Keith Rovers On The Power Of Business As A Force For Change

A market-leading corporate, finance and projects lawyer, Keith has driven many of MinterEllison’s headline major property developments acquisition and project finance deals, including King Street Wharf and Central Barangaroo, social and economic infrastructure PPP's and the headline acquisition financing for Morgan Stanley Real Estate Funds’ acquisition of Investa, the first public-to-private takeover of an Australian listed REIT.

Keith brings this commercial expertise and a passion for social justice together as the firm's Pro Bono & Community Investments Partner and in this role, advises for-profit and not-for-profit social enterprises sponsored by the likes of Social Ventures Australia, Social Traders, Westpac Foundation, AMP Foundation, First Australians Capital and Optus (through its Future Makers program). Keith regularly works with Social Traders and SVA and advised on the market leading Vanguard Laundry social enterprise project in Toowoomba, Butterfly endED's residential eating disorder facility on the Sunshine Coast, Social Traders certification framework and manages client partnerships with over 40 NFP and for profit social enterprises. He is on the board of the Westpac Foundation and a number of social enterprises, including the incubator White Box Enterprises, as well as a number of charities.

Keith is also part of the firm's Responsible Business Unit, with a focus on sustainable finance and Climate Risk Governance advising on ESG issues relating to corporate governance and disclosures (including those arising from the Task Force for Climate related Financial Disclosures) and has written recent pieces on the mobilisation of private finance to tackle social issues and climate change, social and green bond financing, responsible investment and issues relating to sustainability, ESG and implications for the finance sector and society.

He is recognised by Best Lawyers in Banking & Finance, and is regularly published in the Australian Banking and Finance magazine and other publications.

Keith shares his deep insights from working as a lawyer in a society that’s reliant on flawed models and flawed systems, highlighting some of the issues that exist, whilst pointing to social enterprises & models that show how business can be used to create positive impact.

Highlights from the interview (listen to the podcast for full details)

[Tom Allen] - Could you please share a bit about your background and what led to your legal work in the social enterprise sector?

[Keith Rovers] - I've been a lawyer for about 30 years, and I've got a deep interest in history and its lessons. I've been involved in community projects and on boards of sporting clubs and other bodies. I've been the MinterEllison pro bono partner for the past five years. I grew up in Southwest Sydney, my parents were migrants who came out to Australia in the '60s. My dad was trained at Philips in Eindhoven in the Netherlands and came out here, and his skills weren't recognised, so he started up a small business and he was very successful in that. That enabled me, fortunately, to go to university and the like.

I did economics and law, with an accounting major, and I'm always amazed that you spend five years studying a subject and the last year ripping it to pieces, in terms of looking at the flaws in the assumptions around economics and accounting, with rational economic man and all of that sort of stuff. Then you look at the law in the social context and how law is created, and it reflects the social mores of the time. But then you go out and you apply it as if it's not flawed, and so the whole idea, for instance, of externalities in accounting and economics just still staggers me.

We've created this system that recognises that there's issues, that company business models don't necessarily price in or build into their value chain the negative externalities, but they still pass those costs on to society and then declare 'profits’; think of pollution and environmental externalities.

But then on the flip side, you think about positive externalities. Social enterprises are vehicles that create social value or public value that's not captured in their business model. So how do you go about recognising those impacts, both negative and positive, and factoring them into, not just the business or economic models, but then the accounting frameworks and the legal frameworks?

For instance, Fiduciary duty is about a company’s purpose more so than maximising shareholder returns I think at some levels.

That's been something that's intrigued me, and sits behind our work in the social enterprise and homelessness sectors. Giving people stable, appropriate housing has both major personal and health and wellbeing impacts for that individual. It has major intergenerational benefits. There's a an economic case that goes with the social justice case for dealing with homelessness in an appropriate manner. Likewise recognising that social enterprise is proving some great business models to tackle social issues, and therefore they need to be supported in some fashion so that they can capture some of that value that they create.

I'm curious to hear, as a partner at MinterEllison, what are some of the key observations, beyond these externalities, from your diverse work across the social enterprise sector?

I suppose partly I come at it with a commercial or finance lens. Most of the people that I see in the pro bono space often come at it from an access to justice disputes angle, and are looking to create systemic change through the court system and advocacy, which I acknowledge is a very valuable tool, and we have at MinterEllison very strong access to justice programs. We run homeless person's legal clinics across the country with organisations like Justice Connect, the Public Interest Advocacy Centre and LawRight and what have you. They're very powerful tools.

Coming at it more from a corporate angle, I see the power of social business, so reading Muhammad Yunus' books and the like, that if you can create sustainable revenues that aren't grant or donation dependent, that are reliant upon a sustainable business model, you're then free to advocate, you have your own destiny in your hands in that sense.

I can see the power of business as a force for positive change, particularly in these times where we've got gridlocked politics.

I just mentioned economic or business cases for some of these things. Well, the Federal Government raises I think $500 billion, spends $300 billion on health, education, welfare, and it just spends that money, it doesn't have any evidence for the effectiveness of any of those interventions or programs.

But if we can build businesses and other models that demonstrate other types of intervention and you get evidence for, not just the social business case, but the economic business case for those interventions, then you would have thought that government should recognise that data and that evidence-base, and therefore refine and shape their programs to pick up some of these different types of interventions. When I look at the work of Vanguard, Streat, Jigsaw, there's many across Australia that are proving the success of the supported employment pathways, for instance, and Westpac Foundation and CSI just produced their research piece around that with Jo Barraket and Swinburne and the Centre For Social Impact. There's a whole range of data and evidence that's coming out. I think partly coming at it from a commercial law firm perspective, I bring a different voice, and the likes of us and Westpac and the PwC's and the corporate voice combined with the third sector or social sector voice hopefully brings extra power to that discussion.

It's not as if it's a sectorial interest asking for something, it's actually a combined voice, and that whole idea of a "fourth sector", the combination of the three sectors creating different types of value and innovation. It's again something that excites me, and I like the thinking behind that. I think collaboration and innovation come together in those sorts of partnerships and you're able to use private and public capital. Again, we talk about capital, but beyond financial capital, it's human capital, it's social capital. Obviously there's the natural environmental capital, but using the different forms of capital, recognising that every entity, whether it's you or me or BHP, uses a combination of those different forms of capital to create value, and value is another word for impact, I suppose, positive and negative.

How do you create vehicles that maximise positive impact or minimise negative impacts? That's again, coming at it from an accounting, economics background, it seems odd to me that we use flawed systems and flawed models when we recognise they're flawed, but we're completely reliant upon it. It's sort of strange.

Yeah, totally. It's great to have your contribution to the development of the sector, Keith. In a legal sense, where do you see social entrepreneurs typically getting caught up and what lessons could you share to help prevent others making the same mistakes?

One issue is we don't have a standardised structure. In an industry that has limited financial capital, having to reinvent the wheel all the time is somewhat challenging.

In other jurisdictions there are specific structures that sit between for-profit and not-for-profit. Having said that, there is opportunity for innovation, but the issue is if you've got limited capital and you go out there and you get it wrong to start with, then you blow up and you get one crack at it. Developing some sort of standardisation is always a challenge, and so the work we're doing with Social Traders for instance is around that certification framework and trying to develop some standards around for-profit social enterprise.

Not-for-profit is relatively easy because you've got asset and mission locks built into the constitutions and the like, so you know that they're going to be using all of their assets for a particular mission. Whereas for-profit, you've got a mix of social and financial primacy, so they're interesting.

I suppose another issue is understanding your business model and strategy, and again, there's probably two or three different types of model. We do a lot with the supported employment pathways that have a direct benefit to a disadvantaged cohort, and that has an in built inefficiency, so how do you subsidise that in built inefficiency? Often they're in not-for-profit structures, because you've got donation and grant money to subsidise that not-for-profit. There's no tax leakage, there's no profit components. That's the main model there.

You've then got indirect benefit models, so a cross subsidy model, running a commercial business where you use part of the profits to subsidise low income access. You might run an internet service business that provides access to low income people on the basis of using some of that profit. The third model is a donation model, where you run a pure commercial business and you donate part of the profits to nominated charities. We've worked with a few of those, and then we've got some hybrid [models], where you then need to create a story between what is your for-profit entity doing, what is your not-for-profit entity doing and what's the logic between the two? It gives you the full spectrum of funding, but need to work throug how do they talk to each other, how do the shared services get delivered?

From my perspective as a commercial lawyer, building those things is very interesting, but I'm also rather expensive. If not for pro bono advice, we'd be priced out of the market, and the issue is that often these small businesses have to go to their local lawyer or local accountant, who can be a fantastic professional, but they don't have the full raft of expertise and access to the thousand lawyers that I have the ability to call on here.

It's a tough gig. Not only are you capital constrained, you're often running a model that's got an in built inefficiency in it, which is partly the social public value that you're delivering, but then you're constrained in terms of your access to good top tier advice, and then also the human capital piece.

I look around here, there's 100,000 people just in the financial sector sitting outside my windows, and there's a number of them that want to provide their skills, but there's no matching platform to match the human capital that we've got sitting in just the financial sector, let alone thinking about across the broader economy to the needs of some of these social enterprises and not-for-profits. Some interesting things apply in terms of how you match the financial capital needs, the human capital needs and the like.

I think you've highlighted some of the main pain points that I've observed in working with a range of social enterprises. I'm curious to hear then, Keith, how you have seen the social enterprise movement change in the last five years or so given your deep experience, and where do you see it going in Australia?

We seem to be at an interesting point now. I'm involved in White Box for instance, so that's an incubator, and someone like Luke Terry is this sort of missionary, who's obviously done it as well, but also sees the benefit of helping others. There's a lot of that. I see also the corporate sector slowly getting behind the notion and providing that sort of ecosystem support. Likewise, I think that Victoria is clearly ahead, Queensland's doing very well. New South Wales; there's now some embers and there's groups trying to set up a peak body. They're often local and regional and what have you, but there's nothing that's inherently local that can't mean you couldn't have a national peak body. I think that's on the cards.

I've been talking to organisations like the Australian Chamber of Commerce and Industry, and you say to them, "Where's the social business chapter? Now you represent 145 different trade and industry bodies, where's the social business sector represented in that and how do we tap into those other bodies?" It's up to us, I suppose, to help create that. But also, a number of those trade and industry associations are looking for the labour, and so I think about the needs across tourism and hospitality or chefs, and social enterprise is building the people that they need for those industries. There's a nice alignment there, and so I'm hopeful that over the next five years that that alignment and the depth of knowledge spreads.

We had a session a week or two ago with the Deputy Premier of New South Wales, who is not new to social enterprise, but didn't fully appreciate the depth of the sector and its impacts, and could see immediately, and to his credit, recognise the cross agency issues, these government or departmental silos and empires, and how do you break those down? Partly that's their job, sitting above those silos and empires, to recognise that there's value created in each of those silos and empires, but if you look at them horizontally or vertically, you've got to look at it holistically. Likewise, you can't say, "Well, the feds are getting all of those benefits, so why should we support?"

We need to start to get the government agencies and the like to look at it holistically.

To his credit, he recognised that and saw a number of opportunities for us to take some of these social enterprises that presented at this session into various agencies to explore some of the interventions that are being made to enhance the policy and delivery mechanisms that they're already using. They recognise that there's a bunch of stuff they're doing that isn't optimal. Hopefully us proving these models means that, a White Box, for instance, can replicate and scale a number of proven models, and the fact that we were talking about taking a whole bunch of New South Wales social enterprises into Queensland, places that state of origin sort of competition into the mix. But hopefully that can be used or leveraged to decide, well, White Box is doing that partly because it's got Queensland government support. Give us New South Wales government support and we will have new Vanguards in New South Wales.

I think we're in a really good spot at the moment. There's the World Forum in Ethiopia coming up, organisations like Westpac and Centre For Social Impact, and some of the other organisations that are providing support. I think it's a slowly building movement.

Which social enterprises in Australia have you come across which are creating some great strong impact? You've mentioned Vanguard Laundry and Streat, you're working with White Box Enterprises. What else?

There's clearly Jigsaw in the disability space, one of the largest is Community Resources (which runs Soft Landings, Green Connect and other social businesses with a waste recycling and supported employment mission), The Bread and Butter Project providing opportunities to refugees and migrants through its bakeries and a multitude of others across Australia. We have a program where we've got 30 or 40 social entrepreneurs and their social enterprises, all at different stages in their evolution and across different sectors. A lot of them, as I mentioned, are providing supportive employment pathways. There's GOGO Events in Adelaide run by Sarah Gunn providing pathways for people experiencing homelessness and long term unemployment, and there, we talked to them about a hybrid structure. So they've set up a foundation to run alongside the for profit social business, and again there's the interesting dialogue of how the entities work together.

Most of them come out of the Westpac Foundation's program. We are involved with Westpac and we provide support to the social entrepreneurs they support and their Scale Up Grant winners, and then as I mentioned, there's Optus Future Makers, which is more technology based, and Virtual Psychologist is an example of someone we've worked with there (they providing text-based counselling services and are making great impacts in mental health, particularly in rural and remote contexts). They're using technology as a solution there. There's a whole raft of them. The ecosystem is quite large, albeit there are not many operating at scale – and that is a major challenge. One of the more interesting ones recently has been Goodwill Wines, which is a for-profit social enterprise wine merchant, using that donation model, where it had a bunch of impact investors who understood the social mission and were prepared to sign up and invest acknowledging that their return is a blend of financial and social. That business donates significant sums to charities often nominated by the customers who buy the wine (we've used their product at a number of our events).

There's Community Resources, with Green Connect, Soft Landing and its other businesses (this is a long established social business with some 300+ employees). We've been working with Community Resources for a few years, we've taken Jess Moore's Green Connect business and 'plonked' it into the Community Resources fold. We've then been working with another of its divisions, Soft Landing, again, it's an interesting one (it recycles mattresses around the country, often through local councils). It's had an experience where it had a joint venture with a for-profit recycler, which hasn't necessarily worked out as they envisaged (it had a technology solution for recycling, compared to the labour model). So there's a bit of work around that, and it's quite a significant size. Community Resources has $20 million revenue across six or seven businesses, so it's an interesting example of scaling and possibly scaling too quickly which has caused some difficulties. Jess spoke at the Social Traders' National Conference about some of the lessons that came out of that growth and the impact on its other businesses (it provides a great lesson to the sector of the risks to be managed and the need for good advice and planning).

I'd also add structuring. Typically in my real estate or my finance world, we tend to do things in project vehicles so that you limit and quarantine risk. Whereas a lot of these organisations are set up in, I call them blobs. They've got a business but it's not in a separate structure, and that then means from a risk perspective if that business blows up, it potentially could kill the whole parent.

You asked before about lessons, I think that that's one of them.

Grameen is in the process of doing some pilot projects and trying to bring that micro-finance social enterprise model, and there's Many Rivers and Good Shepherd in that micro-finance space. Then we do quite a bit with Indigenous businesses under the sponsorship of First Australian Capital, which again is another incubator. Partly our program is filtered by organisations like Westpac, Optus and First Australian Capital, so again there's a nice alignment of some of the programs with our clients. That shared value model, where we're working closely with our clients to help amplify social impact produces a nice alignment around those sorts of things.

ACCI session with NSW Deputy Premier, Hon John Barilaro.

To finish off then, what books or resources would you recommend to our listeners?

Oh goodness, I've got a whole bunch of them. I think Luke Terry mentioned Ice Cream Social. That's an excellent one in terms of that journey of the story of Ben and Jerry's, particularly over a sustained period of time and that linked prosperity idea. There's obviously Muhammad Yunus’ book A World of Three Zeros. I'm a big fan of Kate Raworth and her book, Doughnut Economics. Seven Lessons for 21st Century Economists.

It's been recommended quite a bit.

That gives you a conceptual framework linking social foundations to ecological limits, and also the role of collaboration and innovation and the commons and rebalancing society and reimaging capitalism. Society is not just the economy, so you've got the care sector (the household sector), the economy markets, the role of the state and the like. It examines some of the circular economy principles which are inherent in a number of the sustainability models which social enterprise employ.

Professor Colin Mayer, Prosperity, is a fantastic one. Looking again at multiple forms of capital, but also the idea of purpose and looking at the role of the company and the history. Six stages of the history of the company structure, and that purpose was at the centre of that, and so fiduciary duty, reporting, governance and regulation, all of these things should be around purpose rather than where we've landed.

Daniel Kahneman is a great one, Thinking Fast, Thinking Slow, which is around heuristics and biases. There's a really good book by Michael Lewis which actually looks at Daniel Kahneman and Amos Tversky, the two of them, their partnership which led to largely the theory behind behavioural economics (this is the Undoing Project, there's then his latest The Fifth Risk on the importance of public governance and Trump's disdain). Some of the stuff we've talked about could use that behavioural lens, rather than some of the basic economic modelling that still underpins our system.

Jed Emerson with his "one pocket" thinking in on the Purpose of Capital. Creating businesses that maximise positive social impact and financial return.

Then there's the recent NSW Government and Their Futures Matter, "Forecasting future outcomes" report with that investment, holistic, whole of government approach to looking at the out of home care sector.

Roger Martin, Fixing The Game, looks at customer centricity and has some interesting analogies, particularly post GFC.

Yuval Harari, Sapiens, he's got three great books, but Sapiens is important for the recognition of the power of stories and that a lot of the concepts that we have are in essence myths or shared stories that we've all bought into to provide social glue (eg currencies, companies and so-on). At one level, if they're all stories and myths that we've bought into, then they are changeable, so we can change the narrative and change the story. It just requires convincing arguments, but that's partly why we're here, is to build the evidence base and the like.

There's a few there. I just did a session, Doing Well, Doing Good, which we ran for the lawyers as part of our continuing professional development, our clients and the like, and that looked at that whole philosophy around Doing Well, Doing Good, but from the perspective that business as usual won't cut it.

The idea that there's $200 trillion in listed bonds and equities globally, there's $2 trillion in philanthropy. The philanthropy is not going to cure the ills that are largely created partly in those businesses, so we need to re-imagine capitalism.

Partly it was looking at the Kate Raworth ideas, impact investing, ideas around capital in all its forms, value and the like so those are a few books that have inspired that sort of thinking.