User needs and the building blocks of regulation: Using participatory design to prototype social enterprise legal structures in Australia

Abstract

Although co-design is acknowledged as an emerging tool in public administration for use in program or service system design, it has not been widely applied to complex policy spheres, such as law and regulation. In the context of policy development for the field of social enterprise, we explored the use of co-design as a facilitation method to elicit end-users’ experience of regulation and to generate options for reform. Specifically, this involved the use of LEGO® Serious Play® to understand end-user views on legal structures following a push by policy advocates in Australia for a structure to serve the needs of social enterprise, similar to that available in the United Kingdom. The article makes two contributions to research on co-design in public policy. The first contribution is methodological. We offer insights into the application of co-design to a new area, law and regulation, finding that co-design is useful for generating bottom-up insights into the regulatory preferences of end-users but has certain limitations as a tool for research and policy development, notably in relation to the feasibility of the insights it may provide. The second contribution is uncovering empirical insights into end-user preferences regarding how regulatory reform might improve the policy environment for social enterprise development in Australia and beyond.

Keywords

Social enterprise not-for-profits co-design legal structures public policy regulation

Introduction

Co-design is increasingly acknowledged as an emerging tool in the development of public policy and services in both academic (Bason, 2014; Blomkamp, 2018; Butcher, 2015; Junginger, 2013; Kimbell and Bailey, 2017) and government circles (e.g. Department of Human Services, 2012; Design Commission, 2013; Design Council, 2013; European Commission, 2013). Its perceived benefits include scope to provide an understanding of end-user needs (Evans and Terrey, 2016), to generate new, user-centred ideas (Mulgan, 2014) and to garner support for program implementation and legislative and policy change (Blomkamp, 2018). Scholarly research focuses on co-design as facilitating other participatory governance approaches such as co-production, although primarily for use in programs or service systems design, with limited research where public policy is the unit of analysis (Blomkamp, 2018). At a practice-level, co-design has not been widely applied to complex policy spheres such as law and regulation, with Kimbell and Bailey (2017) identifying, in their conceptual article on the use of co-design approaches in the development of public policy, the need for case study research of the possibilities offered by design-driven prototyping.

Writing in respect of policy development for the field of social enterprise, we examine the use of co-design as a model of participatory action research in eliciting end-users’ experience of regulation and in generating concepts for regulatory reform. Co-design shares features with participatory precepts associated with New Public Governance (Osborne, 2006), being linked to or seen to be nested within cognate approaches such as co-production (Nabatchi et al., 2017; Osborne et al., 2016). While co-design is heavily influenced by broader trends in public policy, its distinct approaches reflect its roots in Scandinavian research of the late 1970s which used low-fidelity prototyping methods to involved end-users in decision-making in the development of information and communication technology as a democratic ideal, given its impact on workplaces (Kensing and Blomberg, 1998). We explore whether the focus on prototyping in co-design allows participants from a range of social enterprises to collaboratively model key features of legal structures to inform critical decisions about which legal form best serves their needs.

Our selection of legal structures as the object of research responds to a long-running push by advocates in Australia’s not-for-profit (NFP) sector for a special legal structure to facilitate access to capital through equity investments while preserving a focus on social purpose (Justice Connect, 2017a; Legal Models Working Group, 2016; Weinert, 2014). The apparent need for ‘hybrid’ legal structures responds to the reality that not all organisations with a social purpose neatly fit a for-profit or NFP model (Battilana and Lee, 2014; Leff, 2018; Prime Minister’s Community Business Partnership, 2016), social enterprises being ‘hybrid’ organisations that transcend organisational boundaries, requiring them to navigate a complex balance between social mission and commercial sustainability (Barraket and Yousefpour, 2013; Battilana and Lee, 2014; Morgan, 2018a). In the Australian context, legal scholars such as Morgan (2018a) observe that social enterprises negotiate this institutional vacuum in innovative ways by fashioning their own legal structures from the existing menu of legal forms, including cooperatives, or the creation of complex and bespoke corporate groups involving both NFP and for-profit entities (Justice Connect, 2017a; Morgan, 2018a).

In response to perceived public policy inertia relative to like jurisdictions such as the United Kingdom (UK) (Morgan, 2018b), a number of commentators and scholars argue for the adoption of a legal form that reflects the UK’s Community Interest Company (CIC) (Legal Models Working Group, 2016; Weinert, 2014). A CIC is a hybrid legal structure with an asset-lock similar to NFPs that prevents the CIC from distributing assets when wound up while allowing it to issue shares and deliver returns to investors subject to a dividend cap (Haugh and Peredo, 2011). CICs do not benefit from charitable status and associated tax concessions, but can benefit from certain forms of tax relief intended to promote social investment (HM Revenue and Customs, 2016).

Although advocates and commentators within the sphere of NFP law and regulation have promoted policy reform, we observe a need to base such recommendations on deeper understanding of the perspectives and situation of end-users: namely social enterprises (Justice Connect, 2017a). This need is indicated by sector-wide studies that identify a lack of ‘consensus’ around social enterprises’ demand for specialist legal forms (Barraket et al., 2016: 28). To bridge this gap in consensus and to examine an allied deficit in co-design research where the object is law and regulation, an interdisciplinary team of legal practitioners and researchers from public administration, law and communication design conducted co-design workshops with social enterprise founders, managers and executives. The basis of the workshops was the LEGO® Serious Play® (LSP) facilitation process (Frick et al., 2013; Schulz et al., 2015), its focus on collaborative modelling, and meaning- and decision-making being adopted to further the participants’ existing practices of innovation in fashioning their own legal structures.

This article makes two contributions to research on co-design in public policy, salient to both practice-based and scholarly audiences. The first contribution is methodological. We offer insights into the application of co-design methods to a unique context – law and regulation – and its capacity to adapt to the complexity of public policy development. We find that co-design broadly and LSP specifically provided participants with conceptual tools and generative processes to reflect on the challenges of the convoluted legal, regulatory, funding and financing environment that social enterprises must navigate without the certainty provided by the adoption of either a traditional NFP or a traditional for-profit legal form and business model. Using LSP, participants were able to collectively explore these barriers, whether their experience was of a large NFP, a small social enterprise start-up or a for-profit social business. The LSP models built by each group and especially the discussion elicited during their construction captured rich insights into the limitations of the existing legal, regulatory and policy framework for the diverse organisations that comprise the social enterprise field.

The second contribution is empirical insights into end-user preferences on how regulatory reform might improve the policy environment for social enterprises in Australia. Using a process of rapid prototyping in which participants were asked to develop ‘ideal’ legal structures in relation to the challenges presented by the existing regulatory context, the project aimed to generate policy suggestions in some detail via the nuanced pieces of the LSP kit. The need for a new legal structure for social enterprise was not the workshop participant’s sole concern. They used Lego to create regulatory bodies that provided enabling regulation, support and guidance for social enterprise and looked to systemic reforms. Within this, participants either explicitly or implicitly through discussion developed a hybrid legal structure as one component of a larger policy and regulatory reform push to improve the environment for social enterprise.

The article is structured as follows. Firstly, we locate co-design in a context of broader public policy reform and explore its relationship to related paradigms and approaches. Secondly, we discuss key literature on co-design, including the use of open-ended, toolkit-based modelling such as LSP. Thirdly, we discuss the current state of the Australian social enterprise sector, including the legal models currently available and the debate regarding alternatives. Fourthly, we present the methodology used to undertake the research. Fifthly, we provide and discuss the findings from the research. Finally, we present the lessons learnt from the research.

Situating co-design within public administration research, theory and practice

User-centred approaches to program and policy design have not emerged in a vacuum: they have evolved from, and in a context of, a rich array of related traditions in public policy theory, practice and beyond.

Following over a decade of new public management (NPM) reform (Hood, 1991), the 1990s witnessed a renewed push to explicitly include ‘citizens’, ‘stakeholders’ and ‘consumers’ in policy processes. Initially taking the form of revived interest in ‘participation’, ‘community’ (Adams and Hess, 2001) and ‘consultation’ (Brackertz and Meredyth, 2009), policy-makers and public managers went to significant lengths to frame non-governmental actors as central to policy and program development (Brandsen and Honingh, 2016). As a shift from government to governance¹ by policy networks (Rhodes, 1997), latterly under the rubric of New Public Governance (NPG) (Osborne, 2006), gathered pace in theory, if not always in practice or public consciousness (Colebatch, 2014), the mantra of participation became a central feature of policy development.

Of particular salience are two strands of research that share a range of intellectual and practical commonalities to co-design. The first is co-production (Fledderus et al., 2015), a term coined by Nobel Prize winning political economist Ostrom and her colleagues in the 1970s (Parks et al., 1981) to describe how citizens and clients innately shape and modify public services by virtue of voluntary participation (Brandsen and Honingh, 2016) or sometimes otherwise (Osborne et al., 2016). There was a flurry of research into co-production in the early 1980s (Brudney and England, 1983), although interest waned under the weight of NPM before experiencing a revival in the 2010s (Brandsen and Honingh, 2016). The relationship between co-production (Fledderus et al., 2015), the cognate concept of co-creation (Go Jefferies et al., 2019) and co-design (Blomkamp, 2018) is conceptually fluid. Within the increasingly vast co-production literature, co-design is typically subsumed as a term while being treated in distinctive ways. For example, Osborne et al. (2016) use the term co-design to describe a type of co-production in which service users voluntarily participate in the improvement of public services. In public administration literature, co-design is fundamentally about service improvement by service users, thus representing the archetypical example of co-production (Osborne et al., 2016). A systematic literature review of the concepts of co-production and co-creation by Voorberg et al. (2015) identifies three types of citizen participation: citizens as co-implementers, as initiators and as co-designers, the latter aligning with Osborne et al. (2016) to describe active participation in service design. Alternatively, Nabatchi et al. (2017) characterise co-design as a phase of the service cycle, encompassing ‘activities used to create, plan for, or arrange prospective or concurrent public services’ (Nabatchi et al., 2017: 773).

In this way co-design is nested in co-production as a descriptor of a type of citizen engagement (Osborne et al., 2016; Voorberg et al., 2015) and/or stage in the service cycle (Nabatchi et al., 2017). However, a review of the extant co-production literature also shows that while the term co-design is deployed in diverse ways, this same literature is resolutely focused on services as the object of research (rather than regulatory design) in describing how users are embedded in public service design across the service cycle (Brandsen et al., 2018).²

A related branch of research that offers varied application of design principles to regulatory problems is that emanating from the Regulatory Institutions Network (RegNet) and its research affiliates. Like co-production, this research program holds that policy development does not exist in isolation. Both official and unofficial actors collaborate – or should collaborate – tacitly or otherwise in its development.

The field was catalysed by the formative contribution of ‘responsive regulation’ by Ayres and Braithwaite (1992), which was premised on the notion that regulators should be cognisant of the conduct and context of those they regulate when determining whether more or less intervention is necessary. Further, its conceptual foundations rested on a pyramidal hierarchy of measures starting from persuasion at the base through mild administrative to highly punitive sanctions (Ayres and Braithwaite, 1992).

The model challenged the traditional notion of regulation as a ‘subordinate species of law’ to one of regulation through webs of soft and hard public and private regulation (Drahos and Krygier, 2017: 7). It thus reflected the growing sense that governance be conducted through networks (Rhodes, 1997) and observations in earlier scholarship that non-government actors had always shaped policy (cf. Davies, 1964 cited in Colebatch, 2014). Responsive regulation thus extended the study of regulation to the study of processes. It explored how regulators could better understand and work with the regulated to shape compliance (Braithwaite, 2017). By deploying principles of deliberation to study this phenomena, researchers worked actively in the field with policy-makers to explore responsive regulation in practice. This stimulated an extensive body of research, traversing wide regulatory terrain (cf. Drahos, 2017) that broadly applied design processes and principles to the design of regulation.

Is co-design different? The exponent’s view

Among these citizen-centred approaches, the proponents of co-design see it as a distinctive approach to the process of inclusion as its foundations sit outside the field of public policy in the field of human-centred design (Evans and Terrey, 2016). As Kimbell and Bailey (2017: 214) argue, ‘practices associated with design are increasingly visible within government, [being] typically associated with public, often digital, service design’. Mortati (2019) recently surveyed both the design and policy literatures to provide an overview of cross-disciplinary perceptions of designs’ application to policy formation. She also provides the results of a small set of interviews with policy-makers, designer intermediaries, researchers and citizens on its application. Mortati (2019: 788) confirms that the application of design within government is far more common in the development of the outputs of policy than policy per se, arguing that significant critical reflection, debate and – relevant to the present study – ‘experimentation’ is needed to establish its efficacy.

To define co-design’s application in a policy context, Blomkamp (2018: 3) neatly segments co-design into ‘processes’, ‘principles’ and ‘practical tools’. At the level of principles, co-design and its antecedent, participatory design, is regarded explicitly as inclusive and emancipatory. Using various, purpose-designed tools (Sanders and Stappers, 2008), co-design follows an implicit set of procedures that are ‘action-oriented’ and ‘iterative’ (Blomkamp, 2018), seeing stakeholders and design-facilitators frame and reframe, test and retest proposals that may range in their aim from incremental improvement to transformational change. Mintrom and Luetjens (2016) observe that such processes are not foreign to policy design. However, they do challenge the ‘authoritative instrumentalism’ approach to policy design, where policy is ‘seen as an artefact, the creation of a small group at the top of the hierarchy of officialdom’ (Colebatch, 2018: 366). Instead, co-design represents a ‘process based’ approach focused on ‘collective puzzling’, stakeholder engagement and interaction (Colebatch, 2018: 372).

End-users with lived experience of the context for policies and programs are seen as best situated to target problems while bringing creativity and new ideas to problem solving (Burkett, 2011; Butcher, 2015). As with other participatory approaches, co-design seeks to foster action learning and reflexivity, having developed an array of hands-on and visual methods such as context mapping, design games, story-boarding, role-play and low-fidelity modelling (Evans and Terrey, 2016; Mintrom and Luetjens, 2016; Mulgan, 2014). These tools are applied to support a process spanning research, idea generation and proposition modelling, which Blomkamp (2018: 5) characterises as moving from ‘telling’ and ‘enacting’ to ‘making’.

One approach to co-design is toolkit-based modelling (Sanders and Stappers, 2008). These range across activities including sketching and play-based modelling with materials such as playdough or toy building blocks (Schulz et al., 2015). The benefit of toolkits is that non-designers are innately familiar with play-oriented activity, enabling them to contribute to the design process (Schulz et al. 2015: 325). This proposition is grounded in an extensive body of psychological research (Colin, 1950 [1947]) that has shown that during early childhood development humans learn to negotiate the world through ‘hands-on experience’ (Hadida, 2013: 3). Haptic forms of communication such as modelling allow participants to work through, deliberate and problem solve by ‘thinking with their hands’ (Roos and Victor, 1999). Importantly, artefacts produced by toolkits enable participants to actively negotiate the development of models, creating datasets rich in metaphor (Schulz et al., 2015).

The settings and research contexts for the application of LSP, as a particular form of toolkit-based modelling, have been diverse, ranging from large multinationals to think tanks (Hadida, 2013), their foci being organisational strategy, innovation and managing change (Roos et al., 2004). When used by diverse or homogenous groups of participants, the varied, purpose-designed componentry of LSP toolkits and accompanying scaffolded workshop processes are used to collectively build models that serve as catalysts for deliberation over problems and their solution (Hadida, 2013). The approach has gained widespread traction in the field of co-design, but has not commonly been used public policy development. We selected this approach for its predicted usefulness in exploring two research goals. Firstly, bringing our participants together to work through systemic challenges presented by the current system. Secondly, for the participants to address these challenges by using a tool that enabled rapid and collaborative prototyping and discussion of the models they produced.

Social enterprise and legal structures – Does Australia need a specialist legal form?

Australian social enterprises are estimated to number around 20,000 and operate across all industries and sectors (Barraket et al., 2016). Like charities and NFPs, social enterprises contribute to public service delivery, evolving in the context of NPM and the turn toward NPG (Barraket and Yousefpour, 2013). Social enterprises can also include large for-profit and NFPs businesses that invest profits in projects dedicated to social goals, thus positioning them as explicitly hybrid organisations (Battilana and Lee, 2014; Morgan, 2018a).

Diversity of activity, industry and sectoral foci in social enterprises drives their adoption of a variety of forms, legal structures and profit orientations that often transcend traditional organisational and sectoral boundaries. Indeed, there is no agreed definition of social enterprise in Australia (Barraket et al., 2016) and the term has long been contested internationally (Teasdale, 2012). Australian government policy initiatives (e.g. DEDJTR, 2017; Department of Employment, 2016) often use the operational definition, based on a national mapping exercise, developed by Barraket et al. (2016). It identifies four characteristics in social enterprises: first, they ‘are led by an economic, social, cultural, or environmental mission consistent with public or community benefit’; second, they ‘trade to fulfil this mission’, third, they ‘derive a substantial portion of their income from trade’ and finally they ‘reinvest the majority of their profit/surplus in the fulfilment of their mission’ (Barraket et al., 2016: 3).

This definition highlights particular issues in relation to social enterprise legal structures. Although 70 per cent of social enterprises in Australia are structured as NFPs (Barraket et al., 2016), not all exist solely for public benefit. Secondly, not all organisations use the majority of profits in mission fulfilment. More importantly, the definition shows how the regulatory system largely presents social enterprises with a binary option; adopt either an explicitly for purpose or a for-profit structure although neither may fit their specific needs. As noted in the introduction, hybrid alternatives that combine NFP and for-profit structures exist (Justice Connect, 2017a; Morgan, 2018a), but these are bespoke, complex and create high compliance and transaction costs. Figure 1 shows how social enterprises can be seen as operating on a continuum from ‘for purpose’ – where mission is paramount – to the prioritisation of profit where social or environmental mission are a secondary goal.

Figure 1.

Social enterprise legal structures.

Existing Australian legal structures

The lack of a specific legal structure for social enterprise in Australia is a sharp contrast to comparable jurisdictions such as the UK and parts of the US (Justice Connect, 2017b) and requires Australian social enterprises to navigate a range of available legal structures and choose to adopt an NFP or for-profit structure.

The treatment of profit sets NFPs apart from other legal forms. NFPs must generate a surplus of income over expenditure to survive but are prohibited from directly distributing any part of their profit or surplus to those who control them (ACNC, 2018). Profits are typically returned to the organisation to further its purposes.

Charities are a distinct form of NFP that must be established and operated for charitable purposes. They are eligible for a variety of tax concessions, including an income tax exemption and Deductible Gift Recipient (DGR) status for certain types charities makes it easier to attract philanthropic support (Martin, 2018).

For-profit entities such as companies limited by shares and public companies exist for private benefit and can distribute profits to owners through payment of dividends. They can raise funds through equity raising, an option not available to NFPs; however, they are subject to taxation and cannot attract the tax deductible donations available to some charities.

Potential legal structure models developed overseas

Morgan (2018a: 2) observes that Australia is ‘unique in lacking a recently enacted legal structure that is distinctively useful for social enterprise’ that combines for-profit and NFP elements. In the UK, the CIC was developed to explicitly address the needs of social enterprises (Haugh and Peredo, 2011). CICs are overseen by a dedicated regulator and are must operate for community benefit (Office of the Regulator of Community Interest Companies, 2017). They are subject to an ‘asset lock’, which prevents them distributing their assets at below market rates or transferring them to owners or investors on dissolution. However, a CIC can distribute a certain proportion of profits to investors or owners, subject to a ‘dividend cap’ (Leff, 2018: 183). Haugh and Peredo (2011: 8) note such policy reform is exceptional, the CIC being the first new legal form ‘to be created in the [UK] for more than 100 years’.

Policy reform advocates in Australia favour the development of a new legal form such as a CIC (Legal Models Working Group, 2016; Weinert, 2014) to address social enterprises’ perceived challenges in accessing capital (Brackertz and Moran, 2010). The Australian Government has also sought feedback from stakeholders on this topic (Department of Treasury, 2017), with the Australian Law Reform Commission identifying the issue as part of its five priority law reform topics submitted for consideration to the Australian Government (Australian Law Reform Commission, 2019). Largely absent from these debates is a grassroots understanding of what end-users of legal structures require, with few advocates specifically exploring what institutional response, if any, could address the ‘complex hybridity’ of social enterprises (Morgan, 2018b). The next section outlines the co-design process we used to seek to understand how social enterprises currently navigate the regulatory system and their perspectives on and preferences for reform.

Methodology

To address the above goal, two co-design workshops of four- and two-hours duration were held at a city-based social enterprise incubator. The workshops were held two weeks apart. Participants were recruited through a public call out by the industry partner Justice Connect – a national legal advisory service for NFPs and social enterprises with extensive networks in the social enterprise sector. Participation was voluntary and in line with the human research ethics approval granted for the project. All participants reviewed and signed consent forms indicating their willingness to participate. The majority were NFPs reflecting the sector’s composition but we purposively sought participants from a diverse range of sectors (e.g. Healthcare and Social Assistance; Arts and Recreation etc.), a range of legal statuses (NFPs, for-profit and hybrid), stages in the organisational life-cycle (from idea generation to mature businesses) and size (based on revenue). Organisations self-identified as social enterprises as the goal was a sample that represented the field’s organisational diversity.

Participants’ discussion during the workshops was audio recorded and transcribed by a professional external transcription service (132 minutes for Workshop 1 and 84 minutes for Workshop 2). As focus group style deliberations, in which participants offered reflections in a fulsome and lively manner, this naturally included overtalk, disruption and even humour. In fact, the manner in which participants engaged and deliberated using the LSP toolkit and processes in this way added to the richness and authenticity of the data.

Workshop 1 included n = 27 individuals representing n = 25 organisations. Participants were divided into groups of five to six people based on related attributes (sector, legal status, life-cycle stage and size). Each workshop began with a presentation by lawyers from Justice Connect on legal structures to set the scene and objectively outline the menu of options that organisations can adopt (see Figure 1), followed by an outline of the LSP process by the co-design specialist, a communication design academic. Each group was provided with a facilitator from across the research team (see Table 1) to keep the activity moving forward during the modelling activity, with the co-design specialist managing the course of the workshop according to a pre-determined set of activities (Frick et al., 2013; Schulz et al., 2015).

Table 1.

Research team roles and stage(s) of involvement.

Researcher type	Stage of involvement
Researcher type	Research design	Data collection and facilitation	Analysis and coding	Write-up
Co-investigator # 1– Public policy and social enterprise academic
Co-investigator^a # 2 – Communications design academic
Co-investigator # 3 – Law and social enterprise academic
Co-investigator # 4 – Law, regulation and philanthropy academic
Lawyer # 1 – NFP law expert Justice Connect
Lawyer # 2 – Social enterprise law expert, Justice Connect
Facilitator^a #3 – Communications design academic
Research assistant – Graphic designer

^aLSP facilitators.

In Workshop 1, following the LSP approach participants worked with their group in two stages. In the first hour, participants focused on the challenges of the regulatory environment. They firstly modelled their own organisation, taking into consideration key features pertinent to legal structure (e.g. distribution of profits), before adapting the model to the external funding, financing and resourcing context (including the taxation system). At key points in the modelling process, participants were asked to individually or collectively describe the conception and components of their model. Based on the individual models, groups developed guiding principles that distilled these challenges. The second stage of Workshop 1 focused on developing a shared model anchored in the legal, regulatory and resourcing ecosystem. Participants first developed a model that combined elements of the individual models – an ideal structure. They then identified blockages in the system as well as organisations’ relationships to other actors (e.g. funders) and institutions (e.g. regulators). Following this, they made connections between the enterprise and other actors and institutions to identify how the key features of the model could work within the ideal regulatory and resourcing context. LSP kits provide a range of connector tools from fine threads to chains to flexible hoses that enable participants to attribute qualities to the connections they make. At the conclusion of the workshop, five key challenges and opportunities were identified by each group within the regulatory environment.

Figure 2.

In between workshops investigators analysed the artefacts and developed landscapes that synthesised each group’s views. Group 1 above explored the pathways for social enterprise in selecting a legal structure.

Between the two workshops, investigators #1 and #2 undertook a preliminary analysis of the models developed in Workshop 1. Using the five key challenges and opportunities generated in combination with an analysis of the labelled and photographed artefacts (the LSP models), investigators #1 and #2 worked with a research assistant (a graphic designer) who was present at Workshop 1 to visually collate each group’s outcomes. These were printed on A3 paper and presented back to participants at the start of Workshop 2.

The number of participants for Workshop 2 was smaller. Twenty-one indicated a willingness to participate. Some attrition was anticipated as several individuals only confirmed availability for the first workshop. Two indicated that they did not wish to participate in Workshop 2 and four did not show up on the day. Participants were reallocated to new groups, reducing the number to three (n = 3) groups and (n = 17) individuals. Where possible participants remained with the original groups from Workshop 1 but due to attrition some groups were combined.

At the start of Workshop 2, the participants were briefly reminded of the key features of legal structures by the lawyers from Justice Connect. They were then given an outline of the workshop activities by the co-design specialist, the communications design academic. Using the diagrams from the regulatory environment as the foundation (Figure 2), Workshop 2 focused on generating models that responded to systemic challenges. Participants were asked to prototype their ideal legal structure within the ideal regulatory and resourcing ecosystem. In Workshop 2, the facilitators – the entire research team of academics and lawyers – worked actively with participants in the modelling process. Through negotiation and strategic questioning by the embedded facilitators, the groups settled on a structure that worked for the members of the group. The participants then labelled the artefacts to facilitate analysis.

Figure 3.

Example modelling of the regulatory (a) and resourcing ecosystem (b).

Figure 4.

Group 1 advocated for the formation of a specialist regulator for social enterprise with oversight of a legislated hybrid legal structure (with CIC characteristics).

The final step involved LSP emergence testing in which participants were presented with five detailed scenarios relating to legal structure (e.g. winding-up, use of profits, scaling-up) to assess the model’s responsiveness to various potential challenges.

Data analysis

Workshop 1 transcriptions were coded inductively by CI#1. Transcriptions were combined into a single file and coded in NVivo to develop a view of systemic challenges and opportunities that the regulatory and resourcing ecosystem presented as identified in end-user deliberations. Workshop 2 was coded deductively by CI#1 using key features of legal structures as the coding frame as identified by lawyers #1 and #2. Each of the three group’s transcripts were coded in separate NVivo files in line with the frame to unpack how each group worked through and deliberated over model and structure design. The decision to code these separately was made to ensure that each group’s views could be reviewed and analysed against the Lego models and the dialogue and artefacts analysed to produce clear findings. CI#4 then reviewed the NVivo files against the models and created a narrative of the findings for each group.

Findings

We detail our findings in two parts. In the first part, we synthesise the data that emerged from the modelling in Workshop 1 into four thematic areas that formed the core challenges and opportunities identified by participants. The second part sets out the models developed by the three groups in Workshop 2.

Workshop 1: Identifying challenges and opportunities

The mission and purpose of social enterprises

A clear focus on mission and purpose was evident among participants, forming the foundations of their decisions both literately and metaphorically:

The first start is your mission and purpose. I think that’s the core of anything…why you’re doing it in the first place … that will have to be your foundation. (Workshop 1, Group 1)

The LSP process brought out the centrality of mission and purpose when negotiating the generation of the models:

Do you mind if I add this [piece] on because …. the mission and the social impact is really important and should stand up high. (Workshop 1, Group 1)

The public policy and regulatory environment for social enterprise

Participants stressed the importance of the public policy and regulatory environment for social enterprise, maintaining that the government has a ‘responsibility’ to provide funding to support the social outcomes that social enterprises were seeking to achieve (Workshop 1, Group 3) and a role in ‘creating the enabling ecosystem’ for social enterprises (Workshop 1, Group 5). Tailored support in the form of a dedicated social enterprise body within government was specifically needed to support the ‘innovation’ that social enterprises are perceived to provide (Workshop 1, Group 4), the current environment being seen as deficient for lack of a key coordinating agency to enable ‘a more strategic and coordinated approach’ to sector development (Workshop 1, Group 5).

A focus on the limitations of the existing system dominated the modelling as participants positioned their enterprise in the system, using the Lego to enact the barriers:

So I did get to use the elephant and I guess we’ve built this structure and the elephant in the room is a system that doesn’t want to change. You’ve got a person here with a magnifying glass, focusing on one aspect of where the system has always been and bringing in blockers to stop kids accessing what we’ve created as a structure. (Workshop 1, Group 4)

Attitudes to existing legal structures

The LSP deliberations revealed that social enterprises feel adrift in the regulatory system. Presented with a binary choice between a for-profit and a NFP structure, they struggle to identify what structure will best address their resource needs and typically gravitate toward an NFP structure. Some participants felt, moreover, that deciding to adopt a for-profit structure could compromise their ability to access critical resources such as government and philanthropic grants (Workshop 1, Group 1).

The role of a dedicated regulator

The LSP modelling brought to the fore regulatory reform including the creation of a specialist regulator to bring ‘credibility’ to social enterprise (Workshop 1, Groups 1 and 4). This manifested in two ways in the deliberations. First, there was a view that a regulator would bolster the field’s identity, which it was seen to currently lack, acting as:

[A] marker that provides any real certainty to people external to the organisation about the veracity of the social purpose that the entity is claiming that it undertakes. (Workshop 1, Group 1)

Secondly, a regulator could be a cornerstone of a more supportive institutional framework for social enterprises:

I think you’d want a regulator that understands what you’re trying to achieve and will facilitate that. (Workshop 1, Group 4)

Workshop 2: Responding to challenges

Group 1: A social enterprise regulator and a legal structure with CIC characteristics

This group developed a specialist regulator for social enterprise distinct from existing regulators. It would have oversight of a hybrid legal structure for social enterprise, which would essentially have many of the characteristics of the CIC, including a mission and asset lock.

Group 1 (see Figure 4) stressed the advantage of a regulator that provided ‘full financial and social impact’ transparency to the public for social enterprise. The hybrid legal structure would have access to tax concessions, such a DGR status, so donations to it would be tax deductible. Its investors would also be eligible for tax relief along similar lines to that available for CICs in the UK.

Group 2: A quasi-private regulator/peak focused on certification and sector building – and a new legal form that has access to equity and tax benefits

As set out in Figure 5, Group 2 also developed a specialist regulator focused on certification of social enterprises. This regulator would also provide support and information to assist social enterprises and aspiring social entrepreneurs in navigating regulatory requirements and understanding government programs. Group 2 did not necessarily see the regulator as a government entity, although they did not detail how a regulator would be resourced if not a public entity. They did, however, discuss the role of professional bodies, drawing parallels to how the regulator they proposed could help professionalise social enterprise.

Figure 5.

Group 2 responded by developing a regulator/peak hybrid with sector-building functions. A hybrid legal structure that could access equity and tax concessions was also modelled.

Group 2 did not articulate the key components of a hybrid legal structure for social enterprises, but they did emphasise that any legal structure should enable enterprises to access both philanthropic support and private investment. The legal structure for social enterprises would also be able to access tax concessions, including tax relief for investors, contingent on achieving social impact with reporting to the regulator providing transparency around this.

Group 3: Industry self-regulation by an entity with sector-building functions

As shown in Figure 6, Group 3 did not develop a hybrid legal structure as Group 1 did. Their entity shared similar characteristics to Group 2’s model, having three roles. The first was a self-regulatory framework for social enterprise that would function as a form of social enterprise accreditation. The second was providing capacity building and financial support to assist start-up and early stage social enterprises. The third role was undertaking advocacy and providing representation for social enterprises as some industry peak bodies do.

Figure 6.

Group 3 focused on industry self-regulation and the formation of an industry body that would provide both support and regulatory activities to ensure compliance (e.g. certification).

The entity would sit outside government and be comprised of social enterprises, with social enterprises requiring membership to access government grants, philanthropic support, private investment and tax concessions. It would be funded by members through a levy on their profits, with government also providing funding. Linked with this would be transparency requirements, requiring, in the words of one of participant, a ‘greater level of disclosure from this entity that calls itself a social enterprise than the normal commercial business down the road’ (Workshop 2, Group 3).

A specialist legal form for social enterprise: Drawing conclusions from end-user voices

The LSP modelling revealed a key priority for participants was the provision of more support and guidance for social enterprises. As representatives of organisations with a social purpose seeking to benefit the community, participants felt that social enterprises deserved more assistance to help them establish and grow. In line with the extant literature on resourcing of social enterprises (Barraket and Yousefpour, 2013; Brackertz and Moran, 2010), access to financial resources was seen as particularly important, with many social enterprises regarding this as a barrier to their development. Participants commonly expressed the view that the current policy and regulatory environment for social enterprises is deficient, making some feel ‘lost in the ecosystem’. This reflects previous findings about the perceived importance of public policy as a driver of social enterprise growth and the need for a more supportive and cohesive ecosystem (Barraket et al., 2016).

The desire for an enhanced policy and regulatory environment, which provides social enterprises with support and resources, may explain the strong gravitation towards creating new regulatory bodies. It was evident that participants were seeking such validation for the social enterprise ‘sector’, a regulator being seen to provide ‘credibility’ for social enterprises in demonstrating that government views the sector as legitimate and important.

The comparatively recent establishment of Australia’s charity regulator, the Australian Charities and Not-for-profits Commission (ACNC), may also have had an influence here. A number of participants were drawn from charities. They provided comments indicating a broad awareness of the ACNC and its ‘facilitative’ educational and regulatory approach, which Seibert (2016: 135) describes as focused on ‘fostering’ or ‘nurturing’ the sector it regulates. Participants may have drawn parallels with how a dedicated social enterprise regulator could similarly foster or nurture the social enterprise sector.

The workshops emphasised legal structures, with participants in Workshop 2 being encouraged to create their ‘ideal’ structure. However, rather than zooming in to consider the detail of legal structures for social enterprise, participants’ first response was to zoom out and look at the ecosystem. Through the LSP modelling process, they created bodies that provide regulation, support and guidance for social enterprise.

If we return to the question posed earlier in this article, ‘Does Australia need a hybrid legal form to support social enterprise?’, we find a range of responses. Only Group 1 created a hybrid legal structure in an explicit way, although Groups 2 and 3 indicated s need for hybridity to enable social enterprises to access all forms of financial support including: philanthropy, government funding and private investment (debt as well as equity finance). In this, they tended to model the structures that legal scholars such as Morgan (2018a, 2018b) observe social enterprises developing in the absence of an off-the-shelf legal structure.

In the UK, the introduction of the CIC structure involved the creation of a new regulatory body, the CIC Regulator (Haugh and Peredo, 2011), partly to create a ‘brand identity’ for social enterprises (Office of the Regulator of Community Interest Companies, 2017). As Leff (2018: 181–182) observes, ‘entities that seek to advance the social good want to be able to make credible commitments about the social value of their work to their various constituencies and they seek support from the law to enable them to make such commitments’. One response to this can be calls for new forms of regulation of social enterprise (Leff, 2018). The deliberations of the workshop participants in gravitating towards the creation of a new regulatory body for social enterprise, combined with either an explicit or implicit new legal structure, provide support for Leff’s (2018) proposition in an Australian context.

One major shortcoming of the CIC structure is in limiting social enterprise’s access to philanthropic funding because they are not charities. Furthermore, any income they derive is subject to taxation. Although mission and asset locks are one of the characteristics of the CIC, participants did not emphasise these characteristics when compared with access to financial resources. We thus observe that although this is the dominant model forwarded by sector advocates and commentators (Legal Models Working Group, 2016; Weinert, 2014), the extant CIC structure would not meet the needs of the end-users in our workshops.

User-centred regulatory design as a method for generating policy reform: Lessons-learned

Both practically and methodologically, the project had limitations. At a practical level, the workshops were constrained by time, the initial novelty of working with LSP and a lack of familiarity with user-centred design practice. Data analysis was rich and informative, but complex. At a policy level, participants tended to focus on ideal types and reforms possibly beyond policy feasibility. The study thus points to an important question framed by Blomkamp (2018: 11), can ‘co-design feasibly leap from designing programmes and services to designing and implementing public policies’? The project only partially contributes to this question, but the case study does offer some lessons for how conceptual prototyping with end-users could be harnessed to contribute to regulatory reform.

Lesson 1: Active participation by (expert) facilitators

As observed, there was variation in task focus across the groups. In part, this can be attributed to the levels of knowledge of participants regarding public policy and regulation. Nonetheless, where a level of participation by the academics and legal practitioners was higher, there was a tighter focus on the objects of research. Through strategic questions, probing queries and suggestions, groups with more active facilitation produced data that was more closely targeted at understanding where an organisation’s legal structure sat within the system and options for reform.

Lesson 2: Active framing and boundary setting is critical

Another important lesson was the role of facilitators in setting the agenda. For example, early modelling approaches promoted a focus on the organisational structure as the unit of analysis. Participants thus leaned toward immediate concerns such as resource acquisition and mission. Policy and regulatory considerations featured in these discussions, but sometimes at the expense of a focus on legal structure. It is also possible that some proposals may lack policy feasibility, which would make their implementation difficult. When workshopping complex areas of policy, participants need to be reminded of the boundaries and scope of the project.

Lesson 3: User-centred design is highly qualitative (and in complex areas of public policy does not lend itself to positivistic questions)

Perhaps the greatest strength of the dataset was the use of metaphor and analogy generated by the LSP modelling. It produced a dataset with rich insights into the wider concerns of social enterprises with respect to regulation, underlining that policy-making does not exist in a vacuum for those affected by it, but it was also challenging for participants and researchers to distil the data into viable ‘systems-wide solutions’ (Blomkamp, 2018: 9). Nevertheless, what this case study revealed was that in an era in which governments are expected to engage stakeholders before implementing policy, user-centred design in complex fields of public policy is fundamentally useful for generating user-centred views on policy debates and experimenting with models, which can then be tailored, rather developing off the shelf policy options for consumption by policy-makers.

Conclusion

We conclude with research findings on two aspects. First, we find that co-design using the LSP is a useful and novel way for generating bottom-up insights into the regulatory preferences of end-users. However, it does have certain limitations as a tool for policy development, notably in relation to the policy feasibility of the insights it may provide. Secondly, we determine that empirical insights into end-user preferences regarding the regulatory and policy environment for social enterprise development in Australia show a disjuncture between policy reforms sought by elite advocates and end-users. In conclusion, we believe that there are opportunities for further exploratory research regarding the effectiveness of co-design as a tool for examining end-user needs in other areas of law and regulation, including through the use of the LSP.

Footnotes

Acknowledgements

We gratefully acknowledge the support of the project’s industry partner Justice Connect and in particular Nadine Clode, Libby Klein, Raoul Renard and Rebecca McMahon as well as the workshop participants for making this project possible. Bridgette Engeler greatly assisted by co-facilitating the first workshop and Alex Fleishcher provided graphic design assistance. We also thank the anonymous reviewers for their critical feedback that assisted in reshaping the article as well as Associate Professor Chris Mason for commenting on earlier drafts.

Declaration of conflicting interests

The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

Funding

The author(s) disclosed receipt of the following financial support for the research, authorship, and/or publication of this article: We would like to acknowledge the generous support of the Swinburne Social Innovation Research Institute Seed Grant Scheme and the Centre for Social Impact for funding support for this research.

Notes

ORCID iD

Michael Moran

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