“A better way of doing business” – Peter Holbrook interview, part one

2010 wasn’t the easiest time to settle into the job of chief executive of the Social Enterprise Coalition(SEC).

On the plus side, years of lobbying (and some good work by social enterprises) had paid off with ‘social enterprise’ spattered across all the major parties manifestos at the General Election. On the minus side, social enterprise was often portrayed as either a silver bullet solution to the reduction in public spending or a euphemism for privatisation.

Now, over a year into the job, I went to talk to Peter Holbrook at SEC’s office in London – to get his take on some of the big challenges and questions facing the sector.

Firstly on the issue of the role of social enterprise in public sector reform. What does he see as the big opportunities and dangers?:

“I think there’s a huge opportunity in terms of recognising that social enterprise can play a part in creating a more resilient, more just, more inclusive and fair society. In the wake of the 2008 economic collapse, politicians recognise that recent ways of doing business that have emerged over the last 30 years, do not create the plural economy that we need.

The fact that social enterprises have weathered the storm seemingly far better shows they can contribute, not only in tackling social problems but in building that resilient, fair, sound economy. It’s a better way of doing business, right? 

Where the danger exists is that social enterprise is seen as the answer to every ill; the magic solution; because those of us that work within it know, it can be absolutely fantastic but it can’t solve every problem. Particularly when you look at the expectation that social enterprise can single-handedly transform public services.

It’s a brave experiment we’re going through in terms of the government’s mutualism agenda, NHS reform and the public services White Paper. There are huge opportunities for us but if we’re not careful, it could all go horribly wrong. Then we’ll have lost a golden opportunity and we will have created damage to the integrity and reputation that so many brilliant people have spent so many years developing. 

I think we need to remain slightly agnostic about whether the government’s agenda is good or bad but, what we need to do is if this agenda is going to be driven forwards, is to make absolutely sure that we are mitigating the risks and maximising the chances for success.”

What does success mean in this context?

“In terms of public services, there’s three options:

  • we don’t deliver
  • we outsource and privatise
  • or we go down this route of mutualisation and social enterprise

Now, if we accept that just cutting essential services is absolutely not in anyone’s best interests, we’re left with two options: social enterprise or privatisation. If we go down the social enterprise route and the experiment fails then potentially we’re only left with one option, and that is the privatisation of virtually everything – apart from probably the army (although even that’s happened in America). So, we have to maximise the opportunities for these new social enterprises to succeed because it’s in the staff’s interest, the community’s interest and the end recipient of that service’s interest.

We have lots of examples of where this can be done absolutely brilliantly but can we expect that to be replicated, on the scale that is expect of us, in the timeframe that’s expected of us, with the limited resources that are available?

That’s where the risk exists.  If we don’t make this work, mitigate the risks and collectively, as a movement, try and limit the chance of failure for these new organisations – whilst accepting that there will always be some failure (and that’s inevitable) – then I think the experiment will have been deemed to have failed and the private sector will come in and mop up the mess. And we will be back out of fashion as quickly as we came in to fashion.”

I suggest that a key challenge in public service commissioning is where there is a choice between between a social enterprise and a private sector giant like SERCO or Capita. How can a social enterprise be expected to compete?

“I’ve always been clear than social enterprise isn’t just a nice way of doing business. Commissioners shouldn’t buy social enterprise because it’s quirky and feels nice and warm.

The fact we don’t have to generate shareholder return, potentially gives us a competitive advantage. There is no hole in the bucket. We don’t have to leak resources out to hungry shareholders who, ideally, year on year want an ever greater return. And, when you’ve got a well-functioning social enterprise, you have incredibly productive staff and you have incredibly supportive consumers, beneficiaries and wider stakeholders. They want you to succeed and that also creates a huge competitive advantage.

I’m not just that I’m an advocate of social enterprise. I am, but that’s because I understand why these organisations can function more effectively – both in terms of productivity and in terms of providing more value than an alternative form of business.

So, I think we should be able to compete, it’s just a case of whether – particularly in terms of the public sector spin outs –  they will be able to transform their culture within the time period they’re given.”

Right to request organisations had guaranteed contracts for three years. In other instances, that won’t necessarily be the case. Do you think it’s possible for social enterprises to compete from a standing start?

“I think it’s very hard to, if I’m honest. You can’t all of a sudden take eighty or eight hundred staff and say ‘we are now a social enterprise and we’re going to be competition ready’ because you need to restructure and you need to re-organise. You often need to reconnect with your beneficiaries, your service users. That’s absolutely critical and that’s the learning that we’ve taken from some of the best organisations that have come out through the Right to Request. We recognise that they require a period of transition.

For some, it will be less than others but I think there needs to be a minimum period – a minimum cushion in order to reorganise and go through that transformation – of three years, preferably five. Without that, we are setting these organisations up to fail. And when they fail, the most obvious answer will be that the private sector has to come in.

Organisations that come out don’t necessarily have the right skills mix to be competition ready. If you take 80 staff out of a community services group, they’re likely to be a couple of senior managers, some middle managers and service delivery staff. They’re unlikely to have a bid-writing team and a sales force. 

They’re not going to automatically spin-out set up to compete with people who’ve invested for the last couple of years getting ready for some of these market opportunities.”

When Capita got started, they didn’t have team for everything, they were just a few blokes. The difference, I suppose, is that they were in a position to attract investment?

“Yes. We absolutely have to crack this nut: ‘how are we going to find this investment?’

If you form a co-operative or  a CIC Limited-by-Guarantee or a charity, it’s very difficult for you to take investment. You usually come out without any collateral, which means that you limited opportunities to attract any debt finance. You’ve got no track record, which further limited your appeal to those sources, so where do you get that money from? You can’t suggest that it’s all going to come from the Big Society Bank because it’s not. So where else is going to come from?

We have to be very clear that these organisations are going to need some initial investment from somewhere to have a credible opportunity to get going. They’re not going to have the same resources that were available to the Right-to-Requesters who at least had the opportunity to bid in to the Social Enterprise Investment Fund.”

This is a question hanging in the air but who is it a question for? The government?

“It’s a question for both the social enterprise movement and the government. I think one of the  really exciting developments is the idea of a Social Stock Exchange. It’s been hanging around for a little while but my understanding is that it’s going to be launched this year. I think it’s is fundamental in connecting individuals with a true social purpose.

I’ve got my pension in an ethical fund which is environmentally light green if it’s green at all – it’s probably turquoise. I would love to be able to say to my pension fund administrator: ‘Actually, I don’t want your turquoise or your light green fund – which just pulls out the very, very worst offending companies: tobacco, arms and similar activities. Actually, I want to invest in companies that are genuinely socially beneficial and therefore I want you to invest my pension in the Social Stock Exchange.’

I think that is the way that we can actually start drawing mainstream investment. Increasingly we’ve become wise about what we do with our spending power but what about our investments – our pensions, our mortgages? What happens to our local authorities’ money? What happens to the charities’ money?  Often, you find these funds invested in wholly greed driven opportunities.

My reckoning is that if you invest in the social stock exchange, it will fluctuate less and it will probably out-perform in the long-term some of these very risky investments that we saw collapse in spectacular fashion back in 2008.”

Moving on (a bit) from public sector reform. Social enterprise is not popular with everyone in the voluntary sector? Does Holbrook think there’s a disconnect between social enterprise and other voluntary sector groups, or does he think the distinction needs to be emphasised more?

“There is always going to be overlap between the various sectors but we need to be clear about where we are different. I think we need to be clear that we are not based on voluntary effort,  that we want to employ people and that we want to give people opportunities. We want to create robust and resilient businesses that deliver social change. Sometime the messages that come out from the voluntary sector don’t help us to make that case with the clarity that we seek to.”

What sort of messages?

“For example, when Big Society was launched it seemed that it was all about more volunteering. And people thought ‘How an earth are we expected to carry out a full time job, and then go and volunteer at the local library and deliver meals-on-wheels to an elderly person on the way home, before we cut the lawn and plant some daffodils?’

The Big Society for me isn’t just about doing more for nothing. It’s about transforming the way we do things. What, I would say to someone is: ‘rather than expecting to go and work for a company you don’t like and in the evening do lots of voluntary activity, bring the two together and work for a company that you think is socially beneficial. You can meet your values and achieve your personal ambitions through the way you work and through who you choose to work for.’

So I think, in terms of Big Society, the narrative created by some of the more traditional voluntary organisations, hasn’t helped move the debate on. For too long social policy and economic policy have been seen very separately and to have any hope of meeting the challenges we face as a society and as an economy, we need to bring the two together.”

I suggest that part of the cause of resentment between social enterprise and the voluntary sector is the suggestion that social enterprise means the voluntary sector turning everything they do into a business.

“I think that’s a very un-entrepreneurial way to look at it. When I was at Sunlight, there were certain things that we did that you have very little chance of charging for directly. The domestic violence drop-in is one. It’s very successful and we used to get a lot of women coming in to that – and occasionally men – that really were desperate and needed help. Now the idea of charging for it on a full cost recovery basis is ludicrous. But our community wouldn’t have had that service unless we had a social enterprise in our community that was able to profit in other ways and take some of that profit and deliver services that were identified by the community as being needed.

It’s not always that everything has to become a business, it’s about being entrepreneurial and being enterprising as a way of meeting the needs of a community. I think there is a misunderstanding that we within our sector want to turn everything into a business, when what we want to do is find a sustainable solution to delivering the services that we need.

I don’t think that that means that we think that the government doesn’t have a role. Government does have a role but either you’re going to take an ideological position and campaign for the funding to come through for a service that you think government should support, or you’re going to take a pragmatic, enterprising approach and say: ‘this is really needed, and we’re going to find a way to deliver it’.”

Other sceptics in the voluntary sector say social enterprise should be more honest about its dependence on grant-funding…

“I don’t have a problem with grants. My organisations wouldn’t have got going without some initial grant funding but I think it should be seed funding. I think the word that you’ve used which is really important is dependent. Should you be dependent, or should you use grant funding, as a catalyst, or as a fertilizer, to grow out of dependency?

Some organisations that I’ve looked at that are social enterprises are, frankly, too grant dependent. Others are too dependent on one customer. And actually the way to build a resilient social enterprise is to diversify your income streams so that, if one goes, you’re not screwed overnight. I think it’s about moving away from dependency full stop.

Now, if someone’s offering you a grant, you’d be a fool to say ‘I’m sorry, I’ve got an ideological problem with taking grants, no thank you.’ You should be able to take grants but you should always see it as a route to greater sustainability.

I know that some fantastic organisations out there that are very culturally socially enterprising are still grant dependent but they know which direction they’re heading in. If they are culturally and psychologically social enterprises and trying to move into a more enterprising future then I think ‘great’.”

The second and final part of this interview will be published on Thursday. It looks at internal issues – such as the ongoing question of legal structure vs. social impact – and the wider challenge of bringing social enterprise into the mainstream.

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12 Comments

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12 responses to ““A better way of doing business” – Peter Holbrook interview, part one

  1. David, this issue of a social stock exchange is confusing. I’ve heard it described by Muhammad Yunus as something which recognises non-loss non dividend distributing social business, but clearly it can’t be a stock market in the conventional sense when there are no shareholders to ‘buy into’ the business.

    The only other way I can conceive of buying into business is the kind of evaluation process that goes by the name of SEE What You Are Buying Into and others like ORB and Social Traders directory. There’s also Clearly So and others which now seem non-functioning. It’s been my experience that not one of these has ever produced an enquiry.

    On the question of public services, what about the supply chain? We’ve operated in the supply chain both for Serco and the NHS and local government. We don’t want to be these organisations, but we want to provide a service which yields a profit to invest in social objectives and on into seeding other social enterprise.

    The problem I have with grants, is that one may find in some circunstances that public money is being used to hijack your own work. This means that in taxation tax, you are paying to have your own work undermined.

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    • Hi Jeff

      I think making such a generalistic comment about not producing enquiries is somewhat unfair, particularly as you have absolutely no experience of ORB!

      We have purposely developed our online Member’s Directory as a stand-alone commercially built, fully optimised directory to ensure that our members do get a benefit from their membership (which also provides a host of other benefits). Have you had a look at The Responsible Business Directory?

      In exactly the same concept about social enterprises, it is absolutely no point doing “the right things” without adding appropriate commercial benefits, and that is exactly the basis of our membership offering.

      kind regards
      jill

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      • Hi Jill, Yes we have since communicated and thanks for that. I was referring of course to those networks I’ve joined in the past. I’m looking forward to a better experience.

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  2. Great interview, David. And great answers too: much sense spoken here. Look forward to next instalment.

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  3. Great interview David!!! Good to get to know Peter better as well. I have been saying that you should advice them all (gov, universities, thinktanks, social innovation consultancies/labs, umbrella orgs) on SE but I think you can have a happier time & bigger impact if you stay working on the ground & reporting stories of social change. Stand, resist, insist!

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  4. I so agree with Peter’s views on the Big Society. That was always “my take” on the concept and I couldn’t actually understand why everyone decided it was all about volunteering.

    What is strange is the way people leave there values on the doorstep when they go to work: and that’s employees – not just the bosses! It’s a business culture change that’s required.

    There are better ways of doing business than the greed driven model of not so long ago. What makes it really exciting is that in today’s value driven society being socially and environmentally responsible gives businesses, especially SMEs, a competitive advantage that will help them be more successful and more profitable. And profits aren’t bad: it’s how they are made and what you do with them that’s important.

    And there is absolutely no reason why those businesses need to be a social enterprise in any form. There’s nothing wrong with companies limited by shares, remembering of course that the majority of smaller companies are close companies: essentially owned by the people who run them.

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  6. Hi Again Jill,

    It was back in 2004 when we set up as a guarantee company and I began contacting others in the social enterprise field, to describe our work and the social business model we operate. This included our APPG on Social Enterprise and Baroness Thornton at the House of Lords, then chair of the SEC. Nether replied.

    By 2006 we’d re-incorporated as a share based company while retaining our principle of non-dividend distribution having learned a lesson on the difficulty of raising loan funding.

    Our ‘community interest’ model was something which was originally published online in January 1997. It was placed in the public domain free to use back then. Here is the final paragraph which echoes what you say above:

    “Clearly, profits can be used very effectively in ways other than traditional investment and profit outcomes. Moreover, this is not charity, it is business–good business. One P-CED firm could be expected to spin off dozens of new firms and businesses, all of which create new jobs and all of which operate under traditional free-enterprise practices. That is, if a spin-off business were to profit a million dollars a year, the owners can bank the money for themselves and their stockholders as is the normal practice. There is nothing wrong with individuals becoming wealthy. It is only when wealth begins to concentrate in the hands of a relative few at the expense of billions of others who are denied even a small share of finite wealth that trouble starts and physical, human suffering begins. It does not have to be this way. Massive greed and consequent massive human misery and suffering do not have to be accepted as a givens, unavoidable, intractable, irresolvable. Just changing the way business is done, if only by a few companies, can change the flow of wealth, ease and eliminate poverty, and leave us all with something better to worry about. Basic human needs such as food and shelter are fundamental human rights; there are more than enough resources available to go around–if we can just figure out how to share. It cannot be “Me first, mine first”; rather, “Me, too” is more the order of the day.”

    It’s been interesting to see that even Harvard has come around to this way of thinking in their perception of ‘Creating Shared Value’ in January of this year.

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