A social business, as a legal entity, is a corporate body and must obey all laws.

This includes not only legislation relevant to the legal form of the social business, but also broader laws such as health and safety, employment, tax, trade, contracts, finance, equal opportunity, and protection of the vulnerable.

The functions of a social business board 

The Board of Directors, or equivalent, is legally responsible for the control and oversight of a social business. They are tasked with ensuring that it and all those who serve it operate legally and properly. Individual directors, sub groups, managers, employees, associates, sub-contractors are all responsible to the Board. 

The Board in turn reports to stakeholders on the performance of the social business against its social and business targets. The social business board may be removed and replaced by those with a vote, but cannot pass over those legal responsibilities. 

This is a fundamental concept and drives the way in which accountability operates within a social business. The Board of Directors may delegate power to their officers to carry out activities on their behalf. Each time they do so, its important that individual directors and the board as a whole have the means to inform themselves so that this power is utilised  legally, properly and according to values, principles and policies laid down by the membership. 

Establishing a social business management structure 

The first step is to ensure that powers are handed down coherently and unambiguously. Key documents include job descriptions, contracts of employment, volunteer agreements, codes of practice, policy and procedure manuals or handbooks, delivery plans and budgets. It generally helps to make sure important specific instructions are given in writing as well as verbally, or agreed and recorded. In this way there is an audit trail relating to what the Board intended to happen.  

Where all this is voluminous or complicated or beyond the previous experience of some of those involved (and it will often be all of these) it will be important to provide explanation and training to go with it. It is also helpful to encourage a culture where everyone feels able to seek clarification if they need it and to point out errors, omissions and inconsistencies through a suggestion system which means these constructive criticisms do not get lost but result in continuous improvement of every aspect of the organisation. 

Governing a social business 

Once it is clear what the Board intends to happen and how they expect that work to be conducted, the Board should develop ways of monitoring whether what actually happens conforms to their expectation. This might involve reporting, spot checks, customer feedback and financial out-turn comparison with budgets. The actual mechanisms will vary according to the size and nature of the business.

Of course sometimes things go wrong, but the Board should be able to demonstrate a coherent plan to acquire information on what is actually going on in the social business for which it is responsible. They should also provide evidence that this information is used to right what has gone wrong, making it less likely that similar things could go wrong in the future. You can achieve this at Board level or at an appropriate lower level of delegated management. 

Once you have established control and oversight mechanisms, outline feasible ways to develop the capacity of your governance.