Being a business with charitable aims must be difficult to balance at times?
It certainly is. We differ from conventional non-profits in that only ten per cent of our income is generated through grants. As a social enterprise, we have to meet our social and environmental objectives through economically sustainable solutions. It makes the triple bottom line all very real!
Over the years, we’ve developed a shared vocabulary and management culture that is very much focused on trying to make sense of this perpetual balancing act. And so when we are considering a new business proposal, for example, we always ask what the social return will be, or what are the environmental impacts, as well as whether it will be profitable.
You recently won the ACCA Sustainabilty Award for SMEs. Does auditing and reporting your impacts help with this balancing act?
It has definitely helped us become more conscious, articulate and insightful about our stakeholders – and about ourselves as well. When we first put our social audit out, we were basically saying, “here is what we do really well and also here is where we have missed the mark”. We had no idea how people would respond to this. But people know that there’s an enormous amount talking up and empty rhetoric in business. What we found with our report was that people are really attracted to honesty when they see it.
You also participated in the Inner City 100 Index, didn’t you?
Yes, FRC came twelfth in its first year. I think the index does an excellent job of rewarding entrepreneuralism, whether it’s what I call ‘Ferrari enterprenuerialism’ or ‘social entrepreneuralism’. My only word of caution about the index, though, is that growth in itself is not the only thing. I’d like to see organisations that say they are working in inner cities demonstrate that the jobs they create go to local people, and provide some details on the impact these new jobs.
How can large companies help the enterprise sector?
In the supply chain most obviously. Our purchasing policy is to buy from social enterprises or SMEs whenever we can. We would like to come to a point where we can demand that our suppliers are socially and environmentally responsible. Large companies already have that power, don’t they? And who knows – supplier good practice might even rub off on them! Imagine if you could just get five per cent of SMEs in the UK to become more socially and environmentally aware – the multiplier effect of that would dwarf anything that we can do as social enterprises, or multinationals can do for that matter.
Editorial Comment
Briefing online special:
Liam Black: the full interview
First off, would you call FRC a charity or a business primarily?
We certainly began as a charity. FRC was set up 16 years ago at the request of the churches in the city [Liverpool] to do something about trying to get furniture to families who had a place to live, but didn’t have a sofa or bed. Starting up with a grant from the Churches Urban Fund, the organisation began life as a fairly traditional second hand furniture charity, relying almost exclusively on charitable donations.
Until the early 1990s, that was, when trading standards of the Council prevented FRC from collecting pre-1990 manufactured foam-filled furniture because of fire regulations. It was a major moment of truth for the organisation – should we pack it in, or carry on?
So began the reinvention of the organisation, moving from a charity model to one that more closely resembles a traditional company structure. We now create products and services that people purchase from us, so that we can still achieve our original purposes – giving furniture to people who need it and supporting long-term unemployed people. In practice that meant we launched a new business in 1994 – essentially a one-stop furnishing service for registered social landlords throughout the country.
We now make the sofas and chairs from scratch and we have a series of commercial contracts with SMEs and other social enterprises, as well as large companies such as Silent Night. We sell that package to housing associations, local authorities, refugee organisations, womens’ aid centres and so on.
This is the core business of the organisation, and it’s this that has helped most people. It’s also what has generated the cash and profits to enable us to move into other areas, like waste management and recycling which we do through a company called Bulky Bobs. We also have a retail operation called Revive which sells directly to the public in Liverpool and its getting furniture to hundreds of families every month.
So, in a round about way, I guess FRC is both a business and a charity, or perhaps clearer would be calling us a business with charitable aims.
Being a business with charitable aims must throw up some interesting conundrums. How do you balance your charitable objectives on the one hand and economic imperatives on the other?
As a social enterprise, we differ from those organisations that are primarily grant-funded and therefore more able to concentrate on their social and environmental goals. Only ten per cent of our income is grant-generated, so we have to meet our social and environmental objectives by inventing economically viable opportunities.
Keeping these dual drivers in balance is the most challenging thing for us, and is something we face everyday in big and small ways. For example, we could become even more profitable by stopping some of the support we offer to our staff. We currently run what we call a ‘University for the People’, through which we organize a whole range of in-work and out-of-work courses and support activities, all of which is funded by the company. Now by stopping this we could easily put money on the bottom line, but that cuts right against our aspiration to be as great and as empowering employer as possible.
Over the years, we’ve developed – and are continuing to develop – a shared vocabulary and management culture that is very much focused on trying to make sense of this perpetual balancing act. It’s something we talk about with the Board, as well as something we try to explain to all other managers and team leaders in the business.
A good example of how we do this is when we assess new potential areas to move into. The criteria that we use are ones which cover these triple bottom lines concerns [i.e. social, environmental and economic]. We ask questions like: will it be profitable? can it be scaled up? is it reputable? how much capital would it need? All the things that all businesses would ask. But then interrogate whether it would create opportunities for marginalised people, or what are the social returns, or how do we use it as a platform to do new things?
Sometimes we get this balancing act wrong, and sometimes we get it right. If you get it right often enough, then you don’t go out of business! It’s really only over the last 18 months that we’ve been beginning to resolve these questions cogently and seeing what being a social business actually is, which has been really exciting.
Turning back to the specifics, you say that one of FRC’s main aims is to help the unemployed into work. How do you do this exactly?
We offer salary training to people from long-term unemployment. We will take them on for a year and train them up to get their Class 2 Driving Licence, their Fork Lift Truck Licence, all that sort of thing. These skills should enable them to move on from us and into permanent employment, and we’re quite successful at doing that.
It’s our activities in training that has attracted a lot of attention, especially now that the social enterprise business model has become part of government policy.
And is FRC capitalising on its success providing solutions for long-term unemployment?
Sure – we’re entrepreneurs, don’t forget! We also want to make sure that policy development is led by practitioners as much by policy wonks in think tanks and in Number 10. There is so much rubbish spouted about social enterprise because policy makers haven’t got a clue what actually goes on in real organisations. I was also getting fed up with consultants masquerading as visitors, and ripping off our intellectual property!
And so, we set up ‘Cats Pyjamas’, which basically sells insider information about how to establish and sustain social businesses like FRC and others here in Merseyside. We stuck an advert in The Guardian a couple of years ago and just said, “look, is there anybody out there interested in coming to Mersyside and learning from years and years of experience from a bunch of very successful social enterprises”, and we had our arm bitten off. So we thought we had better organise something then. With the backing of the DTI, we’ve subsequently run events in Sheffield and London, and we’re doing Cumbria next month and Bristol in June.
Sticking with government-backed enterprise initiatives, what do you make of the Inner City 100 Index?
We actually participated in the first Inner City 100 index two years ago. We came twelfth overall, and were the highest placed social enterprise. I think the index does an excellent job of acknowledging and rewarding entrepreneuralism, whether it’s what I call ‘Ferrari enterprenuerialism’ or ‘social entrepreneuralism’.
My only word of caution about the Index, however, is that growth in itself is not the only thing. I’d like to see organisations that say they are working in inner cities demonstrate that the jobs they create go to local people, and some verification about the impact these new jobs have. I mean, you can have a company based in an inner city that grows very big but brings very little benefit to people who live in the area. You could have a warehouse and be exporting cruise missiles to Iraq, for example – you might grow very quickly, but that hardly makes it a good thing!
Ultimately what I would like to see is it becoming an inner city 100 for organisations that have grown quickly and have also committed themselves to measuring their social and environment impact.
Are you saying that all social enterprises should report on their impacts then?
Yes, and for two clear reasons: one is moral and one is economic. In terms of the moral imperative, as a social enterprise we have all sorts of breaks that private companies don’t have. We don’t pay corporation tax on all of our activities. We can have access to free money through Foundations and various other pots that are out there for the so-called not-for-profit sector. So I think there’s a clear moral obligation on social enterprises to demonstrate that we are actually using those breaks in a way that adds value.
The second reason I think measuring our impact on society and the environment is a good is because it makes us a better organisation. Knowing the good and bad about what’s happening in the lives of all of the stakeholders that we have (our staff, customers, people who come in for training, the homes we go into to deliver or pick up furniture) helps us. It makes us refocus, reallocate resources and it enables us to find out things that we might otherwise not want to hear about.
It’s a truism that a lot of customers don’t complain they just don’t come back.
Can you give us some examples of how stakeholder consultation has made you rethink and helped improve your business?
Sure. When we first started to consciously engage our clients in a formal way three or four years ago, we discovered that many of our local authority customers thought that our services were poor and that they were not going to renew the contract when it came up for renewal. Finding that out because we engaged with them systematically has helped us improve our service and our products enormously, and underpinned the growth and success we’ve had in expanding our customer base and moving into new markets.
Probably the best example of being forced to rethink was with our furniture refurbishment, which used to be the core of FRC’s business. As an organisation committed to optimising our environmental and social impact, it was a dream scenario you might think – seeing long-term unemployed people refurbishing sofas which had been destined for the landfill, but which had been collected by FRC and were now being sold back to the public.
Going through the process of asking ourselves hard questions about our operations, however, brought to light the fact that the refurbishment model wasn’t really working at all. It had a huge amount of subsidy in it, which made it economically unviable. What’s more, the re-upholstery industry is actually incredibly niche and very few of the trainees were getting jobs in it. And you can even make the case that it’s probably as cheap and environmentally-friendly to make a new suite as it is to strip down and build up an old one.
So when we were presented with all that information, we decided to stop our refurbishment work – something that was culturally very difficult to do. There were people who had been doing this work for a long time and saw it as the soul of the organisation. But all the evidence from our social and environmental auditing process showed that it simply wasn’t working. Now FRC itself doesn’t do a stroke of re-upholstery or refurbishment work, and we are a more sustainable business for it.
There’s a certain logic in a social enterprise looking to report its impacts. What do you say to more traditional companies when they say, “it’s fine for you, but I’m too busy. I’ve got a business to run!”
I wasn’t so different myself three or four years ago! Alison Ball, who is our queen of social auditing, used to nag me about the benefits and I would say, “yeah, yeah, but its not the real business, is it Alison?” She pretty much battled away single-handedly for a couple of years doing it.
When I began to see some of the benefits, the leadership team became convinced and the Board swung behind it. It’s now seen as a core part of what we do. I absolutely acknowledge it takes time and resources. I would say to SMEs who are thinking about going down the social auditing route that they can short-circuit a lot of the learning. We have been down that road – you don’t need to make the mistakes that we made. There’s a more off-the-shelf format they can use now.
Fundamentally, I think that if you’re not taking stock and really engaging with all the stakeholders of the business, you just won’t hear the full unexpurgated truth about the impact of your business. By doing it [social auditing] systematically, you will find out things from your customers, your staff and your suppliers and your staff that will make you a better business.
All I’m saying is that the process has helped us be more conscious, articulate and insightful about our stakeholders and about ourselves as an organisation. And I can honestly say that this willingness to be open has really paid off. When we first put our social audit out, we were basically saying, “here is what we do really well and also here is where we have missed the mark”. To be frank, we had no idea what this was going to do to us. But people know that there’s an enormous amount talking up and empty rhetoric in business. What we found with our report was that people are really attracted to honesty when they see it.
When you collected your recent ACCA Award for the best sustainable report by an SME, you invited Shell, ScottishPower and other FTSE350 companies present to come and see what FRC is doing. What would you look to tell them?
What I’d really like to tell anybody about social auditing is that the most important is not so much the report that comes out at the end of it, but rather that – as measurement and reporting becomes more embedded in the culture of an organisation – it constantly raises issues for you and helps you find things out.
I would more show them the kind of learning we’ve had about how you can balance the triple bottom line, and try and show how we at FRC are working to ensure that social and environmental returns are not afterthoughts on our economic success, but a key aspect of our profitability.
One area that I would particularly like to talk about is our supplier relationships. Our purchasing policy here is to purchase from social enterprises or SMEs whenever we can in order to support our local economy. We are trying to find imaginative ways in which we can engage with them and pass on our learning around reducing social and environmental impact.
If you could just get 5% of SMEs in the UK to become more socially and environmentally aware – looking at how they can take on a couple of unemployed people, looking at their environmental impact, etcetera – the multiplier effect of that would dwarf anything that we can do as social enterprises, or multinationals for that matter.
Would you like to see large companies working with SMEs to promote more responsible business behaviour?
At FRC, we would like to come to a point (we’re not big enough yet) where we can demand that the people whom we purchase from are environmentally friendly and treat their staff well etcetera. Large companies already have that power, don’t they? Actively supplying from organisations with good social and environmental records would also have a positive impact on the sourcing company too.
We’re all human, no matter what company we work for. We all live in the same communities, we all bleed when cut. Call me naïve, but I believe that encouraging your staff and suppliers to be more social and environmental makes them enjoy their work more and get more out of it.
COMMENTS