Parting Company with UnLtd

Parting Company with UnLtd
Rodney Stares
May 2014

 

UnLtd – the UK’s largest provider of grant finance for start-up social entrepreneurs – is losing two of its founder members; Community Action Network (CAN) and Senscot (Social Entrepreneurs Network Scotland.  With great reluctance and regret they are severing their ties with UnLtd because of what they see as its progressive departure from some of the key principles on which the organisation was founded.  Having attempted – unsuccessfully over many years – to stem this ‘mission drift’ and for their pains been obliged to sign away their special trusteeship rights they have decided that any continued involvement is at best futile and at worst engenders confusion in the social enterprise community and poses risks of reputational damage.

 

In 2001 seven organisations active in the area of social entrepreneurship in Britain came together to bid for the £100m of residual funds held by the Millennium Commission.  After a rigorous vetting process they were successful and set up UnLtd to manage the MAT, the legal holder of the money.  At the heart of their bid was the notion of funding individuals to set up social projects that could test out new approaches to social problems and might – via some form of business model – be able to sustain themselves over the long haul with limited on no grant finance.  In short it was to develop a major new ‘pipeline’ of grassroots social innovators and social businesses committed to recycling any surpluses derived back into additional activity of social benefit.

 

Central to the idea was that these projects would be run on a not-for-profit basis.  Indeed in drafting the trust deed for the new organisation the Millennium Commissioners expressed the clear desire that this be the case.  They did not expressly preclude for profit structures but stated that they should be only used exceptionally and the reasons requiring them to be used be clearly documented at the point of making a grant.

 

Unfortunately since at least 2008 UnLtd has started making awards to ‘projects’ that employ structures where there is no asset lock precluding distribution of assets to private owners.  This would not be a particular problem if the support was being structured as a loan or equity investment – and could therefore be ‘recovered’ – but neither of these options are open to UnLtd.

 

Initially the scale of this activity was small and in many cases funded by income from sources other than MAT which were less proscribed.  However by 2012 it became clear that over a third of MAT awards were to structures without asset-locks.  [Note for editors:  HM Treasury requires a beneficiary of tax relief to be investing in an asset locked legal form.]  In late 2012, as far larger sums – upwards of £100k principally derived from the Big Lottery – were going as grants to for-profit structures having outside investors – UnLtd announced the idea of ‘Trust Engines’, a mechanism by which the social benefits being pursued via UnLtd’s grant finance would somehow be ‘locked in’.  In late 2013 – with nothing more having been heard of Trust Engines – the UnLtd board went a step further and formally agreed to the proposition that they should be ‘agnostic’ about legal structure and all that was relevant was ‘social impact’.

 

Up to mid 2012 efforts by founder members to question or influence UnLtd’s ‘direction of travel’ were raised by individual founders and were ad hoc in character.  At that point four of the remaining five founder members attempted to collectively raise their concerns about the way UnLtd was being managed and in particular its trusteeship of the MAT.  This provoked a crisis in the Board the eventual response to which was the need for a ‘Governance Review’.  This was duly carried and concluded that the root of the problem was the perceived differences in status of founder and non-founder board members.  It went on to recommend that the founders’ special position – as legal members of the company – be removed.  Rather than escalate the crisis and risk prejudicing the interests of the beneficiaries, the founder members reluctantly agreed to see their legal position downgraded and eventually their involvement phased out entirely within 2 years.

 

Senscot and CAN’s departure from the UnLtd board, leaves just one founder organisation with any active involvement in the organisation.  All the others have either severed their ties entirely or decided not to exercise them.