3.4.4 Discussion

This article has provided evidence of the governance challenges faced by two social enterprises in Scotland with the legal form of the CIC. Evidence-based results were exhibited regarding the realisation of participatory governance under a ‘light touch’ regulatory regime, which encourages – rather than obliges – stakeholder participation in the corporate governance of the examined CICs. The examined case studies revealed that participatory governance is not formally realised through membership and the acquisition of ownership of shares and/or the exercise of decision-making rights that membership confers. Indeed, where participatory membership was realised it remained inactive.

In particular, it was observed that both examined CICs encountered trade-offs at all levels of decision-making due to the lack of formal means of participation that could potentially provide a more obligatory and essential role to stakeholders in the decision-making processes. For instance, Breadshare, the CIC constituted as a company limited by guarantee, strived to achieve a trade-off in its membership in balancing the complexities of inactive membership and/or the risk of a mission drift, with the requirements to maintain a representative, democratic and participatory character in its governance via encouraging community membership and participation (Table 3.10). Another trade-off for Breadshare related to achieving a balance in the composition of its board of directors by involving representatives of the stakeholders, while simultaneously being governed by experts, who have the knowledge and skills to run a business (Table 3.10). Ultimately, these experts may not be in conformity with the community objectives of Breadshare leading, consequently, to a so-called mission drift.

Similarly, GTS Solutions, the CIC incorporated as a company limited by shares that was governed by one active shareholder, also experienced a trade-off. The trade-off required the achievement of a balance between the governance power concentrated in the hands of one active shareholder in collaboration with trustful managers and co-directors, with the community character of the organisation and the realisation of community objectives that the CIC is obliged to serve (Table 3.10). Accordingly, it was at the discretion of the active shareholder to provide for a more participatory role to the community stakeholders that GTS Solutions serves, namely young adults, strategic partners, clients and employees.

However, despite the challenges that Breadshare encountered as a more open and participatory organisation, in GTS Solutions the concentration of the decision-making power in the hands of the active shareholder averted the risks of inactive membership. Furthermore, due to the board composition of GTS Solutions – which comprised only members, who were business experts and the active shareholder – a trade-off, required a balance between the decision of experts who have the knowledge and skills to run a business with the involvement of community stakeholders at a lower level (Table 3.10).

As such, various informal stakeholder mechanisms were developed in both organisations in the form of standardised processes to collect – in a regular but informal manner – the feedback of stakeholders directly. Such mechanisms were not formal. They could not be translated into direct and actual stakeholder participation or representation in the formal sense i.e. by virtue of decisions being made in the board of directors and/or the members of the general meeting.

Additionally, both organisations established a governance model, which bares close resemblance to the stewardship model rather than the democratic and stakeholder model. For instance, decision-making in both CICs was in the main competence of the board of directors. Breadshare’s general meeting was subject to inactive members, whereas GTS Solutions comprised only one active member.

As such, in Breadshare, the board of directors, which had to make the most important organisational decisions, comprised few directors – ‘oligarchs’. In GTS Solutions, it comprised one active shareholder and two experts. Stakeholders and third parties were not permitted to participate in the meetings of either of the board of directors examined in the case studies. This important part of decision-making activity remained unaligned with the interests of the community stakeholders. Its implementation was not reflected in the CIC reports, which were often insufficiently explanatory concerning the engagement of stakeholders and their involvement in the decision-making and affairs of the CIC.

As such, in the two examined CICs, the participation of stakeholders in the governing bodies of the social enterprises, i.e. the general meeting and/or board of directors, was not formally realised. However, informal means of stakeholder participation and consultancy were developed. The informal means of stakeholder participation are presented in Table 3.11 and they were standardised as regular and direct processes within the organisational functioning of the examined social enterprises.