By: Megan-Lee Meredith and Harold Tessendorf
January 21st 2022
In our book Social Enterprise as Peacebuilding, we highlight ownership as an essential component of any social enterprise that wants to be sustainable and resilient. We continue to express the view that the widespread ownership of the tapestry of organizations that comprise our communities – traditional for-profits, nonprofits/non-governmental organizations (NGOs), small businesses, social enterprises, civic and social organizations, and government agencies chartered to manage community assets, help them remain socially and economically viable and resilient. Our ongoing work with the organizations that serve inner city neighborhoods and rural communities has only sharpened this conviction especially as we watch these organizations grapple with problems such as the lack of capital and the need for succession planning.
Our work has led us to ask and ponder the following questions:
In what ways can a myriad of ownership patterns help make communities more resilient?
How can we increase and broaden ownership within communities?
How can local communities mobilize their own capital to address pressing local problems so that they are not solely dependent on outside private, philanthropic and government funding?
Can a hybrid model of local and outside investment assist community enterprises to navigate the sensitive issue of raising capital and succession planning, especially when their communities are experiencing a decline in population and when those remaining residents are aging?
While the institutional definition of “corporate” includes any organized effort to mobilize tangible and intangible resources and use, earn income from, and dispose of assets, this word is mostly associated with the image of large, privately held businesses. We believe that the structure and practice of ownership should not be viewed as an either/or proposition and that we should not limit ownership options to either that of the state or the for-profit/nonprofit corporation. Instead, we argue that our communities can provide more opportunities for residents to own a piece of their local organizations. Our central thesis is that we need to highlight the place that community ownership occupies on an ownership continuum that extends from the individual pole to that of corporation and government.
In the Community, or Affinity, Ownership Model, individuals, acting on their shared social connections and interests, pool their financial, human, social, intellectual, natural, and productive capital to create new, or to save failing businesses and local community assets. As a collective, these individual investors and owners conform to the concept of an affinity group which social scientists broadly define as a group of people who are united by a common interest or purpose. Building on this, we use the term affinity ownership to describe this model of community ownership. In this article, we use the term affinity ownership and community ownership interchangeably because this type of ownership is not necessarily limited to people living in the same geographical area. Irrespective of the size of their individual investments, these investors agree to be governed by the co-operative principle of one member, one vote. This distinguishes them from the mainstream shareholder model where investors are granted one vote for every share that they hold in the business. Community and affinity ownership is an integral part of the cooperative movement, which traces its origins back to the Rochdale Pioneers of 1844.
We continue to follow the work of the Plunkett Foundation as it supports rural communities in the United Kingdom (UK) when these communities decide to either to save their key local institutions or create new ones that address emerging local problems such as food insecurity and disinvestment. The Plunkett Foundation pointed us to a 2020 Report titled, Understanding a Maturing Community Shares Market, which focuses on a study prepared by a research and advocacy collaboration headed by Co-Operatives UK. It highlighted the impact that the decade-old UK Community Shares Market had on rural communities and their economies. Here is a summary of the findings:
- Since its inception a decade ago, community shares have raised £155 million to support 440 rural enterprises, of which 92% were still trading in 2020. Of these enterprises, which were also startups, 76% of them survived versus the UK industry standard of 42% for traditional startups. Of the 8% that failed, only 1.4% failed to return any of the original investment to their community investors.
- Successful community enterprises attributed their success to the fact that local investor-owners helped them to build customer loyalty, which translated into greater sales revenue and profitability. Their local investors deemed these enterprises too essential to their communities to be allowed to fail.
- The shares are held by private citizens, with their financial investment also giving them shared ownership in the enterprise. This ownership stake is governed by the cooperative principle of one member, one vote. While investors can choose to invest more than the minimum required to be an owner, they all enjoy equal decision-making power.
- Community shares are withdrawable (i.e. they can be redeemed by having the enterprises purchase them back from the investor), but they are non-transferable (which means that they cannot be sold directly to outside investors nor can they be traded on a stock exchange). They can only be purchased by investors who agree to become members of the enterprise, understand that it is co-operatively owned, and agree to be bound by the principle of one-member, one-vote.
- These investments are also governed by the principles of Patient Capital (no fixed payback date) and Flexible Capital (no fixed interest rate). However, these principles do not permit the managers of these enterprises to decide if and when to repay investors. As members, these investors have a seat on the enterprises’ Board of Directors that oversees management and decides, amongst others, on dividend payouts to investors. Members are elected to the Board of Directors at the enterprise’s Annual General Meeting. These enterprises are also required to produce regular and audited financial statements.
- These community shares have helped to leverage additional investments from traditional sources, including credit unions, community banks and co-operative investor networks.
- These investments are not necessarily into niche markets. Instead, they include farms, grocery stores, housing, renewable energy, community centers, pubs, and even a minor league soccer club.
- Community shares have allowed more residents to invest in their local enterprises, thereby breaking the traditional investor stereotype. The study found that keeping the share price at a minimal amount lowered the investment barrier for low- to-moderate income members of the community, as well as for women.
- Since community shares are not regulated by the UK government, investors run the risk of losing their investment. To address this risk, Co-Operatives UK created the Community Shares Standard Mark. Shares are offered by licensed community shares practitioners with these being accredited by the Community Shares Unit. This unit was created by Co-operatives UK, Locality and Baker Brown Associates.
- There are early and positive indications that the Community Shares Model is helping to address regional inequalities (i.e. the urban-rural divide) by investing into neglected and under-served communities.
- Another strength of this model is that community shares can be held by people outside the enterprise’s community with the principle of one member, one vote preventing affluent and outside investors from dominating the business and its decision-making process. It also means that community enterprises can leverage the skills and talents of their outside investors to augment and complement their community’s capacity. This can be of immense help to local nonprofits and businesses as they tackle the challenge of succession.
- Community shares have returned an average of 4.8%
These results are encouraging with the study’s authors listing recommendations that the UK government, co-operative, and philanthropic sectors can take to strengthen the community shares market. We feel that these results show that the Community Shares Model is worthy of replication in the communities where we live and work in South Africa and the United States of America. It is clear to us that community shares are a viable way to mobilize community and affinity capital for investment into local enterprises that address social issues, produce goods and services that are valued locally and that build community connections, identity, and resilience.