Master Thesis Governance of small to medium sized Social Enterprises in the Netherlands

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Master Thesis

Governance of small to medium sized Social Enterprises in the Netherlands

“The control mechanisms used to deal with the conflicting ideologies and practices”

by

Richard Westerouen van Meeteren

University of Groningen

Faculty of Economics and Business

January 2015

Supervisor: Elma van de Mortel

Co-supervisor: Ben Crom

Verlengde Hereweg 9721 AL Groningen

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Acknowledgements: I am grateful to my supervisor Elma Van de Mortel for her advice

and feedback provided during the development of my thesis.

Abstract: This thesis is intended to develop a better understanding of how small- to medium

sized Social Enterprises (SEs) in the Netherlands govern their enterprise and simultaneously

manage the pursuit of a commercial and a social logic. It does so by first providing an

overview of the organizational governance structures that are currently applied by Social

Enterprises and by pointing out the major governance challenges these Social Enterprises

encounter. Institutional theory forms the basis of this research, as we argue that the

institutional logics embedded are important in determining a suitable governance structure.

For this thesis 7 SEs were interviewed and studied on the basis of their annual reports,

strategy papers and official websites. We find that small- to medium sized SEs either have the

structure of a self-selecting board or a more informal ‘management committee’. Furthermore,

we confirm that the inconsistency of the organizational identity of SEs lead to conflict

between organizational members and that ‘Mission drift’ and finding qualified personnel are

one of the major governance challenges. Finally, we argue that the creation of a common

organizational identity is crucial to the success of a SE as it could mitigate the tensions that

derive from the embeddedness of the conflicting commercial and social logic.

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1. Introduction

1.1 Recent Discussion

Increasingly over the last decade, nonprofit and for-profit forms of enterprise continue to blur. Driven mainly by institutional pressures (Battilana & Dorado, 2010), the rise of ‘hybrid’ organizations that combine both aspects of nonprofits and for-profits is ever growing. In many Western European countries and elsewhere an increasing number of hybrid organizations are being formed (Kickert, 2001). A popular type of hybrid organization is the so-called Social Enterprise (Spear et al., 2009). Social enterprises (SEs) are commonly defined as enterprises that trade for a social or environmental purpose. As well as meeting their social and/or environmental goals, they have to be business-like and meet financial and commercial goals (Spear et al., 2009). Social entrepreneurship is increasingly popular as a way of doing business while achieving a social and economic impact (Cheriakova, 2013). The popularity is explained by the ability of SEs to offer possibilities for social engagement and economic inclusion to different social groups, providing novel solutions to a range of societal problems which the state and private sector have been unable to solve (Defourny & Borzaga, 2001). SEs are considered to be the best ally the government could wish for because they serve the public interest without requiring any kind of government funding (Mckinsey, 2011).

A typical example of a SE is UK-based Lendstreet: “The innovative social venture LendStreet Financial resembles two different types of organization at once. Lendstreet manages to pursue both its social mission as well as its competitive mission. They are helping indebted people reduce their debts by delivering financial literacy programs and incentives that encourage responsible repayment. Yet prior to delivering these charitable programs to a new client, LendStreet purchases the client’s debt from institutional investors. When the client increases their repayment rate as a result of the financial literacy and incentive programs, LendStreet, which now owns their debts, earns revenue which enables it to sustain its operations. Social enterprises, such as LendStreet, combine aspects of both types, and therefore exist between institutionally-legitimate categories of organizations” (Lee & Battilana, 2013,p. 2).

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approaches. In fact, governance theories specifically associated with NPO (Gordon, 2002; Bradshaw et al., 1998; Colley et al., 2003) have rarely been associated with For-Profit governance theories. Because SEs lie in between the commercial and the social sector there are no clear guidelines to which kind of governance structures are appropriate (Kickert, 2001). Kickert (2001) found that the straightforward application of governance structures for for-profit Firms and NPO’s takes insufficient account of the particular characteristics of hybrid organizations (including SEs). Effective governance structures are however especially crucial for hybrid organizations. Governance is seen as the key to the success of a SE in both business and social terms (Tranquada & Pepin, 2006). Venture capitalists often regard governance as one of the key drivers and determinants of success of a SE (Tranquada & Pepin, 2006).

While research on SEs in general can be considered limited (Fergus & Sepulveda, 2009), this is especially the case for the Netherlands. Few studies have been done on social entrepreneurship in The Netherlands (Mckinsey, 2011). European policy makers have even been referring to the Dutch SE support system as a 'black hole' (Koopman, 2013). With limited attention for the topic, the

Netherlands is according to Koopman (2013)far behind other European countries in the attention, awareness and support available for social entrepreneurs. The SE sector in the Netherlands is nevertheless growing fast and considered important in creating societal as well as economic value (Mckinsey, 2011). SEs fit in the development of the recently popularized term participation society (participatiesamenleving) and are on their way to become a crucial part of the Dutch economy (Mckinsey, 2011). A recent study by McKinsey (2011) revealed that the popularity of SEs in the Netherlands continues to grow. There are approximately already 5000 SEs active in The Netherlands, but Mckinsey (2011) expects this number to grow exponentially in the near future.

1.2 Research Question

The institutional logics present within an organization determine for a large part the appropriate governance structure (Mason et al., 2007). SEs are said to possess two main conflicting Institutional logics; ‘the social welfare logic’ and the ‘commercial logic’ (Pache & Santos, 2010).To date only few researchers however have examined how organizations can sustainably hybridize these two logics (Pache & Santos, 2010; Jay, 2010). Regarding this issue solely Battilana & Dorado (2010) focused on SEs. Gras et al. (2014) and Doherty et al. (2014) also highlight this lack of research in the area of the internal governance of SE ventures.

Because of the increased prevalence of SEs and the limited research on this particular type of hybrid organizations in general, and in the Netherlands specifically, this thesis will focus on Social

Enterprises in the Netherlands. This thesis further differs from previous literature by specifically focusing on arguably one of the most important aspects of SE survival (Cheriakova, 2013); the governance structures.

This study will be mainly based on Institutional Theory, as Mason et al. (2007) argue that an

institutional approach may enable us to understand more of why SEs are so unique (based on shared meanings, values and symbolic factors) (Mason et al., 2007). Also, it exposes how this uniqueness influences how they are structured relative to institutional pressures and material/resource

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Structure) to ensure legitimacy, that are distinct from those understood in the existing governance literature (Mason et al., 2007).

Overall this thesis aims at providing a more comprehensive understanding of the processes involved with the governance of SEs, with a particular focus on the governance structure and the control mechanisms used by SEs to deal with simultaneous management of conflicting ideologies and practices. Hence, the main research question and sub questions of this thesis are the following ones:

How do Social Enterprises govern their enterprise and manage the conflicting ideologies and practices?

Sub questions:

What Institutional logics are embedded by Social Enterprises in the Netherlands?

Which organizational governance structures are currently used by Social Enterprises in the Netherlands?

What are the major governance challenges these Social Enterprises encounter?

What distinguishes SEs in the Netherlands from SEs in other countries is the limited size. SEs in the Netherlands tend to be much smaller than in other countries (Mckinsey, 2011). Therefore, to properly represent and reflect the Social Enterprise sector within the Netherlands the focus in this thesis will be on small- to medium sized SEs. In order to provide an answer to the research

question(s), we use information gathered from small- to medium sized Social Enterprises in the Netherlands.

1.3 Scientific and Practical Contribution

The SE sector in the Netherlands is growing fast and is expected to play a vital role in the economy by creating both societal and economic value (Mckinsey, 2011). Social enterprises create, against the economic trend, jobs and opportunities (Mckinsey, 2011). Which are in these harsh economic times of absolute necessity. SEs show that solving social issues and economic growth can go hand in hand (Mckinsey, 2011).

Unfortunately however, many SEs fail to become a success (Scott & Teasdale, 2012). Poor

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Practically, understanding these processes more thoroughly could help SEs to consider what they have to take into account when governing their enterpriseand provides SEs with information on some of the specific governance challenges they could encounter. Furthermore, this study attempts to offer some suggestions for handling these particular governance challenges. For those

contemplating to start a SE it could also provide some guidance on how to choose their right governance structure.

The overall purpose of the study thus is to explore the area of Social Enterprise-governance more thoroughly, to elucidate which governance structures SEs in the Netherlands use and to find out what are suitable governance structures for SEs in general. In addition, this study also attempts to uncover the different approaches SEs in the Netherlands use to control the conflicting logics within the organization.

1.4 Structure of the Thesis

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2. Theory and propositions

This chapter aims at clarifying the conceptual and analytical framework that will be used throughout this research. The first two paragraphs of this chapter (2.1 &2.2) aim at defining what SEs are and to clear up what is exactly meant with the governance of SEs. Paragraph 2.3 will focus on the

institutional logics that SEs are embedded in. Paragraph 2.4 then focuses on the governance and board structures of SEs and explains the link between the embedded logics and these structures. Paragraph 2.5 will focus on the several governance challenges of SEs. In paragraph 2.6 the current literature on how to manage the conflicting ideologies and practices will be briefly discussed. The final paragraph (2.7) of this chapter then presents the conceptual model which links all the different paragraphs of this chapter together.

2.1 Social Enterprises

As Spear et. Al (2007) note there is no one well established definition of a Social Enterprise and definitions vary somewhat between different countries and contexts. A Social Enterprise is

nevertheless commonly defined as: an organization that applies commercial strategies to maximize improvements in human and environmental well-being, rather than maximizing profits for external shareholders. Social enterprises can be structured as a for-profit or non-profit, and may take the form of a co-operative, mutual organization a social business, or a charity organization (Kurleto, 2012).

2.1.1 Social Enterprises in the Netherlands

In the Netherlands there is no separate legal form for a SE. To date the Dutch government has done nothing to support SEs, and do not yet officially recognize the term (Mckinsey, 2011). Unlike in other surrounding European countries such as Italy, France and Belgium (Mckinsey, 2011) there is no separate legal entity for SEs in the Netherlands. Therefore SEs in the Netherlands have the legal form of either a foundation (stichting), a Limited Liability Company (B.V.), or a combination of those forms. Alter (2004, p.53) states that the decision of SEs to adopt one or the other may be arbitrary, as the enterprise’s legal structure is not definitive to determine how it operates or which business model it adopts.

Despite this lack of recognition there are however several organizations such as Social Enterprise NL which bring together social enterprises to provide support and lobby on their behalf. According to Social Enterprise NL 1_{; a SE in the Netherlands is characterized as:}

-Having primarily a social mission: impact first!

-Realizes this social mission as an independent organization which delivers a service or product.

-Is financially self-supporting based on trade or other forms of trade-exchange, and is thus limited or independent of grants or subsidies.

1_{The largest Social Enterprise platform organization in the Netherlands; characterized as an organization that}

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Is societal in the way the enterprise is being run:

-Profit is allowed, but the financial goals support the mission; the increase of the societal impact. (Profit distribution to shareholders is allowed)

Is fair to everyone:

-conscious of her ecological footprint -transparent

McKinsey and Company (2011) have carried out a study in which they estimate that there are

between 4.000 and 5.000 SEs active in The Netherlands. This includes SEs working at a local level (not international) and SEs working in areas other than poverty reduction and enterprise development (e.g. Environmental issues or Civic Engagement). According to Mckinsey (2011) the average size of the Dutch SE is relatively small compared to other countries.

2.2 Governance of SEs

As mentioned governance is seen as key to success of a SE in both business and social terms.

(Tranquada & Pepin, 2006). It is said that when the balance between governance and management is established and functioning well, the organization is better able to: Meet the expectations of clients, beneficiaries and other stakeholders; Deliver quality programs that are effective and efficient; and comply with laws, regulations and other requirements (Achleitner et al., 2012).

Despite the widely acknowledged importance of governance, there is some confusion to what is exactly meant by ‘governance’. Over the last several decades, governance has been given multiple meanings and special significance beyond the standard dictionary definition (Hughes, 2010), which according to Robichau (2010) has not proven to be advantageous. To illustrate this, 50 separate governance concepts are described by Bevir (2004). An example is the following: ‘Governance is concerned with holding the balance between economic and social goals and between individual and communal goals. The corporate governance framework is there to encourage the efficient use of resources and equally to require accountability for the stewardship of those resources. The aim is to align as nearly as possible the interests of individuals, corporations and society’ (Cadbury, 2000). A commonly cited working definition of governance is formulated by Cornforth (2010). Cornforth (2010) defines governance as: ‘The structures, systems and processes concerned with ensuring the overall direction, control and accountability of an organization. It is the governing body that oversees the overall function of an organization, and is controlled by the board of directors’.

Whereas the definition of Conforth (2010) clearly describes the concept of governance it neglects the social dimension which is so characteristic for Social Enterprises. To address this, Mason (2009) defined governance in SEs as: ‘strategic and operational board-level leadership, enabling service users, managers, trustees and other defined stakeholders to create and maximize social benefit’ (Mason, 2009, p. 216). The definition used by Mason (2009) pinpoints the important social element of governance within SEs and is therefore more inclusive. Hence, in the remainder of this thesis Mason’s definition of governance will be referred to.

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2.3 Institutional Logics within Social Enterprises

To understand more of why SEs are so unique (based on shared meanings, values and symbolic factors) and require a different governance structure than regular for-profit companies or NGOs, this paragraph will focus on the Institutional Logics within SEs. Mason et al. (2007) argue that an

institutional approach may enable us to understand how legitimacy is sought and acquired in these organizations. It is considered to be a crucial task because it may shed light on the nature and development of governance arrangements that they adopt to ensure legitimacy, that are distinct from those understood in the existing governance literature (Mason et al., 2007). Mason et al. (2007) argue that it prompts consideration of how these factors are manifested in the governance of SEs. Institutional logics are common guiding decision making principles that concern organizational actors (Rautiainen & Jarvenpaa, 2012) and can be defined as: ‘’the socially constructed, historical patterns of material practices, assumptions, values, beliefs, and rules by which individuals produce and reproduce their material subsistence, organize time and space, and providing meaning to their social reality’’ (Rautiainen & Jarvenpaa, 2012, p. 101). The core idea of institutional logics is that

organizations are deeply embedded in social and political environments, which suggests that organizational structures and practices, such as governance structures, are mostly either reflections of or responses to beliefs, rules and conventions built into the wider environment (Powell & Colyvas, 2008). This means that the governance structure of a SE either is a reflection of the institutional logics it possesses or a response to it. Therefore, the Institutional logics present within a SE play a great role in how SEs govern their enterprise.

Pache & Santos (2010) found that SEs are embedded in two distinct institutional spheres. They argue that the cultural beliefs and rules that structure cognitions and shape actions are not only different but potentially conflicting. On the one hand, to recruit and mentor social employees as well as to secure financial support for their social mission, they are in close interactions with national and local state agencies as well as local nonprofit social agencies, which are participants in a belief system which they qualify as the social welfare logic. On the other hand, to secure their market

sustainability, they rely on clients as well as industrial partners, which are embedded in a commercial logic. These two logics are said to promote contradicting rules of action as well as organizing

principles (Pache & Santos,2010).

The social welfare logic refers to the way in which social welfare goals have shaped norms, values and practices in the field. It is structured around a clear desired goal: addressing local social needs. The focus on the fulfillment of social needs posits that reaching out to local constituencies, making the efforts to understand local needs and adapt to them are key demands that social organizations must satisfy (Di Maggio & Anheier, 1990). The responsiveness to social needs is thought to be better achieved through a democratic governance model, wherein communities served and the local organizations representing them, as well as social partners, have a say in the decisions taken by organizations (Frumkin, 2006).

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efficiency presuppose that there are optimal ways to get organized to rationalize costs and maximize profits. Control is recognized as an appropriate governance mechanism because of the legitimacy of the proprietary claims of stakeholders and as an efficient means to sustain consistency (Fligstein, 1996). Hierarchical control, rather than democratic control, is viewed as the efficient way to coordinate collective behavior. With competition an important feature of the commercial logic (DiMaggio & Anheier, 1990;), the survival of players in the market depends on their ability to differentiate themselves from competitors and to sustain some sort of competitive advantage. Based on the work of Pache & Santos we also expect SEs in the Netherlands to possess this social welfare and commercial logic. The first proposition is set up to confirm whether SEs in the

Netherlands are similar to SEs as they are generally understood in the literature with regards to the Institutional Logics they embed.

Proposition 1: Social Enterprises are embedded in a commercial as well as a social welfare logic

2.4 Governance structures

The governance structure of an enterprise is concerned with the systems and processes of creating and delegating authority, the development of policies and procedures and the management of employees and ensuring their accountability (Mason, 2009). A good governance structure according to Mason (2009) will enable service users, managers, trustees and other defined stakeholders to create and maximize social benefit. Historically, SEs have been governed through democratic models that emphasize the development of trust and solidarity among those involved and are not necessarily designed to support commercial activities (Low, 2006). In a democratic governance structure we would expect a lack of clear separation of powers between the executives and operational staff and to allow personnel and members of the community or constituency they serve to participate in the governance and management of the organization (Tracey et. Al, 2005). In that sense it could be said that the democratic model is better suited to support the social welfare logic. Cornforth (2003) suggests that recently SEs are drifting more towards for-profit governance structures, which can be characterized as hierarchical and less democratic. In the for-profit governance structure there is a clear separation of power and responsibilities between executives and operational staff, and members of the community or constituency they serve are usually not involved in the management of the organization. The for-profit models can be said to more support the commercial logic (Pache & Santos, 2010). Since the literature indicates that SEs are embedded in a social as well as a

commercial logic we would theoretically expect a suitable governance structure for SEs to contain elements of the for-profit governance structure as well as the democratic governance structure. Taking this into consideration, Nyssens & Defourny, (2012) developed an ideal-type governance structure of SEs in Europe which is characterized by:

- A high degree of autonomy: Social enterprises are created by a group of people on the basis of an autonomous project and are governed by these people. They may depend on public subsidies but they are not managed, directly or indirectly, by public authorities or other organizations (federations, private firms, etc.). They have the right to take their own position (‘voice’) and terminate their activities (‘exit’).

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voting power is not distributed according to capital shares on a governing body with ultimate decision-making rights.

- A participatory nature, involving stakeholder affected by the enterprise’s activities:

Important characteristics of social enterprises often include representation and participation by users or customers, influence of various stakeholders on decision-making and

participative management. In many cases, one of the aims of social enterprises is to further democracy at local level through economic activity.

The high degree of autonomy can be regarded as hierarchic while the second and third point can be seen as a democratic approach to governance. The participatory governance structure can thus be regarded as a mix of hierarchic and democratic governance which should be able to embed the social as well as the commercial logic and could therefore be regarded as a possible suitable governance structure for SEs in the Netherlands. Based on Defourny and Nijssen’s (2012) work we can therefore expect small-to medium sized SEs in the Netherlands to have a participatory governance structure: Proposition 2: SEs have a participatory governance structure

2.4.1 Board Structure medium sized Social Enterprises

The participatory governance structure as described by Defourny and Nijssen (2012) describes more of an overall nature the governance structure should adhere to. It does not provide a detailed description of a specific suitable board structure. In this regard the work of Conforth (2010) and Achleitner et. Al (2012) provide more detail. Both researchers argue it is important to make a

distinction between small and medium-sized SEs. They argue that small SEs (<20 employees) may rely more on management committees or informal boards (i.e. boards without any legal obligations or decision-making authority) as these allow for more flexibility. As SEs scale, they are said to establish more formal governance structures (Achleitner et al, 2012).

Conforth (2010) found that medium sized SEs (20<100 employees) often choose to have a self-selecting board. In the self-self-selecting board structure the membership is restricted to board members. New members of a self-selecting board are selected by the existing members of the board, who identify and enlist individuals according to criteria established by the board itself. As individuals leave the board or complete their terms of service, the remaining trustees select others to take their seats, and this cycle continues as long as the enterprise exists (Conforth, 2010).

This has the advantage of being a very simple structure to operate. It gives the board greater control over who is selected to serve on it with the potential that board members can be chosen for their experience and skills. This process may also help to reduce conflicts of interest between competing membership groups (Conforth, 2010). Because of the more formal structure of the self-selecting board as opposed to the management committee it is considered to be less democratic.

Based on Conforth’s (2010) work we expect medium-sized SEs in the Netherlands to operate in a self-selecting board structure.

Proposition 2a: Medium sized Social Enterprises have a self-selecting board 2.4.2 Board structure Small sized Social Enterprises

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are few or no managers or staff for board members to delegate work to. As a result organizational members are likely not only to get involved in governance but management and operational matters as well. For this reason the governing bodies of these organizations are often called management committees rather than boards or governing bodies. SmallSEs may prefer these more informal boards because it allows for more flexibility. Flexibility is needed during the start-up stage as in this stage experimenting and innovating are deemed necessary (Achleitner et al., 2012). Consequently, Executives of small SEs are reluctant to set up an official board as they are concerned that a board will limit their management team’s effectiveness (Achleitner et al., 2012).

Proposition 2b: Small Social Enterprises are governed by ‘management committees’

2.5 Governance challenges of Social Enterprises

So far we have established the expectation that SEs are embedded in two types of institutional logics (commercial and social welfare), and formulated expectations on the expected type of governance and board structures for small- to medium sized SEs. This paragraph (2.5) will focus on the

governance challenges. The first part of the paragraph (2.5.1) describes the general governance challenges that can be expected for SEs, while the latter parts (2.5.2 and 2.5.3) delve into the specific governance challenges associated with the two types of expected board structures (Mgmt.

committee & Self-selecting board).

2.5.1 General governance challenges associated with the competing social and commercial logic

Battlilana and Dorado (2010) state that dealing with multiple institutional logics is challenging for organizations because it is likely to trigger internal tensions that may generate conflicts among organizational members, who are ultimately the ones who enact institutional logics (Battilana & Dorado,2010). It is said to be particularly challenging for hybrid organizations because, in contrast with organizations that incarnate already existing organizational archetypes, hybrid forms can rely neither on an existing model for handling the tension between the logics they combine nor on a pool of job candidates with experience in doing so (Battilana & Dorado,2010).

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skills required to successfully operate as a mixed sector organization. This is likely to be particularly acute within smaller organizations (Cornforth, 2010).

Proposition 3: inconsistency of the organizational identity of Social Enterprises leads to conflict between organizational members and difficulties to attract qualified personnel

Besides these general governance challenges applicable to all types of SEs, the literatures also highlights some specific governance issues related to the self-selecting board and the ‘management committee’.

2.5.2 Challenges of Self-selecting board

Conforth’s (2010) study revealed that there is a danger the board may become self-serving or be subject to group-think. There is a potentially important loss of accountability as the board is no longer formally accountable to a wider constituency, although regulatory controls may provide some reassurances the board is acting in the interest of its intended beneficiaries, and it may deprive the organization of a potential source of support and resources. Moreover, Michels (1949) formulated the tendency of democratic associations to become dominated by elites as his ‘iron law of oligarchy’. While many studies have confirmed the widespread nature of oligarchic tendencies, the inevitability of these processes has been challenged. Various factors have been identified that might help to safeguard member involvement and democracy (Spear et. Al, 2009) Regarding the self-serving issues David Billis (1993) notes that the commitment of staff and volunteers may ‘compensate’ for the absence of an active membership by placing demands for accountability on the board and by helping to maintain the organization’s mission and values.

Proposition 3a: Self-selecting boards have the danger of becoming self-serving 2.5.3 Challenges of ‘management committees’

Whereas in the self-selecting board there is a danger that the board becomes self-serving there are also a number of problems specifically associated with SEs who do not officially establish a board, but are governed by the so called ‘management committees’. In these organizations Spear et. Al found (2007) that the boundaries between governance, management and operational matters can be very blurred. This may result in a potential weakness that the system may simply have insufficient checks and balances to restrain unruly behavior (Velayutham, 2013).

Another important drawback of not having a board is a lack of signaling credibility to external stakeholders. Investors, contractors and customers may trust the organization more if it has well-regarded board members (Achleitner et al, 2012). In addition, board members can provide access to networks (Achleitner et al, 2012). Therefore, attracting venture capital might be more challenging for SEs run by management committees.

Proposition 3b: In ‘Management Committees’ the hierarchy within the enterprise is unclearly established and responsibilities are ill defined, and attracting venture capital is more difficult.

2.6 Current literature on how to manage conflicting ideologies and practices within

Social Enterprises

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governed, and what strategies they could undertake. However, because both researches were conducted on hybrid organizations and not SEs and because the researches were conducted in a completely different institutional environment than the SEs of this thesis no propositions have been formulated. It does however give an indication to what effective strategies might be.

Battilana & Dorado (2010) conducted a comparative study on two pioneering commercial

microfinancial organizations in Bolivia. While this study was not directly focused on ‘governance’ as defined in this paper it still provides valuable insights. They found that in order for hybrid

organizations to be sustainable there is a need to create a common organizational identity that strikes a balance between the logics they combine. Their evidence further suggests that the crucial early levers for developing such an organizational identity among organization members are hiring and socialization policies. The governance structure of an organization could have a huge impact on creating this unified organizational identity and therefore this research is of particular relevance. Pache & Santos (2010) conducted a similar research, but the scope of their research was broader. They took hybrid organizations as a whole and did not distinguish between the different types of hybrid organizations. Relying on an inductive comparative case study of four hybrid organizations embedded in competing social and commercial logics, they showed that, instead of adopting strategies of decoupling or compromising, as the literature typically suggests, these organizations selectively coupled intact elements prescribed by each logic. This strategy allowed them to project legitimacy to external stakeholders without having to engage in costly deceptions or negotiations. They they refer to this strategy as “Trojan horse”, whereby organizations that entered the work integration field with low legitimacy because of their embeddedness in the commercial logic strategically incorporated elements from the social logic in an attempt to gain legitimacy and

acceptance. Surprisingly, they did so more than comparable organizations originating from the social logic. These findings suggest that, when lacking legitimacy in a given field, hybrids may manipulate the templates provided by the multiple logics in which they are embedded in an attempt to gain acceptance. Overall, their findings contribute to a better understanding of how organizations can survive and thrive when embedded in pluralistic institutional environments. In this thesis it will be investigated whether Dutch SEs employ similar strategies to mitigate tensions derived from the competing institutional logics.

2.7 Conceptual Model

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SE

Institutional logics Problems: - inconsistency of the organizational identity resulting in conflict - difficulties to attract qualified personnel Board structure

Problem: Board may become self-serving Prop.1 Prop. 3 Prop. 2 Prop. 3b Prop. 3a Prop. 2a

Fig.1 conceptual model

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3. Research design

This chapter presents the research design of this thesis. In paragraph 3.1 the research method is explained. Following this, section 3.2 presents the method of data collection and analysis. In doing so paragraph 3.2 explains the relationship between the questionnaire and the propositions.

3.1 research method

Like mentioned in the literature review, this paper tries to provide a contribution to the literature by providing a more comprehensive understanding of the processes involved in the governance of Social Enterprises, with a particular focus on how to manage conflicting ideologies and practices. More specifically, this research seeks to find out what type of governance structure the organization is using and what strategies the organizations use to mitigate potential tensions arising from the opposing goals the enterprises strive to accomplish.

In the current literature on governance within SEs there is limited information available on how to deal with the conflicting ideologies and practices within SEs. The literature related to the business phenomenon is still very exploratory in nature. So, the field of the literature deals with many unresolved issues and is scattered. Therefore, information could best gathered through semi-structured interviews (Mack et al., 2005). Semi-semi-structured interviews provide several advantages such as that they are an excellent tool for measuring attitudes and most other content of interest. Another advantage is that they allow probing and posing of follow-up questions by the interviewer, this could help in developing a real sense of a person’s understanding of the situation. It can does provide in-depth information about the participants’ internal meanings and way of thinking. In addition, semi-structured interviews are useful for exploration as well as confirmation, which is exactly the intention of this thesis (Mack et al., 2005).

All of the interviews were held either face-to face or by telephone. The interviews were recorded and then transcribed. The transcript is a word-for-word written copy of the taped interview. The reason for the transcription is to make sure that all that was said during the interviews can be analyzed and that nothing is left out. The transcription is also useful for including quotes. Quotes from the interviews will be used in this research to underpin the arguments stated. After all interviews have been transcribed, the transcriptions will be compared with each other and conclusions will be drawn. The next Chapter (4 results) features the results of the interviews.

Since the size of SEs in the Netherlands is generally much smaller than in other countries (Mckinsey, 2011), only small to medium sized SEs have been included in the sample. In smaller Enterprises there tend to be no board of directors present, and the members of these small Enterprises tend to fulfil multiple functions in which governance is just one aspect of their daily tasks. Governance for these smaller enterprises is thus often completely differently arranged than for larger Enterprises.

3.2 Data Collection and analysis

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of time constraints or other reasons. Many of the approached organizations also did not bother to reply to my request. All in all, it was a difficult task to find organizations who were willing to

cooperate. Half of the interviews were conducted over the phone and the other half face-to-face. All of the interviews have been recorded and took approximately one hour to complete. Over a period of 6 weeks from the 1st_{of may to the 15}th_{of june the interviews were held. Most of the social} entrepreneurs that collaborated in this research are either directors and/or founders of SEs. For the collection of information not only primary data (interviews) but also secondary data (publicly available company information), has been used.

The questionnaire is divided in 5 sections and are set up to answer the following questions:

1) What are the features and main goals of Social Enterprises? 2) How are their enterprises governed, what governance structures are employed? 3) What are the main governance challenges? 4) What is the role of the board in governing the enterprise? 5) What is the role of top management/director in governing the enterprise (Only in case there is no board of directors*)

Part 1 has the main goal of finding out what institutional logics the SEs embed to and get a general feeling for what the enterprises stand for. This part is set up to give an answer to the first

proposition. Whether Social Enterprises are embedded in a commercial as well as a social welfare logic. Part 2 is set up to give an answer to find out what governance and board structures the SEs use and has the main goal of providing an answer to propositions 2, 2a and 2b.Part 3, 4 and 5 (part 5 only in case there is no board) are then set up to answer propositions 3, 3a and 3b. The main goal of this part is thus to find out whether there is conflict within the organization caused by the embeddedness of the opposing logics and to find out whether there are specific governance problems present resulting from the chosen board structure.

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4 Results

This chapter presents a summary of the main results related to the governance of small- to medium sized Social Enterprises. Paragraph 4.1 first gives a general overview of the SEs considered in the thesis. This overview unravels some of the features and goals of the SEs. Paragraph 4.2 then focuses on the institutional logics that are embedded and is followed in paragraph 4.3 by a focus on the governance structures employed by SEs. Then it focuses on the governance challenges encountered by SEs in paragraph 4.4. Finally, in paragraph 4.5 the focus is on strategies of the board/management committee in managing the conflicting ideologies and practices.

4.1 General characteristics of the SEs

This paragraph provides a description of the general characteristics of the SEs studied in this thesis. Table 1 provides an overview of the organizations that were considered in this study. In this table we can see that almost all of the SEs that were interviewed can be considered young (6 out of 7). Only Butterfly works has had more than ten years of experience. This may suggest that SEs are indeed a somewhat new phenomenon. In terms of size, taking the number of employees (in Full Time Employees) as an indicator, we find that the SEs considered in this study tend to be small

organizations (<20 employees). Unfortunately only 2 SEs of the study can be considered of medium size (>20 employees). As mentioned before it was hard to find SEs who were willing to cooperate within the requested time frame. Because only 2 of the SEs in the study are of medium-size the results regarding the medium sized SEs can not be regarded as very reliable or conclusive. Yet it does provide some indications. Furthermore, two of the small SEs considered officially only had 1 person being full time employed. Of course this limited size has impacted the results, since organizations with only 1 official employee have less need for governance controls and experience different and less governance issues (Achleitner et al., 2012).

We can see in the table that SEs can take any legal form, as there is no regulatory framework for this sector in The Netherlands. The reasons for choosing to be a BV (limited company), a Foundation or a combination of both was dependent on a couple of things. The legal form of a BV (limited company) was chosen often for simplicity reasons. BV’s were said to be easier to set up and less bound by any legal restrictions than Foundations (Stichtingen). The legal form of a Foundation (Stichting) was chosen to be able to receive subsidies, and to express the social character of the organization to the public. The Colour Kitchen consists of both a BV and a foundation, the reason for having this

combination of legal forms is to separate their commercial activities from their societal activities. Also, tax advantages were mentioned as a reason for having this dual legal form.

The SEs in this study differed a lot in what they wanted to achieve. While Butterfly Works, 4Morgen, Connectingfriends and Lendahand had more of a generic goal to reduce poverty worldwide or create a better living environment. The other three organizations; The Colour Kitchen, Autitalent and JOCadeau were specifically targeted at a certain group for which they wanted to improve their situation.

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are ploughed back in order to expand the venture so as to serve more people (Elkington & Hartigan, 2013). The respondents noted that not all of their profits are being ploughed back into the

enterprise, but all of the SEs stated that they reinvest at least 50% of their profits to further their social mission. This 50% reinvestment policy is as already noted also a minimum demand the Socialenterprises.nl platform asks of their members to be a part of their platform. Butterfly works has adopted a different business model. Their business model can be typified as a Hybrid non-profit venture. Their Social Enterprise functions on the basis of a mix of subsidies and cost recovery (Elkington & Hartigan, 2013). What should also be noted however is that some of the SEs (like The Colour Kitchen) who adopted the Social Venture Business Modell still also generate a relatively small amount of income through subsidies and donations.

Another important thing to note is that almost all of the interviewed SEs have a number of

volunteers working for them. So while it may appear that some of the SEs only consist of one person (the director) they still have to provide direction to their volunteers.

Table 1, general characteristics

4.2 Institutional Logics within SEs

This paragraph will focus on the institutional logics that were found to be embedded by the SEs of the sample. This paragraph will discuss the first proposition which was formulated as follows: Proposition 1: Social Enterprises are embedded in a commercial as well as a social welfare logic Based on Pache & Santos (2010) we expect that SEs would be embedded in a social as well as a commercial logic. The social welfare logic where Pache & Santos (2010) refer to, is structured around a clear desired goal: addressing local social needs. Whereas the commercial logic, is structured around a different goal: selling products and services on the market to generate as much profit as possible.

Based on the interviews held, the SEs all possessed a certain social logic. All SEs in the sample have certain social goals they want to achieve, and they do not necessarily label organizations who provide similar services or products as competition, but rather as organizations they could work in

collaboration with to ultimately pursue the same social mission. What was also found was that the SEs reach out to local constituencies, and make the efforts to understand local needs and adapt to

# Governance

structure

Business Model Legal status

Year foundation

# Employees

Size Main goal

1 Connectingfriends Mgmt. committee

Social business venture

BV 2014 1 small To provide a platform for enhancing personal experiences and networks

2 Butterfly works 2-tier board BoD + SB +advisory board

Hybrid non-profit venture

Stichting 1999 14 small To apply tools and methods from the creative sector to social issues worldwide, in collaboration with other SEs 3 The Colour Kitchen BoD+SB Social business

venture

BV +Stichting

2007 116 medium Restaurant+catering, to provide people a second chance to enter the labor market 4 Autitalent Mgmt.

committee

BV 2007 35 medium To help people with autism finding a suitable job 5 JOCadeau Mgmt. committee+ advisory board Social business venture

BV 2012 3 small To promote the image of freelancers and increase their job opportunities

6 4Morgen Mgmt. committee + advisory board

BV 2013 1 small To increase donations for charities

7 Lendahand Mgmt. Committee+ advisory board

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them. Lendahand for example made use of local partners in foreign countries who could help them in better understanding and serving the local needs.

What is interesting however is that unlike expected, the desired goal of the SEs was not necessarily to address local social needs. Connectingfriends and Butterfly Works explicitly state that they have a global aim. The mission of Butterfly Works for example is: “To apply tools and methods from the creative sector to social issues worldwide. By connecting to talented people across the world, we co-create tailor-made solutions”.

The social logic embedded of SEs in the sample thus diverge a bit from the concept of social welfare logic that was developed by Pache & Santos (2010). The social logic embedded by the SEs can thus have more of an idealistic global character than initially expected.

The commercial logic as conceptualized by Pache & Santos (2010) can also be only partially found to be embedded in the SEs of the sample. The specific financial goals of three out of the seven SEs is not to generate as much profit as possible. Making profit for these SEs is regarded as a secondary goal to achieve. It is merely seen a way to build up reserves and be less dependent on third-parties for financing their operations and to secure the continuity of the organization. Butterfly works for example states: “Our financial target is to be self-providing rather than maximizing our profit”. On the other hand, four out of the seven SEs do confirm this commercial logic. They stated that their financial goals are aimed to maximize profits, as long as their social mission comes first. Within the boundaries of achieving their social mission they strive to sell their products and services to generate as much profit as possible. The commercial logic as described by Pache & Santos (2010) can thus not be found in all SEs of the sample, but is somewhat supported.

4.3 Governance structures of Social Enterprises

This paragraph will focus on the governance structures that are used by the SEs of the sample. This paragraph will discuss propositions 2, 2a and 2b.

4.3.1 Participatory governance structure

This subparagraph will focus on proposition 2. Proposition 2: SEs have a participatory governance structure

Cheriakova (2013) classified a participatory governance structure on the basis of three elements: a high degree of autonomy, decision-making power not being based on capital ownership and a participatory nature in general. From the information gathered in the interviews we do witness that SEs indeed show a high degree of autonomy. The interviewed SEs were created by a group of people on the basis of an autonomous project and were for the most part also governed by these people. An exception to this was Butterfly Works who in order to receive subsidies were bound by regulations and certain procedures in the appointment of an independent Supervisory Board. They did not have considerable control over who would be part of their supervisory board (Raad van Toezicht). Their Supervisory Board takes a large role in the governance of their organization, mostly in regards to the internal control of the organization. Overall though a high degree of autonomy in the SEs can be witnessed. None of the SEs are managed, directly or indirectly, by public authorities or other organizations. In addition, no outside people such as private investors had any say in the

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they had the right to take their own position and that they could terminate their activities at any time, without any third-party being able to commit them to anything.

The second element of the participatory governance structure as conceptualized by Cheriakova (2013) cannot be confirmed by the interviewed SEs. The decision-making power, was unlike in a participatory structure, certainly based on capital ownership. Even though most of the SEs of the sample did not have an official voting system, it was very clear from their answers that the persons with the largest amount of capital shares or largest interest in the company also possessed the most decision-making power. Within the SEs who did not appoint an official Board of Directors, but were run by a ‘management committee’, it was clear that the Director or only a few people in the organization call the shots. As one of the directors phrased it: “Even though I consult with my management team, ultimately the decision-making power lies in my hands”. In The Colour Kitchen where they did have a Board of Directors, all of the members in the board were also co-shareholder. The board which has the most decision making power consisted thus only of people who also had a direct financial interest in the enterprise. For Butterfly Works the board of directors also had a financial interest in the company.

Finally, the third element of the participatory nature was also not confirmed by the interviewed SEs. The respondents didn’t mention any kind of representation or participation by users or customers. The respondents also noted that there was very little influence of the various stakeholders outside of the ‘enterprise boundaries’ on decision- making and the management. There was also no mention in any of the goals of the SEs to further democracy at a local level through economic activity.

Nonetheless, some of the SEs were open to the idea of involving stakeholders affected by the enterprise’s activities in the decision-making process or the management. The director of 4Morgen for example mentioned that, as a token of goodwill and transparency, in the future he would like someone from a charity they support to take a seat in their supervisory board.

Most of the SEs however, showed a great concern to involve stakeholders outside of the ‘enterprise boundaries’ in their decision-making processes or their management. They mentioned a fear of losing control over their enterprise by involving too many stakeholders.

It can thus be concluded that the SEs overall did not reflect a participatory governance structure. The first proposition can therefore not be confirmed.

4.3.2 Self-selecting Board

This subparagraph will focus on proposition 2a. Proposition 2a: Medium sized Social Enterprises have a self-selecting board

2 out of the 7 SEs have a self-selecting board for their Board of Directors, namely Butterfly Works and the Colour Kitchen. This means that those organizations self-possess the power to determine who will be present in the Board of Directors. Butterfly Works is considered in this study to be a small organization but they nonetheless still operate in a 2-tier structure with a Board of Directors and a Supervisory Board. The reason for having this structure was largely determined by regulations

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It should be noted that only 2 medium-sized SEs were part of this study and only one of them has a self-selecting board, it is therefore difficult to form any conclusion whether Medium-sized SEs do indeed have a self-selecting board.

4.3.3 Management Committee

This subparagraph will focus on proposition 2b. Proposition 2b: Small Social Enterprises are governed by ‘management committees’

Out of the five SEs which are considered small in this study four SEs were indeed governed and managed by what could be described as a ‘management committee’. The small SEs indicated that as a result organizational members get involved in governance but management and operational matters as well. Some of the SEs indicated that they originally planned to set up a Board of Directors but that this would obligate them to adhere to all kind of legal and economical obligations.

Therefore, for convenience reasons and also because they did not think it was really necessary in such an early stage of their enterprise they chose not to appoint a Board of Directors. But rather use a more informal way to govern and manage their operation. To still divide the control of the

enterprise between two bodies, four of the five SEs in the sample set up an advisory board. The SEs indicated that the informal nature of an advisory board gives them greater flexibility in structure and management compared to the Board of Directors. The function of the advisory board in general was meant to seek expertise outside of the company. One of the respondents for example mentioned that: “Advisory board members could provide the enterprise with knowledge, understanding and strategic thinking of the industry or management of the company. They are regarded as my ‘sparring partners’. In addition, it was also mentioned that the advisory boards help to make sure the

enterprise is ‘staying on track’ with respect to fulfilling the social mission it was set out to

accomplish. Four out of fives SEs without a Board of Directors thus compensate for this lack of an official governing body by setting up a less formal Advisory Board.

The proposition that small SEs are governed by ‘management committees’ can thus be confirmed.

4.4 Governance challenges of Social Enterprises

This paragraph will focus on the governance challenges of the SEs of the sample. This paragraph will discuss propositions 3,3a and 3b.

4.4.1 General governance challenges

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SEs would be to recruit board members with the necessary business or non-profit management skills required to successfully operate as a mixed sector organization (Cornforth and Spear, 2010).

The risk of mission drift was explicitly mentioned by the respondents. For instance, one of the interviewees described mission drift as follows: “In case the enterprise attracts more capital, then the majority of interest could shift, which could ultimately lead to limited attention being paid to fulfilling the initial social mission”. The risk of mission drift or similar concepts in different wording were also mentioned by other SEs. The respondents indicated that striking a balance between the social and the financial goals while remaining true to the social mission was indeed one of the major governance challenges the SEs experienced, but no instances of diverging from this social mission ever occurred.

Cases of delegate syndrome have not been reported by any of the respondents, but since only 2 of the interviewed SEs have an official Board of Directors and their boards could not be described as a Multi-stake holder board this was to be expected.

Unclear objective functions and difficulties in measuring organizational performance were also regarded as a major governance challenges for the SEs, and also led to conflict between

organizational members. The SEs indicated that they often didn’t know how to adequately evaluate whether they are going in the right direction. This was illustrated for example by the following quote: “Because of the innovative character of our organization it is very hard for us to determine how to evaluate our performance. There are limited organizations to who we can compare ourselves with”. The smaller SEs also indicated that it was sometimes hard for the advisory board to give any advice because it was hard for them to tell which direction the organization was going in. Differences in opinion between organizational members on how the enterprise is performing were sometimes said to lead to tension between members and heated discussions during meetings. A related issue frequently mentioned was how to measure the social impact. When for example deciding on a project they want to undertake there was a lot of difficulty in weighing the social impact each project could bring about. Measuring the amount of people they could help, but also to what extent they could help these people is a constant challenge and also leads to disagreement and conflict between organizational members. One of the respondents for example indicated that a conflict between two managers of the SE about deciding which new project they should undertake ultimately had to be resolved by involving a third independent party to join the discussion on this topic. For the evaluation of already finished projects, the respondents also indicated that sometimes there was disagreement between organizational members or between the advisory and the management board on whether the project could be regarded as a success. 2_{Furthermore, the interviewees declared that it was} difficult to steer volunteers because often it was unclear what their official task was. The unclarity in objective functions, and difficulties in objectively measuring the performance of the SEs sometimes thus led to conflict between the members of the organization, or to led to disagreement between the advisory board and top management.

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Another challenge related to the inconsistency of the organizational identity was deciding on the level of transparency. 3_{On the one hand SEs want to show the public what they do and what they} stand for, but on the other hand they also do not want to reveal too much to their competitors. Since SEs are still businesses and they have to compete in turbulent competitive markets they want to protect certain information such as the amount of salary from leaking to competitors. SEs are proud for what they stand for and understandably want to convey this message to the general public, but in doing so they have to be careful not to expose too much. In two cases the respondents indicated that this issue sometimes led to disagreement between members.

Attracting qualified personnel and board members (advisory/supervisory/management) who can represent both the social as well as the commercial aspect of the organization also proved to be one of the major governance challenges the SEs experienced. Especially for the organizations that have been characterized by Conforth (2010) as Social Firms (a business with a social purpose: specifically to create good quality jobs for people disadvantaged in the labour market), it was hard to find qualified personnel. One of the respondents indicated that they wanted personnel who had experience in both the for-profit as well as in the non-profit sector and they stated that it was difficult to find this.

The inconsistency of the organizational identity of SEs thus leads to conflict between organizational members and the respondents also indicated difficulties in attracting suitable qualified personnel.

4.4.2 Governance challenge of self-selecting boards

This subparagraph will discuss proposition 3a. Proposition 3a: Self-selecting boards have the danger of becoming self-serving

The danger of self-selecting boards becoming self-serving was however not acknowledged by the respondents. The two organizations in the sample who had a board made clear that they think they have enough regulatory controls present in the organization to provide a reassurance that the board is acting in the interest of its intended beneficiaries. Moreover, many of the board members were also at the root of the foundation of the enterprise and therefore they noted that the enterprise mission was rooted in their belief system.

4.4.3 Governance challenge of ‘Management committees’

This subparagraph will discuss proposition 3b. Proposition 3b: In ‘Management Committees’ the hierarchy within the enterprise is unclearly established and responsibilities are ill defined, and attracting venture capital is more difficult.

The respondents state that the hierarchy within their enterprises is for the most part clearly

established and also that it is clear for all members of the organization what their responsibilities and tasks are. However, the role of volunteers remains a difficult issue. Because volunteers work on a voluntary basis most SEs found it difficult to clearly prescribe their responsibilities and tasks in fear of being too demanding. As already noted almost all of the SEs that are run by a ‘management

committee’, installed an advisory board. One of the respondents remarked that one of the reasons for doing so was also to make sure the organization has sufficient checks and balances to restrain unruly behavior.

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Attracting capital was often mentioned to be difficult. In fact all of the SEs found attracting capital to be a difficult task. We did not notice that attracting capital is easier for the SEs with an official board. One of the respondents remarked that: “Attracting capital is very difficult for Social Enterprises. It is one of the main reasons why so many Social Enterprises fail. Social Enterprises like our Social Enterprise usually depend on equity”

That in ‘Management Committees’ the hierarchy within the enterprise is unclearly established and responsibilities are ill defined can thus solely be said for the volunteers working in the SE. Attracting venture capital can also not be regarded as more difficult for SEs run by a ‘management committee’.

4.5 how to manage conflicting ideologies and practices within Social Enterprises

Paragraph 4.5 will discuss some of the strategies that the SEs use to manage the conflicting ideologies and practices.

The respondents pointed out several ways the SEs try to mitigate the tensions resulting from

pursuing the conflicting commercial and social logic. One way of doing so was by creating a common organizational identity. The creation of a common organizational identity was said to be important for making the employees feel a part of the organization and to create a common belief around the organization that they are doing something good for society and to keep 'All the wood behind one arrow'. One of the respondents’ organization tried to create this common organizational identity in three ways:

1: Internal learning sessions: This included lunch presentations and also included meetings with people outside of the organization giving presentations about various subjects related to Social Enterprises

2: External learning sessions (inspiration sessions): This included meetings with external and third parties such as the government and journalists etc., these meetings are intended to communicate the vision of the organization to the general public.

3: Informal gatherings: This included things like going out for dinner together with the organizational members. The major goal of these informal gatherings is to promote the teamwork within the organization.

Related to this creation of a common identity some of the respondents also mentioned the importance of creating an open and honest atmosphere. To create this kind of culture some organizations stated that they frequently ask for input from employees and that they promote employees’ posing questions and giving suggestions. Employees were also said to be recognized for their contributions to the organization.

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rasa’ approach emphasizes socializability above all, thereby prioritizing individuals not steeped in either of the logics being combined” (Battilana & Dorado, page 19).

We have also seen that setting up an ‘Advisory Board’ could be a good alternative to the more formal set up of a Board of Directors. All of the interviewed SEs that are run by a ‘management committee’ indicated that the Advisory Board functioned well in making sure the organization stays focused on its’ social mission and that it provides the necessary checks and balances to restrain unruly behavior. The drawbacks of not having a board with regards to responsibilities and tasks being ill defined and an increased difficulty of attracting venture capital was not indicated by the respondents.

4.6 Summary results

The study reveals some interesting results. First, the study confirms that small- to medium sized SEs in the Netherlands are embedded in a commercial as well as a social logic. However, the embedded logics do however diverge a bit from the concepts of social welfare logic and commercial logic as conceptualized by Pache & Santos (2010). The social logic embedded by the SEs of the sample can have more of an idealistic global character than initially expected. The commercial logic as

conceptualized can also be only partially found to be embedded in the SEs of the sample. Making profit for most of the SEs is regarded as a secondary goal to achieve and is regarded as less important than the social mission. By some of the SEs It is merely seen a way to build up reserves and be less dependent on third-parties for financing their operations.

Based on these embedded logics by the SEs which put more emphasis on the social logic than the commercial logic we would expect a more democratic kind of governance structure which would be similar to the participatory governance structure as described by Defourney and Nijssens (2012). The SEs however do not seem to have a participatory governance structure. The decision-making power, was unlike in a participatory structure, certainly based on capital ownership and the SEs didn’t mention any kind of representation or participation by users or customers. Rather, most SEs feared of losing control over their enterprise by involving too many stakeholders. The used governance structures thus resembled more the characteristics of a for-profit governance structure. At first sight, the used governance structures do not seem to be suited to embed the logics of the SEs, the

respondents nevertheless said to be satisfied with their current governance structures and noted that the SEs are governed well.

Second, four of the small-sized SEs were run by a ‘management committee’, while one SE was forced by legal restrictions to operate in a 2-tier structure (Butterfly Works) and had established an official self-selected board of directors. The specific governance problems associated with ‘management committees’ such as an unclear hierarchy and ill-defined responsibilities did not come forward in the interviews. An increased difficulty in attracting venture capital was also not confirmed by the

respondents.