3.4.3.1 Stakeholders as members and owners of shares in the examined CICs

Breadshare is a CIC limited by guarantee with no share capital. It consists of members rather than shareholders. Subject to membership, its founding and active members enjoy limited liability and limited exposure to entrepreneurial risks that equals to the amount that the members (guarantors) agree to contribute in the event of the CIC winding-up (that is commonly £1; Art. 7, AoA). The use of the CIC limited by guarantee legal form was a decision of Breadshare’s board of directors, which corresponded with the board’s preferences, namely: (i) the absence of ownership of any shares; and (ii) the asset-lock. As one interviewee said, ‘that’s what we all felt was a social enterprise. You can’t really be a social enterprise and have shares (...) The two big things from our point of view back then were the asset-lock and who the assets would go to’ (A interview, 19 February 2016). Initially, the directors developed the idea of attracting a large number of community members, which it felt would provide greater opportunities for grant funding, donations and legitimacy to the community. However, the company did not receive any grant funding through membership as expected. Therefore, it developed its own commercial and entrepreneurial activity to be sustained financially and to keep pursuing the social objectives. The financial sustainability was confirmed by an interviewee who remarked that she preferred to compete on a level playing field with small businesses rather attracting public funding similarly to non-profits (A interview, 19 February 2016). However, the company always maintained an ‘open policy’ on membership, addressing mainly community stakeholders.

Membership allowed the community stakeholders to be active in the company’s affairs and decision-making processes. Initially, Breadshare developed a scheme to promote membership. The scheme promoted funding opportunities in the form of donations of a minimum amount of £50, simultaneously providing opportunities for membership in return for organic bread vouchers offered to potential members through the company’s website. The potential members could instantly declare whether they wished to become a Breadshare member.

The membership scheme attracted almost fifty members, most of whom never became involved in the company’s affairs over the course of time. As one interviewee said that ‘we didn’t even know who they were, we never met them’ (A interview, 19 February 2016). Inactive membership made the decision- makers of Breadshare to rationalise Breadshare’s membership list and impose a requirement for board approval in respect of the proposed admission of new members in 2013 – 2014.

The company started to identify a list of members who had never been involved in the company’s active membership (B interview, 19 February 2016). An interviewee said that the company never charged a membership fee and people used ‘to just register’ (B interview, 19 February 2016). New members were welcome to be involved in the company’s governance and they were at an equal footing with other members of the company. However, as another interviewee mentioned ‘[t]hey didn’t want to be involved. Those that did want to be involved became directors’ (A interview, 19 February 2016). Membership inactivity was recognised at the first general meeting when only a few members attended. However, the extent of power and control that membership could exert over the organisation’s objectives also raised questions and concerns on the part of the principal managers and directors. In particular, the company’s active and principal members and decision-makers worried concerning the possibility and implications of a ‘mission drift’ if membership grew. One interviewee said:

Indeed, scholarship notes that a ‘mission drift’ is a core governance challenge for social enterprises.1 Although the CIC’s legal form is bound by regulation to uphold its community benefit objectives through the ongoing CIC test and the concept of the asset-lock, the light touch regulatory regime urges CICs to continue dealing with internal tensions and daily trade-offs as part of their routine social and commercial activities. In this case, Breadshare dealt with a similar trade-off, namely to either enlarge the membership base and taking the risk of a mission drift or to maintaining membership for those members who are actively involved in the company’s affairs.

Accordingly, the participation of stakeholders through formal membership was not well received among the Breadshare managers and decision-makers. The inconvenience was confirmed by a participant who was deeply worried and said that:

Another interviewee similarly mentioned that ‘I think the risk would be as we grow, how we grow, you know, and also how much control we give to other people who can then, I guess, have too much impact on your core business’ (B interview, 19 February 2016).

GTS Solutions is a CIC limited by shares. At the time of the interviews, the company comprised two shareholders (members) who held an equal amount of ordinary shares, i.e. 50 shares each with a nominal value of £1. Between the two shareholders, one shareholder was actively involved, whereas the other shareholder was inactive concerning organisational activities. Although the company did not develop an open membership policy towards third parties, employees and community stakeholders, the active shareholder of GTS Solutions (E interview, 18 February 2016) perceived this concept positively. With regards to the concept of offering shares to community stakeholders and employees, the interviewee mentioned that ‘well, I can give them shares if they want but they are not of any value (…) so them having shares is not something at the moment although it is something that we have looked at.’ (E interview, 18 February 2016).

GTS Solutions was not a democratically governed organisation in which community membership was encouraged. The active shareholder who also served as the Director of Operations and the Chief Executive Officer (hereafter the ‘CEO’) of the organisation controlled GTS Solutions. Although ownership and control was concentrated in the hands of the active shareholder, interviews with respondents from different organisational levels (a manager and an employee) revealed that they were not willing to accept the responsibility that membership and ownership of shares confers. An interviewee mentioned that ‘I would rather be an employee at the moment (…) I don’t want the massive responsibility of owning part of the company’ (F interview, 18 February 2016). The attitude of the other interviewee was similar. They mentioned that ‘it would be one of those things I would have to take a lot of thinking and decide if I want to do that because I think that’s quite a big decision to make’ (G interview, 18 February 2016).