06/11/2012 11:48 am ET Updated Aug 11, 2012

The Importance of Governance: A New Guidebook for Social Entrepreneurs

Two years ago, a group of social entrepreneurs from the Schwab Foundation community came together to identify the issues on which they wished someone had provided guidance when they were embarking on their social enterprise journey.

In 2010, the first challenge they took was social investment. Many had struggled with questions such as if and how to raise capital from social investors, whether they should sign a non-disclosure agreement or not and simply which social investors to approach. The experience and questions of the Schwab Social Entrepreneurs were taken up in the first publication of the task force, called the Social Investment Manual.

Based on the success of the Social Investment Manual, Andreas Heinecke, Founder of Dialogue Social Enterprise, convened the task force during the World Economic Forum Meeting on Europe in Vienna in June 2011 to discuss the next logical step after social investment. The task force identified Corporate Governance of Social Enterprises and, in particular, Boards. Many investors demand a change in governance structures as a result of investing in an organization. This requires social entrepreneurs to think about creating a board if they do not already have one and managing it in an optimal way.

Boards bear the potential to greatly enhance the mission of a social enterprise, if careful thought goes into the right composition and management. Governing boards also have significant influence and can take social enterprises into different directions than intended by the founders. Many entrepreneurs of social businesses which generate attractive financial returns find over time that their boards might be tempted to choose higher profitability over deeper social impact. Overruled by investors' priorities, many founders have left their organizations. Among others, this document addresses the question of how social enterprise leaders can protect the social mission of their organization through the governance structure.

The Governance of Social Enterprises: Managing Your Organization for Success was conceived by social entrepreneurs for social entrepreneurs and those contemplating to start a social enterprise. While this is a manual by social entrepreneurs, it would not have been written without the crucial support of Professor Ann-Kristin Achleitner and Judith Mayer from the Technical University Munich. We are greatly thankful to Professor Achleitner for providing her deep expertise gathered over years as Chair of the Institute of Entrepreneurial Finance on governance in small and medium enterprises. We would like to thank Judith Mayer for her close collaboration with the social entrepreneurs of the task force through regular calls, interviews and a survey to compile this manual.

We hope this manual will serve as a practical tool for social entrepreneurs and will find its way into university courses. However, it is only as useful as you find it. We hope, therefore, to hear your feedback to incorporate into subsequent versions.