Local Value for Local People

In this article, Tom Levitt, author of The Company Citizen explores the use of social value and the frustration of measuring it. It appears on the City View web site. Tom will be discussing these issues at Commissioning and Procurement for Growth National Conference on the 27th March in London.


As a CEO in the social finance sector said recently: ‘More people are measuring social value than creating it.’ I understand that frustration – though there are certainly more of both doers and measurers than there used to be and that’s welcome.

Social value and impact have become part of the vocabulary not just of service delivery but of all activity in the three sectors, public, voluntary and private.

One very good reason for this is that having one eye on social value enables budget holders to deliver more from what, in the public sector, at least, are ever-dwindling budgets.

However, six years after the Social Value Act came into being, and more than a dozen since ‘Impact Investing’ became a thing, we still lack a common, agreed statement of principles, let alone a practical method of measuring and comparing the different ways in which organisations create change in society.

Whether their activity is social or environmental, implemented efficiently or otherwise, delivering outcomes against targets or simply assumed to be ‘good’, the need to measure is getting more imperative.

Commissioners, procurers and procurees, investors, donors, boards and governments, all contributors to the common good, want meaningful, cost effective and measurable outcomes.

Essentially, the Social Value Act allows (but doesn’t require) local authorities to take into account the ‘social value’ a company delivers when considering whether to accept its tender for delivering a service.

This value can justify awarding a contract to a company if it exceeds the difference in value between that bid and the lowest bid by up to a specified proportion of the contract price, normally ten per cent.

There are thresholds and limits to the Act’s scope but those who make the most of it often set their own criteria.

The Act applies to all government agencies, with large councils the most likely to use it, some specifying which types of social value they want to see delivered by which contract.

Private companies such as Fujitsu voluntarily apply the Act’s criteria to their own procurement practices.

Defined by Social Value UK as ‘…the quantification of the relative importance that people place on the changes they experience in their lives’…social value is normally expressed in monetary terms, though the processes by which this is calculated are varied and somewhat arbitrary.

This makes it difficult to offset the value against the ‘bottom line’; hence the frustration. This is less of a problem for impact investors – normally high value, outcome-driven, corporate philanthropists – who tend to invest in large scale development schemes designed to deliver long term outcomes against specific goals with a readily measurable monetary value.

This wish to quantify non-fiscal outcomes is no longer confined to the charity and public sectors. As companies sign up to deliver the UN’s Sustainable Development Goals, or simply become more aware of the commercial imperative to be ‘responsible’ in everything they do, businesses need to take seriously measurement of the social and environmental changes that they cause.

From the global to the local: a number of councils around the country have taken social value to heart and its footprint can be seen in all of their activities.

Few have done this more intensely than Preston, a city both big enough for a policy of local spending for local people to have a real, observable and positive impact and small enough for that focus to generate a sense of local community and purpose.

There are inherent problems in achieving a common approach to recording social value, not least the intellectual challenge of comparing the value of different elements of change, which includes the emotional and intellectual reward gained by the people delivering it (social value is a strong motivator of employee engagement).

There’s a common failure to distinguish between outputs, outcomes and impacts, a shortcoming which too often results in the proxy measurement of inputs posing as outcomes: ‘my company delivered 10,000 hours of volunteering this year’.

Indeed, one recently launched ‘impact measurement tool’ is no such thing, pretending to measure change by combining a handful of quantifiable inputs.

This story illustrates what’s supposed to happen when employee volunteers turn up at a community centre with their paintbrushes: the input includes the hours of labour and the paint, easily quantified.

The output is a pristine wall of a calming colour. An outcome is that users show greater respect for and pride in their facility and the impact is that this contributes, along with many other factors, to reducing community tensions. As the chain grows in complexity the direct link between the hours spent painting (itself dependent upon volunteers’ efficiency) and any reduction in street crime becomes more tenuous.

Different funders and investors may seek different outcomes.

Consider an organisation which helps teenagers at risk of entering gang culture: it provides them with support at school and counselling for their families.

Some of its operations are funded by a council contract, the rest through charitable fundraising. The council wants to see repeat juvenile offending reduced thereby saving money for public services.

A foundation wants to know how many children engage with the organisation and how community perception of young people has changed. A potential donor wants an assurance that the organisation isn’t spending excessively on administration, fundraising and running costs. And a local business has offered to provide work experience for some – though not those at high risk of offending as they pose an unacceptable reputational risk to the company (even though a positive outcome for them would create more social value than for those posing a lower risk).

There are four ways to arrive at a common approach to measuring impact or social value:

  • make it simple, aiding comparability
  • make it complex, maximising transparency, accounting for all outputs
  • compromise, pleasing no one
  • measure impacts in different but appropriate ways for different purposes

All of these approaches present challenges.

As for companies and government agencies, so for countries. GDP is an inadequate but oft-used measure of a nation’s worth, measuring as it does the value of commercial transactions (including, controversially, drug trafficking and prostitution) but excluding investment in education or culture and certainly not including the negative value of environmental damage.

Campaigners within the business world calling for ‘internalisation of externalities’ are growing in their call for negative impacts to be measured as assiduously as the positive, such that the currency of impact measurement (and, indeed, social value) should become a net figure rather than a headline one.

Perhaps the Social Progress Index or a system based on the Sustainable Development Goals should be the norm between nations? Can these myriad measures, this vortex of values, be rationalised or is a common system of assessing social value and the like an impossible dream?

In 2016 the British Standards Institution called together a variety of people interested in social value and asked us what we thought. There were broadly two camps: one believing that monetisation of social value was a goal in itself and the other that the solution was more nuanced, tending towards the fourth of the bullet point alternatives above.

Today, in 2018, BSI has established a committee of the willing to explore the practicality of a common framework and measuring system for social value, or net social change, or impact, call it what you will. We will look at the issue over 18 months and hopefully reach a consensus; part of our work will surely be to assess the different frameworks that already exist.

For example, I know of two procurement guides which allot unskilled volunteering time (an input!) a monetised common value, of £13 or £14 per hour respectively, deemed to be the typical cost to an employer of having the equivalent work done by an employee. But they disagree significantly on the value of pro bono professional advice, with one citing £25 per hour and the other £84.

Unravelling these knots is a challenge to which we must rise.

We need to alert businesses to the benefits of delivering social value in their everyday operations as much as we need charities to better report on what exactly changed as a result of their deployment of donors’ funds.

Meanwhile the public sector, always assumed to be the epitome of social value delivery, will not be reversing its shrinkage of recent years nor meeting society’s future challenges alone. Knowing what we change, for good or ill, and taking responsibility for it is both a start and a challenge for all sectors and organisations.

Tom Levitt, author of The Company Citizen

Find out more on this topic:

Commissioning & Procurement for Growth
Quantifying Social Impact in Business and Public Services
Tuesday 27th March 2018
Mary Ward House Conference & Exhibition Centre, London , WC1H 9SN
Visit the conference website

Creating Company Citizens

This article first appeared on the Tomorrow’s Company web site

‘Responsible business’ makes sense: there’s always something to be said for balancing your company’s needs against those of the environment and society in general. Why go against the grain?

This is the theme of my new book, ‘The Company Citizen‘.

For the CFO, there’s the knowledge that businesses which adopt more environmentally sustainable strategies produce more long term profit than those that don’t. The HR director knows that where employees are treated with dignity, and identify themselves with the meaningful mission or purpose of the company, then levels of engagement will be higher – which in turn enhances productivity. The procurement officer knows that legal and other codes of compliance are more readily accorded with when supply chains are open and transparent and the COO knows that ethical sourcing is a major contributor to removing unnecessary risk from their company’s portfolio.

When these four are happy so are the CEO and the Chair, who both know that the more they need to hide the less certain they can be about their future. Customers frequently show their appreciation of the honest, ethical, corruption-free approach by enhancing sales and market share.

Discussing his company’s newly-stated commitment to becoming globally zero carbon within a decade, a CEO recently told me: ‘This isn’t about climate change. It’s about long term thinking.’ How right he was. Putting climate to one side, carbon fuels can only become more rare, more expensive, more politically sensitive and their supply less reliable in the future; the same can’t be said for wind or sunshine, where technology costs are plummeting. A generational view puts the path of your company into perspective, puts budgeting for major projects in context and restores that business goal of years gone by: to leave a better company for the next generation than that which ours inherited.

In 1948 the United Nations came of age. It met in New York to discuss human rights, migration and other themes still redolent 70 years later. Today, if we brought together the 100 biggest economies of the world and charged them with resolving hunger, poverty and global warming only 58 would be countries – the rest would be companies. That shift in global power, recognised by the UN in the way it constructed its 2015 Sustainable Development Goals, suggests that combining global purposes with traditional business concepts of success is essential for our species’ survival; success must be tempered by a new level of responsibility. No longer confined to the optional extra of CSR, that responsibility could almost be described as epitomising the values of ‘company citizenship’.

Profit’s not a dirty word but it shouldn’t be the exclusive purpose of business. A true company citizen not only serves the market and the owners in a traditional way but pays tax willingly, with pride. The company citizen recognises that a business is a community in which employees, customers, investors and others have stakes which need to be in balance with each other. A good citizen’s a good neighbour, a community player and a friend to the environment 365 days a year, aware of both the positive and negative impacts that they have on others, seeking to accentuate the former whilst eliminating the latter.

The good news is that more and more businesses are finding ways to sustain themselves whilst maintaining the highest standards of ethics and probity, not least through the ‘new economies’ known as social, inclusive and circular. Business is increasingly looking to the longer term to reduce those negative impacts, especially on the environment.

When the day comes that it’s normal for companies to pay bonuses on the basis of carbon footprint reduction; boast in the media that they’ve eliminated slavery from their supply chain; go out of their way to limit top pay; take employees readily onto their boards; and abandon quarterly reporting, then we’ll know that we’re on the way to creating a society which includes company citizens and creates value for all.

Tom Levitt’s new book ‘The Company Citizen: Good for Business, Planet, Nation and Community’ is available now from Routledge.

The Progressive Company Citizen

This article first appeared on the web site of the Centre for Progressive Capitalism and then, in a revised version, for the NewCo Shift site in America.

The idea that business can be at the heart of an inclusive society, driven on the path towards social progress by a dynamic market, without undue exploitation, maximising shared economic and social benefits, must be central to any definition of progressive capitalism. It’s the theme of my new book, ‘The Company Citizen’.

Progressive thinkers in this field largely agree what is meant by a ‘responsible company’, ‘triple bottom line sustainability’ and ‘ethical behaviour’; debates on ‘purpose’ and ‘mission’ rage, largely positively. Thankfully, too, the circular and inclusive economies are becoming established in mainstream thinking; witness the non-exploitative fashion industry built on zero waste, low energy usage and maximum re-use of fabrics envisaged just last month by Ellen MacArthur and Stella McCartney.

Why is it so important that the gauntlet for good is picked up by mainstream business? There are three priorities:

  • Practice what you preach
  • Look to the long term
  • Make it mainstream.

You don’t have to look far to find a company committed to social and environmental responsibility: the automobile industry is actively moving away from petrol and diesel, even tobacco and energy companies are turning from their traditional wares – whilst the American business backlash to Trump, both in banning Muslim migrants and quitting the Paris agreement, was profound. Every company with any clout should ask itself, or be asked: do you practice what you preach? Trading ethically, without corruption, exploitation or falsification is a start, so too is paying fair taxes.

Having set environmental goals, do you reward senior management for achieving progress towards them or pay their bonuses in the traditional way, on merely financial criteria?

Do your internal pay policies help eradicate excessive inequalities? Do you pay the objectively calculated Living Wage? Or are you happy to have the taxpayer subsidise your lowest-paid workers?

Do people know what your company’s mission, its purpose, actually is? Is it more than just making money and maximising profit? Or is it something that your employees and stakeholders can all ‘get behind’?

Do you know what your impact on the community and environment really is? Do you measure only the positive social value that your company generates, in the same partial and misleading way that GDP assesses countries, or do you acknowledge that a balance sheet approach, in which you aim to contribute a net positive social value, is the way forward?

A company CEO said to me, on the day that his company pledged to reach global zero net carbon within seven years, ‘This isn’t about climate change; it’s about long term thinking’. Today company shares are traded in seconds by computers and companies generally report to shareholders quarterly. Whatever happened to the generational perspective at the heart of family-owned companies? Long term thinking helps with horizon-scanning, risk management, budget planning – and calms the blood pressure. Of course each day brings challenges, but if business generally adopted a longer term perspective than so many firms exhibit today then many of our current resource challenges would be less ominous and threatening.

The ‘mainstreaming’ argument is crucial. Traditionally, ‘Corporate Social Responsibility’ has been optional, an add-on, a superficial box-ticking exercise measuring inputs – the number of volunteering hours the company donates to charity. Progressive companies no longer use that worn out acronym of ‘CSR’ and have moved on from its associated image of lycra, litter-picks and cake stalls. The idea of business as a force for good only makes sense if it’s embedded, which means making it both sustainable and sensible – from a traditional business perspective.

Fortunately, it can be so. It’s now well established that the following company formats are more profitable in the long term than those of comparable companies which don’t exhibit each trait:

  • Companies committed to long term environmental sustainability and reporting
  • Companies which include a degree of employee ownership in their governance model
  • Companies whose mission and sense of purpose, beyond profit alone, motivate high levels of employee and stakeholder engagement.

This is just as well. Of the world’s 100 largest economies almost half are companies and not countries. Business influences every community and environment yet still today too much of this influence is negative. In the same way as it’s said ‘you’re never more than a few yards from a rat’, you’re always close to a product made from slave or child labour, or manufactured by workers living in poverty or in unsafe workplaces, adopters of wasteful energy and other practices or unsustainable resource acquisition.

It’s easy (and too often fair) to dismiss business as the root of all of such problems. The fact is, as the UN recognised in setting its 2015 Sustainable Development Goals, we literally will not survive unless business becomes even more of a force for good than it is today.

The Company Citizen: Good for Business, Planet, Nation and Community’ by Tom Levitt is available now from Routledge.

Building on the Social Value Act

Gains from the Social Value Act (SVA) are already being put at risk and opportunities are being missed: this is my reading of the impact of the first year of this otherwise very creative piece of legislation. As assessments are published on the Act’s impact by both the Cabinet Office and Social Enterprise UK, and a body of good practice is being built up, many local authorities are still waiting to see what a social-value-led procurement strategy looks like and how much more it will cost before they will commit to taking it up.

In short, the Act allows (but does not require) public sector commissioners of services, principally local authorities, to maximise the social value potential that contracts can deliver to communities over and above those contained in a particular contract. It encourages those submitting tenders to examine their own contributions to society, whether that be through excellent environmental practices, promoting apprenticeships and skills, employee volunteering or other measures to create community capacity, resilience and cohesion. It does not apply to suppliers of goods, only services, and it is subject to European procurement thresholds.

The Act is not specifically aimed at putting business the way of social enterprises – it encourages all potential tenderers to consider their claims to be corporate citizens – but service providers which are social enterprises, charities and Community Interest Companies have undoubtedly already benefited from it.

In areas such as Birmingham, Croydon and Oldham local authorities have taken the Act to heart and are seeking to maximise the social value so obtained. So what’s the concern?

The SVA is a year old and both studies clearly regard it as off to a good start. But European procurement thresholds are expected to rise significantly: when they do, some smaller contracts which today could be subjected to the social value process will no longer be covered by it – which is a move in the wrong direction.

The IT giant Fujitsu recently utilised the services of a new promoter of social value, the Trading for Good web site, to carry out a social impact analysis of its entire supply chain of almost 800 companies, mostly SMEs. Analysing social impact is but a step away from delivering social value and, given that the Act promotes voluntary take up rather than requiring it, there is no reason whatsoever for it not to apply in future to service procurement by private sector commissioners.

Companies are increasingly becoming aware of the public’s genuine and legitimate expectation that they should behave responsibly and ethically, engage positively and generally contribute to society. The good news is that companies increasingly want to do this and be seen to do so, and that a superficial CSR programme based on ticking boxes does not achieve those goals. As the Act is at its heart voluntary it cannot be said to impose unjustifiable regulatory burdens.

As with the Act itself, private member’s legislation which survived an inordinately long gestation in Parliament, my proposals (uncoupling SVA from EU procurement rules and extending it to private sector commissioning) could and should command all-party support and mark natural progress – from where we are now towards where, surely, we all want to go.