Explaining stakeholder involvement in social enterprise governance through resources and legitimacy

In the continuity of stakeholder theory, much of the current literature on (corporate) governance and business ethics looks at how organizations involve their stakeholders at different decision-making levels (Carroll 2004; Clarkson 1995; de Graaf & Herkströter 2007; Freeman & Reed 1983). According to Freeman (1984), stakeholders are ‘any group or individual who can affect or is affected by the achievement of an organization's purpose’ (148); typically: the owners, the managers, the workers, the volunteers, the financing bodies, the partners, the suppliers, the customers/beneficiaries, etc. A continuum of involvement can be highlighted, from the rather passive strategies (stakeholder information) to the more active ones (stakeholder representation). Among the latter, involvement or ‘cooptation’ of stakeholders in the governance structures such as the general assembly and the board of directors is increasingly presented as a strategy mirroring a long-term relationship between the organization and a particular stakeholder category (Mitchell et al. 1997).
Traditionally, the owners are the category of stakeholders that is co-opted in the governance structures. Indeed, the power of decision is part of the property rights (Milgrom & Roberts 1992). It allows owners to ensure that the enterprise is run according to their own objectives. Thus, in for-profit enterprises, the investors are the owners and, as such, they have the right to decide. They exercise this right by their presence at the general assembly. But not all enterprises are investors-owned firms. In some enterprises, ownership is in the hand of other stakeholders, like in producer, consumer or worker cooperatives. Others, like nonprofit organizations, can even be seen as firms without owners (Hansmann 1996).
This chapter raises the question of stakeholder involvement in social enterprises, which are ‘non-investor owned’ and can broadly be defined here as organizations pursuing social aims through their economic activity (Defourny 2001; Defourny & Nyssens 2006). In these organizations, the configuration of stakeholder involvement contrasts with that of for-profit businesses in at least two ways. First, social enterprises are more likely than other types of organizations to be set up through a process of collective entrepreneurship which often involves a diversity of actors who each have a ‘stake’ in the pursuit of one or several organizational missions (Defourny & Nyssens 2006; Haugh 2007; Petrella 2003). Second, social enterprises seem to have a stronger tendency to give a voice to the actors with whom they interact –i.e., to involve their beneficiaries, supporters, funders or partners within their governance structures (Campi et al. 2006; Huybrechts 2010; Münkner 2004; Rijpens 2010). They usually use legal forms that allow and encourage economic democracy by recognizing stakeholders other than investors the right to participate formally in the governance bodies.
While, as suggested by Campi et al. (2006; 2012), the presence of multiple stakeholders observed in a number of social enterprises may be linked with the diverse goals pursued by these organizations, such presence –or absence– may be due to many factors which have no direct links with organizational goals. As suggested in this chapter, the organizational need for resources (in a broad sense) and the drive to conform to external expectations may be two key factors. In any case, the diversified patterns of stakeholder involvement in social enterprises confirm the need for a more comprehensive account of stakeholder involvement in these organizations.
Although several attempts have been made to theorize stakeholder involvement in social enterprise governance, it is still a much under-researched topic. We believe that this research gap is due not only to the infancy stage in which social enterprise research is located, but also to a lack of connection and integration of this research within the broader study of organizations. Indeed, while new theoretical developments centered on the specific features of social enterprise are needed, these developments cannot be made independently from the knowledge built for more than a century regarding how organizations are structured and operate.
This chapter aims to examine stakeholder involvement in social enterprise governance using two types of theoretical lenses each embodying a rich research tradition in organization theory. The first lens refers to strategy and examines organizations (in this case governance structures) in terms of their dependency on a set of resources. The second lens uses legitimacy arguments to explain organizational governance as a social construct located in a broader setting of social relationships. The first two sections will present each of these views and examine their contributions to understanding stakeholder involvement in the governance structures of social enterprises. Then, a comparative case study on work integration social enterprises will serve to illustrate how both research avenues can be combined so as to better grasp social enterprise governance as a complex and multi-dimensional practice.