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Being a social enterprise and a charity

Dai Powell

This piece first appeared in the February edition of Charity Finance magazine. It can also be viewed online here.

 

Dai Powell explains how his community transport organisation is both a social enterprise and a charity.

HCT Group earns its revenue from transport contracts won in the marketplace. We do not do this to create shareholder value, we do it to create community value. HCT is a charity and a social enterprise. Are these two forms contradictory?

When HCT Group (formerly Hackney Community Transport) decided in the early 1990s to turn the business model on its head and move away from a reliance on grant funding to a reliance on trading, we did so to ensure that the community transport services that we provided were sustainable and could develop.

What was, and still is, the most important aspect of the business model is that the social impact we create is what drives the organisation, it’s what we make the fundamental decisions around, and is at the heart of how we operate.

Trading

The greatest difference between charities and social enterprises is that the latter trade. A social enterprise is a business, therefore it has to compete in the market and sell products or services to support its social mission. To be a successful social enterprise you have to be a successful enterprise.

A charity is a charity, and while some may be more enterprising than others, and some may wish to go down the social enterprise route, it is not for all charities.

Many fantastic charities could not, and should not, go down the social enterprise route. If in their line of work there is not a market, then they should not stray from their charity model.

Social enterprise is not a new funding stream, not a new way to attract money and certainly not a new way to run charities. If anything, social enterprise should be a new way to run business and not a new way to run charity.

So why is HCT, a successful social enterprise, also a charity?

There is one very clear reason why we have chosen this path – having a charity as the owner of the group provides us with the best asset lock we can have. It is, for us, very simple.

We are custodians of the organisation and we will, in time, pass it over to the next generation of custodians. In this manner we will build a sustainable organisation for the long term. Having the asset lock means the organisation, or any part of it, cannot be sold for private gain.

It has been said that having a charity structure will reduce the scope for an enterprising approach as the chief executive does not sit on the board. In small, start-up social enterprises a trustee structure may not be appropriate, but in more mature and larger organisations the structure works well.

In my experience the key is to get a good balance of skills on the board. Even though social enterprises are businesses it does not follow that the best people on your board are from a business background. In some cases these people can be the least valuable. You need a board that understands social mission, that understands risk, that understands that some things therefore fail, and that supports the executive team in achieving the business plan.

Social value

A lot of businesses understand risk and enterprise but not social value– or, if they do understand social value, it is a by-product of their enterprise not the reason for the endeavour. A lot of charities fully understand social value – it’s what they do – but risk and enterprise are difficult for them. Social enterprises fit in the space in between, and need governance structures that reflect this.

HCT is a rapidly growing social enterprise. We have raised capital, have taken on significant lease commitments, have bought premises, and all with a trustee structure. It is easy to use structure as an excuse for not doing something, but in reality problems that arise usually come down to a failure in leadership, not a problem with structure.

Where I feel positive changes could be made is in the role and responsibilities of trustees. A director of a private limited company has a legal duty to maximise shareholder value. But a charity trustee’s responsibility seems to be more targeted at minimising risk, not maximising anything.

If the legal responsibility of a charity trustee was to maximise the impact of the charity’s mission, then maybe charities would be more enterprising. Just a thought.

Dai Powell is chief executive of HCT Group