Developing Scotland's Economy: Increasing The Role Of Inclusive And Democratic Business Models

5. Recommendations

5.1 Overarching and Enabling Recommendations

Issue: Inconsistent recognition of IDBMs within the Scottish Economy and Strategy.

5.1.1 National, regional and local economic strategies, and activities of key economic agencies, have not consistently placed IDBMs and wider business purpose considerations at the centre of Scotland’s economy. As such the role, status and power of economic democracy and IDBMs has not reached its full potential, commensurate to other countries.

5.1.2 Moving forward, the role of IDBMs needs to be more explicitly articulated within economic strategies and the work of relevant agencies so that the benefits of these business models for both employees and wider society is realised. Economic transformation and the achievement of a prosperous, innovative and dynamic economy will be assisted by clear targets to drive a significant increase in the numbers of social enterprises, co-operatives and employee-owned businesses and the wider adoption of social and environmental purpose amongst non IDBM businesses.

1. Recommendation: IDBMs should run through Scottish economic thinking and strategy as a central golden thread.

To achieve this golden thread there is a need to develop clear positioning of IDBMs within economic strategies, and agencies tasked with those strategies, which advocate the type of economy we want and role of IDBMs in that. This requires a deliberative and deeply intentional mainstreaming within economic agencies and the broader enterprise landscape.

To support this to be achieved, we believe there has to be a new statutory duty on key national bodies including Scottish Government, Enterprise Agencies and Scottish National Investment Bank (SNIB). This duty would include elements contained within a number of other recommendations.^[7]

The duty would assist the growth of IDBMs. This could be within sectors that lend themselves to these approaches for example tourism, retail, renewables and manufacturing, and include increasing the trading capabilities of the Third Sector^[8].

The duty would require explicit detail on :

a. Actions which assist IDBMs to be created and support for existing businesses to grow.

b. Actions which assist existing businesses to transition to an IDBM, supporting succession planning.

c. Accurate recording of data relating to IDBMs.

d. Co-production of actions to support the IDBM sectors.

This golden thread and duty would part assist in achieving the overall target of having 3 in every 50 businesses as IDBMs by 2034.

2. Recommendation: Establish an ‘Economic Democracy’ group.

There is a need for a strong coherent and joined up voice for enterprises operating as an IDBM and secure links to other crucial policy agendas such as CWB. An independent champions group should be established to:

• Lead the Strategic Objectives as laid out in our Vision and the change we would like to see.
• Work with key groups, for example Business Purpose Group, to raise awareness and promote the creation of IDBMs.
• Establish baseline and agree key targets.
• Oversee the implementation of the recommendations in this report, including playing a key advisory role in setting up a Centre for Excellence for IDBMs (see recommendation 8).
• Act as a reference point, advocate for and the voice of IDBMs.

This group should be a partnership with members drawn from key stakeholders, relevant businesses, representatives from support bodies and Scottish Government. Thought should be given to the role of current groups and consideration should be given as to how the ILG for Employee Ownership evolves to encompass the wider remit posited here. As with the ILG the Review Group recommend the Economic Democracy group be chaired by a Government Minister, with an established secretariat.

3. Recommendation: Investment in data and evidence on IDBMs is required to support policy and service design.

There is a need to ensure that we have robust data on the number of enterprises operating currently as an IDBMs and that this data is available at appropriate levels, national, regional and local to ensure effective and evidence-based policy decisions are taken to support the aims of this review. This will support the building of a consensus, measure the impacts of different models and support the standardisation of measuring progress and impact. This would be a key role for the Economic Democracy Group and Scottish Government going forward, learning from other nations in Europe and beyond who have been gathering this type of data over a number of years.

5.2 Awareness, Training, Advice and Support

Issue: Lack of strong narrative and communication in promoting the sector.

5.2.1 The general perception is that in wider society there is a lack of awareness of co-operatives, social enterprises, employee-owned businesses, BCorps, ethical businesses, community owned enterprises and wider economic democracy. They are too often seen as exceptional or marginal to wider economic success. To support awareness raising, there is a need to promote the benefits of more IDBMs including robust data on the number of enterprises operating currently as an IDBM.

4. Recommendation: National awareness raising and training programme.

There is a need to promote and normalise IDBMs and economic democracy establishing understanding amongst funders, procurement and commissioning departments, business support, economic development and wider society to stimulate citizen participation. Awareness raising and training is required at differing levels for all actors for example Local Government officers, financial institutions, policy makers, and business support advisors. This is a key role for Scottish Government, its agencies, the Economic Democracy Group and the Centre for Excellence.

5. Recommendation: Widen scope of existing business awards to include all forms of IDBMs.

This would increase visibility of IDBMs and support further promotion which is necessary to facilitate growth and sustainability. Scottish Government should promote, support and celebrate existing award schemes, and ensure that awards are integrated and recognise the nuances of the different business models. This would be a task for the Economic Democracy group to explore and action.

Issue: Inadequate ambition in promoting and supporting IDBMs.

5.2.2 There is a perception of a lack of knowledge and expertise within economic development departments and public and private business support services of the different business models available and the benefits of engaging with these enterprises. This creates an operating environment in which business support tends to focus on supporting more traditional “for profit” business models (Stir to Action, 2021), making the operating environment for IDBMs more challenging. The literature demonstrates that successful approaches involve pre-technical support as evidenced in Canada (Adeler, 2014), India (Ghosh, 2007) and across Philadelphia and the USA (Dickstein, 1988, Gamson and Levin, 1984).

6. Recommendation: Ensure that outreach, awareness raising and pre-technical IDBM development is available.

Support agencies should build on existing effective outreach, awareness raising and pre-technical development activity to ensure communities, potential entrepreneurs and existing businesses explore IDBM options at critical junctures. For example, agencies should adapt Co-operative Development Scotland’s successful approach to helping SMEs explore employee ownership as part of succession planning. In addition, at the pre-technical stage, support should widen awareness of IDBMs within communities to support the inclusion of marginalised groups to benefit from the creation of and greater sustainability of these enterprises. This is a key task for the enterprise agencies and wider support organisations.

7. Recommendation: Further and Higher Education Anchor organisations take a key role in promoting IDBMs.

There is a need to raise awareness with different actors across our education system to inform young and emerging entrepreneurs of the different business models available. This should include relevant educational curricula, learning and guidance for young people and adult learners, including in schools, colleges and universities. The existing Social Enterprise Schools and other local activity could be widened and strengthened.

Activity should align with the recommendations of the Entrepreneurial Campus Report (Scottish Government, 2023), which includes actions to advance national services offerings as regards developing social entrepreneurship and harness the power of innovation pathways to develop high quality spin outs. As anchor organisations we would like to see our Further/Higher Education institutions with the support of the Scottish Funding Council take forward their role in supporting the development, growth and success of inclusive and democratic business models.

Issue: Complexity of and lack of support and resources for bespoke advisory services.

5.2.3 There is a perceived complexity in the support of IDBMs with a lack of strategic and support oversight which would create clarity for individual IDBMs. The existing specialist ecosystem can be difficult to navigate, often provides only partial cover, and can leave many IDBMs ‘falling between two stools’. Furthermore, there is a shortage of bespoke business support that caters to the distinctive features of IDBMs.

5.2.4 For example, the Scottish Co-operatives Consultation results (Co-operatives UK, 2022) stated “56% of co-operatives surveyed told us that Scottish Government’s schemes only cater to them to a limited extent, while another 28% said schemes did not really cater to co-operatives at all.”

5.2.5 The existing specialist ecosystem is also under resourced to deliver on the potential IDBM growth that could be stimulated by the NSET and CWB agendas in Scotland.

8. Recommendation: The Economic Democracy Group should develop a clear action plan to create an effective and extensive ecosystem, possibly in the form of a Centre for Excellence, providing support for IDBMs.

The eco-system should be strategically coordinated and resourced to support our ambitions. This could be developed according to these key principles, whilst recognising the unique needs and aspirations of each IDBM:

• Deliver a detailed analysis of the current landscape which supports the differing customer journeys, including existing barriers and gaps that hinder the growth of IDBMs;
• Greater joining up of elements that make up IDBMs, for example, extending the existing Social Enterprise Support Map (Community Enterprise, 2019) to link with the Scottish Entrepreneurial Support Guide (Scottish Enterprise, 2023);
• Support should be tailored to the needs of the organisation and their unique circumstances. This should include current programmes which are successfully supporting enterprises to start up and grow;
• Offers ‘pre-technical’ support (outreach, training, exploration) to communities, potential entrepreneurs and businesses, as well as technical business support (business plans, structures, finances);
• Services should be co-produced and co-delivered with the IDBM sectors;
• Support programme is nationally coordinated and funded, but often locally/regionally delivered;
• Utilises existing peer support as well as professional consultancy;
• Use existing organisations such as community organisations, trade unions, Chambers of Commerce and FSB to promote and raise awareness of IDBMs; and
• Harness existing funding initiatives to promote different ownership models.

5.2.6 We require a support eco-system which is simple and avoids duplication. The system and the actors within it should be tasked with maximising the creation and growth of IDBMs.

9. Recommendation: Streamline existing public resources.

Scottish Government should ensure that the existing eco-system is more coordinated and streamlined with greater targeting of resources to support IDBMs:

• ensure that all ‘front-end’ business support providers contribute to the provision of ‘pre-technical’ support for IDBM development by supporting entrepreneurs to explore IDBM options and signposting to specialist support when appropriate;
• ensure that, by default, Scottish Government schemes to support university spin-outs include pathways for IDBMs; and
• utilise the financial, social and knowledge capitals within the IDBM sectors and Scottish communities to co-produce services that meets need and maximise use of funds.

5.3 Finance and Funding

Issue: Not enough funding and issues with access.

5.3.1 A number of recent research papers and engagement with social enterprises, co-operatives and employee-owned businesses have highlighted accessing finance as a key issue (ILO, 2019; Adebowale Commission. 2021). IDBMs often have ownership and governance structures that require different relationships with external equity investors. New and growing IDBMs often have a distinctive approach to raising finance that neither the market nor Scottish Government interventions adequately cater to.

10. Recommendation: Map the current provision of support, identifying and assessing gaps in support.

The provision of finance and advice throughout the life cycle of enterprises is crucial. We should support the creation and the transitioning of existing businesses. This could be supported by leveraging the resources of SNIB, social investment providers and democratic finance vehicles. This is a key area for the Economic Democracy Group working with relevant partners to progress.

11. Recommendation: Grow the role of the Scottish National Investment Bank (SNIB) to intentionally and specifically support IDBMs.

Alteration of SNIBs purpose should be considered to invest in social enterprises, co-operatives and employee-owned businesses. SNIB should address clear market failures in IDBM financing especially in relation to:

• Wholesale investment in the community shares market, alongside communities themselves, creating a Scottish version of England’s successful Community Shares Booster Fund;
• Growth capital for ambitious IDBMs, and equity in particular;
• Financing the transition of existing viable businesses to an IDBM approach;
• Work in partnership with social investment providers and democratic finance providers, to achieve the aims of NSET and this review; and
• A target for support to IDBM business models to be explored by the Democratic Economy Group.

12. Recommendation: Consider extending the role of social investment and democratic finance providers (for example Social Investment Scotland, Scottish Communities Finance) to cover all enterprises operating with an IDBM.

By utilising all their knowledge and expertise in supporting social and community enterprises, we could enhance the support offer for employee-owned businesses and co-operatives, and be complementary, to the advisory support CDS provides. Explore options to adapt other forms of small business lending such as non-profit CDFI’s and social investment models like community shares provide.

5.4 Policy and Legislation

Issue: Inconsistent policy support for IDBMs.

5.4.1 As discussed in our overarching and enabling recommendations there is a need to be consistent in our aims for IDBMs within our policies and strategies. In addition, there is a sense from those representing IDBMs of sometimes ‘having to fight to be heard’ or that they are perceived as second best to international PLC’s or traditional Scottish firms. Institutional support at local level can be inconsistent despite many sympathetic councils, councillors and policy teams. The Stir to Action 2021 report discusses the lack of political support or skills to ensure meaningful partnerships are present in the economic or business teams of these councils. This results in the support to democratic business being viewed as supplementary to existing business support programmes. This must be addressed. In terms of policy formulation, development and implementation. We must consider ways in which the IDBM sector is more readily and universally recognised as core to Scotland’s economic aspirations.

13. Recommendation : Promote IDBMs and economic democracy within Economic Development and with grant givers, procurement and commissioning professionals within the public, private, third and community sector.

Scottish Government and other key actors within the economic development need to establish greater understanding of IDBMs amongst business support, economic development, procurement and commissioning, and policy professionals. There must be provision of training for Scottish Government and public agency officials who set policy, draft legislation, allocate contracts and funding, and design programmes.

Issue: Discrete policy and legislative changes are required to grow IDBMs.

5.4.2 Support is required to stimulate the creation of IDBMs and increase their role within the economy. Through public sector commissioning and procurement activity, there is an opportunity to calibrate policy and guidance better and thus ensure that community benefit and impacts upon economic, social, and environmental priorities (Wessels and Neil, 2016; DEAL, 2023) is more readily realised by IDBMs.

14. Recommendation: Amend the existing Sustainable Procurement Duty to facilitate the participation of IDBMs.

Additional guidance could be provided to support greater participation of IDBMs in public supply chains. In addition, Scottish Government should look to investigate planned changes in UK procurement legislation to allow geographical limits to be applied and the ability to “reserve” contracts for SMEs and/ or social businesses to establish if similar changes would be beneficial in the Scottish context. Significant work is underway including changes to data capture on social enterprises within the procurement portal. This should be built upon. The Economic Democracy Group should establish the current baseline and establish if a target for public spend with IDBMs would be beneficial.

15. Recommendation: Consider extending Scottish right to buy legislation to IDBMs.

This particularly relates to co-operatives comprised of groups of workers who should be given the right to buy premises and related assets when these are up for sale by their employer as part of divestment or liquidation. There is learning to be had from experiences of existing right to buy approaches for example the Italian experience (Vieta, 2015). This extension should ensure that relevant support is available during any transition period and beyond to ensure success as described in Recommendation 8. The Review Group call on UKG and SG to work collectively on this issue.

16. Recommendation: Explicitly weave contribution and value of IDBMs into relevant economic indicators.

IDBMs need to be able to demonstrate better, more compelling evidence of value in relation to “traditional” economic measures (including productivity, innovation and resilience) alongside existing measurement frameworks, for example, the Wellbeing Economy Monitor and National Performance Framework. All types of business, particularly social enterprises, co-operatives and employee-owned businesses, should be supported, with government, local authority and other sources of funding, to drive forward clear, transparent and robust social impact measurement.

17. Recommendation: UK and Scottish Government to explore potential tax relief, work with the financial sector and instigate other legislation to support the creation and sustainability of enterprises operating an IDBM.

The fiscal context within Scotland’s economy is important to the growth of IDBMs. Changes which afford greater tax flexibility to the sector would assist in delivering the wider social, local economic and environmental benefits that IDBMs are so readily adept at delivering. There is a need for further work to be completed on the replacement for Social Investment Tax Relief as promised. In addition, support should be given to remove barriers and support access to financial services for IDBMs for example a Fair Banking Act.

The Community Investment Tax Relief (CITR) aims to grow CDFI’s who specialise in providing finance to social and community enterprises by making investment into CDFI’s more attractive. Investors can get 25% tax relief over 5 years for investment into CDFI’s. More needs to be done to highlight this tax relief in order to bring more local investment into the IDBM space.

6. Conclusion

6.1 As we state in the vision the growth of IDBMs, economic democracy and business purpose more broadly must be explicitly acknowledged and supported as a catalytic core at the heart of Scotland’s future economy.

6.2 The Review Group are aware that a fossil fuelled economy has prompted a climate crisis and we need to transition. We believe that growing IDBMs and economic democracy is a key aspect of that. IDBMs have an intrinsic dynamic capability to aid economic transformation, distribute wealth, support workers and communities and work in purposeful ways that serves people, place and the environment.

6.3 Therefore, by raising awareness and reviewing the current policy and legislative landscape to identify inhibitors, increasing support, finance and training, we can transform our economy and support the achievement of our economic ambitions. A strong economy in which prosperity and economic success is felt in every community and region across Scotland.

6.4 In this report we celebrate many good things that are already happening, whilst developing recommendations that seek to challenge and creatively disturb. In this we recognise that many supportive policies are already in place, but we need to improve. We acknowledge that progress is being made, but we must, like other countries, go faster and we know that many agencies are doing good work, but they can do even more.

6.5 In creating a unified sense of purpose, we support the New Deal for Business Group report (Scottish Government, 2023) which concluded that by encouraging and supporting businesses to be aware of and advance business purpose Scotland will help deliver a more prosperous, resilient and socially inclusive economy. We agree and by placing IDBMs more at the forefront we can both aid delivery and work alongside all businesses to advance this purpose.

6.6 In actioning these recommendations, the establishment of an Economic Democracy Group to oversee implementation is a key first step, and should be supported by Scottish Government. Without this group oversight, the Review Group have identified the risk that the recommendations may not be wholly implemented, meaning we will not realise our ambitions for a fairer, greener, more inclusive economy in Scotland.

6.7 A key element of the initial work of the proposed Economic Democracy group will be to take this report and its recommendations further by developing a robust action plan. This Action plan would not only take forward the specific recommendations but also support the wider adoption of the recommendations of the Business Purpose Commission Report and achieve the NSET ambition to create financially sustainable enterprises which provide additional wellbeing outcomes for Scotland.

6.8 In addition to the Economic Democracy Group this work needs to be supported with people, capacity and resource. Often times recommendations and the resultant change is not fully completed, or at all, due to a lack of resources or the presence of champions driving the required actions. All members of the Review Group including the Chair are willing to take part in this endeavour, but would need support from Scottish Government and/or enterprise agencies.

6.9 To adopt this suite of 17 recommendations would be a game changer in advancing a Scottish economy that is prosperous, innovative and dynamic. By increasing the number and role of IDBMs there would be a new landscape of Scottish Business characterised by a plurality of ownership forms which would create an economy which is more dynamic, resilient, just and inclusive.