Social enterprises are described as hybrid organizations as they pursue a dual mission of creating social value as well as being financially sustainable (Doherty et al., 2014, Pache and Santos, 2013). As such, they combine the creation of social value, associated with the non-profit sector, with traditional business approaches, associated with for-profit organizations (Wilson and Post, 2013). The balancing of social and financial goals in decision-making is described as a major internal challenge in social enterprises (Battilana and Lee, 2014). In the social entrepreneurship literature, a consensus is emerging that the board of directors is of major importance to deal with the specific challenges social enterprises, as hybrid organizations, face (Mair et al., 2015, Ebrahim et al., 2014, Spear et al., 2009, Pache and Santos, 2013, Battilana and Lee, 2014).
In our study, we examine the relationship between board social capital, board service performance and subsequent organizational performance. Using a social capital perspective (Nahapiet and Ghoshal, 1998), we take into consideration the importance of stakeholder involvement in social enterprise governance as we study board external social capital, encompassing the external ties from board members with external stakeholders (Wincent et al., 2010). Additionally, in line with the growing attention to board internal processes and the importance of boards working together as teams (Finkelstein and Mooney, 2003), we focus on board internal social capital, referring to the internal linkages within the organization, mainly between board members (Kim and Cannella, 2008). Using a resource dependence perspective (Pfeffer and Salancik, 1978), we study how board external and internal social capital contribute to the engagement of the board in fulfilling its service role, through which the board is involved in providing counsel and strategic decision-making (Minichilli et al., 2009) and how this board service performance subsequently affects organizational performance. When measuring organizational performance, we consider financial as well as non-financial performance.
To test our theoretical model, we applied structural equation modeling (SEM), using the Lavaan package developed in the statistical program R (Rosseel, 2012). We combine primary data obtained from an online questionnaire as well as secondary data available in the public database Belfirst, which contains information on annual accounting information. Our analyses are based on the responses of 196 CEOs of Flemish social enterprises.
The results of our study indicate that board external social capital as well as board internal social capital are positively related to board service performance. Our results reveal that, while being connected with multiple stakeholder groups in the external environment is important, good relationships between board members matter more as they enable the board to function as a team. The results of our study further indicate that board service performance is positively related to the non-financial performance of social enterprises. However, we did not find support for a positive relationship between board service performance and financial performance.
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3. Governance, employment and human resource management
