Social Capital Markets Feed

A Matter of Life, Debt and Reciprocity

Margaret Atwood in the NY Times on the frayed moral fabric underlying the debt crisis. Trust is earned, easily betrayed, and hard to restore. Debtors and creditors, rating agencies and regulators, advocates for the poor and politicians all gamed each other. Now we find that no one wants to play. Perhaps the banks don't lend to other banks because they know that the counter-party is no better than they are.  Small exchanges, gifts and courtesies, and kindnesses and conversation among friends, these are the fabric of family, civil society, and even of trade. (My thoughts, provoked by Atwood's reflections.)


Is Social Enterprise Sustainable?

Midas Dr. Trexler, JD has written the most philosophically profound piece I have seen on social ventures. He is well educated in many strands in our traditions, including comix, classics, law, philosophy, rhetoric, theology, and business. His analysis is deep and for me inspiring. He sees in social ventures, as in a university or church, a yearning (half articulate and embedded in confusion and delusion) towards what a city was to Aristotle, a form that reaches beyond individual interests to the good life in community with others.  If you are seriously using a term like "social venture," or "double bottom line business," you really should read and reflect on Jeff's essay. Were there any justice in the world, Jeff would be heading up the Skoll Center at Oxford just long enough to shut it down, and turn it into a proper monastary, in the style of the true Oxford Colleges. I will be rereading Jeff's essay slowly, pen in hand, to underline, circle, and annotate the margins.  I can imagine a test question that goes:

Which of the following titles for Dr. Trexler's essay might fit?

  • Is Social Enterprise Sustainable? (actual title)
  • Is the Buzz Word "Social Enterprise" Sustainable?
  • Is Social Enterprise Risible or a Serious Business, or Both?
  • Is Social Enterprise Logically Coherent? (If Incoherent, is this a Defect or a Feature?)
  • Is Social Enterprise, like Flesh and Spirit, a Vital Paradox?
  • Is Socially Responsible Business A Fool's Errand, or the Preferred Refuge of Knaves?
  • Is Socially Responsible Business Poetry by Another Name?
  • Is Socially Responsible Business the Work of the Holy Spirit, or The Devil's Playground?

For Extra Credit

Name Three Socially Responsible Businesses (ok if they are rinky dink hobby businesses, so long as they are virtuous and profitable). Compare and contrast from the standpoint of profit and philanthropy with three socially irresponsible Fortune 100 businesses. Give Special attention to the funders of this  university and/or our endowment. (Answer to be read aloud by the supplicating Student for the BS in Venture Philanthropy. Wear Cap and Gown, or Cap and Bells, over sub fusc. Asses' ears are optional.)   


The Prospects for Financial Permaculture

Changing Perceptions of Wall Street

  • Is your own faith shaken?
  • Are you sure in your own retirement planning that you can count on getting inflation plus, say, 3% growth over the long haul?
  • Are you sure that the ecosystem will support such growth, before air, water, oil, food, become degraded or in shorter supply?
  • Are you pretty sure inflation will stay low, and money sound, as the government prints trillions in dodgy debt to buy up dodgier debt?
  • Are you yourself ready to think about solutions that don't involve sending money to Wall Street and DC?
  • Are you a younger person, looking at your career, and asking, "Is working for a big company a valid response, when so much in our society is coming unstuck? Will my job or company be around much longer? How much trust do I have in my firm's management? How concerned are they with me? Will they keep the long term promises they make to me? How long can this scam-economy hold up, bailouts or no bailouts?"
  • Imagine, then, that we as older and younger people, went local to build a better shared future.

Community Investing for Personal and Public Good

Let's say you are a younger person who wants to start a for-profit social venture with a financial return to investors and a social return to your local community. Maybe you want to get involved with   permaculture. Maybe you want to own a farm? Maybe start a food distribution business? Get an ethanol business going? Start a wind or solar enterprise?  How to get investors for such grassroots start-ups is not such an easy question, as C.A. Fitts indicates here, with a review of investment laws and regulations.  Still, the field is pushing towards solutions. These links may be relevant.

Community Investing

Social Investing

F.B Heron Foundation Publications on Mission Aligned Community Investment

ShoreBank

Calvert Community Investment Notes

Good Cap

Program Related Investments

LC3 structure

B-Corp

Carol Newell, a Canadian Funder/Philanthropist, at Renewal: Funding Change

Tree, Inc.

Threebles

Wealth Wave on Main Street

  • 90% of US Firms are family owned
  • 64% of GNP
  • 33% make it to next generation
  • 15% to third generation
  • 25% will transfer control over next 5 years
  • 40% over 10 years
  • 71% have not completed succession plans
  • 93% have little income outside business
  • 80% want business to stay in family

From a talk given by David Leibell and Dan Daniels of Wiggin and Dana to Communities  Foundation of Texas, May 6, 2008

These family owned firms are embedded in the local community. The owners are often devout. The owners have not only wealth in their business, but also work ethic, connections, and business savvy. They were often born in town, educated nearby, will die in the local hospital, and will be buried in the churchyard where they worshipped for decades. They come from many political and religious traditions, actually, but they share a commitment to their community.

As family firms transition, as the owner sells out, or passes the baton to children, there is one golden moment when the money is available for reinvestment. Some of these families consider philanthropy as a way to reinvest in their religious organization, their town, or to make a difference in the larger world. Often they are trying to set an example for children, or get them involved in the giving, to pass on a family legacy of leadership and love. 

When advisors talk to these families one topic is "founder's transition." What will the couple who started the business do when it is sold? What can be done to help them let go of the old and embrace the next phase of their lives? Some of these founders will settle for golf, travel, and shuffleboard, but many of these Boomer entrepreneur's want a new challenge and feel a sense of urgency about the way the world is going.

The investment vehicles listed earlier in his post are "fancy;" they are the kind of thing that might appeal, right now, to highly educated, leading edge people in the progressive community, or in philanthropic networks, or among foundation people.  However, so much of the wealth of this nation, not just financial wealth, but also human capital, is locked up in Main Street businesses, that I look with interest at the coming intersection of small business owners and new ways to give and invest locally for a sustainable and gratifying future.

Power Phrases for Business Owners

  • You did a great job building this business, what is your exit strategy?
  • What is next for you, when you do exit?
  • Let's say we put all you own on the table. Let's say we took off the table enough for you and your spouse to live the rest of your life in comfort. What might be left? A financial planner can calculate that for you if you are unsure.
  • At your death there are only three places the remaining money can go: Taxes, charity and children. Let's say we could reduce taxes to zero. How much would you want your children to get? How much is enough? How much is too much?
  • As to the  portion devoted to making the world better, the part you want to invest for the community, do you want to just give it away? Would you prefer to invest in a socially oriented business? Do you want to put your own talent with it? Do you want some skin in the game? Might you start the new venture yourself? Partner with others who will?Lend money, maybe at below market rates? Would you do business with a new venture that does social good? Encourage others to do so? Bank with a bank who lends to such ventures?

Treading Lightly

Investments are highly regulated, as C.A. Fitts points out in the post linked above.  Anyone getting involved in social investing, whether as a philanthropist, trustee of a foundation, individual investor, an investment advisor, a philanthropic advisor, a fundraiser, or as an entrepreneur, needs to research and follow the legal and regulatory procedures with the help of qualified legal counsel. This social investing field is truly leading edge, and that can mean bleeding edge.

This post is not investment advice nor an encouragement for anyone to make a specific social investment.  My point is that certain mega-trends are converging: loss of faith in Wall St; youth impatient with traditional and seemingly doomed career choices; ecosystems in dire need of care;  innovative social investment structures; and the exit of Boomer Main Street business owners with cash in hand, looking for new challenges. Out of that convergence we will see turbulence, experimentation, and perhaps bottom up solutions we can barely imagine today.


Mission Relating Investing as Solution to Falling Foundation Corpus?

Betsy Brill at Strategic Philanthropy:

In light of the market volatility, trustees are looking for creative ways to protect their foundation portfolios so that they can continue to carry out their philanthropic missions. If there is any light on the otherwise gloomy horizon, it might be that now is an opportunity to look at mission-related investing (MRI) - an investment strategy that aligns a foundation's investment policies with its spending policies through shareholder advocacy, proxy voting, community investment and socially responsible investment (SRI).


Quants Deny Secret Love of Metaphor

Jeff  Trexler: "if social enterprise is truly going to adopt rigorous analysis that goes beyond the limits of the past, it must face the harsh reality of its own faddishness." When we have a consistent yardstick on which to measure the negative/positive social impact of every corporation, and when we tax or fine corporations on their negative returns, then social entrepreneurship will have a yardstick against which to judge its own relative success or failure. But who can cite a number for the social benefits, positive or negative, of KKR, Blackwater, Coca Cola? If we can't measure them how can we measure the social bottom line of some froufrou social venture? If it cannot be quantified, calling it a bottomline is metaphor - the quant's secret passion, shameful as it may be. You would think by now this fatal flaw in social venture thinking would have been rectified. Maybe GiveWell could come up with a universal, univocal, social metric? How much net social goodness did FOX News put into or suck out of our society Year to Date 2008? I mean, come on, the world wants to know.


Why Philanthropy as Business is Foolish and Will Fail

As philanthropy becomes more businesslike we must confront the donor prejudice (or revulsion) against "overhead," or what in business is called "operating expenses," "loads," and "profit margin." The donor ideal is to see 100% of every dollar go directly to projects that make the world better. How, then, can we expect to extract basis points, fees, profits, and our operating expenses, when we (our making out like bandits) does not in itself make the world a better place, other than making us happier? We can jabber on about how this is really social investing, a philanthropic industry, a social capital market, but donors (or social investors) will likely see through the high quality, MBA-inspired, BS and realize that we are battening on their gifts, extracting tolls and levies and loads designed to make our cushy lives better. We are cynically exploiting the charitable motive, as capitalism exploits all motives, until the last human goes comatose on Prozac, for lack of a vital community founded on love and justice.

What then is the answer, if loads there must be? Align the load with social benefit. Have the entity extracting loads be mission-aligned with the donor.  Have the load-extractor positioned within the donor's circle of trust, love, and concern. Have the load-extractor be a beloved nonprofit, and mainstay of a community in which the donor and the donor's family dwells in solidarity, kneels in prayer, or works as a volunteer in a spirit of shared service. In a way, that is what we already have in community foundations, inefficient and often ineffective load-extractors, who are mission-aligned with their donors. Rather than competing with Fidelity and Vanguard on being "businesslike," which is certainly a losing proposition, why not compete on passion and alignment with social good? In that game, Fidelity and Vanguard have little to offer. They are almost ideally efficient and effective firms, making two families (their owners) very rich, but mission-aligned with what?

You know, when people get businesslike about philanthropy, they end up writing bad poetry about how giving is really investing. And they end up creating lousy pseudo-businesses competing poorly with businesses  with one bottom line. Why not recognize that philanthropy is a child of the graces, a civic virtue, a blind drive like the sex drive, a child of Dionysus no less than Apollo, a friend of the prophets, and a cousin of the muses? Giving is gratuitous. From a selfish perspective, giving is senseless, very often, as is any sacrifice, whether to the gods or for our fellow humans.  Being enthralled by business is not salvation. Donors are moved to give the businesslike exactly 0% of the donation - exactly o%. If less than 0% were possible, they would go for it. Don't you see that? So, to extract a percent or two, how do you do it? You either must align that extraction with mission or disguise it with the false poetry that redescribes giving as investing.


Sales of Prison Beds Booming

Jennifer Gonerman in Mother Jones:

Nearly one in four of all prisoners worldwide is incarcerated in America..... Today, one in nine African American men between the ages of 20 and 34 is locked up. In 1970, our prisons held fewer than 200,000 people; now that number exceeds 1.5 million, and when you add in local jails, it's 2.3 million—1 in 100 American adults.

Good news for the double bottom line social venture prison business and their investors, as investment banker Catherine Austin Fitts explains:

The “pop” is a word I learned on Wall Street to describe the multiple of income at which a stock is valued by the stock market. So if a stock like Cornell Corrections trades at 15 times its income, that means for every $1 million of net income it makes, it's stock goes up $15 million. The company may make $1 million, but its “pop” is $15 million. Folks make money in the stock market from the stock going up. On Wall Street, it's all about “pop.”

Prison stocks also are valued on a “per bed” basis — which is based on the number of beds provided and the profit per bed. “Per bed” is really a euphemism for people who are sentenced to be housed in their prison.

For example, in 1996, when Cornell went public, based on the financial information provided in the offering document provided to investors, its stock was valued at $24,241 per bed. This means that for every contract Cornell got to house one prisoner, at that time, their stock went up in value by an average of $24,261.

Jed,  how do we calculate the blended value proposition of for-profit prisons? Is the blended value  going up or down?


Online Social Capital Markets Draw High Level Commentary

Aspen Philanthropy Newsletter:

Two social entrepreneurs have written a paper calling for a social enterprise research clearinghouse along the lines of Nexis or Amazon, using e-commerce technology such as that of music download services or purchase recommendation engines. Jed Emerson of the Edna McConnell Clark Foundation and Joshua Spitzer of the Sun Ranch Institute note that consumer-driven e-commerce innovations may offer the next advances in the sector in a paper for Oxford’s Skoll Centre for Social Entrepreneurship. From Fragmentation to Function: Critical Concepts and Writings on Social Capital Market’s Structure, Operation and Innovation offers six initial ideas to help improve what they call “social capital markets”: social enterprises broadly defined to include nonprofits and businesses that specifically aim to add social value. The online marketplace of ideas they propose would facilitate publishing, distributing, cross-referencing and controlling quality. Too much research into social capital markets lacks quality, cannot be considered objective and is too focused on case study and anecdote.                    

Meanwhile, a report reviewing “online philanthropy markets” calls for creation of a “performance data commons,” or an independent space for information and data exchange, pooling data on performance, donor behavior and other key data points. According to Online Philanthropy Markets: From ‘Feel-Good’ Giving to Effective Social Investing? by the nonprofit Keystone and funded by the Aspen Institute, online philanthropy markets, or Website platforms connecting small, individual donors to charities including Kiva and Network for Good, could indeed make a significant contribution, even transforming the entire field of philanthropy just as eBay altered the auction market. But they will do so only if they address their fatal flaw: the generally inadequate informational basis for understanding what difference the organizations are making. A data commons could allow long-term analysis to see what capabilities turn out to correlate to actual performance, helping to identify the capabilities that best predict impact.

It still seems, though, that the model is a penny stock exchange, ebay, or a dating site, rather than, say, The Bost Tea Party. Buying, selling, consuming, investing - is that your sociopolical ideal?


Is KBR Mission Aligned with Your Pension Plan?

Sacramento Bee via Corp Watch:

Anti-war groups on Thursday dropped in on California Public Employees' Retirement System trustees to deliver a message: dump KBR Inc. Sacramento for Democracy and other groups presented CalPERS with what they said were the names of 20,000 petitioners asking the fund to shed its KBR holdings. CalPERS owns about $27 million in KBR stock. The company is a former unit of Halliburton Co. and a U.S. government contractor in Iraq. It has come under fire for allegedly exposing its employees and U.S. troops to chemical hazards as it repairs Iraq's oil infrastructure. It also has been accused of profiteering through contracts to provide food, housing and other services to the military. CalPERS will take the petition "under advisement," said spokeswoman Pat Macht.

If we start dumping stocks that project Freedom around the globe, where will we stop? Is it the profiteering and chemical hazards that we object to, or the core business model? Global capitalism? Corporate colonialism?  The outsourcing of essentially governmental functions to contractors? If KBR was a little more sensitive in its business practices, adding another bottom line by providing Toys for Tots, could we reconcile ourselves to them? We are like children who love hamburger and hate hearing about the stockyards. KBR is helping keep Wealth Bondage Free. Let's get off their back, people.