A conceptual accountability model for the social enterprise

A conceptual accountability model for the social enterprise Paper submitted to the EGPA conference September 2010 Dr. A. Geurtsen RC, senior research...
Author: Esmond Daniel
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A conceptual accountability model for the social enterprise Paper submitted to the EGPA conference September 2010

Dr. A. Geurtsen RC, senior research fellow TiasNimbas Business School P.J. M. Sprenger Msc, research fellow TiasNimbas Business School L. Schoormans Msc, research fellow TiasNimbas Business School

A conceptual accountability model for the social enterprise Abstract Social enterprises are currently facing problems with their accountability to their stakeholders. Due to their multi stakeholder environment it is difficult to assess which information should be provided to stakeholders in order to be legitimated by them. In this paper we present the problems social enterprises are confronted with, and develop a conceptual model for their accountability. We conclude our paper with some preliminary results from case studies concerning accountability of social enterprises in the Netherlands.

Key words Social enterprise, multi stakeholder complexity, legitimacy, trust, autonomy, accountability


Introduction The social enterprise is a rather new phenomenon in The Netherlands. Until the late 70’s public and private organizations were clearly distinct. The public organization was typically government led. It received (indirect) instructions from, and accounted for its actions to, democratically chosen politicians. On the other hand, there were private organizations, which were led by professional managers and were (and still are) owned by shareholders. In both kinds of organizations the basis for prioritizing was clear. Politicians in the late 70s began to realize that additional operational tasks were no longer being performed effectively and efficiently. Problems were not being solved, or costs were spiralling out of control. Privatization was regarded as the solution to these problems. From that moment on, social enterprises gradually became part of our society. These so called social enterprises, e.g. housing corporations, hospitals, universities but also welfare organizations, are a natural phenomenon nowadays. Characteristic for social enterprises is the certain amount of autonomy (license to operate) they all receive from stakeholders, which they maintain by creating focus through formulating goals and a mission statement, making strategic choices (Mouwen, 2009) and accounting for their actions to stakeholders (Starreveld, 2002). When stakeholders are satisfied, the social enterprise will be legitimated for these choices and actions and will maintain its autonomy (Dart, 2004). The social enterprise has a wide range of equally important stakeholders, each with their own expectations towards the social enterprise (Bartkus & Glassman, 2008; Dart, 2004; Figlio & Kenny, 2009; McAdam, Hazlett, & Casey, 2005; Wallner, 2008; Zadek, 1998). To further complicate things, the social enterprise has to account for both social and financial goals (Paton, 2003). Or as Moore (2008) puts it, the social enterprises’ measure of performance is the effectiveness and efficiency in achieving its mission. When a social enterprise does not account for its actions properly, and does not make clear that it achieves its mission effectively and efficiently, it will eventually lose legitimacy and autonomy because effectiveness and efficiency is their rationale. Social enterprises are experiencing problems with this cycle. It is difficult to formulate a mission statement, make the right strategic choices, and account for both to stakeholders. At this moment, social enterprises are experiencing major problems with their accountability, which directly affects their autonomy. Every social enterprise accounts for its actions in one way or another, but it is unclear what they should be reporting about. There are organizations who provide tailor made annual reports, there are social enterprises that compare themselves to others, and there are social enterprises who are providing an annual report for the first time. A second problem facing the social enterprises in general are scandals of individual social enterprises. These scandals cause a loss of confidence, which cannot be restored with a regular annual report. (Gibelman & Gelman, 2004; Meijboom, Visak, & Brom, 2006) Stakeholders demand a different kind of accountability. Looking more precisely at these observations we can stipulate that the major problem the social enterprise is confronted with is the multi stakeholder complexity. The social enterprise has a wide range of equally important stakeholders, with their own expectations towards the social enterprise regarding the mission statement of the organization, the strategy they should follow and the day to day operations of the organization. The way in which stakeholders wish the social enterprise to account for its actions differs among stakeholders. The question as to which stakeholder to turn to is a difficult one for the social enterprise, and changes over time.


Secondly trust and confidence of stakeholders in the social enterprise play an important role. The natural confidence individuals have in public organizations is no more, and instead, new relationships have to be built with the social enterprise. They do not have a history with the social enterprise. Due to the ambiguous stakeholder environment, many stakeholders believe they have a claim to the social enterprise and form an opinion about the performance of the social enterprise. Trust or distrust is of great influence on the autonomy of social enterprises (Figlio & Kenny, 2009). Looking at the legitimacy of the social enterprise, trust is a characteristic that plays an increasingly important role, due to a variety of developments in society, and a different way of judging societal developments (Van de Walle & Bouckaert, 2003). Based on former research, we know that autonomy and legitimacy are crucial for the social enterprise (Dart, 2004; Figlio & Kenny, 2009; Suchman, 1995; Zadek, 1998). Without legitimacy the social enterprise will eventually lose its autonomy. We also know that multiple stakeholders in combination with multiple goals make accountability difficult. We know that a mission statement and strategic choices fill the gap that was created by the governmental retraction seen in the late 70’s, and these topics are therefore related to autonomy and legitimacy. Finally we know that trust in social enterprises also plays an important role. So we stipulate that all these topics have an impact on the way the social enterprise has to account to its stakeholders. At this moment we do not know what impact these characteristics have on accountability. That is why we want to develop a model which can help us to understand how these characteristics influence accountability. The main question we wish to address by presenting this conceptual model is ‘What information should a social enterprise provide to stakeholders in order to be legitimated by its stakeholders, thereby maintaining its autonomy?’ Before answering this question we will present our research methodology shortly. In the second part of the article we reflect on legitimacy and trust, as being the foremost aim of accountability. Thereafter, we elaborate on the multi stakeholder complexity and the way social enterprises can cope with it. We conclude our paper with our conceptual model for accountability. Research methodology We have performed explorative research to develop the accountability model for the social enterprise presented in this article. Based on a thorough literature review we developed a theoretical model, linking legitimacy, accountability and trust in a multi stakeholder environment. Qualitative and quantitative research was conducted in order to test the validity of the model. The qualitative research consisted of semi-structured face-to-face interviews and focus group meetings. In total, qualitative data was gathered by conducting 40 face-to-face interviews and by organizing five focus group meetings with approximately 15 social enterprises. In the interviews and focus group meetings the conceptual accountability model and the relations between the concepts in the model were discussed. The concepts and relations that make up the model were used to develop indicators, by which the topic list was constructed. This topic list was used as a guide to structure the interviews and to analyze the findings. As a result, the collected data led to the refinement of the conceptual accountability model. Respondents were selected based upon their participation in the research of the Centre for Governance of the Social Enterprise. The respondents are characterized by their high position in a social enterprise (often members of the board) and their wealth of relevant experience. Furthermore, respondents were


selected in such a way to include the perspective of various sorts of social enterprises, such as hospitals, housing associations, charities, and educational organizations. The quantitative research consisted of questionnaires which were filled in by 25 CEOs of social enterprises. The results were examined in order to provide some empirical evidence for the management model we presented. Research findings were processed in an iterative way. Data collection and the generation of new insights led to adaptation of the management and conceptual accountability model, which was followed up with further data collection. Legitimacy and trust Before privatization, the social enterprise was automatically legitimated. Management of the social enterprise accounted for their actions directly to government officials and asked permission to perform certain tasks. Stakeholders had the opportunity to alter things through elections. This situation has changed completely. Most stakeholders are still dependant on social enterprises, but they are told that social enterprises must act more according to market wishes and other criteria. Social enterprises are regarded as organizations that should live up to the highest ethical standards and expectations (Bolton 2003). Suchman (1995) states that legitimacy is a prerequisite for continuity for any organization. However, we believe that legitimacy is even more important for a social enterprise than for a profit organization for two reasons. The first reason is that the social enterprise has obtained a (rather new kind of) strategic space which leads to the necessity of accounting for the choices made, whereas the customers do not always have an actual degree of freedom in choosing (or changing) the social enterprise. Secondly, the customer places himself/herself in the hands of the social enterprise because he or she has no free will in choosing. Take a housing corporation for instance, where a non satisfied tenant who stops renting from a housing corporation will be on the waiting list for many years again. This combination causes the stakeholder to be extra critical towards the social enterprise. Nowadays, social enterprises are not only followed critically by a wide variety of stakeholders, but also by interest groups and media. The public is, for example, focused on spending behavior of social enterprises, but is also confronted with scandals from social enterprises (Gibelman & Gelman, 2001, 2004). The perceptions of the public are based on information about the organization and experiences with the organization (Caldwell & Clapham, 2003). Moore (1995) states ‘it is not enough to say that public managers create results that are valued, they must be able to show that the results obtained are worth the cost of private consumption and unrestrained liberty forgone in producing the desirable results’. The public feels and sees that a part of their money is spent by such organizations, whereas it has no direct voice in their spending. This aspect of the functioning of the social enterprise has become a dominant factor in legitimating the actions of the social enterprise. When stakeholders perceive that a social enterprise is not spending its money in a proper manner, the organization loses its license to operate. Not on the part of the mission statement, strategy and operational management, but because these stakeholders believe that the social enterprise is acting improperly. Zadek (1998; p.423) states that ‘there is a growing evidence that the failure to behave ethically in the eyes of key stakeholders can and in cases does pose a threat to the financial health of some companies’. There is a vast amount of research on this topic. Van der Walle et al. (2003) states that trust diminishes because of below standard performance, low efficiency and effectiveness. Others try to establish a link between poor performance and the amount of distrust. Mayer e.a. have concluded that organizations should operate benevolently, honestly and ably, in order to be trusted. They should perform according to


these aspects, have a reputation on these three aspects and finally also have an appearance on these as well (Mayer, Davis, & Schoorman, 1995; Sztompka, 1999). Institutional theory states that neither effectiveness nor efficiency but rather legitimacy is the primary goal of an organization. Dart (Dart, 2004) stated that ‘legitimacy is the means by which the social enterprise obtains and maintains resources’. The term legitimacy is also very dominant in many studies on the effectiveness of social enterprises. Figlio et al. (2009) proved that stakeholders react to performance measurement measures, in a way that poorer results lead to a decrease of financial donations by stakeholders. For the sake of discussion, it is important to assess what legitimacy is all about. Legitimacy is defined as ‘the generalized perception or assumption that the actions of an entity are desirable, proper or appropriate within some socially constructed system of norms, values, beliefs and definitions’ (Suchman, 1995). When an organization does not operate legitimately, it will not obtain and maintain resources (Dart, 2004; Suchman, 1995). Two dimensions of legitimacy are important for the discussion of the accountability of the social enterprise. First, legitimacy is aimed at pursuing continuity, and second, legitimacy is aimed at pursuing credibility. This distinction is interesting, because we observe this dilemma in the social enterprise when they interact with their stakeholders. Studies on legitimacy suggest that legitimacy can be divided into three forms. Suchman (1995) distinguishes pragmatic legitimacy, moral legitimacy and cognitive legitimacy. (1) Pragmatic legitimacy: self interested calculations are the dominant judgmental criteria used by the stakeholder to legitimate the social enterprise. This involves mostly the interactions between organization and stakeholders. (2) Moral legitimacy: the legitimating rests on the normative evaluation of the organization and its activities. This form of legitimacy is focused on the question whether the organization is doing the ‘right’ things. This form of legitimacy evaluates the outputs and consequences, the techniques and procedures, as well as leaders and representatives. (3) Cognitive legitimacy: this type of legitimacy is highlighted as mere acceptance of an organization as necessary or inevitable, based on some general assumption (Suchman, 1995). One could say ‘someone must do it’-legitimacy. According to Dart (2004) we tend to exclude cognitive legitimacy as a primary focus of the social enterprise, because in practice the question that relates to cognitive legitimacy isn’t posed. The public still believes that social enterprises are necessary in order to produce public goods. One could argue that a lack of trust in the social enterprise is a special feature of moral and cognitive legitimacy. An organization is only allowed to do things consistent with correct choices and which are taken for granted. A lack of trust goes beyond the legitimating process and is therefore not incorporated into our accountability model. When stakeholders don’t trust an organization they will not judge any activity performed by the organization. They will label such activities as untrustworthy. Hence we conclude that trustworthy behavior is a precondition for legitimate functioning. Based on the definition of legitimacy it is possible to link this concept to accountability. The social enterprise has to provide information that enables a stakeholder to assess whether the activities of the social enterprise match the self interest of the stakeholder (pragmatic legitimacy), secondly, if the social enterprise is performing according to agreed upon values and thirdly if it acts according to agreed upon choices (moral legitimacy). 5

Managing multiple stakeholder complexity There has been, and still is, a lot of discussion regarding the definition of a social enterprise, and what type of organizations can be labeled as such. Many descriptions are used for these types of organizations. Anheier (2005) talks about ‘non-profit sector’, charities, third sector, independent sector, non-governmental sector, hybrids, etc. Important for us is that a social enterprise is a private organization with a certain amount of autonomy used for realizing a societal goal in the most efficient and effective way by making strategic choices. It accounts for its actions to its stakeholders publicly, by which it is legitimated (Mouwen, 2009). Although this definition suggests a certain amount of exactness in classifying social enterprises, we know that classification is rather difficult. There are many differences due to the origin of social enterprises. Formerly, government determined all aspects of the social enterprise. They were more or less operational units. With the retraction of government from the public sector, hidden stakeholders became visible. They became parties who laid claim to the social enterprise and the organization has had to learn to cooperate with them. The related question is whose goals are at stake. There are a lot of equally important stakeholders who all defend their own interests, with accompanying expectations. Research shows that every stakeholder has his own expectations regarding the organization. This applies to all kinds of organizations. The social enterprise, however, is different because of the mere fact that all stakeholders can be or are equally important, unlike profit organizations, where the shareholder is the majority stakeholder (Anthony & Govindarajan, 2007). Secondly, the basic objective behind privatizing was higher and more cost-efficient performance. A social enterprise has two, or more, equally important goals, namely a social goal and a financial goal. In forprofit organizations the profit goal is dominant and determines priorities. In a public organization, social goals are dominant and political choices determine priorities (Anthony & Govindarajan, 2007). In the social enterprise both goals are more or less equally important. The implication of this balance between the two sets of goals is that it is very difficult to judge whether or not a social enterprise is performing optimally. On top of this dilemma, the question of which goals should be strived for is also a complicating factor. It is utopian to assume that every stakeholder has the same goals on his agenda. It is rather a situation in which stakeholders have conflicting requirements (McAdam et al. , 2005). When social enterprises were still led by public entities, they did not actively have to deal with the goals different stakeholders pursued. The only interest they had was to ‘play it by the rules of the game’. When a government official wanted something, it was not the time and place to ask difficult questions, you were asked to do as you were told. Confronted with a lot of stakeholders with all different kind of stakes, it becomes clear that the social enterprise has to formulate a goal, a mission statement, a strategic plan and an operational plan. Because a social enterprise exists in a multi stakeholder environment it must take all opinions into account. This causes a major management problem because the social enterprise has to develop a whole new management concept. 1

That is why we developed a management model for the social enterprise in which we took the complex environment in which these organizations operate into account (Geurtsen et al., 2009). As described in the first paragraphs of this paper, the complexity of the environment is, on the one hand, caused by the ‘multiple stakeholder complexity’ and on the other hand, by the ‘double bottom line’. 1

This management model is based on the St. Gallen management model which was used by Heinz to develop a management model for German municipalities. (Heinz, 2000)


Our management model distinguishes three phases, caused by the importance of the mission statement for the social enterprise: 1. Formulating the mission statement: Normative management 2. Determining the strategy: Strategic management 3. Day to day operations: Operational management

Normative management

Strategic management

Operational management




Existence Societal task Efficiency

Organization Goals Activities

Mission statement

Strategic plan




Operational plan




Figure 1; Management model for the social enterprise

Normative management is related to the question ‘why’ the social enterprise exists and what social task the organization fulfills. This dimension regards the formulation of the mission statement of the social enterprise (or adjustment in cases where the organization already exists). When the social enterprise has formulated a clear mission statement, it needs to develop a strategy regarding ‘how’ the social enterprise is going to fulfill its mission statement. This is the second dimension of the management model -- strategic management. The translation of the strategic choices to the day to day business of the social enterprise is the operational management. Within this dimension, the social enterprise has to demonstrate to its stakeholders that ‘what’ they do (the products and services they deliver) and how they do it is consistent with their normative and strategic management. Our management model simplifies the interaction with the stakeholder, as not every stakeholder has to be involved in every process. This is possible through the linkage of normative, strategic and operational management.


Normative management: formulating the mission statement Normative management is concerned with the overall objectives of the social enterprise, with principles, norms, rules and values. This is the domain of the founding principles for the purpose of viability and development. Normative management gives direction to both strategic and operational management through the mission statement and culture of an organization. When a social enterprise formulates a mission statement it has to answer the following questions, in consultation with stakeholders (discourse): 1. What are our long term goals, principles and rules of the game? 2. When we have performance indicators, what are our targets? 3. Which values do we adhere to? 4. Which possibilities do we see, and what limitations do we impose? 5. What can people expect from us? The answers to the questions mentioned above function as a guideline for the social enterprise. The organization has to act within the boundaries imposed by these answers. One could also say that during this process the DNA of the social enterprise is formed. This can be seen as the starting point as well as the final objective of the organization. In order to determine whether a social enterprise is effective in terms of fulfilling its mission statement, it is necessary for the mission statement to have a certain amount of exactness (Moore, 2000). Strategic management; determining the strategy Once the social enterprise has formulated its mission statement, it has to develop a strategy to be able to fulfill this mission as effectively and efficiently as possible. Strategic management is the process of developing policies and plans, which are designed to achieve the objectives related to the mission statement, and then allocating resources to implement the policies and plans. This process should be linked to the mission statement. For that, the mission statement must be ‘audible’ in that way that one could link choices and actions to it. In far too many cases we examine mission statements that are full of good intentions, but lack direction and concreteness. The strategy process forces the social enterprise to make choices related to resources (input), process and structure (throughput), programs and products (output) and results and effects (outcome). In consultation with the stakeholders of the social enterprise, the following questions are relevant: 1. Output: What must we do in order to achieve this? 2. Throughput: How should we do this? 3. Input: What resources do we have to put in? When the social enterprise has formulated a strategy which is in line with normative management of the organization, they know the direction the social enterprise is following the next few years.


Operational Management; day to day operations Operational management is the translation of normative and strategic management into actual products and targeted activities. This translation is crucial, because the stakeholders will assess the organization based on what they see in the day to day operations of the social enterprise. Operational management concerns product management as well as functional management. Product management has to do with the assortment of products or services, the price, the distribution (if it involves products) and the communication. These outputs will be noticed by the stakeholders and used as a judgment tool for the social enterprise. Operational management is also focused on functional management. Functional management is a generic for all kinds of underlying processes in the organization, like financial management, personnel management, ICT and other supporting processes. It is eminent that these processes are also linked to the mission statement, because they are also taken along in the judgment process. For instance, when a social enterprise states it is a bi-lingual organization, the least one can expect is that the website is up to date in both languages. When a social enterprise states it is an international platform, then the website should only be in the language which makes it internationally readable. When linking the management model to accountability, it is important to notice that the social enterprise has to account for its actions. The actions from the social enterprise are no longer taken for granted. Our management model provides the legitimization of the mission statement, the strategic plan and the operational plan. Additionally, the actions of social enterprises have to follow logically from the operational plan in order to be legitimated by the stakeholders. First, the social enterprise has to explain how its products and services are related to its mission statement and strategic choices. It must also account for the way the organization produced its products and services. Does this correspond with the mission statement and strategic choices? Secondly, the social enterprise has to explain the amount of goods and services delivered. How do these relate to the operational plans of the social enterprise. We can summarize this with three questions: 1. What products and services did the social enterprise deliver? 2. Why did the social enterprise deliver these products? 3. How did the social enterprise deliver these products? Some empirical evidence In a study of 25 social enterprises, board members were asked about their interaction with stakeholders during the phases of mission statement, strategy and operational management. In this study we can (among others) distinguish six stakeholders: the national government as a policy-maker, the national government as a legal actor, the local municipality, the supervisory board, the employees and the clients. The following figure shows per stakeholder the percentage of social enterprises in which this stakeholder is involved in this phase. For example, the figures shows that the national government as a policy maker is mostly involved in the strategy phase, whereas clients are mostly involved in the operational phase.


Figure 2; Percentage of social enterprises (N=25) where there is interaction between social enterprise and the stakeholder

This figure proves some mechanisms which are easily understood; nevertheless it also shows that each phase has its own specific stakeholders, which results in special arrangements relating to management and accounting. The results show that there is clear distinction in the importance of stakeholder per management phase. In the operational phase interaction with the clients is being carried out by almost all of the social enterprise. The importance of clients in the mission phase is much less. Less than half of the social enterprises have interaction with clients in this phase. This underlines the fact that in every phase a social enterprise has to take notice of the differences. This can be further explained by the next figure, which forms the transition to accountability, which will be described later on.

14 12 10

8 6 4 2

0 Mission



Figure 3; Number of stakeholders a social enterprise accounts to (maximum number of stakeholders is 18).


This figure shows that the average social enterprise accounts for its mission statement to 8 stakeholders. In the strategy phase they are interacting with 10 stakeholders. In the operational phase the social enterprise accounts to more than 12 stakeholders. This again proves that in every phase there are unique stakeholders. A conceptual accountability model We started this paper with the observation that the social enterprise is experiencing problems with their accountability. They have to get used to the new situation in which legitimacy cannot be taken for granted anymore. Social enterprises have to earn legitimacy from their stakeholders by interacting with them in different management stages and on different subjects and they have account for their actions. Our research question is ‘What information should a social enterprise provide to stakeholders in order to be legitimated by its stakeholders, thereby maintaining its autonomy?’ We stated that legitimacy, accountability and autonomy of the social enterprise are linked. Looking more thoroughly at legitimacy, we state that legitimacy can be divided in two. On the one hand, we identify pragmatic legitimacy which is focused on the self interest of the stakeholder. On the other hand, we identify moral legitimacy which is pointed at ‘doing the right things’. Accountability should be focused on both. Looking at autonomy we conclude that the social enterprise has an ambiguous and complex multi stakeholder environment. Many organizations, pressure groups or even individuals regard themselves as stakeholders. Taking this into account urges the social enterprise to establish their mission statement, strategic plan and operational plan in discourse with stakeholders. In order to have a lucid discussion, the mission statement, strategic management and operational management have to be linked. This is an important precondition, because in every phase, different stakeholders are involved. When these three are not linked, discussions start all over again, and unexplainable choices are made. This connected thinking and acting, forces accountability into the same direction. The social enterprise must be able to answer the questions: (1) Are the products and services delivered the logical result of the operational plan? (2) Are products and services produced related to strategy and mission statement? (3) Is the way products and services are produced related to strategy and mission statement? Answering these three questions offers solutions for the accountability issue, suggests a ‘one-size-fits-all’approach. One could argue that this approach simplifies the multiple stakeholder discussion too much. On the other hand, looking more closely at the management model, the different phases result in a supported mission statement, strategic plan and operational plan. It is utopian to suggest that all stakeholders are in consent. Secondly not all stakeholders are involved in every phase of our management model. Answering these questions seems to skip the trade-off between social goals and financial goals inherent to the social enterprise. We stipulate that both should be part of mission statement, strategic plan and operational plan. We did not, however, focus on the type of goals a social enterprise has to formulate. Due to the development of the social enterprise it seems inevitable that one of them should not be incorporated in the goal formulating process. When these are part of the processes, performance management systems will be pointed at both (McAdam et al., 2005).


Finally, answering these three questions seems to ignore the importance of trust in the social enterprise. In order to be legitimated, stakeholders must place trust in the social enterprise. Therefore, the social enterprise has to act according to ethical norms and values. This is seen as a precondition for functioning. Combining these findings, we hypothesize that the accountability system of the social enterprise is pointed at earning pragmatic and moral legitimacy from stakeholders. Therefore, the social enterprise has to provide information about the following: (1) Did the products and services produced, help satisfy the individual needs of stakeholders. (2) Are products and services produced in line with ethical standards, mission statement and strategic choices? (3) Does the way products and services are produced live up to ethical standards, mission statement and strategic choices?

We visualize this as follows:

Mission statement

Strategic plan

Operational plan

Moral legitimacy

Moral legitimacy

Pragmatic legitimacy




Information on products/services and functional management (Why, What, How)

Ethical norms and values Figure 4; Conceptual accountability model for the social enterprise

Case studies The social enterprise is an emerging field in the Netherlands. All kind of initiatives on accountability, appear and/or disappear. One day there is an initiative to account for SROI, while the next day stakeholder involvement in governance is a hot topic. This instability makes the field of the social enterprise a challenging field of research. On the other hand, organizations are looking for answers and require the development of conceptual models which help them structurie their thinking. These are the


main reasons we restrict ourselves to case studies at this moment. In the appendix you find the description of the various cases which were described along the categories mentioned in the table. We have assessed: (1) The social enterprise distinguishes between different stakeholder groups. a. Do you know which stakeholders you have? b. Which stakeholders are involved in what processes? (2) In the annual/quarterly reports there is information about linking the products and services delivered to mission statement and strategy. a. Is the mission statement formulated? b. Is strategy formulated? c. What are the products and services delivered? d. How are they linked to mission statement and strategy? (3) The same questions but then related to other events created by the organization (meetings, happenings, press releases, etc.) (4) In the annual/quarterly report there is information about linking the products and services delivered to mission statement and strategy? a. What norms and values are mentioned? b. How are these translated to products/services and operational management (5) The relation between operational management and mission statement and strategic management. a. What elements of the mission statement/strategic plan have been translated to personnel management, ICT, communication, finance, etc and can be found in the annual/quarterly report and others forms of expressions. (6) Does the organization believe it operates legitimately? a. Is there stakeholder consultation? b. Does the organization know that the stakeholder uses the information supplied? c. Is there a feed back loop? d. Is there a press analysis? e. Is there stakeholder analysis? f. Is there a way to file complaints? (7) Is there stakeholder management? a. Is there stakeholder analysis/classification? b. Is there stakeholder consultation? c. Etc (8) High visibility/media attention a. Number of guided media exposure b. Number of unguided media exposure. c. Tenure of media exposure (negative/positive)


Through attempting to analyze our case studies we have made the following summary:

Looking at the accountability aspects of the social enterprise we can state that: (1) Every social enterprise accounts for its products and services delivered. (2) Not every social enterprise links products and services to mission statement, strategy or ethical norms and values. (3) Not every social enterprise links operational management to mission statement and strategic management (4) Legitimacy is an issue for most social enterprises, and most social enterprises think they are legitimated. (5) Most social enterprises do not know what information stakeholders use, and what information they do not. These findings suggest that the model we have developed actually helps management to asses what information should be supplied to stakeholders. Information to stakeholders must contain answers the our three questions. The degree to which this information is used by the stakeholder is not clear at this moment. That is why we suggest that further research focuses not on the supply of information, but on the information demand. It is possible to use the categories developed, but it would be interesting to assess what information exactly is needed to be able to legitimate the social enterprise.


Appendix I; case studies Organization A Social enterprise A is a group of secondary schools located in Rotterdam. Sales add up to €160 M. There are 2500 members of staff and students total 21.000. These students and members of staff are divided between 7 schools. Most operational activities are located at the schools. The board is focused on strategic plans and activities. In 2009 the group formulated a mission statement in order to make the motto ‘more than the usual’ concrete. The way the organization accounts for its actions can be described as follows: (1) Every school is held responsible for student results separately. There is a set of indicators which must be reported to the inspection agency. These indicators are used for ranking a school publicly. This is done by newspapers. (2) Schools report on incidents and other ‘media’- things (3) Schools report on financial performance. (4) The group accounts for its actions related to mission statement and strategy of the group. They do not link the individual and collective aspects. (5) The group reports on integrity, ability and benevolence, not only in writing but also in image and reputation. That is the reason for a restrained building strategy and salary policy. (6) The group joined an initiative called ‘vensters of verantwoording’ with which data is gathered in a central database making comparison and benchmarking possible on ‘educational results’, HRM, Finance, governance and control. (7) Schools serve a different group of stakeholders than the group. Schools are aimed at stakeholders who have a direct interest in the actions and results of the school. The group is focused on local politics, welfare organizations, schools, universities, etc. (8) School stakeholders are only interested in the individual school results. They don’t care about other themes. (9) Schools and groups are not confronted with massive media attention. Organization B Social enterprise B is a group of primary and secondary schools located in Utrecht. Sales add up to €120 M. There are members of staff and students total 17.500. The group consists of 37 schools. Most operational activities are located at the schools. The board focuses on strategic problems as well as problems not directly school specific. The school has a mission statement in which the group claims to be a Christian school, which provides education to everybody, in order to maximize the use of head, heart and hands. Accountability consists of: (1) An annual report in which the following questions are answered: a. What was our starting point in a certain year b. What did we want to achieve at the end of the year? c. What have we done in order to achieve our goal? d. What have we achieved? e. What has it cost? (2) The group accounts for her financial results. (3) The group reports on integrity (salaries), benevolence and ability in the sense that they provide insight into the quality of the school. 15

(4) The annual report is aimed at local government, universities, other schools etc. (5) Individual schools interact with parents. Not only through an annual report, but also with meetings. (6) Interaction is not only regarding education but also regarding child-rearing. (7) Schools have to account for their education results. (8) Primary schools are benchmarked with other schools in the region. (9) There is not much media pressure. Organization C Social enterprise C is an association on mobility. Sales add up to €1.000M. The organization is a mix of a market-oriented organization and a membership organization. Sales and services are of a diverse character. The organization has a clear mission statement that was formulated after consulting all members of the organization. Accountability consists of: (1) Annual report for a. Spending of membership fee b. Annual report of association c. Annual report of tourist federation d. Annual report of investments e. Annual report of market organization f. Societal annual report (2) Intense media coverage (3) Intense interaction with members (4) Show don’t tell (5) Only performing when members appreciate (6) Functional management is coupled with mission statement (7) Extreme caution (8) There is much media pressure Organization D Social enterprise D is a charity foundation. The income of this foundation adds up to € 46.7 M. The organization spend € 44.1 M. The net income of this charity is therefore € 2.1 M. The organization has a clear mission and aims to achieve this by enacting the following core activities:(Scientific) research; by financing research, the knowledge concerning, for example, heredity and new treatments for diseases they are fighting improve. Supporting and informing: the organization helps people with, and at risk of, cardiovascular disease by providing comprehensive information and guidance on how to minimize their risk. Through community educational campaigns and media activities, the organization also promotes lifestyle changes to improve the health of the Dutch citizens. Improving care: to ensure that people diagnosed with the disease the organization is fighting receive the best possible care, we take the latest research and create practical treatment tools for health practitioners. They work to bridge the gaps in care through programs specifically targeting those Dutch inhabitants at higher risk.


The accountability of the organization consists of: (1) An annual report in which the organization accounts for its actions. The organization accounts for its mission and vision, its strategy and the actions they took to achieve their mission. (2) The organization accounts for the financial results. They report on what they spend money on and how much they spend. The organization also provides insight into the grants they receive, the money they collect from fundraising, the amount of money they earn with stock options etc. (3) The organization reports on integrity (salaries), benevolence and ability in the sense that they provide insight into every action they take. They have a code of conduct, on which they report. The importance of integrity is also reflected in the way the employees of the company behave. Therefore, the organization has a restrained building strategy and salary policy. The director describes the organization as ‘very sound, but very dull’. (4) The annual report is aimed at the volunteers, the people that donate their money to the organization, the government, professionals (doctors) etc. (5) Aside from the annual report, the organization also provides a ‘ scientific report’ regarding the research they fund and the results of this research. (6) Interaction with the stakeholders also takes place via direct mailing. (7) The organization is benchmarked with other charities by the organization that also provides an ‘ inspection stamp’. (8) There is a lot of media pressure. Individuals in the organization have to think twice about every move they make and have to ask themselves, whether the stakeholders will understand their actions and accept them. If the answer to this question is ‘no’ it is likely that the organization will not proceed with the action. Organization E Social enterprise E is a welfare organization. This organization provides care for elderly people, mentally disabled and youth. The Social Enterprise has a knowledge center/head quarters in Utrecht and provides care in the provinces Noord-Holland, Utrecht and Gelderland. Sales of the organization add up to € 170 M. The organization has approximately 4,000 employees (2,500 FTE) that provide care to 3,000 clients. The way the organization accounts for its actions can be described as follows: (1) The organization has a mission statement and vision which they have operationalized in a number of core values. However, these core values are still largely on a conceptual level and therefore, the organization finds it difficult to use these values related to accountability. The organization tries to operationalize the core values in such a manner that they can be used for accountability in the future. (2) The organization accounts for its actions in a vertical manner through reports for the inspection. The quality of the care is a very important aspect of these reports. (3) The organization also accounts for its actions through an annual report. This annual report is intended for a very broad group of stakeholders such as the government, clients, family of clients and other welfare organizations. Aspects of this annual report are: a. The profile of the organization b. The structure of the concern c. Data concerning the type of clients, the capacity, production, personnel and profit d. The stakeholders of the organization e. The Governance structure and code f. The board of directors and the supervisory board g. The board of clients and personnel 17

h. i. j. k. l. m. n. o.

The actions and performance of the organization regarding the policies The long term and short term policies The policies regarding quality The complaints Safety Quality of the personnel The financial policy The financial position Important opportunities and threats p. Prognoses for the future (4) The most important element of the annual report is the professionalism and proper care-taking. Elements of integrity, benevolence and ability are also very important aspects in the accountability of the organization because they work with a very vulnerable target group who are not in the position to choose which organization will be their care provider. They are usually ‘condemned’ to the organization because of the city they live in. In reaction to the vulnerability of the clients, other stakeholders put pressure on the organization regarding its accountability. For example, municipalities are desperately searching for ways to make the welfare organization accountable for its action. In this search, the municipality asks for all kinds of information from the organization and wants to influence the decisions the organization makes. (5) The financial records of the organization are benchmarked with other welfare organizations. The organization participates in a permanent benchmark performed by an accountant. Organization F This social enterprise is a university with net sales of € 465 M, with 4300 FTE personnel and 19,000 students. The university performs research and teaching. The way the organization accounts for its actions can be described as follows: (1) An annual research report in which all research efforts and results are presented to a selected group of stakeholders. (2) An annual report in which one can find education efforts, personnel and financial figures globally. (3) Individual research groups also report to certain stakeholders in the direct vicinity?. (4) There are several stakeholder initiatives (master classes) and meetings with stakeholders. (5) There is no direct need for information on education. This information is gathered by other organizations. (6) There is a direct link between mission statement and operational activities. Proper education for students, help solve societal problems. (7) Pragmatic legitimacy is given when proper research is done and education is judged positively. Because of the mysterious and complex character of research, the university must focus on the integrity and benevolence of the professional. When a possible scandal occurs, direct action is undertaken. (8) There is not a lot of media pressure


Organization H This social enterprise is a group of schools for severely handicapped children. Sales add up to €18 M. There are about 600 students, and 400 FTE. Accountability consists of: (1) An annual report with information about activities and finance. a. The main focus of the annual report is the way children are taken care of. b. Report of incidents c.

Financial reports

d. Linking mission statement to operational activities. (Every child has the right to education, irrespective of their handicap) (2) An inspection report which is focused on the quality of the teachers and the progress the children make. (3) A budget report and internal report which is focused on the three major stakeholders, in which all finance is detailed, relating budget to realisation. (4) The organization has different levels of legitimation. On the one hand there are parents who legitimate the organization due to the fact that they are taking care of the children. On the next higher level there is moral legitimation through the choices the organization makes regarding children groups, educational choices etc. (5) There is no active stakeholder management. On the other hand, parents are very involved. (6) There is no high visibility when everything is going as expected. When problems arise, media attention is high because of the vulnerability of the children.


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