Geof Cox's blog

Sounding like David Cameron...

I was in a meeting with a well-known social entrepreneur today who was most disturbed when somebody said he sounded like David Cameron. Are we turning Tory? Or have they finally worked out, in the aftermath of the financial world collapse, that business models based on greed and exploitation really don't work?

Here's what I think is happening...

The historic alliance of Big Business and Conservative Counties has collapsed. Globalisation with its reduction of market town high streets to bland uniformity and replacement of human contact with automated switchboards is no more acceptable to Middle England than it's ability to move production to China is to Trade Unionists.

It's obvious to all now that unfettered competition doesn't lead to real diversity and choice – to the local and individualistic and quirky - but to the illusory choice of colourful wrappers around international monoculture and financial institutions too big to fail.

We may have different views on where to put windfarms, but we can all see that using more and more energy on making more and more things we don't really need, spending more on advertising them than making them in the first place, and transporting them half-way round the world, is just plain crazy.

Talk to the conservative stalwart of the village hall committee, or the labour councillor on the local development trust (who are now by the way often working for much the same things in much the same ways) and they'll agree on this at least. They may focus on the distant anonymity of the public sector, or the remote facelessness of multinational corporations, but the urgent need to protect the environment, and our felt need to get back to real human relationships, insist that we reassert local values and local control, reconnect local producers with local markets, and develop institutional frameworks that don't leave us helpless in the face of either the bureaucrats or global 'market forces' – whether we want to stop another out of town supermarket or have room in our communities and our hearts for those whose faces don't quite fit into the glossy magazine images.

But does this imply agreement about social enterprise? I think it does, because social enterprise is precisely about rejecting business models based on greed and exploitation, which led us not only to financial meltdown but to the more insidious cultural disaster of the bland and the multinational and the corporate. Instead social enterprise works with business models that involve communities, put people before profits, root enterprise in shared values, celebrate alternative lifestyles, and respect the local and the individualistic and the quirky.

Do structures stymie social enterprise?

At a recent social enterprise investment conference Financial Times enterprise editor Jonathan Guthrie said that although social enterprise was 'an attractive-sounding phrase', one of his worries was the 'vagueness of the structures'. According to Guthrie, this presents problems for funders - and in the end funders will impose what they see as appropriate structures. Nick Temple from the School for Social Entrepreneurs, who shared the podium with Guthrie, disagreed with this.

I think this disagreement is over two sides of the same coin: the positive side of the diversity of structures we have is being better able to develop exactly the right structure for purpose; the negative side is how confusing and difficult the choices involved in this can be.

Funders have always, and will always have specific requirements on legal/financial structure: grant-giving trusts and foundations have them, banks have them, and now specialist social enterprise funds have them. This is not a problem in itself - a big part of developing the right structure has always been anticipating the scale and type of funding that will be appropriate - though getting the optimal structure to meet funders' criteria, plus all the other constraints of business model, scale, mission, values, and so on, can indeed be difficult. I was involved a few years ago in a research project for Social Firms UK that revealed that over half of all the social enterprises surveyed were disatisfied with their legal structure!

The real problem in my view lies not in the diversity of structures - in itself some choice is usually better than none! - but in the lack of a proper advice/support service for organisational structure design - social entrepreneurs have to rely either, on the one hand, on solicitors - who may know the structures but usually do not really understand social enterprise - especially the fast-evolving social enterprise funding environment - and moreover lack the experience to advise on how radically reshaping a business model can make a better choice of legal structure possible - and on the other hand business advisors who know enterprise well enough but usually have a limted understanding of legal structures. If you are lucky you'll be able to access a third sector specialist - who still won't really know options less used in the third sector like share companies.

Yet it would be relatively cheap and simple to develop a national support service to help social entrepreneurs get the right organisational structure for their particular needs, and sweep away much of the current confusion. If like me you too see this as an urgent need for social enterprise, do get in touch - geof@geofcox.info.

'Right to Request' tender collapses

The DoH tender to provide support to NHS staff wishing to set up social enterprises has been suddenly withdrawn.

The collapse of this tender will have come as no surprise to social enterprise developers engaged with the NHS - but the slow take-up of the 'right to request' is not because social enterprise goes 'over the heads' of frontline staff as one senior NHS manager patronisingly claimed.

The problem is much simpler than this: it is the failure of the DoH to deal clearly and honestly with the NHS pensions issue. A survey of PCTs in April revealed that 'the biggest [stumbling block for frontline staff exercising their ‘right to request' to set up a social enterprise] is uncertainty over NHS pension rights and benefits'.

In a number of places, such as its official Guide to the Right to Request, the DoH lays out clearly the many contracting routes open to social enterprise, including the so-called 'PMS' contract forms that can provide proper NHS pension scheme membership. Except that – you guessed it – when you actually come to the contract negotiation you find that those forms of contract are no longer really available for social enterprise.

The fact is that far from smoothing the path of social enterprise, it is now almost impossible to set up a social enterprise within the NHS pension scheme (although existing staff already in the pension scheme will probably be able to remain in it).

The number of 'social enterprises' just doesn't add up

The government has increased it's estimate of the number of social enterprises in the UK from 55,000 to 62,000. However, this is due neither to any actual growth in the number of social enterprises, nor any new research – rather it is 'down to a new and 'complicated' way of working out the estimate'!

The actual basis of the figure of 55,000-62,000 is rarely scrutinised. It in fact derives from the Small Business Service Annual Survey of Small Businesses: UK 2005 (www.berr.gov.uk), but this counted only social enterprises that confirmed ALL of the following criteria:

  • they think of themselves as a social enterprise (Q45b)
  • they never pay more than 50% of profits to owners/shareholders (Q45)
  • they generate more than 75% of income from traded goods/services (or receive less than 20% of income from grants and donations) (Q43)
  • they think they are a very good fit with the Government Definition of a Social Enterprise.

These criteria in my own view would exclude much – perhaps even most - social enterprise. Here are just some examples:

  • they would exclude many organisations which Social Firms UK would classify as Social Firms, since these need only earn 50% of turnover from traded goods/services
  • they would exclude many – perhaps most - Co-operatives – which are member-benefit organisations and often adhere strongly to the principle of distributing profits to members (who are indeed owners or shareholders)
  • they would certainly exclude most Development Trusts – which aspire to generate their income from trading but very few of which (I believe) have actually achieved over 75% trading income
  • they would exclude the often very substantial and successful trading divisions or subsidiaries of charities or other public or voluntary sector bodies (which typically do not generate 75% of the income of the whole charity – or if a subsidiary in fact gift most of their profits to their owners).

Regular readers of this Blog will know my own views on why counting 'social enterprises' will never work (because social enterprise is a verb not a noun – its something you do, not something you are).

Another recent news story - that the Social Enterprise Mark is 'falling flat' – is also interesting in this context. Apparently – after 2 year's work, £470,000 from the Lottery, plus additional funding from Co-operative Group and Triodos Bank - there are now 40 Social Enterprise Mark holders in the UK (and another 23 'in the pipeline'). So that's about half of one percent of the government's (low) estimate of social enterprises in the UK.

I really do not want to join the critics of the Social Enterprise Mark initiative because in fact their work on defining 'a social enterprise' is the best I have seen – a far deeper recognition of the complexity than the government's for example – but I do think it's wrong-headed - and I must admit I do wonder if they couldn't have actually set up 40 or so 'social enterprises' with that amount of money...

Social Firms Conference

I'm just back from the 2009 Social Firms UK Conference. One highlight was a surprise presentation to its 'turbo-charged' Chief Executive Sally Reynolds, marking Social Firms UK's 10th Birthday. I wonder how many people (in addition to Sally and myself) have been to EVERY Social Firms UK Annual Conference (I even remember the geese!).

This year Simon Hebditch and I ran the 'Tinkering with Frankenstein' workshop as previewed in this blog. One aspect of the Conference that closely reflected the workshop/blog themes – and that some old Social Firm hands found a little disquieting - was the emergence of 'WISE' – Work Integration Social Enterprises – as a major focus. This is one of the effects of the recent broadening of the focus of Social Firms UK itself - beyond disabled people to anyone with 'a disadvantage in finding employment'. I was among those who welcomed this broader focus, on the grounds that ex-offenders, homeless people, substance abusers, etc, often present similar issues (in terms of employment and enterprise) to disabled people – and indeed such groups often suffer from learning disability, mental health or other problems that precipitated them into crime or drugs or homelessness in the first place.

However, a 'WISE' like Create – Community Recycling & Training – which was one of the presenters at the conference – is clearly a very different animal indeed from Social Firms as they were formerly understood. Create takes on long-term unemployed people – especially 18-24 year olds and ex offenders - for 3 months, during which they work on recycling 'white goods' and receive a range of support preparing them for permanent employment – and finding it for about 25% of them.

Create sees itself as a Social Firm not because of these temps/trainees, but because 60% of its permanent staff are ex-trainees. This is all good stuff - and Create is obviously a great social enterprise – but go forward 10 years when these employees have forgotten their youthful unemployment, criminal record, drug problem, etc – to when they no longer need a specially supportive workplace – and it is clear that this is a very different animal from our old idea of Social Firms, whose staff with disabilities or enduring mental ill health need pretty permanent support.

I still think broadening its focus was the right way for Social Firms UK to go, but there was disquiet at the Conference similar to that previously expressed by Adrian Ashton, and it brought home to me that we have to think harder than before about valuing - and communicating – the increasing diversity of Social Firm models.

Other points that emerged most strongly from the 'Tinkering With Frankenstein' workshop were:

  • The continuing big problem of the lack of 'specialist knowledge' among business advisors, and especially the lack of those who can vision the right business model for a particular group/trade/purpose. I have written elsewhere about the importance of business models for viable social enterprise – and especially the pretty exotic nature of many Social Firm business models (such as Create's 2 symbiotic businesses - recycling white goods and employment training/support - in the shell of a larger enterprise) and the workshop reinforced my view that we have many people who can do business planning but few that can help with the more important task of visioning the right business model. Moreover – we are hardly even conscious of this crucial gap.
  • The increasing importance of self-employment, especially for people with disabilities and long-term illness, and the need to bring organisations that create work for self-employed disabled/disadvantaged people into the Social Firms fold. (I subsequently discovered that Social Firms UK is in fact now considering this issue).
  • I put forward – as devil's advocate – the view that Social Firms were less successful for learning disabled people than other groups – but the learning disability specialists in the workshop roundly rejected this. Instead, they thought that prejudice rather than concrete support needs is still the biggest factor in unemployment among learning disabled people – we still have our own work cut out getting across the message that in the right job many learning disabled people are in fact more productive than other workers. Those present knew many examples of this – but they are sadly not widely disseminated (if you can help – get in touch).

What is it, exactly, we’re doing with Social Firms?

I'm running a workshop at this year's Social Firms UK Conference (13th -14th July) which will try to challenge the usually very practical focus of this event and ask some fundamental questions about Social Firm models (workshop details below).

It was inspired in part by a paper Doug Foster of Surrey University wrote a couple of years ago - which contrasted UK Social Firms with Italian Type B Co-operatives, linking the UK approach with more authoritarian industrial therapy and moral management traditions in psychiatry, while seeing the Italians as closer to more democratic therapeutic communities and social psychiatry - and also partly by my own research on Co-operative Social Firms, on the miEnterpise supported self-employment model and for the RIPFA Key Issues study on Social Firms - which highlighted the fact that Social Firm models have developed and achieved profile mainly in the mental health world - but there is much less evidence for success with other groups such as people with learning disabilities.

I wonder if anyone would like to put forward ideas on this in advance - which we can explore further as part of the workshop?

Workshop 6: Social Firms – Tinkering With Frankenstein?

Monday 13th July 2009 3.45pm

When you’re engaged in the practical business of Social Firm development and management, it’s easy to forget that Social Firms occupy contested ground:

  • Has the recent strong emphasis on ‘enterprise’ gone too far, to the detriment of social aims and achievements? What’s so good about work anyway?
  • Have the Values-Based Checklist and other initiatives set up a single Social Firm model, when in fact what’s needed is a diversity of experimental forms?
  • Is this enterprise-driven Social Firm model actually useful for most learning disabled people in day or residential care now? And does it really challenge socially conservative approaches to mental health? Weren’t social co-operatives a more radical model, rooted in anti-psychiatry?
  • Isn’t the whole social inclusion agenda in fact complicit with a New Labour dream of easy consensus that’s not going to survive in the fractured, contested and credit crunched real world?

This workshop will sketch current academic debates, look at a new Social Firms study – RIPFA’s Key Issues 4: Social Firms – and open up space for discussion of these fundamental questions about what it is, exactly, we’re doing with Social Firms.

Social Firms and the CIC Consultation

Having recently drafted a response on behalf of Social Firms UK to the April consultation on amendments to the CIC Regulations, I'm now thinking about the June consultation on the dividend and interest caps.

While the credit crunch has certainly revealed a problem with tying the caps too closely to Base Rate, my main concern is that from the point of view of Social Firms this consultation in fact asks the wrong questions about the dividend and interest caps.

Social Firms create jobs for people with disabilities and other severe disadvantages in finding employment. In doing so they tackle some of the most intractable cases of social exclusion, for example of people with mental health problems or learning disabilities. Their workers often have high support needs, and for this reason Social Firms often need an element of grant funding, at least at start-up, while still aiming to fulfill their social inclusion mission by becoming financially sustainable from trading alone.

The CIC form was a godsend to Social Firms, precisely because it combines an asset lock – which reassures grant funders - with normal commercial operation. The weakness of the CIC form lies in it's treatment of stakeholders.

The limitation of the Share CIC form for Social Firms, in particular, is that it does not allow the reward of the 'sweat equity' of the founders or on-going workers in the way that an ordinary share company could. Thus while the limitation on dividends is essential for outside investors (to reassure grant funders and therefore maintain the fundamental strength of the CIC form), we do not feel this should apply to shares held by or on behalf of emloyees – many of whom already experience the most severe financial exclusion.

One solution might be to go back to the original CIC idea of divorcing financial participation from governance (allowing non-voting shares to receive uncapped dividends); however, I can see the practical difficulties with this approach. A better solution for Social Firms would be to allow the specification in the articles of an HMRC approved employee share trust (or a specifically defined all-employee benefit trust) as a qualifying asset locked body to which uncapped dividends could be paid. This would enable such a trust to purchase new shares in the Social Firm CIC on behalf of employees, and if indeed significant profits are made and therefore significant share values develop, to act as an internal market, purchasing shares when older staff leave and realising the real value of their 'sweat equity' – tax free if they have worked for the Social Firm 5 years or more. It would also, indirectly, enable the Social Firm to retain profits free of corporation tax.

If this were possible, it would be an easy matter to develop a model Social Firm Share CIC + Employee Trust model that would cost no more than a normal CIC design and registration – and the costs of administering the trust would be tax-deductable too.

While such a model might be a bit less attractive to some grant funders, the Guarantee CIC could be used if necessary in those cases. In fact, I believe this would be a small problem, because most likely funders see developing financial inclusion as indeed a key strength of Social Firms.

It might also be objected that non-disabled/disadvantaged CIC employees might benefit from such a provision. Indeed they might – but is this really a problem as long as the trust is indeed an ALL employee share scheme, not just an executive tax avoidance mechanism?

There is also an interesting governance advantage here: the CIC board would have their clear responsibility, regulated by the community interest test/reports, to act in the community interest, while the trustees as probably a major shareholder would have a clear responsibility to safeguard the interests of the staff. So we might begin to address the CIC stakeholder problem into the bargain...

Ostashkov Conference

19/10/2008 Moscow

Today I had one of those Kafka-esque comic experiences that really bring home what it means to deal with Russian officialdom. Having paid the entrance fee into the Pushkin Fine Art Museum (which is by the way absolutely wonderful – best experience in Moscow yet) I was asked to leave my bag in the cloakroom. Fair enough of course – but when I went to the cloakroom the official in charge insisted it was full. I could neither go into the museum nor back out (without losing the entrance fee)! I tried to suggest to the official in charge of bags that he could put my bag on the top of the rack and write a note of where it was as a 'check' for me - a common sense idea that was unfortunately far beyond my knowledge of Russian and his willingness to bend the rules. It is quite probable, of course, that as so often in such situations in Russia the solution lay in my wallet – but how do you know? and how do you know how much? Fortunately somebody came in to retrieve their bag at the vital moment – I put mine in the free space and the newcomer gave his bag-check directly to me.

Ostashkov: The view from the conference centre acoss Lake Seligar towards the monastery at OstashkovThe view from the conference centre acoss Lake Seligar towards the monastery at Ostashkov

I'm just back in Moscow after nearly a week out in Ostashkov, between Moscow and St.Petersburg, where I've been leading a training conference for 30 or so people mainly from NGOs interested in social enterprise. A number of the Oxfam Russia staff were there and this gave me a chance to explore further the whole context – political, economic, social and cultural – for social enterprise development in Russia. I was in particular able to talk this time with Sergey Zhidkikh, the Russian (but fluent English-speaking) Programme Manager and Nicholas Colloff, the English-of-Russian-origin (but certainly not fluent Russian-speaking) Country Manager. It was a humbling experience, partly because these two men are exemplary in their knowledge, skills and humanity, and partly because the barriers to social enterprise development are so big.

Perhaps the biggest cultural difference is that - as Sergey put it - “in Russia power is personal”. What is and is not possible – let alone optimal – in terms of social enterprise or almost any other kind of development cannot really be taught – it has to be negotiated with local officials etc. There is enormous complexity in the legal/financial environment – and many uncertainties and undecidables in areas such as tax liability and contracting – and of course this complexity and uncertainty is just how the petty-powerful like it. Since what would in our society be the bastions of transparency and accountability – the free media and independent courts – are in Russia also subject to this personal power ethos, there is little choice at the moment other than to go along with it.

Added to this problem of course is the simple lack of economic activity (outside of big cities - which are booming). Any social enterprise idea that involves tapping into local disbursable incomes will struggle in rural or small-town Russia, where poverty is pervasive and where of course Oxfam is working. Most of the ideas I want to work on next year in fact depend on a 'fair trade' business model (products made in disadvantaged local communities sold at a premium into sympathetic markets hundreds of miles away).

On the positive side, however, there are many social forces that favour social enterprise in Russia -

  • the natural sympathy many people feel (arising perhaps directly out of their recent bitter experience of transition from soviet to cowboy economy) with the idea of doing business in a way that includes and cares for disadvantaged people, and respects other social and cultural values
  • the ability of social enterprise to address precisely many of the social and economic problems faced by disadvantaged communities in Russia - and at the same time build the capacity and independence of civil society in a way that grant or government funding cannot
  • specific commercial opportunities for social enterprise arising out of the way the Russian economy is developing, for example in market niches outside big cities which are not attractive to big business nor possible for local individual entrepreneurs (the 'fair trade' business model is an example of this but there are others around specific services).

Ostashkov Group: Russian social enterprise pioneers - some of the Ostashkov Conference participantsRussian social enterprise pioneers - some of the Ostashkov Conference participants

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