Why you probably shouldn’t become a Community Interest Company

Imagine you have sacrificed hundreds of hours of your volunteering time to a non-profit organisation doing good work. After years of effort, often exhaustion, you discover that the directors don’t care that much about whether you succeeded in helping those people you intended to help. They care mostly about how much time they can spend at the swimming pool at their second home in Spain. Your volunteer hours have helped fund that lifestyle.

How could such a situation arise? Aren’t charities supposed to have boards of governors that keep the organisation on track? But wait, it wasn’t a charity! It was a Community Interest Company. Now, I should say that I don’t currently know of any such dramatic betrayals of people’s goodwill. But what I will argue here is that this situation arising in some CICs is bordering on inevitable, given the operating parameters of CICs. Given the weakness of regulation of the companies, almost boasted about by the CIC Regulator, it’s only a matter of time.

Why would I think that? Most people seem happy with CICs; Community Interest Companies are a success story, we are told. There are now many thousands of CICs in the UK, all having appeared within the space of ten years. This rapid rise in fact means that many people have chosen a form the long-term resilience of which has yet to be tested. It would be exciting to write an article about all the horribly failed CICs littering the social economy landscape. But I don’t know of any; I can only do a much less exciting job: pointing out what’s wrong with CICs before they start to fail. My contention is that, with the help of an FOI request to the CIC Regulator, we can see that certain types of failure are predictable. As for why we haven’t seen the failures yet, it is largely because CICs are young and in most of them the founders are still in charge.

The CIC was designed for organisations with social goals. It must operate in the ‘community interest’, which is defined in the articles of the organisation. It is also chosen over charities as an organisation that can more easily buy and sell commercially. But among the people I have asked, the main reason for opting for a CIC has been that it is easy. It is a lightweight structure, it is unencumbered by bureaucracy. It can be set up in a couple of days and can adapt quickly to changing conditions since it doesn’t have long lists of rules in its constitution. More like a standard profit-making company then, but with social objectives built in. Supposedly. More on that later.

By comparison both charities and co-operatives or community benefit societies (BenComs) have a lot more rules. Rules! How annoying! How limiting! But hang on a moment, why, if rules are so tedious, do those other organisations bother with them? The answer is that most of the rules are about accountability. In the case of a charity, the board of trustees, who must be consulted on significant matters, exist to keep the charity in line with its social aims. In co-ops and BenComs it is the membership who must constantly be consulted, and who choose who leads the organisation. Democracy certainly can be quite annoying.

By comparison a standard CIC is at the mercy of its directors, who needn’t even be many in number. That’s fine, I hear some say, I am the director, and I trust myself to make good decisions. Perhaps, but do you intend to lead the organisation forever? Even if you plan to live forever, what happens if you get ill, or leave through some other reason beyond your control? The purpose behind many accountability mechanisms is that they transcend the ideals of one particular person. They embed the ethics and goals into the DNA of the organisation, whoever may be running it at a given time. So how long do you want your organisation to last?

There is one supposed accountability mechanism in CICs: the government regulator. In theory the Office of the Regulator of Community Interest Companies has a lot of power to force CICs to stick to their aims. In practice it appears to do very little, priding itself on being a ‘light touch’ regulator. When I contacted the Regulator, they explained that in the last year they received 57 complaints, only 3 of which resulted in an intervention by the regulator. None of these 3 were related to the community benefit requirements. The Regulator has so far never wound up a CIC or stripped one of its CIC status. The Regulator has no records of intervening in a CIC on the basis of the standard paperwork submitted each year, which in part reports on the organisation’s performance under its community benefit requirement. That is to say, there appears to be no pro-active monitoring of whether CICs are operating for community benefit.

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