Should all companies be Community Interest Companies?
The work of Mydex CIC has been recognised by the Community Interest Company Regulator in its latest Annual Report.
The report notes how CICs have grown in vision and ambition, demonstrated resilience over the pandemic and branched out into many new and unexpected fields. Some, including Mydex, are now thinking at an international level.
To highlight these developments the Report also includes case studies that illustrate this expanding vision and ambition. One of them is from Mydex CIC. It says:
Mydex CIC will be turning 15 years old this year. In our time, many people have been surprised to discover we are a CIC as we don’t fit their expectations of what a ‘normal’ CIC looks like, for many reasons.
First, our mission revolves around digital technologies and, specifically, personal data. Our goal is to empower citizens with their own data by providing them with personal data stores that enable them to collect, use and share their own data independently of the organisations that traditionally collect data about us. We operate at the cutting edge of new technologies.
Secondly, unlike many CICs which operate locally, to fulfil our mission we need to operate at scale — providing personal data stores to every citizen in the country … and, as we grow, across many countries. Our ambitions are both national and international.
Thirdly, we don’t just provide front line services. We are building data storage and sharing infrastructure that could become a part of how the entire economy works. Our mission is long-term, unfolding over decades, not just years.
Finally, the way we do good is multifaceted. We don’t only help individuals protect their privacy; we enable social inclusion, use data to tackle social problems such as poverty, and redress the balance of power between citizens and global data behemoths. We are also helping to unleash economy-wide economic benefits — reducing the costs that both citizens and service providers incur in collecting and using personal data.
So why, given these differences, do we think CIC status is important? One strategically vital reason is that in our field of personal data, demonstrating trustworthiness is essential to achieving our mission. It’s easy for organisations to make high-falutin’ statements about ‘consumer empowerment’ or ‘privacy protection’. Legally embedding such things into everything you do is a different matter.
A second reason follows. When push comes to shove, our society and economy rests on two main types of enterprise: companies seeking to maximise their profits and organisations that rely on subsidies from one source or another. Huge untapped opportunities lie between these extremes, with viable, sustainable enterprises that cover their costs, are not reliant on handouts and may make a profit — but whose main function and impact is to maximise positive external social and economic benefits. We believe that the CIC model allows us to point to the potential of a new and different economic model, and we are glad to be a part of it.
The missing middle
In its report, the Regulator notes that over 26,000 CICs are now operating in the UK. They’re beginning to impact the way the economy works. But their potential impact reaches much further than this — into the very way we think about economics itself.
In Mydex’s view, society’s current understanding of what makes an enterprise economically successful is both wrong and damaging. Stated simply, this understanding is that an enterprise’s economic success is measured by the profits it makes.
A moment’s thought soon reveals this to be nonsense. Take two insurance companies. One is a Mafia-front for a protection racket. It charges its ‘customers’ an insurance premium, a name given to the extortion people have to pay the Mafia for not burning their houses or workplaces down. The other is a genuine insurance company, working hard with its customers to reduce fire risk and paying out if a fire takes place.
The Mafia outfit is fabulously profitable but leaves misery and destruction in its wake. The genuine company is far less profitable but helps avoid destruction and alleviates misery. Which entity makes the greatest economic contribution? The Mafia one, because it has highest accounting profit?
Real results are always on the outside
The particulars of this example are deliberately extreme to make the point. But they illustrate a universal truth: the economic results of an enterprise are always experienced and measured by what happens outside its organisational boundaries.
To understand the economic contribution that any enterprise makes, we need to assess the degree to which it sustainably improves human lives in a way that is safe, affordable and accessible. The test of an electricity company’s economic success is not how much profits it makes, but how efficient and effective it is at providing sustainable electricity to all who need it. The test of a motor car company’s economic success is how efficient and effective it is at providing its customers with safe mobility. The test of a hospital’s economic contribution is how efficient and effective it is at healing the sick.
Note two crucial things about this.
- None of these external results are measured in terms of money. They are measured in terms of life: access to energy, mobility, health.
- How much money profit an enterprise makes — an artefact of invented accounting conventions that focus only on the inside of the organisation — is unrelated to how successful it is at “maximising positive external social and economic benefits”, as we put it in the CIC Regulator’s report.
Our current society seems to be organised around a comprehensive denial of this basic economic fact. It leaves us with a soul-sapping ‘choice’ between profit maximising enterprises whose real economic contribution is often questionable or even negative, and activities that need to be subsidised — but with nothing addressing the missing middle.
Would we have our current cost of living and climate crisis if energy companies’ purpose was to make energy available safely and affordably, rather than maximising profits for shareholders? In the midst of a drought, UK water companies are wasting a trillion litres of water through leaky pipes while managing to organise 775,704 separate occasions of dumping sewage into England’s rivers — a feat that apparently cost them six million hours of work to organise. In recent years, they have also managed to pay out more than £72bn in dividends to shareholders. Does that make them economic successes or economic failures?
An enterprise doesn’t have to deliver maximum profits to outside investors to be economically viable and to make a positive economic contribution. If it earns enough to cover its costs, it is financially sustainable. After that, its real economic success is the degree to which it finds a way to improve peoples’ lives in a way that is safe, affordable and accessible. It’s this missing middle where the big opportunities lie.
Mydex is proud to be a CIC, and proud to be recognised as making a contribution by the CIC Regulator. In our view, the CIC philosophy of earning money in order to make a social and economic contribution is the only positive, sustainable philosophy to embrace.
No matter what its formal legal status happens to be, every company should be a community interest company, and its performance should be judged in this way.
