Jess Farr was Sustainable Funding Officer at NCVO. She left in September 2012, but we have retained her blog posts for reference.
*Questions are now closed* Jump to Paul’s answers
Answering your questions on being enterprising is Paul Farmer, Chief Executive of Mind, the leading mental health charity working in England and Wales.
Mind is the best known mental health charity in England and Wales and is an influential voice on mental health issues. It was established in 1946 and has since grown into a major network with a central turnover of over £25 million.
Paul is a member of the NHS Futures Forum, IAPT Programme Board and Chair of the Disability Charities Consortium. He is also a member of the Centre for Social Justice Mental Health Inquiry and member of the BBC’s Appeals Advisory Committee.
Themes covered in his presentation at NCVO’s 2011 Annual Conference included
- Whether charities still enjoy a special “brand status”
- What distinguishes a charity and social enterprise: the form, or the function?
- Whether charities should adopt social enterprise principles like being able to take risks, or being more strategic and forward thinking
Questions and Answers
- Can we use our parent charity’s name to access charitable benefits?
- What are the greatest challenges charities face when creating external social enterprises?
- How would you define “social enterprise”? And is it different to charities carrying out social enterprise activities?
- What’s the best way to approach the NHS from social enterprise perspective?
- How should we, a local charity with a good brand, ‘enterprise ourselves’?
- How can we influence public health policy, which is a slow moving bureaucracy?
- What is the difference between a social enterprise body and a charity?
- How should people setting up a social enterprise fix pay levels?
- Can a sole trader be a social enterprise? (And if not, why not?)
- How do you reconcile the individualism of the social entrepreneur with the co-operative ethos of a social enterprise?
Download examples of Mind enterprises
All the answers given below are not formal legal or financial advice and are for initial guidance only. If you have specific legal or financial problems or questions, we strongly advise you to consult a specialist.
We are a Social Enterprise and legally a Company Limited by Shares that is ‘wholly owned’ by a Registered charity. Can we claim to be a (or part of a) charity and therefore benefit from those things, including funding or reduced rates, that are restricted as available only to registered charities?
Paul’s answer – I’d advise checking this out through your parent charity’s Company Secretary. There are some areas where the “parent” can apply for the funding and then choose to deliver that work through you. It may also be possible to benefit from reduced business rates, but you will need to take legal advice on this. The Charity Retailers Association can also help to advise on this issue.
What would you consider are the greatest challenges/barriers/difficulties charities face when creating external social enterprises, such as; companies limited by shares, guarantee, CIC’s etc?
Paul’s answer – I think there are four critical areas to consider if you’re creating an external social enterprise as a part of an extension of your charity:
- Clarity of purpose – why are you doing this? Do you have to create a separate entity to do it? Sometimes, it’s easy to be attracted by a new form, but the charity form is fairly broad based and allows for plenty of income generating activity. Equally a social enterprise can give clarity of focus to a particular activity or act as a part of a different approach to your charity’s work.
- Governance and management – who’s in charge? The charity’s trustees, the management of the charity, or does the social enterprise have complete freedom? This is often the biggest barrier. Mind’s trading arm is run by a separate board, and we have worked hard to clarify roles and responsibilities for both boards, and also to ensure as great a synergy as possible.
- Financial modelling – what does the business plan look like? Is there a subsidy/investment plan? Is it realistic? If it’s aiming to generate a surplus for the charity, what’s a reasonable timeline compared to other forms of income generation? Expectations about return on investment are often extremely high and sometimes unrealistic. Return on investment should be compared to other forms of income generation within a charity.
- Risk management – what are the risks to your organisation of either route? Do you have the authority to undertake this work?
a) How would you define social enterprise in general?
Paul’s answer – In my view, a social enterprise describes an approach to work-it’s taking a business approach and applying it for a social purpose. Social enterprise is community focussed, and measures its impact both in financial and social terms. Social enterprise can be undertaken by charities, businesses or CICs, but not all of these are social enterprises. Mind has a retail arm, housed in a trading company, which delivers £1.7m profit to the parent charity.
b) Would you describe it any differently in the context of charities carrying out social enterprise activities?
Paul’s answer – No! Many charities deliver services with a business focus. Instead of shareholders, we have beneficiaries, instead of directors, we have trustees. But much work undertaken by charities is of the social enterprise variety.
I would appreciate your perspective on the best way to approach the NHS to ensure they are receptive to the idea of some services being provided in a social enterprise environment so that they do not feel that this is a threat.
Paul’s answer – There is a huge amount of change happening within the NHS at present, with the advent of the new Clinical Commissioning Groups to replace Primary Care Trusts. I would start by finding out about the commissioning environment in your area, and the likely situation for the next financial year. Then, find out who will be responsible for commissioning and go and see them to talk generally about social enterprises and voluntary sector delivery of services. Take along some good examples of where this is being done already, possibly from outside your particular area of interest.
How should we, a local charity with a good brand, enterprise ourselves in terms of our existing branding and the new ‘enterprising culture’ in setting up a trading arm for the organization?
Paul’s answer – First of all, be clear about why you want to “enterprise ourselves”. It may well be that you can do this quite easily by smartening up your marketing and communications work to reflect your entrepreneurial approach to work you already do. If you are aiming to change the culture of your organisation as well, then be clear about this, and show that you’re ahead of the times. You don’t want to lose your brand reputation, so a brand refresh may well help to sustain the momentum you have and also bring about a change of perception. If you’re considering setting up the trading arm, consider these three questions:
- Clarity of purpose – why are you doing this? Do you have to create a separate entity to do it? Sometimes, it’s easy to be attracted by a new form, but the charity form is fairly broad based and allows for plenty of income generating activity. Equally a social enterprise can give clarity of focus to a particular activity.
- Governance and management – who’s in charge? The charity’s trustees, the management of the charity, or does the social enterprise have complete freedom? This is often the biggest barrier. Mind’s trading arm is run by a separate board, and we have worked hard to clarify roles and responsibilities for both boards, and also to ensure as great a synergy as possible.
- Financial modelling – what does the business plan look like? Is there a subsidy/investment plan? Is it realistic? If it’s aiming to generate a surplus for the charity, what’s a reasonable timeline compared to other forms of income generation? Expectations about return on investment are often extremely high and sometimes unrealistic. Return on investment should be compared to other forms of income generation within a charity.
As a not-for-profit Community Interest Company and recognition for our first Big Lottery grant, how should we & the term ‘Big Society’ greater influence public health policy, which is a slow moving bureaucracy? Also, frustratingly some funders still do not recognise non-charities within their funding remit e.g., Lloyds TSB Foundation – should the Big Society just be for pure charities?
Paul’s answer – I’ve spent much of the last few months as a member of the NHS Futures Forum. It’s reminded me that the NHS is a supertanker which takes a long time to change direction-some research suggests up to 5 years to deliver policy change. However, the supertanker has already changed its intended direction, and that offers very real opportunities for voluntary sectors organisations to deliver significant parts of health services. It will take some time for that to become a reality, but equally as a sector, we’re not always ready to make the most of these opportunities, or necessarily prepared. The NCVO/Kings Fund report on the voluntary sector is helpful in setting out the potential and the risks.
In terms of other funders, such as Lloyds TSB Foundation, it’s important to recognise that they have limited resources, and have to put a restriction somehow. Many grant givers will have this restriction as a part of their founding documents.
In fundamental terms, my understanding of social enterprise is that it has both a profit mission and a social values mission. Businesses have just the profit mission, and charities of course have just the values mission, though that’s not to say that charities can’t have socially enterprising aspects to their work. In this context, my question is about business that pursue CSR (corporate social responsibility) or Shared Value agendas. Would you say that as these businesses build in social values to their work, they too are operating as a social enterprise in respect of the CSR activities that they deliver?
Increasingly businesses are recognising their social role within their communities. This isn’t new-Cadburys’ Bourneville town, and Unilever’s Port Sunlight delivered social value to thousands of employees in the late 19th and early 20th century.
I don’t think you could class companies with a CSR agenda as operating as social enterprises. The days of pure corporate philanthropy are very much numbered as companies tend to want to get something back from the support they give to charity – increased staff engagement, improved internal communication, market differentiation, team building through volunteering. It’s a model that works very well as the companies and the charity both benefit which is why more often than not the relationships are described as partnerships and are based on a contract or agreement in which expectations on both sides are clearly set out. We have a very fruitful partnership with Veolia for example – they are keen to get Business in the Community accreditation, improve relationships and communication between their very disparate sites whilst also giving staff something to feel part of and proud of. Mind in turn is being promoted to their 12,000 staff, raising awareness of our work and getting large numbers of people, we otherwise wouldn’t have reached, on payroll giving, signed up to fundraising events and volunteering at our local minds or ecominds projects up and down the country.
They recognise that a social value approach can add to the bottom line. However social enterprises have their social objectives as their primary objectives, which are absolutely central to what they do.
I am at the very beginning of setting up a Therapeutic Garden for local disabled people. I have been advised to set up a Social Enterprise Body rather than a Charity. I am very confused re the difference. Any help that you can provide will be greatly appreciated.
Paul’s answer – It depends what you mean by a social enterprise body as this is a broad term. You can set up a CIC (community interest company) or a registered charity. These are reasonably straightforward to complete. More information is available on www.businesslink.gov.uk. Answering the three critical questions from Question 5 will help you.
How should people setting up a social enterprise fix pay levels?
Paul’s answer – Pay levels very greatly across the charitable and third sectors, as can be seen in job adverts. The business needs to decide what pay levels are right for it, bearing in mind factors such as being able to attract the right calibre of staff and reputational issues as salary information is disclosed in business accounts.
Can a sole trader be a social enterprise? (And if not, why not?)
Paul’s answer – With the proviso that this is not legal advice, I think the answer is technically yes, but it is difficult to demonstrate that a sole trader business is acting as a social enterprise, and that the profit are reinvested in the social purpose.
How do you reconcile the individualism of the social entrepreneur with the co-operative ethos of a social enterprise?
Paul’s answer – A social enterprise is a business, and so does not necessarily have a co-operative ethos, but could be run and led by a social entrepreneur.
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