Responses to David Floyd’s Blog

Responses to David Floyd’s Blog
Andrew Croft and Ben Crouch
January 2014

 

Ben Crouch Response
January 6, 2015

 

Well said. I personally believe that there is such a lack of clarity of what a social enterprise is that we are a few major incidents away from a crisis of confidence from consumers who assume that the “social enterprise” that they are buying from is something it possibly isn’t.

 

The sector feels unrecognisable to me at the moment and has for last 2 years. There are companies who when you look at their website have references and links to social enterprise type stuff yet are actually trading as a private company with those at the top creaming off as much as they can. I raised a complaint last year about a “social enterprise” in Merseyside that had been awarded European funding which used hard sell techniques to get unemployed people to take out unsecured start-up loans so that they could then purchase further support to help them get a risky venture off the ground. My complaint didn’t go anywhere because the CEO was a mover and shaker and closely aligned to SENW (which had lots of resources and strategic influence before its recent closure).

 

From what I’ve heard from ex member of staff, the Coop bank is on brink of collapse as ex-Chair was not a lone wolf but acted in a way that set dreadful standard of behaviour across the organisation. Recruiting apprentices and individuals off the work programme to fill entire customer service teams who think they are working in a call centre rather than for an ethical bank with compassionate customers.

 

Then there are those CICs where CEOs / Directors pay themselves massive salaries compared to their lowest paid employees whilst rewarding themselves company cars (not an essential business need) and holidays (I mean business development away weeks – I kid you not) often using income from NHS or social care public service contracts.

 

I’m a massive believer that good business should benefit as many people as possible. I set-up as a CIC in Dec 2012 but it soon became apparent to me that the regulator is rubbish and transparency is the main way that I can prove to our customers and supporters that we do what we say. But there is NO onus on me to do that nor any other CIC.

 

Social investment financing will end up causing nothing but trouble and this will likely be even more exacerbated once ERDF & ESF funding starts to be channelled through the (hugely unaccountable) LEPs and their preferred projects.

 

There are genuine needs for our sector to develop and thrive so that we can shift the financial churn in the UK economy from private to social benefits. But at the moment it feels like the “good uns” in our sector are being left out in the cold as the big players block the doors to opportunities to ensure they get their deserved slice of a management fee.

 

I’ve gotten so disheartened by it all that I have opted out of this brave new world and I’m feeling much more satisfied focus on doing the business that I want to do in the way that I believe helps tackle the social problems that are dear to my heart and causing serious problems for my friends, family and neighbours.

 

In my opinion, virtually everything else (social return on investment, social impact, social value, profit with purpose, social innovation & social capital) is wonky bullcrap with the sole purpose of creating a language barrier (much like lawyers and legalese) to professionalise common sense and make good people believe that they need to pay people large fees because they don’t understand what leaders in the CVSE sector are talking about.

 

Personally I’d like a legal definition (similar to protected characteristics) introduced and to see new EU funding and procurement of business support products and services channelled through successful SEs (that meet the protected characteristics) who trade products and services (that isn’t mainly enterprise / start-up support), have a good track record of satisfied customers and can evidence what positive difference they have made to peoples’ lives by reinvesting their profits. Possible? Of course. Likely? Well, not for a long time I reckon.

 

Andrew Croft Response
January 6, 2015

 

Perhaps unsurprisingly I really liked this article which I believe sums up the situation very well. In particular the final paragraph which draws a strong conclusion. There are perhaps some nuances that are missing which add strength to the arguments voiced.
For profit business whether for social purpose or otherwise has access to one of the oldest and most developed markets. That is the capital market. Profit based organisations can pay dividends and issue shares that hold majority sway over the mission and direction of an organisation. This makes them eligible for significant investment, particularly of risk capital with potential for gains commensurate with risk, realisable down the track through an exit (sale or IPO). There is nothing wrong with this, but they are for profit businesses. Aldi is not a social enterprise because it sells basic foodstuffs inexpensively at times of economic hardship!
Social Enterprise which subjugates profit for purpose does not have the same advantages for those seeking profit and as such has restricted access to capital, particularly risk capital. With no exit (sale or IPO) investors seeking returns are not attracted and as such there is a limited pool of capital for organisations seeking to provide maximum benefit with no leaks from the bucket of purpose.
I have no issue with either sector. In my former life I witnessed two IPO’s and saw much tax paid from for profit business, however I would not expect to see for profit business whatever its purpose or more normally “target market” masquerading as a Social Enterprise or being the recipient of the limited funds set aside for social organisations or their creators.
A key issue with the lack of development in the social investment market is also the mismatch between the requirement of the investee and the existing investor market which is seeking to price in risk based on its own ignorance of a nascent arena and to cover the costs associated with lending in small amounts with small loam books and inordinately high overheads.