Wednesday, May 20, 2020
Wednesday, May 6, 2020
how the law is perversely stopping charities and social enterprises from being able to 'trade they way out' of the crisis (unlike private businesses...)
I blogged recently about why we need to stop using the word 'pivot' - but we should keep encouraging everyone to think about how they might make changes to what they do and how they do it (one thing most people seem to agree on is that whatever world we emerge into from this pandemic, it won't be the one we were in when it started...).
And for private businesses, this is fine - they're designed to be orientated to changing marketplaces, and their legal forms mean that they can diversify (relatively) easily.
But this isn't necessarily the case for charities, and social and community enterprises - many of whom are on the 'second line' behind the NHS in supporting communities and people in need.
Now, just as there have been lobbies on government to widen the eligibility of business support schemes that have been introduced, and to introduce new ones, so there have been attempts to get the State to also develop support packages for social and community businesses to help them get through these crisis months.
But there's something else that this all brings up that no-one seems to be talking about (or maybe doesn't want to, because it's too uncomfortable?) - MANY CHARITIES AND SOCIAL ENTERPRISES ARE NOT ALLOWED BY LAW TO CHANGE HOW THEY TRADE.
Let me explain:
- private businesses are usually incorporated with governing documents that say they can trade however they want (as long as it's legal).
- charities have to prove to the Charity Commission when they form, that what they are being set up to do (and how they will achieve this) is in keeping with charity law. And there are clear and strict rules about how they can approach undertaking or developing trading activities within these. Even if they think they will be able to make a change within these, then they need to get the agreement of the Charity Commission first. If they fail on either of these points, then what they're doing will be technically illegal - I don't know of any grant making bodies who would be happy to fund a charity that was doing something illegal. The same also goes for insurance policies: if you needed to make a claim and its discovered that you weren't supposed to be doing that activity because of charity law, then the policy becomes void and the charity is left exposed to its Trustees carrying unlimited personal liability...
- But this doesn't just apply to charities - Community Interest Companies (CICs: the much hyped and promoted legal form for social enterprises) has similar restraints as set out and enforced by the CIC Regulator (albeit with much less clear guidance).
* The Charity Commission shows that there are over 150,000 charities in the UK
* Social Enterprise UK says that of the nearly half a million social enterprises in the UK, nearly 1 in 4 are CICs (so roughly another 170,000)
That means that of the organisations who are stepping up the most in this global emergency to support local communities, roughly 320,000 of them are constrained by law from being able to easily adapt to introduce new trading services or to best respond to meeting the changing needs of people.
And that's why there needs to be more explicit and dedicated support to the sector from the State.