Hot prospects for a company with a conscience

Simon Caulkin, management editor
The Observer,
Sunday November 2 2008

John Clough smiles wryly at the news that the number of fuel-poor has just increased by a third to 3.5 million. As chief executive of Eaga, a green services company whose job is to help people out of fuel poverty, he can't ignore the prospect of a few hundred thousand more homes to insulate and heat. As the son of a Northumberland miner who can remember huddling around a coal fire to keep warm, he shivers at the thought.
Newcastle-based Eaga - originally the Energy Action Grants Agency - is a company for which the time ought to have come; and the same might go for the forthright, charismatic Clough, its driving force. The inspired offspring of the public sector, Eaga is now a publicly quoted company co-owned by employees, 'selling' low carbon and social inclusion - 'public-sector values delivered in a very effective way', as Clough puts it.
The company could be a poster-child for post-crunch capitalism, the embodiment of Peter Drucker's definition of the socially responsible business, turning 'a social problem into economic opportunity and economic benefit, into productive capacity, into human competence, into well-paid jobs, and into wealth'.
For this, thank a series of bold, entrepreneurial and fortuitous decisions. Eaga came into being in 1990 to manage a £25m contract to insulate and draught-proof poorly built homes under the government's Heating and Energy Efficiency Scheme. Clough was employee number 1, of five. The luck (or genius) was for Whitehall to establish the organisation as a company limited by guarantee, rather than as an agency, which allowed for a relatively easy transition to the employee-owned business - modelled on John Lewis - which it became in 2000, with 150 on the payroll.
From then on, things speeded up. As Clough intuited, the partnership ethos was a good match for the daily job of improving the homes and living conditions of the less well-off. A clean sweep of the government's Warm Front residential energy efficiency contracts in 2005 was the cue for Eaga to stop just managing programmes and start delivering services itself. Since then, it has built its own insulation and heating companies - what it proudly calls its 'national blue-collar delivery capability' - both organically and through acquisition.
By 2007, though, the company's ambitions were running ahead of its means. Clough and his colleagues could see other and much bigger issues looming.The move to a low-carbon, inclusive society, he predicts, will throw up a whole range of environmental issues to solve: not just energy efficiency, but access to technology and, in the future, water as well. 'In a 50-year time frame, the needs - and opportunities - are enormous.'
As early proof, Eaga has picked up a £200m contract to deliver Scottish Power's commitments to reduce overall carbon emissions, and will earn £500m from the BBC to carry out the digital switchover. Building on its work on fuel poverty, it has developed a one-stop benefits advisory service which has enabled a third of enquirers to claim, on average, an extra £1,500 a year. It is now busily expanding into the social housing sector.
To get into these markets, Eaga needed to take a risk on the balance sheet. The partnership trustees had been signalling for more than a year that this kind of expansion would be impossible without access to the capital markets, says Clough. So after some heart-searching - and scrutiny of eight different options - Eaga went public in June 2007 in an IPO that valued the company at about £450m and handed each partner a payout of around £100,000. With the Eaga Partnership Trust holding 37 per cent of the shares, and individual partners a further 11 or 12 per cent, the co-ownership ethos is secured, believes Clough, while others can invest in it too.
In fact, even in today's chilly financial climate, the tighter constraint on Eaga's growth may not be capital but people. 'In the established parts of the company, the level of engagement that co-ownership gives is palpable,' Clough says; and maintaining and strengthening it is primordial. Eaga pays a lot of attention to recruitment and induction, and works hard to convince those acquired (there are now 4,500 partners in all) of the virtues of an open, respect-driven management style. And if it can't? 'Rome fell because it ran out of Romans,' notes Clough. 'The hardest thing is to part with effective people who make the numbers but don't share the ethos. But it's stick or twist and if they stick, these are the values we ask them to live by.'
As everyone acknowledges, that takes work - including on outside shareholders, who at the moment don't much care about partnership, just whether Eaga meets its numbers. If the credit crunch teaches anything, however, it's that the numbers are only as reliable as the manner in which they are made. Here, too, Eaga may be able to teach the city slickers a thing or two.
Simon.Caulkin@observer.co.uk