All Things Impact.

private capital & the public good

All Things Impact for Jan 23: women & corporate governance; diet gurus & chocolate cake; aggravating funders; why elites rule

Brian WalshComment

Here are four links worth your time (plus items of note, job postings, and a calendar of upcoming events):

1. Responsible investing: Women Dominate in Corporate Governance
Finance is traditionally characterized as an old boys club, but The New York Times reports on “a rare corner of finance where women dominate” – the corporate governance practices at large intuitional investment firms:

“Women hold the top positions in corporate governance at many of the biggest mutual funds and pension funds — deciding which way to vote on the directors of a company board. They make decisions on behalf of teachers, government workers, doctors and most people in the United States who have a 401(k). The corporate governance heads at seven of the 10 largest institutional investors in stocks are now women, according to data compiled by The New York Times. Those investors oversee $14 trillion in assets.
 
Corporate governance is playing a growing role within the broader ecosystem of corporate America. Each spring, publicly traded companies hold shareholder meetings and outline business strategy for the coming year. Shareholders like BlackRock, T. Rowe Price and State Street vote on corporate strategy and issues including company board appointments and compensation.
 
Their votes can go a long way, given the huge stakes these institutions control in United States companies. BlackRock holds a stake greater than 5 percent in 75 of the 100 largest companies, according to data compiled by Jerry Davis, a professor at the University of Michigan Ross School of Business. State Street has more than than 5 percent of 23 of the largest companies, while Capital Group owns more than 5 percent of 20 of the biggest companies.”

But are they having an impact?

“That power, however, is rarely wielded to confront companies. Most of the time, these huge institutional investors choose to vote with management…
 
Efforts by mutual funds to change the behavior of a company by using the power of a proxy vote is a fairly recent phenomenon. For decades, powerful institutional investors automatically rubber-stamped the decisions of corporate management and boards. At the same, many top executives paid little attention to the concerns of their shareholders….
 
Nick Dawson, a co-founder of Proxy Insight, said that while investors treat issues related to environmental, social and governance policies, known in industry parlance as E.S.G., very seriously, “there is a clear preference for behind-the-scenes engagement on these issues.” “Asset managers prefer to ensure that management teams are capable of dealing with E.S.G. issues in-house, rather than by applying external pressure,” he said….
 
There is concern that on the subject of gender, women are less likely to push for greater diversity. Some women in high-power corporate governance positions said that they preferred not to bring up gender as an issue in discussions with management on concern they will be perceived to have an agenda.”


2. Impact Investing: Diet gurus promising weight loss & limitless chocolate cake
Writing in NextBillion, Greg Neichin and Diane Isenberg argue that as far as impact investing goes, deep social impact requires financial concessions. They pick up the argument recently laid out by the Omidyar Network in the Stanford Social Innovation Review, arguing against “hyperbolic, content-free puff pieces all heralding that the impact investment industry has gone ‘mainstream’”: 

"Those of us actively allocating capital to fragile enterprises in developing markets recognize that those people who promise comfortable market-rate returns while solving global poverty are the equivalent of diet gurus promising that one can lose weight while eating limitless amounts of chocolate cake. As former Omidyar Network India Managing Director Jayant Sinha (now Indian minister of civil aviation) said on stage at the recent India Impact Investing Conclave, “Do not kid yourself that this is commercial investing, you are here to deliver impact.”
 
Yes, we certainly acknowledge that there are numerous ESG-oriented public equity and bond funds, as well as U.S. and European focused private equity and credit portfolios geared toward generally responsible and beneficial companies that are delivering perfectly solid returns. We get it. We are investors in many of them. If that is the entirety of your intended scope of impact, then mission accomplished.
 
However, for those with the flexibility and fiduciary responsibility to pursue direct impact in truly marginalized and underserved regions and communities, it’s necessary to grapple with the reality that these contexts often require concessionary rates of return, an appetite for a range of risks (geopolitical, currency, security, etc.), as well as a need for creative structures and patient timelines. We find it unhelpful when advisors, fund managers and even asset owners declare that you can have it all, when the reality is that it depends on what “it” is….
 
There is a big crowd on the side of the return continuum seeking a feel-good, low-risk way of earning an invitation to speak at the next GIIN or SOCAP conference. There are far fewer willing to swim in the deep end of the risk continuum.”


3. Effective Philanthropy: Are you an aggravating funder? A new checklist helps you find out
Nonprofit leader Vu Le, writing in his “Nonprofit with Balls” blog (don’t worry; it’s a reference to the multiple balls that nonprofit leaders have to juggle) crowdsourced a list of hundreds of things that funders do that get on people’s nerves, condensing them into the “Funding Logistics Aggravation, Incomprehensibility, and Laughability (FLAIL) Index…a list of things that make us want to punch a wall, scratch our heads in bewilderment, or crack up laughing. Or drink.”
 
Here are a selection:

  • You are not clear on what you will fund and what you won’t (+1 point). Have a list of what you do fund, and what you do NOT fund.
  • You don’t fund existing programs (+5 point). Really, it needs to be “innovative”? How about you fund programs that “work”?
  • You don’t fund “staff salaries.” (+5 points). Really? Who do you even think is running the programs, much less writing this grant proposal?!
  • You process takes longer than it takes to conceive and give birth to a baby (+5 point). If your LOI plus proposal plus site visit takes longer than for the average couple to make a human being, it’s too long.
  • You ask for an entirely new proposal for renewal grants (+1 point). This org has been with you for a year or two or three. Why ask them to jump through the hoops again? Just ask for an update.
  • You ask for the board chair’s signature, or board members’ signature (+5 point). Some of us have board chairs who are difficult to track down. I promise, no one is going around pretending to be us and writing grant proposals on our behalf.
  • You send paper applications and require nonprofits to fill them out (+5 point). We don’t have typewriters! Verily!
  • You require ridiculous stuff like “a stamp of the common seal of the organization” (+1 point)
  • You don’t offer to show all the questions up front (+5 point). It is irritating to have to fill out each page before being able to see the next questions.
  • You ask for extensive info for small amounts of money (10-page narrative for 5K?) (+5 point)
  • You ask the same questions three or four different times (+5 point). “What are your goals?” “What does it look like if you are successful?” “What do you hope to achieve with this funding?” Argh!!
  • You force applicants to fill out your own budget form (+10). We all have our own budget formats, and we spend way too much time translating it across 20 different funders who each has a different budget template. Please stop the madness and just accept our format!
  • You ask for a 5-year budget (+5 point). Considering the volatility of this sector, many of us can barely project one year out. We’ll project 3 or 5 years out if you ask, but just know that it’ll likely change.
  • You punish nonprofits for having too much in reserve (+1 point)
  • You punish nonprofits for having too little in reserve (+1 point)
  • You ask the sustainability question (+5 point). As I wrote earlier, the answer to the question “How will you fund this program when our support runs out” will always be a euphemism for “We will leave you alone and bother other people,” so there’s no point asking it.
  • You require excessive reports (+1 point). Do you really need quarterly reports for a 5K grant?


4. Wildcard: From foxes to lions: why the elites always rule
Writing in NewStatesmen, Hugo Drochon revisits the early 1900s Italian economist Vilfredo Pareto’s thesis that “elites always rule.”
 

“There is always the domination of the minority over the majority. And history is just the story of one elite replacing another. This is what he called the “circulation of elites”. When the current elite starts to decline, it is challenged and makes way for another. Pareto thought that this came about in two ways: either through assimilation, the new elite merging with elements of the old, or through revolution, the new elite wiping out the old. He used the metaphor of a river to make his point. Most of the time, the river flows continuously, smoothly incorporating its tributaries, but sometimes, after a storm, it floods and breaks its banks.
 
Drawing on his Italian predecessor Machiavelli, Pareto identified two types of elite rulers. The first, whom he called the “foxes”, are those who dominate mainly through combinazioni (“combination”): deceit, cunning, manipulation and co-optation. Their rule is characterised by decentralisation, plurality and scepticism, and they are uneasy with the use of force. “Lions”, on the other hand, are more conservative. They emphasise unity, homogeneity, established ways, the established faith, and rule through small, centralised and hierarchical bureaucracies, and they are far more at ease with the use of force than the devious foxes. History is the slow swing of the pendulum from one type of elite to the other, from foxes to lions and back again.
 
The relevance of Pareto’s theories to the world today is clear. After a period of foxes in power, the lions are back with renewed vigour. Donald Trump, as his behaviour during the US presidential campaign confirmed, is perfectly at ease with the use of intimidation and violence. He claimed that he wants to have a wall built between the United States and Mexico. His mooted economic policies are largely based on protectionism and tariffs. Regardless of his dubious personal ethics – a classic separation between the elite and the people – he stands for the traditional (white) American way of life and religion.
 
This is in stark contrast to the Obama administration and the Cameron government, both of which, compared to what has come since the votes for Trump and Brexit, were relatively open and liberal. Pareto’s schema goes beyond the left/right divide; the whole point of his Systèmes socialistes was to demonstrate that Marxism, as a secular religion, signalled a return to faith, and thus the return of the lions in politics.
 
In today’s context, the foxes are the forces of globalisation and liberalism – in the positive sense of developing an open, inter­connected and tolerant world; and in the negative sense of neoliberalism and the dehumanising extension of an economic calculus to all aspects of human life. The lions represent the reaction, centring themselves in the community, to which they may be more attentive, but bringing increased xenophobia, intolerance and conservatism. For Pareto, the lions and foxes are two different types of rule, both with strengths and weaknesses. Yet the elite is always composed of the two elements. The question is: which one dominates at any given time?”


5. Items of Note


6. Robo Advisors for Good
As previously noted, two long-term trends I'm tracking are the rise of so-called "robo-advisors" (low-fee online wealth management companies which use automation and algorithms instead of an army of humans to manage and efficiently balance investment portfolios) and the increasing demand from asset owners for impact/responsible/sustainable investment products.

There are now several companies trying to operate at this intersection, and I’m tracking them here (without making any claims on their quality). Thanks to those who sent in several more this past week. Know of others? Please let me know.


7. Job Postings


8. Upcoming Events
Feb 7-8 Data on Purpose (Stanford University) Effective Philanthropy
Feb 9: Case Studies Through a New Energy Lens (Columbia University) Impact Investing
Feb 15 The Economist: Mainstreaming Purpose-Driven Finance (NYC) Impact Investing
Feb 24 Yale Philanthropy Conference (New Haven, CT) Effective Philanthropy
March 21-22 Impact Summit Europe (The Hague, Netherlands) Impact Investing
March 30 Impact 2 (Paris) Impact Investing
April 4-6 Center for Effective Philanthropy (Boston) Effective Philanthropy
April 7 Wharton Social Impact Conference (Philadelphia) Impact Investing
May 31 - June 1 Grantmakers for Effective Organizations (Chicago) Effective Philanthropy


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 dog sheepishly trying to retrieve his cat-adjacent toy).


Until next time, thanks for reading!
Brian

Brian Walsh
Head of Impact at Liquidnet. Full Bio.