Friday, September 3, 2021

Is the growth in CICs actually damaging the wider social enterprise movement?

Some people may be aware that I've always questioned and challenged the Community Interest Company (CIC) legal form (see previous blog posts here) - largely because I've found that most social enterprises who've incorporated with this form have subsequently learnt that it wasn't actually the 'best fit' for them and their business model, and because what they're usually presented/'sold' as it being, doesn't actually stand up to scrutiny when looked at by evidence and research...

However, there are several social enterprises out there that I've supported to gain this status - I've always seen my role as an adviser to help people make better informed choices, not to tell they what decisions they should be making.

And it's in that vein, that I come to be typing this latest blog - prompted in part by a recent article by Pioneers Post on the 'explosion' of CICs during the pandemic: https://www.pioneerspost.com/news-views/20210825/record-number-of-community-interest-companies-amid-rise-of-grant-funds and CIC regulator wind up extent and causes


My concern about this sudden 'blossoming' of CICs is that rather than being a good thing in showing the growth of social enterprise in general, it may actually be more damaging to the sector in the long run...

Let me walk through through my thinking here, so as to try and help clarify and explain this rather bold assertion - and as always in my blog posts, you can leave comments to refute or challenge any of these:

1) Social Enterprises should be trading businesses, but most CICs aren't

In the absence of an overarching legal definition of what absolutely defines a social enterprise, the sector bodies have reached a consensus on what their defining characteristics should be (interestingly, none of which specify particular legal forms). Front and centre in these is that a social enterprise should be (or be clearly moving towards) generating most of its income from trading activities - but there is no requirement for CICs to need to trade, in order to generate their income or achieve their social mission! 

  • when you apply to be a CIC, the application asks "if" you make a profit, not "when" - so the CIC Regulators' assumption is that most CICs' default business model will be that they expect to them lose money each year and/or will be reliant on grant funding to achieve their social purpose (you can't make a profit/surplus from grants);
  • according to the CIC Regulator in their own published annual reports, most of the CICs they register will be wound up within 18 months - usually because they were unable to access the grant funding that they thought this legal form would enable then to be awarded.

2) Why are social entrepreneurs being encouraged to set up social enterprises in ways that mean they don't need to trade? 

As this legal form seems to be oft promoted to start-up social enterprises and social entrepreneurs as being the 'best form' for them, but it doesn't actually require them to act in ways that facilitate them to better meet the qualifying criteria of being what they say they want to be - how do we reconcile this apparent contradiction?

3) Are the public now seeing CICs as another form of charity, creating confusion about what social enterprise really 'is'?

If the most feted legal form for social enterprises to adopt therefore doesn't encourage the 'social enterprises' using it to act as social enterprises (with some evidences finding that CICs are actually more reliant on grants than charities are!) - it's going to cause confusion amongst others (who are already confused about what social enterprise is from the lack of a legal definition). If CICs are seen as not trading to achieve their social purpose - how will this not confuse people as to the need for social enterprises to trade: are social enterprises therefore just another type of charity, rather than a revolutionary/innovative/transformative way of doing business?. And this confusion will surely mean its harder to create more consistent messages about what social enterprise is and can do, in order for the sector to realise its full transformative potential.



However, as will all things, there are exceptions to the above - there are social enterprises out there who've never taken a penny in grant funding; who have found clever ways to harness what many feel to be 'too risky' elements of the CIC form with regards to the powers of the CIC Regulator over them; and who are trailblazing for the wider sector as a result.

My interest here isn't to decry this specific legal form wholesale, but rather to try and contribute to a wider ongoing discussion that means as a sector we can be more coherent, and ultimately make it easier to achieve the things we aspire to.