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Brian R. Weinberg

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Five Take Aways From Clinton Global Initiative's Good Business Track

Posted: 10/03/2012 4:17 pm

This year's 8th Annual Clinton Global Initiative gathering brought together more than 1,000 current and former heads of state, Fortune 500 CEOs, leaders from the non-profit sector, and celebrities. With addresses by Governor Mitt Romney, President Barack Obama and the CEO of Barclays, this was the global stage with the golden triangle of government, business, and civil society all represented and at work to transform the world. It was game changing.

We even had Wall Street's Gordon Gecko (Michael Douglas) in the room. But instead of "greed is good," the mantra was how we can re-design business to solve the world's problems.

There was a clear common denominator across sessions -- the current economic framework isn't working. "Let's call a spade a spade, sustainability is no longer a choice," Chairman of Puma Jochen Zeitze said. "Many of us feel that Adam Smith's invisible hand is picking our pockets," commented Richard Stengel, managing editor of TIME Magazine.

I find many conferences fall too easily into self-congratulatory mode; touting the shiny, one-off, heroic successes or saying smart things but missing the real work that comes from asking the hard questions, sharing mutual struggles of reality, and learning from best practices. This year's CGI theme, "Design for Impact," created the space to challenge each other; most notably in the Design Lab breakout sessions led by Alexander Grashow. He had no shame in interrupting speakers with comments like "That's nice but how did you get there?" or, "what would have to happen to make you comfortable with this risk?"

The format forced attendees to go against the grain, co-conspiring together around specific issues within the emerging fields of impact investing and good business. And with so many power players in the room, I think we did a pretty damn good job not just in defining the problems but in outlining real innovations that work. Let's take several problems and innovative ideas to address them discussed throughout the conference in turn:

1) Too much risk in unproven ideas, and in places where markets are broken, and governments have failed: The lack of collateral, legal infrastructure and political volatility make certain countries or industries poor prospects for investors and business expansion plans. However, these hard to access areas are both where the financial opportunity and the working poor's basic needs exist. How can we de-risk through stakeholder agreements and innovative financial instruments?

  • Deutsche Bank's Essential Capital Fund, "slated to reach USD 50 million in portfolio size by 2015 will invest in first loss positions of debt funds by deferring a portion of management fee and investor payments to generate a savings reserve. This allows them to unlock significant capital currently reluctant to engage in unproven sectors." A guaranteed 10 percent return gives investors a significant upside in later years all while mitigating risk at the outset.
  • Mercy Corps, Swiss Re and Fonkoze, among others, created the Microinsurance Catastrophic Risk Organization (MiCRO) for Haitian micro-entrepreneurs. "This insurance costs most clients 3 percent of their loan value, paid at time of disbursement; loan size typically ranges between USD 125 and USD 1,250." In August 2012 when Hurricane Isaac hit Haiti with "torrential rains and damaging winds, the program was able to provide affected borrowers with a $125 payout, forgive existing loan balances, and issue a new loan when necessary."

2) Lack of staged collaboration: Many players have entered the space of doing well by doing good in recent years all with different funds, unique risk appetites, and tailored objectives. If we each could overcome our own institutional agendas, it could be good for business. There is power in collaboration. How can we leverage each other's strengths to solve problems?

  • Coca-Cola's global distribution system successfully reaches some of the most rural villages around the world. Why couldn't that system be used for good? At CGI, Coca Cola committed to share its "route-to-market expertise to support the Global Fund to Fight AIDS, Tuberculosis and Malaria's (The Global Fund) ability to get vital drugs, medicines, and medical supplies to the people who need them most. It will do this initially through a pilot project wherein 10 months of direct support will be provided to the Medical Stores Department in Tanzania."
  • Acumen Fund, a non-profit global venture fund addressing poverty, and the Dow Chemical Company partnered to "accelerate the development and distribution of crucial products and services in the sectors of agriculture, water, sanitation and energy. Through direct collaboration, social enterprises in Acumen's portfolio will gain access to Dow's expertise and technical assistance resources to help scale their businesses and better serve their customers. At the same time, these businesses will share practical insights on how corporations can achieve growth and social impact in Sub-Saharan Africa" as a form of Dow Research & Development.

3) Short-termism isn't good for business or management: Corporate executives' compensation and livelihood are tied to quarterly results; which implies a short-term approach to management versus long term thinking. "The average job tenure of the CEO fell from 8.1 years in 2000 to 6.3 years in 2009 all while the average life expectancy of public companies shrank from 65 years in the 1920s to less than ten in the 1990s and the average hold period for stocks went from 8 years in 1960 to four months today," according to The Economist. How can we structure corporate governance in a way that drives long term thinking?

  • Lynn Stout, distinguished law professor at Cornell, suggested a stock transfer tax on share sales with less than five years of holding to give executives room to make the more difficult decisions that drive long term sustainability versus short term pay-outs. She addresses this and more in her new book The Shareholder Value Myth: How Putting Shareholders First harms Investors, Corporations, and the Public.
  • Some company leaders are choosing not to go public to address this systemic issue. Others -- many times in failing companies -- choose to become a labor managed firm. Worker cooperatives, where workers make up over 50 percent of company ownership, are "firms in which labor hires capital, rather than capital hiring labor in a conventional firm." This structure creates an inherent interest to preserve the communities in which the workers live.

4) Impact is hard to measure: Everybody knows how to assess the financial performance of a company. You're either profitable or you're not. But social impact is much more subjective without tried and true international standards to go by. And negative impact such as pollution has no place on an income statement despite its expense to society. How can we measure impact in a way comparable to our financial performance indicators?

  • Puma has developed the world's first environmental profit and loss statement (EP & L) which monetizes environmental impacts in dollars and cents. Now companies can quantify their relative impact of Greenhouse Gas Emissions (GHG) and Water Consumption within their operations and supply chain and then develop a strategy around addressing it. The team is also pushing for future legislation around disclosure requirements to force business to account the impact it has on society.
  • B Lab powers GIIRS Ratings for Companies and Funds engaged in impact investing using IRIS taxonomy. It assesses the social and environmental impact (but not the financial performance) of companies and funds "using a ratings approach analogous to Morningstar investment rankings or S&P credit risk ratings. It allows one to compare a microfinance company's impact with a waste reduction company's impact, essentially leveling the playing field to make comparisons.
  • Different from B Lab (although related), over 610 B Corporations exist, totaling USD 4.2 billion in revenues across 60 industries in 15 countries. These businesses have scored over 80 out of 200 on the B Impact Ratings System (covering Governance, Workers, Community and Environment) and "institutionalized stakeholder interest in their governing documents."
  • Honorable mentions (not presented at CGI) go to Good Guide and Better World Shopper, both produce dynamic rating tools for consumers to make more informed decisions about company products.

5) Confusing buzz-word terminology is everywhere: What does the term social entrepreneur really mean anymore? Is an impact investment an investment or donation? Varying answers to these questions shy away would be champions for this space and drives the status quo -- meaning I'll stick to my right pocket for philanthropy and my left pocket for business/investments. How can we create standardized language for us to have an intelligent conversation with stakeholders?

  • The Global Impact Investing Network's Impact Reporting & Investment Standards (IRIS) provides a universal language or taxonomy for impact investing that can be used to "describe an organization's social, environmental, and financial performance. IRIS' independent and credible performance measures help organizations assess and report on their social performance."
  • Virgin Unite's initiative "Screw Business as Usual" in combination with Richard Branson's new book describes four types of good business categories: Value Driven, Purpose Driven, Social Enterprises, and Good Investors.

At the global stage this year at CGI, our leaders recognized that there is no such thing as business without impact and that sustainable business leads to sustainable society. Interacting with so many people genuinely engaged in improving our world builds my case for optimism in the 21st century. As Acumen Fund CEO Jacqueline Novogratz put it, "I think this is the most exciting time in the world."

 

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