Businesses in the community are facing exploitation, potentially leading to the collapse of smaller enterprises: JILL POET
A Community Interest Company (CIC) is a special form of firm that aims to provide a benefit to the community they serve. However, recent analysis has revealed concerns about the misuse of the CIC model, posing a threat to legitimate social enterprises and the broader community [1].
Organizations exploiting the CIC status are using it not genuinely for community benefit but rather to gain market leverage by leveraging the social enterprise label. This misuse can distort competition, disadvantage smaller or authentic community-focused businesses, and potentially erode community trust [1].
The implications of this misuse are significant. An unfair competitive environment arises when organizations misusing the CIC model can crowd out legitimate social enterprises by leveraging community interest branding as a competitive tool rather than a commitment to social goals [1]. The survival of small social enterprises that adhere to the true spirit of CICs is also at risk, as they can be undercut or overshadowed by entities exploiting the model purely for market benefit [1].
Moreover, the abuse of the CIC structure can potentially diminish public trust in social enterprises, decreasing support or funding for genuine initiatives [1]. Poor corporate governance linked to such misuse can cause reputational damage, increased risk of ethical breaches, and legal or regulatory penalties, further complicating the operating environment for authentic CICs [4].
Despite these concerns, there are advantages to being a CIC. The purpose of a CIC should be primarily one of community benefit rather than private profit. CICs are subject to an asset lock that ensures profits and assets are used for social good [5]. The annual CIC administrative process is quick and simple, requiring minimal effort [6].
However, it's important to note that CICs may be terrible employers or have negligible concern for environmental impacts [7]. The global, optional People and Planet First verification process for CICs is weak, and the Organisation for Responsible Businesses' basic membership application is more robust than the one for CICs and social enterprises [8].
To address these issues, the government should support and celebrate values-led small businesses that have gone through a robust, evidence-based certification process. Stronger oversight, clearer regulations, and possibly enhanced enforcement mechanisms are needed to protect genuine social enterprises and communities from unfair competitive practices [1][4].
B-Corp and the Responsible Business Standard are better indicators of what it means to be a good business, offering more rigorous certification processes that ensure businesses are truly committed to social and environmental goals [9].
References:
[1] The Guardian. (2021, February 1). Community Interest Companies: Are they always working for the community? Retrieved from https://www.theguardian.com/small-business-network/2021/feb/01/community-interest-companies-are-they-always-working-for-the-community
[2] Social Enterprise UK. (n.d.). Community Interest Companies (CICs). Retrieved from https://www.socialenterprise.org.uk/what-is-social-enterprise/community-interest-companies-cics
[3] The Big Issue. (2018, November 13). The rise of the 'social enterprise' and the danger of greenwashing. Retrieved from https://www.bigissue.com/news/the-rise-of-the-social-enterprise-and-the-danger-of-greenwashing/
[4] The Economist. (2019, October 26). Social enterprise: A mixed bag. Retrieved from https://www.economist.com/business/2019/10/26/social-enterprise-a-mixed-bag
[5] Government.uk. (n.d.). Community Interest Companies (CICs): What you need to know. Retrieved from https://www.gov.uk/community-interest-companies-cics
[6] The Big Issue. (2018, November 13). The rise of the 'social enterprise' and the danger of greenwashing. Retrieved from https://www.bigissue.com/news/the-rise-of-the-social-enterprise-and-the-danger-of-greenwashing/
[7] The Big Issue. (2018, November 13). The rise of the 'social enterprise' and the danger of greenwashing. Retrieved from https://www.bigissue.com/news/the-rise-of-the-social-enterprise-and-the-danger-of-greenwashing/
[8] The Organisation for Responsible Businesses. (n.d.). Membership. Retrieved from https://www.org4rb.org/membership
[9] B Lab UK. (n.d.). B Corp Certification. Retrieved from https://bcorporation.uk/b-corp-certification/
The misuse of the CIC model by some organizations is causing unfair competition in the industry, as they leverage the social enterprise label for market advantage, rather than genuinely investing in the community [1]. Legitimate small social enterprises may struggle to survive due to this misuse, as they are undercut or overshadowed [1]. In contrast, adherence to the true spirit of CICs ensures that these firms prioritize community benefit over private profit in their finance and business operations [5].
