- February 9, 2015
I have been struck by an article in Civil Society news today (9th February 2015) about the NPC manifesto, A Vision for Change. There are two recommendations that rang a chord with me.
The first is that Trustees should be encouraged to focus more on how the charity pursues its mission and delivers beneficial outcomes rather than just on its survival. In our work over the last twelve months with more than a dozen charities and social enterprises, my colleagues and I have been surprised how often Trustees who can be extremely entrepreneurial in their business and personal lives, become suddenly risk averse when acting as a Trustee.
The main result of this risk averse approach, in my view, is a long tail of sub-scale charities in almost all sectors but notably in military services and health sectors. These all incur central overhead costs to run which could be saved, if the mission took precedence over survival, and Trustees considered mergers with other charities or more joint-working arrangements.
Most mergers in the charity sector appear to be emergency rescues when things have gone wrong rather than planned approaches with the aim of delivering more or better outcomes. It takes a brave board of Trustees to make a strategic call such as continuing a charity’s mission through recommending a merger. (As a Trustee myself with two charities, I admit I can see the challenge from the inside). Clearly, finding a merger partner is potentially costly and ATQ’s response to the Cabinet Office’s 2014 consultation on sustainability included a recommendation that some funds be set aside to support charities seeking pro-actively to merge or take over others.
The second recommendation from A Vision for Change which I fully support is for a £30m ring fenced innovation fund. The report argues that this should be a fixed proportion of BIG Lottery funds starting at 1% and rising to 5% over the next parliament. Since we began working on social investment feasibility studies back in 2011, ATQ arrived at a similar conclusion. If new public service innovative ideas are to be tested, then the monies need to be able to be ‘lost’ and so have to be set aside for that specific purpose and possibility. No civil servant wants his or her career affected by commissioning an innovation that somehow fails. Heaven forbid that they or their senior officers end up trying to explain how that could ever have happened to the Public Accounts Committee.
Many private organisations and indeed charities have equivalents to R&D budgets but somehow Government, despite all the challenges it faces, does not and this has surely hindered improvements in public services down the years.
- June 12, 2013
I attended an interesting breakfast seminar organised by my business school, IESE, yesterday entitled “The Challenge of Sustainable Social Investment” with panelists Prof. Heinrich Liechtenstein, Deirdre Davies of Deutsche Asset Management Group, Oliver Karius of LGT Venture Philanthropy, and Nick O’Donohue of Big Society Capital.
Interestingly, the Dormant Accounts Act defines quite carefully what social impact means for Big Society Capital by laying down what organisations its co-funded intermediary investment managers can put money to work with. These are defined as third sector organisations that are delivering a “social gain”. As a result, BSC has identified Community Development Finance Institutions (CDFIs), charities, social enterprises and organisations addressing financial inclusion as fitting this criteria.
For others, social impact is defined by the outcome sought and it matters not whether the organisation delivering the outcome is for profit, a social enterprise or a charity. A good example backed by LGT is a for profit private education business filling a gap in the market in Kenya based on a business model that charges $4 per child per month. Another example given was of a branded leather goods company that was bought out by private equity backers who then invested heavily in both ensuring that its supply chain eliminated any use of child labour and that its tanning processes were clean. It did this to create value for itself on exit by creating a sound organisation that could, therefore, be bought by others.
Clearly, an investor can decide what social impact it wants to support and also how it will measure the outcome to its satisfaction. Similarly, an organisation can decide how to include and measure social impact in its own mission statement and values no matter what its financing structure i.e. for profit or not for profit.
One other point emerged clearly for all those attending, which is that whatever the social impact arguments and story, social investors are just that – investors and they will always be looking for a return on their capital. Any organisation seeking social investment will need to understand this fully. Many social enterprises are expressly established as not-for-profit which is a decision that can be taken and is fine in and of itself. What it means though, is that only a more narrow and smaller set of potential funding is available and without “equity” risk capital, the ability to grow and deliver greater social impact will be constrained.
In my view, if social impact ends up being defined as only being delivered by not-for-profit organisations, then this will slow the growth in the social impact investment market and improved social outcomes. I, for one, believe that any investor and organisation can define for itself what social impact means and then go about delivering it.