social enterprise

With moves afoot to establish a Social Stock Exchange (SSE), I ask what this means for the social enterprise sector and explains why it may damage the very nature of our being.

The primary purpose of a stock exchange is to facilitate the trading of stocks- namely shares, bonds and derivatives. The markets concerned are: a primary market for Initial Public Offering (IPO); and a secondary market for subsequent trading of stocks.

Social Enterprises already undertake IPOs with notable cases being Traidcraft (of whom I am a shareholder) and the Ethical Property Company both undertake IPO using Brewin Dolphin who also undertake a matched share exchange for those wishing to sell on their shares. The SSE would create a secondary market for social enterprise- facilitating stock trading between investors, it would also look at the impact of those listed through bi-yearly impact reports to track impact as well as value. This, at face value, is of some merit.

The SSE would provide a vehicle for investors to make ethical investments. For instance, at present I invest in the ‘ethical’ fund within my pension- meaning the fund managers invest in the likes of Vodaphone and Barclays. Compared to investing in oil and arms, this investment is ethical. But for someone who is currently spending 30 days purchasing exclusively from social enterprises it is a far cry from what I would define ‘ethical’.  With a SSE pension fund managers would instead be able to easily invest in social enterprises.

There is also potential for a SSE to be of benefit to larger social enterprises. Attracting large scale equity investment can be difficult, doing so requires many hurdles to be cleared: building relationships with potential investors; clearing the Investment Readiness programme; and due diligence. The SSE could potentially remove these hurdles creating a clear path to investment.

However the benefits of a SSE are limited.

We’ve just been through a major economic downturn. Responsible in part is the culture of overly risky short –term investment. Short time success over long term sustainability. The stock market not only enabled that culture, it facilitated it.

 Stock markets encourage potential investors to speculate on the value of a company and its future profits based on whatever information they choose. We have even seen investors speculate to deliberately undervalue the company, otherwise known as ‘short-selling’.

Financial risk aside, the SSE could result in social enterprise changing their primary purpose to pander to private investors. When a reliance on private investors is created, their interests may come before those of the company. What happens when a 75% shareholder states he doesn’t share your mission, vision and values, and passes a resolution destroying the very essence of your being? It’s true you could limit the percentage of shares you sell, though the SSE would be destined to fail if businesses sold only a tiny proportion of their shares.

Whatever happened to a social purpose and triple-bottom-line reporting? Would these things become obsolete in larger social enterprises? Would the SSE itself become a conversion zone- in comes a social enterprise, out goes a private company? There is talk of limitations to stop situations like this taking place but what are their positions in law and how can they be defended.

However a bigger concern is the potential risk of divide amongst the social enterprise sector. The SSE could only really benefit those companies limited by shares. What about the rest of the sector: the co-operatives and companies limited by guarantee? A growing SSE could mark a step-change in social enterprise structures- forcing more to switch to a model limited by shares.

Before we embrace with open arms a SSE we need to have full and informed debate within the sector.

By Alex Sobel.