A social enterprise stocktake

Now – with the sale of ECT Recycling – is a good time to take stock on social enterprise. There is a timely review in this month’s Director magazine.

If anyone thought the situation was simple, the article will disabuse them of that notion. It warns of charitable and corporate entities being re-sprayed as social enterprises – “carpet-bagging”. It also suggests a distinction between the Body Shop as a social business and the Big Issue as a social enterprise. (I'm not sure about that one: it sounds like the government when it suggests that the "business" in the Department for Business, Enterprise and Regulatory Reform is something different from the "enterprise".) The article also points to the challenges – such as “scalability” with capacity issues in expanding to be in a position to deliver big contracts.

I have recently worked with one social enterprise that was thinking about seeking growth through mixing commercial and public funding. That poses a whole set of new challenges – not least for governance and accountability.

I suspect this bandwagon will keep rolling.

Social enterprises, muck and brass

I was surprised to read that the social enterprise ECT Recycling (linked to leading social business Ealing Community Transport) has been bought for £3.4m by private sector company May Gurney.

ECT Recycling is a community interest company required to return only 35 per cent of its profits to shareholders with the rest reinvested in operations.

The CIC regulator has said it will be monitoring developments. It will be important that this deal does not go sour – otherwise there will more cries of “privatisation” when new providers are involved in delivering public services.

HA boards: one-third fits all?

On the Great Governance blog for Welsh housing associations there is the executive summary of a report on governance commissioned by the Community Housing Cymru for the current Welsh Assembly Government review on the subject.

The report rightly recommends that

boards recognise that citizen and community engagement should be a defining feature of the governance of housing associations, constantly seek to innovate in their engagement with citizens and communities, sharing experiences and learning from others, and ensure that the direction and decisions taken by the board are informed by the engagement.

It also recommends that boards of associations which are responsible for providing housing services include one-third of their membership from tenants. Does one size really fit all?

Admiring the colourful housing in Albania

Interesting colour schemes in Tirana.

Temporary interrupton in service

Over the next couple of weeks, there may not be any postings. I'll be back on June 4th.

Are colleges open for business?

I have spent much of today trying to speak to colleges about them providing construction training for a client. While some FE colleges are enthusiastic and accessible, others offer unreturned emails, labyrinthine websites and ringing-out phones. I am lucky to escape the loop of one college’s telephone system.

It will be a challenge when they are assessed on their responsiveness to customers under the LSC’s Framework for Excellence.

Maybe choice and competition will sharpen up their act.

The NHS, Polyclincs and progress

As the NHS awaits the July report from Lord Darzi with its likely promotion of polyclinics (where several GPs’ surgeries are brought together linked to other services), I thought this quote was worth pondering:

We tend to meet any new situation by reorganising [to create] the illusion of progress, while producing confusion, inefficiency and demoralisation.

Usually attributed to Roman Consul Petronius but possibly dating from a British Army officer after the second world war.

Better integration of primary services makes sense. The fact that the medical profession does not like polyclinics could be seen as positive as the BMA has always opposed change including the foundation of the NHS.

On the other hand there is a risk that polyclinics will make primary care more distant from the individual – at least geographically. Nevertheless, we should all be conscious of the investment of time and resources (including the reserves now being accumulated in parts of the NHS) - will it be value-for-money?

School governors: less is more

I was pleased to read in Public Finance that a major review has started aimed at smaller and better-trained school governing bodies.

While school governors make a valuable contribution, having more of them does not mean more value.

Data, community cohesion, equality and diversity

Last week’s Public Finance has an interesting article by Professor Ted Cantle of the Institute of Community Cohesion (iCoCo for short).

On this blog I have expressed a certain wariness of some of the thinking behind the community cohesion agenda. In particular, I am uncomfortable with the hostility to multi-culturalism and the shift towards an emphasis on inter-cultural ignorance rather than inequality and discrimination. (I would add that I also believe that the public and third sectors need to treat this agenda seriously and connecting it in a progressive way to work on equality and diversity.)

After that caveat and caveat to my caveat, I would recommend Ted Cantle’s article. While talking primarily about the variety in the Muslim community (or communities), he notes more widely:

There is a real need to refine the crude total population data from sources such as the census to reflect the turnover of population and to map the complexities within communities. This would allow a move beyond a uniform approach to engagement and service delivery.

Too often organisations adopt a simplistic approach to using data in these areas – sometimes narrowly focusing on “targets” for “BME” (black and minority ethnic) access to services rather than thinking about what level of use would be expected and by which communities.

Double whammy for social housebuilding targets

The impact on social housing of the credit crunch and property market is at last getting some attention in the mainstream media. On Monday's Radio 4 PM programme, the chief executive of Southern Housing Group warned that the reticence of lenders was making it hard for housing associations to plan new developments. Combined with a likely decline in homes earmearked as affordable coming through Section 106 planning agreements, this adds up to a double whammy.

Can and will the government increase grant rates from the Housing Corporation to provide more socially rented and other affordable homes?

One Plus governance issues equals organisational failure

The Office of the Scottish Charity Regulator (pronounced Oscar for those of us south of the border) has issued a report into the collapse of the Scottish charity One Plus: One Parent Familes (no relation of One Parent Families/Gingerbread or its sister charity One Parent Families Scotland). One Plus went down with an overdraft of £2m plus – as well as other debts. OCSR’s case study report found “important lessons”.

The section on governance issues reads like a visit to a chamber of horrors. This is even sadder as the board were interested and enthusiastic.

1) “The Board did not appear to contain adequate skills and independence of thinking to reflect the needs of a multi-million-pound business” - including poor arrangements for recruitment and development, a finance committee that had difficulty meeting, the Board did "not seem capable and willing to hold the previous Chief Executive and Senior Management Team (SMT) to account".

2) “The lack of timely or full financial information being presented to the Board” - including tabled papers, out-of-date and insufficient information.

3) “The scale, skills and leadership of the finance department seems not to have been adequate for the size of charity”.

4) “The apparent lack of independent third party advice sought by the Board” - "The charity and the directors tended not to seek advice nor engage with the external auditors between audits", no internal auditors and no audit committee.

5) "Both the Board and the SMT appear not to have taken responsibility for making decisions to resolve difficulties when they were identified".

The other sections of the report, including those dealing with broader funding issues, are worth a read too.

Its worth noting that the same themes recur in so many organisational failures in the public and third sectors. The sooner those lessons are learnt, the better.

Codes of conduct and the bad behaviour of board members

The Charity Trustees Network is drafting a model Code of Conduct for charities. This recognises the difficulties that can arise from problem board members.

Its worth remembering that having a code is one thing; having the ability and willingness to apply it is another. I know of at least one college that had a code of conduct but did not know how it was going to use it when a governor was accused of breaching confidentiality.

The CTN would like to hear about:

1) the kinds of trustee behaviours that have caused concern and difficulties

2) experience of putting in place and using a code of conduct

Blue Avocado on governance: abolishing board committees

There is a new blog and website for not-for-profits, Blue Avocado. It comes from across the Atlantic but a lot of the issues are the same.

Blue Avocado has just posed the question: Abolish Board Committees?

It goes on:

Too many boards are bogged down by committees that are inactive or maybe even semi-fictitious. And board members can feel compelled to be on three or four committees each!

It suggests time-limited, task-orientated taskforces or working groups. I do not have too much of a problem with that (especially for small community and voluntary groups) although I have seen working groups end up blurring the management-governance dividing line.

It is also noteworthy that Blue Avocado answers its own question by saying:

One permanent (standing) committee you'll probably need is the Finance Committee, which must oversee financial performance on a continuous basis.

I would also urge any organisations with internal audit (or some too small to have it) that an audit committee is fairly essential in good governance.

A leaner public sector?

Today’s Global Business on BBC World Service was about applying the Toyota-style lean production methodology to service industries. (The podcast is avilable but only for a week or so.) Its worth noting that lean is particularly relevant to making public services more effective and customer-centred.

Lean production includes a range of tools including a focus on dealing with the seven wastes:

Defects in products
Overproduction ie the costs associated with the production or acquisition of items before they are required
Transportation of products
Waiting
Inventory ie the capital costs of raw materials, Work-In-Progress (WIP) and Finished Goods
Motion of staff and equipment
Over-processing ie using a more expensive resource than is needed

The ideas of lean are already being applied in some public services such as the NHS and social housing. But much of the potential is being left untapped.

The third sector and terrorism

The Institute of Chartered Accountants’ seminar on charities on Thursday included a thought-provoking session on charities, terrorism and fraud.

I must confess a degree of doubt over whether the WRVS would be targeted by Osama Bin Laden. Moreover, I think that the banks’ money-laundering regulations get in the way of civil society much more than criminals and terrorists who would merrily steal identities to circumvent the bureaucracy. Nevertheless, terrorism should be borne in mind when addressing fraud and other criminal threats as good risk management.

The Charity Commission’s operational guidance on Charities and Terrorism is useful and relevant in the public and third sectors beyond charities.

Lies, damned lies and performance management

Last week’s Public Finance magazine carried an interesting article about performance management – yes, really. It included a disturbing statistic: over 70% of recipients in a recent survey admitted to fabricating performance data. (How many of the others didn’t like to admit it?)

We know about perverse incentives, erroneous errors and even issues with performance data to regulators and clients, but this is organisations telling themselves lies.

(Before I go on, I should stress that I am a sceptic when it comes to “targets” as reform and performance information as a panacea. But performance information is integral to good governance.)

What can be done? A mature attitude to performance information would be a start – seeing it as a means to an end rather than an end in itself; measuring what matters rather than what is easily measurable.

There is also value in assurance. Boards and managers should ensure that key information systems are reliable. How can they do their job if they are driving with a faulty dashboard?

Larger housing associations have to get certain operational performance information systems verified periodically. Other organisations could get internal auditors to check out performance information systems. Yet in most of the public sector and third sector performance information is just accepted at face value.

What’s the point of complaining: learning from mistakes

This month the Heathcare Commission has published its second report on NHS complaints systems. It suggested that the NHS should use complaints to learn from mistakes and promote improvement.

It’s not a new or radical idea. As Bill Gates commented: “Your most unhappy customers are your greatest source of learning."

Yet reporting on complaints is often seen as chore of governance rather than an opportunity for learning. Reports labour over who complains, what about and what happened (in terms of whether complaints “upheld” and remedial action) – with hardly a mention (probably no mention) of what lessons were drawn from upheld complaints (and, of course, even rejected complaints might indicate scope for improvement).

If public and third sector want to improve their complaints processes, there is help out there. The Housing Ombudsman published a guide some year ago which sets out key principles and best practice (pdf available).

Productivity and diversity of perspectives

This week’s Global Business on BBC World Service was about developing effective teams. (The podcast will only be available for a week or so.) Professor Lynda Gratton of the London Business School talked about the key ingredients – which don’t include mandatory team building!

Like James Surowiecki in his excellent book The Wisdom of Crowds, Professor Gratton argues that diversity of perspectives results in creative tension and from that great ideas. She suggested that productivity in the UK would improve if corporate boards had a better gender balance.

That logic applies to the public and third sectors – and other perspectives: culture, belief, disability ethnicity.

Audit committees - some (late) new year's resolutions

I am not having a week of plugging the Audit Committee Institute (sponsored by KPMG). But I would recommend the ACI’s latest quarterly. It carries an article on Ten To-Do’s for Audit Committees in 2008.

A couple of the To-Dos are, in my opinion, less priorities for the audit committees of the public and third sectors. The rest are:

- Be a catalyst for improving risk management and oversight.

- Make sure the CFO (chief financial officer) and the finance team have what they need to succeed.

- Ensure there’s a shared vision for internal audit.

- Encourage (expect) frequent, informal communications with the audit engagement partner.

- Be prepared for a crisis.

- Make sure the full board is aware of the audit committee’s activities and needs.

- Assess the tone at the top and throughout the organisation.

- Take a hard look at the audit committee’s performance.

The article has some suggestions on all of these too.

As I’ve signposted before, there is plenty of useful guidance out there for audit committee members in all sectors.

How well will housing associations be able to digest the credit crunch?

Yesterday I went to an excellent seminar for housing association audit committee members run by KPMG’s Audit Committee Institute. One of sessions was delivered by the Housing Corporation’s head of financial regulation. He spoke about the financial health of housing associations. It was somewhat depressing hearing his summary of the sector's Global Accounts. He noted the pressure on association’s operating margins and their heavy reliance on profits on property sales.

It is rumoured that there are only two lenders in the housing finance market. (And, of course, the margins are higher and expressed over the inter-bank rate LIBOR.) This week Inside Housing is reporting the lenders' loss of appetite. This will hopefully change once the credit crunch passes - eventually. If housing associations struggle to sell shared ownership (and outright sale) new build, they may also lose interest development.

Housing associations (including their boards) need to watch this very closely although there scope for action is fairly limited.