How Britain married charity with business

‘Pay for success’, ‘social impact bonds’, ‘social investment’ – these terms have started popping up in governments all around the globe. But what do they really mean? And are they going to change how government does business?

Apolitical spoke to Kieron Boyle, the outgoing Head of Social Investment at the Cabinet Office in the UK, the country that created the first ever social impact bond and has led the world in this field. The British government is particularly interested in achieving its ends – such as providing healthcare, education and social services – through the private and social sectors.

This has called into question some of the traditional distinctions between business and non-profit organisations. And as these sectors become more like each other – with charities making money and businesses adopting ‘missions’ – the government, too, sees itself less as a unique organisation and is merging with them both.

Boyle explains why this is happening, whether this amounts to privatisation and how millennials’ personal choices are affecting the way government works with other organisations.

Charities need investment for things like new buildings or to scale up their services, but why would a fund want to invest in a charity?

Some private investors are looking at it as an alternative to philanthropy, thinking: if I get paid back on that investment, I can recycle it, I can recycle that philanthropic intent. And if I don’t get paid, well, how’s that different from just giving my money away in the first place?

And there’s another set who are thinking: actually, focussing on impact on society and the environment just makes good business sense.

How does charity provide a return to investors?

That’s why I don’t really like the words ‘not for profit’, because it’s wrong. Loads of charities make profits. It’s what they do with them that’s the difference. In the UK for example they aren’t allowed to make profit held predominantly for the charity – it needs to be distributed to beneficiaries.

And how can they make profits? They can sell things to consumers and they can also sell things to government. And that’s one of the big areas we’ve been looking at: how can government contract not only with the private sector, but also with the social sector?

That creates trading models and that’s really what we’re talking about here. We’re focussing on organisations that are seeking social impact and have a trading model. At that point, some of the distinctions between a charity and a mission-led business start to become blurry.

Could you give an example of this kind of three-way partnership?

There’s a group of charities [associated with Her Majesty’s Prison Peterborough; this was the world’s first project of this kind] that took a contract the government had out to try and reduce the amount of re-offending. In particular, the idea that if you’re a young person, you’re 70% likely to reoffend within a year of leaving prison, which is just bonkers. So government set up an outcomes-based contract, which is as it sounds: government pays on the delivery of a certain outcome. Here, that was a reduction in reoffending.

It sounds really obvious to the rest of the world; to us in government it’s still a pretty new thing. We’re used to buying stuff on inputs: we’d like X number of prison guards or probation officers, rather than: we don’t really care about how you do things, we care about the outcome. So those charities are getting paid for those outcomes, which creates a revenue stream. And it’s against that revenue stream that they might be able to attract investment.

These social impact bonds or pay-for-success contracts or social investment partnerships are an interesting example of the partnerships that are emerging between government, social sector organisations and socially motivated investors.

Why does government want to bring in businesses and charities?

There’s a set of social problems that governments around the world are facing – if you have a parent who’s been in jail, you’re much more likely to end up in jail yourself; if you’re poorer, you’re likely to have greatly reduced school outcomes – and governments are finding that we just don’t have the answers.

So then it becomes about: what approaches are going to work and – particularly with individuals presenting with multiple disadvantages – the evidence seems to point to: having people support them who are around for the long term, who have deep relationships with them.

Surely no organisation is longer-term than government. Why outsource?

In developed economies like the UK, a lot of people think that government might have become too complex. There was an initiative to do X, then an initiative to do something on top of that, and before you know it, you’ve built up systems that are incredibly complicated, where no one person really knows how to makes things happen. And that’s where we start talking about silos – civil servants focussing on one thing and not seeing the individual it’s for.

Most people aren’t solely in need of health or education services, it’s usually the same person coming into contact with the health service, criminal justice, education. The idea behind outsourcing is to reduce the complexity. It’s also a question of proximity to the person who needs help.

Why is this shift happening most quickly in Britain?

What’s happened has been a reflection on our experience of quite a lot of privatisation, particularly in the 1980s, and a rich heritage of social enterprise and charities being involved in public service. And these two things coming together – not so much privatisation, but a different kind of outsourcing.

There’s a heated public debate going on about privatisation, especially of the health service. What do you think people are worried about?

I guess people are worried about misalignment – that, basically, the public wants to achieve a set of things and the private organisation want to achieve something different. The obvious thing is to say that the private organisation, in seeking profit maximisation, will end up doing things that are misaligned with what’s in the public benefit. Now, that happens. But one thing people might take comfort from is the closer involvement of the social sector.

But doesn’t the profit motive necessarily create the cheapest possible services, even if that means sacrificing their quality?

It can do. It needn’t. Not just for charities but for business as well. Lots of businesses would say that the primary purpose for which they exist is to improve society. Some businesses present their values separately to the core of what they do, but a growing number are saying: how do we achieve our values through everything we do? Let’s look at Volkswagen: it took a huge financial and reputational hit for not being environmentally focused. I think there’s a growing recognition that these things aren’t separate to business performance – they’re part of business performance.

What safeguards are there to make sure the outsourcing happens how it’s supposed to?

Yes, this is the critical question. And if you have safeguards, do they work? Charities have trustees and regulators to check they are having an impact. Companies can do things like write their values into their articles of association – it becomes their directors’ duty to check they are having that social impact. And others take a totally different angle and say, actually this is about transparency.

And what guarantees does government have?

The same as we have with anyone. When government enters into a contract for what it would like to see happen, there’s normally the behaviours expected. But it’s not foolproof.

As charities become more like businesses, some businesses are becoming more like charities, focussing on a ‘mission’. Why is this happening, and what effect do you think it will have?

Well, let’s just look at millennials. They are much more likely to buy with social or environmental impact in mind, they’re much more likely to choose where they work on the basis of purpose, they’re much more likely to save or invest their money in line with their values. Markets are going to start to move, to start valuing more clearly social and environmental impact. Fast forward thirty years, and we might be in a position where we’re asking ourselves: why weren’t we asking companies to report on social or environmental impact in the same way they report on their financial performance?

An analogy: twenty years ago, very few people had heard of the internet. Investors were looking at companies that were trying to do interesting stuff that was internet-enabled, not quite clocking that the story was not about the individual companies, but rather about a networked economy that was going to act in very different ways.

I think something similar is happening around impact. At the moment we’re focussing on companies doing interesting things – the Unilevers, the Danones. And that’s great. But actually it might be the thing that’s emerging behind that, a world that values environmental and social impact, that is the real trend.

You’ve mentioned that government is starting to see itself as less unique and more similar to charities and businesses, both of which are becoming more like each other. Where is this merging coming from?

Necessity, I think. Necessity, because to deal with the sorts of issues we’re trying to deal with, we need to bring all the sorts of motivation and energy that the social and private sectors have in their separate ways.

And also just that people are moving around between fields. Take my team here – we’re about a third, a third, a third in where we come from. The idea in any industry that someone enters it and sticks there forever is becoming increasingly rare. People are asking, where can they deploy their skills, where they can get professional stretch, where can they do stuff that interests them? And I think we as government are just reflecting that. When we look at who we employ, there’s greater diversity in where they come from than there ever has been in the past.

So people’s personal career choices are changing the way huge organisations like government and big business interact with each other?

Yes, I think that’s it.

Based on an article originally published on Apolitical.