All Things Impact.

private capital & the public good

All Things Impact for August 5: Diversity, Equity, and Inclusion in Philanthropy

Brian WalshComment

Hi friends,

Welcome to All Things Impact, a newsletter of interesting things I've seen from across the spectrum of impact: effective philanthropyimpact investing (in the private markets), responsible investing (in the public markets) and a wildcard topic. For previous posts, to subscribe, and for more information, please visit All Things Impact.
After taking the month of July off due to work and personal travel, here are four links worth your time (plus items of note, job postings, and a calendar of upcoming events):

1. Effective Philanthropy: Diversity, Equity, and Inclusion in Philanthropy
Writing in the Stanford Social Innovation Review, my friend Chris Cardona of the Ford Foundation thoughtfully wrestles with the challenge of how inequity shapes funders’ choice of partners: “do you go with established organizations that may at first glance have a higher likelihood of success but that aren’t representative of the communities you’re working with, or do you go with organizations led by people most affected by inequality that have been starved of resources and therefore may have a harder time executing—or that may execute in ways you aren’t used to?”

“When you boil it down, the source of the dilemma is equity. Organizations that are more representative of underserved communities tend to get fewer resources. Their more well-resourced brethren may be in a better position to execute in terms that are familiar and palatable to funders, perhaps because they come from similar educational backgrounds and have similar cultural frames of reference. Those ways of operating get coded as “capacity,” as in, for example, “I’m not sure about the capacity of these people of color-led organizations.” As Vu Le, executive director of Rainier Valley Corps, points out in a blog post that addresses—from the nonprofit perspective—who gets paid to work on equity, engaging authentically with grassroots communities of color may require a different approach to something as basic as meeting facilitation. “Convenience is often the greatest enabler of inequity,” he writes, referring to what’s convenient for funders and mainstream organizations in terms of where and how they choose to engage with grassroots communities of color….

And so we’re back to the dilemma funders face: Do we work with groups, whether consultants, intermediaries, or grantees, that work on inclusion generally and can deliver results “efficiently,” but that are not necessarily representative of the communities with which they work, or do we invest the time to work with organizations that are grounded in the communities they serve, but who may need more from us, whether time, money, understanding, or simply an open mind?”

2. Impact Investing: towards defining "impact classes"
Cathy Clark of Duke University and the consulting firm Tideline have been working since the Fall 2015 on the Navigating Impact Investing project, and they released a working paper in July. “Even as the field of impact investing has made progress on multiple fronts, market observers and participants still face challenges in comprehending and navigating the market, in part due to the lack of shared knowledge and frameworks.” Their initial findings point to the need for defining “impact classes” with the following design characteristics:

  • Simple

– Straightforward and compelling: Impact classes that can be easily understood will likely have wider adoption and be more useful as a result.
– Limited in number: The fewer the number of impact classes, the more likely they are to yield efficiency benefits.

  • Objective

– Meaningful, but objective: Impact classes need to offer product providers the opportunity to distinguish their work, but retain the possibility of third-party verification.
– Neutral on the degree or quality of impact: Impact classes need to be descriptive without making value judgments.

  • Universal

– Inclusive, cutting across asset classes, sectors, and public and private markets: One of the most promising opportunities for impact classes is to be able to compare the impact dimension of investments across asset classes, across sectors, and consequently, across a portfolio.
– Categorical and exhaustive: Impact classes should capture and distinguish the depth and breadth of activity in impact investing, but also not stifle further innovation.

3. Responsible Investing: "commonsense" principles of corporate governance
Over the past year, Jamie Dimon of JPMorgan Chase and Warren Buffett of Berkshire Hathaway convened a group of 13 of America’s most prominent chief executives to talk about the importance of corporate governance. The result? A list of 77 “suggestions” for corporate boards. As the Economist reports, these recommendations “represent a sober take on some big issues—how big companies should be led, how they should communicate with their shareholders, and how large investment firms should fulfil their own responsibilities.”

"The most controversial recommendation seemed innocuous: for corporate accounts to follow generally accepted accounting principles (GAAP). Startups often recoil at this, because they believe that GAAP reporting, which counts their high, initial fixed costs, penalises them. So too, with far less merit, do clever chief financial officers who have learned to make adjustments and tweaks that often highlight successes and disguise failures. For similar reasons, the report discouraged companies from providing earnings “guidance”, since making predictions about future numbers created pressure to fiddle the actual results.

Much of the report is devoted to the role of directors, in theory the apex of a company but in reality often an assembly of dim bulbs with bright names that serve as an appendage of the CEO. The report counsels that directors should be “shareholder oriented”, with diverse backgrounds and skills, undistracted by excessive other commitments. Opportunities should exist for critical issues to be discussed without the chief executive. The board should be able to speak with senior employees and outside consultants. Pay for board members and senior executives must be linked to the company’s success through share grants or the equivalent.

Corporate shareholders were also taken to task. They should, the report said, take direct responsibility for voting on proxy motions, rather than delegating their ballots away to advisory firms; weigh in on issues tied to long-term value creation; and have access to company management and its board. They should, in sum, be active in their ownership even if, as in the case of index funds, they take a passive approach to what they own."

4. Wildcard Topic: Why Diversity Programs Fail
Writing in the Harvard Business Review, Frank Dobbin and Alexandra Kalev argue that diversity programs launched since the 1990s in corporate America aren’t increasing diversity. “Among all U.S. companies with 100 or more employees, the proportion of black men in management increased just slightly—from 3% to 3.3%—from 1985 to 2014.” They don't find this surprising:

"Despite a few new bells and whistles, courtesy of big data, companies are basically doubling down on the same approaches they’ve used since the 1960s—which often make things worse, not better. Firms have long relied on diversity training to reduce bias on the job, hiring tests and performance ratings to limit it in recruitment and promotions, and grievance systems to give employees a way to challenge managers. Those tools are designed to preempt lawsuits by policing managers’ thoughts and actions. Yet laboratory studies show that this kind of force-feeding can activate bias rather than stamp it out. As social scientists have found, people often rebel against rules to assert their autonomy. Try to coerce me to do X, Y, or Z, and I’ll do the opposite just to prove that I’m my own person."

So what works?

"A number of companies have gotten consistently positive results with tactics that don’t focus on control. They apply three basic principles: engage managers in solving the problem, expose them to people from different groups, and encourage social accountability for change.”

(h/t to Fay Twersky for this article recommendation!)

5. Items of Note

6. Job Postings

7. Upcoming Events
Sept 6-8  PRI in Person (Singapore) Responsible Investing
Sept 8 Best for The World Gathering (Berkeley, CA)
Sept 13-16  SOCAP (SF) Impact Investing
Sept 26-28 Exponent Philanthropy Conference (Chicago) Effective Philanthropy
Sept 26-28 ANDE Conference (Lessburg, Virginia) Impact Investing
Oct 9-14  Opportunity Collaboration  (Cancun Yucatan) Impact Investing
Oct 18  High Water Women (NYC) Impact Investing
Oct 18-20 Conscious Capitalism CEO Summit (Austin, TX) Responsible Investing
Oct 27-28 Feedback Labs 2nd Annual Feedback Summit (DC) Effective Philanthropy
Nov 3-5  Net Impact (Philadelphia) Various
Nov 9-11  Sustainable, Responsible, Impact Investing (Denver) Responsible Investing
Nov 16-18 Independent Sector (DC) Philanthropy
Dec 7-8  Global Impact Investing Network (Amsterdam) Impact Investing

That’s it for this week. Help me spread the word about #AllThingsImpact to your friends and colleagues, who can sign up to receive this newsletter at All Things Impact. Please also send me any job postings, items of note, upcoming events, or compelling links you discover in your own journeys across the web (even things like this baby bear saying hello to a baby deer)

Until next time, thanks for reading!

Brian Walsh
Head of Impact at LiquidnetFull Bio.