Geof Cox's Blog

Social Firms and the CIC Consultation

Having recently drafted a response on behalf of Social Firms UK to the April consultation on amendments to the CIC Regulations, I'm now thinking about the June consultation on the dividend and interest caps.

While the credit crunch has certainly revealed a problem with tying the caps too closely to Base Rate, my main concern is that from the point of view of Social Firms this consultation in fact asks the wrong questions about the dividend and interest caps.

Social Firms create jobs for people with disabilities and other severe disadvantages in finding employment. In doing so they tackle some of the most intractable cases of social exclusion, for example of people with mental health problems or learning disabilities. Their workers often have high support needs, and for this reason Social Firms often need an element of grant funding, at least at start-up, while still aiming to fulfill their social inclusion mission by becoming financially sustainable from trading alone.

The CIC form was a godsend to Social Firms, precisely because it combines an asset lock – which reassures grant funders - with normal commercial operation. The weakness of the CIC form lies in it's treatment of stakeholders.

The limitation of the Share CIC form for Social Firms, in particular, is that it does not allow the reward of the 'sweat equity' of the founders or on-going workers in the way that an ordinary share company could. Thus while the limitation on dividends is essential for outside investors (to reassure grant funders and therefore maintain the fundamental strength of the CIC form), we do not feel this should apply to shares held by or on behalf of emloyees – many of whom already experience the most severe financial exclusion.

Ostashkov Conference

19/10/2008 Moscow

Today I had one of those Kafka-esque comic experiences that really bring home what it means to deal with Russian officialdom. Having paid the entrance fee into the Pushkin Fine Art Museum (which is by the way absolutely wonderful – best experience in Moscow yet) I was asked to leave my bag in the cloakroom. Fair enough of course – but when I went to the cloakroom the official in charge insisted it was full. I could neither go into the museum nor back out (without losing the entrance fee)! I tried to suggest to the official in charge of bags that he could put my bag on the top of the rack and write a note of where it was as a 'check' for me - a common sense idea that was unfortunately far beyond my knowledge of Russian and his willingness to bend the rules. It is quite probable, of course, that as so often in such situations in Russia the solution lay in my wallet – but how do you know? and how do you know how much? Fortunately somebody came in to retrieve their bag at the vital moment – I put mine in the free space and the newcomer gave his bag-check directly to me.

Ostashkov: The view from the conference centre acoss Lake Seligar towards the monastery at OstashkovThe view from the conference centre acoss Lake Seligar towards the monastery at Ostashkov

I'm just back in Moscow after nearly a week out in Ostashkov, between Moscow and St.Petersburg, where I've been leading a training conference for 30 or so people mainly from NGOs interested in social enterprise. A number of the Oxfam Russia staff were there and this gave me a chance to explore further the whole context – political, economic, social and cultural – for social enterprise development in Russia. I was in particular able to talk this time with Sergey Zhidkikh, the Russian (but fluent English-speaking) Programme Manager and Nicholas Colloff, the English-of-Russian-origin (but certainly not fluent Russian-speaking) Country Manager. It was a humbling experience, partly because these two men are exemplary in their knowledge, skills and humanity, and partly because the barriers to social enterprise development are so big.

Perhaps the biggest cultural difference is that - as Sergey put it - “in Russia power is personal”. What is and is not possible – let alone optimal – in terms of social enterprise or almost any other kind of development cannot really be taught – it has to be negotiated with local officials etc. There is enormous complexity in the legal/financial environment – and many uncertainties and undecidables in areas such as tax liability and contracting – and of course this complexity and uncertainty is just how the petty-powerful like it. Since what would in our society be the bastions of transparency and accountability – the free media and independent courts – are in Russia also subject to this personal power ethos, there is little choice at the moment other than to go along with it.

Added to this problem of course is the simple lack of economic activity (outside of big cities - which are booming). Any social enterprise idea that involves tapping into local disbursable incomes will struggle in rural or small-town Russia, where poverty is pervasive and where of course Oxfam is working. Most of the ideas I want to work on next year in fact depend on a 'fair trade' business model (products made in disadvantaged local communities sold at a premium into sympathetic markets hundreds of miles away).

On the positive side, however, there are many social forces that favour social enterprise in Russia -

  • the natural sympathy many people feel (arising perhaps directly out of their recent bitter experience of transition from soviet to cowboy economy) with the idea of doing business in a way that includes and cares for disadvantaged people, and respects other social and cultural values
  • the ability of social enterprise to address precisely many of the social and economic problems faced by disadvantaged communities in Russia - and at the same time build the capacity and independence of civil society in a way that grant or government funding cannot
  • specific commercial opportunities for social enterprise arising out of the way the Russian economy is developing, for example in market niches outside big cities which are not attractive to big business nor possible for local individual entrepreneurs (the 'fair trade' business model is an example of this but there are others around specific services).

Ostashkov Group: Russian social enterprise pioneers - some of the Ostashkov Conference participantsRussian social enterprise pioneers - some of the Ostashkov Conference participants

Social Enterprise in Russia – Week 3 - Moscow & Aleksin

If you want to read from the start of my July in Russia experiences please start from Social Enterprise in Russia – Week 1 - Moscow, Schekino and Kaluga

My last weekend in Moscow (until October) turned out beautifully: still hot and sunny, but a gentle fresh breeze took the temperature down a little – to the high twenties rather than the mid thirties – and cleared the air.

The weekend highlight was the modern Tretyakov gallery – I finally understood socialist realism as something more than what I think Adorno called 'boy meets tractor' art. Right next to what is I guess the most famous architectural model in the world – Tatlin's Monument to the Third International – was the gallery shop: a few books and cards half-displayed behind counter and glass. This is Russia's equivalent to the Tate gallery – where I'm sure there would be half the floor devoted to sales. Later in the Oxfam office Sergey told me that the government (the Tretyakov is a state gallery) had been advised by top gallery consultants from the west on just such social enterprise, but they couldn't get a big sales floor past the middle level bureaucrats. I left the Tetyakov with 2 10-rouble postcards and wondered outside through the labyrinth of street artists painting portraits and selling picturesque landscapes, and thought about the commodification of art. Maybe the beaurocrats got it right after all...

Our last journey was to Aleksin. Southwest out of Moscow the countryside gradually becomes more like Britain – no hedges or stone walls, but bigger fields on rolling hills, sometimes even separated by lines of trees that if you're feeling a little homesick might just be mistaken for hedges.

Victor saved the best of his mini-guide to Russian food and drink to the last: in Aleksin we stayed in a log cabin and cooked 'shashlyk' over an open fire. Victor's friend Sasha brought his 12-string guitar and played 'chanson' – a French name for a uniquely Russian style, music shot through with minor chords and words of loss, remembered home and family, doomed love. All westerners here must at some time think about what Anna calls – with some irony – 'the mysterious Russian soul'. The sentimentality and nostalgia of these songs is clearly part of the Russian experience – natural enough perhaps for people who have suffered such huge dislocations over many generations. Sasha handed me the guitar and, although not used to a 12-string I managed to play a couple of western pop songs in major keys. Only afterwards did it occur to me that they were about individuals remaining strong in the face of minor difficulties like the end of a 'so-so' love affair. Sasha – who has lived in the frozen north, served in the soviet navy, been sent to prison and is now a lawyer – might, had he understood the words, have thought 'so what?'

The next day in Aleksin we met 2 more projects centred on children: a school social enterprise at Comprehensive School No.11, and a chldren's television production company (all jobs done by and for the children). At the back of School No.11 they have preserved a bullet and shell marked wall as a memorial of the Second World War – what the Russians call The Great Patriotic War. The German army reached the river at Aleksin and either deliberately or accidentally shelled the school. When asked recently to photograph the most important places in their town the schoolchildren came here first. I grew up in a time when the shadow of the Second World War loomed large in Britain, but I find it hard to conceive, let alone communicate its significance for Russians. We sometimes complain about the American film industry's portrayal of the War as won by the Americans, but we hardly think about the Russians. Looked at from here, however, it seems very much like a War between Russia and Germany, with a few skirmishes involving other nations around the edges. One in three of all the people killed in the Second World War was a Russian. In the battle of Kursk the Germans lost more tanks than in the whole of the rest of the War put together.

St.Basils CathedralSt.Basils Cathedral

I was never moved, or much interested, in the big military parades in Red Square, but that of 1941 certainly was dramatic – the Red Army went straight from Red Square to the front, which at the time was only a few miles away on the outskirts of Moscow. They held the line, and then slowly pushed it back all the 1000 miles to Berlin. Russians can indeed be over indulgent to the point of tastelessness – just look at the confection of St.Basil's Cathedral on Red Square – but they do understatement pretty well too. The tomb of the unknown warrior in the Alexander Gardens under the Kremlin wall is a simple flat stone slab draped with a bronze flag, at the end of a long row of sombre stones each carved just with the name of a city that was attacked but did not fall to the German Army.

So the Aleksin schoolchildren each May still lay flowers by an ordinary brick wall, pock-marked by bullets and shells over 60 years ago.

Social Enterprise in Russia – Week 2 - Vyshniy Volochek & Ostashkov

We received a wonderful welcome in Vyshniy Volochek, especially from Vladimir Samuipov, the deputy mayor and celebrated local historian and writer, who presented us with both a copy of his latest book, on Pushkin's brief stay in the Tver region, and a bottle of the unique herbal liqueur 'Tverskaya' (ТΒΕΡСКАЯ). A man of culture and taste!

While Rybinsk wants to become a 'social town', both Vyshniy Volochek and Ostashkov are targeting tourism. The local authority in Vyshniy Volochek wants to explore setting up a social enterprise travel agency, and those at the meeting were very interested in my ad lib case study of Travel Matters in Surrey (if they contact you Peter it's my fault!). There is tourism potential. Both Vyshniy Volochek and Ostashkov are close to beautiful countryside and have interesting historic connections and buildings; Vyshniy Volochek is at the centre of a big canal system and Ostashkov by the side of a picturesque lake and famous monastery. The first target is domestic tourism, and indeed I fear there are still some major barriers for foreign visitors. Russia is still not that easy to get into, or stay in. There is red tape (although according to The Moscow Times the visa regime with EU countries might be loosened within 3 years) as well as a number of other difficulties to negotiate. Moreover, the legacy of soviet town planning and the collapse of the economy in the 1990s makes many places fundamentally unsuited to visitors – for example facilities in towns such as hotels, shops, bars, library, etc may not be clustered around a 'town centre' but spread out across different neighbourhoods – quite convenient if you're planning a town around the needs of ordinary residents but not necessarily very market- or visitor-friendly. Moreover, a lot of infrastructure outside Moscow – roads, buildings, etc – has gone pretty much unmaintained since the 1980s.

In Ostashkov we met more disharmony with the local authority – indeed it seemed between local and district authorities. Two enterprises that had formerly held contracts with the local authority to offer 50% discounts to pensioners and disabled people had just had these contracts withdrawn. One of these – which undertakes shoe and other small repairs – also employs 3 disabled people (out of 5 staff) and has continued to offer 10% discounts at it's own expense. Clearly this is a social firm. They have 2 clear business planning needs:

  • they have unused space in their building, which might be used to generate more income, and
  • they need to update their equipment.

They will talk to Oxfam about a two-stage investment, first help with business planning and then, if appropriate, investment in modernisation. I wonder if any UK Social Firm would be interested in twinning with them?

We also met in Ostashkov with the head of the residential unit for 2-8 year old children. There are 70 children living there, who were either abandoned or 'taken into care'. Over 90% have some kind of disability or illness; many have HIV/AIDS. Having found that attempts to place children with foster families often came undone, Oxfam is assisting them to develop a new approach, which has some elements in common with that of the big North East & Yorkshire social enterprise Team Fostering: careful selection and thorough training of foster parents, and on-going support. In the Russian context this means that foster parents actually become employees of the residential home, with contracts clearly specifying who-does-what (basically the foster parents look after the child and bring them up, but the residential unit deals with medical and legal issues).

Again, the number of abandoned or abused children reflects on the economic collapse of the 1990s, from which small towns like Ostashkov are finding it hard to recover. Of the 25,000 townspeople, 9000 (36%) are pensioners; and 10% of the others are disabled. About a third of the population live below the official poverty line.

One Ostashkov project I'm particularly interested in is being developed by a local school, Gymnasium No.2: a shop or merchandising arrangement in a proposed new tourist information centre, selling souvenirs made by the schoolchildren. In the UK I'm working with Susan Priestley on a big school social enterprise project – addressing the relationship between educational and enterprise priorities in ventures that aim to both provide trade and business training and real jobs for students who might otherwise leave without a progression route (most of the schools we are dealing with are special schools, or are located in areas of high and multi-generational unemployment, so this is a real issue). Again I'm hoping for some transnational linking of the projects!

My ears also pricked up when I heard that Ostashkov has the infrastructure for district heating. It was switched off last year seemingly for lack of funds, then the price hiked beyond the reach of most people. Now it's shrouded in uncertainty because of the prospect of a natural gas connection for the town. Russia has of course plentiful natural oil and gas – but I know some environmentalists who would give their eye teeth for a ready-made district heating infrastructure – especially amidst huge areas of forest. In the short term, and locally, I've no doubt that it makes narrow financial sense to burn gas – but surely from a global perspective it cannot be the best option...

Social Enterprise in Russia – Week 2 - Rybinsk

Victor, my interpreter Anna, and I, have driven hundreds of miles through the Russian countryside, between Rybinsk, Vyshniy Volochek and Ostashkov. The countryside in this part of central Russia is mainly silver birch forest, but you pass also many clearings - very occasionally cultivated fields, but mainly wildflower meadows. These are very beautiful to look at, though not so nice at this time of year to actually be in – like most usually cold places the sudden summer heat teams with insects. Little of the land is used except for haymaking and gathering wild food – babooshkas sit patiently by the roadside selling mushrooms, blackberries, and what not. The climate simply won't support most agriculture - even pasture animals are hard to keep. When you get up close the grass is thin and scrubby, the land is covered in snow for 5 or 6 months of the year, and the summer is suddenly very hot

Even more occasionally you pass untidy villages – clusters of little wooden dachas with beautifully carved and fretted windows, usually just off the road. Often, some of the dachas are abandoned – indeed some whole villages are abandoned – another reason for the lack of agriculture and the return of formerly cultivated fields to meadows. Russia's population is shrinking by about a million a year, and with Moscow and a few other cities growing like topsy the countryside seems to be emptying fast. I was puzzled at first by the reaction of those Russians who find out I have 4 children, but soon discovered that it is normal for families to have just one child here, and 3 children makes you officially a Big Family (of which more below).

Social Enterprise in Russia – Week 1 - Moscow, Schekino and Kaluga

Oxfam have asked me to advise them on how social enterprise development might contribute to the anti-poverty programme they are currently running in Russia. I'm now sitting outside the Metropol Hotel just beside Red Square – quite appropriately (for a social enterprise blog) between the Marx Monument and the GUM department store (which has become a cathedral to capitalism) – trying to make sense of my first week here.

What can you say to people about setting up social enterprise in a country where any one of over 90 government agencies can inspect your premises at any time... where most of the inspectors aren't paid enough to live on, so whatever their personal morality they have to supplement their income somehow... and where 80% of the wealth of the world's largest country is concentrated in it's capital city - and outside Moscow almost everybody has only just enough money to live on?

If you've ever done any grassroots community work anywhere you would recognise Alla Novikova. She is the kind of middle-aged woman that is often at the centre of vibrant community groups. Well turned out, both sceptical and full of hope, first to speak up for others, yet clearly herself the heart and soul of the organisation. Her life experience has left her equally at home making policy or tea. Alla is chair of the Schekino branch of the All Russia Society of Disabled People. You might notice the missing finger lost in a train accident back in Soviet times, when she was 25, newly married with a new baby. You probably won't notice, because she'll be wearing trousers, that the train also took her leg. Alla knows what it's like to be disabled in a workers' state, where workers are supposed to be strong.

Alla took us to meet a disabled artist,

Viacheslav, down a dirt road on the edge of town to the little wooden house which he shares with his wife, her mother and her daughter (his first wife having left with his own children when he was disabled in a car accident - at just 19). I know you will have seen before - or can imagine - the living conditions of very poor people. In Russia it is estimated that welfare benefits provide between 10 and 50% of what you need to survive. But it wasn't how little Viacheslav's family had, or the bits of their house that were indeed falling apart that really moved me, but the immaculate upkeep of everything in the little house and garden that they could do for themselves. I remember many years ago visiting the Pennywell estate northeast of Newcastle, just after it had been torn apart by riots. There again it wasn't the abandoned or burnt out houses that struck me most forcibly, but one house alone in a row all burnt out or clad in metal 'systems' against the chaos, one immaculate house and old-fashioned front garden neatly kept, with bright bedding plants and fresh dug earth. I imagined an elderly couple, locking their door every evening not knowing what fresh chaos might overtake their old street in the night.

The artist showed me paintings he had done on scraps of wood when he could not afford paper. But here's the point: they really were good. I've seen a lot of work over the years that has come out of 'therapeutic' art and craft activities, and I am not naïve or sentimental about this. Moreover, today I took a special interest in the work on display at the Izmaylovo Art Market here in Moscow – and Viacheslav's work is better than most of the stuff I've seen. In any other country it would be a simple matter to set up a social enterprise to distribute and sell such work, carefully selected across small town Russia and sold in Moscow. Will it be simple here?

The scope of my work for Oxfam does not yet extend to development. I'm currently working with Victor Glushkov, a lanky Russian microfinance (and single malt) specialist here in the Oxfam Moscow office, just assessing the barriers and opportunities for social enterprise development and organising a 3-day conference in October to explore the possibilities. But we are already talking to a new Russian organisation that has some funds, and wants to focus on social enterprise development. I hope we have the basis for a partnership that can put together an application for a larger scale development project.

If you can help, please contact me at geof@geofcox.info.

So far the field research has been only in Schekino and Kaluga; next week I'll be travelling to Rybinsk, Vyshniy Volochek and Ostashkov, and the week after to Aleksin then back to Sheremetyevo. I'll try to post here my further thoughts as I go, though internet access is not always straightforward...

Social Firms UK Annual Conference

Social Firms UK is to be congratulated on another excellent annual conference this week. I am however unsure about one aspect: the decision to lobby for a waiver of PAYE and NI for any company that employs more than 25% disabled staff. Clearly this would be of enormous help to Social Firms, while at the same time could surely not be seen as special treatment since it would be open to any business. There is, however, always a price to pay for tax concessions – for example in greater regulation – somebody else deciding what 'disabled' means, and maybe changing their mind every other year.

Moreover, there is a danger here that goes right to the heart of the Social Firms movement, and for me this was reinforced by the emphasis several of the conference speakers placed on 'getting to scale'.

Running a Social Firm now is really hard. The essence of the business problem is that Social Firms have higher staff support and supervision costs than their competitors – they must have, or their disabled staff could in fact work in open employment with its often minimal levels of support. It's an extreme version of the old problem: how does the good employer compete with the bad? The rather crazy Social Firm business proposition is to go into the market place with automatically higher costs and try to compete! In fact, of course, Social Firms have all kinds of ingenious ways of solving this fundamental business problem, such as running 2 businesses, say a travel agency and a training provider, which can cross subsidise each other within the shell of a larger enterprise. Tax concessions would make life so much easier - except that it is the very difficulty of the business model, the commitment to both people and to business, and the humanity and imagination and creativity that it requires, that make Social Firms such unique and fulfilling workplaces.

Social Firms are, you see, not just about creating jobs for disabled and disadvantaged people; they're not even just about the whole list of very laudable values and achievements around enterprise and empowerment that all good Social Firms strive for. They are also, crucially, experiments in a whole new way of doing business, of people relating to each other in the workplace; of challenging the alienation that is still what work means to most people.

The danger is that tax concessions will, precisely, focus exclusively on the creation of poor quality jobs; that exploitative commercial operators will move in, or, more likely, those big empire-building charities that can be just as... well... corporate.

Perhaps it's because I've just read Paul Kingsnorth's book Real England – an elegy for the individualistic and local and quirky – including many businesses rooted in alternative values and lifestyles - that are fast disappearing under the bland and multinational and corporate. Perhaps it is better to have any job – even if it's not much fun – than no job at all. Perhaps it's just because I like all those crazy characters you meet at Social Firms conferences (like the guy who's recruitment strategy was to phone his local job centre and ask them to send down all the people they thought would never find a job – they sent 16 - he hired them all).

But to me, these individualistic and radical alternatives to normal business practice are at the very heart of the Social Firms movement. Of course we should try to reach and help more people, but I wonder if tax concessions and 'getting to scale' will really mean quantity at the expense of some of the very human qualities of the wonderful Social Firms we have now.

What is social enterprise?

Geof Cox 2006Geof Cox at the Inspiring Communities Conference

Why is it that the most intense discussion at every social enterprise event is still around defining social enterprise? Even though everyone purports to be tired of the subject and sees the need to move on?

At the recent Inspiring Rural Communities - the National Rural Social Enterprise Conference I attended the workshop on Developing a UK Social Enterprise Research Programme and witnessed again the core problem with this definition issue:

social enterprise is an activity - a verb - not a thing, so it eludes any attempt to to pin it down to any particular kind of structure or business form

Interestingly, the workshop facilitator's proposed working definition was in fact verbal - doing business not primarily for profit - but when I pointed this out in the workshop the immediate response from somebody was 'but by that definition Tescos could be a social enterprise' - back again immediately to the illusion that social enterprise is something you are not something you do!

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