3.6.3.3 The lack of effectiveness of legally prescribed (formal) participatory governance to include stakeholders in the decision-making of social enterprises

It was noted earlier that the participation of stakeholders in the governance of the majority of the examined case studies was not fully formally realised through the exercise and implementation of a legal entitlement (right) which either permits or sometimes requires (in Case Study 3) participation in the membership and ownership of shares of the social enterprise. Accordingly, it could be asserted that legally prescribed (formal) participatory governance, i.e. rules dictating the participation of stakeholders in the social enterprises’ membership and governance, is not fully effective in terms of its outcome.

In fact, the formal participation of stakeholders in the governance of the examined case studies tends to depend more on the decisions of the principal decision-makers who participate in representative and/or hybrid decision- making bodies. These are the board of directors and the general meeting that comprise members, representatives of the members, and a mix of independent decision-makers. All this is done in legal frameworks which either permit or require (only in Case Study 3) stakeholder participation in membership, ownership of shares, and in decision-making. As such, the decisions of decision-makers regarding the participation of stakeholders in membership and governance tend to influence the participatory governance structure of a social enterprise to a greater extent than the law does. This was noted in all the case studies in which formal participatory governance was not fully implemented in practice, e.g. in the Greek Case Studies 1 and 2, in the Belgian Case Studies 6 and 5, and in all the case studies examined in the UK. Furthermore, the case studies which demonstrated that formal participation was implemented in practice through membership – either as a result of compliance with a legal framework or as an actual cooperation between stakeholders and decision- makers – were few.

The examined case studies also revealed that formal participatory governance was sometimes not implemented in practice, due to reasons other than the decisions of the principal decision-makers. For example, factors emerged that were found to influence the implementation of participatory governance, such as in Case Studies 3 and 6. In these two case studies, the legal frameworks were found to exclude the involvement of certain types of stakeholders in the governance of social enterprises.

The lack of effectiveness in the implementation of the legally prescribed participatory governance was identified in the majority of the examined case studies from all the selected jurisdictions, i.e. Greece, Belgium, and the UK. The coding of the empirical evidence collected in the case studies revealed that the effectiveness of the implementation in the formal participatory governance in the majority of the examined social enterprises was related to ‘trust’. A pattern in the variable of trust appeared in the majority of the examined case studies, i.e. Case Studies 1, 2, 4, 5, and 6 (Table 3.19), concerning decision- making and the relationship between stakeholders and social enterprises. Trust was found to relate to: (i) the trust of the principal decision-makers with respect to a new legal and institutional environment; (ii) the trust of stakeholders with respect to the social enterprises’ success and growth; and (iii) the trust of stakeholders with respect to the governing bodies of the examined social enterprises (Table 3.19 and Figure 3.10). For instance, due to the absence of trust in the legal, regulatory, and institutional framework in Case Study 2 (Table 3.19 and Figure 3.10), the principal decision-makers decided to make the governance model less attractive to stakeholders (including employees) and to new members, without further developing the concept of stakeholder participation. Similarly, in the same case study, stakeholders demonstrated an absence of trust in relation to the examined social enterprise’s success and growth (Table 3.19 and Figure 3.10).

In Case Study 4, in which the formal participation of stakeholders was actually implemented in practice, a feeling of trust and respect was developed between social entrepreneurs and stakeholders. Trust was expressed by inviting stakeholders into membership and through open communication and transparency in the circulation of information with stakeholders. In Case Study 4, stakeholders perceived that their formal participation through membership was a means to understand how the organisation and its legal structure could function better. As such, they showed their trust with respect to how they could contribute to the fulfilment of the social purpose by influencing the decision-making (Table 3.19 and Figure 3.11). Similarly, in Case Study 5, in which formal participation was not fully implemented in practice, it was demonstrated that several types of stakeholders trusted the decision-makers of the social enterprises and that they did not feel the urge to participate more in decision-making (Table 3.19, Figures 3.8 and 3.10). Nevertheless, decisions and information were communicated through intermediaries, and only to those parties that needed to be involved. This resulted in a limitation of communication.

Other than trust, emerging patterns relating to the effectiveness of the implementation of the legally prescribed participatory governance concerned the low maturity of the organisation due to the ‘youth’ of the tailor-made legal forms for social enterprises, i.e. newly introduced legal forms. For instance, in Case Study 2, stakeholders claimed that they did not participate in the membership, ownership of shares, and governance of the organisation, which was young, immature, and without concrete evidence regarding its growth and success (Table 3.19, Figures 3.6 and 3.10). Similarly, in Case Study 4, the development of a participatory governance structure for stakeholders that involved membership and governance was subject to the decision-makers’ concerns regarding the organisation’s young and evolving character (Table 3.19 and Figure 3.11).

Likewise, in Case Studies 5 and 7, the social enterprises’ members and decision- makers believed that the increase of control through participation in membership and in governance might be a risk in a young but growing organisation (Table 3.19, Figures 3.8 – 3.10). The management of membership, control, and growth was a commonly identified concern of the principal decision-makers in Case Studies 5 and 7 (Table 3.19, Figures 3.8 – 3.10).

The case studies also revealed the identification of more behavioural factors underlying the effectiveness of the implementation of the legally prescribed formal participatory governance. Such factors were related not only to the stakeholders, but also to the principal decision-makers and founding members of the examined social enterprises. In particular, Case Study 3 revealed the potential for several stereotypes and biases developed among the principal decision-makers that could lead to the discrimination and exclusion from the participatory governance of certain types of stakeholders, i.e. the persons with mental disabilities (Table 3.19, Figure 3.7 and Figure 3.10). Additionally, the emotional engagement and the personal motivations of individual stakeholders also played a role in their participation. For instance, in Case Study 3, the emotional engagement of the mentally disabled was noted particularly in relation to entrepreneurially risky operations, which could deteriorate their role in membership and in governance. Similarly to Case Study 3, in Case Studies 1, 2, 5, 6, and 8, the limited urge and motivation of stakeholders to be involved in the ownership of shares and in membership was related to risks of the entrepreneurial activities or to the limited knowledge concerning participatory governance (Figure 3.10).

Another factor which related to the effectiveness of implementation of the legally prescribed formal participatory governance was the perceived ‘governance risks and challenges’ if participation in membership, ownership of shares, and decision-making was increased. In this respect, Case Study 7 emphasised the risk of a mission drift as opposed to the increase of membership and participation of stakeholders. Case Study 8 emphasised the concentrated decision-making power to the active shareholder as opposed to the participation from stakeholders in the social enterprise’s governance (Table 3.19, Figures 3.9 and 3.10). Similarly, in Case Study 5, stakeholder participation was perceived by the interviewees to be related to governance risks in the start-up phase of the organisation (Table 3.19, Figures 3.8 and 3.10).

Table 3.19: Partially ordered meta-matrix II

The following figures display a causal chain of case-specific variables (i.e. causal network analysis) of the examined case studies. The portrayed causal chains explain the effects and the effectiveness of the implementation of law in the governance of the examined social enterprises. They also portray the effects produced by other institutional factors on the governance of the examined social enterprises identified in the case studies.

The figures contain case-specific variables connected with arrows which formulate a causal chain of events. The single directed arrow demonstrates those case-specific variables delineated by a causal relationship. Accordingly, the case-specific variable from which the arrow starts influences the case-specific variable to which the arrow ends. The indications ‘high’, ‘moderate’, and ‘low’ demonstrate the level of influence exerted by the case-specific variable from which the arrow starts to the case-specific variable to which the arrow ends.