Sharing the potential for good

When Penny Newman led Cafédirect’s share issue in 2004,she was treading on uncertainground. Newman had been CEO of the fair tradecoffee and tea company since 1998, taking it into a period of strong growth and a turnover of around £13m. She had previously been a marketing manager for The Body Shop, and today is CEO of restaurant chain Fifteen and a social enterprise ambassador. But a share issue?

‘I’d never done it, and there wasn’t a textbook to tell me how to do it,’ she remembers. ‘Traidcraft had done it, and I asked someone there for ten top tips, but I never actually got them. Now I could probably write the textbook myself.’

A share issue offers investors the chance to buy a share of abusiness. Typically, a companylaunching a share issue does so at a pivotal time in its growth, whenit has growth potential but needscash to make it happen. Thecapital raised by selling sharescan be used to take the businessinto a new phase of growth,either investing in its corebusiness or entering new areas.

For Newman, there wereseveral reasons why a share issue – and restructured governanceto go with it – seemed the bestway forward.

‘Cafédirect’s concept and brand were moving from the niche into the mainstream,’ she says. ‘In parallel, the company’s governance and finance needed to move with it. And thirdly, I had a vision of turning our trading model into an ownership model, so that the people who grew the products could be linked directly with people who bought the products. That would reinforce what Cafédirect was all about.’

Not everyone was convinced, though. The idea of growth may seem like an obviously good idea – surely it’s what every organisation wants? To Newman herself it was a ‘no-brainer’ because it would mean buying more coffee and tea and helping more farmers earn a good living.

‘But there was some resistance within the organisation,’ she says. ‘The concern was control, and I’ve seen this concern in other social enterprises. Will you lose control? If you launch a share issue, how do you make sure your values are kept safe and that no one takes you over, changing your core values?’

The answer for Cafédirect was to go ahead with the share issue, but to build safeguards into the newstructure which would protect its social mission.

ENSHRINING THE VALUES

Cafédirect was founded in 1991 by four investors: Oxfam, Traidcraft, Equal Exchange and Twin Trading. The aim of the share issue was to raise £5m by selling shares to the company’s producers and to the general public, and to do that, the four founders  would relinquish some of their share. They each kept around 10 per cent, with 5 per cent being sold to producer groups and the remainder to the public. The company already had a charter in place called the Gold Standard, which set out its principles and ways of working.

To ensure that the share issue did not threaten this, share ownership was limited to no more than 15 per cent for anyone other than the original four founders. It means that no one can buy up a huge share and change the direction of the company.

The four founders also formed the Guardian Share Company Ltd, which owns just one share, and the permission of that company is needed to make any changes to the Gold Standard. ‘Doing that enshrined our values,’ explains Newman. ‘It ensured that shareholders couldn’t suddenly abandon our fair trade policy and develop a trading pattern that wasn’t helpful to farmers and producers.’

The share issue went live on 4 February 2004, and was fully subscribed within a few months, meeting the goal of raising £5m. The majority of investors were on a small scale, with the minimum investment set at just £300. (Cafédirect’s end-of-year report for 2004 showed that 60 per cent of public investors each owned 500 or fewer shares).

Under the new governance, Cafédirect’s 32 producer groups – representing around 1.2m workers – were also able to elect two representatives to the board (one for tea, and one for coffee). Another director represented the public investors.

And what was the point of raising all that money in the first place? ‘We wanted to build the brand,’ says Newman. ‘We were doing well in retail, but we wanted to move into the out-of-home market [ie offices, restaurants and schools]. We also wanted to expand internationally. And the brand also needs constant refreshing, with new products.’

PUBLICITY AND MARKETING

Considering Newman was a bit of a novice at share issues, it’s somewhat surprising to learn that Cafédirect didn’t involve many external partners in the process. Triodos, which was already Cafédirect’s bank, sponsored it. Newman was advised to use a specialist public relations company, but decided against it.

‘I was concerned we would be fed through a standard public share issue machine,’ she says, ‘and that they would struggle to give the social side as much emphasis as the financial side.’Instead, Newman stuck with the company’s existing creative agency, which knew Cafédirect’s message well. The share issue was publicised heavily through on-pack stickers. Meanwhile, a small in-house team – including finance and marketing directors – devoted themselves to the launch. The decision to offer a share issue was made only in October 2003, so everything was crammed into four hectic months. This, Newman admits, did not benefit Cafédirect’s day-to-day business.

‘The workload around this was horrendous,’ she says. ‘Looking back, I think we became quite inward-looking during that time. Own-label brands were starting to grow, and I think we took our eye off the ball for a little while.’

In the long term, though, the benefits have been evident. As planned, the money was used to expand into the out-of-home market, and Cafédirect entered Hong Kong and Singapore, refreshed the brand and added new products.

The growth of Cafédirect also meant that funds could be invested in its producer partnership programme. Between 2004 and 2008, £3m – more than half of Cafedirect’s profits – has been invested to develop growers’ organizations.

By successfully launching a share issue, Cafédirect also achieved what Newman always felt was the core of its values: empowering producers, and creating a direct link between them, the company and consumers.

‘Producers were always involved in our strategy, even before the share issue,’ she says. ‘But now even more so. They were given a voice, and they could sit at the table. Through the share issue, producers and consumers could both have ownership, alongside the original founders and employees. It just reflected what Cafédirect was all about.’

This article first appeared in Good Deals 2009: The Social Investment Almanack.