Social Enterprises take on many forms and deliver a variety of functions ranging from the running of leisure centres, pubs, post offices, recycling, through to large scale nursing and primary health services and increasingly social care. Some of the reasons for establishing Social Enterprise may include addressing sustainability issues, financing, new funding mechanisms, short falls in quality of care. New social enterprise models such as Community Interest Companies provides flexibility to charge and generate revenues, whilst through appropriate structures can be protected and reinvested into the Social Enterprise’s community and social goals rather than purely financially benefiting its ‘owners’.
From a recent Social Enterprise Survey, the following reasons were the top rated answers for the motives:
- Putting back something into the community
- A better way to achieve social or environmental goals
- Making a lasting difference
- Feeling good about my work
- Economic/funding/legal/bureaucratic reasons
- Having a positive impact on the environment
- To have the freedom to try new ideas
- To improve on what was available
It is true that Social Enterprise increases some of the freedom and flexibility in particular for people using services and the staff. Whilst some bureaucracy can be minimised, with most legally incorporated organisational forms there still exists some regulation. For the principal forms of Social Enterprise, the regulation can come from three sources; the Companies House, Industrial Provident Society or the Charity Commission and with each of these depending on the aims and purpose various pros and cons.
The profit motive will however lead to other potential legal forms which could increase some risks to an unacceptable level. For example, what happens to surpluses generated, how is information governed and used, what happens to assets other than cash like equipment or intellectual property? Are they protected or ring fenced?
A form of asset lock can be written into the constitution for most standard legal forms or companies, such as ‘Companies limited by Shares or Guarantee’, in the case of some existing Local Authority Trading Companies’ (or LATC’s) that are now privately owned, but this does not offer any statutory protection from being written out of the constitution at a later date, or indeed any statute limitations on the ability of owners to withdraw value. A Community Interest Company (CIC) or Charitable Incorporated Organisation (CIO) in this case is well worth considering.
The other significant point about a ‘protected asset lock’ is it addresses a very genuine concern which can hold back some managers and staff from taking the plunge, namely losing those ‘golden handcuffs’. A protected asset lock (written in to the statute books), as found in CIC’s and CIO’s, can also protect pensions, which are assets from a financial perspective. IN CHCP’s case, a large health provider in Hull providing most if not all community based health care, the CIC form provided staff with greater protection of NHS pensions, where TUPE does not.
Additionally, whilst there is much greater flexibility to trade, there may be increased risks of value being taken out as a profit dividend rather than being reinvested as value created for a community. This presents a very clear risk if not now but in the future to either assets which should be maintained for community benefit (think of community equipment, day services buildings), or public sector pensions being seriously compromised in the future. The approach could be very attractive to telecare services wishing to spin out of local authority services. So caution is strongly advised in choosing the correct model. The other consideration though from a commissioning perspective is choice. Do you want one large provider that can not easily adapt and is not easy to recommission in order to ensure more choice and control, or a number of smaller more responsive and agile organisations?
This is not to say that LATC’s and Private Companies Limited by Shares, as in the case of Essex Cares or Slivers of Time are not appropriate models, because clearly many of the outcomes and the quality of service provision or products is high. So it may be that the outcomes can actually be far more beneficial where private equity or investment is required.
The key factor to the success of a social enterprise however is not the particular legal form chosen. In fact whilst some legal forms can lend themselves more to certain types of trading social enterprise, almost any form can be made to work. The critical factors therefore in a Social Enterprise’s success are more about the compassion, commitment, and determination and its shared values and vision, than it is about the legal form. Often however, we find most people obsess and start their journey with the legal form. For this reason, The Community Gateway CIC recommends a particular methodology and provides critical friend support or full programme management and support and transition services.
This article was written by Richard Haynes, founding director of The Community Gateway CIC. You can follow Richard or The Community Gateway CIC on twitter at @richardchaynes and@tcg_cic or visit their website at http://thecommunitygateway.co.uk