Following on from Tuesday’s first installment, part two of my interview with Peter Holbrook, Chief Executive of the Social Enterprise Coalition, begins with the issue that – with the possible exception of social injustice – generates more anger and frustration within the social enterprise movement than any other. Deep breath, do we need a greater emphasis on the social impact that an organisation has, rather than concentrating on whether an organisation has a particular legal form? Is the current balance right?
“Goodness, if only I knew the answer to that! In the case of virtually everyone I meet in movement, the reason they got into this sector isn’t because it’s got a sexy image associated with it, it’s because they want to create social impact. Now that’s great and that’s wonderful but we learn nothing if we don’t learn from history.
We have to recognise that an awful lot of really fantastic businesses have set up with a strong social purpose, committed to social impact and as they’ve become more successful, they’ve become more and more detached from their social purpose. It’s Cadbury, it’s The Body Shop, it’s Ben & Jerry’s – there’s a whole raft of them and some of them I’ve worked for. It’s all very well to be totally committed to social impact when we’re small but how do you maintain that commitment in the longer term?
And if you are building you’re business very publically on that commitment to social impact then I believe you should be committed to social impact in the longer term. You can’t build a business on social impact and then, at a convenient time, sell up to anyone you like – cash in on it and move on. I don’t want to get hung up on legal forms, I think it’s probably one of the driest subjects but fundamentally I do think that, what some fantastic social enterprises show us – whether it’s The Co-Operative group or other huge organisations like Welsh Water – is that you can be big, you can be successful and you can still retain your social values as an organisation.
We shouldn’t get hung up on it but I think protecting against the dissolution of your social commitment is quite important to get right at the outset. It’s important that leaders recognise that at some point, whether they die or change jobs, they will move on and the values that they set up the organisation with, may or may not be lost. Is that a risk people are willing to take?
You do need to think about succession from the outset. When I set up my businesses, I could’ve potentially set some of them up as private businesses and sold them but that was never my intention. It was my intention to protect the values that I wanted to enshrine within those companies when I incorporated them. That’s why I chose asset locked models. So, the emphasis should all be about social impact but it shouldn’t just be about impact in the here and now. It should be about future impact.”
But is there any role for straight, for profit, business models in the social enterprise family?
“If they’re straight for-profit – and that’s their primary objective – then ‘no’ because primary purpose is very important in our family. Our primary purpose has to be social and environmental benefit otherwise there’s nothing to distinguish us from businesses that claim to be ethical. So, it’s unlikely, unless they’re owned, for example, by a charitable organisation.
But then you have an organisation like Cafédirect. It’s a company limited-by-shares which doesn’t have an asset lock in a traditional way but they’ve set themselves up with a golden share issued to protect the integrity of that brand in the longer term. We’re in a constant state of evolution and change, and I accept and welcome that. That means we need to constantly adapt our thinking around some of these subjects.
It’s not a black and white answer but I don’t think you could have an organisation that simply works in the social economy, which is obliged to maximise shareholder value, in our family. I just don’t see it, unless those shareholders are absolutely and genuinely committed to a clear and stated social purpose.”
What if a company is socially beneficial in both its product and process but feels that a conventional for-profit structure is the best way to bring in investment?
“What people find when they take traditional forms of equity investment is that often it’s a slippery slope. So, take The Body Shop. Clearly started out with a mission to change the way we buy toiletries and cosmetics. And, in doing so, raised some very, very big topics: French nuclear arms testing in the pacific, animal testing, domestic violence, destruction of habitat, Fairtrade.
It was doing all of that, then it needed capital to fund its expansion so it went to traditional financial markets. Initially it didn’t raise enough capital to fund its cashflow needs so it had no other choice but to sell more or lose share value. And, once the Roddicks lost control, the values that were enshrined in that business – particularly when I worked for it – started diluting and dissipating bit by bit.
The reason why I mentioned the social stock exchange (see part one) earlier was that we shouldn’t just go after any investment possible. Because how would you feel if you were a social enterprise taking money from a giant pharmaceutical company that was, in its best interests, peddling Ritalin to thousands of children that didn’t need it?
When you take investment it’s really important and you should be taking, where possible, investment from sources that you at least understand. And unfortunately, in the financial markets, when you’re getting investment from a pension fund, you’ve got no idea where that money’s been generated. So it could be that on the one hand I’m doing some good over here but by achieving this good, I’m actually creating huge damage over there.
So, I think we need to find ethical instruments and opportunities for people to invest ethically – and supporting ways of connecting those opportunities with those investors is one major ambition that I have.”
But do those investors exist?
“They do exist. I’m one of them and I know plenty of other people. If you think about our own sector – our own sector has 800,000 to 1,000,000 employees and £24 billion turnover. We know the charities have billions of pounds tucked away in reserves. Local authorities that represent us have billions of pounds in reserve. If we can insist that our money – and it is our money, our pension fund money, local authority reserves – are invested in socially beneficial concepts and ideas and projects and businesses – social enterprises – that we might find the capital investment that we need without necessarily losing the integrity of what we set out to do.”
As someone who hasn’t always been supportive of everything SEC has done, I’m interested to see that they’re undertaking what I’ve perceived as a rebranding exercise. I ask why they’re doing that?
“It’s more a review. The world’s shifted, more than anyone ever envisaged a couple of years ago. And the world’s certainly shifted for the Coalition. We were pretty reliant on one major customer: the government. Long before the change of government we decided that that was not a resilient business model and that we needed to diversify our income streams. As far as I’m concerned, this organisation I’m responsible for is owned by the community, the social enterprise community. So, on a shoestring, we’ve gone out undertaken a review and asked members and stakeholders for their opinions.
To ask them, as well as potential customers for the future, and existing stakeholders and customers, what sort of organisation they think SEC should be and how they should be represented. We’ll listen to that and if we think that there is a strong enough will or expectation that we identify ourselves slightly differently – that we use different language to define who we are and what we do – then we will take that on board and do that.
It’s a bit of repositioning exercise to ensure that we are fit for purpose to go and do business because I’m determined to ensure that we become much more of a social enterprise ourselves, much more reflective of the movement.”
If the main customer was the government, who’s the main customer now?
“Government will remain a customer but hopefully a less important customer. I hope that in some cases it will be local authorities, in some cases it will be national charities, it some cases it will be spin-outs. In some cases it will be our members. There are some things that can only be done on a national level. And therefore we have responsibility to provide that service. So whether that’s events, training, products or services – on a national level we need to do that and if we do that successfully, we will our profits back into the social enterprise movement.
There are also international customers out there. People that recognise that what’s happening in the UK is world leading: in terms of political support, in terms of the public services agenda and in terms of the development of new legal forms and financial instruments. If we could actually help other communities in other countries to learn from our experience, that we should absolutely ensure that we do that. And we should ensure that we (SEC) are running a successful and sustainable social enterprise by selling some of those services, not just giving them away.”
The UK social enterprise sector is heavily focused on public funding and public service delivery. Is it time for a greater emphasis on social enterprise in the mainstream, consumer economy?
“Yes. We recognise the current trend is about public service expenditure shrinking – so it’s going to be potentially a more diverse market but it’s still going to be a shrinking market. Yet, we’ve seen that even through the recession, the demand for ethical products and services has continued to grow – with one exception, and that’s organic. So, we know that there is this consumer demand for transparency and kindness in the way that business is done.
I still come across people that are angry about the economic crash and the way business was done in the lead up to 2008. So, there is a huge opportunity there and if we are going to change the way that business is done. We need to connect with consumers; we need to support people to develop products that can be sold both locally and internationally because that really truly is diversifying income. We have to absolutely create a consumer revolution not just a political revolution. And actually that’s safe from political contamination. If we can connect directly with consumers, not only can they become investors and buyers, they can also choose to work in social enterprise and support social enterprise in myriad different ways. So that’s really the next big ambition for the social enterprise movement.
We’ve won the political debate and we’ve got that cross party support. Now we need to bring consumers on board, so people like my mum and my mum’s neighbours know what social enterprise is, and so that people recognise that social enterprise provides opportunities for them – whether they’re young, old, from whatever religious or ethnic background, whether they’ve got disabilities – they actually think there’s something here for me.”
So you’re hopeful that social enterprise can become a mainstream consumer choice?
“That’s my long term ambition. I don’t know whether I will achieve that in my time at the Coalition but I think that’s where we have to head. Actually, in 2008 I think the Co-Op got an uplift in personal account holders by 39% because people understood its value-based proposition. It can be a real benefit to business so why can’t we do that with a whole range of other products and services outside of banking and grocery?
We can do that I think in every walk of life. That’s really what I want to happen because, not only, will it help tackle the challenges we face locally and nationally, and in terms of economic austerity. It will also I believe, help tackle global challenges, of ever greater wealth injustice, social injustice and environmental catastrophe. It’s a big hope and I know it’s not the only solution to the challenge we face but I think it can play a really significant part if we’re able to communicate that more effectively.”
Finally, a question supplied by Nick Temple: “For breakfast, do you read The Big Issue with a cup of CafeDirect and a bar of Divine Chocolate?”
“For breakfast this morning I can tell you I had bowl, at my desk, of crunchy crisp and strawberry muesli. But I did buy it from the Co-Op. And I did have it with some organic soya milk that I also bought from the Co-Op. I do drink social enterprise coffee. I try not eat too much chocolate full stop but, when I do, I love Divine. And I do buy The Big Issue because it’s got the Social Enterprise Mark on it, and I like to see the Social Enterprise Mark.
And Dai Powell(of HCT)’s buses go past my house every 15 minutes – day in, day out – in Wanstead. So I do kind of feel I live the dream. I actually walk an extra ten minutes to my shopping with the Co-Op and I bank with the Co-Op. I can show you my Co-Op members card, my bank cards. Everything I try to do is very socially enterprising. Because I do genuinely believe in it.”
I can confirm that, following the conclusion of the interview, we passed the kitchen on my way out and I was shown the Muesli packet discussed above – plus a range of fairtrade tea bags and jars of coffee. Thanks a lot to Peter for making the time to do the interview.
