Social and solidarity economy in light of corporate reform

Mélissa Boudes, Institut Mines-Telecom Business School
This article was co-authored by Quentin Renoul, entrepreneur.

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[dropcap]T[/dropcap]he draft PACTE law (Action Plan for Business Growth and Transformation), presented by President Emmanuel Macron’s government, seeks to change the way corporate stakeholders (entrepreneurs, funders, managers, workers, customers, etc.) see the company’s role in society. The goal is to rethink what companies could be—or should be—in light of the societal, economic, political and ecological changes that have been happening in recent years.

More importantly, this corporate reform seems to announce the end of the dichotomy between “traditional” companies and social and solidarity economy (SSE) companies.  Four years after the law on social and solidarity economy, what can we learn by comparing the two laws? What do they show us about new business models? What kind of picture do they paint of the firms of the future?

Social and Solidarity Economy Companies

Behind the SSE label, there lies a wide variety of companies with old and diverse historical foundations.  They were united in 1980 under France’s National Liaison Committee for Mutual, Cooperative and Associative Activities, which was governed by a charter with seven principles:

• One person, one voice (in the General Assembly), regardless of the individual’s level of participation in the company’s capital;
• Voluntary membership and responsibility;
• Dual capacity: the company belongs to those who produce its value;
• Equality and freedom;
• Limited profit: surpluses are reintegrated into the project;
• Empowerment: research and experimentation;
• People-oriented economic activities.

These principles are supposed to be guaranteed by the articles of incorporation adopted by these organizations–associations, cooperatives, mutual societies and their foundations–but also by the practices and tools they employ. However, under the effect of competition and the decline in public support, SSE companies have been pushed to adopt the same practices and management tools as for-profit companies: management by objectives, financial reporting, etc.

These tools and practices run counter to SSE practices, so much so that adopting them makes it more difficult for all stakeholders (employees of these organizations, consumers of the products and services that they produce, etc.) to distinguish between SSE companies and traditional companies. In fact, though the public is seldom aware of this, some major brands are actually SSE companies: Maif (mutual fund), Intersport (retail cooperative), Crédit Mutuel (cooperative bank), Magasins U (retail cooperative), the Up–Chèque déjeuner group (workers’ cooperative).

SSE Law of 2014: expanded to include commercial companies

In the context of this complex landscape, new companies have emerged in recent years called “social” companies. These companies pursue a social purpose, but with the same legal form as “traditional” commercial companies (public limited company, simplified joint-stock company, etc.). For example, DreamAct (a platform that promotes “responsible” consumption with its city guide and e-shop) or La Ruche qui dit oui (English: The Food Assembly, which facilitates direct sales between producers and consumers) have opted for the simplified joint-stock company status.

Despite some protests, the SSE Law, passed by French Parliament on 31 July 2014 allowed these companies, which are both commercial and social, to be included in the SSE family. Still, certain conditions apply: they must comply with SSE principles, in other words, pursue an aim other than sharing profits, have democratic governance, create indivisible reserves, and use the majority of their profits to maintain or develop the company.

Originally designed to bring wider recognition to the SSE, the law has in fact further exacerbated tensions between social companies and SSE companies, further blurring the lines of company classifications.

2018 Corporate Reform: integrating CSR criteria

The current draft corporate reform is based on criticism of the financialization of companies, which was particularly brought to light following the 2008 financial crisis. It seeks to respond to new social and environmental expectations for companies, at a time when public authorities and civil society appear powerless when it comes to financial issues. This reform seems to encourage companies to adopt these criteria of corporate social responsibility (CSR).

The recommendations of the Notat-Sénard report on “the collective interest company”, which were added to the draft PACTE law on 9 March 2018, in some ways provide an answer to company stakeholders’ growing search for meaning. Measures such as considering social and environmental issues, reflecting on companies’ “raison d’être”, and increasing the representation of employees in the board of directors should help to heal the rift between companies and society as a whole by aligning their objectives with common goals that benefit everyone.

The end of dichotomies

These two reforms offer senior managers and entrepreneurs a wider range of options.  The old dichotomies that emerged with the industrial revolution (decision-making bosses/decision-implementing employees, lucrative company/charitable association) are slowly fading away to make way for more diverse, hybrid organizations.

Theoretically, we could map the entrepreneurial landscape by dividing it into two different areas. This offers a clearer understanding of the logic behind the legislation from 2014 and 2018 and its potential impacts on companies. The first area is governance, or the distribution of decision-making power.

The second area is the business model, or the methods for mobilizing resources, using them and distributing the value the company creates.

The governance area can be subdivided into two sections. On the one hand there are traditional commercial companies, with a shareholder governance in which the decision-making power is by and large concentrated in the hands of investors. On the other hand, there are SSE companies, as they define themselves in their charter from 1980, with a democratic governance in which the decision-making power belongs to the participating members (employees, volunteers, consumers, producers). The business aspect can also be subdivided into two models: the profit model, focused on maximizing profit, and the limited profit model, in which surpluses are reintegrated into the project or are distributed between participating members.

While the historical distinction between “traditional” companies and SSE companies consisted in a shareholder governance with a for-profit business model versus democratic governance with a limited-profit business model, this rift has greatly diminished in recent years due to changes in practices (CSR, social companies) which have now been recognized and even encouraged by the SSE law and the draft PACTE law.

In 2014, the SSE law included commercial companies which are considered social companies in the SSE category, by encouraging them to adopt democratic governance and limit their profit-making by reintegrating their surpluses into the project and creating indivisible reserves.  The draft PACTE law seeks to encourage companies to open up their governance to include employees in decision-making. It also calls for business models to be expanded to integrate social and environmental issues.

A move toward hybrid companies, “creators of meaning”?

These two reforms invite us to change the way we see the company. They aim to support and encourage changes in entrepreneurial behavior by providing tools to create new governance and business models for companies. They encourage the creation and development of what could be considered “hybrid” companies in comparison with the historical models.

Many companies have already combined the two traditional views of the company to accomplish their goals. One prime example is companies for integration through economic activity.  These groups strive to reintegrate individuals who are farthest removed from employment through training and appropriate jobs. They often combine different legal statuses to bring together a profitable business activity and social purpose. Although the wages of the individuals who are being reintegrated are co-financed by the public authorities, the integration companies must find opportunities and generate enough income to create jobs and develop the business project and make it sustainable. Réseau Cocagne, for example, proposes organic food baskets produced by individuals integrating the workplace. It is an association under the French law of 1901 and it created a private company limited by shares which is supported by an endowment fund to improve its access to funding. In 2016, the group had 4,320 employees integrating the workforce, 815 permanent employees, 1,800 volunteers and administrators and 20,500 consumer members.

Could what we are witnessing be the development of what François Rousseau called “creators of meaning”? Companies “on a quest to regain the meaning behind their actions and the social calling motivating their project”.

Having reestablished their roots in society, these companies need specific management tools to be developed, “meaning-management tools”, which enable them to reach the economic, social and environmental goals they have set. The SSE law and draft PACTE law pave the way for developing such tools and practices. Now it is up to entrepreneurs, managers, workers and funders to create, develop, and make them meaningful.

Mélissa Boudes, Associate Professor of Management, Institut Mines-Telecom Business School

The original version of this article (in French) was published on The Conversation.