Stanford Social Innovation Review

Corporate Giving Needs Better Metrics

Corporate philanthropy plays a key role in society and business but needs to be a better job showing it is worth the cost and in sync with the corporate bottom line.

That is the conclusion of a new report from the Committee Encouraging Corporate Philanthropy.

The report, Measuring the Value of Corporate Philanthropy, looks at practices and measurement trends in corporate giving, at demands for evidence about its impact, and at new ways of gauging its social and business benefit.

“To realize meaningful benefits, corporate philanthropy must be managed no less professionally, proactively and strategically than any other core business activity,” the report says.

“Systematic measurement of the value of giving,” it says, can make “a more persuasive case for why companies should engage in philanthropic initiatives.”

And it says corporate CEO’s, the investor community and giving professionals “need to understand more comprehensively the many mechanisms by which philanthropic investments can be measured and managed to achieve long-term business value and solve critical societal problems.”

In talking with the investor community, for example, CEOs have a chance to distinguish themselves “through disclosures about their philanthropic strategies” and by leading the charge for stronger standards, the report says.

And in making the case to CEOs for corporate giving, it says, corporate giving officers need to show not only its social impact but also its business impact.

“Philanthropy can provide novel pathways towards meeting strategic business needs, such as improving employee engagement, customer loyalty, reputational risk, and opportunities for innovation,” it says.

And in demanding that grant recipients show whether they are achieving intended results with corporate support, metrics that measure only output “offer little indication whether social improvement actually is occurring – or, for that matter, whether unintentional harm is being caused,” the report says.

“Developing a theory of change and explaining how the program will achieve its intended impact,” it says, “are critical preparatory elements of measurement.

To celebrate International Corporate Philanthropy Day on Feb. 22, President Barack Obama sent a letter to business leaders saying current challenges “demand solutions that come not only from government, but also from entrepreneurs and business leaders around the world.”

Through their “skills, ingenuity, financial support and dedication,” the letter says, “corporate philanthropists and their employees have answered the call to serve, giving back in meaningful ways that help those in need and improve our communities.”

Corporate giving plays an essential role in helping to address both the symptoms and causes of social and global problems.

At a time of unprecedented financial stress, corporations must develop better metrics to track the impact of corporate giving and to show its value to their businesses and to the communities they serve.

Todd Cohen, a veteran news reporter and editor, is editor and publisher of Philanthropy Journal, an online newspaper that is a program of the Institute for Nonprofits at North Carolina State University in Raleigh, N.C. Cohen has taught nonprofit reporting and media relations at the University of North Carolina at Chapel Hill and at Duke University, and regularly speaks on the topics of nonprofit media relations and trends in the charitable world.

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Donor, Dearest

Times are tough for old-line causes, but let’s be frank. It’s not just the economy that’s beating up today’s traditional charities. Donors are, too.

Truth is, donors have never been so fickle, nor so ambivalent. Now more than ever, they want details about the impact their money is having but don’t want to pay charities to do the analysis that will tell them. They’re loving the instant gratification they’re getting when using new click-and-donate forms of online giving [text-messages during the 9-day campaign by the Red Cross to engage mobile supporters brought in $26 million,] but surveys show that many younger donors, especially, would rather spend $10 a pop now (because they can) versus committing to higher amounts later.  And despite all the talk about collaboration in the sector today, many donors still would much rather give their $10 to a Haitian quake victim than to the middleman charity administering those donations, just to keep the lights on. And that’s not all. As the use of the Net and social networks in fundraising are encouraging micro-giving – donations in smaller increments—it’s getting harder for some organizations to pinpoint who, precisely, their donors really are.  A recent survey of six progressive nonprofits shows that at least one-third of their text-donors unsubscribe from charity text-messaging lists shortly after a campaign, partly due to concerns over the cost of incoming messages.

Governments aren’t helping. According to New York Times journalist Stephanie Strom, there is rising sentiment in the states and on Capitol Hill that maybe charities (perhaps in part due to the chronic pay and charity fraud scandals in recent years) no longer deserve all of the tax breaks they’re getting. “As states and localities contend with dwindling tax receipts,” Strom told a recent NYU philanthropy conference, Charities on Trial, “they are looking at the tax preferences enjoyed by the nonprofit sector and are beginning to ask whether those preferences are good public policy.”

[Not convinced? Pennsylvania recently tried to impose a small payroll tax on nonprofits; Kansas is considering reducing nonprofits’ tax exemption from sales taxes in that state, and many other states are eyeing the property tax exemption.]

But perhaps one of the most unsettling behavioral trends by today’s donors, says Strom, is their willingness to switch alliances to for-profit causes, apparently favoring the end results over the means. Newer forms of philanthropy have been quick to promote the use of for-profit models for social good, and the case they make is persuasive, Strom says.  “Why shouldn’t GE get some sort of tax break for creating a system that better enables the management of health records, a system that would benefit nonprofit hospitals? “ she said. “When Citibank provides mortgage financing to low-income families, why shouldn’t that portion of its operations be eligible for the same tax treatment as a local community loan bank gets?”

Trouble is, Strom told the NYU conference, some of the projects seeking funding on some of the new online giving sites—such as Global Giving, for example—are corporate programs. Donors making gifts to support those projects “are, effectively, underwriting corporate social responsibility,” Strom says. “In other words, companies are using gifts for which a donor has received a tax deduction to finance their corporate philanthropy – something they used to have to fund out of their profit streams.” Meanwhile, she says, the Gates Foundation, among other private grantmakers, are starting to devote a small portion of some of their grants to partnerships with for-profit companies ranging from MTV to JPMorgan Chase and Merck, Strom says. Is this right? Should American taxpayers be co-funding some of these corporate programs?

Charities, in reaction to some of these trends, Strom says, feel like they need to “look more like business in analysis and evaluation of their impact.  … Fundraisers, consultants and experts are now appropriating the language of business to try to explain what nonprofits achieve. What is social investing if it’s not philanthropy? And is SASIX, the South African Social Investment Exchange really a capital marketplace? Its Web site (www.sasix.co.za/) says SASIX ‘makes carefully selected social development projects available as investment opportunities with a social return.’ It sounds a lot like the materials I just got from Charles Schwab.’”

Is Strom correct? As the philanthropic landscape continues to shift and redefine society’s approach to social problem-solving, it’s clear that our notions of philanthropy – and the decades-old regulations that govern it —also need to change. But how much change is too much?  Donors —not just the charities, themselves — need to be a greater part of that conversation.

Marcia Stepanek is Founding Editor-in-Chief and President, News and Information, for Contribute Media, a New York-based magazine, Web site, and conference series about the new people and ideas of giving. She is the publisher of Cause Global, an acclaimed new blog about the use of digital media for social change. She also serves as moderator and producer of New Conversations for Change, Contribute’s forum series highlighting social entrepreneurs and new trends in philanthropy.

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Open Organizations and Thoughts On Transparency

According to a post on Community Organizer 2.0, PresenTense, an organization focused on building the Jewish community’s next generation of pioneers and innovators, open sources much of its programming and advisory roles. Community Organizer 2.0 quotes PresenTense’s founder @ArielBeery as saying:

The PresenTense Group calls itself an “open source organization.” Co-founder Ariel Beery defines an Open Source Organization as one that “enables all members to add to it, change it, modify it and improve it. Everyone benefits from the intellectual property of the organization’s members. The whole point is to make it as collaborative and idea-generated as possible.

PresenTense also posts quarterly reports (annual reports are so web 1.0). The example of PresenTense dovetails nicely with the dashboard examples @Kanter shares in this post, including the work of the Indianapolis Art Museum. Christine Egger (@cdegger) has done a nice job of tracking several related conversations about data, transparency, and open organizations in this post on the SocialActions blog. From comments across these links I get the strong sense that both SocialActions and NTEN are thinking hard about these issues - in terms of developing actual standards, developing tools for best practice, and for prompting real thought about the roles of nonprofit organizations in helping make sense of all the data we can now access.

This is exciting. We may have moved past rhetoric and hypothesis to real examples we can discuss and learn from. We can also ask some big questions about the future, like those on this must-read post from Scott Hartley on SSIR. I’m sure that someone is tracking examples of nonprofits and foundations sharing data in new and interesting ways (right? someone?) - I’d love to see that slideshow. Here are some contributions to the list:

• Those noted above: PresenTense, Indianapolis Museum of Art
• Those I’ve mentioned before: Peery Foundation open source strategic planning, Lumina Foundation sharing of strategic plans and objectives, AidInfo Wiki - a resource for open sharing of data on development aid.
• Stories of crowdsourced giving from ModernGiving’s list: Knight News Challenge, Phil Bucheit’s crowdsourcing of ideas for donor advised giving.
• Others….? Send ‘em in [in comments or email lucy at blueprintrd dot com].

And while we’re at it, lets also consider some of the possible downsides of transparency. Not necessarily related to the examples above, what happens when all the data in all the world is available to all with the right database, broadband, and visualization tools? I’d encourage everyone to read Larry Lessig’s article in the October 21, 2009 issue of The New Republic. Lessig, a parent of the Creative Commons movement, a guru on technology and creativity and change, and a member of the advisory board to The Sunlight Foundation reaches off the newstand and grabs you as you walk by with just the title of his piece, “Against Transparency.” The piece stirred up some important issues - and has led to a wonderful debate (which you should check out after you read his article) online at The New Republic.
Now, Lessig’s piece does an incredible job of marrying his first professional passion, technology change and creativity, to his second professional commitment, campaign finance reform. In arranging these nuptuals, Lessig points out what he sees as techno-deterministic blinders worn by transparency advocates (and this is where his respondents come back in the debate). Since my interest is in transparency, data, and philanthropy I’m going to step away from the campaign finance part of Lessig’s article and extrapolate to money and data.

Several of the points that Lessig makes really matter from my point of view:

• Policy solutions or industry responses to technology that think we can go back in time are doomed to fail. As he points out, in about a decade the majority of Americans alive will not remember the “good old days” of the 20th century, before file sharing; instant, replicable digital copying, open data access, and absolutely whiz-bang data-driven info graphics as a distinguishing value of a news source.
• Technology doesn’t determine our future. Our institutions and norms and practices and applications and laws determine technology and then they all mush together (my term, not his), each advance offering a platform for more change.
• Technology changes far faster than laws (see also Sascha Meinrath at New America Foundation and the Open Technology Initiative) on this point.

This last point is important to Lessig’s argument because his solution to the dangers of transparency as he sees them is not to try to fix transparency laws or technology, but to address the role of money and politics, as it is at the root of our normative assumptions between money and politics. His article is about changing how we finance politics, not how we make data available or use technology.

So what does all that have to do with philanthropy? As a champion of efforts to share information and data more widely within philanthropy, I need to step back - as Lessig’s article forces its readers to do - and ask, what are the downsides of transparency? Which of these are due to technology or existing legal frameworks, and which of them come from elsewhere, from our norms and assumptions about how giving works or what philanthropy is for? And what scenarios can we imagine from greater data sharing that we’d prefer to avoid?

Here is one small example. I was in a recent conversation about disclosure requirements on private foundations. We were discussing the fact that most of what is required has to do with financial accountability, and how that drives what we know (and don’t know) about philanthropy. Someone posited the idea of expanding the disclosure requirements to cover more programmatic issues or actual accomplishments. And then it occured to us - one logical effect of increasing disclosure requirements on private foundations would be to drive more donors to use advised funds, where the disclosure requirements don’t (and probably wouldn’t) apply. That would be a predictable end-around - and wouldn’t aid the cause of learning more from philanthropy.

That story covers the imagined unintended consequence of a regulatory change. What are the imagined unintended results of using technology to shed more light on what foundations do and on the data they have and could share? Given our normative association between money and influence (back to Lessig’s article) will more transparency into data lead foundations or donors to take fewer risks? Or might they respond by demanding even more paperwork and making hoops even higher and smaller for applicants?

Those are a few, small “what ifs?” What really matters here is this: Can we collectively identify what the normative assumptions are about philanthropy and its roles in society, and then identify what the interaction of technology-enabled transparency and those assumptions might be? We can’t go back to a pre-techno-transparent age. And we’d be fools to expect a solely positive, linear interaction between the new visibility that it provides and our existing philanthropic institutions and behaviors. So instead, if we assume “backlash” and unintended consequences, perhaps we can surface our assumptions about roles of public and private resources, money, power, public, private, leadership, and social change in such a way that we really do change the game.

I’d welcome your thoughts on Lessig’s article and the conversation that it sparked over at The New Republic. Transparency is here to stay - how do we make sure it yields the good we want from it?

Lucy Bernholz is the founder and president of Blueprint Research & Design, Inc, a strategy consulting firm that helps philanthropic individuals and institutions achieve their missions. She is the publisher of Philanthropy2173, an award winning blog about the business of giving and serves as executive producer of The Giving Channel on Fora.tv.

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The Illogic of Muhtar Kent

Last week, the CEO of Coca Cola, Muhtar Kent, wrote an article in the Wall Street Journal responding to the news that public health advocates in some states are calling for heavy taxes on high calorie food and beverages. In his piece, titled “Coke didn’t make America fat,” Kent unsurprisingly objects to the tax, arguing that it is regressive in nature, has inherent illogic and suffers from a lack of common sense thinking. Kent makes the argument that the real problem is lack of physical activity and that a tax can’t change behavior.

This piece reminded me of a slogan for a campaign that was launched in Israel a few years ago in an attempt to prevent car accidents and careless driving: “when driving – be smart, not right.” The idea was that even when other drivers upset or endanger you, you shouldn’t try to fight back, educate or punish them; just be smart and try to get away safely. I’m not sure everyone understood that call, especially those who it was supposed to target, but still, the campaign was powerful.

I think that here, in the junction between being right and being smart, Kent took the wrong turn. Personally, I totally agree with his take on this issue. The idea of creating a tax on sodas and other foods deemed unhealthy is really an admission of failure to deal with the root of the problem. (Another Israeli idiom for unhelpful solutions is “putting plaster on a deep wound.”) Those who want sugar or fat will still buy it, if not in a soda or a chocolate bar, then in any other cheap product that isn’t taxed. Instead of singling out particular products like sodas, why not suggest a tax on every product that contains more than 5% fat or a certain amount of sugar? Because this isn’t realistic. I agree with Kent that the tax doesn’t make sense and is very unlikely to change behavior. The most that might happen is a shift in consumer preferences from one set of sugary products to another.

Nevertheless, I think the damage created by writing this piece outweighs any potential benefits. One of the things I’m grateful to my parents for teaching me is not always to respond. They used to say&38212;and it took me years to understand them—that sometimes it is more powerful not to say anything or to react than to fight back.
         
For years now, Coca Cola has been investing huge efforts in cultivating the image of a sustainable and socially responsible company. It invests a lot of money not only in sustainable and socially oriented activities themselves, but also in telling the public about them. And that is a good strategy. It is easier for customers to relate to a company they perceive as having values, and numerous surveys in recent years have shown that this pays off in terms of loyalty. Kent will of course object to the idea of the tax because it will hurt his revenues. So while his arguments may be absolutely right, his opinion will always be associated with his financial interests and not with social or any other kind of justice. It therefore doesn’t feel right that he is the one to make this case, and in doing so, he harms the image the company is working so hard to promote. The fight against the tax should have been left in the hands of the lobbyists, where it rightly belongs.

Galia Shilo Sum is an Israeli editor and reporter currently living in the US. At her last job she was a part of the launching team of Calcalist, a new daily business newspaper where she worked as the newsroom manager and the editor of a Corporate Social Responsibiliy section that she launched. As a volunteer, she has also led writing and journalist workshops for young women who are sexually attacked.

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Sharing knowledge to inform giving

For some time now I’ve been pushing the idea that facilitating a way for philanthropy and social cause experts to share their knowledge with individual donors is the big opportunity in philanthropy. The Tactical Philanthropy Knowledge Network is my effort to tackle this problem. Another effort is under way by a group called Philanthropedia.

Philanthropedia surveys foundation professionals about the best nonprofits in a given sector and then presents the top ranked organizations to users of their service. Unlike many other ranking methodologies in which a relatively small set of indicators is applied across a variety of groups, Philanthropedia is leveraging the wisdom of experts (not crowds!) in order to access the qualitative evaluation process that is inherently at the heart of great grantmaking.

Philanthropedia’s first focus area was Education (they’ve also completed San Francisco bay area homelessness, Climate Change and are working on microfinance). After surveying 39 experts using a methodology developed by RAND called the Delphi Method, they published a list of eight outstanding organizations. They also include profiles of the groups, what the experts saw as strengths and what they saw as areas of improvement, as well as comments from beneficiaries. They also include information on the experts as a group as well as giving individual bios.

To be clear, I do not think that a donor should fund an organization just because a bunch of experts like it. Experts fall into “group think” all the time and some of the organizations the experts like may simply be popular with their peers. But I do believe strongly that the work Philanthropedia is doing offers an outstanding way for donors to find organizations to look at more closely.

We need a lot more projects with this sort of focus. Today there are 3,000 staffed foundations employing thousands of professional program officers. Yet this group only controls 13% of annual charitable giving. On the other side we have millions of individual donors who control 82% of annual charitable giving and yet have limited access to good knowledge about how to give well and to whom they should give.

We need to find ways to disperse the knowledge of professional grantmakers so that it can inform individual donors.

Sean Stannard-Stockton is CEO of Tactical Philanthropy Advisors, a philanthropy advisory firm that serves individual and family philanthropists. Sean is the author of the Tactical Philanthropy blog and writes a monthly column for the Chronicle of Philanthropy. He is a member of the World Economic Forum’s Council on Philanthropy & Social Investing and has been quoted or referenced in The New York Times, Wall Street Journal, Washington Post, Financial Times and many other media outlets.

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Swarm

Back in July, Mark Pesce predicted increasing dust-ups between traditional companies and organizations versus self-organized “cause mobs” wielding social and mobile media tools to make change. His prediction, so far, has been right on the mark. As I write Swarms, a book about self-organized groups that mobilize for impact, I’m tracking the emergence of increasingly aggressive online communities; such examples point to a growing trend that intersects social advocacy and corporate communities. Many swarms continue to get stronger as they mobilize for causes. [The just-finished online EVERYWHERE campaign to fight cancer reported today that it raised a record $70,000 in 24 hours]. But what’s new is that swarms are now starting to take on businesses with increasing frequency, with organizers using their passionate crowds of “friends and followers” to help them force their well-funded adversaries to back down.

Here are some recent examples of the power-shift in the commercial space:

• On October 2, Nestle was forced to drop its decision to source milk from a dairy owned by the wife of Zimbabwean president Robert Mugabe, thanks to a Facebook organized campaign that protested Mugabe’s violent seizure of the operation from a white farmer. Nestle relented after several protest groups were set up on Facebook to boycott Nestle products; one flash mob listed more than 8,000 members. Kallie Kriel, the chief executive of AfriForum, a rights group which had called for a boycott of what she called Nestle’s “blood milk” told the Associated Press: “This shows the strength that civil society has; this action shows that civil society can use these tools to make sure justice prevails.”
• Reacting to what they considered a homophobic column in the Daily Mail by writer Jan Moir, an online flash mob waged a high-profile protest campaign against the British tabloid, causing major firms such as Marks & Spencer to remove their ads from the Web page that carried Moir’s piece. The article questioned the circumstances leading to the death of Boyzone star Stephen Gately; more than 1,000 emails and calls alleging homophobia and inaccuracies in Moir’s article were filed with the Press Complaints Division, causing the Web site to crash. Protesters set up a Facebook page called, “The Daily Mail Should Retract Jan Moir’s Hateful, Homophobic Article” and listed the names and telephone numbers of the paper’s key advertisers. An article about the flap in the Guardian, a rival newspaper, quoted James Bromley, the Mail’s Online managing director, saying his decision to agree to remove the ads was made after the paper “saw the strong reaction.”
• Last month, the makers of Monster, an energy drink, sent a cease and desist letter to Rock Art Brewery in Vermont, a small craft brewery with 7 employees. Rock Art calls one of its specialty beers “Vermonster” but the makers of Monster—the Corona, Calif.-based Hansen Beverage Co.—think it’s too similar in name to Monster, Hansen’s energy drink. Hansen is trying to force Rock Art to stop using the Vermonster name. But Rock Art’s owner, Matt Nadeau, is having none of it. Nadeau is using his company’s Web site, Facebook page, Twitter account and now a YouTube video to rally support for a boycott against Monster called “Rock Art Brewery vs. Corporate America.”  So far, so good: Nadeau’s Facebook group, the Vermonters and Craft Beer Drinkers Against Monster, has amassed more than 10,000 members. Twitter users have begun using the hashtags #boycottmonster and #monsterboycott to keep mobilizing on Twitter. According to a Mashable post by Adam Ostrow, Nadeau says he won’t quit until he gets Monster to back down: Nadeau says he has no money to fight Monster in court, so he’s pushing hard for a swarm boycott instead. Will it work? Nadeau says many Vermont store owners have joined Nadeau’s boycott: one, George Bergin, told the AP that he has taken Hansen and Monster products off his shelves and is telling customers why, even though Monster is the store’s best-selling energy drink.

There’s no doubt: consumers have always been able to organize. But thanks to the speed and reach of the Net, look for more such fast-fire boycotts going forward.
Many of these new groups have been getting results, but there’s another reason they’re catching on so quickly, says Sherri Grasmuck, a sociologist at Temple University. She says Facebook users tend to shape their online identities implicitly rather than explicitly. As in the offline world, the kinds of campaigns and groups Web users join, she says, reveal more about who they are than their dull “about me” pages.

For more on Swarms, see this earlier post on Cause Global, and another piece on “network weaving”— an expanding body of knowledge about how organizations, communities, regions, industries, marketers and geopolitics behave as networks of collaboration, learning and influence.

Got a swarm story you’d like to share? Let us hear from you and we’ll credit you for your contribution in a later post on the subject.

Marcia Stepanek is Founding Editor-in-Chief and President, News and Information, for Contribute Media, a New York-based magazine, Web site, and conference series about the new people and ideas of giving. She is the publisher of Cause Global, an acclaimed new blog about the use of digital media for social change. She also serves as moderator and producer of New Conversations for Change, Contribute’s forum series highlighting social entrepreneurs and new trends in philanthropy.

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When More Mission Equals More Money

I’ve got an investment thesis for the kind of business that I think will work best under current economic, climactic and social conditions. I’m seeing a new opportunity for a spectrum of businesses that will produce more revenue at higher margins by being more tied to their social and environmental mission. More mission focus, more margin more sustainably.

Here are the foundational assumptions behind my current thesis. As I’m using the word, it means more than a hypothesis, but not proven enough to be called a theory.

Assumptions:

1. We all have less money than we did and that’s likely to remain true for a while.
2. Not all of us can have more things, or new things all the time. The cost of doing business in the old (old as in pre-September 2008) consumer economy based on planned obsolescence has become too high as environmental and social costs nudge their way onto the balance sheet.

We are not going to recreate an economy based on collective financial and cultural deception that pretends we can grow beyond the carrying costs of the planet. Deep and structural changes are underway in our economy and our culture.

It’s not that we have become suddenly wiser. It’s that we suddenly have less money because we have been collectively complicit in an economic system that has lied to us about the true costs of our actions. The culprit is not Madoff or the men from AIG. They sold us the growth story we wanted to buy. It was a collective, participatory deception; markets are co-created realities. We are now reaping the fruit of the lies we all wanted to be true. But I am far from pessimistic. A dose of reality in time is a lot better than riding a false myth down the tubes.

The good news is that I think the economic system we will build next will be one in which environmental and social costs will no longer be externalities; costs that get pushed off the balance sheet. The cost of doing business to the planet and at least the human costs of climate change will now be factored in. For someone whose main motivation is to see the market become a tool to fight poverty and injustice, that is good news. It means that poverty is now closer to getting onto the balance sheet.

At the micro level, that means that where I work as a professional investor I am looking for businesses that make more money in times when customers have less money to spend, when buying patterns are factoring in the truth that we won’t all be able to have more things and have new things all of the time.

That means I am interested in businesses that make more margin when people effectively share scarce resources: non profit and for profit businesses like Zipcar and City Car Share, where people rent a car or truck for just the hours they need them. Other models include coworking, where entrepreneurs share space and resources.  Examples include coworking sites like Ned  in Portland and non profit shared garden projects like Alemany Farm.

At the heart of these new models that involve cooperative use of finite resources is a sharing dynamic; to maximize their efficiency, there needs to be an incentive to get over old ideas of single person, single business or nuclear family ownership of things like cars, offices or gardens. The best way to enable efficient sharing, I believe, is to encourage allegiance to a cause or a movement. That’s why I like the global network of coworking sites linked to The Hub (the-hub.net). It’s coworking for social entrepreneurs, or, as they call them in order to avoid getting stuck in the definition wars, social innovators.

If you do it right, the way they do in the Hub’s network, the more you are true to the mission, the more aware and in tune the operators and hosts are in creating the proper social dynamic that facilitates match making and sharing; the closer social entrepreneurs want to be to each other within the work space; and the more they talk to each other about what they are working on and who the person next to them should meet who could help them.

If you manage that hosting magic right, if you listen to the community well, that equals a higher density of usage of the space, which maximizes the revenue per square foot. So the more true you are to the mission, the higher the margin, all based on the sharing of resources that we now realize are scarcer. And by sharing space, buying it in cell-phone-like plans of 20 to 100 hours per month, the entrepreneur cuts her costs while lowering her businesses carbon footprint by up to two thirds.

There are more than a dozen affiliates in The Hub’s network, from London to Johannesburg to Cairo to Sao Palo to Amsterdam. We’re launching the first US member of The Hub’s network in San Francisco. And I’m working with a team from the green MBA program at the Dominican University to find other businesses where effective sharing equals more revenue at higher margin.

So here are the two pillars of the model, as I see it emerging: You build your business based on sharing scarce resources in a time when your customers have less money, and you dedicate your business to serve a movement where sharing comes easily.

Then you build your revenue model to reduce financial and environmental costs for your customers (individual and collectively) while increasing your margins as a provider. The more you focus on your mission, the truer you are to your community’s mission, and the higher your margins. That’s the model that makes sense to me these days.

Kevin Jones is a cofounding principal of Good Capital, an investment firm that accelerates the flow of capital to enterprises that use market forces to create large-scale social change. Jones is a successful serial entrepreneur, angel investor, and cofounder of Social Capital Markets, the groundbreaking conference on social venture investing.

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Speaking of Nonprofit Retirees…

...the Feds have had to take over the pension obligations of one of Chicago’s oldest nonprofits.The good news is that the nonprofit in question actually has pension obligations. Many of its fellows don’t.

(And no, it’s not a coincidence that this is also one of the relatively few nonprofits whose employees are represented by a union. Amazing what collective bargaining can produce!)

This is a terrible time for nonprofits to face additional financial obligations, like those involved in making sure people who’ve given their lives to the agency are able to retire with the dignity of adequate resources. But it’s also a terrible time to put people on the street without such resources.

As it is written: nonprofits exist to serve poor people, not create them. Every nonprofit serious about surviving must also make itself serious about the post-work survival of its employees. If you’re a Board chair, put “Create a Task Force on Pensions” on the agenda of your very next meeting. If you’re a Board member, volunteer to chair the said task force. If you’re an Executive Director, point out this item to your Board chair. Don’t wait; it’s already pretty late in the day.

You can, of course, NOT do this; but then don’t be surprised if sooner or later a union organizer comes to call. Nonprofits, like other businesses, can either treat their employees well voluntarily, or be compelled to do so. The choice is yours.

Kelly Kleiman, who blogs as The Nonprofiteer, is a lawyer and freelance journalist whose reportage and essays about the arts, philanthropy and women’s issues have appeared in The Wall Street Journal, Washington Post, Christian Science Monitor and other dailies; in magazines including In These Times and Chicago Philanthropy; and on websites including Aislesay.com and Artscope.net.

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Selling Vs. Selling Out

The real question is not whether social investing will become real, or whether it will become a more important asset class. Social investment is growing, and its growth is in line with societal trends that are both on the rise in their acceptance and in line with the realities of limited environmental resources and economic transformation.

Based on the trends I’m seeing, I’m declaring the question settled. Yes, social venture capital is both a valid emerging asset class and in the forefront in its ability to deliver scalable social impact at low cost and provide an actual financial return that helps support the mission and the enterprise.

So the only question remaining is how are you going to manage exits? Nobody wants to end up like Ben and Jerry’s, where soon after a multinational acquired it, key facets of its social mission were cut from the company. What kind of social mission was lost? The ethical rule that Chunky Monkey would never have bovine growth hormone was kept under the Unilever regime; it was a value that consumers bought every time they bought a pint and was on the label.

What was gone? Hidden charitable subsidization of a social mission through non-profit partner ice cream shops. At those shops, 40 percent of the workforce was composed of at-risk youth who learned from social workers and job supervisors how to have a bank account and to complete a high school equivalency exam.

Exit is what matters now. The question is no longer can you build the second generation of socially responsible business, enterprises that bake their social mission into their business operations. The question is not even can those businesses make enough money to pay off investors. The question is, can the social mission survive the exit of the founders and the sale to new owners? Can it do so while still rewarding the people and the investors who took the risk to build a big business that delivers scalable social impact along with profit?

Judy Wick of White Dog Café has recently sold her iconic Pittsburgh restaurant but retained the rights to the brand and the ability to swoop back in to take over if she feels the mission is being compromised.

While there’s a lot to like in that approach, we at Good Capital have come up with something with our portfolio company Better World Books (BWB) that has a lot to commend it. We have created a new social impact model which carves out a 5 percent ownership stake for the company’s key literacy partners and grants stock options based upon the non profits’ ability to hit their stated literacy targets and increase the volume and quality of books collected in book drives that provide BWB with its inventory. Here’s a slide presentation on the details
What does this mean? Literacy groups like Room to Read, Books for Africa, and the National Council on Family Literacy, whose mission is to teach people to read, are earning stock options in a venture-backed startup. Those options will, if we do well together, be worth more money when, in a few years, BWB is at, say, $100 million in annual revenues.  (BWB will be at $30 million this June if things stay on their current track, up from $18 million when we invested last April.)

All the stockholders have to be satisfied if BWB sells. That means Books for Africa’s interests will have to represented at the table when the company negotiates with a buyer, if that should happen, say, five years from now. Unlike Ben and Jerry’s, where the private philanthropy of the owners was stripped away after the sale to the multinational, we will have set a price on a non profit’s meeting its literacy goals. That price will be equated with shares in BWB that have a financial value.

The mission can’t really go away in this company after a sale. If BWB ever does sell to a larger company, the mission has been baked in, and the social return will be directly convertible to a financial investment. We have aligned the interests of the social mission and the financial mission in a way that has rarely been done before, perhaps never in the context of a private, for-profit company.

How this will exactly play out will be determined by a mix of market conditions, BWB’s ability to execute as a fast growing business, and the ecosystem of goodwill, partners, and advisors it continues to accumulate around itself. But in this deal at least, selling should not result in selling out. The non-profits and the social mission are going to be counted in a way they’ve never been counted before.

Kevin Jones is a cofounding principal of Good Capital, an investment firm that accelerates the flow of capital to enterprises that use market forces to create large-scale social change. Jones is a successful serial entrepreneur, angel investor, and cofounder of Social Capital Markets, the groundbreaking conference on social venture investing.

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Why I Like Fair Trade… And What it Needs

At Good Capital we have done one Fair Trade investment in Adina, a company that competes with Starbuck’s Frappuccino with a ready-to-drink line of iced coffee sold in supermarkets. Adina’s bottled coffee products are aimed at women under 35 and are lower in calories than their competitors, Organic, and sourced from Fair Trade cooperatives.

Because of our investing partner and the management team assembled, Adina has a great chance of success, at least financially. That is, we and our investors are likely to make good money. But if that’s all we do, our investors will not be happy. They are investing with us for more than financial reasons; they also want to know that they are leveraging their positive impact in the world by putting their money in our hands.

We tie directly into their philanthropic motivations but through a new angle; one that also engages their rigorous, investor mindset and doesn’t ask it to turn itself off or play by a second, less rigorous set of rules. We want the investors in our funds to bring their “A” games to the table. We are playing the real game, trying to get the ball in the pocket, not some soft form of bumper pool.

For us, Fair Trade solves a couple of problems and helps us overcome some investor objections. If Good Capital is selling both the prospect of leveraged social impact and a financial return, then, people ask, how do you measure that; how do I as someone who has trusted you with my money, know you are doing good?

Well, with Fair Trade we can quickly answer that there is a third party certifier at every point along the supply chain, that the coffee, vanilla, sugar, and tea in Adina’s products come from certified Fair Trade and democratically elected coops in places like the Oromia region of Ethiopia, the Ixil Triangle of Guatemala, and Surinam, Paraguay, and India.

We also get around the imperialist-tinged element of people with money deciding what is good for poor people producing commodities with the way the Fair Trade premium is delivered. In addition to paying the farmer a price higher than the market rate for the commodity, Fair Trade rules require the buyer to deliver a further premium to the cooperative to be spent as the community sees fit. They have to report on what they do with the additional premium, and it often involves building or fixing a school or clinic, achieving Organic certification, digging a well, or repairing some kind of irrigation or water project.

For us as investors, the benefits are two-fold; we don’t have to build a measurement system to prove the social impact to our investors, and the democratic element finesses political and power considerations, helping left-leaning investors and activists concerned about empowerment issues feel good about the way they are deploying their money.

Many of the most socially minded and active people of wealth still have a problem thinking of social impact and investing as existing in the same realm; they have a hard time accepting that investing for good can be an asset class. The cultural framework they have inherited is that you do your good out of your philanthropic pocket, expecting the total loss of your capital.

Then even these socially minded activists and philanthropists invest with a mindset in which you are not being who you should be unless you think only about financial return when you invest; it’s the bastard child of Milton Friedman and heir of Andrew Carnegie’s Gospel of Wealth from the devil’s side of the family.

The good news is that Good Capital is raising money, even in this climate, through this premise; more money is teeing up to come our way.

But the prospect of success, as slowly as it is creeping our way, creates risk for us and investors like us. If people are willing to invest with us, buying our premise that we can deliver financial and social value in greater measure than if they had just given their money away, we have to prove that we really are doing good.

We can point to the premium and what it has done in each coop, but have we really changed the lives of the people in that community in a positive way by our intervention? Some studies say that the real good is achieved through making a cooperative a viable decision-making structure; we get the people in the community to cooperate in hope of a realistic gain and the benefits derive from that. So Fair Trade’s role in helping people lift themselves out of poverty might be a secondary benefit.

So if we and our peers successfully funnel more money to Fair Trade, we have a risk factor that we need to address. What is the real impact of our money? What do the people affected say that it does for them, aside from what they did with the Fair Trade premium and other than what our metrics allow us to report back to our investors and the consumers who buy Fair Trade products?

To look into that issue, I’ve started substantive conversations with my friend Sabina Alkire of the Oxford Poverty and Human Development Institute at Oxford University. Her metrics, which are based on Amartya Sen’s capacity approach to development, incorporate and quantify the voices of the poor. They are being incorporated into how several countries (which can’t be announced yet) measure poverty, and are starting to be used by several development agencies. They are working because they really do empower the poor to say what’s working for them and what’s not; so you can more accurately know what impact any effort to alleviate poverty is having on the ground.

We’re going to see if her approach could be applied to the data that is already being gathered by Fair Trade coops in an effective way at a reasonable cost. If we can do that, then we will reduce the risk of funneling money to Fair Trade companies that promise that they are doing good, only to discover that we are not making the difference we and our investors had hoped we were.

Finding the right Fair Trade partner for this research is something to be managed carefully, of course, but that’s a step down the road. The first step, according to Sabina, would be to deploy a researcher funded by her institute to look at the data from a Fair Trade coop and company and see if it’s the kind of information her method could use to answer the key questions we want to answer on a regular and consistent basis.  We would also find out whether the effort would provide sufficient value at a reasonable cost.

We hope to have this project teed up during December and be able to talk more about it in January.

A potential positive upside if we succeed is that commercial companies and private sector companies would be measuring the same things that the development agencies and nations are starting to measure.

That could lead to significant partnership opportunities between venture-backed companies and development agencies. The chief barrier so far has been that the development agencies speak their own agency-centric, theory-of-change language, and social venture funds and venture philanthropy funds use vocabulary adapted from the market, like risk, return and social impact.

SoCap Media is convening another Social Capital Markets event in Washington D.C. in the spring, bringing together social investors and venture philanthropy funds with development and other government agencies. If things work out, the effort with Sabina could lead to a prototype of a Rosetta Stone that we could unveil, in beta, and subject to massive transformation and evolution, at that event. 

Kevin Jones is a cofounding principal of Good Capital, an investment firm that accelerates the flow of capital to enterprises that use market forces to create large-scale social change. Jones is a successful serial entrepreneur, angel investor, and cofounder of Social Capital Markets, the groundbreaking conference on social venture investing.

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