Hi friends,
Happy New Year! Welcome to the first All Things Impact for 2016. This is a newsletter of interesting things I've seen from across the spectrum of impact: effective philanthropy, impact investing (in the private markets), responsible investing (in the public markets) and a wildcard topic.
Here are four links worth your time:
1. Effective Philanthropy: The New Yorker Profiles the Ford Foundation
Larissa Macfarquhar’s must-read profile of the Ford Foundation and its dynamic President Darren Walker in the New Yorker has a dazzling opening sentence:
“The urge to change the world is normally thwarted by a near-insurmountable barricade of obstacles: failure of imagination, failure of courage, bad governments, bad planning, incompetence, corruption, fecklessness, the laws of nations, the laws of physics, the weight of history, inertia of all sorts, psychological unsuitability on the part of the would-be changer, the resistance of people who would lose from the change, the resistance of people who would benefit from it, the seduction of activities other than world-changing, lack of practical knowledge, lack of political skill, and lack of money.”
In shifting the Foundation to focus on inequality, Macfarguhar reports on the internal debate:
“Was it better to work on issues that people were currently agitated about, or to draw attention to ones that nobody was addressing? Was it better to be bold and risk failure, or to give money to a project that had a good chance of success? And how soon would success have to happen in order to count—five years? Ten? Was it better to be patient or impatient? On the one hand, social justice wasn’t the sort of thing that happened overnight; on the other hand, there had to be some point at which a program could be declared a failure and cut off, or there would be no accountability at all.”
The article also provides a distinction between a “development foundation” and a “social-justice foundation”:
“A development foundation, like Gates or Rockefeller, generally had certain concrete things that it wanted to get done, and these things could often be measured. It might want to drill wells, for instance, or disseminate an improved type of seed; it might want to immunize babies in a given region, or administer deworming medicine. But Ford was not a development foundation: it was a social-justice foundation, and a social-justice foundation was concerned more with amorphous entities such as fairness and exclusion than with material well-being.”
She also covers the controversy surrounding the foundation concept from its earliest days:
“Even the conservative legal theorist Judge Richard Posner could not understand why foundation assets should be tax-exempt. “A perpetual charitable foundation . . . is a completely irresponsible institution, answerable to nobody,” he wrote. “Unlike a hereditary monarch whom such a foundation otherwise resembles, it is subject to no political controls either. . . . The puzzle for economics is why these foundations are not total scandals."
In fact, a hundred years ago, at the dawn of the foundation era, they were total scandals. When John D. Rockefeller tried to obtain a federal charter to establish his foundation, in 1910, Congress rejected him. In 1915, a Commission on Industrial Relations recommended that the Rockefeller Foundation be regulated by the government, or be shut down altogether by Congress, and its funds distributed to the unemployed, since presumably the reason it had all that surplus money was that the Rockefellers had been too cheap in paying their workers. “The domination by men in whose hands the final control of a large part of American industry rests is not limited to their employees, but is being rapidly extended to control the education and ‘social service’ of the nation,” the commission warned. The puzzle for history was why the scandal went away."
The whole article is worth reading in full.
2. Impact Investing: The Economist’s Matthew Bishop Predicts Impact Investing Goes Mainstream
In a LinkedIn post, Bishop predicts:
“In 2016, three important philanthrocapitalist players will make major strides in growing impact investing. Mark Zuckerberg and Priscilla Chan will start to show why they opted to pledge to give away the bulk of their $44 billion future not via a traditional charitable foundation but through an Omidyar Network-like LLC that can do lots of impact investing. The Ford Foundation will dedicate perhaps as much as 10% of its endowment to impact. And the MacArthur Foundation will roll out a series of initiatives designed to help smaller investors collaborate to scale up impact investing. At the same time, expect mainstream financial organisations from BlackRock to Bain Capital to start implementing their promised commitments to grow impact investing.
There will also be more social impact bonds (some successful enough to make up for the recent Rikers Island disappointment) and more IPOs of B Corps, to follow last year’s by Etsy. One slight worry: Paul Polman, who has become the face of a more sustainable, responsible approach to running a big business, is getting nearer to the end of his time at the helm of Unilever. If he goes this year, it is not clear that there is any existing CEO of substance ready to play that important role of leading the mainstream business world by example.”
3. Responsible Investing: Why Are Companies Short-Term Focused?
In its DealBook section, the New York Times has an extremely helpful systems map of the dynamics at play that lead to short-term thinking in how companies operate, with some possible fixes.It's worth exploring in full.
INVESTORS
Investors provide feedback to boards and executives by buying and selling stocks. As investors have focused more on the short term, they have bought and sold stocks more frequently.
POSSIBLE FIX
Taxes on capital gains could be changed to encourage investors to hold investments longer.
MUTUAL FUND MANAGERS
Are often paid based on their short-term rather than long-term results, and see investors flee when short-term results lag.
POSSIBLE FIX
The compensation of mutual fund managers could be tied more closely to long-term returns.
CORPORATE BOARDS
Hire, fire and determine the compensation of top executives. Boards have moved toward more incentive-based compensation, which can encourage executives to hit short-term rather than long-term targets.
POSSIBLE FIX
Boards could structure compensation so that executives only get paid if they hit long-term targets.
CORPORATE EXECUTIVES
Generally respond to the incentives created by their boards and to the feedback they are getting from investors via the stock market. Both of these may encourage short-term thinking
POSSIBLE FIX
Boards could structure compensation so that executives only get paid if they hit long-term targets.
4. Wildcard topic:Paul Graham on the "Refragmentation" of American society
Y Combinator co-founder and prolific writer Paul Graham writes on the causes of fragmentation of American Society and possibilities for a "refragmentation":
"CEOs of big companies make more now than they used to, and I think much of the reason is prestige. In 1960, corporate CEOs had immense prestige. They were the winners of the only economic game in town. But if they made as little now as they did then, in real dollar terms, they'd seem like small fry compared to professional athletes and whiz kids making millions from startups and hedge funds. They don't like that idea, so now they try to get as much as they can, which is more than they had been getting.
Meanwhile a similar fragmentation was happening at the other end of the economic scale. As big companies' oligopolies became less secure, they were less able to pass costs on to customers and thus less willing to overpay for labor. And as the Duplo world of a few big blocks fragmented into many companies of different sizes—some of them overseas—it became harder for unions to enforce their monopolies. As a result workers' wages also tended toward market price. Which (inevitably, if unions had been doing their job) tended to be lower. Perhaps dramatically so, if automation had decreased the need for some kind of work.”
He goes on to write:
“20th century cohesion was something that happened at least in a sense naturally. The war was due mostly to external forces, and the Duplo economy was an evolutionary phase. If you want cohesion now, you'd have to induce it deliberately. And it's not obvious how. I suspect the best we'll be able to do is address the symptoms of fragmentation. But that may be enough.”
There was some pushback on Graham’s follow-up piece on inequality, and out of fairness I’d like to quote from Holly Wood’s Quartz piece titled Paul Graham has accidentally explained everything wrong with Silicon Valley’s world view:
“About 80% of his essay about economic inequality is a thinly veiled condemnation of poors who Paul Graham thinks are too stupid to understand why the rich are wealthy. They are stupid, he says, because they demand wealth redistribution as a means of addressing poverty rather than attacking poverty itself. Sillies!”
....
We, as a people, determine what is and is not of value mostly through what we believe to be legitimate and worthy of significance. And in late capitalism, we have all basically agreed to allow the market to dictate what is and is not of legitimate value. (This is what social critics recognize as neoliberalism.)
But what the market deems valuable is not necessarily aligned with what is ultimately good for us as a society, or even what we want. Because under conditions of extreme inequality, the market is biased toward people who have lots of money, at the expense of virtually everyone else.
That’s it for this week. Please send me any compelling links you discover in your own journeys across the web (even things like fluffy doofus of a dog).
Until next time, thanks for reading!
Brian