The Paul Gosling column
Farewell Ken – are we to blame?
Ken Livingstone was not a perfect mayor of London, but overall he was a very good one. On a personal level I am sad he is gone: I interviewed him once and had a very pleasant afternoon on the House of Commons terrace, listening to him talk about his favourite holidays driving along the Californian coast.
Many of Ken’s policies were positive for the co-operative and social enterprise movement. His commitment to affordable housing is being overturned and the proposed massive social enterprise development by Coin Street Builders on the South Bank now looks doomed.
New mayor Boris Johnson won reasonably comfortably – he was 6% ahead on first preference votes – and obviously gained from national discontent about Gordon Brown’s leadership of the country. But a series of critical articles by Andrew Gilligan in London’s Evening Standard probably also had a big impact in damaging Livingstone’s credibility.
I will treat Gilligan’s allegations with care – they are mostly allegations, which may yet be tested in court. Gilligan will no doubt argue if a libel action is brought that he investigated his concerns with care – I am not in a position to do the same with most of them. But it is safe to report that following Gilligan’s allegations, Livingstone’s close adviser Lee Jasper felt obliged to resign his post. Investigations by the police, the London Development Agency and the local government district auditor continue.
But what should concern the social enterprise sector is that several of the allegations are of improper use of funds that were given to social enterprises. Several other allegations were against black-owned London businesses.
The most prominent of the named social enterprises funded by the London Development Agency – an economic development agency of the mayor of London – was Ethnic Mutual. This was registered as an industrial and provident society for community benefit. As a result of allegations made by the Evening Standard, its registration and its charitable status have been suspended by the Financial Services Authority.
Ethnic Mutual’s website continues to function, claiming it is authorised to operate as a lender to support business growth and social enterprise development. According to the Evening Standard, £18,000 of the £350,000 provided by the LDA was used to rescue a company that Lee Jasper was a director of. Jasper said the loan was made, but without his knowledge. Ethnic Mutual was suspended by the FSA while it was given the opportunity to prove that it “is conducting its business for the benefit of the community”. Meanwhile, Ethnic Mutual is not permitted to accept funds, issue share capital or make new loans.
A phone number is listed on Ethnic Mutual’s website. But when I phoned this, the person answering said I had the wrong number. According to the Independent, Ethnic Mutual shares a London address with the Ethnic Business Development Corporation (EBDC), whose policy director is a fellow trustee with Jasper at the African Caribbean Positive Image Foundation. The Independent also reported that EBDC received over £700,000 in funding from Ethnic Mutual. The EBDC’s website continues to operate from Ethnic Mutual’s portal.
We should retain scepticism over some of the claims. Our searches found EBDC using a different address from Ethnic Mutual – now, at least. The Evening Standard also reported that the European Federation of Black Women Business Owners was dissolved, but this was denied by its office when we contacted it.
There were various other allegations made by the Evening Standard against social enterprises, not-for-profit organisations and companies linked with Lee Jasper. The sheer volume of the complaints means they must be taken seriously – as, indeed, they have been by the LDA, the police, the district auditor and the electorate.
This brings us on to the issue that confronts activists in the social enterprise and not-for-profit community sectors. Can we be satisfied that our systems of internal control and accountability are up to scratch? The answer, if we are truthful, is very simply no.
In my days of political activity in Leicester, I remember the extent to which people who were employed by community groups, sat on the board of other community groups. This cross-membership of boards was so prevalent, that it meant that a core group of community workers had no real accountability to their own membership, with a shared interest between the community groups’ staff in looking the other way when complaints were made. And very serious complaints were made against them, which there was no trusted way of resolving. A very similar situation has taken place in London regarding groups funded by the LDA, if the Evening Standard’s allegations are correct.
Governance remains far too weak across much of the social enterprise and community sectors. Particular attention needs to be given to individuals serving as directors of several organisations and to people who are ‘shadow directors’ – the hidden decision-makers. These are real issues for many organisations.
Personally, I do not believe that so-called ‘community activists’ who flit between their memberships of half a dozen boards are probably in much shape to act energetically and single-mindedly in each of their roles. Risks include profound conflicts of interest and disengaged boards. Limiting the number of boards a person can sit on is an attractive idea, but almost certainly impractical. Some people are required to sit on multiple boards because of their representative roles (in particular, local councillors) and it would merely mean that the real decisions were taken outside of the board meetings by the ‘shadow directors’.
Increasing responsibilities of auditors to consider the capacity of the board and management of audited bodies might help, as might auditor reports on their governance arrangements. But auditors of the sector have limited knowledge of what happens in boardrooms or in a client’s office on a day-to-day basis, and an unintended result could be an unaffordable increase in audit fees. It is also possible that nothing would happen even after a critical report.
What we need is a shift in culture, with a clear commitment across the sector (including in co-ops and mutuals) to a code of governance that improves accountability and board effectiveness. Enforcing it may be impossible, but understanding it would be a help.
So are we to blame for Ken’s downfall? Well, no of course not. If his own LDA had been more effective in its oversight of how grants were spent, most of the problems would have been resolved without the involvement of the Evening Standard. But can we learn from the debacle? It would be a very good idea if we did.