What is needed from the board-executive relationship in order to make success from social investment? Family Action CEO David Holmes and Chair Bryan Portman share their experience.
In the current public service environment, money is tight and innovation can be difficult to achieve. If you can get the right deal and choose your financial product well, social investment can provide a route to innovation and offer the opportunity to test ground-breaking ideas.
David and Bryan's story
Family Action has been providing community-based services to support vulnerable families, children and adults since 1869. We have 145 services across the UK ranging from Children’s Centres to intensive home-based family support and from therapeutic services for children recovering from abuse to supported housing for adults with mental health issues.
Two years ago, in a context of continuing financial austerity, Family Action decided to explore social investment as part of a strategy to diversify our income base and prioritise innovation in our service delivery. We spent months developing a bold, new, intensive service for adolescents in care who were experiencing multiple placement moves, who were going missing regularly, were at risk of exploitation or offending or who were otherwise at significant risk. The model we developed was exciting, but unproven. How could we persuade local authorities to commission such a service without a substantial evidence base? And how could we manage cash flow in year one without putting a substantial amount of the charity’s reserves at risk? Who might help us?
Well, we tried and failed to persuade the DfE to invest in the service through its Innovation Fund. And what grant making trust would be willing to invest enough money to enable our service to prove its worth? But we refused to give up - we knew the service was needed. Every Director of Children’s Services in every local authority across the country will know by name a number of young people who are unable to settle in care who they are deeply worried about – this service was for those young people. And so we turned to social investment.
We spent a lot of time talking to different social investors to find an investor and a deal that was right for us. We knew we didn’t want a social impact bond. We wanted a more flexible financial product with less intensive governance, but with risk sharing too. With consultancy support we found the right investors for our deal - Social and Sustainable Capital and the Esmee Fairbairn Foundation.
Together we created something different: an unsecured loan to help with cash flow while the service proved its concept. We agreed that if the service succeeded in achieving stretching target outcomes for our young people, then the investors would benefit financially and if the service failed altogether, the investors would share the closure costs with Family Action. We also created a payment by results structure for the service that would be attractive to commissioners. After much discussion with a number of local authorities the service was eventually commissioned by two of those we approached.
Family Action’s social investment-enabled service has been up and running for four months now and it is working! As a CEO I have learned that social investment is fundamentally a deal and you need to find the right deal for your charity. Our Chair and trustees worked alongside the executive team throughout the period when we were exploring social investment. We considered social investment together at four consecutive Board meetings in 2015 - from first principles to finally agreeing a deal.
There are differences in the roles of the executive team and the Board of Trustees when considering social investment. For the executive team, the challenge is to develop and refine the project idea, find the right investor and source the best deal. For the charity’s trustees, the challenge is subtly different. It’s about finding the right balance between encouraging the members of the executive team and acknowledging their drive and desire to find new sources of funding whilst also being focused and relentless in asking hard questions about the proposed service model and the terms of the deal. The point is that true innovation is rarely easy and social investment is not a free ride. You have to come up with a great idea and get the best deal you can. To achieve that the executive team and the Trustees (and indeed the investors) all need to be performing at the top of their game – sparking off one another, challenging one another, but ultimately coming up with an idea and a deal that will fly. Fundamentally, the executive team and the charity’s trustees need to trust and support each another, but that does not mean they need to agree on everything. Robust healthy challenge is just what is needed when deciding if social investment is right for your charity.