Caught in a spin – can impact unlock a contract?

I have recently had the honour of being involved in the Investment and Commissioning Panel for the Impact Management Programme (IMP). Examining a range of exciting submissions from across the country, I have read how enterprising organisations are seeking funding from the Impact for Growth strand of the IMP to raise investment for their work or write successful tenders, and in many cases to seek contracts with the Public Sector.

A healthy number of these organisations have also secured previous ‘social investment’ to help with their contract readiness.

But experience leads me to query why an ability to manage their impact will make these charities, social enterprises and ‘ventures’ more likely to secure a contract with the Public Sector?

As Adrian Hornsby wrote in an article for the same programme in October 2017:

“ventures and commissioners ‘pass like ships in the night’; and with commissioners showing hesitancy around impact, and social investors inevitably following revenues back to commissioners, the question arises as to where the essential driver for impact management can be found.”

Adrian’s article added to my questioning; what would be the motivation for managing and explaining your social impact if social investors and commissioners pass the buck back and forth between them?

Having been involved in commissioning services from voluntary, community and social enterprise (VCSE) providers for many years, I wonder if the problem for commissioners goes deeper than just a ‘hesitancy around impact’…

Perhaps it is a wilful misunderstanding caused by austerity and the need to make financial savings and efficiencies caused by pressures on the public purse?

In their desperation to raise income to replace lost government money, public agencies are courting partners who they think will bring in additional funds, and not necessarily giving social impact the proper consideration that it should be given.

Essentially, they see social impact as a means to draw in money without fully understanding what social impact means.

Furthermore, we could be heading for a situation where the Public Sector descends into simply becoming a ‘regulator’, diminishing their commissioning role completely. With the reduced strategic contracting capacity of a local and independent organisation with responsibility for public benefit, who will encourage social impact when all society’s ills have to be addressed purely by free markets?

Back in the days of plenty when I worked for Salford’s New Deal for Communities programme, we could afford to work with our providers to understand their impact and the outcomes that they were generating for us. We could even afford to provide training in the tools and techniques which are now part of the IMP.

Now we live in a vastly different world. With the increasing squeeze on public budgets, I am witnessing an appeal from the Public Sector to charities, social enterprises and ventures to bring in other money – grant funding and social investment – for services and activities which were previously fully funded by the Public Sector.  But why would people with money invest in these services – unless there is something for them in it?

In Salford, the amount of money flowing from the Council to the VCSE sector through contracts and grants has reduced by over 40% in the last 5 years. Our research shows that the middle is falling out of the sector – small community groups which rely on volunteers continue to thrive, their members driven by a shared interest in tackling unfairness, poverty and inequality in today’s society; and the larger ‘enterprises’, many of whom are national organisations or Public Sector spinouts, continue to succeed in contracting.

This leaves small and medium-sized ‘ventures’ caught in a spin between the Public Sector pushing them towards grants and ‘social investment’ as means of enhancing dwindling budgets; and social investment providers offering support for them to be ready to contract with the Public Sector.

I believe that the Public Sector doesn’t really understand that ‘social investment’ must get a return, just like any other form of borrowing, and social investors don’t really understand the state of panic in the Public Sector.

So, should this be where impact management fits in?

Public Sector commissioners want services, and they want outcomes. They want people to have better wellbeing, better lives; and ultimately, they need people not to need public services so much.

Social investors want many of the same things, but these outcomes must be measurable and accountable. They need to understand the financial and the social return, they may need to see financial growth, but ultimately the investment should be repayable in both social, and often also financial, impact one way or another.

So, a better understanding and management of the impact that a charity, social enterprise or venture is creating will help bridge the gap between the investors and commissioners.

And, I believe that it is also essential for their survival.

The NeuroMuscular Centre (NMC) in Cheshire has been part of the GSK Impact programme for several years. Over a 10-year period, NMC has kept social accounts, covering both the impact that the Centre is having for service users, their families and other stakeholders, and how it is managing the organisation in financial terms to maximise that impact.

NMC has a greater understanding of outcomes and impact; continuous dialogue with service users, funders and commissioners which takes places to prepare the social accounts; and the ability to accurately describe their impact in tenders, funding bids, and publicity. All this has helped this organisation triple its turnover and move from a position of uncertainty to one of a secure and rosy future.

By embedding social accounting and audit as a means of impact management, NMC has broadened its financial base, grown in size, and secured its position as the leading provider of services for people with neuromuscular disease in the country.

And who should pay for this impact management? I believe that if commissioners or social investors want evidence of ‘impact’ they should also have to pay for the work evidencing the impact…

In conclusion, there will always be a need for social and community organisations to take the heat out of the public purse – social accounting and impact management are probably the best ways for them to achieve this.

Social investors and Public Sector budgets will come and go, but the people who need support from charities, social enterprises, and other community-based organisations will always be there!

Ultimately, I believe that the essential driver for impact management should, therefore, be to achieve the best possible outcomes for the people (and/or the environment) that an organisation supports, and in doing so making it relevant, investible and successful for the long term.

Anne Lythgoe, Social Audit Network (SAN)
www.socialauditnetwork.org.uk 

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Social impact and challenging the ‘sacred cow’ of how financial accounts are presented

Definition: ‘sacred cow’ (noun) – a belief, custom, etc. that people support and do not question or criticise: Example: They did not dare to challenge the sacred cow of parliamentary democracy (Cambridge Dictionary)

Challenging ‘sacred cows’ is a bit of a dodgy business and may get me into hot water.  But I take courage from the work of John Pearce and his life’s work which was always challenging the status quo and trying to approach economic, social and community problems in a different, innovative and often pragmatic way.

I had the privilege of working with John Pearce for most of my working life.  In many ways he was quite a complicated character – forming alliances, charming people, making enemies, challenging the norm… But always taking the side of the dispossessed, those with fewer advantages and the folk that are made to feel like pawns in, the supposedly ‘normal’, economic system.

John and the work that he did was ways ahead of his time.  I recognise that this is a cliché but it is on record that he started and developed initiatives that were only appreciated much later by the established mainstream.  Here are some examples:

  • in the 1970/80s, he proposed that community development had to include local economic development in a much more tangible way. Money, earning power, ‘good’ work was integral to social change within communities – and he believed that local folk could take control of their own economic activity for the wider benefit.  John, along with others, started the community business movement in Scotland;
  • he thought that acting locally but thinking globally was crucial to avoid community and national introversion. John, again along with other like-thinking people, established COMMACT (an international network dedicated to sharing community development practices);
  • in 1990 he pushed for the establishment of a fund owned and controlled by the community business movement to enable community businesses to have access to capital which was not being provided by high street banks or traditional investors. John led on the formation of the Scottish Community Enterprise Investment Fund which was active for 10 years before it was incorporated into the Charity Bank;
  • he recognised that organisations with a central core purpose of social and community change had to get better at explaining and reporting regularly on their social and community impacts as well as their values, approach, and credentials. John initiated the process of social accounting and audit running alongside financial accounting and audit.  This moved him (alongside others) to found the Social Audit Network (SAN).

I could go on explaining some other aspects of John Pearce’s approach and work but they have been documented elsewhere and re-surface annually in the John Pearce Memorial Lecture.

Essentially, John’s work often challenged the ‘sacred cows’ of traditional economic community development.  He believed that social and community enterprises/businesses should do things differently and not ‘ape’ traditional business.  He pushed for business planning to become a more relevant form of social enterprise planning; for social capital to be part of a local community enterprise strategy; and for social benefits to be recognised as having an integral and tangible value.

And this latter point brings me to an area that John worked on but never really followed through.  It has remained an idea, I believe, that is yet to come.  It is about changing the way financial accounts are presented to show the amount of time, money and resources that have been used by social and community enterprises in furthering their social and community aims.

Back in 2004, he referred to this in a short paper included in the Social Accounting and Audit Manual and called it the ‘Social and Economic Impact Accounts’.

What John was trying to show was that financial accounts could be presented in a way that separated out the Trading Costs from the Social Benefit Costs.

Please bear with me and I shall try to explain using an example of a community-owned shop and cafe.  In the interests of illustration, I have used a table – which is rarely normal, and the figures are made up…

Table 1

John reckoned that this simplified but traditional accounting of profit and loss could be recast.  The re-cast shows Revenue Costs divided between Trading Costs and Social Benefit Costs.  By illustration, as follows:

Social & Economic Impact Accounts table

The ‘sacred cow’ of financial accounting presentation has, of course, been subject to examination and change before.  Academics, in particular, often re-do traditional financial accounts to take account of environmental and social change.  They refer to this as ‘shadow accounting’.

Similarly, the Office of the Scottish Charities Regulator (OSCR) asks for charitable financial accounts to separate out Governance from Charitable Activities.  I seem to remember that the new economics foundation presented their accounts in their annual report some years ago, applying a similar principle to the example I outlined above the one above.

I realise that thinking along the lines John outlined, will require a lot more work by qualified accountants and their respective bodies – but hopefully, the principle could still be applied.

If social and community enterprises adopted this as a regular practice there are a number of clear benefits, namely:

  • there is an openness in understanding the social and community enterprise priority towards social and community benefit;
  • it can help a Board of Directors make more transparent decisions over resource allocation;
  • it can, to a degree, help in our collective understanding of what a ‘social enterprise’ is actually doing; as opposed to what it says it is doing;
  • it can lead to better management of a social or community enterprise as it can assist a social enterprise to assess just how much social benefit it can afford to engage in without compromising its financial sustainability;
  • it might help when an enterprise asks for funding for its social and community aims as opposed to requesting funding for the overall expansion of its business;
  • it can counter the argument for Social Return on Investment (SROI) that has received considerable support in recent years. This alternative approach requires a focus on the real costs of providing social impact rather than trying to monetise all the outcomes into an impact score;
  • it is especially useful for a social enterprise whose audited accounts show that it is only marginally viable (or even loss-making) whereas the true picture is that it is fundamentally profitable but devoting (perhaps too much) surplus to social benefit.

I admit that the Social and Economic Impact Accounts are based, to a degree, on assumptions and allocative decision-making within the enterprise.  But at least there would be greater clarity and more understanding of the type of organisation it is, and how much it focusses on social aims.

Back to John Pearce.  I mentioned at the start of this piece that he was ‘complicated’.  True. but he was someone with a clarity of vision and a clear idea of how we, through working collectively together, can change things for the better.  He believed that the way to do this is within your own community – and if along the way you take a poke at a sacred cow or two, so much the better…

Alan Kay, Social Audit Network (SAN)
www.socialauditnetwork.org.uk