Wednesday, October 26, 2011

'It's the End of the World as We Know it (and I feel fine).

There's an old REM song, of this title and, today, like many people, with the world economy about to potentially crash into recession I feel, in the here and now, fine. Nothing seems that different. It's the same for many of my friends, be they in business or whatever. The crisis has the same feel to it as famine or natural disasters in other countries. We're concerned, sure, but worried, mostly not.

It's one of those things about economics - the fact that most of us have no idea of the intricate machine that creates the world as we know it. That machine is, so we're told, about to have the equivalent of a massive heart attack which won't kill it but could leave it in a pretty poor state.

So what do we need to worry about most? On a personal level, it is clear that we're looking at flatlining and probably declining personal incomes over the coming years. These will kick in unequally with the middle classes taking a hit but the wider working population probably finding it harder. In turn, this will affect Government income and we could see a haircut on Government spending that makes the Coalition's austerity programme look like a children's tea party.

What does this mean for public services? On the transfer payments side, it means huge cuts to welfare which again hits the most vulnerable hardest and risks social cohesion and, worst case, unrest.

On the delivery side, it means that the whole architecture around health, education, defence and local government spending is vulnerable, built as it is, on the basis of a economy that is essentially sound. If all of this becomes unaffordable, we're into a very difficult conversation about cut backs and the public sector settlement which, again, will make current changes to salaries and pensions seem very modest.

Where this would also take us would be a wider conversation about how we now deliver decent public services. If you go to any conference at the moment about this, there's a lot of talk of 'how we do thing differently?' - then everyone goes home and slices the salami. Or so it seems. This is because, on balance, it's politically and operationally a lot easier than the alternative - which is re-invention.

A crisis of the sort we're probably heading into will, one way or another, make it far more attractive to reinvent than cut back services. Careers - political and professional - will not survive if slash'n'burn is the the modus operandi. For those of us who have long been advocating a reinvention of public services this could end up being, our moment.

So spin-outs, community-based services, co-ops, innovations that allow decommissioning - all of these things could have a political attractiveness that is currently missing. The sadness is that it will take things getting really quite catastrophically bad before that happens.

So, while it could be the end of the world as we know it, there may be one or two reasons to feel fine.

Saturday, October 22, 2011

Thoughts on the Suffolk Gene Pool

No, this isn't a piece on the natural qualities of Suffolk people!

This week, Suffolk County Council appointed a new Chief Executive, a lady called Deborah Cadman. I have never met her but have heard very good things about her and am sure she is highly capable. So what I am about to say now is not in any way about her personally (in the unlikely event that you'e reading this, Deborah).

What I found slightly depressing about the recruitment of Suffolk's new CEO was the narrow gene-pool from which the short list (and no-doubt the unpublished long-list) was drawn. Chief Exec of a District Council. An interim CEO. Head of a regional quango. Etc etc. What we had were a bunch of senior local government people all going for one of the few plum local government jobs currently around (most people are, strangely enough, sitting tight).

So what's wrong with that? Don't we need someone who understands how local authorities work, can deal with politicians etc? Well, yes, I guess so. But, far more than that we need people who can really manage change. When I say 'manage change' I don't mean the usual bullshit about 'doing things differently' that you hear at every bleedin' conference you go to these days. I am referring to people who have a proven track-record in adapting organisations from one set of external circumstanes to another.

Why so? Well, I don't probably need to say too much here but we are looking at flatlining economy and a public sector funded through debt. It has to have money taken out of it in ways that minimise social damage. Paradoxically public bodies need to invest in order to do this.

Of course this requires political leadership and few politicians, when push to it, are either fully cogniscent of the challenge or, if they are, much inclined to do anything. Therefore we need executives working alongside them that can help to move the terms of trade and give politicians the templates they need to take to the public come election time.

Now in Suffolk, we had one such executive in Andrea Hill. She had precisely the right ideas but lacked the other side of the change-management skill-set - namely the people and implementation skills to give proper momentum to necessary change. This, coupled with a misogynistic media witch-hunt did for her.

So this time, we have gone for what we know. A solid local government line up, nobody too flash and a solid track-record in the era just gone. What was missing, in my book was anyone with a massive track-record in the kind of change we're about to go into.

Of course, this would have meant going beyond the public sector. We would have been looking at people who had transformed companies or led turnarounds. For that's where we are now in the public sector - in need of turnaround. Most of the people leading local government today have not done this - they are incrementalists, most of whom only have experience of managing noughties-era growth.

I wish Deborah Cadman the very best in her job. As I said, she comes with an excellent reputation and I have no doubt she was the right choice from the shortlist. I am only sorry that we couldn't have made this choice from a wider range of people, including from other sectors which have undergone role-reinvention.

Tuesday, October 18, 2011

My piece for Guardian Public Leaders Network 17.10.11

Many noble words have been spoken in the last couple of years about the future role of public sector mutuals and social enterprises as alternative delivery vehicles for public services. So far we've seen some interesting pathfinders and the rather anodyne open public services white paper which, on its own, will probably not be sufficient to turn a trickle of new ventures into a torrent.

We have also seen consistent references by Francis Maude to the idea of partnerships between emerging spin-outs and the private or third sectors. This is an interesting concept but what might it mean in practice?

Most spin-outs have been standalone entities, often set up using government grants and loans to get them going. Now that state funding is no longer there to the same extent, it will become increasingly necessary to look elsewhere for cash and expertise.

This is where partnerships could come in. One possible vision of the future in healthcare is represented by Circle Health, a social enterprise which is part-owned by its staff and part by its managers and financial backers. Each new NHS spin-out becomes part of Circle with the employee share of the company kept at the same level – around 50%.

Two of the councils which we at Stepping Out are working with are seriously considering seeking partners for the spin-out of part of their in-house services – a joint venture as opposed to creating one that's standalone. The idea will be to ask charities and private sector organisations to compete – with investment and skills – to be the joint-venture partner for the new companies in exchange for a long-term contract and a stake in the company.

Speaking to people on the frontline about this, there are many attractions in the partnership model. If a well-known name is seen to be willing to risk its reputation on a spin-out, it encourages others to get involved. Likewise, staff and managers know that there will be support to fall back on. It is somehow easier to imagine this kind of scenario than hundreds of standalone mutuals and social enterprises spontaneously emerging from a cash-strapped public sector.

Of course, there could be problems, including a potential clash as the public service ethos vies to find a common agenda with the commercial side. This is difficult stuff and nobody should pretend there aren't some dangers but that shouldn't close minds to possibilities.

Given public discomfort about private profit in health and care services, this could become a big opportunity for the third sector, particularly with the so-called Big Society Bank on the horizon. After all, the public service ethos is, in many respects, very similar to that found in not-for-profits. If the better players in the third sector rival private companies in attracting investment for new spin-out ventures, it is very easy to see charities being selected as preferred partners over social enterprises and mutual ventures.

One logical question, of course, is why go to all this trouble? Why not just give charities and companies contracts to run the services themselves? Supporters of spin-outs would argue, correctly, that new spin-out ventures which are employee-owned, locally focused and not just a branch or a project of a national organisation would be a better partner to a local authority. They are more invested in the local area and better at involving communities and individuals in the co-creation of services.

Where this agenda is going remains to be seen. The jury appears to be out on spin-outs. While Cameron and his team remain enthusiastic, there is huge pressure, from the Treasury in particular, to create more efficient versions of what we've got, preferably delivered by the private sector.

For the spin-out agenda to get more traction, it seems necessary that existing players from charities and private companies get involved – and quickly – because the biggest danger for those already out there is that this movement remains small and peripheral. The next year or two is crucial. Partnerships appear to be a sensible way to press on beyond the first wave of early adapters.

Sunday, October 9, 2011

Why not Big Six-style public services?

I had an interesting conversation with my wife at the weekend. It was about a new conservatory. I don't want one, not until our business is in good shape and, even then, I can't say I wouldn't prefer just to whack £25k off our mortgage.

I suspect a version of this conversation goes on in most households at least a few times of the year. Our own position, of course, is one reason why the UK economy is looking so bad just now. If I were feeling a little better about the future, there would probably be Suffolk builders pulling up to my gate on Monday morning to start four weeks' work. My twenty five grand would soon be pinballing around the builders' merchants, homes, supermarkets and pubs of the town.

Instead, it sits stagnating in my offset-mortgage bank account, waiting for the financial bombs to drop. What we are seeing now - the closed shops, bars and cafes (outside London at least), the army of underemployed - is just the beginning of a long period of economic darkness, a long Autumn and Winter for the UK economy.

And we should not really be surprised. UK investment levels have been low for decades. We're relied on historic strengths in services, our language and fortunate geography to compensate for these deficits. Which we got away with for a very long time indeed, almost to the point where our we thought we were cleverer than the likes of Germany, with it's 'mittelstrand' (small and medium sized firms), its very old-fashioned banking sector, its focus on technical education and its social market economy.

What many of us would give to trade places with Germany today, even with its EU obligations? Consistent trade surpluses over many years meant, in effect that it, China, India and others were lending surpluses to consumers and Governments in the US and UK to sustain our public services and lifestyles long before our own economies were exposed as Ponzi-like.

I mention public services deliberately. The settlement we have now cannot continue. We're still running public services like it was 2009. Very little, so far, has actually been cut, in relation to the whole. Hardly any real reform has taken place.

What needs to be done? We are talking about three things. One is the much 'narrated' rebalancing of roles and responsibilities between individuals, the community and the state. This occupies a lot think-tank airspace but I see very little practically going on to recast public services along these lines. In Wigan, Bournemouth and Durham, they are mostly just shutting stuff down, charging for use or keeping them going on reduced lines. The fevered conversation you hear at just about every conference of public sector CEOs hasn't, so far, added up to much on the ground.

Another is breaking-down of large public sector monopolies and the pushing down of responsibilities to the lowest sensible level. Again, attempts to do this (in health) are being stymied by a mix of some badly drawnpolicy, abysmal communication and reflex conservatism on the part of the health establishment. The third is a new market in public services, which, if the Work Programme is anything to go by, looks like a massive slam-dunk for private sector giants, many foreign-owned and wearing the boots in term of their relationship with Government.

Here is where the fork in the road currently lies. I think the Tories' love for free markets is going, before we know it, to see a cartelization of public services into a 'Big Six' - like in the power industry - very quickly. Indeed, by the time we realise what's happened there will be no going back and we'll be stuck with a small number of disliked, unaccountable oligopolists, mainly foreign-owned, charging us what they want.

Ah, I hear you say, might this not actually do some good too. Is the power industry the right comparison? What about the supermarket sector where competition has driven innovation, quality and value? I hear this, and I don't dismiss it either. Genuine competition does bring benefits. One can imagine certain public service markets benefiting no-end from the freeing-up of the market.

But public markets cannot ever be 'free-markets'. Public goods tend to be limited in supply in relation to demand. The distrubution of public money always needs to reflect society's dialogue with itself, and maintain a link to it, through both politics and local public accountability. The patterning of public goods also needs to reflect the long-term goals of a society in relation to its challenges, in our case a challenging demography, growing regional disparity, a fragmented society and need for long-term up-skilling.

Therefore, we need intelligently set up markets which have powerful regulators and rules which reflect our long-term goals. In doing this, they must ensure that markets serve these. Rules are required to guarantee diversity of supply and prevent a handful of firms dominating a market through incessant take-overs. We ensure smaller firms can enter markets.

We say no to any provider, if the consequences of that are that this market is forever lost to a small group over-dominant providers. We ensure that any particular configuration is reservable and that no commissioning decision is going to permanently disadvantage the taxpayer in relation to the provider, however attractive the initial offer.

And, yes, this means being a bit more categoric about mutuals and social enterprises. This sector doesn't really have much chance in a free-for-all. Government commitment to seeing a strong mutual sector, backed by the will to see it done, is what is needed now if the diversity spoken of in the public services white paper is to be more than just a wish-list. Diversity needs to be deliberately created as markets need to be 'made'.

Otherwise we are truly headed, as a country, for bottom-feeder public services which are not going on any level to meet or be responsive to the needs of the country's economy or society. You simply wouldn't see the countries whose economies are going to lead the world in the next 20 years letting go of their strategic grip on public services markets in this way. The paradox of freeing up a system means that we must, at the same time, make it safe through proper supervision and regulation, as our experience in the banking sector has told us.

If that lesson hasn't been learned by now, and its application to public services been noted, then God truly help us.

Saturday, October 8, 2011

Why the Transition Fund for the third sector may not be such a good thing

Has the Transition Fund been a good thing? Obviously, if your bacon has been saved or your demise delayed, you'll say yes. But the answer is more complex: I think the fund has shown the sector at its best - and its worst.

On the positive side, the sector showed great mettle in squeezing a decent amount of cash from a necessarily stingy government. It also showed that, while the sector's star might not shine so brightly in these austere times, it hasn't waned as much as we feared. Anecdotally, I have also heard of great examples of charities using the Transition Fund not to rearrange deckchairs, but to invest in building a new ship.

However, two things have bugged me about the fund. The first is that it has given succour to those who believe they deserve by right to be bailed out. This culture of entitlement is the most unattractive trait I see in the sector. By creating a bailout fund, the government has unwittingly strengthened the hand of those who, instead of reacting to the crisis in funding, have sat on their hands, blocked change and told their chief executives to find more money. And then it has appeared.

The second thing is that for every organisation that uses the Transition Fund to reinvent itself, there appear to be 10 that use it to delay their deaths by a few more months - or until the next bailout fund comes along.

I am sorry, but you can't run a charity - any more than you can run a car plant or should be allowed to run a bank - on this basis: it's wrong. If your existence is in danger, the only legitimate use of the Transition Fund is as an investment in your long-term sustainability.

If it allows you to keep your head in the sand for a bit longer, it is failing to serve its function.
Some readers will think I'm missing the point here. Short-term cash is urgently needed to prevent thousands of our most vulnerable organisations from disappearing due to no fault of their own, and so on.

On one level, this is true: one hears many stories of councils, in particular, treating charities badly. Nobody would argue that there is never a case for financial relief or bridging funding for organisations that hit a difficult patch.

But what has been lost is any kind of mindfulness in the way that money is used: there was no requirement to invest; nothing to be repaid; little accountability (from what I've seen); and no really clear distinction between the most and least deserving. I know this was mostly down to the timescales - but I think this spending was done blindly and not in a considered way.

What will be the legacy of the Transition Fund? Ideally, one would like to think of it as a timely piece of investment that enabled our sector to retool for a new age - as indeed it is for the few who are investing their funding wisely. More realistically, I think it will be viewed merely as an extension to the opening hours in the last chance saloon.

Monday, October 3, 2011

Business as Usual is Not About to Resume

I had breakfast today with a friend and former Barcap investment banker who confided in me, over fresh cappuccino at the Commonwealth Club, that he was 'deeply pessimistic' about the future of the UK economy - and therefore also quite worried too about the charity and social enterprise sector in which we are both now active.

His view, and it isn't new, is that we all - including him during his time in the bank - grew convinced that we had, somehow, hit a new economic paradigm - one of continual growth. Of course, we know the rest of the story. We were, in reality, living beyond our means for a very long time, all fuelled by the Emporor's New Clothes of debt.

I am not so tribal or stupid to blame this all on Labour as the Tories are doing this week. All of us fell into the same trap. Sure, Labour could have modified it but their OTT spending was matched comfortably by excess elsewhere. We were all at it. Yes, all of us. Consumers too. Charities even. We all grew on the back of a surging economy. A doubling in the number of charities, no less.

We're now faced with not just a couple of years of pain before things perk up - but, probably, a decade's worth at least. There are no big levers to pull. Rates are as low as they can go. There's no oil or Big Bang to spark or soften the blow of an economy in which demand is now at a super-low. Neither is there money for tax-cuts. In fact, there's very little to lift things - that's the problem. The bottom line is that our economy in 2011 just isn't strong enough to support us at the level to which we're become accustomed.

This applies to public spending too. One in every four public pounds is borrowed. Yet the debate hasn't moved on from the 1980s in the minds of some of the defenders of the current system.

Take those people in Stroud last week who successfully got a court order to stop a social enterprise being formed to take forward former NHS services. They think those same services are 'safer' in the NHS. Folly. If we want to keep social and health provision at ANYTHING like current levels, we have to make a diminishing sum of money work a lot harder.

Getting it out of public sector monoliths is the first step in doing this, as we're trying to show with Stepping Out. Putting that money to work alongside community and individual resources is the new name of the game. People trying to 'save' public services need to realise that.

As we finished our cappucinos, my former banker friend ventured that our children will probably be 25% poorer than we were in our pomp. Public services 25% less well funded and so on. We're not used to that. And it will probably be this possibility - more than any other- that shapes public sector reform over the coming years.

Regardless of whether we like it, this means markets. These could be very open ones - like the Tories seem to instinctively go for - or, as I prefer, more managed markets that are regulated to guarantee diversity of supply and competition on quality as well as price.

We said goodbye. He has been chastened by the experience of recent years. But I have too. I grew a social enterprise when it was easy. I wouldn't like to try to repeat that feat today. We have a generation of leaders now who aren't used to coping with decline - and who lack the skill-set associated with it.

2012-20 will be a very different era for charities and social enterprises. Much less secure but possibly richer in opportunities for the well-positioned and most capable.

But for the rest, my friends' pessimism seems very well placed.

Sunday, October 2, 2011

Which is the Mark for Me?

In the next couple of months I will post my first year's results on the Companies House website. One of the most conspicuous things that you will notice (if you look) will be that while Stepping Out has made a pretty decent profit and put 20% of it aside to set up the Stepping Out Foundation, one thing is missing. Salaries. Because, in year one, I didn't actually pay myself. Or rather, I put the money I would have paid myself into paying back loan, reinvesting in the business and setting up the Foundation.

I could have been a social enterprise, had I wanted. It would have been oh-so-easy. Had I actually bothered to pay myself, rather than pay what I owe and reinvest, I would hardly have made a profit at all. A sliver of one. And, if I then gave half of that sliver of profit to a Foundation I could, with pride, declare myself to the world as an 'official' social business.

See where I am going here? What I am saying, I guess, is that it is quite easy to pass muster as social business without necessarily doing a great deal of good for anyone. Just pay yourself a decent whack of what would otherwise be profit and you're away. Then simply declare a small profit, give 50% of it away and give yourself a pat on the back, social businessman.

So why haven't I done this? I haven't done it because to do so would have been bad for our business. Stepping Out, like any new business needed to be profitable so that it could first survive and then see this profit reinvested in the business.

In year one, this was more important than paying me (and it takes an entrepreneur to understand this logic). I have lived, as most entrepreneurs do, on savings and by counting my pennies. I don't take a wage until it's safe to do so. But I know that if and when the business succeeds, I will do well enough from it to compensate for these early risks and privations.

Social enterprise logic - and I hear this a lot - is very different. There are normally fewer early privations. Indeed why should there be? For there is nothing down the road to point to as compensation. Therefore, to be reasonably expected to start a SE, , one has to to put oneself, as Founder, on a decent wage right from the off. But this is hard for the business: The enterprise then has massive need for cash to pay you ahead of secure revenue streams, making survival less probably and funds for reinvestment less likely to be there. In short, social enterprise can cut off the oxygen supply to new ventures which comes from entrepreneur's financial self-sacrifice.

I am saying this because I think it is time we opened our eyes to the fact that the term 'social enterprise' should not be restricted a corporate structure that discourages personal risk-taking by making difficult reasonable long-term reward for founders. Companies starting need to 'borrow' from their founders in every way. Starting businesses on full costs is simply very difficult - and dangerous for the business. It is only right and proper that is repaid generously to founders once the business is a success.

Fans of Ed Miliband please note, this is not 'something for nothing' behaviour . It is not greed which motivates entrepreneurs lany more than it is greed that makes it a requirement for social entrepreneurs to pay themselves good wages from the off. Indeed., how else are social entrepreneurs of the officially sanctioned variety to be compensated for their risk?

You will notice that there is rival 'Social Enterprise Mark' now available. It reads something like 'For Profit Businesses, Creating Shared Value'. It invites for profit businesses that can demonstrate tangible social value through the way they do business to join the social enterprise movement. Of course, at the moment, this is a shadow movement, outside the mainstream. For profit means, for many in this movement, that you're essentially in it for yourself, not social, at least not in the way they are.

I refute this. Why? Because I could, with one stroke of an accountants' pen, be a social enterprise tomorrow. And have a pocket full of money to go spend on a new car or two. But I care about my business and what it is here to do - socially & financially- a lot more than that. My business needs investment. Its Foundation needs cash (we pay 20% of profit into it). As an entepreneur - and yes a bloody social entrepreneur - I want to be free to create long-term value, not hemmed in by a structure that stops me doing that.

And for that reason, I know which Mark I will be using on our new website when it comes out later this month.