Four opportunities for the for-purpose sector – Reflections on seven years in Europe

Dr Andrew Curtis and Tara Anderson share what they have learnt from seven years in Europe and a year back in Australia about the opportunities for the for-purpose sector.

Arriving back in Melbourne just over a year ago was both a surprise and a relief. 

Unexpectedly we had abandoned a four week visit to eastern Europe and found ourselves on a flight back to Melbourne, rather than a flight to Prague. Self-isolation for two weeks in Melbourne turned out to be nothing compared to what we would have been living through if we had stayed in London.

So, after seven years in Europe (based in London, when the UK was still part of Europe) and a year back in Australia, what have we learnt that can point to opportunities for the for-purpose sector in Australia (and the rest of the world)?

(Note by “for-purpose” we mean to collect the numerous labels used to define social enterprise, not for profits, cooperatives and purpose-driven organisations across the charity and business sector).

With our passion to grow the for-purpose sector framing our view of the world, we see four opportunities:

1. To end (or expose) hubris and ego.
2. To replace noise with substance.
3. To be realistic about impact investment as a source of new money.
4. To balance the for-purpose challenge: mission and money.

Opportunity one: End (or expose) hubris and ego

Donald Trump (remember him?) gave the world a fabulous lesson in hubris and ego. The outcome is he is no longer the president of the United States.

Boris Johnson is another clown of hubris and ego. Under his leadership (and personal ambition to become the PM) the British self-sabotaged their future through Brexit, for a world vastly less diverse and creative on their own.

It should be no surprise if hubris and ego can be so potently on display by political “leaders” that we also find it in the for-purpose sector.

Jim Collins in his widely read analysis of the corporate world, How the Mighty Fall, identifies the first stage of decline as hubris born of success (although it appears we can have hubris even without any authentic success). He writes: “Stage one kicks in when people become arrogant, regarding success virtually as an entitlement, and they lose sight of the true underlying factors that created success in the first place. When the rhetoric of success replaces penetrating understanding and insight, decline will very likely follow. Those who overestimate their own merit and capabilities – have succumbed to hubris”.

Both in the UK and back here in Australia, there is plenty of opportunity for individuals and the sector to end hubris and ego as drivers in establishing either their own career or that of the sector.

As UK social entrepreneur David Floyd writes in his fabulous blog, Beanbags and Bullshit: “There are some problems with the current state of social enterprise. One is that in the necessary battle to get social enterprise noticed at all, advocates of social enterprise have too easily slipped into suggesting that it offers the solution to all the problems in the world ever. Whether or not this is potentially true, it’s definitely not true yet. Not least because the sector is currently very small.”

And he is writing about the UK where, compared to Australia, the for-purpose sector is enormous.

A possible wakeup call to us all might best be summed up in a statement made by an Australian government official responding to a market survey on the sector in 2020: “Many so-called social entrepreneurs appear to be more interested in social media than social impact”. 

Even more painful to read is the observation by Tim Smit, the well-known social entrepreneur and co-founder of UK eco-attraction the Eden Project: “I have met more incompetents in the world of social enterprise than I have met anywhere else”.

Opportunity two: Replace noise with substance

In 2015, Social Enterprise UK (SEUK) announced its global positioning in its annual report, Leading the world in social enterprise. This bold assertion certainly generated a lot of noise.

But this noise lacks substance.

When we were in Tanzania in 2013 we visited a fabulous social enterprise that combined recycling and catering to offer decent work for local people in Arusha. By bringing together able-bodied people with less able-bodied people, they created jobs, amazing glass work, great food and a profit. They had never heard of SEUK.

In 2015, we were working with a very small charity in the north of London that wanted to be accredited as a social enterprise. This was on the basis that people with learning disabilities made candles that were sold at Christmas. We paid $75 on their behalf and applied for SEUK accreditation. We were intrigued to see if the organisation “leading the world in social enterprise” would conduct any due diligence to accredit this small charity. Within less than a week we received a sticker – “accredited social enterprise” – and found ourselves part of that leading social enterprise global authority. However clearly the organisation that had been accredited was not a social enterprise. But it did want to join the noise.

It is unfortunate in life, that along with hubris, comes a lot of noise. The great opportunity for social enterprise is to recognise that substance can overcome noise. 

Australia’s social enterprise certification framework developed by Social Traders is a good example of this. And there are many fabulous examples of social enterprises with real substance all around the world. Caritas Europa is one example. They don’t make a lot of noise, but their work on the social economy, their European-wide impact and the focus they have on the integrity of their work more than makes up for the lack of noise.

Opportunity three: Be realistic about impact investment as a source of new money

A lot of effort is currently going into the emerging social investment sector. And it’s no surprise that the UK’s Big Society Capital – established during the reign of David Cameron as PM in 2011 – is regularly referenced in Australia as an outstanding example to follow.

Since 2011, impact investing has grown by leaps and bounds in the UK to the point where at a debate we attended on the ups and downs of the impact investment market, one gentleman from a social impact fund made an impassioned attack on what he called “free money”. It apparently was a blight on society perpetrated by out-of-date and left-wing ideology. Free money, or philanthropy as some might call it, was the enemy of debt finance for the social sector. Debt finance was rebranded as “impact investment”.

Whatever you may think of that debate, the reality is that impact investment opportunities will be largely irrelevant to the majority of social enterprises and for-purpose organisations in this country.

According to the November 2020 survey of the for-purpose sector from the Centre for Social Impact, 47 per cent of social enterprises have between one and four employees, 29 per cent have between five and 19 employees, 19 per cent have 20 to 199 employees. Only 5 per cent have over 200 employees. Out of these four categories, who do you reckon impact investing will target? Who do you think will most likely be “investment ready”?

Unless you can handle an investment loan between $500K and $1 million and be able to repay it at a rate very similar to that of your local bank, then impact investing will be very, very elusive.

There are real lessons to be learnt from the UK that suggest impact investment may not be the golden nugget that solves social challenges in the way it often promotes itself.

In a paper from the World Economic Forum focused on the six things holding back the social enterprise sector across the world, we find this: “In the social sector, investors come to a social entrepreneur and say: ‘we love what you have built, but here are our priorities that must be included in your business execution’. Social entrepreneurs are then tasked with bending their models to serve the needs of the funding community over the needs of those it is their mission to serve. This misalignment is distracting to the scaling efforts of social enterprise and does not allow the entrepreneur to direct growth in the most efficient and effective manner to meet social needs… In addition, there are persistent doubts about whether an enterprise that must deliver significant returns can be free to pursue and prioritise social change.”

Opportunity four: Balance the for-purpose challenge – mission and money

Ever get a sense that there is a fearful focus on money across the for-purpose sector? Ever get a sense that the more the for-purpose sector grows, the more it appears to attract people from other sectors – like the big consultancies, corporates and banks, especially at the board level – who are focused on finance with little or no exposure to the for-purpose mission?

We all know that a finance and audit committee has the responsibility of assisting the board to fulfil their corporate governance and oversight responsibilities in relation to financial reporting, internal control structures, risk management and external audit functions. Finance and audit committees are a crucial function in organisations large and small across all sectors to assist in guaranteeing financial health.

But in the for-purpose sector, there’s a whole other (arguably more fundamental) driver of organisational success: social impact. So, what about a committee in for-purpose organisations with at least equal standing to a finance and audit committee called a mission audit committee?

The global corporation Danone provides a good example of how crucial this can be. Danone become the first listed company to adopt the “entreprise à mission” model created by French law in 2019. This embedded the legal entreprise à mission (in English “company in mission”) framework within its articles of association. It included a new governance arrangement to oversee the progress of its environmental, social and societal goals. The significance of the “mission audit committee” at Danone is that it constitutionally enshrined its mission. This safeguarded the company from recent shareholder activism (focused on the money and advocating for a change in the company’s approach to doing business for good) that attacked and removed the CEO Emmanuel Faber. But this activism has not been able to derail the company’s environmental and social mission because it was enshrined as a legal constitutional requirement.

What can we learn from this European experience?

As more and more of the for-purpose sector is influenced by sectors outside its experience and focus, it can and should robustly scrutinise and hold to account its mission performance as well as its financial performance. This is more than just an endless set of statistics rolled out to prove numerical “impact”, like another spreadsheet.

A mission audit committee with a strong representation of practitioners (those with real life experience of delivering services that address the real challenges of inequality and environmental decline), will ensure mission and social impact is measured and achieved. A complementary finance and audit committee will ensure that the organisation remains financially viable. Both are fundamental, but for some reason, parts of the for-purpose sector have adopted the for-profit mantra of: money first, mission when we can afford it.

Four opportunities no more?

There are many other opportunities that we can explore including what good governance is in the for-purpose sector, how we can combine individual outcomes with systemic change to achieve collective impact, and how networks can be used to integrate not disintegrate. The list goes on.

The moment we figure we have no more to learn is the moment we need to go back to the first opportunity – end hubris and ego, and try some humility and lifelong learning.