Friday, November 17, 2023

profiting from despair - the unfortunate truth about how social enterprises become successful?

There's a common narrative that social enterprises step-in where private businesses can't or won't, and when public services are lacking, to plug gaps in order to ensure people have access to support and activities that they need - something that has been re-iterated in every government national policy document for/about the sector since their first one in 2001.

And ongoing surveys by the likes of Social Enterprise UK into the sector show how it appears to be more resilient and diverse than its counterparts in the private sector.


I've come across a few studies and research reports recently which make me wonder if we should be having a discussion about the ethical implications of this, rather than keep congratulating ourselves each time the updated State of the Sector report is released?

And also, if we should be re-visiting our expectations and understanding about the factors that help drive the growth and successes of social enterprises? 

- A research paper about social enterprises in France found that they prospered more when the wider economy was suffering, and tended to simply 'get by' when the country's economy was performing well (in contrast to private businesses, who grew when the economy grew, and struggled when the economy struggled): 

This trend would also seem to be evident here in the UK, based on data reported by the ongoing VCSE Barometer study, which shows that charities seem to have an opposite hiring trend to private businesses: when private businesses slow the rate at which they're investing in growing their staff, charities are increasing their recruitment, and vice versa:

spider plant
Could this suggest that social enterprises are a bit like spider plants (also sometimes referred to as the entrepreneur in plant form): if you tend to it too much, it'll wilt. It tends to prosper best when faced with harsher circumstances (less water, less light, etc) than most plants need in order to survive. 

And this is potentially a key understanding - we know our economies go through rounds of repeating recessions and boom periods, as part of natural cycles that will always happen (despite what politicians might like to otherwise hope and believe).

And we know that just as booms tend to create more opportunities for people, recessions tend to see jobs being lost, firms being wound up, etc.

We therefore need to recognise the important role of social enterprises in helping to 'prop things up' in those times of recession (a period when the data seems to suggest that they perform at their best), to help mitigate the negative impacts of the downturn in the wider economy; and crucially to provide a hope and assurance that things will keep going and remain open for people.

But what is it about such harsher trading environments that force private businesses to struggle, but enable social enterprise to thrive?


- Also, Social Enterprise UK's State of the Sector mapping raises some potentially important questions that may merit exploring further, through an ethical lens?

* while social enterprises are more likely to have women, BAME, and people with disabilities in leadership roles than private businesses, those that do are usually smaller and generate less income than those that don't.

* those social enterprises that are based in areas of higher deprivation are more likely to be profitable than those that aren't. And as most social enterprises' main customer is usually the general public, this surely prompts a question about how far should social enterprises go in ensuring that they're financially sustainable by generating a profit, but how much should that profit be, if it seems to be increasing where their customers are in greater need of support?

* and social enterprises seem to be less present in sectors and services relating to supporting employment, housing, and social care - areas where there's widespread agreement about there being the most need. 

As with (mostly) all of my blog posts like these, this isn't intended as a bashing of the sector, or the bodies that support and advocate for it - but a reflection on what various sets of data are potentially highlighting. 

That's because I've an idea that we need to get better at looking at numbers like these, if we're to properly understand how to best make sure that we're enabling social enterprises to realise their full potential for all of us - and surely we can only design support that we can be sure works for the benefit of everyone, if we keep asking questions like these?

Thursday, November 2, 2023

merging not closing - the future of charities?

Regular readers of my blog will know that I enjoy analysing a good data set - and trying to turn them into simple charts that usually make everyone who seems them stop in their tracks and start to rethink what they thought they understood and knew.

Well, it's time for another 'pause and wonder' moment, as I turn my spreadsheets' gaze on charity mergers...

In the past I've looked at data on the 'churn rate' of charities (how many are being wound up each year, and also in comparison to the extent to which other legal forms are being wound up) - but recently, I came across the register of every charity merger since the end of 2007!

Now, despite my having been involved in 'refereeing' some mergers between charities in the past, it's always felt to me that there's something of a taboo about charities merging - Trustees don't usually seem that comfortable wanting to talk about it (unless their charity is in immediate threat of going bankrupt), by which point any other charities doesn't want to entertain taking it on as a liability which would drain and distract from their existing resources. Perhaps this is why about 3% of all charities are wound up each year in comparison to the 0.2% who merge. Does the variance in these figures suggest that charities are finding it easier to wind up, rather than be able to successfully merge with another charity?

This hypothesis, coupled with the time that a merger between charities can take (6-12 months if you want to do it properly?), seems to suggest that merging as a means for a charity to continue to see its purposes achieved beyond it's own existence is usually not taken up or enacted, even if it may transpire to be the best choice: Trustees are simply leaving things too late in the hope that something will magically resolve before feeling they can start talks with other charities about a merger option while there's still plenty of time (and reserves) to do things calming and in a less risky way.

But what of this 16-year data set about charity mergers I teased you with at the start?

Well, here's the chart:

And to help you make sense of the squiggles in it 

  • the blue line shows the number of charity mergers happening each year. Interestingly, these started to significantly increase in the years BEFORE the Covid pandemic, and have now started to drop, even during the cost of living crisis. This suggests that massive financial shocks to the sector are not having any influence on charities exploring merging.
  • the orange line shows the average number of mergers each year over the last 16 years. 
  • the dotted line is the next one of interest: it shows the linear trend of charity mergers over the last 16 years - admittedly, it's rising very slowly, but it's rising nonetheless, which suggests that ever so slowly, more charities are starting to pursue the merger option to best safeguard their purposes and support for their communities. For example - in the period 2016-2022, the likelihood a charity would merge increased by roughly 75%, in comparison with the likelihood a charity would be wound up increasing by approximately 10%. 

But is it too little too late?

We're still seeing only 0.2% of all charities completing a merger each year in comparison to the far larger 3% who are wound up.

Perhaps this chart and the notes below it will help more Trustees start to explore the merger option sooner rather than later, and so better protect the people they were originally set up to support?  And if they do, could this see a flipping of the current numbers, so that in the future, more charities merge than are wound up?