Adrian Ashton, writing in a recent SEDnet email newsletter (posted below) and in October’s Regen&Renewal, pointed to the gotchas in Community Interest Company mem & arts. I was surprised to see some needling of the CIC format and was immediately inclined to debate the issue with Adrian. However, I think the letter back from the CIC Regulator (Download letter_to_mr_ashton_dated_27_october_2006.pdf ) rebuts more concisely than I could ever hope to do. However, I did want to raise two issues that came to mind while reading Adrian’s email; (1) Definitions and (2) Forward Movement.
The first is the obsession by the sector to define everything under the sun. Can we all just agree to disagree about the darn definitions of x y and zed! There is far too much work yet to do for us to worry about definitions. Does this mean we should be ignorant to details of new forms of incorporation? No. But it does mean that some times the fine print is just that, fine print. I was surprised to see the Co-Operatives UK taking issue with the nuances of the CIC articles, since CIC formation is an extension of a co-operative organisation – - not an extension of the definition of a co-operative.
The second is the need to keep moving forward. If we throw up red flags at every corner (and I say every corner here b/c Adrian picked out some discrete clauses), we will forever be stalled. Perhaps I am a bit overzealous, yes I am a extremely energetic US born entre / intra – preneur, but I think we should be looking for reasons to make things work – not discovering or finding how they won’t work. In fairness to Adrian, he was simply raising an issue as a commentator in the sector, but his comments reminded me of the many folks I meet who are taking this approach everyday. These are the social enterprises who think that to avoid making mistakes, you must avoid any decision with an element of chance. In fact, avoiding such decisions is likely riskier. They are also the same organisations that cannot make a decision without a clear mandate (referring to the chairperson deciding vote clause in CICs). Sometimes it take action by a few, with the social benefit in mind, to make things happen…not a committee.
Adrian’s entire commentary is posted here for your review. Use it as a catalyst to move your dialogue forward: learn about what Adrian is pointing to, make a decision and move forward. You have a social mission to achieve.
(Appears in October Regeneration &Renewal Magazine-subscription necessary)
“CICs – beware the hype, you may be betraying yourself… “
Since its launch just over a year ago, the new legal model for social
enterprise, the Community Interest Company (CIC), has attracted much
attention and support. This is perhaps due in so small part to its
asset lock – although not unique to the CIC structure, it is the most
publicly visible; and on that basis, many have come to acknowledge
the CIC as a valuable model for social enterprises to badge and
identify themselves as such in their marketplaces.Over the last year, many variants within the CIC have emerged, as
social enterprises have sought to `tweak’ the model to best fit and
reflect their particular structures and focuses.
However, certain aspects of a CIC remain mandatory and must be
adopted and enforced in order for an enterprise to be awarded CIC
status.
It is with regard to some of these mandatory requirements that I have
become increasingly concerned as I see many groups seeking to become
CICs without appreciating or realising their implications.In the absence of an overarching legal definition, social enterprises
are identified by their values and how they enact those values. It
therefore seems vital that their chosen legal structure enable them
to protect these, but within the CIC `rule book’, I feel that there
lurk some hidden dangers…in particular:
1)The requirement that the chair have a second vote in the case of
hung decisions
This not only brings into question how well a co-operatively
structured social enterprise would be able to enact their value of
equality, but also that of solidarity – surely better that decisions
be carried with a consensus majority vote? If a decision is
contentious enough to evenly split opinion, then forcing it through
on the say of one member risks a future spilt in the governance of
that enterprise.2)The requirement that ‘a director who is an alternative director
shall be entitled in the absence of his appointer to a separate vote
on behalf of his appointer in additional to his own vote’
This further allows for an unequal balance of voting rights, but
additionally allows for some directors to vote on behalf of others in
their absence – in allowing the potential for such an environment,
directors who are not present at meetings may be supporting or
opposing motions that they have no knowledge of.
This is not only an even greater risk to the good governance of that
enterprise, but also allows for a removal and contradiction of self-
responsibility; if another director may vote on your behalf, why
should you bother taking the interest or responsibility of being
involved in the management of that enterprise?These clauses are listed in the model CIC memorandum and articles of
association, and from experience, attempts to change or remove them
from an applying enterprise leads to the application being deferred
with a request that they be re-inserted.Given all the hype and excitement that seem to be surrounding CICs
(apparently, wherever John Hanlon, the chief regulator of CICs,
speaks there’s immediately a surge in applications from that area!),
I’m concerned that many enterprises are rushing in to adopt the model
without being made fully aware of the implications and alternative
options that may exist.For some social enterprises, they’re aware of this `small print’ and
its implications, but are clear that the CIC is the right model for
them, and to those I wish all the luck in the world. But many
advisers and enterprises aren’t aware of these clauses or the
implications that they may be compromising their values that they
hold so dear in defining themselves.As the author of this piece, I can say that I attracted a fair amount
of interest and encouragement since this was first published (and
concerns from others who are adopting this model and weren’t aware of
these and other ’small print’ clauses). For anyone interested, I’ve
now had a response from John Hanlon, the CIC regulator, and would be
happy to share it on request (running at 4 pages long it’s probably
a bit heavy going for posting to a general forum such as this)regards
Adrian Ashton
independent adviser and trainer to 3rd sector organisations
adrian_ashton2@yahoo.co.uk
Related posts:
while I support the sentiment that we should ‘just get on with it’ and not always get ourselves tangled up in all the small detail, I feel there is a key historical precendent in the social enterprise movement that we should bear in mind here:
some of the ‘trailblazers’ in our sector, the large building societies and other mutual bodies were formed to address social need and benefit those in our communities who would otherwise be exploited and/or loose out. Their founders simply ‘got on with it’, but generations later, a small group of people found the loophole in these organisations’ rules that allowed them to take control of it, divorce the membership and subsequently there is a recognised lowering of the quality of services and support they offer against the mandate their original founders had from these bodies now chasing profit over chasing the best interests of the communities they were created to represent.
we need to take care that our vision and purpose is adaquetly enshirned and protected for the benefit of our commuities not just for today, but for successive generations – and that’s why I’ll always try and flag up ‘fine print’. Not to be pedantic, but to make sure that people know what they’re getting into and take appropriate steps to protect the interests of those they are seeking to ultimatley benefit.
for those interested in additional perspectives on the CIC debate, co-opnet (perhaps the original and oldest blog for social enterprise?) has a thread with various postings:
http://www.co-opnet.coop/viewtopic.php?t=464
A recent article in Wrigleys Solicitors’ (seen as some of the leading legal counsel to the third sector) Social Economy Newsleter no.86 would seen to throw further light on the current state of CIC legislation and its implications:
“Teething snags at the CIC
“The community interest company first strated to be registered in July 2006 since then a number of concerns have been identified about its actual suitability for social enterprise. These concerns focus more on the question of whether the new legal structure properly fits individual expectations rather than what the CIC can or cannot achieve. In particular, concerns have been expressed about the statutory requirements under the Community Interest Company Regulations and provisions which are required to be incorporated into the Memorandum and Articles of Association of every CIC.
“The Community Interest Company Regulations require that ‘a person who is not a member shall not have any right to vote at a general meeting of the company’. This directly conflicts with the right under section 372(1) of the Companies Act where a member entitled to attend and vote at a meeting can appoint another person (whether a member or not) as proxy to attend and vote on his behalf. However s372(1) only applies to companies limited by share. In this case, the Act would take precedence over the regulations. Standard template documents for companies limited by guarantee will often extend the right to appoint proxies so why this restriction on the Community Interest Company limited by guarantee?
“Since companies and unincorporated associations continue to have the right to appoint representatives under section 375 of the Companies Act the restriction will limit the right of any individual member of a company limited by guarantee or Community Interest Company. This should be carefully noted to avoid any subsequent arguement over voting rights.”
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Thanks for the update. I still stick to my original thought…this detail needs to be sorted…but for the laymen, let’s focus on the the doing. So much to do.
anyone else out there noticed the CIC regulator has some ‘unusual’ powers?
for example: as well as being able to change directors at will, the regulator can also impose restrictions on their trading activities and instigate civil proceedings against an individual or other organisation in the name of a CIC – and all without their, or their community’s, consent…
None of the CICs I’ve met to date knew about these powers that they’re subject to, nor that the asset lock is not unique to a CIC (and all having taking “expert advice”)
I’ve also been trying to have conversations with national support bodies to see how they’ve been able to rencile some of these powers and the rules of CICs to co-op and social enterprise values (in as much as they’re encouraging and supporing groups to register as CICs), but so far without success – would be grateful if anyone could broker an introduction?
Hi Adrian,
You are right, not something I have noticed – among no doubt, countless others. What is the source of your information about the CIC Regulator’s powers? and are there other comments about the circumstances in which those powers can be used? I wonder too if there are parallel powers which Companies House has?
It may be worth looking in to whether the insolvency service has powers over CICs – if they do not, it may be that the Regulator has been given some.
We know that other forms can have asset lock – not least charities (whose trading subs enable them to do quite a bit as we all know) and there is considerable flexibility in IPS structures. It sounds though as if you are pointing towards other forms…. Interested to hear what you have in mind!
Alan
for people still interested in this debate/discussion/etc, there’s now a 2-part podcast of an interview between myself and Dave Dawes (well known in social enterprose health circles, and founder of a CIC) available to download at:
http://www.entreprenurses.net/podcast/ – and choose podacsts 7 and 8 (but be warned that part 1 is not suitable for children…you’ll have to listen to find out why)
well, seems like Big Issue and a number of CICs are now joining the “disgruntled with CICs” ranks – [url]http://www.charityfinance.co.uk/home/content.php?id=1884&pg=15&cat=30[/url]
(nice of the bigger guys in the sector to catch up with my concerns with this legal model’s current form that I raised nearly 2 years ago now!)
and for those of you interested in seeing how my original concerns are now being acted on by the CIC regulator, please see – http://thirdsectorexpert.blogspot.com/2009/04/shortly-after-community-interest.html
Adrian Ashton
and for those of you who may still be following this thread, and are interested to know my latest musings on the CIC, please head over to – http://thirdsectorexpert.blogspot.com/2009/07/is-cic-regulator-trying-to-tell-us.html
Ordinarily, I’d copy the posting here, only there are photos involved this time…
Adrian Ashton