southbank University Spear: Founder.

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Presentation on theme: "Governance and social enterprise Spear, Cornforth and Aiken Open University, Milton Keynes, UK SERConference July 07 at Southbank University Spear: Founder."— Presentation transcript:

1 Governance and social enterprise Spear, Cornforth and Aiken Open University, Milton Keynes, UK SERConference July 07 at Southbank University Spear: Founder member of EMES network EMES Network Projects and Books Social entrepreneurship projects Aiken: EMES: Work Integration - PERSE Project Cornforth, C. (ed.) (2003) The Governance of Public and Non-profit Organizations: What Do Boards Do?, London: Routledge. The Researchers would like to gratefully acknowledge the support of the Governance Hub in this ongoing research, and the support and well-considered guidance of the Steering Group for the research

2 Overview of presentation Background characteristics of the social enterprise sector the nature of governance challenges and problems –theoretically and from policy/practice perspective. review the evidence in different types of social enterprise, new framework for analysing governance issues

3 Background: main/typical governance problems and challenges board recruitment: such as problems ‘recruiting/electing’ people with the right skills and experience; and areas of expertise that are commonly lacking board roles: some roles may be problematic for the board to fulfill (safeguarding values and mission; shaping strategy; risk assessment; ensuring effective performance; ensuring board operates in responsible and accountable manner; maintaining an effective board; compliance with external (government) demands and measures;) problems in managing relationships with management –boards becoming a rubber stamp or conversely interfering too much problems in managing relationships with funders (e.g. funders in public contracts) managing the tension between social and business goals managing member relations and involvement managing the demands of different stakeholders and regulators.

4 Approach Commonly recognized types of social enterprise trading voluntary and community organisation Community businesses Co-operatives Credit unions Development Trusts Fair trade companies Work integration SEs Social firms, etc Legal Structures

5 The social enterprise field 2005 statistics (research conducted in 2004) 15,000 social enterprises in the UK 2006 statistics (research conducted in 2005) This revealed at least 55,000 social enterprises in the UK Sole traders excluded Legal and Regulatory frameworks

6 Relevant research in the field Context: globalization and deregulation; market for corporate control; business ethics + CSR main thrust of reform in the corporate sector : –strengthening the position of owner/shareholders in relation to senior managers (mainly drawing on principal/agency theory), via financial incentives for chief executives, better monitoring and reporting practices, –emphasis on strengthening the market for corporate control; or at least ensuring it is unrestricted (for mergers and acquisitions).

7 Making sense of corporate governance and the role of boards Main theories (often developed wrt the private sector): Managerial hegemony theory Agency theory Stewardship theory Stakeholder theory Resource dependency theory (all have their advocates, detractors and variants)

8 THEORYAssumptionsBoard member role Main board function Key issues Principal-Agent theoryOwners’ interests may differ from managers’ interests Supervisor (Chosen to represent owners interests, and be independent of management) Conformance: - Safeguard owners resources and interests - Supervise management/staff Emphasis on control may stifle innovation and risk taking, and reduce staff motivation Stewardship theoryOwners and managers have similar interests Partner (Chosen for expertise) Improving Performance: - add value to top decisions/strategy - partner management Management proposals and systems may not be given adequate scrutiny. Stakeholder theoryDifferent stakeholder have legitimate but different interests in the organisation. ‘Represent’ different stakeholder views Political: - represent and balance different stakeholder interests - make policy - control executive Board members may promote stakeholder interests rather than the organisation’s. May be difficult to agree objectives. Resource dependency theoryOrganisational survival depends on maintaining coalition of support to obtain resources and legitimacy Supporter (Chosen for influence or resources they may bring.) External influence: - secure resources - improve stakeholder relations - bring external perspective External focus of board members may mean internal supervision is neglected. Board members may lack expertise. Managerial hegemony theoryOwners and managers have different interests, but managers control main levers of power. Symbolic Legitimacy: -ratify decisions -support management -give legitimacy Management may pursue own interests at expense of ‘owners’, managers gain little of value from board.

9 Key governance paradoxes: Who governs – ‘experts’ vs ‘stakeholders’ Board roles – ‘conformance’ vs ‘performance’ Relationship with management – supervision vs support Multiple or ambiguous accountability

10 Research Findings Trading charities –Cautious care vs risky entrepreneurship Social Firms –Charity people usually don’t recognise a SF is a business; they often treat a SF as ‘just another project’ –contrasting views on paying board members –board/manager poor performance are often interlocked - avoid rocking the boat –issues about supporting board members with disabilities

11 Research Findings Health social enterprise –Board diversity rules KO (users, M-S,etc) –Issue of clinicial governance + clinicians –Transitions: constructing a field; constructing markets –Scale/partnership issues: Gershon –accountability issue -- it appears that the board is only accountable to itself –pensions -- transferring of NHS pensions

12 Research Findings Small business social enterprise transitions -- small businesses moving into social/community service sectors ‘Governance for busy entrepreneurs’ - commercial people often come from situations where little in the way of governance structure. ‘They only realise they need governance when applying for grants’ ‘The more enterprising don’t want to be hampered with all that (governance stuff).’

13 Research Findings Leisure Trusts –multi-stakeholder boards: the different ‘hats’ people wear >> the board team –tensions around managing the social mission: one very clear line is that taken by one LT ‘Our principle is that you can’t give away what you don’t have” –Board advise but CEO needs the power to act; – ‘having an effective chair to the board is very important.’ –sustaining core values: expansion can cause tensions, especially around core democracy

14 Member-based structures pragmatic advice, for example on best methods of voting; how should they manage their AGM/members complexity of institutional choice, and poor or misleading advice which comes back to haunt the governance structure eg find they can’t be on the board good provision for rotation/removal - “founderitis” where founders won't move on, and “sitiritus” where people like sitting on boards drawing the boundary ‘deciding what is and what is not a board issue’

15 Credit unions Getting required skills and competencies on boards, (this could be through requiring more formalised training as in other countries). This applies particularly to financial management and strategic management skills. Many on the boards don't have financial skills. The struggle between different models of board operation ie representing members versus providing expertise. The development of a more professional sector - including succession planning for the board. Transitions, and problems with management -- some boards rubber stamp decisions. This is a particular problem with grassroots driven types of credit unions, where directors used to be hands-on; where the credit union was informal with volunteers carrying out operational duties. As they grow and evolve boards are moving to more formal arrangements, where some find it difficult to allow staff to manage Two Models: vol/informal vs larger professional Government policy: to encourage prioritisation of financial inclusion and poverty goals, rather than normal business development.

16 Football Supporters’ Trusts From the perspective of this research they are hybrid structures for enhancing user involvement, ownership and participation; they represent a self-organising model for involving one type of stakeholder – in this case users of the clubs services (football supporters) – moving them beyond mere consumers of services (albeit often passionate and committed ones!), to more active stakeholders.

17 Towards a new framework for understanding governance the paradox of entrepreneurs driving improved governance small organisations boundaries between governance, management and operational matter can be very blurred. Often advice and support materials are not so appropriate for these organisations

18 Towards a new framework for understanding governance Member-led/mutual organisations Often problems in attracting people with appropriate skills to serve on board, people get involved because they are interested in the ‘cause’ rather than governance Election process can mean boards to not have ‘appropriate’ skill mix Problem of maintaining membership involvement and commitment, particularly as the organisation grows and becomes more professionally led. Public sector spin-offs/hybrids Managing multi-stakeholder boards Managing staff involvement and control Managing tensions between staff who are members and those who are not Developing appropriate mechanisms to involve users Managing contracting relationships

19 Towards a new framework for understanding governance Social enterprises with charitable origins Problem of moving away from ‘charity’ culture – may not be sufficiently business like e.g. may lack sustainable business model, be risk averse May find it difficult to ‘recruit’ board with business skills Can be problems with contracting e.g. over full-cost recovery; over dependence on key sources of funding. Social enterprises with small business origins business people moving into SE sector, not always recognising need for transparency and accountability; getting pressure from funding requirements, and concerns about Governance.

20 Towards a new framework for understanding governance * A common theme is: the range of governance structures goes from: Small informal to larger more formal professional, with different issues associated. Eg some issues of insularity with small informals * Multi-stakeholder structures – issues about how to manage different interests * Influence of regulatory structures on boards: can be quite demanding, requiring a number of changes * Involving users: a wide variety of ways of addressing this including users on boards * Location and expertise? Eg Few inner city accountants ready to sit on SE boards? * A lot of specific issues that can arise around different types (see types below): eg1 business people moving into SE sector, getting pressure to shape up through Governance requirements eg 2. Charities overdoing governance and procedural stuff, and so hampering entrepreneurial activity * contracting issues – not just public sector, but also subcontracting with private business * Policy frameworks shaping/constraining business choices eg CUs focus on inner city financial exclusion. * Transitions: a lot of trends eg towards increasing emphasis on governance; but also organisations in transition – moving into contracting, moving from small business, spinning off from public sector

21 Theoretically based Governance Differences Member based boards (user/producer controlled) insular, weaker expertise? Community controlled (multi stakeholder and democratic) Hybrids (particularly combination of member based and trust based structures) Multi stakeholder boards may have greater social capital, but are potentially more conflictual; Trust based: with strong missions, and self appointing boards; less accountable

22 Towards a Multi-stakeholder theory of governance Efficiency costs: Transaction costs internalised and potential for goal conflicts, etc But social effectiveness: Strength of community linkages (legitimacy) Incorporation of external stakeholders User involving structures Economic advantage: Better link to multiple resources (incl. social capital) Greater legitimacy for redistributive resources Stakeholder involvement at municipal level governance vs corporate governance level

23 Diagram: 1 Governance Structure Vs origin of org/culture (include NSM) MutualPublic sector spin offs CharityNew social movement Small firms Members Hybirds Trustee

24 Conclusions:Towards a new framework for understanding governance

25 Critique of theories and possible way forward Critique: one dimensional only illuminating a particular aspect of board’s role need for integration One way forward - a paradox perspective: Morgan (1986) – need multi-paradigm perspective to understand organisational realities Many management problems require managing tensions and differences rather than choosing between them Contrasting theories or perspectives can act as ‘sensitising’ device to highlight potential paradoxes (Lewis, 2000)

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