The reality and opportunities linked to community investment for companies is clear. Where to begin is the challenge.  Did anyone really understand what corporate social responsibility (CSR) meant when it appeared on the scene in the mid 1990s? Arguably it still remains a mystery to many executives today. The concept itself is not necessarily difficult to grasp.

The real difficulty for business leaders continues to be developing and practically implementing a CSR strategy.  Although companies have embraced CSR to varying degrees, since its inception another trend has emerged from the philosophical and somewhat titanic CSR movement.  The notion of community investment is practical, implementable and results oriented. When structured to complement a company’s commercial focus that delivers shareholder return, this concept helps companies tangibly demonstrate their social responsibility to shareholders, customers, the market and the community.

Paring away the altruistic intent of an organisation’s leadership or its people, community investment strategy can enhance reputation or help mitigate risk.

The term ‘investment’ correctly suggests a return - have you ever known a company to ‘give away’ anything? When determining an appropriate return on investment the solid starting point is social outcomes. Social outcomes vary but can mean improved education for marginalised children, finding cures for diseases, addressing environmental challenges or generally helping those less fortunate. It’s these outcomes, when woven into traditional marketing mechanisms and internal cultural initiatives, that enhances reputation (or helps manage risk).

The bottom line is that this adds value to a company, shareholders and the community. 

Realising the benefits of this opportunity begins with identifying an organisation’s intent and the way in which its resources can be applied to enhance reputation using community investment.  The starting point is not selecting a charity to support or hosting an event, these come later. These independent and tactical activities, in the absence of a strategy, usually result in resource-intensive outcomes and people questioning the ‘bang for buck’.

1. Thinking for smaller organisations

The community investment approach taken by these businesses relies on their appetite to explore new ways of leveraging resources to help enable social outcomes.  A conservative approach should initially focus on determining the logical fit of core capabilities (e.g. IT, construction, finance, professional services) with social challenges.

The next steps involve introducing processes and systems needed to mobilise resources and coordinate the presentation of outcomes that comes from the investment in community programs.

Innovative small businesses also undertake activities of their conservative peers and can then look to partner organisations (i.e. inter-sector relationships, suppliers or even peers) for collaboration opportunities. Practically, this can mean agreeing to combine respective skill-sets to tackle specific issues one business cannot do alone.

Key advantages:
1. Experienced providers of systems and process (as noted above) are readily available in market.
2. The appetite of small business to join forces in addressing social issues is increasing.

2. Considerations for large organisations

The emphasis on aligning core capabilities with social challenges is amplified when dealing with larger organisational resources. Increasing size usually suggests geographic and/or cultural divides across the resource base which can lead to challenges associated with focusing effort.

To be successful, an organisation with a conservative approach to community investment should ensure that key strategy enablers are well established and operating effectively across the organisation. These enablers may include infrastructure like endorsed volunteer and probono programs, executive appointment programs1, workplace (payroll) giving, online collaborative project environments and coordinated fundraising campaigns. The backbone of these enablers is whole-oforganisation policy that helps guide, refine and communicate (internally and externally) the collective benefits.

Key advantage: Leveraging enablers helps large organisations focus effort and demonstrate community intent.

Larger organisations with a focus on innovation can begin exploring new ways of addressing social challenges. Companies operating in this territory usually have a deep and well articulated community engagement history -  usually 10 years or more. With well established and supported key enablers (as noted above), these companies invest in identifying and finding ways to support social enterprises2 that bring a strong innovation focus as a means to solving social challenges.

A key differentiating factor for these large organisations is that they are often able to leverage or refine traditional systems to enable them to successful support the start up and survival of younger social enterprises.

Key advantage: Social innovation based community investment is a powerful platform to further enhance reputation.

References:

1 Placement of staff as directors on non profit organisation boards
2 Social enterprise - for profit or non-profit organisations that have a social mission

© HSC & Company - All rights reserved

By Phil Hayes St Clair
CEO,
HSC & Company

Phil Hayes St Clair will be presenting at Networx's 'Sponsorship & Community Investment - Both Side of the Coin' on Wednesday, 19 May.  he will be discussing the following:

You will learn how to:

Networx event: Sponsorship & Community Investment - Both Side of the Coin
Wednesday, 19 May 2010, 6.00pm-8.30pm | Event & Booking Information

This is exactly what happened in Australia just months ago when the concept of social enterprise was put into practice. The acquisition by a mission driven organisation is an Australian first which focuses on early childhood education as the means to reduce social disadvantage.

The Australian government-led privatisation of Australian childcare in the1990s resulted in company's building profitable empires of childcare centers. One of these organisations and a key provider of early childhood services, ABC Learning Centers Limited (ABC Learning), was carrying $1.2b worth of debt when it fell victim to the global financial crisis in late 2008.

Private equity professionals quickly identified ABC Learning as a potential acquisition target. So did Australian social visionary Michael Traill. The founder of Social Ventures Australia, a Harvard graduate and former private equity titan, Michael was contacted by entrepreneur Evan Thornley who queried whether converting the ABC Learning business into a 'for purpose' operation would be an option. What ensued was the formation of a unique cross sector, non-profit syndicate called GoodStart Limited.

As Michael explains: “We recognised this as a once in a generation opportunity to significantly change Australia's childcare sector for the better. It is now well documented by Australian and International research that effective early learning is vital to positive social outcomes later on in life regardless of family background. The most important period of learning is the first five years of life.”

Apart from the philanthropic potential of the project, the economics made sense. GoodStart's winning bid - rumoured to be around $100m - for 678 ABC Learning centres beat other private equity bids for the $600m turnover business.

The funding model included:

Traill notes the contribution of individuals and non-profit organisations was critical: “What made this last capital layer so unique was that we structured it to attract these individual investors:
subordinated debt with a commercial, albeit below-market, return”.

GoodStart Limited Chairman Robin Crawford later revealed that the philanthropists would be paid a non guaranteed 12 per cent a year on their unsecured notes (compared with commercial rates of 15 per cent plus) and repaid at the conclusion of the eight year term The government loan was also to be repaid over 7 years at the government's cost of finance (then at 6.4 per cent).

Myself, along with our team at HSC & Company believe GoodStart may very well provide Australia, and indeed other nations, with the blueprint for partnership funding that works to deliver social outcomes practically, not just theoretically.

Traill says that GoodStart is important for three main reasons:

GoodStart demonstrates that in fact capital is available. Why? Firstly, a commercial return, albeit below market rate, is available. Secondly, partnering with likeminded individuals and organizations is critical to establish a critical mass. Thirdly, GoodStart asked the federal government for a loan – other ABC Learning bidders did not. Finally, a clear and detailed plan demonstrated how the GoodStart syndicate would turn a previously profitable empire into a sustainable, non-profit, social-impacting business.

References
1. Michael Traill, 'Social Ventures Australia'
2. 'A capital idea' (Michael Traill), 'The Australian', 3 March 2010
3. 'Charity takeover of ABC Learning' (Natasha Bita), 'The Australian', 10 December 2009

© HSC & Company - All rights reserved

By Phil Hayes St-Clair
CEO,
HSC & Company

Phil Hayes St-Clair will be presenting at Networx's 'Sponsorship & Community Investment - Both Side of the Coin' on Wednesday, 19 May.  he will be discussing the following:

You will learn how to:

Networx event: Sponsorship & Community Investment - Both Side of the Coin
Wednesday, 19 May 2010, 6.00pm-8.30pm | Event & Booking Information