As a Board Member of the Social Entrepreneurs’ Network Scotland, HUCKFIELD once more declares an interest. Senscot promotes its own definition of Social Enterprise. These are the details of the Voluntary Code of Practice for Social Enterprise in Scotland – the Senscot Code

Does Social Finance understand Social Need? by Robbie Davison

The wider Social Enterprise movement is much indebted to Robbie Davison for his Does Social Finance understand Social Need?

Robbie runs a Social Enterprise called Can Cook Studio, in Garston, Liverpool. His down to earth ‘reality’ exposition of Social Finance is overdue and should be required Red Box reading for Ministers and Senior Civil Servants at the Cabinet Office and the Office for Civil Society. Robbie summarises accurately the dilemma posed for the majority of Social Enterprises by the growing range of Social Investment Market intermediaries being encouraged by these Ministers. On page 9, for example, he writes:

    “Overcoming market failure is risky and expensive, requires research and development, innovation, and generally provides low returns on investment. This is the very space that the Social Enterprise sector is looking to operate in, although the social finance market seems to be looking in the opposite direction! Instead, social financiers seem to be casting out their nets to capture ‘dead certs’, disaggregating need into impact and consciously choosing to show lending on its own balance sheet that is of minimal or no risk”.

    “This presents a displaced picture of finance versus need; a picture that is at odds with the assumptions that most Social Enterprise practitioners have about the purpose of social finance. This picture also appears to have the social financiers conceiving new products in a vacuum. Wherein they negotiate with each other and seemingly launch product after product that is counter-intuitive to the needs of the Social Enterprise marketplace”.

To counter this, Big Society Capital, the Social Investment Business and others with a City of London financial background have well oiled and funded PR machines. Anthony Hilton’s piece in the London Evening Standard Tuesday 05 FebruaryThe Social Bonds making an Impact” reads as though based on one of their double spaced, easy to read media handouts:

    “In terms of money, there are now about £280mn of social bonds in issue, a figure that is predicted to rise to £750mn in 2015 and £1bn in 2016. That sum, or something near it, represents a serious injection of capital and expertise into a sector that has for a long time been short of both. Given that inequality is deemed by most people under 30 to be the most pressing social problem of our times, it is an innovation whose time has come”.

As might be expected, missing from this piece was any mention of cash flow difficulties, payment by results, impact measurement and the inevitable cherry picking. Will Anthony Hilton write in the same vein if he revisits some of these Impact Bonds in five years’ time and discovers that many of the “hardest to reach” still haven’t been reached?

HUCKFIELD in this posting wonders why some national Third Sector organisations are not more vocal about finding a way through this dilemma. Perhaps their members should be asking whether they are compromised by the roles of these organisations in Social Investment and how much this explains their failure to oppose Government initiatives. This posting gives some recent examples.

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Big Society Capital and Social Enterprise UK’s Interlocking Directorships

Nick Temple, Business Director for Social Enterprise UK had a convoluted piece in Third Sector News on Tuesday 08 January 2013 Social Investors Should Choose Horses for Courses. This sounded like Social Enterprise UK’s riding two horses:

  • “Plenty of Social Enterprises and charities are making use of social investment, at all scales of operations, to provide capital to deliver and expand their work and social impact. And there are plenty of others for whom the strategy is simply unsuitable or who find it difficult to access and navigate what is still a fledgling and fragmented market”.
  • “To use an old maxim, it is horses for courses. But first we need to help organisations on the ground better understand their particular ‘course’ (their needs, model and readiness) and then help them to understand the range of ‘horses’ available (including different types of finance, the various providers and the terms and restrictions involved). We must make it easier for them to get on board. It’s about finding what is appropriate and right”.

But wouldn’t it be better if Nick explained the delicate balancing act of his organisation? The Chief Executives of Social Enterprise UK and the Association of Chief Executives of Voluntary Organisations both hold positions on the Big Society Trust, which is supposed to ensure that Big Society Capital remains true to its mission.

Similarly, don’t expect much speaking out for Social Enterprise from the Big Society Capital’s Advisory Board. A hefty majority are either involved in some way in Social Investment or closely aligned with its mission.

And finally, for those readers who perhaps hadn’t noticed, the CEO of Big Society Capital is a Board Member of Social Enterprise UK. The “Companies and Markets” pages of the Financial Times would call this “interlocking directorships”.

So when dealing with Big Society Capital, who speaks up for Social Enterprise?

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NCVO Working with SERCO

Civil Society on Tuesday 05 February 2013 carried an amazing story – NCVO Collaborates with SERCO:

    “NCVO is working with SERCO to develop standards for the relationship between prime and sub-contractors delivering public contracts”

    “James Allen, head of public services and partnerships at NCVO, revealed the partnership today at a Public Administration Select Committee hearing on public procurement”.

    “Allen said NCVO was working with SERCO to develop standards around how the prime and sub-contractor relationship should work, including the level of support giving to sub-contractors and the availability of shared back office facilities”.

At the very least, Social Enterprises might hope that through collaboration with SERCO, NCVO might prevent Department of Work and Pensions Press Releases like that on Thursday 08 November 2012 More Voluntary Sector Organisations join Work Programme:

    “Twenty new voluntary sector organisations have joined the programme since January.‪ Just 15 organisations from the sector have left in this time”

    “These new entrants take the total number of voluntary and community sector organisations taking part in the Work Programme to 368. This means nearly half – 47% – of all sub contractors are from this sector”.

DWP statements like this hardly square with the difficulties which NCVO itself recently identified in the Work Programme. An NCVO Statement NCVO:Rehabilitation Reform must not repeat Mistakes of Work Programme on Wednesday 09 January 2013 ran totally counter to that above of the Department of Work and Pensions:

    “However, under its most significant public service reform so far, the Work Programme, many charities have found themselves squeezed out by large commercial providers. In the interests of helping ex-offenders who could benefit from charities’ expertise, the government must ensure the mistakes of the Work Programme are not repeated”.

This was endorsed by the Independence Panel for the Voluntary Sector Independence under Threat: The Voluntary Sector in 2013, on page 37 of its Report in January 2013:

    “The Work Programme appears to be having a damaging effect of the finances of voluntary sector organisations. In research published by the NCVO in October 2012, which surveyed 98 voluntary sector providers to the Work Programme, seven out of ten indicated that their contract was at risk of failure and 47% feared that their contract would fail in the next six months. In more than half of cases the number of referrals had not matched expectations, and a third of providers had not received any referrals at all – these were mostly providers offering specialist services. Worryingly, almost half of providers were subsidising their Work Programme delivery from their reserves, and respondent said that primes were doing little to shield voluntary sector providers from risk – in one extreme case a charity had received more than 50 referrals without any payment.”

In the face if all this, does NCVO really believe that the role of Social Enterprises and Third Sector organisations can be enhanced through closer collaboration with SERCO?

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Social Investment Business and Social Enterprise

The Social Investment Business Group is less guarded about its composition and mission. The SIB Group has just appointed five new Board Members:

Civil Society on Thursday 31 January 2013 reported that Chair of the Social Investment Business Group, who is also the Chief Executive of the Association of Chief Executives of Voluntary Organisations, said of the appointments:

    “These are top-class recruits and I remain privileged to lead such talented boards. Our new appointments are the product of a rigorous search process and highlight the capacity of our sector to attract the very best.”

Three of the five have financial backgrounds. One is an ex Tory Minister. Another is from the City of London. While in no way seeking to challenge their motives or competence, was it not at all possible to find at least one at least with some kind of Third Sector background?

There is a similar one sided tilt in appointments and involvements of ‘providers’ under the Social Investment Business Group’s promotion of the Investment and Contract Readiness Fund – a £10mn Cabinet Office fund to prepare Social Enterprises for Social Investment. If you try to Find a Provider under the Social Investment Business Investment and Contract Readiness Fund, you’ll find that there are no less than 27 from which to choose:

  • The Association of Chief Executives of Voluntary Organisations. ACEVO’s Chief Executive is also Chair of the Social Investment Business Group.

  • The Advantage Business Agency, A “Global Network of Specialists which provides Consulting, Accounting and Financial Services”
  • ATQ Consultants who “work across the public, private and third sectors to help commsisioners, providers and investors improve and reform public services”
  • Banks Cannell LLP which comprises former “senior managers and practitioners from the NHS, education and private sectors who are passionate about health, education and social services and their role in our society”.
  • Bates, Wells and Braithwaite LLP which has been a leading advocate for changes in Charity law to permit more Social Investment
  • Bidright UK whose “aim is to provide the highest standard of bid-writing possible, combined with excellent customer service and high win rates”.
  • Bridge Consulting “Typically our clients are small and medium sized enterprises (SMEs) who are experiencing or planning for growth and who wish to manage that process effectively”.
  • Can Invest. “CAN is also a co-founder of SEUK and Unltd and Strategic Partner of the Cabinet Office on social entrepreneurship, social finance and impact”.
  • Claridge Capital Corporate Finance “We have great networks of companies, investors and professionals around the world to make deals happen”.
  • ClearlySo. “This Fund is not just restricted to those organisations with non-profit legal forms and we welcome applications from profit distributing entities who deliver social impact”.
  • Cogent Ventures “We help our clients create and deliver competitive advantage in an increasingly commercial and often financially constrained environment”.
  • Deloitte “Deloitte is one of the UK’s largest professional services firms providing audit, consulting, financial advisory and tax services to clients across all industries, including extensive work with the third sector, public sector and with social purpose businesses”.
  • Eastside. “Social ventures will have to work in partnership with an approved Investment and Contract Readiness Provider to make an application to this Fund”
  • Equity Development. “Our senior management has substantial experience in both developing social businesses and in capital market activities”.
  • Gecko. “have track-record of working to develop concepts through partnerships, into winning tenders that lead to robust implementation plans and social impacts”.
  • Hogan Lovells. “a global legal practice that helps corporations, financial institutions, and governmental entities across the spectrum of their critical business and legal issues globally and locally”.
  • Impetus Trust. “We use our highly effective venture philanthropy model to accelerate the growth of carefully selected charities and social enterprises so they can help many more people living in poverty.”
  • Inspire2Aspire “We specialise in strategic development, feasibility studies, business planning, coaching and exit strategies leading to profitable organisations.”
  • Investing for Good. “We have a vision for a financial system that enables investors to make investments that reconnect money to social value.”
  • Locality. “Our mission in Local Partnerships is to support the delivery of investment in local infrastructure and local services, and this means we work across central and local government, and the community focused third sector”.
  • PWC (Price Waterhouse Cooper). “We bring together people from across the firm and our key partners to provide all the services social enterprises need to be ready for investment or contract delivery.”
  • Pulse Regeneration. “has been awarded a major new Government contract to help social ventures prepare themselves ready to secure social investment of at least £500,000 or to bid for a public service contract with a value in excess of £1mn”.
  • Resonance. “If a Social Enterprise is looking to find gap funding, there are often a number of steps and processes it needs to work through in order to become attractive to private equity investors.”
  • Social Enterprise Support Centre.. “SESC supports social enterprises to become financially sustainable, deliver quality services, and where appropriate, supports their efforts to gain and deliver public service contracts”.
  • Social Finance. We support social organisations to raise and deploy capital; we work with government to deliver social change; and we develop social investment markets and opportunities.”
  • Stepping Out. “What makes a social business or mutual special is that it engages staff, citizens and communities in ways that makes services even better. And profits get recycled back into the community”.
  • Triodos Bank. “we believe that profit doesn’t need to be at the expense of the world’s most pressing environmental problems.”

After the management fees, commissions and other payments to 27 providers, how much of the Investment and Contact Readiness Fund is left over for Social Enterprises?

By any stretch of the imagination in the above list, those providers recognised by most Social Enterprises as “speaking for them” are easily outnumbered four to one by those with financial and legal interests.

So when dealing with the Social Investment Business Group, HUCKFIELD again asks who speaks up for Social Enterprise?

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The Independence of Social Enterprise and the Voluntary Sector

If there are still some readers of this posting not yet convinced that national Third Sector Organisations seem to be falling under the Government’s spell, it’s worth returning to Independence under Threat: The Voluntary Sector in 2013 by the Independence Panel funded by the Baring Foundation in its Annual Report in January 2013 on page 26 says:

    “..26% of small and medium size enterprises badge themselves as Social Enterprises. The voluntary sector brand is being abused: ‘Social Enterprise’ is a totally unregulated or defined concept and, for some, just a convenient brand”.

    “On the one hand, the voluntary sector is being seen as a desirable brand. On the other, the distinctive value an independent voluntary sector can bring is not being unrecognised in commissioning arrangements. We think there is a real danger of parts of the sector being subsumed into the public or private sectors as boundaries are not just blurred but crossed. Some organisations are already being ‘dragged’ into unwelcome sub-contracting relationships with the private sector because it is difficult to gain prime contracts or are being forced to mimic other sectors to qualify for public sector funding”.

The Report of the Independence Panel continues tellingly on page 43:

    “And yet we suspect there is a growing reluctance in the sector to speak truth to power, partly because it is so hard to gain the ear of Government for the voluntary sector, as discussed below. For example, leading infrastructure bodies came under attack from within the sector when they wrote as ‘charity leaders’ to the Economic Secretary to the Treasury on 19th October 2012 saying that they ‘were looking forward to working with you to build a more sustainable economic future for our country, by stimulating growth and tackling the deficit’. The letter was seen by some as placing the voluntary sector at the disposal of the government machine”.

Conclusion

David Floyd in his Beanbags and Bullshit posting Helping the Least Needy on Saturday 02 February 2013 wrote:

    “It’s vitally important that our social investment eco-system develops approaches that can manage the trade-offs between short-term financial viability, innovation and social need. That means finding ways to invest in risky social enterprises and projects that have the potential to deliver big social impacts. And also finding ways to invest in less commercially viable Social Enterprises and projects that tackle the most severe social needs”.

HUCKFIELD believes that the problem with this approach is that national Third Sector Organisations seem to have fallen for the Government’s message on Social Investment. Perhaps the time has come for Social Enterprises themselves to do more to amplify the excellent case made by Robbie Davison? For most of us, the essence of the case he makes is not based on meeting Social Finance half way or reaching a compromise. It’s much more about stopping Social Investment in its tracks before large swathes of public service delivery are funded by the whim of private Social Investment.

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