Social Firms in Europe

May 2011
Gerold Schwarz
Programme Manager, International Organization for Migration

Content

1. Social Firms in the Context of the Social Economy

1.2 Social Firms in the context of the wider Social Economy

2. Mapping of national and international surveys on Social Firms

3. National Legal Frameworks

3.1. National Legal Frameworks

3.1.1. Finland
3.1.2 Lithuania
3.1.3. Germany
3.1.4. Greece
3.1.5. Italy
3.1.6. Poland

Main Features of Social Firm Legislation across Europe

4. Key Characteristics of Social Firms

4.1 Social Firms in the Open Market

4.2 Financial Considerations for Social Firms

4.3 Establishing Social Firms

4.4 Social Firms as a Model for Integration and Empowerment

5. Social Firm Support Systems

5.1. Functions of Social Firm support systems
5.1.1. Direct technical support to management and individual businesses
5.1.2 Organisational and Strategic Business Support
5.1.3. Strategic Level Support

Key Features of Social Firm Support Structures

6. Summary and Conclusions

Literature

Introduction

Social Firms and social co-operatives are unique business models that address the problem of unemployment for people with disabilities and other disadvantages in the labour market. The first social co-operatives were established in Italy in the late 1970ies by mental health professionals and former psychiatric patients during the time when the Italian psychiatric system was fundamentally reformed. The concept of creating employment as an alternative to traditional sheltered work on the one hand, and very low real work opportunities in the private sector on the other hand proved to be successful. As a result, the number of Social Firms in Italy and later across other countries in Europe increased constantly.

Social Firms and social co-operatives were developed from the bottom up as an attempt to find an answer to the problem of unemployment and discrimination in the labour market, poor standards in publicly subsidized employment (mainly in sheltered workshop) and dissatisfaction with the low level of the few available work opportunities for the most disadvantaged groups. The general idea was to create completely new ways of meaningful production and working whereby generation of profit is important as a means for creation of income. The main purpose was to create an entirely new way of working with an empowering environment focussing on own ideas and ambitions and the true potential of people rather than on disadvantage and disability.

Today in Italy alone there are over 2,600 type B social co-operatives, Germany has over 700 Social Firms, the UK around 180, and Social Firms and social co-operatives exist in many other countries in Europe. In terms of employment, estimates alone show a total of over 96,000 employees including around 43.000 jobs for disabled and severely disadvantaged people.

Over the last 20 years, national governments in Europe have recognised the importance and value of Social Firms and social co-operatives and established legal frameworks to support the model. Today, Italy, Greece, Poland and other countries have well developed legal frameworks that support and regulate social co-operatives. Germany and Finland have specific laws that define Social Firms and regulate government support. At the same time, Social Firms and cooperatives have established their own regional and national support structures that fulfil important roles in lobbying and representing their members towards national and regional partners. They also provide specific support, i.e. business support, training and networking and exchange to individual Social Firms and cooperatives.

There is currently a large variety of Social Firm models across Europe - with a different approach and focus to generation of income on the market, to integration and vocational training of the disadvantaged workforce, different models of ownership, decision making and management, and to utilizing public support and government funding. The emergence of social enterprise as a mainstream topic and the emergence and academic discussion and analysis of WISEs (work integration social enterprises) have brought Social Firms and social co-operatives in a much wider and better known context. However, these developments also contributed to lower attention and recognition of the specific market oriented Social Firms and co-operatives since they tend to disappear in the sometimes perceived as confusing broad concepts of social enterprise that is now widely discussed.

Even though Social Firms seemed to be very successful in creating large numbers of employment, and governments across Europe have recognized the importance of the model, there is not much systematic information available on their numbers, impact and relevance on a European and wider international level. There are a number of national surveys, mainly in Italy and Germany, and a few international reports and surveys on specific aspects of the model, i.e. legal systems or support frameworks. Furthermore, there seems to be a large variety of lessons learned from individual Social Firms and social cooperatives which can provide useful guidance and support to emerging Social Firm initiatives not only in Europe but also for other countries.

This paper aims to provide an updated overview on the situation of Social Firms in Europe. It summarizes existing Social Firm mappings, explores the main characteristics of successful Social Firms and summarizes the role of legal frameworks and supporting systems. The main focus of the discussion is on market oriented Social Firms with a strong entrepreneurial approach as well as on generation of meaningful and sustainable employment for disadvantaged people. The discussion paper is produced with a view to provide stakeholders in Europe with updated information, and also to inform an audience outside of Europe on the relevance and potential of Social Firms.

1. Social Firms in the Context of the Social Economy

The European network of Social Firms, (Social Firms Europe - CEFEC) defines Social Firms as follows:

• A Social Firm is a business created for the employment of people with a disability or disadvantage in the labour market;
• It is a business which uses its market-oriented production of goods and services to pursue its social mission (more than 50% of its income should be derived from trade);
• A significant number (minimum 30%) of its employees will be people with a disability or other disadvantage in the labour market;
• Every worker is paid a market rate wage or salary appropriate to the work, whatever their productive capacity;
• Work opportunities should be equal between disadvantaged and non-disadvantaged employees. All employees have the same employment rights and obligations.

(Definition of Social Firms Europe (CEFEC) from 1997)

The CEFEC definition was developed by Social Firm practitioners from across Europe after over 10 years of existence of the model. It includes and combines all important values and objectives of Social Firms and social cooperatives that have emerged in the different European countries. The CEFEC definition highlights the following three important aspects which define a Social Firm and make it different from other models for the vocational integration of people with disabilities and disadvantaged people:

1) Creation of employment under market conditions as employment under conditions in which meaningful goods or services are produced.

This paragraph of a definition highlights a significant difference to other vocational occupational schemes or sheltered work and the wider charity or non-profit sector. Over time, the concept of using entrepreneurial approaches to pursue social objectives has become very prominent in the wider social enterprise discussion and definitions.

However, an important underlying reason for the emphasis on employment under market conditions in a Social Firm is not only the entrepreneurial approach per se, but much more the effect of this approach on disadvantaged and disabled employees in Social Firms. A market oriented businesses must produce products and/or services that have a value for society, which can be expressed in price and customer demand. This means for a Social Firm and specifically its disabled and disadvantaged employees that they are part of an enterprise which must have a quantifiable value for their customers in particular and society as a whole in general. One of the most important aspects of working in a Social Firm can be that their employees develop a feeling of being proud of what they produce and that their contribution to the enterprise is meaningful and has value. This effect cannot be undervalued as it contributes to higher self-esteem, feeling of empowerment, and ultimately can have therapeutic effects. The notion of empowerment and contribution to higher self esteem is specifically important as most, if not all, of the earlier Social Firms and cooperatives have been established to create employment for people with serious mental health problems. This aspect of the Social Firm definition has also been crucially important at a time when the only alternatives for people with mental health problems and people with other serious disabilities have been in day care, occupational schemes, and traditional sheltered workshops, where the main emphasis was on providing a daily structure through very basic occupational activities which had very little commercial values and meaning for the society.

2) Social Firms pay salaries at market rate and offer regular employment contracts

This part of the definition highlights the independence and status of disabled and disadvantaged employees. It has also been established at a time where users of vocational occupational schemes and traditional sheltered work had not any significant income, and mainly depended on state aids or other financial support (i.e. family or from charity organisations), and in contrast to employment in sheltered workshops, where disabled employees have a special type of contract which does not provide much of the regular employee rights and obligations.

To earn salaries at market conditions signifies that employees, disadvantaged or not disadvantaged, should be able to earn enough income to have control over their lives and move away from dependence on the state or other financial support. Having regular employment contracts signifies that all employees have the same rights as any other working person. The objective of both conditions are again to contribute significantly to the empowerment of disadvantaged employees by supporting higher control and ownership over their own lives.

3) All employees have the same rights and obligations

This paragraph of the definition emphasizes that all employees of a Social Firm (disadvantaged or not) must have an important function for the enterprise. They must be taken seriously as they contribute to the overall success of the business. It highlights the importance of cooperation on an equal basis between disabled and non-disabled employees and signifies a fundamental shift of the notion of disability and disadvantages. The equal rights condition contributes again, but in a different manner to the empowerment of disabled and disadvantaged employees of a Social Firm.

The Italian social co-operatives take this condition an important step further. In a social cooperative all employees do not only have the same rights and obligations but they are also co-owners of the company and have a clearly defined role in the governance and decision making process of the business. As a minimum, they have full voting rights on all decisions in the annual assembly of the cooperative and can therefore influence fundamental decisions on general objectives and the management of the business.

1.2 Social Firms in the context of the wider Social Economy

Social Enterprise

The most commonly used definition in Europe is the UK Social Enterprise Coalition’s definition of a social enterprise: ‘An enterprise trading for a social purpose’. The wider definition of social enterprise includes a broad spectrum of models, including cooperatives, fair trade companies, work integration social enterprises, and other. Social Firms can be considered as a specific type of social enterprises. In the UK and other countries, where the term social enterprise is used, Social Firms are usually actively involved in the wider social enterprise context but represent only a very small part of the sector.

Work Integration Social Enterprises

A Work Integration Social Enterprise (WISE) is a type of social enterprise that has a specific focus on helping move people with disadvantages into employment, whether through job creation within the organisation or other opportunities outside the enterprise. WISEs attempt to bring unemployed people back in the ordinary society by combining economic activities, social empowerment and training. WISEs are “social” to the degree that they focus on integration of people disadvantaged in the labour market, and they are “enterprises” because they create products and services for the local private markets through an entrepreneurial style of action (EMES 2004).

The EMES European Research Network (www.emes.net) offers a definition of WISEs by their modes for integration (a. Transitional occupation, b. Creation of permanent self-financed jobs, c. Professional integration with permanent subsidies, d. Socialisation through a productive activity) Status of the workers in integration (a. Formal work contract, b. Trainee status, c. Occupational status, and Modes of professional training (a. "On-the-job" professional training, b. "Structured" professional training) (EMES 2004).

Social Firms in relation to Work Integration Social Enterprises can be considered as a subgroup of the model because long-term work integration of disadvantaged people is their core objective. However, Social Firms are different from the wider work integration social enterprises as those include many different types such as vocational training and integration models, supported employment and temporary subsidized employment, and sheltered work. Moreover, the large majority of WISEs focus on temporary measures, while Social Firms aim to create long-term work opportunities.

Sheltered Workshops

The word 'sheltered' refers to a protective environment where the disabled can undertake paid meaningful employment in a supportive environment. The term 'sheltered workshop' is now considered outdated in favour of social enterprise, especially in the UK, the US and increasingly in Australia (Wikipedia). Sheltered workshops have a much longer history than Social Firms and still provide a much higher number of work places. However, there is large criticism against the model, mainly from organisations of people with disabilities and there are also increasing discussions about cutting down government funding.

As a result, since the 1990ies, the sheltered workshop model is under increasing pressure to reform. As an example, the Samhall organisation in Sweden, Remploy in the UK and Werkstaetten fuer Menschen mit Behinderungen (WfBM) in Germany are now increasingly looking at changing their structure, organization and management. Sheltered workshops aim to become less dependent on state subsidies by increasing their market income through a higher degree of productivity and competiveness. Good examples can be found (among others) in Germany, where there is a close cooperation between Social Firms and sheltered workshops and where sheltered workshop umbrella organizations increasingly establish their own Social Firms.

2. Mapping of national and international surveys on Social Firms

So far, no systematic international surveys on Social Firms have been carried out. There are only three publications with an international perspective and data on Social Firms: A short report published by the EU funded Marienthal network (Marienthal 1999), an article from the United States from 2006 (An Update on Affirmative Businesses or Social Firms for People With Mental Illness), and the most recent, the updated version of the “Linz Appeal” from 2010 from Social Firms Europe (CEFEC). These reports include information gathered from Social Firm support organizations and can provide only basic indications on overall numbers. However, none of these publications claims a systematic or even close to complete overview on the international dimension of Social Firms.

On the national level, Social Firm support organizations in some EU countries (namely Italy, Germany, United Kingdom) carry out regular national mappings of Social Firms. The main purpose of these mappings is to demonstrate, mainly to a national audience, the quantitative impact of Social Firms in the respective countries. The focus of these mappings is mainly on total numbers of Social Firms (and emerging Social Firms) their total jobs, industry sectors in which they operate, and basic financial data, mainly annual turnover.

Germany and Italy also seem to be the few countries where statistics on Social Firms exist. In both countries numbers of Social Firms and cooperatives are published by public institutions (Bundesarbeitsgemeinschaft der Integrationsaemter in Germany, the latest report from 2007, and INSTAT in Italy), but not on a regular basis.

Looking at the wider sector, there are many international and national reports published on the size of the social economy, social enterprise and WISEs. These include sometimes information on Social Firms but they are not explicitly specified as a category in the data. These reports do not provide a clear distinction of data on Social Firms as per the definition presented in this report. Social Firms may be included in larger general data on different types of work integration social enterprises (i.e., sheltered employment, transitional employment, vocational training enterprises). As an example, one publication from the EMES network from 2004 shows a total of 14.209 Work Integration Social Enterprises, which certainly include Social Firms together with a wide variety of many other work integration models. However, the number of Social Firms could not be extracted from this and other similar publications.

The table below summarizes current information on basic data on Social Firms in Europe gathered from publications, and information from Social Firm support structures. The numbers presented are only from sources which specifically use the CEFEC Social Firm definition. These numbers are most probably not complete and it is very likely that more Social Firms exist than presented here.

Table 1: Estimates on Numbers of Social Firms in Europe

(1) Data from Social Firms Europe 2010 - FOKUS PRAHA. No data available non number of jobs.

(2) Vates Foundation 2010. No data available non number of jobs.

(3) Data from Bundesarbeitsgemeinschaft Integrationsfirmen 2007

(4) Social Firms Europe 2010 - Pan-Hellenic Union for Psychosocial Rehabilitation and Work Integration (“PEPSAEE”)

(5) Data from ISTAT figures from 2005. This total number of social co-operatives 7.363 (with 267,000 members, 223,000 paid employees, 31,000 volunteers and 24,000 disadvantaged people undergoing integration). Combined turnover is estimated at around 5 billion euro. The co-operatives break into three types: 4.345 type A (social and health services), 2.419 type B (work integration) , 315 mixed, and 281 consorzia. The average size is 30 workers. Data presented are estimated type B social co-operatives according to the percentages provide.

(6) Social Firms Europe 2010, LegaCoopSociali

(7) Social Economy Poland Internet Portal (www.bahttp://www.ekonomiaspoleczna.pl/ ). No data available non number of jobs.

(8) Social Firms UK mapping 2010

According to these data, the total number of Social Firms seems to be at least around 3.800, with a total number of jobs of 96.000, of which approx. 43.000 are for people with disabilities. The highest numbers are in Italy, followed by Germany, the UK, Finland, and Poland, Czech Republic and Greece. It must be noted, that the Italian data are calculated as a percentage from total numbers on type A and B social co-operatives.

According to Social Firms Europe and other sources, Social Firms meeting the criteria of the CEFEC definition also exist in Belgium, Lithuania, Portugal, Spain, Slovenia, and other countries. Certainly, work integration social enterprises with a focus on long-term integration of disadvantaged and disabled people exist in the French speaking countries, the Netherlands, and Sweden. Austria has a specific type of work integration enterprises whereby the focus is on temporary employment of people with disabilities up to 2 years, with the aim to integrate them into the open labour market.

However, there are currently no reliable and/or distinct data on Social Firms available from these countries. The only available statistics are for social enterprises in general or work integration social enterprises with no clear distinction between Social Firms and other models.

Even if the situation in terms of Social Firm data and statistics is very poor, the total numbers presented provide a clear indication that Social Firms overall have a significant impact as a model for creating permanent employment for people with disabilities and disadvantage people and that they represent a significant economic value. It is astonishing that no regular collection and systematic analysis of Social Firm data exists.

3. National Legal Frameworks

3.1. National Legal Frameworks

There are a number of countries that have legislations defining and regulating Social Firms. The main purpose and focus is on creating employment for people with disabilities and other disadvantages in the labour market. The current Social Firm laws include mainly the respective national definitions of a Social Firm or social co-operative and related regulations and controls by government, a definition of their target groups. They also define the type of support that can be received from Governments.

The first law on Social Firms was adopted by the Italian government in 1991, followed by Greece in 1999, Germany in 2000, Finland in 2004, and Poland in 2006. Italy, Greece and Poland define Social Firms mainly as social co-operatives. Germany, Finland, and Lithuania define Social Firms by their function and do not prescribe a specific legal form of a company. With the amended law on social enterprises from 2005, Italy now also allows Social Firms to use other legal firms than a co-operative, similar discussions about widening legal frameworks for social co-operatives also take place in Poland.

Apart from the laws presented in the table below, there is legislation governing Social Firm type work integration social enterprises in many other European countries, i.e. Slovenia, Sweden, France and Belgium. However, those legislations include more the broader concepts of work integration enterprises and not necessarily the discussed definition of a Social Firm. They would require further more extensive analysis and were therefore not included in this paper.

Relevant for Social Firms and social co-operatives are also, at least equally important, legislation and regulations on taxation of non/-profit organisations, on active labour market programmes for disabled and disadvantaged people, and social clauses in public procurement. In some countries, some of these issues are part of Social Firm legislation, but more often these are regulated in other areas of legislation.

The following table shows an overview of current Social Firm and social co-operative legislation in Europe:

Table 2: Social Firm Legislations in Europe

3.1.1. Finland

In Finland a law, adopted in 2004, defines a Social Firm as an enterprise that employs at least 30% people with disabilities or long-term unemployed people and pays market rate salaries to all employees including disabled and disadvantaged. Those Social Firms must be enlisted in a national register maintained by the Ministry of Employment and the Economy.

According to the Finish law, salary subsidies can be paid to Social Firms towards the salary costs of a long-term unemployed or disadvantaged person for a maximum of two years, and towards the wage costs of a person with disabilities for a maximum of three years at a maximum of 1.300 EUR per person per month.

Social Firms can receive funding for the costs of establishment and consolidation of an enterprise with a maximum of 75% of the cost for establishing a business and up to 2.500 EUR for a disadvantaged and 3.500 EUR for a severely disabled person.

With the amendment of the Social Firm law from 2007, salary subsidies were recalculated, access to employment in Social Firms was made easier and Social Firms were allowed to hire their employees to other enterprises.

3.1.2 Lithuania

Lithuania adopted a new Law on Social Enterprises in 2004 with the purpose to support work integration for disadvantaged persons as defined by the law (disabled, long-term unemployed people, persons of pre-retirement age, persons, returning from the custodial institutions, single parents, raising minor children).

Social Firms must employ at least 40 percent of the defined target groups. Social Firms must be engaged in training of the working and social skills of the employees as well as social integration. The Lithuanian law is the only current Social Firm law that also sets a minimum for market earned income, at 80% of the total income of the business.

Social Firms can be granted a partial compensation of the wages and state social insurance contributions, subsidy for the creation of the workplaces, accommodation of the workplaces for the disabled employees, acquisition or accommodation of the work means as well as subsidy for training of the employees from the target groups.

According to the Lithuanian law, Social Firms can receive the following State support:

• subsidy for the adaption of the work environment.
• subsidy to compensate additional administration and transportation expenses, subsidy to compensate disability assistant’s (sign language interpreter’s) expenses.
• Exemption from taxes on profits.
• Simplified public procurement.

Moreover, state and municipal property (premises) can be granted to social enterprises on a loan basis for temporary use under preferred conditions.

3.1.3. Germany

In Germany, Social Firms are defined by law, SGB IX §132 ? 135 from 2001. Social Firms are legal and economically independent companies that employ people with disabilities. Social Firms must employ at least 25% and maximum 50% people with disabilities.

The German Social Firm law provides the legal basis for three types of government support:

• Support for investment cost for creating new jobs for people with disabilities.
• Support to salary cost for people with disabilities.
• Funding for business consulting for starting a new Social Firm and for businesses in difficult situations.

The law does not define the amount of funding but it states that Social Firms can receive subsidies as prescribed from the penalties collected through the mandatory quota system. The law authorises the Germany ministry for labour and social affairs to define more detailed criteria and the actual amounts of financial support for Social Firms.

The German Social Firm law does not prescribe a specific legal company form that a Social Firm must use.

There are two types of Social Firms: Integrationsfirmen and Integrationsprojekte. The first one is a Social Firm as an independent business. The second one foresees regular companies establishing a department operated as a Social Firm under the above conditions. Both forms are used in Germany with the independent business Social Firm being the most common model.

The Social Firm law provides only a basic framework, as many other support measures used by Social Firms are regulated through other laws. The most important ones are Government support measures for vocational training and integration of people with disabilities and disadvantaged people as well as regulations on tax exemptions for non-profit organisations and companies. Tax reductions are very much used by Social Firms in Germany but are also a subject of on-going discussions with the private sector and tax administration which argue that they facilitate unfair competitive advantages.

Germany is the only country where a legal variation of a non-profit company with limited liability (gGmbH = gemeinnuetzige Gesellschaft mit begrenzter Haftung), and the non-profit variation of a company limited by shares (gemeinnuetzige Aktiengesellschat gAG) exists. This legal variation is technically not a separate legal form of a company but a special status, that is regulated by the German tax authorities. The non-profit status for both company forms allows them to use tax exemptions for non-profit organisations, mainly exemption from corporation taxes, taxes on profits and a reduced Value Added Tax (VAT). The non-profit limited liability company form is used by most German Social Firms and allows them to benefit from significant tax reductions.

3.1.4. Greece

In 1999 the Greek Government established a legal framework (law 2716/99, article 12) within a general mental health reform. The framework supports the set up of social co-operatives with limited liability for people with mental health problems (Koi.S.P.E.). The Greek social cooperative law is under the supervision of the Ministry of Health and the Department of Mental Health.

The Koi.S.P.E. is an organisational form in that it is both an independent trading enterprise and an official mental health unit. The law of 1999 regulates the ownership and employees of Koi.S.P.E.s ? at least 35% of the employees must be those with mental health problems; no more than 45% can be mental health professionals and; a maximum of 20% can be other individuals and sponsoring organisations.

The law also states that only one Koi.S.P.E. can exist in one mental health sector. Koi.S.P.E.s can receive public property and are exempt from corporate taxes (except VAT). The law also states that those who work for a KoiSPE may earn a wage without losing their social benefits.

3.1.5. Italy

The Italian law 381/91 defines two types of social co-operatives: A-type social co-operatives, which deliver social, health and educational services, and B-type social co-operatives providing work integration for disadvantaged people.

The law 381 defines disadvantaged people as follows: those with physical or mental disabilities, drug addicts, alcoholics, minors with problem families and prisoners on probation. A proper public authority must certify the disability: the declaration is normally effective only for a fixed period of time, for all typologies, except for the permanently disabled.

The Italian law defines two types of support for social cooperatives: Exemption for social contributions for their disadvantaged employees, and preferred conditions for public contracts.

Social cooperatives can be exempt from social security contributions (which amount to about 33% of the cost of labour) only for the disadvantaged workers employed.

Article 5 of Law 381 provides that public administrations can establish contracts with social cooperatives for supplying goods or services (excepted health and social services) without having to issue an invitation to tender. After intervention by the European Commission, in 1996, the law 52 modified Article 5 of Law 381, establishing that the amount of supplying agreed over in such "direct" contracts cannot be higher than the limits set by the European Commission for public tenders. For higher amounts, it is not possible for public administrations to award the contract directly to a social co-operative. However, public administrations are allowed to introduce a "social clause" in calls for tenders, according to which the contract must be carried out employing disadvantaged people and within specified vocational integration programmes.

The Italian social co-operatives can also use legislation on taxation of general workers co-operatives, which includes lower rates of corporation taxes, no tax on reserves, and reduced VAT.

The Italian social co-operative law has been amended in 2006 (Law 155/2006). The most significant change in the new law is that not only cooperatives but also other legal entities can establish a Social Firm (cooperatives, incorporated businesses, and non-profit organisations, excluding public entities). The new law significantly broadens the scope of a social enterprise, as it includes a wider variety of entrepreneurial activity with a social purpose. This can include employment of people with disabilities and disadvantaged people but also other types of social entrepreneurial activities, i.e. delivery of social services, health, education, services related to culture or environmental protection as well as support to social enterprises.

3.1.6. Poland

The Act on Social Cooperatives (27 April 2006) was inspired by Italian Type-B social cooperatives and defined Polish social cooperatives as enterprises established by people from especially vulnerable social groups (the homeless, long-term unemployed, formerly incarcerated individuals, people with substance abuse, refugees, and the mentally and physically disabled). Their primary objective must be to support the social and economic re-integration of their members. Experiences from the first social cooperatives have prompted a call to reform the act by easing membership requirements and by expanding the available financial and institutional support in order to facilitate their sustainability on the open market. An amendment of the Act is currently being discussed in Parliament. The newest legislation proposed in Poland is an act on social enterprises, which it is currently being discussed among NGO’s, social leaders and various government actors. (www.ekonomiaspoleczna.pl)

Main Features of Social Firm Legislation across Europe

Current legislation on Social Firms and social cooperatives in the different EU countries has the following main characteristics:

• Definition of a Social Firm as a business to employ people with disabilities or disadvantages in the labour market.
• Definition of minimum (and maximum) percentage of disadvantaged people employed.
• Definition of target groups.
• Definition of Government support with a focus on two areas: funding for investment costs and funding for salary subsidies for target groups, both direct and indirect. Germany offers additional funding for business consultancy, mainly during the start-up phase.

Greece, Italy, and Poland define a specific legal form for a social co-operative. In all these cases public entities ensure monitoring and regulations. All other countries leave it to the individual organisation to decide which company form to use.

Social Firms in all countries use legal frameworks and programmes for vocational integration of people with disabilities and regulations governing economic activities carried out by non-profit organisations. These have an important role and financial impact which can be equally important than the actual Social Firm support frameworks. The most important are active labour market programmes supporting vocational integration of disadvantaged and long-term unemployed people, tax reductions for non-profit organisations, and regulations on public procurement.

Greece regulates not only the legal form of social cooperatives, their purpose, and employment quota, but also defines membership of a cooperative board (people with disabilities, mental health professionals, and others). Greece also has the only legislation, which specifically allows disabled employees of social cooperatives to keep their State benefits.

A defined percentage of income that Social Firms need to earn on the market is not prescribed in any of the Social Firms laws apart from Lithuania, where a minimum of 80% of market earned income is required to meet their definition of a Social Firm.

Both, Lithuania and Greece, specifically allow and/or foresee the use of public property by Social Firms, which they can receive or lease under preferred conditions.

Taxation is a significant regulatory issue for Social Firms as this can provide important contribution for Social Firms in two areas: a) bring them to a more equal level in competing with the private sector by indirectly lowering cost of production (mainly through VAT exemptions), and b) increase building up of capital reserves and facilitate re-investments through reduction of taxes on profit.

Germany is the only country where a legal variation of a non-profit company with limited liability (gGmbH = gemeinnuetzige Gesellschaft mit begrenzter Haftung) and the non-profit variation of a company limited by shares (gemeinnuetzige Aktiengesellschat gAG) exists. The non-profit limited liability company is used by most German Social Firms and allows them to use significant tax reductions.

4. Key Characteristics of Social Firms

To understand what are the common features and challenges of setting up and managing a Social Firm and where they differ from mainstream business, it is helpful to look at the literature and case studies on this subject. Specific guidelines for (potential) Social Firm managers have been developed first in the UK (The Social Firm handbook, 1997, and The Extra Elements, a Social Firm Trainer, 2005), in Italy (different publications, i.e. on “extreme entrepreneurship”, 2006), and Germany (Compendium for social entrepreneurs, 2006). Moreover, there are numerous papers and guides for social entrepreneurs published by social enterprise support structures across Europe. The largest systematic collection of resources and case studies is available from Social Firms UK on their website (www.socialfirms.co.uk).

Throughout all available literature the following key issues are specified:

• Development of product or service and definition of unique selling proposition
• Access to start-up capital
• Marketing and pricing
• Management of finance, accounting and tax
• Organisational structure and legal forms of enterprises
• Human resource management

Specific to Social Firms are mainly four areas:

• The assumption that most Social Firms are established on the background of social service organisations and all related issues
• Consideration of Social Firm specific financial support
• Legal and taxation regulations for Social Firms and non-profit organisations
• Creating a work environment that takes all aspects of integrating disabled and disadvantaged people into consideration

There are two common assumptions that can be found throughout all reviewed literature in establishing and managing a Social Firm:

1. Social Firms are discussed as start-up of a standalone business
2. Social Firms are established by organisations and people from a non-profit organisation or social services background, who therefore do not have much knowledge on entrepreneurship, business and the market rules and dynamics.

At the same time, Social Firms support structure publications point out that Social Firms’ start ups have a much higher survival rate than the average business start-up and were well able to cope with the recent financial crisis.

Concluding a first overview on existing Social Firm management papers, there seem to be some questions not clearly answered, which would help to understand how Social Firms function and what exactly are the differences between a Social Firm and a private sector enterprise:

1. How can Social Firms be equally successful as a comparable private sector business, if they are often started by people and organisations with a social background, which do not have much business knowledge and employ large percentage of severely disadvantaged people?
2. What are the features that make Social Firms so successful in integrating disabled and disadvantaged people into work and fundamentally change their role from passive dependants on social welfare into active members of society with a large degree of control over their life?

These both areas seem to be the key to understand how Social Firms operate. To understand how successful Social Firms can be established and managed it will be worth to look more into the details of how Social Firms are established and operate as businesses.

4.1 Social Firms in the Open Market

The mission of Social Firms is to integrate disabled and disadvantaged people into meaningful work. To accomplish this in the long term they need to function well as a business on the market with competitive products or services. Social Firm literature highlights that there is not much special consideration of Social Firms in the market or by customers. First and foremost, they need to provide competitive products and services of highest quality and for competitive prices in order to survive and grow as a business.

Surveys from Germany and Italy show that Social Firms (apart from the Type A cooperatives which are specialised on delivery of services) are active in almost all industry sectors, except agricultural production and industry sectors that require large capital investments. Apart from the capital issue there does not seem to be a pattern of industry sectors on which Social Firms would focus. In terms of market coverage, Social Firms focus mainly on local and regional markets, there are very few Social Firms that aim to reach national and very few Social Firms that cover international markets (apart from social co-operatives and Social Firms active in tourism). This seems to be a fact to note and further explore, as there may be good potential for growth, particularly considering the close and extensive cooperation between Social Firms and support structures across European countries.

The concept of working in “niche markets” appears sometimes in Social Firm discussions and literature. The idea is that Social Firms can operate (undisturbed) as businesses in small market sectors that are not attractive for private enterprises. However, looking at the actual industry sectors in which Social Firms operate, this approach seems not to be very wide spread. It would also be difficult to explain how Social Firms can function as a business and earn enough income in such markets, if even the private sector cannot operate there.

4.2 Financial Considerations for Social Firms

Throughout the literature on Social Firms it is argued that Social Firms have higher operating costs than comparable businesses due to an assumed lower productivity of some of their staff and higher need for providing support. Studies of FAF gGmbH highlight especially these areas of Social Firms. FAF has been analyzing information and data from German Social Firms on a regular basis taking into consideration large numbers of Social Firm business plans and annual financial reports. The focus of these studies is two-fold. Firstly, data are analysed and compared (Social Firms, with private sector businesses) with a view on financial performance of the Social Firms. Secondly, FAF has analysed return on investment from the perspective of public financial support. All those reports conclude that Social Firms are viable businesses producing good results, and that in the long-term public investment in Social Firm is returned through their taxes and social contributions.

4.3 Establishing Social Firms

To better understand what makes Social Firms successful despite their assumed disadvantages, it is useful to look at how most Social Firms have been established. In fact, very few Social Firms are started as standalone business start-ups. Most Social Firms are established by parent organisations, mainly from the social sector, and more specifically by organisations that provide support to people with disabilities or disadvantaged people in the areas of care, housing or vocational training. An often overlooked key difference between a mainstream business start up established by a private entrepreneur and a Social Firm therefore seems to be the organisational supportive background, out of which Social Firms typically develop.

Many Social Firms have started as vocational training projects, often established by larger non-profit organisations that manage a variety of supporting programmes for disadvantaged and disabled people. Those can have small productive components, which can develop into commercial operations, to the point where a Social Firm is established as a separate legal entity whereby the training project can remain and keep its function for preparing people to eventually move on to a job in the Social Firm. During the entire process, Social Firms are under the umbrella organisation and can use synergies, or make use of cross subsidizing (often in the start-up phase, Social Firms will draw on resources from the umbrella organisation, while later they often contribute financially to it).

Another important characteristic of many start-up Social Firms is that they make use of outsourcing or contracting of either public services (as type A social co-operatives in Italy), or service functions of their umbrella organisations or partners, i.e. many Social Firms have started as small cafe’s or catering services for public institutions including mental hospitals.

The fundamentally different conditions, on which Social Firms are often started, are very likely to have significant effects on the business start up dynamics, risks and typical problems as well as their longer term survival rate.

Summarizing the information available on how Social Firms function and operate as businesses it can be stated that, apart from their staff, they are not much different from any small or medium sized private market enterprise. Social Firms function well within the common market dynamics and rules, achieve good financial returns, and have not invented any noticeable new ways of doing business. However, there seem to be some key characteristics of Social Firms, which are not very well-analysed in the existing literature. It would therefore be worth to look further into the details of the following:

• Mitigation of business start-up risks by use of synergies with all relevant umbrella organisation functions
• Establishment of Social Firm business models on the basis of pre-agreed contracts within umbrella organisation itself or their partners
• Accomplishment of high flexibility through use of umbrella organisations support or in later development stages, through close cooperation and synergies between Social Firm clusters

Another main difference to private sector companies is that in most Social Firms profit is not distributed to shareholders but must be retained as reserve or re-invested ? either to improve their competitive advantage, to increase employment or training opportunities, or within the legal limits, to build reserve capital. This is also reinforced by legal frameworks, which regulate the use of profit in not-for-profit companies (i.e. Italy, Germany, and Finland). However, there are no systematic data openly available to compare amount and use of capital reserves between Social Firms and comparable private sector businesses.

4.4 Social Firms as a Model for Integration and Empowerment

Social Firms and social co-operatives throughout Europe and over time have shown and proven that in the long term they are able to integrate large numbers of the most disadvantaged people into work and society. After over 30 years of existence of the model, and looking at the data presented before, it can be stated that Social Firms are effective in turning the most excluded and dependant people into productive and active members of society.

There are only a few surveys where quantitative integration effects of Social Firms were analyzed, mainly by FAF in Germany, and Social Firms UK. The approach of these studies is to compare hospitalization of disadvantaged people that work in Social Firms with other disadvantaged people, who are not in employment. Results show that hospitalization rate of disadvantaged Social Firm’s employees is significantly lower than in the comparative group. It is concluded that a lower hospitalization rate demonstrates that working in a Social Firm can considerably contribute to better health and to reducing effects of mental health problems.

A survey from 2003 by BAG Integrationsfirmen and Unity AG of 70 Social Firms in Germany looked, among other, at quantitative and qualitative factors that can determine a successful Social Firm. The authors confirm that Social Firms have two main areas that are relevant for success: the economic success and success in integrating disadvantaged people into regular employment. The survey introduces qualitative and quantitative success factors, which are equally important and interlinked:

• Quantitative success can be determined by financial data and data on creation of sustainable jobs
• Qualitative success factors are defined by an open and integrative company culture, by the quality of work and the structure of relationships within the company

To better understand the integrative dynamics of the Social Firm model it will be useful to look at this from the perspective of the individual disadvantaged or disabled person, the special integrative efforts made by Social Firms, and how these two interact and create long term effects.

Empowerment and “Special Atmosphere”

The special efforts that Social Firms make in integrating most vulnerable people appear throughout most papers and documents. Most commonly the terms “empowering environment” or “special atmosphere” are used to describe how Social Firms can be successful in integrating the most disadvantaged. Empowerment is one of the key values promoted by Social Firms UK. User empowerment is used by the Italian social cooperative movement, and the term “special atmosphere” mainly in German Social Firm publications. Even though the terms used may be differ from each other, the approach to creating an environment that enables people to develop their potential rather than put emphasis on their disadvantages seems to be similar across the sector and countries.

All descriptions point out the following key differences between Social Firms and the private sector:

• The most fundamental characteristic of a social co-operative and a Social Firm is that they are based on an inclusive entrepreneurial approach. Disadvantaged and not disadvantaged people create their own solutions to unemployment and exclusion and thereby make a fundamental transition from being passive recipients of support into being actively involved and in control of their (working) life.
• Besides an initial extensive training and support phase, Social Firms aim to continuously qualify their staff and place strong focus on long-term development of skills and knowledge. Social Firms strongly believe in the long-term potential of all their employees, rather than focus mainly on their disadvantages.
• Disability and disadvantage are openly addressed in a Social Firm. There is no need for a disadvantaged employee to conceal their problems, and no pressure to pretend to be always fully functioning.
• Social Firms use a flexible approach in assigning tasks to their employees. They acknowledge permanent or temporary problems or limitation of some of their staff and aim to organize work around their people instead of the other way round.

In addition to all the above, the social co-operative models have a further element of empowering their staff as most staff are not only workers but also owners of the enterprise and therefore a higher level of involvement and decision making power.

There are very few studies and no scientific systematic research on the integrative and empowering effect of Social Firms. There are case studies available from the UK and Italy and some basic scientific analysis of long term integrative effects on disabled Social Firms’ staff from Germany. However, all available information confirms that the combination of intensive and flexible initial and ongoing training, openness in addressing problems as well as a flexible approach to work organisation result in high motivation, identification with the job and the enterprise and strong feeling of confidence, which ultimately helps many people to overcome, better manage and cope with their disadvantages.

The Social Firm approach to work organisation, “special atmosphere” and their broader concept of human resource management needs also to be understood in relation to their history and to the private sector. Originally, the first social co-operatives and Social Firms had been established with a strong emphasis on creating an alternative to capitalist production in general, and against the perception that the private sector and their traditional organisation of work and working conditions exploit and make people ill in the first place. However, in the meantime, working conditions, organisation of work, and human resource management in the private sector have changed dramatically, at least in the European Union.

During the last 30 years, varieties of modern concepts of work have developed in the private sector and are now widely discussed in the business literature. Team working in industrial production, employee engagement, motivation, “work live balance” are only a few concepts that describe how fundamentally different working today can be. The importance of how employees should be engaged, widely emphasized by various private businesses, does not differ much from Social Firm statements. All values presented above appear now throughout private sector company mission and vision statements. Considering these dramatic changes, and the fact that today there is much more research and analysis on modern concepts of human resource management available from the private sector compared to the Social Firm sector, it would be useful to have a closer look at how Social Firms compare, how and to which extend they are different, and if some of the methods could also be useful for Social Firms. This could be done on a general level, where concepts as such are analysed from a Social Firm perspective, but also on the internal level, where the effect of working in Social Firm on employees can be measured and compared.

5. Social Firm Support Systems

Social Firm Support structures have emerged from within the Social Firm and social co-operative movement based on the very practical needs for support of individual social entrepreneurs. The purpose and shape of these structures have changed over time, adapting themselves to the growing and diversifying movement.

There are numerous publications about the functions and relevance of Social Firm (and social enterprise) support structures. Under the EU funded Marienthal project a first very basic overview of Social Firm support structures was published in 1999 (Marienthal report 1999), a comprehensive review of wider social enterprise support structures was completed by DIESIS in 2005, and most recently, in 2010, Social Firms UK has published a review with a basic impact analysis of their work which was carried out by the New Economics Foundation (Social Firms UK April 2010). All publications indicate the importance of a targeted sector specific support.

In this report the focus will be on three models of Social Firm support structures (Germany, Italy, and the UK). Those three models represent the broad variety of support functions which currently exist:

• Lobbying for awareness, recognition, legal change and support.
• Networking for exchange and mutual learning.
• Management and business training
• Business consulting and business development support (i.e. Innovation, Franchise)
• Business and administrational support.
• Development, coordination and management of Social Firm support programmes.
• Research and evaluation.

5.1. Functions of Social Firm support systems

The three models of Social Firm and social co-operative support structures that exist in Germany, Italy and the UK provide a wide range of supporting functions, which can be grouped into three levels:

1. Direct technical support to management and individual businesses.
2. Organisational support to business consortia or cluster, and strategic business support.
3. Strategic support in the areas of networking, awareness raising, policy development and representation to governments and donors.

The individual support functions are described in more detail in the following chapters.

5.1.1. Direct technical support to management and individual businesses

Business and Management Support

Management and business support is provided by the regional and national Social Firm support services in Germany, Italy and the UK. The focus here is on business consultancy for starting a new Social Firm, for expanding a business, or for managing businesses in a crisis situation.

Social Firms UK and the German FAF gGmbH have published a large variety of guidance and training material for Social Firm managers on all relevant topics related starting and managing a business, such as marketing and branding, establishing a Social Firm, and industry specific financial indicators and guidance.

The technical content of most of these consultancy and support activities is not different from private sector business support materials. The speciality of Social Firm specific business support is mainly in the following three areas:

a) To make professional business advice available, accessible and understandable to an audience with sometimes more of a social services than a private sector business background.

b) To include employment of disabled and disadvantaged and their specific talents, potential and need into all phase and aspects of starting and managing a business

c) Social Firm specific financial planning, taking into consideration the many different and often complicated and changing regulations and opportunities on funding and taxation.

In addition to business consultancy support the German Social Firm structures have established a special loan fund for Social Firms in critical situations. Funded by German federal state governments they have also developed a combination of a business plan development support and clearing function for applications for government funding for Social Firms.

Management Training

Social Firm support organisations organize regular training courses for Social Firm managers and those that have a general interest in Social Firms or intend to start up a Social Firm. These trainings are usually designed for an audience with a non-profit background and with the aim to introduce basic entrepreneurial and business skills.

These management trainings also address all areas that are relevant for all smaller and medium sized businesses, i.e. general management of SME, finance, accounting, marketing, and other. However, they facilitate this with a view on Social Firm specific issues, such as impact of different types of disabilities on work, funding methods for Social Firms and Social Firm specific marketing approaches.

5.1.2 Organisational and Strategic Business Support

Social Co-operative Consortia and Social Firm Clusters

Local and regional consortia of social co-operatives in Italy provide highly specialized support and sharing of business functions within a defined legal and organisational framework. These consortia are made up of a membership of individual social co-operatives who are their members. They can deliver a wide range of direct business support services, in the area of administrational support functions, i.e. HR management and payroll services, accounting and tax services. The social co-operative consortia play an important role in application and managing of larger contracts, mainly from the public sector. Those types of complex contracts usually require larger amount of resources for administration and management, and could not be managed and delivered by individual social co-operatives.

Social Firm consortia or clusters also exist in Germany, where larger local non-profit umbrella organisations own and manage several Social Firms, which can be active in different industry sectors. These Social Firm clusters offer significant advantages to individual Social Firms as they can share all core business and administrational functions, i.e. management, marketing, contracting, finance, human resource management, and other.

The large numbers of consortia and clusters and high degree of cooperation and delegation of functions to specialized entities within these structures can rarely be found in mainstream SME clusters, and are more similar to a business department structure within larger private sector firms. It is very likely that the social co-operative consortia and clusters generate a significant competitive advantage to smaller individual private sector enterprises.

Strategic Business development

Support structures facilitate to the development of new business activities, on the level of individual Social Firms, or within larger support programmes in which several Social Firms participate. This function is mainly used for larger calls for proposals, i.e. under EU funded programmes, or for national or regional Social Firm development programmes. Those calls for proposals require highly coordinated, focussed and professional input and could not be managed by individual Social Firms alone. The largest Social Firm programmes in Europe were funded under the EU community initiatives HORIZON and EQUAL, with total project values of up to 8 million Euro, and including networks of over 100 individual Social Firms.

Social Firms UK has established an online trading platform (www.trade.socialfirms.co.uk) and operates a Social Firm visiting programme. The trading platform makes it easier for customers to find and purchase Social Firm products, the visiting programme aims to facilitate exchange and first hand learning for Social Firm managers and others interested in Social Firms. The Social Firms trading directory includes over 100 Social Firms, sorted by products categories, regions, and Social Firm status.

Another example for strategic business development is the LeMat social tourism network. The network is comprised of social cooperatives and firms offering innovative approaches to tourism. LeMat has established a social franchising system including guidelines and standards, which provide detailed guidance on establishing new social cooperatives or Social Firms in the tourism sector. The LeMat approach supports Social Firm development by setting quality standards and aiming to build a new international brand through a variation of franchising (social franchising).

LeMat also uses a unique marketing approach which proposes a tourism experience developed and managed by disadvantaged people. LeMat explains the added value of this with the argument that a tourist can also be seen as a disadvantaged person, and therefore disadvantaged people, who often have been subject of discrimination and exclusion, are the best to understand and design appropriate services (www.lemat.coop).

Research and Evaluation

Social Firm support structures in cooperation with the wider social enterprise movement, have developed a variety of models which aim to prove to donors (mainly governments) that investing money in Social Firms has positive returns and makes good business sense. The existing models calculate financial investments in Social Firms against savings in other areas of public finance, mainly state support for social care, unemployment benefits or health care, and show that by investing in Social Firms, a larger amount can be saved in the other areas ? mainly by turning recipients of state support into tax payers. The importance of these models cannot be underestimated as they play a crucial role not only in negotiations between Social Firm support structures with Government, but also in negotiations between the different Government institution, i.e. institutions responsible for people with disabilities and the treasury or parliament.

Research and evaluation is carried out by regional and national support structures, mainly on questions around measuring the impact of Social Firms in terms of job creation and integration into work, and cost benefit analysis of Social Firms from the perspective of the donor. The German Social Firm support structure has completed a number of studies on economic issues on Social Firms, i.e. industry sector specific surveys, key indicators and guidelines, and benchmarking systems to monitor Social Firms performance and progress. Social Firms UK publishes regular mappings on Social Firms in the UK, the most recent one from 2010.

Another important field of activity is the evaluation of social support programmes funded by governments or the European Union. The German FAF gGmbH has done much work in evaluation of Social Firm development programmes funded by German national- or federal state governments. The efforts of FAF in the area of evaluation of Social Firms and support programmes have contributed very much to the wider acceptance and recognition of the model by national partners. As an additional issue in this particular field of activities, potential conflict of interest needs to be considered. In Germany, where the former national Social Firm association (FAF e.V.) won an increasing number of evaluation contracts, these issues led to a fundamental re-organisation of the overall supporting structure. As a result, the functions of representation of interest, lobbying and networking was assumed by the national association of Social Firms (BAG Integrationsfirmen e.V.), while the direct supporting functions, and research and evaluation was assumed under a newly established company FAF gGmbH, which has a reasonable degree of independence from the other functions.

Quality Control and Standards

The first and so far only quality standard for Social Firms was introduced by Social Firms UK under the name “Star Social Firm”. The standard includes well defined criteria and an accreditation system managed by a subsidiary of Social Firms UK. The purpose of the standard is to ensure Social Firms comply with the accepted and agreed values and criteria of a Social Firm in the UK, and are to be used as a mark to ensure customers that they are purchasing from a Social Firm that meets all the minimum criteria promoted by Social Firms UK.

In addition to sector specific standard (s), mainstream business quality assurance systems are important for Social Firms that provide services to larger scale private sector businesses, i.e. in Germany where Social Firms provide products to the automobile, electronics, or household equipment industries, or in the food sector. Those Social Firms are required to meet the requested industry specific quality standards (i.e. ISO 9000ff for production and services, ISO 22000 or HACCP for food production, or ISO 1400 for environmental management, and various standards for organic food production). Social Firm support structures have supported the introduction of such standards only on a general level, but not specifically supported introduction of industry standards in individual Social Firms. This requires highly specialised and certified consultants and auditors, and a critical mass for developing and sustaining the required expertise within the sector does not exist within the Social Firm sector.

Social Firm Marketing

In general, marketing support by Social Firm support structures focuses on standard and mainstream marketing concepts and methods used in the private sector. Moreover, Social Firm marketing support continuously highlights that for Social Firms as for any other business, the aim of a marketing approach must be to understand what customers need, develop and deliver products and services accordingly and communicate their advantages and quality. Again, the main difference of support provided by Social Firm support structures is that it is designed to be accessible and understandable for an audience with an often non-profit background.

An offensive marketing of employing disadvantaged people and their unique potential and knowledge as a unique selling point is a relatively new phenomenon. To market employment of disadvantaged people as such, in order to appeal to socially conscious buyers is being used since the beginning of the Social Firm movement, but this new approach takes the idea one crucial step further. One of the recent examples for this approach is the LeMat social tourism network (and the network of dark restaurants, run by blind people, offering a dining experience in absolute darkness whereby the taste sense is not disturbed by visual impressions).

Considering the increasing general customer interest on social responsibility issues, these new models are likely to have a significant impact on the further development of Social Firms, and are worth to be further analysed and developed.

Innovation

Innovation has been an important theme for Social Firms support structures as most of the larger EU funding initiatives specifically required innovative approaches to social exclusion. Social Firm support structures promote innovative initiatives in this context, however, mostly under the notion that Social Firms per se are an innovative model to overcome social exclusion and facilitate work integration. In the wider social enterprise discussion, the concept of innovation also often relates to the model itself, as a new way of addressing social problems through entrepreneurial approaches.

Recent examples for innovative Social Firm projects in that sense can be the social franchising initiatives promoted in the Germany, Italy, Sweden and the United Kingdom. However, on the level of innovation as a new product or service, or a systematic approach to systematic development of innovation can hardly be found in Social Firm support structure information and publications. Social Firms have sometimes attempted to enter new and at the time innovative markets, i.e. they have established organic shops at a time when very few existed, or have been active in recycling very early. However, when those two areas became mainstream businesses and private investors entered in a larger scale, Social Firms disappeared as important actors in these sectors.

It is notable that no information on innovative products or services developed by Social Firms exists, and that there seems to be no systematic approach to research and development, and cooperation with universities or the private sector. It would be worth to analyze this more in detail, to identify if and where innovation has emerged, but also to look at the potential of a more systematic approach to innovation, as being shown by private sector SME networks.

5.1.3. Strategic Level Support

Lobbying, Representation and Raising Awareness

The Social Firm support structure play a crucial role in carrying out promotional actions addressed to government, decision makers and other important stakeholders for the Social Firm movement. The Social Firm associations in Germany, Italy and the UK, over time have established good relations with their regional and national governments and are now recognised as consultative bodies when new initiatives are being discussed and developed. As another example, Italian and German social cooperative and Social Firm associations have invested much of their time and energy lobbying for introducing new legislation to better support Social Firms with the result that both countries have now good legislative frameworks.

Over the last 30 years, Social Firm support structures, in partnership with organisations of people with disabilities and parents associations, have managed to broaden the awareness and knowledge of Social Firms across Europe considerably, to the extent, that inclusion of severely disabled people under market conditions is now widely acknowledged as a feasible and reasonable option, and that the Social Firm model is widely recognized by Governments across Europe and the EU institutions.

Networking and Exchange

Networking and exchange is a crucially important function of Social Firm support structures. The need to closely cooperate and learn from each other emerged already very early in the Social Firm movement and this has been constantly developed, on the local, regional and international (mainly EU) levels. Today, all Social Firm support structures hold regular international, national and regional conferences, and promote and organize direct exchange of Social Firm managers and practitioners.

Key Features of Social Firm Support Structures

There is a large amount of promotional material and literature available on Social Firm or social enterprise support structures. Within the European Union, the EU community initiatives have plaid an important role supporting such structures and assessing their need and impact. One of the reasons for these large numbers is probably with the nature of these programmes, as professional support structures were well placed and had the necessary capacity to manage the often complicated application and implementation requirements of large scale EU social economy support programmes. All literature confirms the need for professional Social Firm support structures. In countries where they exist there is also a significant number of Social Firms.

Social Firms support structures have often very similar functions as regular SME support organizations and they provide all the equivalent services, such as business start-up consulting, support with access to finance, management training and specific technical support, in areas such as accounting and taxing, marketing, HR development and others. Some of the key differences between Social Firm and mainstream support structures are in following areas:

• Promotion and awareness raising of/for Social Firms as a model for integration of people with disabilities and disadvantaged people. Mainstream SME support structures promote their clients/members and/or specific industry sectors, but this seems to be much more relevant for the Social Firm sector.
• Research, evaluation and new methodologies for cost/benefit analysis. Social Firm support structures in cooperation with the wider social enterprise movement, have developed a variety of models which aim to prove to donors (mainly Governments) that investing money in Social Firms has positive returns and makes good business sense. The importance of these models cannot be underestimated as they have plaid a crucial for the wide recognition of Social Firms by governments.
• Consortia of Social Firms and co-operatives provide highly specialized support and sharing of business functions within a defined legal and organisational framework. The highest numbers and most advanced models can be seen in Italy and to a lesser extent in Germany. It is very likely that these clusters generate a significant competitive advantage to smaller private sector enterprise.

Social Firm specific marketing approaches are not yet very well developed and an offensive marketing of employing disadvantaged people and their unique potential and knowledge as a unique selling point is a relatively new phenomenon. The new models are likely to have a significant impact on the further development of Social Firms and require to be further analysed.

6. Summary and Conclusions

The total number of Social Firms in Europe with an estimated 3.900 and estimated total jobs of 96.000 of which 43.000 are for people with disabilities is significant and clearly demonstrates the large potential of Social Firms and social co-operatives to creating permanent employment for the most vulnerable and excluded groups.

Current and reliable data on Social Firms are difficult to find. Data are available mainly from those countries where well established Social Firm support structures exist. Social Firms appear in surveys on social enterprise and work integration social enterprises but there is no clear distinction between Social Firms and other employment models. Given the impressive overall numbers, it is astonishing that no systematic regular collection of at least most the basic data on Social Firms and cooperatives exist.

Current legislation on Social Firms and social cooperatives in the different EU countries has the following main characteristics:

• Definition of a Social Firm as a business to employ people with disabilities or disadvantages in the labour market.
• Definition of minimum (and maximum) percentage of disadvantaged people employed.
• Definition of target groups.
• Definition of Government support with a focus on two areas: funding for investment costs and funding for salary subsidies for target groups, both direct and indirect. Germany offers additional funding for business consultancy, mainly during the start-up phase.

Greece, Italy, and Poland define a specific legal form for a social co-operative. All other countries leave it to the individual organisation to decide which company form to use.

Social Firms in all countries use legal frameworks and programmes for vocational integration of people with disabilities and regulations governing economic activities carried out by non-profit organisations. These have an important role and financial impact which can be equally important than the actual Social Firm support frameworks. The most important are active labour market programmes supporting vocational integration of disadvantaged and long-term unemployed people, tax reductions for non-profit organisations, and regulations on public procurement.

Greece regulates not only the legal form of social cooperatives, their purpose, and employment quota, but also defines membership of a cooperative board. Greece also has the only legislation, which specifically allows disabled employees of social cooperatives to keep their State benefits.

A defined percentage of income that Social Firms need to earn on the market is not prescribed in any of the Social Firms laws apart from Lithuania, where a minimum of 80% of market earned income is required to meet their definition of a Social Firm.

Both, Lithuania and Greece, specifically allow and/or foresee the use of public property by Social Firms, which they can receive or lease under preferred conditions.

Taxation is a significant regulatory issue for Social Firms as this can provide important contribution for Social Firms in two areas: a) bring them to a more equal level in competing with the private sector by indirectly lowering cost of production (mainly through VAT exemptions), and b) increase building up of capital reserves and facilitate re-investments through reduction of taxes on profit.

Germany is the only country where a legal variation of a non-profit company with limited liability and the non-profit variation of a company limited by shares exist. The non-profit limited liability company is used by most German Social Firms and allows them to make use of significant tax reductions.

Even though Social Firms operate in the open market as any other private business, many have an advantaged start-up situation as they can benefit from a wider support network within larger umbrella organisations, which helps mitigate many of the risks that stand alone start-up businesses have to take. As Social Firms develop and grow, they are often part of larger enterprise clusters, which provide clear competitive advantages as they can make use of synergies and reduced cost, act flexible and adopt easier to market challenges.

More recent and flexible concepts of disability and disadvantage, and advances in treatment of mental health problems, can help to explain why Social Firms have been successful in integrating large numbers of the most vulnerable people into work and society. The combination of above average efforts to train and adapt people to work, an open and empowering work environment, and a flexible approach to work organisation and assignment of tasks, results in increased motivation and self confidence which ultimately helps people to better cope with disability and disadvantage.

Since the first Social Firms have been established human resource management methods in the private sector have dramatically changed, and a large variety of new approaches to employee engagement, empowerment, employee wellness, and work life balance have been developed. It would be valuable to analyse how these concepts can be useful for the Social Firm sector.

There is a large amount of promotional material and literature available on Social Firm and social enterprise support structures. Within the European Union, the EU community initiatives have plaid an important role supporting such structures and assessing their need and impact. All literature confirm the need for professional Social Firm support structures. In countries where they exist there is also a significant number of Social Firms. Social Firms support structures have often very similar functions as regular SME support organizations and they provide all the equivalent services. A main characteristic of Social Firms support structures is that they make mainstream business advice accessible and understandable to- and for an audience with an often non-profit background. Some of the other key differences between Social Firm and mainstream support structures are:

• Promotion and awareness raising of/for Social Firms as a model for integration of people with disabilities and disadvantaged people.
• Research, evaluation and new methodologies for cost/benefit analysis. Social Firm support structures in cooperation with the wider social enterprise movement, have developed a variety of models which aim to prove to donors (mainly Governments) that investing money in Social Firms has positive returns and makes good business sense. The importance of these models cannot be underestimated as they have plaid a crucial for the wide recognition of Social Firms by governments.

Consortia of social co-operatives and Social Firm clusters provide highly specialized support and sharing of business functions within a defined legal and organisational framework. The highest numbers and most advanced models can be seen in Italy and to a lesser extent in Germany. It is very likely that these clusters generate a significant competitive advantage to smaller private sector enterprise.

Social Firm specific marketing approaches are not yet very well developed and marketing of employing disadvantaged people and their unique potential and knowledge as a unique selling point is a relatively new phenomenon. The new models are likely to have a significant impact on the further development of Social Firms and require to be further analysed.

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Fachberatung fuer Arbeits- und Firmenprojekte (FAF) - 1999 - Untersuchung der Wirtschaftlichkeit der Berliner Integrationsfirmen - Berlin, Germany

GROVE, B., FREUDENBERG, M., HARDING, A., et al - 1997 - The Social Firm Handbook. Brighton: Pavilion.

Higgins, G., Schwarz, G. - 2000 - Marienthal - the Social Firms network -, UK

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Manifesto - Business Changing Lifes - Social Firms UK, Social Firms Wales, Social Firms Scotland

Pättiniemi, P. - 2006 - Development of legal framework for social enterprises in Finland

Pättiniemi, P. - 2004 - Work Integration Social Enterprises in Finland - Working Papers Series no. 04/07,: EMES - Liège, Belgium

Perista, H. & Nogueira, S. - 2004 - Work Integration Social Enterprises in Portugal - Working Papers Series, no. 04/06 - EMES - Liege, Belgium

Schulz, A. - 2003 - National Profiles of Work Integration Social Enterprises:
Germany - Working Papers Series, no. 03/05, EMES, Liege, Belgium

Social co-operatives in Italy: Lessons for the UK - 2002 - Social Enterprise London

Spear, R. - 2002 - National Profiles of Work Integration Social Enterprises: United Kingdom - Working Papers Series, no. 02/06 - EMES - Liège, Belgium

Stadler, Peter; Gredig, Christian (Hg) - 2005 - Die Entwicklung von Integrationsfirmen - Ein Kompendium fuer Soziale Unternehmer/innen - Berlin, Germany

State of Social Enterprises - Social Enterprise Coalition - 2009, London, UK

Stryjan, Y. - 2004 - Work Integration Social Enterprises in Sweden - Working Papers Series, no. 04/02 - EMES - Liège, Belgium

Sustaining innovation in the social economy - A survey on the support structures for social enterprises in Europe - 2005 - DIESIS - Brussels, Belgium

The Linz Appeal - 2010 - Social Firms Europe - www.socialfirmseurope.org

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Warner, R., M.B., D.P.M. and Mandiberg, J., Ph.D - An Update on Affirmative Businesses or Social Firms for People With Mental Illness - in: Psychiatr Serv 57:1488-1492, October 2006

Internet Sites

Social Firms Europe (CEFEC) www.socialfirmseurope.org

Social Firms Australia - www.socialfirms.org.au

Social Firms UK www.socialfirmsuk.co.uk

FAF gGmbH - Germany www.faf-gmbh.de

BAG Integrationsfirmen - Germany www.bag-integrationsfirmen.de/

WISE Work Integration Social Enterprises and their role in European Policies - www.wiseproject.eu