All Things Impact.

private capital & the public good

All Things Impact 2016.7: foundation transparency, "heropreneurship," long-termism, China's fuerdai

Brian WalshComment

Hi friends,

Here are four links worth your time:

1. Effective Philanthropy: foundations can improve by sharing lessons learned (successes *and* failures)
My friend Lindsay Louie, program officer for Philanthropy Grantmaking at the William and Flora Hewlett Foundation,just wrote about the Center for Effective Philanthropy’s new report, “Sharing What Matters: Perspectives on Foundation Transparency,” which finds that “69 percent of foundation CEOs surveyed believe that transparency is important for increased effectiveness.”

“The report reveals that both foundation leaders and grantees think foundations can do better at sharing how we measure our progress and our lessons learned — including the successes and the failures. The finding that particularly struck me is that “Only four percent of foundations share comprehensive assessments of their performance. Five percent share their experiences of the tools/method they have used to assess performance, and five percent share lessons they have learned from projects that have not succeeded.“

This is a critical area for foundations to improve. I think change will require serious work inside foundations before we see a change outside foundations.

Here are three reasons why: (1.) foundations themselves may be trying to figure these things out and so may not really be ready or able to share yet; (2.) it may be hard for people at foundations to recognize in the first place when they might have failed or played a role in a failure; and (3.) being more open about these things would be a change to the status quo, and people in foundations may resist the uncertainty of that change.

…In the case of increasing foundation openness, foundation staff may fear or resist losing control of information, hurting grantee organizations’ reputations, or losing some aspect of their personal reputation. Maybe some in foundations even fear (unknowingly if not knowingly) that they will lose some of their influence if they are more open.

…My hope is that foundation leaders reading CEP’s report will invest the time to think hard about their own institutions, why they don’t share more today, whether their culture enables and rewards acknowledging failures and lessons learned, and what serious steps they could take internally that might lead to more sharing externally.”

(Disclosure: Liquidnet, like the Hewlett Foundation, is a core funder of the Fund for Shared Insight, which supported CEP’s report.) 

2. Impact Investing: tackling "Heropreneurship"
In talking about this current era of the social sector, Daniela Papi-Thornton coins a new term in the Stanford Social Innovation Review: heropreneurship, "where reverence for the heroic social entrepreneur has led countless people to pursue a career path that promises opportunities to save the world, gain social status, and earn money, all at the same time." 

"In this “everyone an entrepreneur” era, hack-a-thons, accelerators, business incubators, and social entrepreneurship training courses are around every corner. They mostly focus on training people with the skills they need to start a social business, neglecting the many other skills required to fully understand a problem and fuel social change.

To really change a system, I believe people need a more holistic set of skills, including systems thinking, an understanding of collaboration tools to further collective impact, and lateral leadership skills such as the ability to lead without power and to galvanize movement toward a common goal across a diverse and disjointed solutions ecosystem. They also need a grounded understanding of themselves and their skills, such as how they like to work, which roles in a team best fit their skills, and if/how their risk tolerance fits with the range of social impact career options. Finally, if they plan to take a leadership or strategic role in solving a problem, they need a deep understanding of the reality of that problem.

Unfortunately, all too often, the people who get the funding to try their hand at solving global challenges haven’t lived those problems themselves. This comes from a range of biases. Donors, for example, often fund people they can relate to, and as the Dunning-Krugar effect explains, we often think the problems we know less about are easier to solve. The obsession with becoming “a founder” also arises from a lack of diverse educational funding programs. For example, most universities offer competitions or funding to help students start a venture, but don’t have contests and tools to support them in learning about and then “apprenticing with” the problems they care about.

We—the educators, social entrepreneurship training program designers, social impact funders, and university professors who give money and accolades to students to go out and solve problems before we’ve given them the tools to understand those problems—are largely to blame for this phenomenon. We’re wasting limited resources on shallow solutions to complex problems, and telling our students it’s OK to go out and use someone else’s time and backyard as a learning ground, without first requiring that they earn the right to take leadership on solving a problem they don’t yet understand."

3. Responsible Investing: Long-termism - having companies look beyond quarterly results
The world's largest investor is BlackRock, with more than $4.6 trillion (with a "t") in assets under management. Several weeks ago, its CEO Larry Fink sent a letter to 500 company chief executives urgning them for the first time to stop providing quarterly earnings estimate. “Today’s culture of quarterly earnings hysteria is totally contrary to the long-term approach we need,” he wrote. As Andrew Ross Sorkin wrote in the New York Times

"The proposal, a provocative recommendation from the influential Wall Street executive, is aimed at trying to curb companies’ short-term focus on quarterly results.

“To be clear, we do believe companies should still report quarterly results — long-termism should not be a substitute for transparency,” he said. “But C.E.O.s should be more focused in these reports on demonstrating progress against their strategic plans than a one-penny deviation from their E.P.S. targets or analyst consensus estimates.” (E.P.S. stands for earnings per share.)

Mr. Fink has made a series of proposals over the last several years to encourage longer-term thinking by companies, including a plan to change the tax code and the treatment of capital gains. But his latest proposition goes further than his previous efforts.

While Mr. Fink wants to eliminate quarterly guidance, he is also making perhaps an even more controversial request, asking chief executives and company boards to provide a “a strategic framework for long-term value creation” that could extend to multiple years. In other words, a company should give shareholders a detailed long-term plan for its business.

“Annual shareholder letters and other communications to shareholders are too often backwards-looking and don’t do enough to articulate management’s vision and plans for the future,” Mr. Fink wrote. Without management providing a road map for the next few years, he said, “some short-term investors (and analysts) offer more compelling visions for companies than the companies themselves, allowing these perspectives to fill the void and build support for potentially destabilizing actions.”

Over in Bloomberg View, Matt Levine looks further into this proposal in the context of stock buybacks:

"Some people think that if the manager of a company is skilled enough to make money for that company, she should get to hold onto it and invest it in new projects. After all, she has shown that she is able to make money. Other people think that she should give the money back to the shareholders, so they can invest it in new projects. After all, it is their money, and they have shown that they are able to invest it profitably. Neither of these views is unassailable, and for roughly the same reasons: Past success, in business and in investing, only weakly predicts future success. But there the money is, and someone has to decide what to do with it...

Fink thinks that companies should be managed by their managers. This doesn't sound especially revolutionary, when you say it like that, but of course there is a competing view. Lots of investors think that they have some pretty good ideas for how companies should be managed -- [stock] buybacks are often involved -- and aren't shy about proposing them. Sometimes those proposals are appealing, even to long-termers, and BlackRock sometimes backs them. "Nevertheless," writes Fink, "we believe that companies are usually better served when ideas for value creation are part of an overall framework developed and driven by the company, rather than forced upon them in a proxy fight."

It's useful to keep the capital-allocation-debate model in mind as you read this letter. Fink's message to managers is that they, rather than activist investors, should take the lead in deciding what projects should get funded."

4. Wildcard topic: China's fuerdai
Jiayang Fan writes in the New Yorker about how China's super-rich send their children abroad, telling this story through the lens of the "Ultra Rich Asian Girls of Vancover," a reality show.

"The children of wealthy Chinese are known as fuerdai, which means “rich second generation.” In a culture where poverty and thrift were long the norm, their extravagances have become notorious. Last year, the son of China’s richest man posted pictures online of his dog wearing two gold-plated Apple Watches, one on each front paw..

About a third of China’s wealth belongs to just one per cent of the population. While China’s poor still inhabit a developing-world economy, a recent report found that the country now has more dollar billionaires than the U.S. does. “What is happening in China constitutes one of the most rapid emergences of wealth stratification in human history,” Jeffrey Winters, a politics professor at Northwestern University, told me. Winters, the author of the book “Oligarchy,” pointed out that China is one of a small number of countries—Russia is the other notable example—where extreme wealth stratification was eliminated in a Communist revolution and then later reëmerged. As in Russia, the sudden formation of a new oligarchy in China means that there are many super-rich people who are unfamiliar with the ways in which more entrenched aristocracies quietly protect their wealth. “No matter the culture or age, old money knows from long experience that it is far safer to be secluded and less seen,” Winters said. But new money, as Thorstein Veblen theorized, asserts itself through conspicuous consumption...

This is the first time that China’s rich have sought to emigrate in significant numbers. For thousands of years, the ruling class was proudly isolationist. “People now refer to China as an emerging economy, but it was the world’s dominant economy for two millennia, until 1810,” Shamus Khan, a sociology professor at Columbia who specializes in élites, told me. “Before that, the Chinese élite were very reserved and almost snobbish in their view of foreigners. They thought of the European élite as backward people who wanted to acquire culture from China.” Westerners made hazardous journeys to obtain prized commodities—porcelain, tea, silk—from the Middle Kingdom, which considered itself the center of the world.

Only in the nineteenth century did it become evident that the West had outstripped China, especially in the field of military technology. The Opium Wars, which were fought over China’s trade imbalance with Britain, resulted in a humiliating defeat and, ultimately, the end of the Empire. “China’s first encounter with globalization led to its collapse, one from which the country has never completely recovered,” Khan said. “The emergence of a new Chinese élite is China’s second moment of encounter with these global processes, and it’s interesting how certain dimensions are reversed.”

Job Opportunities:

That’s it for this week. Help me spread the word about #Allthingsimpact to your friends and colleagues. Please also send me any compelling links you discover in your own journeys across the web (even things like this gif of a young girl giving her large dog a health check-up). Also, I'm happy to pass along *impact-related* job opportunities (please send me the links, not an attachment).

Until next time, thanks for reading!

Brian Walsh
Head of Impact at LiquidnetFull Bio.