Monthly Archives: February 2009

Government Policy, Impact Investing, Social Economy, Social Entrepreneurship

On tough economic times

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Would anyone invest in social enterprises nowadays?  Well yes, actually.  The crisis has demonstrated that the “profits at all costs” economic model is probably finished.  Social businesses and enterprises address this directly, offering a balance between financial reward and societal benefit.

It is still capitalism, as the market and investment models still apply, but a bit less “raw in tooth and claw”.  For example, we have just secured funding for our new social business, socialinvestments.com, and other early stage businesses I know have also.  Socially Responsible Investment funds are holding up relatively well.

Secondly, the credit crunch has thoroughly debunked the notion of a “guaranteed financial return”.  We have learned there is no such thing.  Even bank and governmental guarantees are only as good as the entities behind them–and these now seem somewhat less secure.  Moreover, the failures of some guarantees were outside the control of the guarantor.  I think the “social returns” social enterprises and ethical fund managers aim to achieve can be more reliably delivered–and their ability to guarantee them is more within their sphere of control.

So with all that, why would anyone ever invest in anything but social businesses and enterprises, especially in the current environment?  You get some financial return, a guaranteed social return and who knows–entry into heaven?”

First published in The Guardian in February 2009.

3D Investing, Impact Investing, Social Economy

My Philanthropic/Social Investment Journey

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I began writing this piece by reading previous “journeys”, and became intimidated by the list: Dame Vivien Duffield, Sir Trevor Chinn and Tony Blair!  This is a credit to the persuasive powers of the Philanthropy UK team, but made me very hesitant to use my “moment in the limelight” in what may seem a challenge to the philanthropic model, but I was asked to give an honest account of my journey, so I shall.

It begins innocently enough.  Like Sir Trevor Chinn, my introduction to charity has Jewish roots.  I learned the importance of charitable giving (tzedaka) in Jewish religious school.  This background and Maimonides’ philosophy around giving were explained elegantly by Sir Trevor, so I shall not elaborate.

Despite such hopeful beginnings I drifted to Wall Street.  I felt guilty about it of course, so I supported charities financially.  In time, this proved insufficient and I became a trustee of the House Foundation for the Arts, which backed the performance artist Meredith Monk.  This not only assuaged my guilt but gave me an introduction into the rewards (and frustrations) of charities.

Moving to London with my family in 1987, I was still spending most of my time working, but donated to a range of charities.  In 1997, I ended my career in global finance as the chasm between what I did every day and the things I told my four children were important was just too wide.  I thus began a frustrating journey to figure out what I was actually meant to do in life.  The journey continues, but I now have some ideas.

My path encompassed politics (with the Lib Dems) and the charity world (as Chair of Shelter).  Neither “offered the answer”—with both I encountered bureaucracy, mission drift and a frequent disconnect between stated intentions and actions.  I doubt these large organisations are unique.

I began to learn about social business, where entrepreneurs turn their talents to doing “good”.  Working with these odd characters, I found a refreshing attitude, integrity and an ability to innovate and move swiftly, as only small organisations can.  Along the way I became Chairman of Justgiving.com, a marvellous social business, which has grown explosively.  It is “social” because through it 6.5 million people have donated over £370 million to UK charities since 2003!

Along the way I became involved in many other social businesses and enterprises, including Belu Water, the carbon neutral bottled water company, the interestingly-named Ethical Property Company, which rents commercial office space to social change organisations, The HCT Group, which is involved in community transport and the Green Thing, of which I am proud to be Chairman.  This firm (www.dothegreenthing.com) uses the tools of marketing, media and the internet to creatively engage people to help solve climate change.  These enterprises offered me a route to “doing good” that seemed less wasteful and could be especially effective.

Partly this is because social businesses may raise capital—an option not generally available to charities.  Increasingly investors are taking “extra-financial” returns into account, which social enterprises offer in abundance.  This pool of capital is small but growing, and is related to the socially responsible investment (SRI) fund movement. Inspired by these trends, my company (Catalyst; www.catfund.com) began to fund-raise for social enterprises.  More recently, we have launched a £30 million venture capital fund (with £5 million of initial backing from Barclays) to invest in UK-based profitable, growth-oriented social businesses.  Our aim is to create commercially-viable social businesses which can tap into the enormous pool of mainstream capital.

We felt even more was needed, especially for the thousands of social enterprises not ready for external capital.  In that spirit we spun out www.socialinvestments.com , a website which provides information about 150 social enterprises (hundreds more coming!), enables direct investment in these and provides a “gateway” for the neophyte “social investor”.

In addition to these activities, I have mounted a crusade to “talk the sector into existence”.  This has involved lecturing, writing articles (such as this one), holding an annual conference and keeping a blog (the Social Business Blog).  All of this feels a bit like three jobs, but essential when one is trying to forge a career out of a mixed bag of activities in a new area.  This career is not for the fainthearted, but it is stimulating, rewarding and fun.

This is all not to say that politics and charity do not have their place, I merely expect that over the next twenty years, social entrepreneurship will play an essential role in providing solving social, ethical and environmental goods that neither Government nor the charitable sector will be able to afford.

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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).

Impact Investing

The time is right to start a social business and invest in people with social mission

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It is very easy to feel depressed.  Financial markets have disintegrated and banks are collapsing.  On a personal level, pensions have shrunk, home equity has evaporated and jobs are disappearing.  Furthermore, global unrest is rising, threatening perceptions of our safety.

My training as a financial analyst forces me, especially at times such as these, to try to look beyond the current storm—to its aftermath—and to identify the more fundamental changes which will be ushered in.

What might be its outlines?  First, serious social problems will remain.  This financial wipe-out has not fixed anything, but it has made government spending infeasible as a solution.  Furthermore, critical long term issues (e.g. global warming), are even more costly to resolve.  Second, our faith in large centralized institutions will be very low—this started years ago.  Lastly, the “profit maximization at all costs” mentality, and the associated “consumption-oriented” lifestyle will come to an end.  These are ideal circumstances in which to start a social business or enterprise or invest in one, or both!

The demand for genuine public goods, for the reasons cited above, will be great.  Organizations that can meet social, ethical and environmental needs will be very much sought after.  This is particularly true for those which develop economic models that are financially self-sustaining.  Firms such as Justgiving.com, which facilitates charitable giving on the internet, and Belu Water, which provides “carbon-neutral” bottled water, are examples of these.

Furthermore as small, grassroots, and oftentimes community-based organizations, these firms will be more appealing than the larger companies.  Such firms are already finding it easier ability to secure top talent.  Evidence is piling in from top business schools and recruiters that the “best and brightest” are looking for something more meaningful and enjoyable, whatever the compensation.  Investment banking is no longer the “employer of choice”.

It is in the investment market where the change has been most notable.  The obvious failure of risk assessment models is re-orienting investors’ thinking.  In an industry where everything seems to be shrinking, one area of pronounced growth is that of responsible, sustainable or social investment.  Socially Responsible Investment (SRI) assets have been resilient and looks set for further growth.  Moreover, environmental, sustainability and governance (ESG) criteria are being incorporated into more investment mandates.  Progressive institutions are looking to make “proactive investments”; supporting firms which directly generate positive externalities.  In the last year, we at Catalyst have noticed rising interest in our venture capital fund, and those of similar providers.  This interest is coming from institutions and even retail investors; as such traffic has increased markedly on our website www.socialinvestments.com.  In the “aftermarket”, demand for “social” firms is also robust—witness the sale last year of Organix baby foods to Swiss food company Hero.  The era of social investment has truly begun!

First Published in Third Sector in February 2009.

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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!