Private view

Following years spent endlessly reprising the Godot role on the UK’s social business stage, B Corps have finally arrived. You could be a B Corp in the UK before but B Lab UK has now been launched to ‘support a community of UK-based B Corps’ and, as of last week’s launch, that community consisted of 62 ‘founder members’.

If you’re one of those ‘general public’ types who’s never engaged in a passionate debate about what a social enterprise is, or whether ‘social enterprise’ is really the right combination of words to describe what some people choose to call a social enterprise, you might not appreciate just how big a deal this is. It’s a big deal.

That’s not to say it’s immediately clear exactly why it’s a big deal.

A reminder, in case you’ve somehow how missed it, that a B Corps is a: “for-profit business that has social and/or environmental outcomes as part of its mission. They are certified by the nonprofit B Lab to meet rigorous standards of social and environmental performance, accountability, and transparency.

It’s not about the 1% – not even close

Founded by three longtime friends, two of whom previously ran a successful basketball footwear company, the US B Lab opened for business in 2006. Nine years on there are 1400 of them, 65% of which are based in the US. So, just over 900 US businesses have gone through the process of being certified as a B Corp. As there are around 28 million small businesses in the US,  approximately 0.003% of US small businesses have joined the B Corp movement*.

This is not to say the remaining 99.997% are necessarily entirely uninterested. It’s not easy to become a B Corp. Whether or not B Lab’s ‘B Impact Assessment’ is a set of ‘rigorous standards of social and environmental performance, accountability, and transparency’ that I (or you) personally support, the process is definitely serious.

The fact that you don’t just pay your money and get your certificate means B Corp status means something. Unfortunately, it currently means something primarily to a tiny minority of people who are very interested.

The B Corp movement’s lack of traction, so far, with American businesspeople has been inversely proportional to its popularity with politicians, philanthropic foundations and extraordinarily rich people who believe that business should be nicer.

The most recent flurry of high profile support came last year, when Jeff Skoll gave them loads of cash as part of his popular award-scheme. Then, a few months later, New York Times columnist David Brooks compared the B Corp model to a combination of John Lennon and Paul McCartney because (it makes perfect/some sense if you read the full article) they are “seeking to reinvent both capitalism and do-gooder-ism, and living in the contradiction between these traditions.”

Since then, registrations have been growing comparatively fast but from an extraordinarily low base. There is ongoing talk that Unilever, who own hippy ice-cream brand (and B Corp), Ben & Jerry’s might be the first big corporate to sign up. That would be a big deal.

There’s no business like business

At this point, rather than speculate on whether the B Corp movement will succeed in the UK, it’s worth considering whether or not we (in the social enterprise movement) want it to.

For me, that depends on what they’re trying to do and the messages so far are mixed. ‘Business’ in general is a far bigger bit of the economy than ‘social enterprise/social business/the social economy’ (delete according to taste). While it doesn’t rival B Corps for comparative obscurity, as discussed previously the UK’s social enterprise movement – which has been around a bit longer – currently encompasses somewhere (quite vaguely) between 1% and 2% of the economy.

So, if the aim of B Corps is to get more new and existing private businesses to focus on social and environmental goals then that’s an equivocal win. B Lab UK will have the challenge of making the case UK businesspeople that B Corp certification (and membership of the movement) gives them something they need. That might not be easy but it’s a laudable aim.

And there is  a potential gap. ‘For-profit’ business people are our friends, families and, in some cases, ourselves for part of the working week – they’re as likely as anyone else to care about doing good – but in the vast majority of cases they’re not choosing to turn their newsagents, hair salons or haulage companies into Community Interest Companies (despite the option being available since 2005).

If the major (or a significant) way to ensure UK business does more good is for more businesses to change their entire conception of themselves (I’m not personally convinced it is) then it’s currently not really happening.  Last week I was asked to name examples of existing private companies who’ve converted to a CIC structure. I came up with one but there wasn’t a list on the tip of my tongue. Employee ownership is, my anecdotal knowledge suggests, doing slightly better but not by much.

This is not a criticism of existing social organisational structures and/or registration models but there’s a gap in the market there for B Corps to change mainstream business and their challenge is to find out if there’s a market in the gap.

Mark my words: the social economy will eat itself

The late Mandy Rice-Davies successfully anticipated a significant percentage of everything that’s been said by anyone since 1963 and there would’ve been nothing to surprise her in the reaction to the B Lab UK launch on the traditional wing of the UK social enterprise establishment.

In a storming blog on the Social Enterprise Mark website, Mark boss Lucy Findlay – who knows a thing or two about trying to sell people kitemarks – was quick to assert the primacy of her niche offering over the one proffered by B Lab UK. She reminded readers that: “The Social Enterprise Mark CIC is the ONLY** UK and international certification authority that independently guarantees that a business operates as a social enterprise, with the central aim of using income and profits to maximise their positive social and/or environmental impact, which takes precedent over more standard business models, which are typically driven by a requirements to maximise personal profits for owners and shareholders.”

As a CIC director, I get those guarantees for £15 per year from the government to enough of an extent to satisfy myself and any of my customers who are interested, so I see no clear need to pay ‘from just £350+VAT’ to have it guaranteed again by the Mark’s independent committee.

Producer interests aside, though, Lucy is making a broader point that many (probably most) in the social enterprise movement would support in asserting the importance of clear limits on profit distribution and the use of some sort of ‘social’ ownership model (however broadly defined).

While B Lab UK have certainly given the matter a lot of thought before coming up with their ‘Legal Test’ for UK B Corps, the whole point of the certification from the point of view of many supporters of ‘Profit with Purpose‘ (PwP), is that it is actively open to businesses that can distribute profits and utilise assets for private gain.

Despite some cordial interactions with Unltd‘s policy team, my general outlook on PwP (have they considered a sponsorship deal with PwC?) are largely unchanged from this post in January.

I’m less worried than others in the movement about the general public being confused by competing labels.  I’m not convinced there’s a big market of consumers who want to buy from a social enterprise but don’t want to buy from a private but ethical and socially-focused business. And, at the point of buying a product or service, I’d generally put myself in that category of ‘socially conscious’ customers who are equally happy to consider buying from either.

In terms of the challenge of actually getting to point of selling stuff, though, most ‘social organisations’ do face distinct, additional challenges and have opportunities to access various forms of funding, investment and other support as a result. For example, charities and social enterprises seeking provide back-to-work services face major barriers to competing with private sector competitors like founding B Corp, Ingeus UK (now owned by the Arizona-based Providence Service Corporation).

If B Corp certification was ultimately used to enable private businesses to take advantage of the relatively small range of benefits – whether grants, tax breaks or ‘social’ procurement# – currently on offer to ‘social organisations’ that would have a significant, negative impact on the existing social economy.

Support for clearly social models ownership and/or either no distribution private profit, or strictly limited private profit distribution, is a baggy set of strong principles with a messy coherence that quite a lot of people strongly believe in. Most of us don’t think it’s the only way to do business (or the best way in all circumstances) but we believe in the social economy as part of a wider civil society as distinct from private business.

Ultimately, that means that if the launch of B Lab UK leads to a battle with the private sector for our limited resources – rather than an attempt to create a broader social pot – then that would be (a) sad and (b) a battle that many of us would be up for.

My investor’s got some money and no clear strong beliefs

And then, after all that, there’s the Pandora’s Cath Kidston bag that is the UK social investment market. Social investment leaders are all over B Lab UK and it’s not just because meetings with US B Corps people are the only chances they get to go to meetings and act smug about their market penetration.

As if transforming the capitalist system wasn’t enough to be getting on with, B Corps have also been lined up for the considerably more implausible task of making UK social investment work based on its current model.

As it is, while some of social investment wholesaler, Big Society Capital‘s (BSC) £600million (ultimately maybe more) pot is being shovelled into chunky property deals (some with a clear social purpose, some appearing to be more in the ‘investment spring water with a twist of social’ category) and some is (rightly, for now) being subsidised by the Big Lottery Fund,  if their furious lobbying on behalf of Social Impact Bond industry doesn’t pay off soon, BSC have a real problem getting rid of their money.

(While the specific analysis of their performance is a different post), I’m not arguing they’re doing catastrophically badly now but I am arguing that we are not seeing the level of growth in demand for the types of finance they offer (at the cost intermediaries investing non-Access-backed funds are able to offer it) for BSC to get all their money out to what most within civil society would regard as ‘social organisations’.

Writing for Pioneers Post, Pauline Hinchion of Scottish Community Re:investment Trust, an organisation with more ‘traditional’ approach to social investment, argues that: “it would appear that the focus for social investment is shifting from the ‘not for profit’ third sector to the hybrid ‘profit with purpose’ business sector.

Before adding that: “if social investment capital is flowing to hybrids, where is the third sector to get money to drive forward its agenda, particularly against a backdrop of austerity and cut backs?

In the PwP corner, Unltd boss Cliff Prior told Third Sector last year that: “if you can make that system work you can get social ventures that need capital investment to grow much more quickly because you can use the investment market.

He added: “There are some areas where that is really important, either because it’s an emergency or because there are fully commercial competitors; if they get to the market first, it’s lost to social benefit. If the social venture gets to market first, it stays social – that’s a good thing.

Exit music for a Social Investment Finance Intermediary (SIFI)

One side fears what the other side hopes for but they’re united by being wrong. The fallacy is embraced by both is that, if UK social investment unequivocally embraced ‘impact investment’ in for-profit businesses there would suddenly (or even over a period of 10 years) be a host of grasping, private profit hungry Companies Limited by Shares (AKA exciting, innovative PwP businesses) queuing up to get their hands on all that lovely money.

On Linked-In, another Scotland-based figure who I respect, Les Huckfield, speculated that the rise of B Corps could see Virgin’s Richard Branson turning up to get a slice of BSC pie. It’s a shame to spray dry powder on the fires of righteous anger but it’s difficult to imagine the circumstances in which a guy who’s got enough spare cash to be racing hot air balloons and trying to fly to space will need a tiny specialist social investment organisations to loan him £250,000 at 8% (bigger loans and mostly higher interest rates are available) or to take an equity stake in his new business along with a seat on his board.

But social investment leaders and PwP supporters are equally convinced by (a variation on) this nightmare/dream scenario.  Their assumption is that a significant increase in numbers of B Corps/PwP businesses etc. that can take on equity investment will make it far easier for them to get their cash out of the door.

Unless, I’m missing something this belief is apparently premised on the notion that having a ‘for-profit’ structure either automatically (or, at least, more likely than not) changes the market situation in which you’re operating.

It may simplistic but, in social investment world simplicity is often necessary: a companies doesn’t go from being a couple of Harvard students rating some girls to a multi-billion dollar empire primarily because it’s structurally possible for them to sell shares to investors. The opposite would definite be a barrier but, as success factors go, that one’s quite a way down the list.

If social investment backed-B Corps are genuinely socially focused, and creating new products and services to tackle social problems by operating in under-developed or non-existent markets (or if they’re competing in mainstream markets carrying additional ‘social’ costs) they’ll struggle to make the sorts of profits that will provide BSC-backed SIFIs with the returns they need.

Having argued ferociously about the connection between structures and principles, we ultimately end up with same old problem that, irrespective of how businesses are structured, successful socially-focused business will not provide the big profits that will offset the losses from the others, and those that have the potential to do so will mostly be able to get cheaper, less demanding money elsewhere.

There definitely is a clearer exit route for a SIFI (or other investor) that buys some shares in a CLS structured B Corp than one than buys a quasi-equity stake in CIC Limited by Guarantee in the hope that at some point someone will invent a Social Stock Exchange where they could sell it. A profitable exit from investment in a B Corp is technically much easier.

But social investor enthusiasm for PwP (and, as part of that, B Corp) seems to be based ‘technically much easier’ and ‘highly likely’ being essentially the same thing.  It seems unlikely that, in terms of social investment by SIFIs (it may be different for individuals) this optimism will survive many encounters with social entrepreneurs seeking investment in their risky, innovative B Corps.

The mostly likely result of the shift towards PwP in social investment is that, at least in terms of SIFI finance, we end up with a range of new, more frustrating approaches to slicing and dicing the wrong money – when what both socially structured and ‘for-profit’ social entrepreneurs need is a bigger change of overall strategy.

 

 

*As with social enterprises in the UK, it’s easier to compare numbers against figures for small businesses, while acknowledging that not all B Corps/social enterprises are small

**Lucy’s bolding and capitalisation

#’Social Investment’ is an issue its own

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6 Comments

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6 responses to “Private view

  1. David, your article this week takes a very broad view of a number of different issues. For me the nub of this is whether there is an inherent contradiction between maximising share holder returns and maximising social/environmental returns and is what B Corps doing really any different from extended CSR. These are questions that I grapple with continually but alas I have yet to reach any conclusion.

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    • Beanbags admin

      Hi Pauline,

      Thanks for commenting. For me, there’s currently (at least) two distinct threads that B Corps are apparently weaving together (in a UK context) – although many of those in the current UK list blend the two.

      One is businesses engaging in what you describe as ‘enhanced CSR’ and the other is ‘for profit’ social businesses (many of these also fit the existing ‘social enterprise’ definition and some use the label).

      In the first category, Cook don’t sell social change – they sell high quality frozen food and don’t, as far as I know, claim that the food generates social change in itself. Based on looking at the application form, ‘enhanced CSR’ underestimates the extent of the social focus needed to become a B Corp (‘phenomenally enhanced CSR’ would be fairer) but Cook would be on that spectrum – as would the most high profile B Corp, Ben & Jerry’s.

      This group are positive force within society. If BIS, in UK government terms, offered support and incentives for this kind of ‘better private business’ activity I’d support it but it would be highly inappropriate for this group to receive government-backed support or investment aimed at civil society or the wider social economy. It’s a good thing but it’s a different thing.

      ‘for-profit’ social businesses are profit distributing companies whose core activity is some form of social change but who have decided that a ‘for-profit’ structure is the right model to grow the business and do as much good as possible. I think Patients Know Best, though describing themselves as ‘a social enterprise’ are in this category. Other UK businesses who aren’t registered as B Corps (yet?) but would fit that category include Ooomph! and Active Minds.

      This group aren’t engaging in CSR – social change is what they do – so, for me, the question of whether they should be eligible to receive social investment is more complicated. I’m not sure the arrival of B Corps makes it any less complicated, though.

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  2. Pingback: Bear Grylls? Pah: Have I Got Social Enterprise News For You. | SSE

  3. David, I know that it was not possible to become a UK based b corporation in 2009. This was when Hardik Savalai of B Labs told me that they were unable to certify companies outside the US.

    I introduced him to our activity in Eastern Europe since 1999 and the original treatise for a business with primary social objective.

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  4. If social business means the same to you as it does to me, then it’s far from maximising shareholder returns. Both we and Muhammad Yunus have made the case for a business approach which places people ahead of the demands of shareholders. Both arguing for an alternative to traditional capitalism, seeing this a more effective instrument than charity, both putting it to active use in the fight against poverty.

    The people-centered business concept and its argument for putting people before shareholder returns has gained considerable traction in more recent times, having been embraced by Cooperatives Europe and Fair Trade UK.

    The greater emphasis, both private and public funded seems to be on building brands, “doing well by doing good” is the vague mantra. Profit with Purpose is what good business has always done to some extent, with the ‘Invisible Hand’ of profit motivation. Profit for Purpose is quite a different interpretation.

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  5. There’s been some despair today at what’s going down on an event called the #BarclaysDebate which asks is CSR dead? John Elkington and Mark Kramer duking it out over CSR vs CSV.
    Someone suggested that CSV displaces social enterprise. It was bak in 2012 that the same discussion was held between the same people on a Guardian blog. They didn’t want to hear from those who’d already walked their talk. http://www.p-ced.com/1/node/363

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