In a recent article for Forbes/Skoll World Forum, Can Financial Markets Be Good?, Steve Wright, Vice President, Poverty Insights for Grameen Foundation, proposes “coronating value (dethroning profit)” as a way to correct the “profit v. social impact” debate. There is a lot of theoretical discussion on the business models implied by this thought, but what’s going on in practice? In our current theme, nonprofit decision-making, business models are an important consideration since they determine much of the context for decisions. Perhaps changing the context can bring the decisions we make much closer to the mission, as opposed to spending that effort on problems created by the models themselves. (see TaroWorks example in this interview.) We talked to Steve to explore the question further.
Note: Be sure to see Steve’s upcoming presentation at SOCAP13 (Sep 3-6), where he will expand on a few of the thoughts he has shared here.
Eric J Henderson, Markets For Good (EJH): Are there any examples of this idea of “coronating value” that also demonstrate a relevant market presence?
Steve Wright, Grameen Foundation (SW): The Transition Network is an exceptional example of this. Transition supports communities to create practical solutions for increased resilience. A concrete example of one component of Transition is Brixton Energy: “Brixton Energy is a not-for-profit co-operative based in south London. We create cooperatively owned renewable energy projects whose financial revenues stay within the local community.“
They use local money to install solar panels and local buildings to provide electricity to local residents. Painfully simple and a ridiculously clear example of aligning incentives to maximize total value returned.
The Transition Network describes itself as “a quiet revolution where people like you and I are seeing crisis as the opportunity for doing something different, something extraordinary.” Brixton is a Transition Town which means they have implemented many aspects of Transition including an alternative currency, a food cooperative, a brewery, and more. While there are several transition towns around the world, the reason why I focus on Brixton, a very urban and very diverse community within London, is because I am from Oakland, CA and if they can do it there, then we can do it here!
Another way to think about this brave new world of coronating value is to take a look at the work of Elinor Ostrom who received the Nobel Prize for Economics in 2009 for proving that the “tragedy of the commons” is a bunch of hooey! This is an incredibly exciting finding because it means we can counter the prevailing wisdom that dictates that all resources should be privatized in order for them to be efficiently distributed.
Ostrom’s work demonstrates that Common Pool Resources can be effectively managed by the community of people that have the greatest stake in their sustainability. In Ostrom’s book, Governing the Commons, she gives the example of local fishermen in Alanya, Turkey where they had a “tragedy of the commons” scenario and local stock was approaching depletion. The fishermen were able to come together and apply a rotating scheme for fishing grounds and a peer enforcement system.
Marjorie Kelly provides another example. In her book, Owning our Future, she describes how lobster fishermen together with municipal authorities in the sensitive coastal waters of Maine established a self-regulating scheme that effectively sets limits so that the habitat is maintained and the lobster are healthy.
In both of these examples, common pool resources are effectively and efficiently managed without privatizing and without an expensive and bureaucratic central authority.
At Grameen Foundation we are working with agricultural cooperatives as well as multinational corporations and suppliers to address similar challenges in global and local supply chains. We believe that giving the poor agency is a central aspect of the work.
There are two very interesting outputs of agricultural cooperatives that we are eager to learn more about. The first is how these cooperatives can help to build meaningful ownership of long term trade relationships with multinational corporations and the second is how certifications like fair trade can help these farmers to differentiate themselves and their products in order to escape the negative dynamics of commodity farming.
This work is characterized by aligning incentives. Multinational corporations must believe that poverty is a risk in their business and agricultural cooperatives and their farmers must build their reputation to deliver quality and quantity over time.
So, “coronating value” will require more than a business model and the good news is, it doesn’t require anything new, no grand innovation, no heroes. We already know how to do what needs to be done. However, we have to learn to sacrifice short term gain for long term benefit and we must learn to realize value beyond profit.
EJH: Even with these promising examples, the larger discussion of attracting investment capital to drive social impact often stalls on the question of evidence: “Show impact and I will bring capital.” Of course, investing without information is a nonstarter for any business, but demonstrating impact is a sharper request to the sector. To what extent is this the trigger for the active market for investment?
SW: It is not the job of the (social) entrepreneur to demonstrate impact nor is it a tragedy if a social business is not impactful. Demonstrating impact requires demonstrating causality. This can be done but it is expensive and again, it is not the job of an entrepreneur. It is the job of a (social) entrepreneur to:
a. clearly state the change she hopes to see
b. describe the activities of her business that are intended to create that change
c. report clearly and rigorously against those activities
At Grameen Foundation we have built the TaroWorks which is a tool that marries mobile and cloud technologies to enable any organization to effectively manage a field force of employees by assigning and tracking tasks as well as the data generated when those tasks are completed. The feedback that we have received so far is that TaroWorks enables our customers to increase the efficiency of the work that specifically advances their mission. Additionally, because these organizations are intentionally managing their mission advancement, the data they need to understand their efficacy “falls out” of their management systems as reporting. But this is not impact data. Performance management data is more relevant to a social enterprise.
EJH: So, what about impact?
SW: Philanthropy and research must generate data about impact. They of course must work closely with (social) entrepreneurs and this is what the very best organizations are doing today. If investors are waiting for evidence of impact before they fund then they are either very conservative or poorly motivated investors. Its like saying financial investors should wait until a company is profitable before they invest. The best (impact) investors are very good at vetting investments and are able to examine a change model as described above and reflect that against the quality of the staff to gauge the risk of success.
The area where we do need an innovation is in measuring “good”. My belief is that we will not find evidence of “good” by looking at the enterprise. It is time for us to start looking at the community level to understand success.
We need to apply models from systems thinking, complexity science, computer and “social” networking and big data analytics in order to measure community health as vibrancy. Vibrancy is a measurement of a community’s ability to constantly and efficiently transmit value. Then we can understand individuals and enterprises relative to their contribution to the vibrancy of their community.