I accept not everybody will have had the time to watch the entire proceedings, that took place on Tuesday of this week, when the Charities Committee met in the House of Lords but I have to say it made me think.
During a slow start to a Saturday morning, browsing on twitter, I stumbled across this link, parliamentlive.tv/event/index/63b7e8f4-5be6-44b2-92c9-df8e2f5277eb made myself a coffee, got myself comfy, and settled down to watch - you may even like to try it for yourself?
After watching the full 80 minutes, I still felt I had a different answer to the first question than I had heard and I certainly had a response to the final question that I would like included in the report to be published next March.
Whilst I may not have had a direct opportunity to respond to the committee I nonetheless have fairly significant experience and informed views on what they were discussing. Over the years I have also had the privilege to speak face to face with some of the witnesses that were present and I respect them. Although some of the responses were helpful and insightful somehow I was still left feeling we have somehow got caught up with labels and a vocabulary which is not really that helpful.
The first question asked was "What are the main benefits of social enterprise and what distinguishes social enterprise from other business?".
In my view the answer is "the people"; the people that staff them (paid and unpaid) and their motivation. They are, almost without exception, values driven, passionate about the cause and do things out of a sense of purpose for the benefit of others. This may help with the "social" but referring to "enterprise" is where I believe we may have gone wrong and it would be helpful if there was a little more clarity.
Enterprises are lead by entrepreneurs and often use resources in a different way to charities. They take risks and seek to make things grow. Businesses describing themselves as "not for profit" will find it hard to attract "investors" in any market place.
So before we dig ourselves an even deeper hole with "social finance" perhaps we should take a step back and use some more accurate language?
Thankfully I learned, fairly early on in my career, that in business you require a range, and sometimes a blend, of finance options to meet differing funding requirements. Funding is a balancing act that involves risk and reward. If you want to share in the financial rewards you have to have some skin in the game. If you take little or no risk you cannot expect a huge financial reward for simply providing the finance. If you see all the social impact you were looking for then why can't this be enough on its own; particularly if you are guaranteed to get the money back too?
When the idea of out-sourcing the employment service, or probation service was considered by government those activities did not become "enterprises" overnight they remained services. They may well have needed to be done better and cheaper which may be why the government has called in the private sector and professional "contractors" not because the service became an enterprise!
In the property sector, as anybody who has ever employed a building contractor will know, you are given a price for the job that covers the cost of materials, labour, plant and equipment, office overheads and then their margin. So, as long as they price the job right, maintain their performance, complete the job and get paid, they make a profit. It is the developer that carries the risk and reaps the reward, if there is one!. It is down to them to find the opportunity at the right price in the first place, do the their research, manage the job and then be able to sell the finished article, promptly, for more than it all cost. This requires them to know their market and how to operate in it, generating revenue from customers, who have a choice where they are spend their money. That's "enterprise" not just "contracting".
90% of businesses in the UK are known have less than 10 employees. Each of those employees is now legally required to be paid, at least, the minimum wage. However, in the world of charity and social enterprise the staffing make up is likely to be quite different. Some staff will be paid and some staff will work voluntarily so again that is not really a "business".
However, in this sector, we can see there is another shape emerging. This can be called a "social business" It operates in the commercial marketplace, to generate profits, which it then chooses to invest in funding interventions that make a real difference in the lives of disadvantaged people. They operate for more than profit and often employ people that others wouldn't even consider. It's a business that funds itself and the social impact it delivers.
Each one of these categories, charities too, require funding but, at the end of the day, we're talking about money. So why do we make it complicated and call it social finance? Isn't it either repayable or non-repayable, short-term or long-term, high-risk or low-risk, equity or loan, gift or donation?
Savvy investors will know how to assess risk. They will know, or make sure they do the research, to find out exactly what and who they are funding. They will determine the reward required before they risk their cash and the investee simply needs to decide whether their terms are acceptable.
So after all this my response to the final question "What should be included in the report?" is plea not to continue to use social enterprise as an homogeneous term in this sector. Can we be clearer and differentiate between charities, contractors, enterprises and businesses. This may even help funders and investors focus on the part of the market where they are most likely to achieve their objectives.
If experience demonstrates to a Trust or Foundation that a well placed grant can leverage in a huge amount of volunteer activity and bring change within a community and a leave a legacy then don't make them waste time and use precious resources talking to contractors. Let them make grants to those who can make the most use of them but don't call it social finance or social investment.
If a Commissioner needs to see a contract and wants a strong balance sheet, track record, decent return and easy to measure KPI's fund the contractors, through a bond if you must, but don't call it social finance, it's not, it's contract finance.
However, if you are willing invest in equity, or lend to an enterprise with a business plan showing social impact is embedded in it's culture and it can also generate a profit then I believe you're really talking about social finance plus I expect you'll already be prepared to include the value of the impact funded by your investment as part of your reward.