Written evidence from the Institute of
Directors
1.1 Thank you for giving the Institute of Directors
(IoD) the opportunity to respond to the new inquiry on Government
Assistance to Industry, which was announced on 21 July 2010. This
paper presents our response to your call for evidence. Issues
surrounding business support and access to finance are of considerable
interest to the business community in general and to the IoD in
particular. We are therefore pleased to participate in the consultation
and present our response for your consideration.
ABOUT THE
IOD
1.2 Founded by Royal Charter in 1903, the IoD
is an independent, non-party political organisation of 40,000
individual members. Its aim is to serve, support, represent and
set standards for directors to enable them to fulfil their leadership
responsibilities in creating wealth for the benefit of business
and society as a whole. The membership is drawn from right across
the business spectrum. 84% of FTSE 100 companies have IoD members
on their boards, but the majority of members, some 70%, comprise
directors of small and medium-sized enterprises, ranging from
long-established businesses to start-up companies.
GENERAL COMMENTS
1.3 The IoD has responded to this inquiry primarily
with member data collected on the state of small business finance
in the UK and our view on potential reforms to the provision of
broad-based business support. While we have been unable to share
similar data on the challenges and activities around export support,
if invited to give oral evidence to the BIS Select Committee we
remain hopeful we may be in a position to share member research
due to be commissioned within the next few weeks.
STATE OF
BANK LENDING
(2009)
1.4 IoD research (approximately 1,000 respondents)
conducted in November/December 2009 found that a quarter of directors
said that they had tried to access finance from the institutions
that they banked with in 2009/10. Of this quarter, 57% of directors
said that their application for finance had been rejected by their
bank.
1.5 In February 2010, when these results were
publicised the IoD became aware that (in state supported banks)
the stock of loans to businesses (year-on-year) had fallen by
some 8.1%.
1.6 The same IoD data also found that 1 in 5
businesses that wanted additional capital in 2009-10, didn't investigate
bank loans or overdrafts because they believed they would be declined,
saddled with disproportionately high costs or required to comply
with requests for additional security.
1.7 Further data showed that the type of finance
being accessed by businesses had also changed over the past few
years. IoD data from 2001 showed that 45% of IoD members were
financing their businesses through bank loans and 40% through
overdrafts. Today, only 28% are doing so via bank loans, 36% through
overdrafts with a further 20% financing their business to some
degree through credit cards.
1.8 During the same period (09/10) the IoD noted
some significant issues with access, publicity and availability
of the Enterprise Finance Guarantee. In fact, we noted that "Government
support in the form of the Enterprise Finance Guarantee is not
getting through. Despite Government assurances that businesses
found to be ineligible for commercial credit would be offered
access to the taxpayer-backed fund, 83% of those declined bank
finance were not even offered information on the Government's
Enterprise Finance Guarantee."
1.9 While in many cases the Enterprise Finance
Guarantee would have proven to be appropriate for the business
concerned, the fact that 83% of our members were not knowingly
evaluated against its applicability to their situation following
a decline was concerning.
STATE OF
BANK LENDING
(JANUARY—JUNE
2010)
2.1 IoD research (approximately 900 respondents)
conducted in June 2010 found that 39% of IoD members' firms applied
for finance with a bank (applications include requests for renewals/extensions/new
requests for overdrafts and loans) in the time period 1 January
2010—June 2010.
2.2 This compared with an application rate of
25% in the previous survey (see above), which covered the longer
time period, 1 January 2009 to December 2009.
2.3 Of the 39% of IoD members' firms which applied
for finance in the time period 1 January 2010—June 2010,
33% had an application for finance declined by a bank
2.4 This compares with a decline rate of 57%
in the previous survey which covered the longer time period, 1
January 2009 to December 2009.
2.5 37% of IoD members stated that in the period
1 January 2010—June 2010 they had noticed an increase in
the amount of security being requested against any lending that
their organisation sought.
2.6 This follows 29% of IoD members in our previous
survey having noticed an increase in the period 1 January 2009
to December 2009. No respondents in the latest survey noticed
a decrease in the amount of security being requested.
BUSINESS SUPPORT
2.7 The IoD believes that the Government should
look to remove the current cohort of paid Business Link advisers
and replace them with a larger network of accredited director/volunteers,
who are willing to assist individuals in the creation, growth
and realisation of their business aspirations.
2.8 The model is innovative, but not untried.
It should deliver greater numbers of advisers (than the present
1,500), higher intensity of advice and eventually a more respected
brand amongst business owners. The proposal that the IoD is suggesting
sees the removal of paid employees and their replacement with
willing volunteers. It replaces national government interventions
with government and business partnerships. It replaces bureaucracy
with citizen activism and does so at lower cost.
2.9 The Institute of Directors have been out
to visit the Business Support offerings available in the Regions
and were struck by the straightforward nature of requests and
questions that were coming into the call centres. On the basis
of what we saw, there was a clear and evident case for cost savings
and efficiencies that could be delivered by rolling together the
regional back-office resources and delivering a national phone
and web-based service.
2.10 However, the necessary corollary of this
change is that the face-to-face element of Business Link advice
would have to be looked at. The IoD's impression of the advice
offered was that it was of mixed quality, but that where delivered
well it was received positively. The most significant drawback
to the benefit of face-to-face advice was its scarcity. Business
Link Advisers often visited the same businesses only once or twice
a year, meaning that often the input was so light touch as to
be unproductive.
2.11 In an environment where cost constraint
will reduce the resource allocated to a face-to-face business
support programme that is already lacking in intensity it becomes
essential to not only tweak the framework, but to fundamentally
review it.
2.12 One example of a framework for business
mentoring (as proposed) would be that the largest business representative
organisations in the UK came together and shared their membership
details with a single secretariat that agreed to contact individuals
about their interest in advising business. Having drawn together
the list of willing advisers, the organisations could then accredit
the standards of advice (paid for by government funding) and ensure
relevant waivers are signed that ensure the advisers do not cross-sell
etc. Such a secretariat would be able to administer requests,
link up individuals with advisers etc and deliver the service.
2.13 It is the IoD's view that if such a model
were delivered; the Government would need to fund this national
mentoring service (Volunteer Director Network). The service could
be administered by a single external contractor as a national
contract, but in order to fund it partially through ERDF funding,
the role could be administered regionally.
2.14 The service would need government finance
in order to begin immediately and to have full national coverage:
The scheme will be considerably less costly than the Business
Link service, but the IoD believes that such a proposition would
only require an annual outlay of £1-2 Million.
2.15 The required finance would fund:
— Advertising of the availability of the
service to potential mentees
— Strategic recruitment of potential mentors
— Funding for the brokering/matchmaking
service between mentees and mentors
— Underpinning costs for indemnity insurance,
frameworks for required mentor/mentee behaviour to avoid conflicts
of interest and cross-selling etc
2.16 Such a service could be set up with or
without accredited training for mentors, but the costs outlined
above are based upon such a training programme being in existence.
2.17 The interest amongst the business community
is certainly there. In a survey of IoD members conducted in August
2010, over 40% of directors who responded said they would be interested
in becoming a mentor.
2.16 The above outline is not the only way the
service could be delivered, but the model share some broad characteristics
with the SCORE (http://www.score.org/index.html) programme in
the United States of America (see below).
SCORE is the Service Corps of Retired Executives
The Service Corps of Retired Executives (SCORE)
is a national non-profit organization that counsels business owners
and aspiring entrepreneurs. There are 389 SCORE chapters throughout
the United States offering counselling services to small businesses
in all areas at no charge to the client. There is no membership
requirement to receive SCORE counselling—a phone call to
make an appointment with a local SCORE chapter is sufficient to
put the small business owner in touch with this valuable organization.
SCORE was founded in 1964 specifically to provide
business counselling to entrepreneurs. A national non-profit organization,
SCORE is funded primarily by the U.S. Small Business Administration
(founded in 1953). The group is made up of more than 10,000 active
and retired business executives familiar with all areas of business
management. This group donates its services, conducting one-to-one
counselling as well as team counselling and training sessions.
SCORE provides assistance to an estimated 300,000 plus would-be
entrepreneurs and business owners annually. According to the SCORE
Web site, the organization has helped 7.2 million small businesses
since its founding.
According to SCORE, volunteers "serve as
`Counsellors to America's Small Business.'" The volunteer
members of the organization are "dedicated to entrepreneur
education and the formation, growth and success of small business
nationwide."
SCORE counsellors provide general business advice
on all aspects of business formation and management. This service
is provided free of charge and in confidential fashion. Counsellors
may assist in anything from investigating market potential for
a product or service to providing guidance on cash flow management.
They may provide insight into how to start or operate a business,
how to buy a business or franchise, or how to sell a business.
Volunteers also review business plans, often offering suggestions
before the plans are submitted to a bank for financing consideration
(in one survey of SCORE offices in 14 states, 27 percent of respondents
indicated they delayed or cancelled plans to start their own business
after talking with a SCORE counsellor, usually because the meetings
illuminated shortcomings in training or strategy). Finally, individual
SCORE offices offer free and confidential counselling and business
advice via electronic mail on the Internet. According to the organization,
these e-mail counselling sessions are its fastest growing service
(SCORE offices conducted 75,000 such sessions in 2000).
SCORE also holds workshops throughout the country.
Workshops and seminars on specialized areas of business training
such as writing business plans, inventory control, advertising,
financing and international trade are available at reduced cost
(usually a nominal fee of $100 or so, to cover cost of facilities
and materials). For more information on this and other SCORE services,
the organization maintains a Web site (www.score.org) detailing
its offerings.
SCORE volunteers are usually between the ages
of 60 and 70, but there is no age limit for a volunteer. Retired
executives interested in joining SCORE fill out a formal application
and usually supply a resume for consideration by their local chapter.
There is a 90 day probation period during which performance is
monitored. To insure quality, SCORE counsellors are matched to
cases according to the type of business or client seeking advice
and the counsellor's area of specialty. SCORE is not an employment
service, however. Members may give advice, but may not accept
positions with client companies, nor may they direct a business
owner to individuals or firms which may provide employees. SCORE's
main function is to provide free advice to small businesses.
24 September 2010
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