The triple bottom line

by Lesley Meall
29 Oct 2005

Topic: Business

Not all businesses exist simply to make as much money as possible, as Lesley Meall finds when she looks beyond the profit motive with Jonathan Bland of the Social Enterprise Coalition

What do a Scottish wind farm, a South African e-learning centre and a Chinese ink cartridge recycling company have in common? They are all social enterprises.

Not one of them is a straightforward business with a simple profit motive and a single bottom line. Each, in their own unique way, is trying to combine economic prosperity with social contribution and environmental integrity - which was just what Jonathan Bland was hoping to do when he abandoned accounting and finance, a year into his course, and started doing a social science degree. Fast-forward 20 years and he is the chief executive of the Social Enterprise Coalition (SEC), the voice of the social enterprise sector in the UK.

Social enterprise is a way of life in some parts of the world, in others it’s a necessity, but in many parts of the West it is widely misunderstood. “This is one of our biggest challenges,” says Bland.

Enterprises take myriad forms, but many people (accountants included) see only the extremes. At one end there are charities, where we think in terms of rich people doing things for poor people; at the other end there are private businesses, which are all about maximising shareholder value. But as Bland explains: “There are lots of organisations that fall somewhere between the two, taking many different approaches to social enterprise, and that’s where really dynamic interesting things are happening.”

Cafedirect

Cafedirect was formed a decade ago to help strengthen the influence, income and security of coffee growers in developing countries - and connect them with Western consumers. “Without profit, we are not sustainable ourselves,” says Penny Newman, its chief executive. But the company has demonstrated that, by taking an ethical and responsible approach, both ends of the supply chain can benefit.

Cafedirect exceeds the established Fair Trade price minima, always paying above world market prices; it also runs tailor-made programmes to support its growers. In 2003, for instance, it invested 8% of its gross profits in training programmes to provide them with market information and management skills. “We help producers in developing countries get the correct price for their goods and provide a sustainable livelihood,” says Newman, and, because Cafedirect gets the pick of the crop, it also provides customers with high quality beverages.

It’s an approach that’s proving popular with consumers and investors. Cafedirect is now the sixth largest coffee brand in the UK and, when it recently launched a public share issue, it was massively oversubscribed.

www.cafedirect.co.uk

In the UK, these include: Glas Cymru, a company limited by guarantee and formed to acquire the public utility supplier Welsh Water, improving water quality levels and charging customers less now for their water than they paid five years ago; Hesket Newmarket Brewery, a co-op that was formed to save a small local business, and operate it in the best interests of the community, helping to protect and support the tourism that many other small enterprises rely on; and the Pack-IT Group, a social firm that supplies storage, distribution, mailing and internet services, with a workforce that is an equal mix of able bodied staff and those with learning and physical disabilities, all of whom have regular contracts, salaries above market rates and pensions.

But there are almost as many approaches to social enterprise as there are social enterprises (see Cafedirect, Hill Holt Wood and the Dancing Ladies of Gigha). “Social Enterprise isn’t about being any particular type of organisation,” comments Bland, “it’s a case of form following function.” There isn’t one legal structure for social enterprise, but the UK has a framework that supports co-operative societies and community interest companies, as well as mutuals, bodies with charitable status, social enterprises limited by guarantee, social enterprises limited by shares, and enterprises combining a mixture of approaches. “People use the model which best helps them to achieve their social objective,” he says. “There isn’t any one approach that is any better than any other.” Different solutions solve different problems.

Hill Holt Wood

When Karen and Nigel Lowthrop purchased 34 acres of deciduous woodland they had a dream. “We wanted to set up a self-sustaining woodland that would also be of benefit to the local community,” recalls Lowthrop, and over the past 10 years he and his wife have done just that.

Woods don’t usually make money unless you chop them down, but Hill Holt Wood is different. It’s a working wood, with public access, that promotes environmental issues and seeks to educate the public on related issues. “It’s about long term sustainability of the woods, the community involved, and making an income,” says Lowthrop.

At Hill Holt Wood felled trees are made into wood products such as furniture, plants and animals are managed, while its wide spaces are used to provide education and training facilities. One of its main programmes offers an alternative route into employment for young people who have been excluded from school or are trying to gain employment based skills. “It’s a different approach to the countryside,” says Lowthrop, “which is an amazing tool for changing people’s lives.”

www.hillholtwood.com

The SEC helps by being what Bland calls “the CBI of social enterprise”. “Because we are a very broad church, we have brought people together in a unique way,” he says. “We are able to provide a more powerful voice with the Government and other key stakeholders, and we are helping to broaden understanding of what social enterprise is” - something that doesn’t happen elsewhere in Europe. “I think we are doing pioneering work,” suggests Bland, “and people are looking with some interest.” The SEC is often invited to take part in joint projects with organisations overseas, and has received visits from as far afield as China and Korea. But it has to keep its primary focus on the UK. “We don’t have unlimited resources,” he says, “so we have to prioritise carefully.”

This puts the SEC in much the same situation as the social enterprises it represents and supports. “If you are trying to deliver your social or environmental objectives through your business,” says Bland, “then you will always be trying to balance a double or triple bottom line.” This is something that creates problems for social enterprises, particularly in terms of finance.

If you are running a profit-making enterprise so that it can support the social or environmental objectives of its parent, money is often spent in ways which don’t enrich the financial bottom line but do change people’s lives dramatically. If you bring venture capital into an enterprise, there is usually an expectation of floating the business or selling it on, but social enterprise is not about maximising profits. So, as Bland observes: “There is a delicate balancing act when it comes to raising money, as UK finance institutions are geared to a conventional model of doing business.” This can make it difficult for social enterprises to find “patient capital”.

The Dancing Ladies of Gigha

They’re affectionately known as Faith, Hope and Charity among the locals, but the Dancing Ladies of Gigha are actually wind turbines. They belong to the Isle of Gigha Heritage Trust, which was established in 2002 when, after years of decline, the local community bought the tiny Scottish island from its private owners.

The trust aims to regenerate the island through sustainable housing and a wind farm. So far, so good. It’s paid back the money it borrowed to buy Gigha, the number of inhabitants has increased from 100 to 130, the school is no longer threatened with closure, and the second-hand turbines ran at a profit from the first day of operation. “By year eight we will have built up a capital re-investment fund sufficient to replace the machines without recourse to further financing,” predicts Alan Hobbett, development manager for the trust.

The Gigha community is using part of the money generated by the windmills to refurbish the trust-owned housing stock and make it more energy efficient, helping to protect the future of life on the island.

www.gigha.org.uk

In other parts of Europe the situation is a little different. “There are some interesting finance models in Italy, and Spain has some very creative ways for certain types of people to set up a social enterprise,” Bland suggests. For example, when you lose your job in Spain, you have the option of capitalising your unemployment benefit, taking it as a lump sum and putting it into a social enterprise.

Bland believes that others can learn from these differences in approach. “Civil servants need to understand what social enterprise is in order to reap the benefits it can provide.” Finance professionals also have a role to play.

“I’d love to get some of the best brains in accounting thinking about social enterprise,” says Bland. “If you look at our website and get to understand the range of business opportunities, you may be able to identify all sorts of possibilities,” he suggests. Ask yourselves: how can we incentivise people to invest in social enterprise? Is there a form of tax relief that could help? How can we encourage communities and individuals to take some responsibility for changing things for the better? Do social enterprises represent a potential market for your firm? “We want our members to be able to get the best possible advice and support from accountants,” says Bland, “and for finance professionals to see social enterprise as a vibrant growing market.”

If you want to know more about the SEC, visit www.socialenterprise.org.uk or attend its annual conference on 25 January 2006. Meanwhile, if any of you would like to explore ways of working with the SEC, Jonathan Bland would like to hear from you.

Lesley Meall is a writer on business and technology issues.

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The triple bottom line