Sean, of Ensemble Capital, who blogs at Tactical Philanthropy, on how money management and grant-making functions might work together as a matter of course:
Think of the leaders of the grant making programs as the CEO and the leaders of the investment management side as the CFO. Imagine if a business was operated with the CEO and CFO pursuing different objectives and using different strategies. The business would be handicapped and could only achieve limited results. The same is true in philanthropy.
Sean, do you have hypothical or real examples of how this might play out in practice with foundations devoted to specific causes? How would you research and screen investments specifically for, to pick three, examples, the following?
- A social justice foundation
- A foundation devoted to promoting libertarian free market principles
- A foundation devoted to the education of disadvantaged children
Concretely, what would be the "drill" you would run on a company to determine whether or not is is "aligned" with each of the above? Do you just scan the annual report? Interview management? Do a site visit? Call their PR Department? Interview line employees and ex-employees? Research and review a media database? Google them? Hire a private detective, or an investigative journalist to dig for dirt? How do you weigh and present whatever information you uncover? Do you give the company a chance to rebut your interpretation? How do you know when to close out the investigation and call it complete, or good enough? What is the cost of this addional layer of research? How confident would you be in each case that you had uncovered the key facts?
I can see foundations wanting some such service, and it being good marketing for an investment advisor to promise such "mission aligned" portfolios, but, Sean, is this more than just window dressing? How can you possibly know how aligned ATT is with, say, social justice, or the education of children? Isn't this inherently a subjective call? When the Foundation head looks you in the eyes and says, "No surprises. Whatever else you do, keep our investments off the front page of the LA Times," do you feel that you have a failsafe system? An excellent proven system? Or, something that is better than no system? Seems like an area that is heating up and will become a good marketing ploy for "value added" investment shops, but I wonder about the deliverables, and how substantive they would really be.
Finally, I note you are a Chartered Financial Analyst. Is mission aligned investing covered in that professional training or in your continuing education? Is there a curriculum, with best practices, or is this a field where people will make it up as they go along?
My firm does currently provide full service social screening of public companies. As you can tell from my posts on the subject, I am mixed as to the usefulness of this practice. I think it is fine for foundations to screen investment choices, but in most cases, it is not a very valuable use of their time.
I’m sure that Calvert and Parnassus would tell you otherwise and I have offered to run a guest post from one of the executives at Parnassus. I believe they will be sending me something in the next week or so.
My take is that most companies operate neither in favor nor at odds with the mission of most foundations. If you had a foundation that was trying to reduce lung cancer, I can totally see a strong argument for not investing in tobacco companies. But see my post on why you might actually want to actively invest in tobacco companies if you are doing battle with them. I think both options are valid.
I personally find directly investing in projects that further the mission of a foundation to be a much more intriguing idea. I’ll be posting this week about a couple of options in this area, but the Philanthropic Capital Markets are still just beginning to develop.
The CFA material mentions socially responsible investing, but only in passing.
When I was at Scudder Investments, I spent some time working with the SRI group learning how they managed the process. At Scudder, we offered custom screens rather than generic SRI portfolios. In other words, we screened out companies that did not fit a specific client’s interests rather than just putting all of the SRI clients in the same portfolio. Unfortunately, that is rare. However, the process started with a check the box questionnaire that asked the client what they were against. Most clients checked all of the boxes even though I doubt they knew what most of the issues were about. One of the boxes just said “South Africa”. I never knew if clients thought that meant we were going to invest in South Africa or avoid companies there, or even what the issue was.
Needless to say, I was not impressed with the program.
Posted by: Sean Stannard-Stockton | January 30, 2007 at 11:58 AM
I was typing too fast. The first sentence should read: "My firm does NOT currently provide full service social screening of public companies."
Posted by: Sean Stannard-Stockton | January 30, 2007 at 11:59 AM
Sean, this is very helpful to me personally. I am sure it will be helpful to many thoughtful people as you get your views, based on real world experience as well as professional training and practice, out there.
The world is too complex for an Axis of Evil approach to foreign policy, or to foundation investments. The Axis of Evil, or SRI, rhetoric is marketing, in my view. It plays to those who prefer simple answers and soundbits solutions for "moral clarity." That urge, to moralize without complexity, and to have a check box solution is one of our worst habits as a nation of consumers. We don't consider "tobacco" to be part of our image, so we sell Philip Morris and buy Ben and Jerry's. That is very simplistic.
Like you, I am more interested in seeing large pools of capital devoted to emerging entities - venture capital for socially significant work - that might change the game.
Buying and selling Fortune 100 stocks and thinking that you are doing anything is literally rearranging the deck chairs.
Posted by: Phil | January 31, 2007 at 11:43 AM