North East enterprise growing the 'social economy'

The North East would do well to ditch profit-hungry shareholders , a group of socially-driven businesses has proclaimed

Mark Henderson, chief executive of Home Group
Mark Henderson, chief executive of Home Group

Austerity has driven interest in socially-minded entrepreneurship – and the North East would do well to ditch profit-hungry shareholders – a group of socially driven businesses has proclaimed.

The Social Economy Alliance, a group of social enterprises, co-operatives, charities, universities, investors, trusts, associations and think-tanks, recently published its manifesto ahead of the 2015 General Election.

In the aftermath of the Government’s failed ‘Big Society’ bid, the document is a rousing call-to-arms for policy makers to create a fertile environment for the growth of what is referred to as ‘The Social Economy’ – an umbrella term for the multitude of socially-minded businesses in existence.

Within this landscape sites the social enterprise, distinct from other shades of socially-minded or socially-responsible organisation by virtue of its mission to apply a commercial model to a societal need, and not a concern to maximise profits for the benefit of external shareholders.

The term is bandied without much consistency, meaning estimates as to the proliferation of social enterprise in the UK vary widely. A BIS study in 2013 suggested 24% of SME employers considered themselves to be social enterprises. BIS’ own requisites to claim social enterprise status say:

It should not pay more than 50% of profit or surplus to owners or shareholders

It should not generate more than 75% of income from grants and donations

It should not generate less than 25% of income from trading

It should agree that it is ‘a business with primarily social/environmental objectives, whose surpluses are principally reinvested for that purpose in the business or community rather than mainly being paid to shareholders and owners’.

In reality, just 6% of employers met all of these social enterprise criteria. The gross value added to the economy from those bonafide social enterprises who do tick the boxes is estimated to be £18.5bn.

As such, it’s difficult to get a clear picture of how many social enterprises exist in the North East. Best estimates so far are between 1,000 and 2,000 social enterprises in the region – according to a mapping exercise conducted for the North East Social Enterprise Partnership in 2007.

Readers of The Journal will be familiar with some of the regionally-based social enterprises that have graced our pages; firms like Darlington-based skills builders, Patchwork People; housing association Home Group; care providers, Sunderland Home Care Associates; and national organisation Groundwork.

Simon Hanson, development manager with the Federation of Small Business (FSB) North East, and an ardent champion of social enterprise in the region, sees the rise of social enterprise against a backdrop of corporate and social disruption.

He said: “You can see a shift in the way the millennial generation want to approach business. They want to make a profit but it’s about what they do with that profit.

“There’s an appetite to tackle social challenges, of which there are many. Cuts have left the public sector unable to address these challenges, and they see their enterprises in that gap.”

The sentiment and ethos is echoed in the activities of US social entrepreneur Brian Forde, albeit in the setting of a developing country.

Mr Forde set up Llambadas, S.A a social enterprise telecoms provider that aimed to bring telephone connections to rural areas of Nicaragua where there is no electricity. The idea employed push bike carts fitted with alternators to store the power created by transit.

“I’ll be honest, when I set it up I didn’t call it a social enterprise because I had no idea what one was. What I did know, as a Peace Corps volunteer, was that a lot of problems could be solved by entrepreneurship,” said Mr Forde, speaking at a TEDx event in London in 2011.

Commercially, the venture was shown not to work, although Mr Forde recognised that to be successful, a social enterprise could not simply be a fad – it had to “listen to the needs of the customer”.

The example is demonstrative of how social enterprise requires a different type of commercial mindset.

Simon Hanson
Simon Hanson
 

Simon Hanson added: “It’s difficult to know why this different thinking has emerged, but it’s certainly there. We’ve seen a lot more (FSB) members identifying with the social enterprise tag – of course – that doesn’t mean they are a fully fledged social enterprise – but it shows willingness.

“I think one of the main challenges for this sector is simply profile. Beyond a few really good examples in the North East, there isn’t a whole load of examples to guide and inspire people. That’s changing though.”

Mark Henderson, chief executive of housing association Home Group, itself a social enterprise, said the sector had always been strong, but pointed to recent high-profile business scandals as a catalyst in growing interest in social enterprise.

He said: “We’ve seen a lot of very high-profile scandals emerging in the business space, and I think that has refocused people’s interest in the social enterprise model. There’s a renewed interest in ethics.

“Just by talking about social enterprise you create a space to make it possible and a demand for it.”

Founded in the 1930s, Home Group is an example of a well established social enterprise, in a sector which lends itself so well to the model – a sector at the forefront of basic societal needs. While the conditions have been fit for social housing providers like Home Group to grow, Mr Henderson acknowledges that nurturing new social enterprises is incumbent upon established organisations such as his own.

Mr Henderson noted that austerity and public cutbacks had created gaps that only social enterprise could plug, but also acknowledged the commercial prowess displayed in the sector.

He added: “This is not a sector which is all about start-ups and smaller operators. There is a lot of money generated by social enterprises, and many are now high profile.”

Richard Falconer is the director of Durham-based Co-Wheels – a ‘car club’ social enterprise that aims to deliver access to sustainable transport. It now provides around 350 cars, UK-wide.

Driven by a gap in the market and a frustration with commercially-minded models which failed to accommodate locally-specific needs, the Co-Wheels founders turned the hire car model on its head. Mr Falconer said the transparent nature of social enterprise had helped Co-Wheels to secure partnerships and work.

He explained: “Because of the way we’re geared, we’ve found the transparency has worked in our favour when approaching local authorities and partners, and also potential franchisees. Corporate franchising can be relatively ruthless, but we’ve found it easy to attract franchisees because they respond to our model, and its flexibility in suiting localised needs.

“Transparency is the reason we can go up against huge multinationals and win.”

While excited by the opportunities presented by the sector, Mr Falconer suggested the London-centric nature of social investment was hampering growth of social enterprises in the North East.

He added: “We’ve got great examples of social enterprises in the region, but we shouldn’t have to go to London to get investment to grow them. There’s a big market in London, and in Europe, which has driven more social investment. Sometimes I can’t help but feel the infrastructure to support that here is lacking.”

A key component of the Social Economy Alliance’s manifesto says that we need a “smarter state” – one that uses its buying power to create social value, delivering greater return for taxpayers’ money while improving the business environment.

It’s a point Mark Henderson also reiterates.

“Too often public procurement tender processes require organisations to provide their last three years’ books, intricate figures and so on. Some of this just isn’t feasible for a young social enterprise, and it’s excluding them from the process.”

To combat these barriers, the FSB has forged a campaign that places the Social Value Act, roughly a year since its launch, at the heart of local authority procurement contracts, to help social enterprises win more work.

Among many activities the campaign involves lifting the procurement threshold with local authorities to create more opportunities and setting targets for the proportion of supply chain work fed through social enterprises by authorities.

Steve Camm, of the North East Social Enterprise Partnership (NESEP) said: “The Social Economy Alliance Manifesto talks about extending the Social Value Act and enacting new EU rules. Winning contracts, especially public sector contracts, is a massive issue for social enterprises in the North East. There has been progress in some areas but more needs to be done to increase the amount of local delivery by local social enterprises/consortia of social enterprises both directly and as part of a supply chain.

“Limiting some contracts social enterprises as suggested in the Manifesto could make a massive difference to the North East economy, especially if these are social enterprises headquartered in the region.”

As the Social Economy Alliance’s manifesto suggests though – the future is not about what the UK government can do for the social economy, but what the social economy can do for the country.

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