Gen Maitland Hudson, Head of Impact and Measurement, Power to Change
Ged Devlin, Programmes Manager, Power to Change
We’ve had a solid year of national soul-searching following the referendum vote. Some of that soul-searching has been about listening more effectively to people who feel excluded from political decision-making. That chimes with Power to Change’s work on community involvement in businesses, and begs the question: how do we best articulate ‘good’ engagement in community-led business?
We want to be able to set out the principles for meaningful involvement. That means looking at the evidence, and finding the models that could inform our work as an investor in neighbourhood regeneration. In that context what does ‘good membership’ look like? How do you know if you’ve got it? How might you seek to encourage that kind of membership, and discourage its opposite? What provides the foundation for effective membership and how can organisations collect the evidence to show that they’re getting it right?
The first point to note, is that membership organisations accountable – in whatever form – to their community or stakeholders, develop a relationship with them.
An employee owned mutual or a worker co-operative has a direct relationship between its operation and its membership, through which members benefit from the company’s success. By contrast, a community owned business often acts as a mediator. In some cases, the company’s success may confer a benefit as residents save vital services that they all benefit from retaining, or by influencing the businesses they use. More often, the members benefit indirectly through more dispersed community goods, both tangible and intangible.
Despite the pertinent difference between direct and indirect benefit, co-operative forms are a good place to start looking for pointers for new community membership organisations. They have a hundred years of experience and data under their belts, and some of that is transferable.
A good starting point in looking at the experience of employee-owned organisations is the brand new ‘Oxford Handbook of Mutual, Co-operative and Co-owned Business’. The opening chapter of ‘Part V’ on ‘Political, Governance and Organisational Aspects’ (recommended bedtime reading), takes us through the findings of the NBER shared capitalism study. This looked in detail at the experience of 14 firms with a mixture of shared ownership arrangements.
The findings show, perhaps exactly what you might expect, an interesting blend of give and take amongst employee-owners. The greater the profit share and the more participative the business culture, the more committed and involved the employees.
The factors that are most interesting for community businesses with members, are those that highlight dedication, working hard and making suggestions as facets of employee involvement:
The initial effect of employee share ownership on individual workers appears to kick in at very low thresholds in influencing the frequency with which workers make suggestions and whether they propose ideas for innovations rather than slight improvements.
These findings are reassuring for community businesses issuing shares, given that the size of each investor’s share is likely to be modest, with a median investment of £175 per investor. The good news is that a modest share need not preclude meaningful involvement, and we’ve already got a trickle of data suggesting that the finding from the NBER holds for the community share issues that Power to Change has supported.
Meaningful involvement itself appears to take distinctive forms that go beyond traditional accountability, through the contribution not only of time and effort but of ideas and problem-solving.
For start-up community businesses launching their first share issue and stretched for resources, that kind of involvement is important.
For community businesses, investment should be aligned with community purpose. As an investor, you may not enjoy any capital growth. Your investment is primarily in supporting your community rather than making a speculative gain.
Early stage investment by founders and community entrepreneurs will, indeed, often involve hard work, long hours and voluntary commitment with no prospect of any financial return. Appealing to the community to engage as members and be engaged investors, can be a powerful way of strengthening the business model, increasing customer loyalty, and making the community business more financially secure.
That sounds not unlike the ideas generation and problem-solving of successful co-operative groups.
It is also likely that this kind of contribution will not only be useful to the business, but will feel more coherent for shareholders since it reflects new patterns of participation of the kind highlighted in recent work on democratic engagement.
Thinking of shareholder involvement as making suggestions and problem-solving ought also to steer community businesses away from the experience of Foundation Trusts with their large, but largely passive, memberships.
Which brings us to membership size.
Does size matter?
As part of our work we’ve put together a dataset of community business financial accounts going back three years. There are 180 CBs in the dataset, and we’ve merged that data with the application data from our biggest open access programme, the Community Business Fund.
Both sets of data give us pointers about membership size.
The membership contribution to income is small. The effort and cost involved in managing a large membership may, in contrast, be significant. Equally, the larger the membership, the harder it is to sustain effective engagement. Finally, the dataset doesn’t appear to show any meaningful relationship between membership size and business performance.
This data tends to suggest that bigger is not necessarily better, and that setting high targets for membership may be counterproductive without a very clear plan for their meaningful involvement with a business; community business engagement is more than just a numbers game.
Engaging members not only as investors but also as customers, service users, volunteers, activists, experts, and even as suppliers or workers is a core part of this model. Engaging members in multiple ways strengthens the competitive advantage of the business. Members who have invested are more likely to volunteer or to become loyal customers. This can reduce costs and increase turnover. As member investors, who support the community purpose of the enterprise, they may be prepared to accept lower financial returns, which will further strengthen the competitive advantage.
We’re getting closer to being able to model the number of members likely to buy shares at a certain price for a certain level of equity raise. That starts to help us to identify optimum numbers. Triangulated with some longitudinal data of the type collected in the NBER study, and we’ll be able to share a set of principles for member engagement that are grounded in evidence.
In the meantime though, get you an active, imaginative and diligent medium sized membership. Big and passive will do you no good at all.