The ethics of running a charity or impact enterprise

Of all the things that bothered me about Tony Blair, and there were many, the one that probably  worried me the most was the extent to which his actions often seem to follow from a deep-seated view that if he did something it was almost by definition right. The thinking seemed to go something like this: “I am a good guy and therefore if I feel something is good and the right thing to do, it is by definition the right thing to do”.

Normally I refrain from blatantly political points in this column but I think Blair is a well-known example of the sort of behaviour pattern we sometimes observe. Strong conviction is a very funny thing. We admire people who possess it, and it is vital in the work we all do in impact investing, but we recognise that when individuals or groups of people have too much of it, there can be serious consequences. Terrorism is the worst and most extreme example of this.

I must confess that I sometimes observe some of this behaviour in charities or high-impact enterprises.  Let me be clear about what I mean: I have seen actions by charities and impact-driven businesses that, in my judgement, did not adhere to appropriate ethical standards. My reaction to this was sometimes dismay but I have also been downright shocked. On these occasions, I came across a rationale which is like the Blairite one described above. The fact that the aim of these organisations is to enhance society and achieve some positive social, ethical or environmental impact somehow obviates the need for behaviour which is consistent with good governance, proper behaviour and even in some cases the law.

For obvious reasons, I’m not going to go into specific examples. However, I’ve encountered cases where organisations simply choose not to pay bills, or manipulate accounts, or mistreat staff or a wide variety of other actions which, to be frank, I have rarely observed in the private sector. And I used to work for Lehman Brothers!!

Please understand that I’m not suggesting this is widespread or common, and most of the organisations that we work closely with at ClearlySo show a high degree of integrity in the work they do. But I think that because of the sector’s use of the words “social” or “impact” to describe what we do, we must hold ourselves to a higher standard when it comes to ethical behaviour.  The impact of not doing so affects not only the enterprise involved but also casts a shadow over us all. Consider the scandal which emerged last year around charities and their fundraising behaviour towards the elderly which was uncovered in the media, or the widely-reported problems at Kids Company.

Sometimes I do think the higher level of scrutiny, and the higher standards to which charities and high-impact enterprises are subject seem unfair, but that is the world we live in. For example, Baroness Hogg was recently demoted at the Bank of England for failing to appropriately disclose on a timely basis her brother’s role at Barclays. Mark Carney, The Governor of the Bank of England, made it clear that a “one strike you’re out” policy for such “honest but serious mistakes” was not going to apply to all financial institutions, but suggested that considering MPs’ reactions and the Bank’s position, this action had been taken.  We find other organisations being held to high standards because of their ethical or impact orientation—like the Church, for example.

Organisations must not feel their “higher purpose” gives them license to behave without regard to standards.  If they do, it damages themselves and the entire sector.  And an array of audiences is watching carefully and judging.

This blog first appeared in Third Sector on 29/03/2017. 

The benefits of collaboration in impact investment

I recently had the opportunity to give a workshop presentation at the annual SEIF congress in Zurich, Switzerland. SEIF is an outstanding Swiss organisation that helps to develop high-impact enterprises in the Swiss, German and Austrian market and is also building an impact angel network. We at ClearlySo have had the pleasure of working with it cooperatively over many years.

It is therefore not surprising that I was asked to speak about “bringing together different partners to create new models in impact investment”. It felt rather daunting, and I sometimes think that actors in impact investment spend far more time talking about the benefits of cooperation than practising it. However, as it developed, it seemed to me that there were many different types of cooperative or collaborative endeavours and that each worked differently in supporting innovation in impact investment.

The first example I gave I described as “client collaboration”. As observers know, ClearlySo launched ClearlySo ATLAS in December 2016. This is a tool focused on private equity and venture capital fund managers, and it assesses the impact of their conventional private equity investments. The spark for this idea was a conversation with Octopus Investments four to five years ago, which continued as we designed ClearlySo ATLAS. As this was a new product in a new market, we decided to work with the PE/VC community in developing it. In a sense, the end-buyers played a significant role in constructing what they would later buy. ClearlySo coordinated all of this, but the cooperation of client prospects was essential.

Second, I spoke of “partnership collaboration” in the case of the Big Venture Challenge. This was a programme funded by the Big Lottery Fund and managed by UnLtd Ventures. After the first pilot of the programme, UnLtd wanted to improve its effectiveness and contacted three partners: the Shaftesbury Partnership, the Social Investment Business and ClearlySo. Each had a specific role to play and was allotted a share of the programme budget. Our role was to help the more than 100 high-impact ventures to secure external investment, which was matched by grants from the BVC. Securing impact investment is what ClearlySo does, so UnLtd gained access to this expertise at a reasonable price and we delivered our objectives with a combination of existing and new resources.

Finally, the third type of collaboration I would describe as “competitive collaboration” and is a key feature of nearly all impact-investment deals, although I used the landmark HCT quasi-equity transaction as an example. In such deals, each party seeks, as best it can, to get what it wants. HCT is looking for low-cost finance, the end investors (in this case led by Bridges Ventures) are looking for a high return, and we are looking to complete the transaction and secure a fee. If each party pushes too hard, the deal falls through and everybody loses. Everyone needs to work together while pushing for their own interests to get the best possible deal. Such competitive – or even antagonistic – collaboration is the essence of all investment transactions.

In conclusion, collaboration is essential to pushing the frontiers in impact investment, but there are different types of collaboration, and each might be more or less appropriate in different circumstances. In collaboration, there has to be a successful outcome for all – there can be no winner take all, or things speedily unravel, which some of you may know as the “prisoner’s dilemma”.

This blog was first published here for Third Sector on 01/02/2017.

Looking Back at 1848, 1968 and 2016—Three Revolutionary Years

Much has been written about 2016 as it came to an end – it was a year of dramatic surprises, traumatic events, uncertainty, and the deaths of many well-known figures – and it has the makings of one of those years that goes down in history as particularly significant.  Two others, one of which I experienced personally, seemed to rival the year gone by in historical importance—1848 and 1968—and so, for reasons I am not even sure I fully comprehend, I thought to write a bit about all three.  (Note: This is very much a “Western” perspective—but I am very much a Westerner, having been born in the USA).  Initially I had hoped that by analysing and contrasting these three years, I might be able to better understand what is happening today, or even gain some insight into what might come next. Although conclusions seem hard to draw, I hope that some of my reflections strike you, the reader, as worthwhile.  What I have also noticed, for those of you with a particularly numeric orientation, is that all these years are evenly divisible by 2,3,4,6 and 12.  Not suggesting these numerical properties are causal factors, just that this fact caught my eye.  J


1848—The Year of Revolutions and a Yearning for Democracy

Across Europe, the year of 1848 saw a series of unprecedented political upheavals in many countries, especially in Europe and Latin America, with France and the Habsburg Empire (which had been the political centre of Europe for many decades) being particularly affected.  I am not an historian, and I defer to those of you who are, but it seems widely accepted that these uprisings were democratic in orientation following the widespread disaffection of the mass of people with their political leaders, many of whom were the remnants of European monarchic dynasties.  Many failed, some succeeded, but change eventually followed—to put it in the modern context, it had some features of the “Arab Spring” of recent years— often leading to messy, violent and sometimes chaotic attempts of the populace to secure for themselves rights denied to them by the privileged and the powerful.  Their rewards were similarly not immediately apparent, yet change did eventually take place and western societies slowly became more democratic.

Technological advances played a huge part in the spread of disaffection, with the growth of the popular press.  Wide swathes of Europe followed global events to an extent that was previously impossible.  What is interesting, and is a pattern which repeats throughout history’s significant years, is how such media enables the mood of events in one location to spread to/inspire another.  Populations also became even more concentrated, a feature of industrialisation, which further facilitated the rapid spread of ideas.  And ideas directly relevant to the lives of overworked and exploited urban labourers were developed in response.  For example, in February of 1848 Karl Marx and Friedrich Engels published the Communist Manifesto.  The failures of harvests (e. g. the Great Irish Famine) and rapid rises in food prices, suggests nature also played her part in this dramatic year.

Yet things were not bad for everyone—the California Gold Rush began in 1848!


1968—A Calamitous End to Post-war Simplicities and the Liberal Age

As a kid born in New York in 1957, I could easily be accused of overestimating the significance of 1968.  But it was a traumatic year for America, which felt, and still appears to have been, the centre of the industrialised “free world” at the time.  In 1968, the Western world was flooded by Coke/Pepsi, Hollywood movies, Boeing airplanes (the first 747 jumbo jet was introduced in September) and Ford cars, and in the same way global the USA dominated global events.  Also, I came of age—or at least felt I did—that year.

By any standards, it was a massive year, beginning with the capture by North Korea of the USS Pueblo and the lengthy and scary standoff which followed.  However, US involvement in Asia in that year was dominated, as was the entire decade, by the defining conflict in Vietnam.  The “Tet Offensive” began at the end of January, surprising the United States, which in February suffered more casualties than at any other time in the conflict.  The war cost $77 billion in that year ($527 billion in 2016 dollars), the most spent in any single year.  In March was the “My Lai Massacre” of Vietnamese civilians, which, together with the gloomy death toll reported nightly on the news, caused popular support for the war to plummet.  Later that year, in October, President Johnson finally announced the cessation of all bombing operations in North Vietnam.   These and other events eventually forced him to abandon hopes of seeking re-election.

Violence was not limited to Southeast Asia, and hit home domestically with a vengeance.  In April, the civil rights leader Martin Luther King Jr. was assassinated in Memphis.  In June, presidential candidate and Democratic Party hopeful Robert F. Kennedy (RFK) was murdered in Los Angeles (his brother, President John F Kennedy, was killed in November 1963).  At that time, RFK was looking likely to win the nomination of the Democratic Party (putting him on a path to challenge Richard Nixon in November).  The Democratic convention, in Chicago, was famously marred by violence as police (apparently unprovoked) attacked protesters, sending over 100 to hospital, and arresting many more.  This politically tinged clash took place as “race riots” flared up in cities like Newark, Baltimore, Washington DC, and Los Angeles, partly in response to the King assassination.

Civil rights were a key theme of 1968, as the Olympics saw runners Tommie Smith and John Carlos gave their famous “Black Power” salutes causing immense controversy.  America had become a violent and divided nation—or at least these long-established divisions came to the surface and into our living rooms, courtesy of Walter Cronkite and other respected news “anchor-men”.  Racial division was not only limited to the USA as in April, British politician Enoch Powell delivered his “Rivers of Blood” speech.  Violence was also not a US monopoly—riots spread to London, Berlin, Rome and, most spectacularly, Paris. The “Troubles” also began in Northern Ireland as Catholics protested over inequality in housing provision, eventually sparking the first Civil Rights march there in August.  Ideas spread globally, as did action, as downtrodden groups took inspiration from what they saw as their international “brethren”.  Whereas 1848 saw revolutionary fervour was spread by newsprint, the spirit of 1968 was disseminated by the cathode ray tube—the images of bombing in Vietnam and major cities ablaze entered our living rooms—and I recall these images vividly.

1968 also saw the hopeful “Prague Spring” eventually crushed by Soviet tanks in late August, with the Soviet invasion of Czechoslovakia.

But 1968 also struck some hopeful notes on issues such as race and women’s liberation.  Star Trek aired America’s first interracial TV Kiss (between Lt. Uhuru and Captain Kirk).  Yale announced it would admit women (it is shocking that this was not the case until 1968) and several groups launched targeted protests against the Miss America Beauty Pageant.

It was also the year which saw Apollo 8, a manned spacecraft, orbit the moon and rock music took the world by storm.  The Beatles formed Apple Records that year, filmed the Yellow Submarine and launched the famous “White Album”.  Arlo Guthrie, for the first time, performed “Alice’s Restaurant”, a song with strong anti-war messages, at the Newport Folk Festival.

In summary, it was a year when nations divided and clashed, and we saw nearly all of it on TV.  For me, the year seemed to be:

  • The end of the post-war era.
  • A year when the prosperity enjoyed since the early 1950s started to come to an end.
  • A time when socially conservative norms of nations, around race, gender, religion, sex, drugs and music were challenged.
  • A moment when a Liberal agenda came into focus, which advocated for loosening restrictions on how we as individuals could behave in our private lives.
  • A point in time when the spirit of individualism came into focus, in accordance with the promise of the US Declaration of Independence of, “life, liberty and the pursuit of happiness” for all.
  • A year when this “happiness” was seen, in part, to be measured by the individual prosperity achieved—and that freedom to further individual prosperity had come to be seen as a vital component in the development of liberal democracy.
  • The moment when liberalism, democracy, and capitalism were seen together three intertwined and key bulwarks against the feared spread of global communism.
  • But a year when, despite the fear of the Soviet Union and its ideology, popular support for an ongoing military Cold War came to be questioned, as did the US permission to act as global policeman.

Interestingly, although many of the notable actions and developments were inspired by the left or progressive forces, they were met with a resolute reaction from the conservative forces of the right, and nowhere that I can remember did the political left emerge.  When I consider the direction of the protests, the art and the songs of the era, it is striking what followed.  George McGovern was badly defeated by Nixon, who won over 60% of the vote and every single state except Massachusetts and the District of Columbia.  In fact, nowhere in the major western countries did a radical left wing alternative emerge.  The UK saw Harold Wilson and Ted Heath trade places, Germany was run by Willy Brandt and Helmut Schmidt and France by Pompidou, Giscard d’Estaing and Mitterand.  The “Empire” was challenged by the 60s, struck back, and came out clearly on top.  Not very different from 1848.

But at the same time there were also important progressive changes in social policy—especially in areas like civil rights, gay rights, and gender-based issues—despite politicians who were rather ill-suited to implement these.  However, it was certainly not the dawning of the “Age of Aquarius” for which some had hoped, and sung about.


2016—Shock, Awe and a Changing of the Guard

It is far too early to assess the impact of the wrenching changes in 2016.  We shall come to the electoral events below, but one of the key aspects of the year as it unfolded was the death of so many of our heroes—the heroes of this “Liberal Age” which began in the 1960s.

I think this is best exemplified by the death of Muhammad Ali, whose life embodied so much of the aspects of the section above on 1968.  A black man, an African-American, a convert to Islam, a championship boxer, a poet of sorts, a challenger of the obligation to go to war in Vietnam (and went to jail, in his prime, because of his convictions), an astute user of the medium of television—and perhaps the greatest sports personality of all time.  This is not to denigrate Arnold Palmer, who was an excellent golfer, had a dramatic impact on the sport, and also died this past year, but Muhammad Ali shook and shaped the world.

In music, which may well have been the art-form-of-the-era, there were many important deaths.  David Bowie and Prince Rogers Nelson (Prince) challenged sexual norms and were among the greatest rock musicians of all time.   Sexual issues also were important in the illustrious career of pop musician George Michael.  A host of other musicians, including Leonard Cohen, passed away in 2016.  The importance of pop/rock to those of my generation, and the fame these performers achieved, helped to mark an already momentous year.

The other monumentally significant death was that of Fidel Castro, the communist thorn in America’s capitalistic side for over half a century.  His death, perhaps more than any other, at least from a political perspective, marks the end of an era.

But surely what sticks out in any analysis of the events of 2016 was the long string of political surprises, as it seemed as if nearly every single key democratic plebiscite went exactly in the opposite direction to the way the pundits expected and to the way the “Liberal Elite” had hoped.  The first domino to fall was the UK’s Brexit vote on 23 June.  Days before the vote odds in excess of 5-1 were available to those courageous or insightful enough to bet on “Leave”.  Even on the night, well after the polls opened, despite the sense that “something was going wrong”, foreign currency markets and betting odds persisted for a long time in signalling a “Remain” victory.  Financial markets and their participants seemed to be in a state of denial.  Such a pattern was repeated in the shocking upset in the US Presidential election—which was odd given that the mood of an angry electorate was clearly in the air and Donald Trump was on a roll.  Odds of 4-1 were available days before the election and it was late in the night when Trump became the betting favourite.  Matteo Renzi, the former Italian Prime Minister lost his constitutional vote and in Colombia, citizens voted down a peace agreement with the FARC guerrillas that took years to negotiate—democracies were observing their electorates becoming stroppy, unpredictable, anti-elitist and vengeful.

The other thing that marks 2016 was the fact that this became the revolution spread by social media—what newspapers were for 1848 and TV was for 1968, cyberspace was the way in which ideas and images spread in 2016.  Twitter, Snapchat, Facebook, Instagram and other sites did not cause anything, but facilitated ideas and moods to spread like wildfire.


Conclusions—maybe a few

At the top of this piece I made the point that it was very difficult to draw any conclusions from the short summaries of the three years above.  Now, as I often do, I will summarily ignore my own advice, and attempt to draw out a few points of interest—at least to me:

  • After revolutionary years, the empires do strike back—and normally win. They have the power, the resources and all the old cards are stacked in their favour—but as the years pass, the hard-fought-for changes often materialise.  Frequently, there is a difference between political change—which may or may not even take place – and social change, which can be immense, although frustratingly slow.
  • Substantial changes in the media (from printed press, to TV, to social media) can facilitate revolutions. They do not cause them, but innovations clear the path for revolutionary ideas to spread.  In all three years, radical ideas spread across borders likes flames in a raging fire—like-minded souls are the tinder in an ideological conflagration.
  • In some senses, the “Revolution of 2016” can be said to have begun in the Middle East in 2010, when Mohamed Bouazizi (in Tunisia, on 17 December) set himself ablaze in despair at the state of corruption in his country and the ill-treatment he suffered. This triggered the “Arab Spring”, which spread into over a dozen other countries, the consequences of which are still being felt.  I have not cited 2010 as my third year, not because it lacks the properties of numerical divisibility of 2016, but because this is a story about “the West”.  Citizens in Western countries have taken longer to rise up—it could be lack of courage, having more to lose, living in more established democracies or a host of other explanations, but the dynamic is similar, and is a function of the fact that………
  • ………the issue of our age is the “haves versus the have-nots”. Arabs rebelled against rulers whose corruption filled them with rage.  The elites’ pockets seemed to be lined with the wealth of the nation, and the grotesquely unequal way it was shared was no longer acceptable, especially with the majority suffering in a terrible state.  I see the same pattern and fundamental reality in the West.  The pathways to inequality may differ but the affect is the same—fewer people getting much, much richer, while the lives of the many become poorer, more uncertain and more miserable.  So far, Western citizens have resorted mostly to the ballot box to express their anger, but this may not last.  African-American rage at police shootings in the United States surfaced during 2016, and became violent.  This may not have ended in 2016 and the anger may not have surfaced solely because of racial division.  The dividing lines are also multiplying: rich vs. poor, old vs. young, homeowners vs. renters, immigrants vs. the “entrenched”, savers vs. borrowers, urban vs. rural, cosmopolitan vs. nationalist, educated vs. uneducated, elite vs. the rest.  Across the West, societies are bitterly divided, with many 50/50 splits (the Brexit vote, the Trump election)—this is before we start going into ethnic, religious, and other sources of division.
  • Racial, ethnic and religious strife has been a feature of the revolutions of each of these years, but I do not believe that this sort of tension is the cause of any of our conflicts. I just think that when things turn ugly, political leaders and others with malicious intentions prey upon such biases to achieve their aims.  This was evident in the Trump victory, it was there in the Brexit vote, as it was in 1968 and, from what I have read, in 1848.  Sadly, I fear that it will always be with us—a dastardly lever for the malevolent to pull when the time feels right.

Irrespective of the gloomy sound of much of the above, I feel the broad overarching thrust of history is progressive (yes, I am ever the optimist).  Long term changes have been and will be towards the good, even if established powers use all means of treachery to thwart progress.  It is odd indeed that folks like Boris Johnson and Donald Trump became champions of the angry citizens who felt let down by their leaders, but the hero of the proletariat, Karl Marx, was very far from working class.  History has a sense of humour.

All the best in 2017!!

Reflections on the Death of My Dear Friend, Mentor and First Boss: Jack Rivkin

I learned just a few hours ago that a dear old friend of mine, Jack L. Rivkin, passed away two days ago—on Election Day in the USA.  Each of us grieves in a different way—as an ex-analyst, the way I tend to come to terms with things is by writing about them.  I only ever became an analyst because of two people who, against all evidence, had faith in me—and one of them was Jack.  The other was a woman, who I do not think would be at all offended if I said that no single person has had as much impact on my professional career as Jack—I will miss him immensely.

I read the brief statement announcing his death put out by his recent employer.  It seemed so limited that I felt especially driven to write something which brings to life this extraordinary character and human being.  Much of what I could say about him is personal—of great interest to me—but of no interest to most readers.  I also feel especially compelled to write about something positive—particularly in these gloomy times.  So, permit me to indulge myself with a few paragraphs about this exceptional man and offer, from his life, some bright spots amidst the all the darkness.

Jack was “intellectually curious”.  In truth, I rarely used the expression until I met him, but have probably overused it ever since.  He had that childlike wonder about so many things.  Those of us around him, found his curiosity infectious.  It helped make him a top-flight investment professional, of course, but describing him as such misses the unique point of the man.  That he rose to senior levels at several firms is true, but is a one-dimensional view of someone with many facets, driven always by the passion to listen, to learn, to question, to challenge, to understand and to go beyond.  Meetings with him would always start late and run way over—he could sit and chat endlessly about a topic and was unperturbed by the consequences.  In these anti-intellectual times when complexity is avoided, discussion and enquiry replaced by soundbites and facts rendered irrelevant, Jack’s passion for knowledge, truth and understanding help me to remember much better days.

Jack was gender-blind.  At a time when Wall Street had hardly any women, Jack hired them in abundance.  In fact, as I recall, well over 1/3 of the Research Department for which I worked was female.  And this department became top-ranked on Wall Street, winning many awards.  Jack had taken a team which was barely in the top ten and turned it into the best by far, eclipsing larger and better-funded teams at such Wall Street heavyweights like Merrill Lynch and Goldman Sachs.   This was the subject of one of Harvard Business School’s most popular case studies, “Lehman Brothers: Rise of the Equity Research Department” in 2006.  Inspiring management was a factor, but I always felt his “secret sauce” was that he valued people on their merit—other factors were not of concern.  This was felt not only by the women in the department, but by everyone.  And he was indifferent to the puerile and predictable attempts to undermine what he had built.  Given the recent election and the attitudes revealed, Jack’s humanity and respect for all provides a striking contrast.

Jack possessed courage, as is partly evidenced by how he built his department.  He also was able and willing to speak truth to power—and did so, often suffering the consequences.  Had he played the game at Lehman, where I worked, I think he could have come to run it. I am also of the opinion that had this happened, the firm would not have gone under.  This is particularly significant given that the collapse of that firm nearly brought the global financial system down with it.  But my impression was that those running the firm feared his intelligence, his competence, his integrity and his increasingly well-regarded success across the firm.  He simply had to go.  Jack not only stuck to his principles but was also principled in his work.  This was much less rare in finance in those days but it was definitely uncommon.  I hardly need to draw the comparison again with modern times.

Finally, Jack was a real person.  He had an engaging smile, played very competitive tennis, loved green pens, co-authored a book, could admit when he was wrong, was genuinely liked and admired by those who worked for him, enjoyed young people (always a good sign), wrestled at university, enjoyed life, was true to himself–intellectually honest as well as curious.

I shall miss him greatly and will remain forever in his debt

Does profit with purpose offer something unique?

I have been involved in the area of impact investment since 1999, and during that time there have always been passionate debates about philosophy, politics and money. One of the most recent of these is the debate over the “profit-with-purpose” business and its growing relevance.

For the uninitiated, PWP companies operate like normal businesses, except, crucially, they are values driven. This can be a function of a “mission-lock”, statements a company’s constitutional document, or its more informal mission statement – something that means the business is not just about profit-maximisation. Various bodies have differing views regarding how firm and explicit such statements need to be, but they are distinct from the regulated “social enterprises” which, for example, receive favourable tax treatment under Social Investment Tax Relief.

I am not sure exactly why PWP businesses are suddenly in fashion, but I have several theories. First, I think the pool of capital available for investing in organisations which are destined to deliver sub-market returns is limited. This constrains the growth of impact investment overall. In the US far more deals are transacted and these are in the PWP space. There is also the growth of BCorps – private companies that meet social, transparency and accountability standards – globally, which is very American in its origins and this mentality is spreading. Big Society Capital’s investment criteria are partly set by its founding Act of Parliament, which restricts its capacity to back intermediaries that support PWP businesses. I sense BSC straining against these limitations, which threaten to hamper one of its key goals: the overall growth of impact investment in the UK.

In the interest of transparency, I should note that ClearlySo and its predecessor, Catalyst, have supported PWP businesses since 1999 and have never seen much point in arbitrary restrictions – for example, a maximum permitted dividend pay-out ratio – as the arbiter of what is and is not impact investment.

But opposition to the drift into PWP businesses has some sound philosophical bases. There is a deep-seated fear that the “values of the market” will encroach on the more values-driven impact investment world and change its nature. This view has been well-articulated by commentators such as Dan Gregory and David Floyd. The three-dimensional investment world that ClearlySo regularly advocates – where investors consider risk, return and impact – is still different from the existing mainstream where only risk and return matter. If we lose that difference, the movement for values-driven investing has lost.

I think the debate is also about money. Traditional third sector organisations, especially charities and the more tightly-controlled social enterprises, fear that PWP businesses will crowd them out in terms of investment. This is especially true with regard to the £600m which is under the control of BSC. The third sector sees that money as very much theirs – seeing any encroachment by PWP firms as a threat. I see their point – to see this BSC pot seep away into what are perceived as more mainstream businesses feels threatening.

While I can understand their position, on balance I support the expansion of PWPs. Despite some market values creeping in to impact investing, I believe that the only way to address the scale of social problems we confront is by encouraging mainstream capital into impact investing; seeing the investment world from the 3D perspective mentioned above. Many new innovative models will be supported and tremendous social, ethical and environmental impact will be generated. Traditional charities may indeed lose some of the BSC-backed investment that would have been headed their way, but the £600m, even when combined with matched funding, was never going to be enough to offset the effect of austerity.

This blog was first posted on Third Sector on 28/10/16.

The next step in payment by results

Whatever one thinks about social impact bonds, the payment-by-results mechanisms they have helped to facilitate have massively transformed our approach to public service commissioning. There is still much potential ahead for utilising these tools. They are almost impossible to find fault with, if done properly, as it is outcomes, rather than inputs, that matter to voters.

Public debate centres on spending in priority areas, such as health and education, because we believe that spending and outcomes are positively correlated. If we could have exactly the same outcomes in a way that is cheaper, thereby requiring less taxation, who could possibly object? In the ridiculous case that root beer was found to cure dementia, few would suggest we find a costlier route to demonstrate the seriousness with how we feel about dementia. The money saved could be spent on other priorities or permit lower taxation or debt repayment.

The beauty of such schemes is that everyone seems to win. Society is better off, by virtue of the societal intervention, but the taxpayer also wins because money is saved by the public purse, as only effective interventions are rewarded. In this way, ineffective methodologies are weeded out and those with better ideas, skills, or both, will replace incompetent, expensive and inefficient providers. Politicians also win because scarce resources are diverted towards achieving outcomes citizens desire, which in theory should lead to happier voters—a good thing for vote-seeking politicians.

Bureaucrats and politicians in all parties, in my opinion, have been far too cautious, perhaps irresponsibly so, in the pace with which such PbR schemes have been implemented. They tend, for example, in many of the SIB structures, to cap investor returns or share out only a portion of the savings. Why not be more generous and encourage far greater investment? There is also bureaucratic resistance to the new and a preoccupation with precise monitoring, which can be very costly to implement—on many occasions, this undermines the process and creates deadweight loss. Might there not be opportunities for considering less costly and maybe somewhat less rigorous oversight? I sometimes feel our search for the perfect is undermining the good.

The area that worries me the most is where measurement is hard or even impossible and where there is no direct spending that is reduced, but societal need is great. HCT, for example, is involved in projects that assist disabled young people to use public transport. There can be cost savings in that local authorities are thereby freed of the responsibility to have these young people driven, but what if there were no cost savings to be achieved? Would not the sense of self-actualisation and independence these youngsters achieve because of this training be worth the investment? Would not society be better off, even if there were no financial savings to the Treasury?

I am certainly not arguing that programmes, which save the Exchequer funding, should not continue. Far from it, they should be accelerated. In these cases, society’s improvement is bettered directly, through the impact and outcome, and indirectly through cost savings, which can presumably achieve impact elsewhere. However, the focus on such areas alone is suboptimal. I recognise that our national accounts mind-set makes this a challenge, but many have developed more all-encompassing metrics and some countries, such as Bhutan or Costa Rica, already use them in policy implementation. Also, just because something is hard to measure, does not mean we should not try to do so, especially where the welfare of the nation is at stake.

The article first appeared in Third Sector on 28/09/16.

How to Define Social: Or, the Best Little Whorehouse in Amsterdam


One of the questions I am most frequently asked is how ClearlySo defines what is socially impactful, or not. This is not a question of measuring impact but simply what does and does not count as an organisation which generates social or ethical or environmental impact. I have answered by saying that we define it as other people do.

I do not believe it is our role to define this for others. We are a “taker” in the decision-making process. Our definition of what counts and what does not is heavily determined by the opinions of others (especially investors) and these views are highly subjective.

ClearlySo’s first ever fundraising client is a firm called Belu Water. At the time they marketed themselves as the “carbon neutral bottled water company”. The founding entrepreneur and investors behind it (these included Gordon Roddick and The Big Issue) convinced us that the company generated important social impact and we took on the mandate— this was about 10 years ago.

To some observers the very notion of an ethical bottled water company seems absurd. If you really want what’s best for the environment, they would argue, why not just drink tap water? Belu would respond, and it was a response we agreed with, “that people are going to drink bottled water anyway, so is it not better that they drink our water instead of somebody else’s?” We thought and continue to think there is a lot of merit in this point of view (although others disagree) Belu Water continues to be a respectable firm in the field of ethical consumerism. However, this story underscores the point that what is social or ethical and environmentally impactful to one individual may not apply to another.

We found this also with a Thailand-based enterprise we work with many years ago called Cabbages and Condoms. This was an organisation focused on reducing the spread of sexually transmitted diseases in Thailand. It raised funds through a host of activities and from a campaigning standpoint sought to make condom use and sex funny and thereby more widely accepted in the Thai market. Many more conservative Thais were outraged by this sort of activity whilst others applauded its successful penetration of the market and its clever use of humour. The enterprise won many awards.

The range of enterprises we work with at ClearlySo pretty much spans the entire scope of economic activity in Britain. We work with companies in health, education, transportation, property, technology, consumer goods and many other fields. I used to say that defence is probably the only sector where we were unlikely to have any clients but some years ago wrote a blog piece speculating on what a “social enterprise army” might look like (does anybody know where this piece is—I cannot find it). It was meant as a thought piece, and in that regard felt a very useful exercise. I think the answer to the question of what is and is not social is also heavily determined by the culture in which organisations operate.

For all these reasons I was particularly interested to read about a new fund in the Netherlands which has invested into what is effectively a cooperatively owned prostitution business in the red light district of Amsterdam. reported that the Start Foundation, an organisation operating out of the Netherlands, has taken a stake in four buildings in Amsterdam’s red light district and will rent these out to a new business called My Red Light, which describes itself as “the first sex company in Netherlands and Europe in which sex workers have control”. Some will be appalled by this use of impact investment, whereas others will take the view that this sort of thing happens anyway and better that sex workers are able to look after themselves, have control of their destinies and reap the benefits of their labour instead of those who would exploit them. Certainly within the Dutch context such a business idea seems perfectly reasonable and an appropriate impact investment. Less controversially the Start Foundation has also invested in a shrimp processing plant for workers with mental disabilities and an IT company focused on employing people with autism.

There is no getting around the fact that what is social to one person might be “the root of all evil” to another. Consider, for example, what different groups will think of an investment in a locally owned organic producer of whiskey. We come across such companies all the time and the debates are challenging but also entertaining. This is the tricky domain you enter in impact investment.

The title of this blog is a play on the title of the
hit musical “The Best Little Whorehouse in Texas” that opened on Broadway in 1978.


Are the goalposts starting to shift on corporate tax?

At the end of August, we learned that the EU ordered Apple to pay a record EU13 billion in back taxes, as it determined that deals with the Irish Government allowing the US company to avoid taxes were illegal. This follows on from EU decisions in October to charge both Starbucks and Fiat EU30 million each, which it claimed was payable to the Governments of the Netherlands and Luxembourg, respectively, utilising similar arguments.  Both Apple (unsurprisingly) and the Irish Government were expected to challenge the decision, but it raised the stakes in an ongoing battle over fair taxation.

Interestingly I have not found that anyone is claiming that any of these firms engaged in criminal activity.  It seems to be accepted that all three operated within the law, but the law has been judged to have been unfair, or unfairly applied.  I am certainly no expert on such technical issues, but this struck me as an interesting development—especially given the amounts involved and the high profile nature of these companies.  The EU was stepping in and exercising its authority over national governments to strike deals.  One wonders about the January 2016 deal struck between Google and the UK’s HMRC, wherein Google agreed to a settlement of £130m for past tax liabilities.

In any event, a related news item caught my attention yesterday.  On the front page of yesterday’s Fund Management section of the Financial Times it was reported that Legal & General Investment Management, the Local Authority Pension Fund Forum (representing 71 public pension funds), Royal London Asset Management and Sarasin Partners signed a letter to Eric Schmidt, (the Chairman of Alphabet, Google’s parent company) which raised concerns about the company’s tax arrangements.  What was interesting was that the letter did not challenge the legality of such arrangements or ask if avoidance (which is legal, as opposed to evasion, which is not) was being practised, but if the Chair had “…properly considered the implications for brand value and your license to operate in society”.

This seemed eye-opening to me.  A group of investors was questioning the wisdom of arrangements which, though perfectly legal, might put the company’s “license to operate” at risk.  With a market capitalisation of well over $500 billion, these investors see a great deal at stake in any challenge to this license, and have calculated (without too much sweat, I imagine) that what is at risk greatly exceeds the few billions of taxes that might need to be paid.

Companies involved may see this as an unfair “shifting of the goal posts”, and in one sense it very much is.  What has shifted is the willingness of society to allow large and successful companies to avoid paying the taxes societies deem to be fair.  Where national governments have been reluctant to act, often beholden to powerful international firms, supranational organisations (like the EU) or groups of shareholders are beginning to take action.  They are doing so implicitly at the behest of outraged citizens, perhaps even in part to avoid circumstances where these same citizens wind up taking direct action to vent their rage, for example, by possibly boycotting of the products of companies whose tax policies are deemed overly aggressive.  This would constitute an effective termination of such a firm’s “license to operate”, but one that would be enforced by the power of the marketplace and not via governmental regulation, as is normally the case.

Up until this point we have argued that the increasingly important third dimension to investing (impact, instead of just financial return and risk), which underpinned the development of impact investing, was predominantly a reflection of externalities, where hidden costs or benefits to society bubble up to the surface.   Where companies use completely legal means to avoid paying taxes but free-ride on the economy available to all has not been something we considered as part of this equation previously, and it certainly did not seem on the agenda of investors, whom it was felt implicitly encouraged minimising taxes paid.  It now seems we should, and will.  Times are most definitely changing………

Is the government downgrading impact investment?

On face value, the decision to move the Office for Civil Society from the Cabinet Office and into the Department for Culture, Media and Sport is a bit puzzling. Which bit includes us? Are we part of culture, media, or sport? It is hard to say but, in this regard, government is similar to the corporate sector. Things and people have to report to somebody, somewhere and cannot expect what they do to be in the title of the division. Secondly, Karen Bradley, the new Culture Secretary, might turn out to be terrific. At this point, one simply has no way to judge.

From what I have read, the charity and social enterprise sectors are in uproar. about the move. I suppose some of the consternation stems from the fact that we were very much the darling of government, and now feel, well, a bit jilted. Three successive governments (Labour, the coalition and the Conservatives under David Cameron) devoted a great deal of attention to the third sector and impact investment.

For Cameron, this was one of the centrepieces of his big society programme and seen as a critical path in delivering positive social outcomes in fiscally constrained times. Our sector has been subsequently subsidised, championed and the subject of unrelenting ministerial love. This was capped off in making our area a centrepiece of the recent G8 summit in London a few years ago. The global social impact investment task force sprung out of this and its work continues.

But this highlights the risk of too close an alignment to any political party or individual. When they are replaced, as is inevitable, the factors that brought the sector into favour will work in reverse. What is clear is that the new Prime Minister, Theresa May, is establishing her own legacy and those programmes that are seen as ideologically close to her predecessor might be in jeopardy.

What many fear is that the largesse that has been lavished upon the sector will cease. I do not speak here of the charitable sector, which is potentially facing a serious crisis and in which I have very limited expertise, but the impact investment sector.

For the impact investment sector, I have some reservations, which I have expressed publicly, about the extent of subsidy we receive and its distortive implications. In a number of programmes, I observed it driving behaviour and not facilitating it — an important difference. I have also been a long-standing critic of tax credits for impact investment, believing them inappropriate at a time of severe fiscal constraint, especially as they predominantly benefit the wealthy.

I do, however, see a silver lining for the sector; one which stems from my deep-seated belief that impact investment and the values-driven enterprises it supports stand on their own merits. High-impact enterprises can benefit from lower cost of labour and capital, higher prices for their products and high visibility. They generate substantial positive externalities which governments, one way or the other, are going to need to pay for, and increasingly will pay for as commissioning shifts to outcomes-based systems. Investors, corporations, and consumers value the positive impacts these enterprises generate and this is increasingly being incorporated into their investment and purchasing decisions. Maybe now impact investment and social innovation will flourish, not as a pampered child but as a great idea whose time has come.

First published in Third Sector on Tuesday 23rd August 2016.

Russia, Rio 2016 and the Danger of Exclusion

The Olympics officially open today in Rio de Janiero.  Whilst political and economic turmoil in Brazil and the outbreak of the Zika virus have overshadowed and at times even threatened these games, the first ever in Latin America, a more recent cloud has been the Russian athletes and the reactions of various authorities to apparently proven allegations of state-sponsored doping.  In the UK, many have clamoured for the banning of the entire Russian team, as a means of “getting tough”, “cracking down” and in varying terms, acting in a way which will discourage others.  Banning is the ultimate sanction we use in such circumstances – short of violence.

When I had the privilege of attending the Lisbon meeting of the Global Social Impact Investment Steering Group (GSG) a few weeks ago, I was reminded of the meeting I also attended of the G8 Social Investment Task Force Plenary (G8 SITF) in London in July 2015.  On both occasions I found myself asking, “Where is Russia?”  As they are a member of the G8, I was always bemused by the fact that somehow Russia was out and Australia was in.  Nothing against Australia, mind you, but the G8 is the G8!  Now I have no idea why Russia was not there – asked a few people who seemed not to know.  It is quite possible they were invited and did not attend of their own accord.

What was impressive was that many new countries were involved in the 2016 meeting in Lisbon – Mexico, Portugal (the host), Israel, Portugal and India.  The world of impact investment, and in general, is enriched by the inclusion of many differing voices, and these five added a great deal to the meeting.  Russia’s absence disturbed me, whatever the explanation.  A world where pariah states come to exist, even if their behaviour brings it on themselves, is less appealing to me than one in which all countries continue to meet and we endeavour to improve behaviour through engagement.

Another absence from the two meetings was any country with a predominantly Muslim population.  I myself would have particularly welcomed hearing an insight into how such countries are approaching impact investment.  In particular, I would be keen to see how Sharia Law impacts on the funding and enterprise models.  Again, I do not know how many were invited to join and what efforts were undertaken in this direction.  But, in a world where western anti-Muslim feelings are increasing, in part as a reaction to atrocities linked to those claiming religious inspiration, I feel it is important to work doubly hard to engage.  A positive force, such as impact investment, could become a key bridge between communities, acting in a useful way to counter-balance the forces of exclusion, anger and hostility.

This is why I am delighted that 70% of Russian athletes (over 270 according to the BBC) have been allowed to compete in the Brazil Olympics, despite state-sponsored doping.  It might even be the case that some crooked athletes compete and win.  But against that, it also means that innocent Russian athletes are not penalised so the “international community” can make a point at their expense.  And overriding all of this is my strong desire to act against what I see as global entropy – where all around the world nations seem to be pulling apart, vigorously acting against each other in pursuit of their narrow interests.  Having a first Latin American Olympics is, by contrast, a positive act against entropy – by bringing a unifying global event to a new stage.

I think that impact investment can and must play a role in counteracting this worrying trend.  As the leading forum in the global movement I am hopeful that the GSG moves to engage, broaden and further diversify its membership base.  The stakes are high.

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