The convergence of the commercial and charity sectors

Introduction

Over the last ten years it has become increasingly apparent to me that social impact is not the sole preserve of charities; and I don’t think this has been fully understood by the charity sector or the implications of it.

I’d like to briefly explore the history of the charity sector, the burgeoning social impact business sector, and the lessons and implications of this somewhat undefined and nebulous social impact ecosystem.

Of course any thinking about these issues needs to sit within the context of a world that continues to undergo unprecedented change. The industrial revolution which began in the early 18th century has seen unparalleled productivity and growth. Technological progress has been wonderful, and yet the dark and possibly existential threats caused by the unbridled extraction of the earth’s resources are a real and present danger. And all this at a time when more people are alive today than have ever lived. When my parents were born there were 2bn people on the planet; today we are heading to 9bn. Not to mention the shifting geopolitical plates of alliances, the rise of populism, the emergence of AI and wars breaking out across the globe.

Brief history of charities & philanthropic endeavours

The history of charities in the UK is a far too expansive undertaking to even attempt in a short essay. However, there are a few salient facts that provide us with some sort of context to help us develop our thinking.

We have charities in the UK which can trace their origins to the 6th century. Indeed, the oldest that I can tell is King’s School Canterbury formed in 597 AD, closely followed by King’s Rochester in 604 AD where as it happens, two of my sons went to school. Organisations have existed for centuries to support people (and later animals) for whom other avenues of support were unavailable. Charities were often schools or hospitals, and they were frequently established by religious groups.

Another key milestone was the foundation of Bridge House Estates in 1282 which collected funds to maintain London Bridge and continues to this day to disburse funds to causes. We can see in the first statute of 1601, reference to a statutory definition of charity, albeit because Elizabeth I wanted charities to be accountable. Moving on a few centuries, I’ve always found it curious that the formation of the RSPCA predates the founding of the NSPCC, 1824 versus 1895 respectively; I’m not entirely sure what this says about our priorities, but 70 years seems like a hell of a gap.

There have been voluntary and charitable endeavours before they became statutory obligations. The probation service was originally an initiative of the Church of England Temperance Society before becoming a state activity in 1907, coincidentally the same year that Baden Powell took some young chaps to Brownsea Island and so began scouting.

Even with state intervention in the first half of the 20th century and the birth of the welfare state in the late 40s, the need for charities continued to grow. The increasing range of charitable purposes defined now in the latest Charities Act give some indication as to the expansion of the sector. Today there are something like 200k registered charities across the UK employing about a million people.

Yet despite the many travails of recent years, including increased public, media, and political scrutiny, brought on by issues such as woeful fundraising practice (think of the Olive Cook scandal), prominent charities failing (think of Kids Company), safeguarding concerns (think Oxfam), and the unfair (in my opinion) criticism of charity CEO salaries, the sector continues to play a crucial role in society. In fact, the Charities Aid Foundation suggests that 90% of households have engaged with charities.

But, charities are not the only social impact organisations on the block!

Social impact businesses

I discussed earlier about the way in which society has changed in an unprecedented way. The world of business is also changing.

Fifty years ago, the Nobel Prize winner Milton Friedman, articulated a doctrine about business that has influenced the markets ever since; and been taken by the majority as gospel. His view quite simply was that the purpose of business is to maximise value for shareholders. In other words, the business of business is business. His view was a market unconstrained by state intervention and free competition. His believed that the social responsibility of business was to continually increase returns to shareholders.

Milton’s paradigm of continued growth was challenged by a contemporaneous work in the 1970s by the Club of Rome and researchers at MIT who concluded that the continuing use of resources combined with population growth would see an inevitable limitation on growth and in fact a contraction. In recent years critics have argued that this sole variable by which business is measured, i.e. profit, does not consider wider systems thinking and that a business can only thrive if it is part of an interdependent system where everything else thrives. And the talk is not so much about Shareholders, as it is about Stakeholders.

People who think about economic systems are beginning to talk about People and Planet, as well as Profit. In fact, there are lots of organisations producing serious work in this space such as New Economics Foundation, or organisations such as the Ethical Trading Initiative, and ShareAction.

We’ve heard that Larry Fink of BlackRock is a believer in this principle, not without pushback. And in 2020 half the CEOs of the Fortune 500 described how the pandemic had accelerated their journeys from a shareholder economy to a stakeholder economy. I recently got to meet Alan Jope, the lately departed CEO of Unilever, where he said that Unilever “aligns its commercial interests with it social and sustainability interests.”

Hence, we see the rise of movements such as the B Corp Movement, companies that combine profit with one or more purposes of positive impact on the environment and/or the community. There are now almost 7,000 Certified B Corps but perhaps more telling, over 1/4m businesses around the world that have used the B Impact Assessment Tool to assess their own performance across governance, community, customers, workers, and the environment; the 5 pillars of assessment to become a B Corp. Less than 3% of companies using the tool hit the magic score of 80, the threshold for which an organisation can apply for B Corp status. But they are using it!

Trustees Unlimited, which I helped found in 2009 initially as a joint venture between Russam, NCVO and the law firm Bates Wells, became one of the first B Corporations in the UK, and indeed Russam, a related company that I am Joint MD of, became a B Corp this year. In terms of Russam, we needed to amend our Articles to reflect that stakeholders are as important as shareholders and that we are focused on the double purpose of profit and positive impact.

But for exemplars one needs only look at organisations such as Patagonia, a B Corp whose founder has donated the property rights of 98% of the company.

So the world of business is changing, in fact last week I attended a social event with other B Corps and got to meet B Corps who were manufacturers of beds, a cleaning company, and a luxury mattress provider!

What does all this mean for those of us who want to create social impact?

I’d like to suggest five areas for us to think about: convergence, understanding public mood, leadership, funding, and EDI.

Convergence of sectors

Businesses and charities can learn a lot from one another and are not altogether dissimilar. In fact, I see a convergence. A few months ago, my business partner and I were at a conference in Amsterdam with over 2000 leaders of social impact businesses, many of whom were B Corps. But I could just as easily have been at a conference with 2000 charity leaders; such was their zeal and passion to change the world. So, charities do not have a monopoly on achieving social impact. Nor does business.

Even in the sharp elbowed world of PE we are seeing change. Two of Russam’s clients are Ambienta and HyCAP, and both have clearly made sustainability and environmental concerns a core strand of their work. The former by investments driven by environmental sustainability drivers, and the latter by investing in the hydrogen economy.

And of course, with the emergence of a generation of digital natives in the workforce, we are seeing people create initiatives that are not charitable in the legal sense but that are helping people in ways in which traditional charities could not envisage. Think of the proliferation of FinTech and the use of gaming, to name but two examples where tech can make a fast and global impact.

And then in the domain in which I operate, the labour market, we are seeing both a more discerning workforce in terms of the type of organisation one works for, and an expectation on living costs which means charity wages prohibit people from entering the sector. How do charities navigate this? If I as a young person can get a graduate job at Patagonia, or Unilever, or Innocent Drinks … why would I choose to work for a charity that pays me 50% less?

Public attitudes

In a recent global analysis of public attitudes to institutions carried out by the Edelman Trust, it found that 73% of people were favourably disposed to companies whose impact in communities within which they operate was important, and 87% that stakeholders rather shareholders are the most important figures for long-term success of companies.

This tells me that consumers and more broadly the general public will help shape the future of business, and they will do this because of their purchasing power. This could be by boycotting certain products or services, and, as I alluded to earlier, by being more discerning as to the types of organisation they wish to work for. Even in my own home we are now wherever possible buying our granola and other staples from B Corps!

What young people choose to study at university will change. I was having a coffee recently with a professor who teaches at a well-known business school who now offer a degree in Business Management with Social Purpose; and they have just had their first graduate. This type of degree will only grow in popularity and significance.

Leadership

This new way of doing business means that individual members of boards and executive teams need to have characteristics which hitherto have not necessarily been the criteria of disciples of Friedman, but that have been more prevalent on charity boards: kindness, empathy, the ability to understand complexity, and a systems view of the world.

This type of leadership might be considered radical, certainly in a business context, but I think it is more evolutionary, and certainly more necessary. The organisation builders of the future will look very different to their forebears.

NEDs and Trustees need to be insightful, be clear on their role as overseers, but they must have the third leg of the stool which is to have foresight; to see which way the wind is blowing. I also think this means, and I know this is a controversial opinion to hold, to not be beholden to virtue signalling particularly when it is a small but vocal and angry minority calling for societal change that goes way beyond what is reasonable … although I recognise that my version of being reasonable and showing restraint is an affront to those of a postmodern disposition who want to destroy the Judeo Christian principles upon which Western Society is built.

Both charities and businesses need to think much longer term in their decision-making processes. We have seen how the public suffer when governments think short term, and I’m thinking about the lack of capital investment in schools as a current manifestation of that, but what the same applies to charities and businesses.

Both need to think about how impact is measured, and there needs to be a common understanding of what we mean by outputs and outcomes. Data and information collection need to be built into strategic plans and organisations need to evaluate and test their thinking against the evidence.

Funding

There is some research which suggests that investors are attracted to companies that innovate and those that that take ESG seriously tend to be less risky investments. Indeed in 2021 44% of B Corps said that they believed being B Corp helped with the initial attraction of their investor.

But the financial markets are amoral, they just measure money. Because they cannot easily assess social impact, although ESG measurements go some way to achieving this, we need to look to other ways of transacting such as social stock exchanges or charities such as Big Society Capital which uses private money for financial and social return. Although it is worth remembering that social investment is not new, Peabody and organisations such as the Industrial Dwelling Society were offering four per cent return to investors on the building of social housing at the end of the nineteenth century.

Charities cannot take their status for granted. The donations will not always flow easily and in an increased age of public, media, and regulatory scrutiny, charities need to epitomise good governance. I have learnt this the hard way by agreeing to work with the family of Sir Captain Tom and help build the board of The Captain Tom Foundation, only to see all my candidates disappear as they, and I, learnt about conflicts of interest and other issues!

EDI

A final observation and that is about EDI. This is a huge area, fraught with difficulty, and I must say, an area that the commercial sector has possibly done better with. On the issue of ethnicity for example, only 8% of trustees are from an ethnic background compared to 14% of the population, whereas 96% of the FTSE 100, as of March this year, had at least one person from an ethnic background on their board. In fact, 1 in 5 charity trustees are called David or John. The repost comes from movements such as #Charity so White, which has been vocal in calling for change to the leadership of charities.

39% of FTSE 250 board members are women which is comparable to charity boards, currently 40%. And so, progress has been made. But we now have very vocal groups calling for more emphasis to be placed on other protected characteristics such as LGBTQ; I’m thinking of a recent campaign by #Charity so Straight. This is a difficult area that needs careful thought, and in my personal opinion, reasoned and unemotional debate – making sure as leaders we are not pandering to an unreasonable vocal minority, and not virtue signalling just so that we can be seen to be ‘on the right side if history’.

Conclusion

But have we really entered a new era, or should we go back to understand the future? I’m talking of course about characters such as Victorian philanthropists like Angela Burdett-Coutts (who worked with Dickens to alleviate poverty in the slums of London), George Peabody, George Cadbury and Andrew Carnegie; all who combined their business endeavours with their philanthropic passions. Perhaps there have always been free thinkers, progressive industrialists, and champions of society … we need to make sure that whatever role we find ourselves in, whether it be a NED of a FTSE company or a Trustee of a small charity, we play our part in creating the space for social impact to flourish, and that look around us and learn from one another.

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