Profit has always been a contentious word in social care, particularly when it’s made by private sector providers backed by private equity investors.
As Sir Martin Narey said in his 2016 report on children’s residential care, “the presence of the private sector in the children’s home market is a source of considerable suspicion and sometimes mistrust.”
Campaigners have long argued that the system is broken and has resulted in excessive profiteering by some private sector providers. The Competition and Markets Authority (CMA) has also previously urged caution that over leveraging in private equity-backed provision could be problematic, causing ‘unexpected disorderly exits’.
Once again, the issue of ‘obscene’ private sector profits has been thrown into the spotlight, with Dame Rachel De Souza, the children’s commissioner, having her say on the long-running debate.
She said that companies making such profits from vulnerable children in care “just feels wrong”.
“As an educationist, I would argue firmly against introducing profit-making,” she said. “It seems to me that this has crept into the children’s social care area and it’s deeply concerning.”
Her comments follow an investigation by House Magazine that found that the average cost of keeping a child in residential care has now reached £5,400 per week, with some placements costing more than £10,000. In certain areas, prices charged to councils have increased by 25 per cent in just two years.
In response, the Children’s Home Association said that it does not condone profiteering. However, there was a huge difference between ‘profit’ and ‘profiteering’. “When local authorities have not been willing or are not able to run their own children’s homes, the level of investment and financial security necessary to sustain that provision by independent providers is significant.”
Sir Martin Narey takes a similar view. In his report, he said: “I’ve seen nothing to justify the view that private companies think only of profit.
“The available evidence does not support the proposition that private sector operators are generally behaving in an exploitative fashion.”
Yes – there are some bad actors in the sector, as there are in any sector, but the fact remains that eight years on from his independent review of children’s residential care, his views still stand – and they’re views we wholeheartedly stand by.
It is clear to us that the consequence of taking a care-first approach and delivering great quality and outcomes is profit. Those organisations that are founded on those principles of delivering great provision will naturally be profitable. That’s quite the opposite from those organisations that set out to make a profit first with the service delivery being secondary.
In our experience, profits are not being inexplicably torn from organisations, leaving them threadbare and unable to provide a standout service. Neither are extortionate prices being charged to help line the pockets of profit-driven investors. In fact, it’s quite the opposite.
One of the biggest challenges facing the sector is around sufficiency. Local authorities have a responsibility to have enough suitable homes for looked after children. But they often struggle to meet this duty for a variety of reasons, including rising numbers, particularly those children with complex needs, as well as the recruitment and retention of children’s professionals.
This is where the argument over profits falls down. The sector needs capital to create sufficiency and subsequently help to drive down prices. What’s more, profitable providers, such as those across the Tristone community, take that money and reinvest it – not just in services, but in job creation and added value provisions and benefits that not only help to improve the environment people live and work in, but also drive positive outcomes across the board.
While the debate will undoubtedly continue over private sector profits and the involvement of private equity within the sector, what this does do is highlight the meaningful role that ethical investment and the right type of capital (capital that embraces core ethical values and takes a long term outlook) can play in aligning profits and purpose within the social care sector.
In its simplest form, ethical investing is about wanting investments to do more than just make money. It’s about having a positive impact on the world while also making a profit. The result: companies achieve a financial return without sacrificing their social or moral principles. It is our belief that a purpose driven organisation, one that honours the principles of ethical investment and encompasses environmental, social and governance practices throughout the organisation will ultimately be more successful, both in terms of the social and environmental impact they generate and their commercial returns. Let’s unpack why that is:
- Enhanced Brand Reputation: improved reputation among customers, investors, and other stakeholders. This positive perception can lead to increased brand loyalty and trust, ultimately driving sales and market share.
- Access to Capital: Investors are increasingly looking for companies that demonstrate a commitment to sustainability and responsible business practices. Such companies can attract a broader base of investors and access capital more easily and at potentially lower costs.
- Risk Management: filtering decisions through an ethical framework helps companies identify and mitigate risks related to environmental and social issues, regulatory changes, and stakeholder expectations. This proactive approach can reduce the likelihood of costly incidents and liabilities.
- Operational Efficiency: Implementing sustainable practices often leads to cost savings through improved resource efficiency, waste reduction, and energy conservation. Companies can also benefit from innovation and operational improvements driven by a focus on sustainability.
- Attracting and Retaining Talent: This is of particular relevance in social care – people centred businesses. Employees, particularly millennials and Gen Z, are increasingly prioritising working for companies with strong values and a commitment to social and environmental responsibility. Incorporating an ethical investment and ethical operating framework into corporate culture can help attract top talent and improve employee engagement and retention.
- Long-Term Value Creation: By addressing sustainability challenges and contributing to the well-being of society and the environment, companies can create long-term value for shareholders and stakeholders. This focus on sustainable growth can lead to more resilient business models and sustainable profitability over time.
Delivering positive change, being socially and environmentally conscious, being ethical in action and intent, whilst balancing the books can be challenging. Particularly for smaller businesses that are often resource and capital constrained. However, in the long term, we fundamentally believe stronger businesses are built – businesses with durable profitability, businesses that will achieve outsized valuations and businesses that ultimately leave a real and impactful legacy on a community, society or the world.
Photo credit: champpixs