THE BLOG
17/09/2015 12:03 BST | Updated 15/09/2016 06:12 BST

Changing the World of Social Enterprise Governance

Governance is rarely high on a social business' agenda. In fact when setting up a social enterprise, the CEO or Director gets a business plan together and starts to look at how to make it operational while generally remaining answerable to no one except those who may have financed the business. For charities the issue of governance has greater significance because they need a Board of Trustees in keeping with the Charities Act 2011 and if the organisation is incorporated, Companies Act 2006.

Governance is associated with the word compliance which has risk aversion and apprehension at its core. Getting a Board together is no mean feat as you are asking someone to get involved on a voluntary basis including taking on the liabilities and stresses of a Board member. Small charities require people with time, commitment and a willingness to get their hands dirty but not so to confuse their role with the paid staff. It's quite a minefield.

Social enterprises, in their many iterations, are finally waking up to the challenges of governance. LEYF has remained a charitable social enterprise to ensure we could use a governance structure familiar to most people. The Board provides checks and balances to support the CEO to lead the organisation. While pragmatic, it is not always ideal. The main reason for that is a charitable social enterprise is a hybrid. It's a business driving change, innovation and growth in order to do business by doing good, but it's also a charity accountable to a Board of unpaid volunteers who take on the role of Trustees to ensure we are operating within the charitable rules and guidance and ensuring that our memorandum and articles secure our asset lock.

And there lies the rub; because the business is all about innovation and growth while the governance structure is more about checks and asset lock. So in order to consider a new approach to governance that will work for social businesses we need to merge charitable boards and business board practices into a new shape that brings the best of both and shapes a new governance structure that is fit for purpose but still holds us to account.

I must admit that when Big Society Capital agreed to host a Roundtable to start this conversation I was mighty pleased. I felt BSC was well placed to get this going given so much of the due diligence for any social business seeking investment or loans is shaped around governance. The success of getting the capital is much higher when the business has a solid Chair, a Treasurer willing to take a keen interest in the process and a Board that has fully appraised the deal. At LEYF I am lucky to have all those and more on my Board but that has taken time to build and it has not been the easiest journey.

It is well known that the ongoing challenge to all Boards but especially Charity Boards can be summarised as:

• getting the right Board members, avoiding mediocrity and getting rid of dead wood.

• balancing strategy with operations in order to keep an overview of the charity.

• having enough time to build and nurture a Board of busy people.

• avoiding the clash of egos and values.

• receiving the right papers at the right time in a helpful way.

• making decisions that weighs risk with impact.

• helping the CEO and the team navigate through the complexities of the wider economic, social and policy world.

If charity boards, which have been around over 200 hundred years, find this difficult, then we cannot expect that social enterprise will be able create a model of governance at speed despite our reputation for pragmatic innovation. What kinds of boards will we need? Social businesses by their very nature need to be fleet of foot and alert to opportunities. Social enterprises are best when operating on the edges and creating new ways of addressing social challenges. Too much process and an aversion to risk combine to make a very unsatisfactory cocktail.

Social Enterprise Boards will therefore need to be able to replicate the entrepreneurial approach and combine imagination and vision with bold thinking and measured risk taking. This requires the Board to continually re-shape to ensure some alignment against the business position. However, we must also temper a knee jerk response to fill the Board with finance and business people. A recent article in the Stanford Social Innovation Review concluded that where one type of trustee dominates there is a risk of "group think".

So, we need to continue to discuss the type of governance we need for social enterprises. We need to learn from what has gone before. We must be careful not to be rushed into a system that can just as quickly befuddle the emerging and fragile governance structure for social businesses. It seems balance and rationality are the watchwords while we continue the governance conversation.