Socially responsible business: growth opportunity or a rehabilitation centre for the disabled?

Aivaras Šidla, a member of the Association and the manager of SE ‘Smiltainis ir Ko’ says that the mandatory percentage of reinvestment (exceptionally so high) would leave companies without any financial freedom, and business owners would be forced to count each Euro to stay afloat instead of planning for expansion and creating new jobs, the Association of Social Enterprises wrote in a press release.

“One must realise that the majority of companies holding the legal status of a social or a social enterprise of the disabled are private equity players: public limited liability companies, private limited liability companies, private enterprises, etc. that carry out a vital social mission. All of them have been established at the owners’ account, work and risk; some have borrowed capital and have obligations to suppliers and partners. Thus they need the working capital. If companies are encouraged to prioritise their social mission and forget their earnings, they will become ineffective rehabilitation centres unable to make decisions on their own”, Mr Šidla says.

Subsidies are not intended for profit

A statement that the State allegedly maintains social enterprises is entirely unjustified and not true.

“The employment of the disabled is a complex and time-consuming process: people with disabilities work without a probationary period, they cannot be subject to labour quotas, there are cases when the value created by employees is lower than all the costs required to maintain their workplaces. Also, a large proportion of the disabled return to the labour market after serious illnesses, long incapacity for work, not all of them can work efficiently, they are often on sick leave, entitled to a longer annual leave; therefore, the State decides to compensate the business for the additional costs incurred by businesses for these reasons”, Mr Šidla says.

According to the entrepreneur, the allocation of state subsidies encouraging the employment of disabled people and allocated for a particular person employed in a specific company cannot be deemed as the maintenance of social enterprises; they are merely a reimbursement of the higher costs incurred, which in no way relates to profit or turnover. Moreover, a company itself incur expenses due to the receipt and administration of subsidies to compensate for the costs.

Enterprises are suggested to use their profit … somewhere

In Mr Šidla’s opinion, the sector of social enterprises is not a closed one: any company can seek and obtain the legal status of a social enterprise, but the requirements are high: not only the activities but also the ability of the company to fulfil its obligations is assessed, as well as its ability to handle the target groups. Also, it is now possible to employ disabled people in the open market and receive subsidies for their wages; the Law on Employment guarantees this.

“If subsidies were so useful as it is often said, each business would use them. Currently, any company can obtain a subsidy under the Law on Employment just after employing a disabled person; however; there are only 500 cases of subsidies recorded in the open market. It can be concluded that such financial ‘incentives’ do not entirely promote the employment of people with disabilities, as the open market avoids any additional obligations”, the manager of a social enterprise says.

According to him, the principal motivation of a social enterprise is not the reimbursement but the social responsibility that companies assume voluntary, not because the State promotes them.

“The State’s decision to allocate the profit of a social enterprise ‘somewhere and somehow’ is just the same as the decision to use the profit of any enterprise ‘somewhere and somehow’. It means that the benefits generated at the account, work and risk of the private sector or individuals are used for public purposes. This is commonly referred to as expropriation”, Mr Šidla says.

A profit share is already being reinvested

According to the business manager, every social enterprise must prepare the Plan of Integration Measures annually and coordinate it with the Employment Office. The plan specifies what additional disability integration measures will be implemented: employees’ professional or social training, various events, environmental adaptation and support. The implementation of the plan of integration measures is already a reinvestment of profit, and the requirement to reinvest it once more is a duplication of the measure.

“To employ a disabled person, each company has to invest in the development of professional, social and motivational skills, training of co-workers of the disabled people, meeting the specific needs and adapting the working environment. If a person is ill, his or her work has to be taken over by others. Thus employees have to be paid for overtime. Also, the management and accounting staff of social enterprises must be larger”, Mr Šidla states.

“All of these measures require additional costs that are not common for businesses without a social mission. So, it is essential to realise that the subsidies for integration costs are not extra income to any social enterprise. They are merely a reimbursement of the costs that would not normally occur in business”, Mr Šidla says.

Potential insolvency cases

Mr Šidla thinks that social enterprises, like any other business enterprise, must first of all be focussed on achieving results and creating added value. The obligation to use profit based on established criteria would deprive the company of the power to use the gain for its intended purpose, namely investment in business stability, its growth and promotion.

“At first glance, it might seem like a nice intention of the government to promote the integration of the disabled and to ensure their return to the labour market, their social integration. On the other hand, however, such a constraint limits the company enormously: instead of helping people with different types of disability to find a job and earn a steady income, the employer has to make calculations and search for survival solutions”, Mr Šidla says.

The representative of the Association speaks of the employment of disabled people as a complex, investment-intensive process. Therefore, by creating additional obstacles and increasing the percentage of reinvestment, the State does not fully support the disabled people themselves, as it suppresses the activities of their current or potential employers.