Human Resources Committee on March 10th, 2015

[Rodger Cuzner, Liberal, Cape Breton—Canso, NS]

Thank you for your presentations.

I want to keep going with what Mr. Mayes was doing, trying to stick a fork in some of the measurables. I can only imagine some of the challenges, Mr. Sandberg, with the stuff you do on employability. What you're doing is noble, but at the end of the day, when you measure it, what degree of success...? Do you go in with some type of target? Do you want to have half of your workforce come from treatment centres or persons with disabilities or new Canadians?

I would think for what you do, you have the poster boy. This is a real success story here. Could you maybe give us an idea or an overview of what the mix would be in the workforce?

[Magnus Sandberg]

I have a couple of comments.

When we give a business a loan, we tell them that they have a year to hire at least 20% of the total staff from the population groups I've been talking about. If they're not able to meet that target, we reserve the right to call the loan. So we have a target like that. However, the way we measure the 20% is based on retention. If someone is not working out, then we give the business a quarter to hire someone else to replace that person and we don't change the interest rate if they hire someone else. It's based on retention, as I said. It is incredibly difficult to measure impact in employment. We track things like increase in salaries, increase in positions, the amount of training they receive from the employers, and a number of other things. But at the end of the day from our perspective, it's about retention and customer satisfaction. In this case it's both the candidate and the employer.

Does that answer your question?

[Rodger Cuzner, Liberal, Cape Breton—Canso, NS]

It does.

I'm sort of a softie for Norm here, too.

In what you're doing at U of T with the engineers, I would understand that some of those students would want to go on and make a contribution socially. Have you had some success stories there? Have there been some initiatives you can share with the committee in which students have gone on and...?

[Norm Tasevski]

Sure.

Again, in the vein of designing the measurable impact based on the initiative that's being created, I actually had a group of international students from Abu Dhabi back in 2012. I called them the Abu Dhabi boys. They actually created a recyclable heating system It was effectively solar panels made out of pop cans. It was a fantastic little project.

What absolutely blew me away was the fact that they actually built a prototype and installed it in a Habitat for Humanity home. The idea here is that you're able to reduce the costs associated with installing the heating system and reduce the costs associated with heating that property over time. During my course, they started to negotiate with a first nation community in northern Ontario to run a pilot project with these recyclable heating elements. For me that was an example just coming out of the course.

When you think of that and the impact being generated, you can measure that quantifiably in the amount of heat produced by these devices and the cost associated with installing them or building them. At the same time, you're able to create stability in someone's housing, and you're able to create conditions in which they could work from home and study from home. There are a lot of qualifiable things, things that are not as easy to measure but that still generate valid impact for the people who are interested in that investment.

[Rodger Cuzner, Liberal, Cape Breton—Canso, NS]

Thank you.

[The Chair, Conservative, Phil McColeman]

That's it. You had only 15 seconds anyway.

Mr. Eglinski, go ahead for five minutes.

[Jim Eglinski, Conservative, Yellowhead, AB]

Thank you, Norm and Magnus, for coming out and speaking to us today.

Magnus, right at the beginning of your presentation you talked about earned revenue. I wonder if you could expand on that and clarify what exactly you mean by earned revenue?

[Magnus Sandberg]

I'll give you an example. We invested in an organization in Winnipeg, a renovation company. They had a submission to hire urban aboriginals in the business, so it was a classical social enterprise. Their customers were non-profits, but more and more so the commercial sector clients, as it's a fee-for-service enterprise, similar to any other renovation company, only that a majority of the staff were urban aboriginals.

Does that answer your question? It's a typical running-a-business/earned revenue perspective.

[Jim Eglinski, Conservative, Yellowhead, AB]

Yes, it does to a certain degree.

How about yourself? With the pool of money that you both have, do you look at earning revenue from it money while you have it sitting in your domain if it's not lent out to group A or group B?

[Magnus Sandberg]

It's a great question, and I'm sure that prior speakers have touched on this. In our case, we're a non-profit funded by a philanthropist, so our motivation is purely to be a catalyst for new models and approaches. A best-case scenario would be to deploy 100% of our capital into our initiatives and loans and so forth. That's not always possible, and we would then have to place capital into the capital markets in the traditional way. But the pool of capital has as a mission to deploy as much of it as possible into these initiatives.

[Norm Tasevski]

On my firm's part, we act as an advisor to investors. We work with them to help mobilize their capital. In some cases what we are looking for is a way to creatively deploy any type of revenues that would come out of these initiatives. In the example that I offered, the affordable housing fund called the resilient communities fund, that fund is redirecting the fees associated with affordable housing into an endowment fund, which is then used to finance affordable housing. Think of brokerage fees or origination fees that banks would pay, or in some cases even legal fees that would be paid in the transaction. Those are effectively earned revenue for those entities, but a portion of those revenues can be diverted into the bridging of the affordability gap for people who move into those units.

[Jim Eglinski, Conservative, Yellowhead, AB]

I've got another question for both of you, and you can start first, Magnus.

In your organization, you are the person who's going to lend that money out to that group. How strict is the set of guidelines? Who develops your guidelines to say who gets it and who doesn't, and what do they have to do to get it?

[Magnus Sandberg]

We have two due diligence processes. One is our financial due diligence and the other is our social due diligence.

The financial due diligence process looks quite similar to a bank's. However, in the bank you have the sales department and the credit department, and there are more guidelines there. We have fewer guidelines, so if we, for example, believe in the entrepreneur and that the entrepreneur could make a profitable business, then we can foresee maybe fewer assets and revenue streams and so forth. But that's the financial due diligence, which is similar to a bank, but maybe a little bit more hands on and not as strict.

In terms of the social due diligence—and this has been something we have developed over time through trial and error a little bit because we don't have a model to fall back on—it looks at the opportunity. Would this be a good place for the candidate to work in? Is it a good manger? Could the manager spend the time required to make this candidate successful in the job? Are there a lot of entry level positions? What are the career paths? How is the pay escalation? So we do due diligence on some of those components.

[The Chair, Conservative, Phil McColeman]

Thank you. We're going to have to end it there. We're a little over time on your time, Mr. Eglinski.

Now we move on to Madam Morin.

[Marie-Claude Morin, NDP, Saint-Hyacinthe—Bagot, QC]

Thank you, Mr. Chair.

This won't be the fist the first time I ask this question during the current study. My colleagues will perhaps find me tiresome, but no matter. It does not bother me. I always worry about the autonomy of groups and organizations, and I wonder how they can maintain it when their funding is private. I will in fact ask another question on the subject.

Many organizations are unhappy with per project funding. They say that this type of financing prevents them from developing a long term action plan.

I was also wondering if there was any kind of renewal mechanism possible with private funding, say for the medium term?

[Norm Tasevski]

Just to clarify, the first part of your question concerns the level of autonomy that a recipient of social finance may be able to receive from private capital. Is that correct?

So your question is whether that—

[Marie-Claude Morin, NDP, Saint-Hyacinthe—Bagot, QC]

Yes.

[Norm Tasevski]

—is a good or bad thing potentially?

I think it—

[Marie-Claude Morin, NDP, Saint-Hyacinthe—Bagot, QC]

In fact, I wish to know if the organization succeeds in maintaining some autonomy.

[Norm Tasevski]

I see.

[Marie-Claude Morin, NDP, Saint-Hyacinthe—Bagot, QC]

Does it remain independent in its practices?

[Norm Tasevski]

I would say that it all depends on the type of structure used.

As an example, one of the groups that we work with is the angel investment community. By angel investors, I'm referring to individuals who would finance or take the highest risk associated with a particular investment. In some cases, I've seen angel investors who are completely passive with regard to an investment. They just put their capital in, and let the entrepreneur be the entrepreneur.

In fact, with some models, there's more autonomy for that type of investor than you would ever get with a government funded granting program or a charitable program. It depends on what you mean by autonomy, but In a lot of ways, the level of involvement that's needed in order to satisfy the conditions of a grant can often create barriers to autonomy for a lot of groups.

So what about autonomy in terms of the ability of entrepreneurs to be creative with their investment? If an entrepreneur were able to negotiate a particular set of terms in order to ensure autonomy with the investor, he or she would find that a lot of private sector actors who place capital with the entrepreneur at the direct level rely on that entrepreneur to be successful. They are trying to create the conditions for autonomy and independence. Often, they place less restriction on how that capital can be used and what kind of outcomes they're looking to achieve. In other cases, organizations that look for grant capital or philanthropic capital have to align with the requirements of the funder. In many cases, they have to change the way they run their business, or they have to compromise their vision in order to satisfy the terms of their granting partners.

It's a complex question. It depends on the source of capital, how it's used, and who's actually participating.

[Marie-Claude Morin, NDP, Saint-Hyacinthe—Bagot, QC]

All right. That answers my question.

I don't believe private financing comes with any guarantee of renewal, and I would like to know if any kind of medium term planning is possible under those circumstances, so that an organization may breathe a little easier and know if it can pay its employees' salaries the following month.

[Magnus Sandberg]

These are very interesting questions.

My having come from the private sector into the social sector, it has been an eye opener for me. I often make the parallel or correlation with the venture capital world where you invest in the entrepreneur and create the conditions for the entrepreneur to be successful. There are not a lot of restrictions around how the money is spent, and that's in stark contrast to how the grants process has been utilized to date.

To answer your question, in terms of the short term action plan versus long term funding and so forth, I think it's a huge opportunity, from a government perspective, to divide the financing between a couple of different buckets. The government is doing this too to some extent, but it needs to do it more. There is some core funding, but core funding or program-related funding is strangling these non-profits or businesses, obliging them to do something repeatedly rather than innovatively.

I'm a huge proponent of creating another bucket in which x amount is given to maintain what's being done today and y amount is given for a little bit of innovation. As the funder, my evaluation of the two different buckets would be very different .

[The Chair, Conservative, Phil McColeman]

Thank you very much.

Mr. Armstrong.