European Social Enterprise Statute Proposed

Professor Antonio Fici of the University of Molise in Italy has written a study for the JURI Committee of the European Parliament which proposes ‘A European Statute for Social and Solidarity-Based Enterprise’.

We look at the main elements of the proposed legal statute and draw a comparison with the recommendations ESELA has made in its work concerning the development of local legal ecosystems.

A Legal Statute

The study is an important contribution to the debate on the relationship between law, regulation and social enterprise and deserves to be read with care and consideration.

It argues for a European statute which would introduce a new EU legal qualification or status of a ‘European Social Enterprise’ and a related EU label or mark such as ‘ESE’. It is suggested that the qualification and label could be introduced via a directive if other more direct legislative methods are not appropriate. The idea would be to base the scope of the qualification on existing legislation in EU jurisdictions – although Professor Fici does not say which jurisdiction(s), there is perhaps a clue in the title and the emphasis in the paper on enterprises which demonstrate solidarity and have a democratic governance structure.

(There is a suggestion that companies would need to be subject to “specific governance requirements”, such as by mandating a democratic governance structure or at least one which would deviate from the “one share, one vote” principle applicable to most share companies. The effect, if this was enacted, would be to make it difficult for many of the new start-up social enterprises to qualify under the proposed label, as well as bringing into question the way social enterprise is regulated and commonly understood as a movement, especially amongst Millennials and younger entrepreneurs who are adapting classic business models).

Professor Fici argues that an EU legal statute should be adopted to:

• conform to the “common core” of European social enterprise law, subject to the possibility of excluding share companies or mandating a democratic form of governance
• encourage the development of social enterprise in different member states, in particular domestic legislation
• allow benefits to be conferred upon social enterprises, for example, under public procurement, tax and competition law

The ESELA Mapping Report

In April 2013, the European Commission asked the consultants ICF and the UK law firm Bates Wells Braithwaite to undertake a study to map the shape and nature of social enterprise activity in 29 European countries as part of its flagship ‘Social Business Initiative’. The idea of an association of European social enterprise legal practitioners – ESELA – developed naturally from the mapping study. At a roundtable of social enterprise legal experts hosted by the European Economic and Social Committee in Brussels in January 2015, it was agreed that ESELA should be formed.

The report from ESELA on the mapping process – Social Enterprise in Europe: Developing Legal Systems Which Support Social Enterprise Growth – recommended that no time be wasted on seeking to develop a pan European legal form, given the diversity of domestic legal forms and the need to focus on making sure that in each jurisdiction there are suitable legal forms for social enterprise growth. The report recommended focusing on supporting member states to create good local legal ecosystems for social enterprise by adapting existing legal forms, removing common barriers and creating social enterprise legal forms and statuses.

This seems to be the direction of travel which the Expert Group on Social Enterprise (the GECES) has taken in its thinking, with the suggestion in its recent report, Social Enterprises and the Social Economy Going Forward, that a non-binding legal recommendation be made to encourage the development of local legal systems which are supportive of social enterprise.

Key Questions

Anyone weighing up the merits of a binding European legal statute should consider the following questions:

• Definitional Difficulties – Is there a risk that businesses currently seen as social enterprises in certain jurisdictions might not meet the criteria set centrally? Is it possible to develop a single binding definition? Could this be done without causing confusion? Is there a risk that, instead of finding ways forward, a premature move to legislate could pit certain parts of the social enterprise sector against other parts?
• A Dynamic Marketplace – Would a centralised legislative qualification be open to new and disruptive forms of social enterprise? Is there a risk that it might be used to delegitimise certain new forms of social enterprise or to promote certain forms over others? Would a legislative approach be flexible and open enough to respond to new ways of doing business and solving social problems which emerge over time?
• Brand Value – Would an ESE label for social enterprise develop brand recognition in local markets? Would it be consumer facing? Would a budget be needed to promote it? What added value would it bring?
• Local Ecosystems – Would a centralised qualification make any difference where social enterprise development is hampered by local barriers and inappropriate legal forms, such as limits on the ability of foundations or associations to trade or to pursue new social purposes? Would a centralised legislative approach risk a negative response from member states, as opposed to a spirit of collaboration?
• Other Mechanisms – Are there other mechanisms of privileging and exempting social enterprise under European legislation, such as the use of exemptions or differential treatment under procurement, state aid and competition law? Might the targeted use of exemptions achieve the benefits hoped for from a mark, whilst avoiding the need to define what is and what is not a social enterprise in general terms?

Conclusion

When formulating ESELA’s recommendations, the legal experts were concerned to focus on practical, local steps which could be taken to support the development and growth of a way of doing business which is in various stages of development across Europe – whilst respecting diversity. There is a lot of work to be done developing model constitutions, providing guidance, encouraging member states to develop local legal strategies and policies to remove barriers to social enterprise and developing local legal forms and statuses which are tailor made to support entrepreneurs who wish to pursue a primary social purpose.

It is to be welcomed that, at least in theory, the suggested “ESE” mark would seek to recognise the diversity of legal forms and legal statuses used by social enterprises in different member states. That said, the risk is that any effort to develop a European legal mark for social enterprise at this stage might not succeed in practice to respect the diversity of traditions and approaches across and within the different Member States to social enterprise and, even worse, it might distract from the essential and perhaps more urgent work of supporting member states to adapt local laws and to develop supportive local legal environments.