All Things Impact.

private capital & the public good

All Things Impact, No. 57

Brian WalshComment

Quote of note

"One thing I know for sure: no one on the right side of history has ever had to nitpick what the definition of “cage” is." - Stephen Colbert

Justice, justness, and the JUST 500

In an opinion column on Bloomberg View, Matt Levine unpacks the recent news of Paul Tudor Jones II's nonprofit Just Capital teaming up with Goldman Sachs to create a U.S. large-cap exchange-traded fund (ETF) which ranks publicly-listed companies on how "justly" they treat employees, society, and the environment, based on an annual survey of Americans:

"What I like about Just Capital, besides its terminology, is its methodology. Socially responsible investing—particularly, socially responsible index investing—is hard because it is difficult to know what to care about, and how much. If you run an investment portfolio whose objective is to maximize returns, then you know what you are looking for (stocks that will go up), and you know how to measure your performance (did the stocks go up). If you run an investment portfolio whose objective is to maximize returns and social welfare, then, first of all, how do you manage the tradeoff between those goals? But even harder: How do you manage the tradeoffs among social-responsibility goals? How do you pick what those goals are, and rank which are most important, and quantify how much of one is worth how much of another? If a company is generous with its workers and honorable with its customers, but pollutes a lot, is that better or worse than an environmentally pristine company that uses unpaid interns?

...The subtler form of this argument is that these issues go to the long-term sustainability of a company, and that a company that is environmentally rapacious or mistreats its workers will underperform in the long run, even if it does well today....Stock prices, after all, are supposed to discount the expected future cash flows of a company, in perpetuity. If those expected cash flows will be lower in the far future because the company pollutes too much or whatever, then that should be reflected in the stock price. Your measure of success in socially-responsible investing is just, did the stock price go up and stay up for a long time. You are making active bets about what characteristics are most likely to maximize the stock price. You’ve gone back and subordinated everything to maximizing stock price, but in a more roundabout way.

Alternatively you could figure out what you care about and optimize for that, whether or not it maximizes the stock price in the long run. This is fine if you are a person, but harder if you are an asset manager or index provider who wants to market a product. “Why should I invest in a fund that buys stocks based on the social issues the fund manager cares about personally,” a customer could reasonably ask.

Just Capital takes another approach that I find pleasingly bizarre and random: It does an annual survey. From its methodology page:

'The 2017 Survey Results defined seven major sets of issues that capture corporate justness, which in our ranking model we call Drivers. Each Driver comprises multiple specific criteria, which we call Components. These determine what we actually measure in the model, and there are 39 Components in total. Through extensive quantitative polling, we then derive weights for the Drivers and Components, which correspond to their relative importance in the public’s opinion. We make sure the opinions we gather are as representative as possible of all Americans.

To produce the company rankings, we then collect and evaluate data from a myriad of different sources on how each company actually performs across the various Components.'

I mean. I don’t know why any individual person would want to invest in a way that maximizes the weighted social preferences of a broad survey of Americans, and that changes each year as those preferences change. You should invest in a way that maximizes your preferences, not the average preference. On the other hand, I can understand why an asset manager offering a product would want to maximize the average preference. That's where the money is! (Really you should weight the preferences by net worth rather than trying to be “as representative as possible of all Americans,” but whatever.) Mostly though I just like it because it is an approach, a way of ranking and deciding between social criteria that—well, that isn’t objective, exactly, but that pushes the subjectivity back onto someone else.

5 things nonprofits want all donors to know (but may not tell them directly)

The Center for Effective Philanthropy has collected candid, anonymous feedback from more than 100,000 nonprofit leaders over the past 15 years and condensed it into five things that nonprofits want their donors to know but may not be telling them directly. I have made slight edits to these:

  1. Take time to understand the needs and realities of the people & communities the organization serves.
  2. Understand what the organization is trying to accomplish, the challenges it faces, and the larger context of its work. Be open and honest: provide clear and consistent information about your interest in a nonprofit’s work and whether you’ll give to a nonprofit again. Provide its leaders reasonable notice if you will not.
  3. Large and unrestricted financial supports provides organizations the flexibility they need to use funds as they see fit to best serve their missions. There is no relationship between percentage of "overhead" and effectiveness. In fact, nonprofits need support that covers overhead to sustain and improve their work. This also demonstrates trust in the organization's expertise and ability to properly steward funds.
  4. Support efforts for organizations to learn so that they might improve. Unrestricted funding can help nonprofits develop the tools and systems necessary to assess, manage, and report on their performance. 
  5. In addition to money, consider helping organizations with your expertise & connections. But first ask nonprofit leaders what would be most helpful to them before diving in. And be mindful: the power dynamic between donors and nonprofits means nonprofits tend to ask for what they think donors want to provide, rather than what they really need.


Distract, Divide, Detach: how governments around the world undermine civil society

Civil society generally refers to the wide array of organizations that are not government and not business: community groups, non-governmental organizations (NGOs), labor unions, indigenous groups, charitable organizations, faith-based organizations, professional associations, and foundations. Hans Gutbrod of the Transparency & Accountability Initiative has a report out, Distract, Divide, Detach, about how governments around the world actively undercut popular support for civil society organizations (CSOs) through public attacks and seemingly benign regulations:

"...[G]overnments around the world typically propose regulation in three areas: transparency of funding, and especially of foreign funding; income and asset declaration of CSO leaders; and democratic accountability and governance.

While calling for transparency, governments impose regulations with, in many cases, wide-ranging restrictions. Moreover, governments often use transparency and accountability to frame CSOs as foreign and unrepresentative, and their leadership as a privileged elite. It appears that governments welcome a protracted debate to distract CSOs from their advocacy, divide CSOs, and detach them from potential public rally their populist base and otherwise reinforce widespread apathy."

So what is to be done to protect civil society? 

"Central to the recommendations is the need to better prepare CSOs to respond to public attacks in a challenging context and to develop countermessaging strategies. Empirical research and testing help to understand how CSOs can mobilize public support and to illustrate to CSO leaders how some responses are more likely to succeed than others. Democratic governments need to be mindful of what kind of precedents they set, given how reference to Western regulations is used in other countries. CSOs, too, may want to ensure that their advocacy does not inadvertently constrain fellow advocates."

Tyler Cowen: American Families Shouldn't Be Separated, Either

Writing in Bloomberg, economist, blogger, podcaster, and polymath Tyler Cowen pushes us to consider family separation in other contexts:

"One of the worst American policies today is the decision of President Donald Trump’s administration to separate many immigrant parents from their children after they illegally cross the U.S. border. Obviously, a case can be made for enforcing the border, but deliberate cruelty is never a good idea. Those children – innocent victims all of them – will likely be traumatized for life. I am uncomfortably reminded of the U.S.’s long history of separating parents and children from the days of slavery and during Native American removal and extermination.

If you agree with me on this, I’d like to push you one step further. It’s horrible to forcibly separate lawbreaking parents from their young children, but we do that to American citizens, too. According to one 2010 study, more than 1.1 million men and 120,000 women in U.S. jails and prisons have children under the age of 17. These separations can be traumatic, and they help perpetuate generational cycles of low achievement and criminal behavior...

I have a simple proposal: Let’s take one-tenth of those women and move them from prison to house arrest, combined with electronic monitoring. That would allow for proximity to their children. If the U.S. isn’t plagued by a subsequent wave of violent crime – and I don’t think it will be – let us try the same for yet another tenth. Let’s keep on doing this until it’s obviously not working. In some of these cases the court might rule that the mother – especially if she is prone to child abuse or substance abuse – will not have full custody rights to her children. Many other children, though, will benefit, and even visitation rights can help a child.

...I don’t mean to normalize the current treatment of illegal immigrant families – I consider it a moral disgrace. What I am saying is that our treatment of outsiders is rarely an accident, and it so often mirrors how we have been treating each other all along. That is yet another reason to be nicer to those who are most vulnerable."


Items of Note

That’s it for this week! Please send me any interesting content you would like me to share with this community - articles, research, posts, reports, job postings, upcoming events, and miscellaneous items of note, including things like this dog who won’t let a little rain stop him from getting his steps in. (Content must be links; I cannot share attachments or PDFs.)

Until next time!