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

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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

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Nauseous in Davos: The Philanthrocapitalism Debate, Part 2

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Earlier this month I vented on the World Economic Forum in Davos, and in particular, on a session on the topic of “Philanthrocapitalism”.  Tony Blair and Bill Clinton were present and their photograph topped an article in the Times newspaper.  This post touched off a series of comments and counter-posts, some of which can be seen attached to the original from 5 February 2009 and was followed by a video.  I would like to reply to all of these, but owe my first reply to Matthew Bishop who, together with Michael Green, wrote the book and coined the term.  Matthew’s counter-blog can be seen here – as ever it is clever, but evades my key points.

He addresses two “serious” points I make in my first blog post.  The second is clear and I will address it shortly.  I cannot be sure which is the first point he is challenging.  If it is that I “dislike” his describing Clinton and Blair as philanthrocapitalists, fair enough.  But its not a question of what I “like”.  He and Green coined the ghastly phrase and can use it to describe anybody they please.  But the sort of people they provide in the book as examples of philanthrocapitalists are not like Blair and Clinton–they are entrepreneurs who are turning their skills to resolving social problems.  Thus based upon the Bishop/Green model, Clinton and Blair do not seem to fit.  But then it seems like Bishop accepts this point and he goes on to say these two are actually “celanthropists”–celebrity philanthropists.  As a wordsmith goes, Bishop is a genius–but he seems to accept the argument originally made.

If the first point Bishop objects to is that I have “no time for politicians in general”, well, that is not what I feel nor what I said in my posting.  This challenge is therefore puzzling.  If it is that I blame “economic policies pursued enthusiastically by Clinton and Blair for the current mess”–well yes, I certainly do.  But Bishop here seems to agree.  Matthew–please help me here!

The second point Bishop attacks is the more substantive.  I argue that the power of philanthrocapitalists derives from their influence over the much more substantial purse strings of givernment.  Here Bishop retorts that he sees “opportunities to leverage corporate and non-profit budgets, too”, but cleverly side-steps the main thrust of my point.  I argue that for these philanthrocapitalists to carry such influence is simply undemocratic–and on this point Bishop is silent–I think understandably.  And when he and Green speak of leverage throughout the book it is mostly with regard to government, not the corporate and non-profit budgets he mentions in his post.

He goes on to say that “Schwartz is actually a big fan of the vigorous support for social investment provided by the British Labour government”.  This is not the case–my views here are a matter of public record and elaborated in another post entitled, “Oooh, Lots of Lovely Government Money”.  I have been a staunch critic of this trend but must accept that recent Labour Governments have been serious about assisting the social sector–it is not however clear how helpful their assistance has been or will continue to be–but that is another story.

Jessica Brown, of Tellus Mater, (previously with NEF) and Peter Wheeler, a Trustee of New Philanthropy Capital (ex-Goldman Sachs) also make some excellent and thoughtful criticisms.  I hope to be able to reply to these in the coming days.  For observers who are more keenly interested in the subject of Philanthrocapitalism, I can recommend a pamphlet by Michael Edwards, of the Ford Foundation, who writes under the auspices of Demos and the Young Foundation in “Just Another Emperor: The Myths and Realities of Philanthrocapitalism”.  All of these are best described by what Bishop and Green refer to as “Friendly Fire”, the typically clever title of their reply post.

Let’s face it – we are all trying to advance a cause – and there is much more that unites us than divides us.  We seek to develop more entrepreneurial approaches to solving social, ethical and environmental problems, and our debate is about tactics and strategy – not direction.  This should not diminish our fervour to engage in a vigorous debate as it is only through this interchange in the “marketplace of ideas” that the wheat really can get separated from the chaff (to quote Wheeler).

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Philanthrocapitalism and Davos Make Me Sick!

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My reaction was one of (nearly) incontrollable nausea. A colleague showed me yesterday’s article in The Times on Philanthrocapitalism and the scene at Davos (the World Economic Forum) and I nearly lost it. Right at the top of the article by Matthew Bishop was a photo of ex-Prime Minister Tony Blair watched admiringly by a thoughtful looking ex-President Bill Clinton. What is so wrong with this picture, Matthew Bishop’s article and the entire notion of “Philanthrocapitalism”, a concept he publicised in a recent book with the same title?

First, a reflection on Davos and the World Economic Forum. Reportedly, the great and the good have been rather down and depressed this year. Their numbers have dwindled despite the good skiing and they are worried about the state of the world, and searching with their peers for solutions to our global economic problems. I am struck with dis-belief with the apparently unlimited extent of their smug arrogance. It is these very men (and yes, they are mostly men!) who are singularly responsible for the mess we are in. Blair and Clinton in particular presided over the massive accumulation of debt, reckless deregulation and disproportionate and unbalanced boom in our economy which brought us to the precipice. That they and their ilk imagine that they have anything to say that might be helpful in sorting things out is absurd. In another time they would have been thrown in the dungeon or perhaps beheaded. It is a powerful statement of our state of affairs that they continue to be so feted.

And what about Philanthrocapitalism? This unfortunate term, was coined by Matthew Bishop and his co-author Michael Green in a book with the same title as the Times’ article – “Philanthrocapitalism: How the Rich Can Save the World and Why We Should Let Them”. It describes a phenomenon wherein the rich and super-rich are “showing the way” in how philanthropy should operate, utilising their entrepreneurial skills (yes, and some of their capital) to make a difference.

As a persistent advocate of the concept of deploying entrepreneurial models to solve global problems, which is what social business, enterprise and investment is all about, I wanted very much to like the book. I have heard Matthew Bishop speak and found him engaging and I must confess the book is a good read and well-researched. But the concept has many fundamental flaws and I have been intending to post on this subject for some time–I would welcome feedback from readers on this as well.

The main flaw I will touch on in this post is based on Matthew Bishop’s concept of “leverage”. He rightly points out that however rich the wealthy are, their billions simply do not match the trillions available to government. Thus the (the rich) seek to “lead by experiment”. When they have “proven” that a model works for solving some social problem works they use their “influence” to get governments to follow in scale. This seems fine in theory, but there are some questions which need to be raised.

First, can we be sure that the assessment of the success of these experiments will be truly fair and objective and that the “influence” of these philanthrocapitalists will not overwhlem judgement? I doubt it. Second and more fundamentally, does such a process, very much like Davos and the World Economic Forum, not merely amplify the voice of those who already have an overwhelming influence on government policy and expenditure? And let’s face it, the evidence is not very encouraging that they have used their influence very effectively–do we really wish for them to have more?

I applaud the entry of entrepreneurial approaches into the social realm. I think it is long overdue. I am also delighted by the fact that business itself is becoming increasingly “social”. The disconnect between the pursuit of profit and the pursuit of the common good has become too great and has been a major contributor to our current crisis. I would prefer that these successful industrialists were to concentrate on making their businesses more social, or creating new social businesses. Such acts are more likely to tap into what is most remarkable about these men than a foray into these new fields.

Where Matthew Bishop sadly loses much credibility is when in the Times article he describes Clinton and Blair as “politicians-turned-philanthrocapitalists”. Such a fawning statement beggars belief. It is true that both were politicians. It is also true that they are very much capitalists, and perhaps even giving some of their rapidly increasing wealth to charitable causes, which is great. But to use the term he coined for great entrepreneurs, wealth creators and titans of industry, who are deploying these skills in charitable causes, to describe these two guys is ludicrous and undermines whatever value the term philanthrocapitalism may have.

I think Matthew Bishop and Michael Green have done us all a service in writing a good book and putting the concept of philanthrocapitalism (if not perhaps the rather appalling word) up for debate. Let the debate continue!

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Reply to Klaus Schwab’s: too much focus on big companies.

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In the January/February issue of Foreign Affairs magazine, Klaus Schwab, founder of the World Economic Forum (WEF) writes passionately about Corporate Social Responsibility (CSR), its background and the important positive changes large companies can make in the global business and economic climate.  His contribution and that of the WEF is an indisputably valuable one.  Nevertheless, with the famous star-studded annual WEF about to take place in Davos, Switzerland, I found it necessary to critique the article.  The full contents of my proposed letter to the editor of Foreign Affairs magazine are attached below.  In short, Schwab’s article, like the WEF, is simply too full of the politicians and the large companies who have got us into this mess in the first place.  Its great that they are meeting to ponder how to improve things (and work on their ski technique!), but if we are looking for inspiration we need to look to genuine social entrepreneurs, with less of a stake in the status quo.
For the full text read on.
To the Editor:
“In “Global Corporate Citizenship” (January/February 2008), Klaus Schwab, of the World Economic Forum (WEF), does a creditable job of explaining the nature of corporate social responsibility (CSR) and why it is in the interest of corporations to undertake this activity.

Schwab lays out a history of CSR and conveniently begins in the 1970s, when the WEF began its involvement in this area.  This misses out, as many observers do, the substantial and well-documented CSR activities of companies from the Victorian era, or perhaps even earlier.  The WEF has played a useful role in this field, but it is important to be thorough about the historical context for CSR.

The arguments made by Schwab that corporations see this as in their own interest, rather than from a “defensive or apologetic perspective” are constructive in intent, yet he fails to adequately explain why this is so, apart from some sense of “duty”?.  We believe corporations now act in this way because of vigorously competitive markets for three vital stakeholders: investors, customers and employees.  Each of these groups, to an increasing extent, care about positive corporate action on CSR.

My main critique however lies in Schwab’s excessive focus on large corporations.  The examples he uses, Nestle, Microsoft, AIG, Deutsche Bank and Nike all represent some of the world’s largest corporations.  It is marvellous that they act positively and I commend Schwab in forcefully arguing that they can make a substantial impact.  However, it is my contention that such institutions rarely lead the way on social innovation, and that by focussing on large corporates only, Schwab, like most commentators, is missing much of the story.

For inspiration here we must look to more entrepreneurial firms such as The Body Shop or Ben & Jerry’s.  They played a fundamental role in introducing ethical considerations into the UK and Us consumer products markets, respectively.  The pioneers behind them, Anita and Gordon Roddick and Ben Cohen and Jerry Greenfield are genuine social entrepreneurs.

Business maybe can “help save the world”, as the title of the article suggests, but the models for doing so are unlikely to come from those with the biggest stake in the status quo.  My years as an equity research analyst on Wall Street have convinced me that large companies are rather bad at being entrepreneurial.  They will react to entrepreneurs, as has the UK coffee market, to the growing market penetration of the fair trade company, Café Direct.  Similarly, The Body Shop and Ben & Jerry’s were in later years, acquired by larger firms (L’Oréal and Unilever respectively).  But if we are looking to be inspired, I believe it’s the smaller social businesses which will offer leadership.  It’s no surprise that Muhammad Yunus and Grameen Bank won the Nobel Peace Prize, as Schwab himself mentions, and not Bill Gates and Microsoft.

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Doing the green thing

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On Wednesday of this past week I had the extreme pleasure of attending the fundraising launch of the Green Thing, a social business of which I am now chairman. I don’t want to give too much away, as the official business launch is scheduled for 31 August 2007. What I will say is that all the profits of the Green Thing will go to support environmental causes and that it’s a really clever idea (I am biased). Anyone wishing to “do the green thing” is welcome to click on www.dothegreenthing.com.

So if I’m going to be so mysterious, why am I posting about this business? I would say there are several reasons. First, this funding launch was an exceptionally trendy, well-organized and slick event. The costs were born by a keen social investor, so no worries there, all funds raised still go to support this enterprise. The point is that social businesses need to adopt some of the aspects of mainstream businesses that have made them so successful. To continue to pretend that we can operate in an amateurish way will not in the long run help the cause.

Second, the business itself is based on the ability to utilize, to the fullest extent possible, the power of the internet and related marketing techniques. Again, cynics may moan about the overall issues raised by the influence these factors have on society, however, if we are going to build successful social enterprises, specifically in the internet space, taking advantage of that powerful medium, than we have to adopt the relevant techniques.

Finally, the founders of this business are a further example of things to come in the sector. Andy Hobsbawm and Naresh Ramchandani are two undisputed leaders in their respective fields. They have both given up meaningful sources of income to turn their attention to helping people to “do the green thing”. I hope and I believe there are more out there like them!

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Social businesses cannot rely on good feeling alone

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Social businesses have much to offer as a form of economic organisation.  In fact, I believe they are vital to our economy. Firstly, the cause-related nature of these firms gives them a certain dynamism often lacking in mainstream businesses.  Such dynamism, and the enthusiasm it elicits, benefits social businesses.

This is particularly true during the earlier entrepreneurial phase of development – resources are low and this energy may be the only “reserve” on which the company can draw.

Social businesses are also smaller than mainstream businesses.  Staff and the management are therefore more closely connected to the needs of the market in which they operate.  This is a concept I will explore in a later blog.  They are also more agile, partly as a result of their size, which enables them to respond more quickly to changing market circumstances.

In fact, social businesses, as a construct, are uniquely well-suited to today’s environment in the way they utilise the market-based/capitalist system to meet clients” needs.  Observers may criticize the system and the underlying moral assumptions, but as a mechanism to identify and then deliver against customer needs, the market is hard to beat.  We may one day live in a world where the imperatives of the marketplace do not dictate so much of our daily lives, but this day has not yet come.  Many have dedicated their lives to changing the system – I am too old to think about this and will work within this system to deliver the greatest potential social and financial returns.

An example of a social business which has responded to market needs is Divine (formerly Day) Chocolate Ltd., which has grown and prospered as a fair trade chocolate company.   In 1997, a cooperative of Ghanaian farmers decided to produce their own mainstream chocolate bar to compete with other major brands in the UK – this based on interest from some international customers.  Day Chocolate was formed with support from The Body Shop, Christian Aid, the NGO Twin Trading and Comic Relief.  However, consumer interest remained limited until management improved the product (in terms of taste) and adopted more traditional marketing techniques.  Now the firm has enjoyed rapid growth, is profitable and expanding.  The growing interest in fair trade by wealthier consumers in the “North” was undoubtedly a factor, but the response to the market’s other needs (good taste) was essential.

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Becoming a board member of the Ethical Property Company

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On Saturday, I travelled to Bristol for the AGM of the shareholders of the Ethical Property Company (EPC).  At the end of that meeting, the shareholders voted to add me as a Non-Executive Director of the Board. Unfortunately, I had to run off right after the meeting.  I was unable to have a drink with my new colleagues on the board and those shareholders who were good (foolish?) enough to vote for me.

Nevertheless, I took my train seat with a big smile on my face.  I felt privileged to have been invited to join the board of this remarkable company.  Jamie Hartzell, the CEO, aided by Sam Clarke as Chair and the rest of the board have built a truly unique firm – one that sets the pace for the UK ethical and social business sector.

At face value, EPC is just a landlord (what could possibly be ethical about that?!).  But, atypically, EPC restricts its prospective tenants to UK social change organizations.  Moreover, it offers these organizations discounts of 20% to 33% off market rents.  In addition, to adhere to its own stringent environmental criteria, the company makes investments in its buildings that will reduce its carbon footprint, even if these investments may not maximize its ROI.  Finally, to top it all off, shareholders know all this and yet still buy the shares.

Over time, they have been reasonably well rewarded with the shares rising from £1 to 1.25 since the first share issue in December 1999.  In addition, they have received dividend income.  Yet what makes this firm so delightfully bizarre is that the shareholders, many of whom I met in Bristol, knowingly forsake some of the financial upside that could come from investing in a property share in exchange for the social, ethical and environmental (SEE) returns that EPC generates.  In fact, if their passion in the session or the workshops was anything to judge by, their interest in the SEE returns is far greater than in the financial returns.  Mark my words, this investor segment will grow in years to come.

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So what about this word “social”?

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“Social enterprise”, “socially responsible investment”, “social business”, “social return on investment”, “corporate social responsibility” etc., etc..  These are all phrases that have been popping up in our daily lexicon to an increasing and, some would say, increasingly tedious extent.  In fact, the only usage of social which is distinctly taboo is “social-ist”!

New Labour in Britain has put an emphatic end to that usage, but nearly all political parties seemed to have embraced the other forms and phrases of this word.  I often wonder, what is actually going on here and should anybody care?

Since the early 80s (the Thatcher/Reagan era) the economies of the UK, the USA and the OECD overall have become increasingly liberalised and market-oriented.  This trend may have accelerated overall growth but only, many argue, at the expense of the social objectives of the welfare state.  I too think that the pendulum has swung too far; thus the emergence of a strong desire to reconcile capitalist markets and their key underlying concepts (e.g. investment, enterprise, business) with social objectives and thus the appearance of the “word blends” noted above.

Consumers, governments, investors, businesses and other stakeholders in society are each playing their part in making the concepts behind these phrases concrete.  Consumers and investors are demanding greater recognition of social criteria and business and government are, unsurprisingly, responding.  The ideas have been around for years, but their move out of the concept stage into reality has taken time.  Catalyst Fund Management & Research Limited, the business that I co-founded ten years ago, exists to facilitate and speed up this process.

Catalyst is a business, so it will surprise nobody that it seeks to benefit from this process, by providing the services described elsewhere on this website.  This blog is its contribution to the ideological debate over the issues which impact this broad area-?most particularly social businesses but also social enterprises.  Tell me what you think about these issues, the sector or us!