A bad advert for Community Interest Companies?

Given the rise of the CIC legal form as the preferred structure for many social enterprises, the story unfolding about the Health Lottery seems one that should concern the social enterprise movement.

I have been trying to follow Third Sector Online’s coverage of the story.

Third Sector reports today that the 20p in the pound that currently goes to good causes will not be increased until Northern & Shell, media owner Richard Desmond’s company — which owns the Daily and Sunday Express titles, the Daily Star, Channel 5 and a number of adult TV channels amongst other things — has recouped its £30m-plus investment. The proportion of revenue going to  good causes is less than the national lottery at 28p and much less than the many local lotteries run by hospice societies, where the proportion is often as high as 50p-60p.

ACEVO is on record as challenging the running of the Health Lottery and has also written to retailers asking them to withdraw their support.

But what I didn’t realise — I obviously haven’t been following closely enough — is that the Health lottery is actually operated on behalf of 51 local Community Interest Companies, putting the lottery in direct competition with other small local societies, such as hospices.

Local society lotteries are free of some of the restrictions that apply to a national lottery and in evidence to a recent select committee hearing, Jenny Williams, chief exec of the Gambling Commission, has said it is evident that the Health Lottery was set up in this way in order to enable it to “get around lottery limits”.

All of the 51 CICs have the same three directors and are registered in the same place.

Whatever you think of Richard Desmond, and wherever you stand on the issue of a ‘health lottery’, this seems a dubious useage of the CIC form and not best suited to promoting or protecting its public credibility.

The 5,000th CIC was registered on the 15th April last year and we have many readers whose enterprise are CICs — what do you think?

UPDATE 08/02/12: Perhaps not surprisingly, John Mulkerrin who runs the CIC Association (basically the trade association for CICs) is watching this story closely. He was good enough to send me two documents the CIC Association acquired through FOI requests. The first is a minute of the Gambling Commission regulatory panel which considered the case of Health Lottery  ELM Ltd, and the second is Gambling Commission guidance regarding the promotion of multiple lottery societies under one brand.

Further UPDATE 17/02/12: This story continues to develop. The Civil Society website carries a story alleging that the national lottery is losing £1m a week to the health lottery, and also details the complaints about the health lottery received by the Gambling Commission and the Advertising Standards Authority.

  1. Sue Gazey Reply

    Hi Alun
    What I think is that as a CIC we have very little clout to challenge these registrations. I believe that the regulator should be more rigorous in applying the rules and not register stuff like this as it is just a way round some of the issues facing a limited company such as funding, grants etc.One of the criteria is that people should not be related. This obviously only means by marriage or blood and not by intention. How about conflicts of interest etc etc. I could go on but I wont.

  2. Paul Hanna Reply

    I agree with Sue – what is the point of having a Regulator when something like this is allowed to happen. They are clearly using the CIC vehicle as a way of avoiding the restrictions they wd face as a national org – does the Coalition know about this?

    As an aside, is there a trade body of CICs? It would seem that maybe there is a need for one.

  3. Jude Greenwood Reply

    I agree, what happened to the regulation here? Was anyone scrutinizing these 51? Did no-one notice and wonder how 3 people were going to make a success of running 51 companies? It makes one wonder what was the point of really working hard to get ours just right. Disappointed.

  4. Chris Newis Reply

    It has taken me a day or two to get to this and I want to offer a slightly different perspective. If the CIC model needs stronger regulation, there is probably something wrong wiith the model. The CIC model was set up to provide an easy in model for social enterprise for something like £40. The community interest test is deliberatly widely enough drawn to include the most tendential links to communitie either of practice, interest or geography. I am not her questioning the ethhics of the many CICs run by honorable people, some of my best friends run CICs. Social enterprise needs a set of universal values to which we all subscribe and which root out the potential for bad practice.

  5. Sue Gazey Reply

    I dont believe that the the CIC model needs stronger regulation it just needs a stronger regulator!!

  6. Alun Severn Reply

    I think I’m with Chris on this. I do think there is a place for the CIC form — relatively quick and inexpensive to use — but I do think that it, along with more recent “innovations” such as the government’s fondness for what it calls “joint venture mutuals” are creating confusion (see http://bssec.org.uk/blog/?p=3083).

    The fundamental problem, however, is not that the CIC is weak, it’s that we are becoming increasingly unclear about what social enterprise *is* and the values that should underpin it.

    I think this is probably inevitable, however, whenever subtle ideas and political expediency collide…

  7. Nathan Brown Reply

    I fail to see what the Regulator can do. There is nothing illegal in what is being done here. The Regulator cannot amend the legislation, just enforce it.
    People flocked to the CIC as delivering some wonderful new vehicle but in my view it provides a less robust version of the Industrial & Provident Society for the Benefit of the Community.
    It was set up specifically so that shareholders could benefit – albeit with a cap on dividends but very few shares would ever net a dividend as large as the cap on CIC divis.
    The majority of CICs I have come across are not trading and are using the model as a “charity light” approach to elicit donations, free space, volunteer time in the name of community but not having the restrictions of the Charity Commission.
    The Regulator’s Model CIC Rules allow Directors to decide their own remuneration, and the proliferation of small membership CICs who have no engagement with their community of interest – or worse still actively ignore it when they don’t like what they hear – is testament to the fact that a Social Enterprise legal form is only as robust as its Membership to provide scrutiny.

    • Alun Severn Reply

      Good points, Nathan – thanks.

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