By Peter Holbrook, Chief Executive of Social Enterprise UK
An increasing number of conversations are returning to the issue of CICs, charities, coops and their respective investability. The conversations relate to whether the current range of legal models are good enough to meet both the aspirations of social entrepreneurs who want to run or establish socially- driven businesses, versus the ambition of social investors who, with predictable frequency, claim the supply of investable social enterprises is either woeful or nonexistent.
For the purposes of clarity we’re not talking about the mega charities, about asset rich housing associations, about more established social enterprises or universities; they can and do borrow using the finance markets as an effective way to meet their capital requirements and investment needs. An increasing number of organisations like Manchester University, Scope and Greenwich Leisure Ltd are increasingly developing their own financial bonds to raise significant capital to expand, invest and build.
Where the disconnect really exists is with the smaller social enterprises, the new starts, the disruptors and the innovators that choose to opt for a social enterprise because they don’t seek to only disrupt a market but a whole economic premise – about what a business can and should be. But these businesses can achieve investment; Midlands Together CIC being just one such recent example. There’s some myth-busting that urgently needs to be done. Because we are in danger, as my colleague Nick Temple said in his recent blog, of a headlong rush to suit the models to the finance. And as Nigel Kershaw of Big Issue Invest (and newly crowned Social Enterprise Champion) might say, we are at risk of forgetting that the finance is a tool – it is a means to an end.
To become investible does not and should not mean (ever) that social entrepreneurs should avoid mission-locks and asset-locks in order to raise the capital they need.
We learn nothing if we don’t learn from history, and the evidence is there for all to see that businesses, particularly those with strong social values or a strong sense of morality, have been vulnerable to dilution (or obliteration) of their social mission after they achieve success. Their need for has caused them to acquire new institutional investor-owners who believe that it is all (and only) about the money.
I spent years working for Marks and Spencer when it was still a family-controlled business and during its transition to a PLC. I worked within Body Shop International, both when owned by Gordon and Anita Roddick and subsequently after they ceased to be majority shareholders. In both cases their social, staff and/or environmental commitments were eroded. And I’m also aware that my own experiences are not unique; remember Cadbury, Quaker, Ben and Jerry’s, Rowntree, the building societies of the past…. the path to money-hungry investor-owned organisations which started with a strong sense of moral or social purpose is littered with casualties. Time will tell whether we can add the Cooperative Bank to the growing list of companies that once were more than profit with purpose.
In previous conversations with executives at both the John Lewis Partnership and at Tata Group, my view that social mission and assets require a lock has been reinforced. Both companies would have been taken over, probably asset-stripped and would be mere shadows of their former selves (and their founders’ social and moral values) had they not ensured that strong chains shackled their businesses and made it all but impossible to lose the founding principles and commitments to society with which they started.
But locks and chains are, of course, no guarantee of positive social impact. In fact I’ve experienced a small but significant number of charities and social enterprises that, despite all the positive intentions of founders – and with all the legal locks in place – are not particularly socially useful. Indeed, many are poorly-managed and inherently unworthy of investment, be it via philanthropy, volunteering, partnership or overdraft.
So (and apologies for spending so much time getting here) my point is really this: we don’t need new legal models for the social enterprise sector to grow exponentially. The ones we have should do us just fine. Nor do we need the emperor’s new clothes of trust engines, or other social gadgets, widgets or gizmos. But what we do need is a bit more imagination in using what we already have. And we need a willingness, indeed an eagerness, to build bridges, understanding and solutions that help us meet each other somewhere in middle or somewhere altogether new. We need social investors who recognise that protecting mission and assets permanently is important to most social entrepreneurs. And the social sector needs to understand that the new generation of social investors need to see a pipeline of organisations that are professionally-run, transparent, viable, sometimes scalable, but ultimately impactful, and not operated in the interests of a quick profit or, worse, a quick exit.
And we all need to be a little bit more patient, because these bridges have not been built before; they are not necessarily only about connecting two different places, they may be taking us to a whole new place. The investable, mission-locked social enterprises are already here, and more are on the way their way. The social investors are beginning to create a small but energetic crowd.
The new social investment sector needs to emerge with ever-evolving financial instruments, and with rationale costs that meet the needs of our sector. Just because demand and supply aren’t in harmony just yet doesn’t mean they never will be.
I resolutely do not accept that charities and social enterprises need to build to adopt corporate models in order to resource themselves and grow. This in my view would be a disaster – and the first step towards the privatisation of civil society.