CAPITALISM II

We First Book Video: "We-defining Me" from We First on Vimeo.

Some of you may have been confused by the last post on capitalism. You wonder how is it possible that companies are not doing enough.

Without giving you all the facts and figures, the main point is that the world is facing staggering problems in areas of global health, global homelessness, global climate change, global conflict, food security and agricultural development problems, energy instability or deficiency, water scarcity, gender disempowerment, unemployment, underemployment, education, youth leadership, etc. The list goes on. Yes, it’s true that most countries give a small percentage of their budget to help with foreign assistance, foreign aid, or international development. But this is not the same as the 1% of pretax profits the average company gives to charity.

To explain, let’s use the U.S. as an example. It is true that less than 1% of its budget goes to foreign aid, so it seems similar to the average corporation, on first glance. But remember, much of what countries do is domestic. If the US works on shelter and housing domestically, it’s the Department of Housing and Urban Development (HUD); if they work on it in foreign countries, it’s the U.S. Agency for International Development (USAID) or Department of State. If the U.S. works on energy security domestically, it’s the Department of Energy (DoE); in foreign countries, it’s USAID or State. If the U.S. works on public health domestically, it’s the Department of Health and Human Services (HHS) and the National Institutes of Health (NIH); in foreign countries, USAID or State (or the international parts of NIH, HHS, and a bit of Homeland Security). So when you say that the U.S. spends less than 1% on international development, remember the key word is international. They are also doing local or domestic development all the time.

Still, I do believe the government could do more. Generally, countries that spend a greater proportion of their budget on effective education and health have higher standards of living (Norway, Sweden, etc.). So I do want the government (around the world) to do more. However, I’m specifically speaking about corporations due to the limitations of government. Before talking about corporations, let’s think about the benefits the government has. It has 60 years of knowledge in foreign aid and over 80 years of knowledge since the New Deal (U.S. government). It has guaranteed income—the tax base. It can create legislation or use executive power. And it has existing administrative, programming, and financial infrastructure at the local and state levels. However, the government is limited by fraud, corruption, bipartisan politics, jarring bureaucracy. In trying to solve problems of global and domestic poverty alleviation, the government struggles (or doesn’t struggle) with national interests versus global need, disagreements about where the poverty line should be, lack of enthusiasm towards social programs for the poor (in the U.S.), and feelings that the non-profit sector, families, and churches should handle poverty efforts.

The non-profit sector also faces great advantages and limitations. Remember, when I say non-profit sector I’m including philanthropies/foundations, NGOs, charities (501c3 status) and non-profits which can have other tax exempt status. Generally non-profits enjoy being seen as credible and neutral. More generally, non-profits have the advantage of super-motivated volunteers and staff, potential ability to attract big contributions, field expertise (many NGOs have feet on the ground in various countries around the world or in local communities), and limited staffing, bureaucracy, and overhead. Obviously this does not apply to all NGOs, however, the big large NGOs are not most NGOs. Unfortunately, NGOs and the non-profit sector also deal with fraud and corruption like the government. There can be policy conflicts between headquarters and people out in the field. Money is always a problem. A lack of coordination between NGOs working on the same or related problems diminishes impact. And NGOs are always subject to the agendas or requirements of donors and host country governments.

And that leaves . . . you guessed it—corporations. Of course, social enterprises (the 4^th sector), NGOs and the non-profit sector are doing all they can. They can continue to improve efficiency, but they are doing a lot. Governments need to do more. However, corporations have not really scratched the surface of their potential to contribute to solutions to the major problems plaguing the world, today.

We looked at the short history of corporate charitable giving, Corporate Social Responsibility (CSR) movement, and Cause-related Marketing (CRM). So yes, to summarise, U.S. corporations went from 0 charitable giving in the early 1900s when they were barred from making such contributions to giving to arts and culture in the 1950s and 1960s. In the 1970s they began to give to civic causes, and then moved to national and global issues of poverty and social justice in the 1990s and 2000s. And yes, contributions grew from 0, then, to $14 billion in 2009. Still it’s a small percentage of the profits that companies pull in annually. Most importantly, CSR is still somewhat of a second thought and operates with problems and deficiencies in many companies. Here are few of the problems according to Simon Mainwaring.

• Giving is disproportionate to profits and salaries – The $14 billion in 2009 is small compared to money (billions) made by investors and top executives not to mention bonuses.

• Top executives are uninvolved and insincere – In a 2010 McKinsey survey of 1800 respondents, more than 50% considered sustainability to be “very” or “extremely” important. Contrast that with the fact that only 30% say their company invests in sustainability and embeds it in business practices, while only 25% said that it is a top priority for their CEO.

• Companies fail to understand CSR – According to the same survey, 20% of executives claimed their company has no definition of sustainability. Fifty-five percent thought that CSR related to management of environmental issues; 48% thought it was related to governance issues like ethics, regulations, and compliance; 41% thought it was related to social issues like worker rights and labour standards.

• CSR efforts are just window dressing – The great majority of companies still use CSR as a tool for public relations and their public image. Simon Mainwaring even quotes the Economist as saying “ . . . for most public companies CSR is little more than a cosmetic treatment. The human face that CSR applies to capitalism goes on each morning, gets increasingly smeared by day, and washes off at night.”

• Companies spin their CSR and CRM – Companies have been exposed for green-washing, cause-washing, and local-washing in order to market themselves.

• CSR results and measurements are scattershot – There really are no national or international standards of achievement in CSR. So few companies measure their results. Most of us use various watchdog agencies to watch, analyse, rate, and rank corporations on their socially conscious good work.

When I say “it’s not enough,” this is what I mean.

I’ll close with a report mentioned in We First. One of my favourite people is Paul Newman (God rest his soul). When he was alive he convened a group of CEOs and founded the Committee Encouraging Corporate Philanthropy (CECP). The CECP commissioned a report from McKinsey to project 10 years into the future to see if social responsibility was important for the future of corporations. The report predicted 5 important trends between 2010 and 2020: (1) a rise in the power of emerging nations, like China; (2) a shrinking of the labour force and talent pool due to demographic changes; (3) a global integration of capital markets, trade, and technology; (4) natural resource scarcities; and (5) competition among nations to attract work.

The report mentioned 4 scenarios based on how extensively corporations adopt true social responsibility.

Scenario 1 – People put greater demand on companies for social change and corporations react positively. Consumers began to trust corporations that they will agree to enact social change. Consumers and corporations become partners in actually improving the world. And governments allow corporations to voluntarily meet these social expectations.

Scenario 2 – Corporations try to adopt some social changes, but citizens fail to trust them. As a result, government and NGOs stop partnering with corporations to enact social change, and we are left with a “patchwork” of international laws and standards and a “bifurcated system of capitalism.”

Scenario 3 – Society’s expectations of businesses continues to rise, but companies refuse to enact changes for positive global impact. Governments enforce regulations reducing capital and increases expenses for companies. Citizens (who are also consumers) distrust companies creating a problem of expectations.

Scenario 4 – Societies and companies cannot match their expectations or their engagement levels so there is an ever-downward spiral of social responsibility. Trust in business drops low enough that the economy suffers exacerbating the very global social problems we are trying to solve.

The report says that only the first scenario is the logical and preferred scenario. Each of the rest does not have a beneficial outcome for corporations.  Which of the scenarios do you think is likely to happen? Do you see any other options or scenarios not listed?

THE NON-PROFIT DISADVANTAGE

Now if you’re someone who doesn’t want to donate money to a water-based non-profit because you think they are wasteful, have too much overhead, pay their employees too much, or are not really innovative, let’s start talking.

I’ve talked a lot about social enterprises that have revenue-generating models. But even the social enterprises with revenue-generating models still fundraise. And fundraising is what non-profits do. So today, I want to talk about the disadvantage that non-profits face because of the different standards applied to for-profits and non-profits.

I’ve been bothered a lot lately by the fact that there is no multi-national, global, big-money social enterprise. When you think of big companies you think of Apple, Samsung, Coca-Cola, GM, GE, Shell, Chevron, Wal-Mart, BP, etc. But I can’t think of one non-profit company or one social enterprise that size. Some say, it’s fundamentally and inherently an impossibility. Why it bothers me is that I think of all the amazingly impacting change a multi-billion dollar social enterprise could do—one that was still amazingly innovative in selling its products but just as innovative in using its profits for seeable change and whose products themselves were changing the world for those without access to basic needs. I’m still pondering this and what it would mean if it existed and if it’s possible to exist.

I do know that non-profits, today, are often hindered in their growth due to concerns of giving to non-profits, efficacy, efficiency, and waste. So I want to list the disadvantages they face in their work compared to for-profits and for-profit work. These disadvantages are highlighted by fundraiser and activist Dan Pallotta in his recent TED talk, The Way We Think About Charity Is Dead Wrong.

      1) COMPENSATION: It’s ok for for-profit leaders to make tons of money, but we do not like it when non-profit leaders make a lot of money. People don’t care so much if someone makes a lot of money selling violent video games, but they get very angry when a non-profit leader makes a lot of money. The problem is that for-profit sector then has an advantage because they can use compensation and salary to attract talent whereas the non-profit sector cannot. Dan gives a beautiful example where he takes the median compensation (with bonus) of a Stanford MBA holder at age 38 ($400,000) compared to the average salary of the CEO of a hunger non-profit ($84,000). It may not be greed that entices a person to take the $400,000 job., according to Dan. It can be much smarter to (1) take the $400,000 job, (2) donate $100,000 every year to the hunger charity, (3) save $50,000 on taxes (still $270,000 ahead of the hunger charity CEO), (4) be called a philanthropist for the $100,000 donation, (5) sit on the board of the hunger charity, (6) supervise the poor person who decided to become the CEO of the hunger charity, (7) and have a lifetime of this type of power and impact.

(Now, I have a slight problem with this thinking since I find it counter-productive, on one hand, to be part of a system that creates hunger and, on the other hand, sit on a board to fight it. However, the point that we need to be willing to compensate non-profit workers in general is an important one. At the very least, the extra attraction of higher salaries, allows people to live consistent lives “on both hands.”)

2) ADVERTISING: We’re ok with for-profits spending as much as possible on advertising, but we don’t like our donations to non-profits to go to their advertising needs. This reminds me of criticism heaped upon Invisible Children. What’s interesting here is that for-profits use advertising to increase revenues.  In the same way, a non-profit can actually increase the amount of money they bring in and fundraise, and therefore increase the good they do and the amount of money directly impacting beneficiaries through advertising.

  

      3) RISK TAKING: We’re ok with for-profits taking risks to generate potential new revenues such as new products (Apple) or new, daring movies (Disney). But when a non-profit takes a risk with a fund-raiser that doesn’t produce huge profits, they get in trouble and their reputation is hurt. Non-profits then become scared to take risks. The problem is that prohibiting failure kills innovation, which prevents the possible growth of revenue and stifles an organization or industry.

      4) TIME: We’re ok with for-profits taking time to get a return on investment (Amazon took 6 years before it generated profits). But if a non-profit needed 6 years of work before generating any return that benefited the hungry, people would critique the non-profit out of business.

      5) PROFIT: For-profit companies can pay out profits that can attract capital for investment into new risks and new ideas, but non-profits can’t pay profits, which reduces their risk capital, idea capital, and potentially their growth potential.

I’m not sure if these things will change, but I am happy that through social sector enterprises combining the social aims of non-profits with the for-profit revenue-generating models, that at least 5 is being addressed. However, it’s still a problem with non-profits. I know people criticise Jeffrey Sachs a lot, but often, I do understand what he means, that we honestly have not given much money (percentage-wise) to the problems we want to resolve. So I often wonder what would a world look like where a multibillion-dollar-profit-making company was a social enterprise and was so innovative in its products that it always remained on top. How would their profits go to social use and would it make a difference? My guess is that its products would become socially good if it was the ethos of the company. But is it possible?

I’ll leave the topic alone and invite you to comment and respond to it. Do you agree with the list? Do you see any possible solutions? Any new ideas bubbling beneath your hoods?

SOCIAL ENTERPRISE

In 2008, Bill Gates stood up at the World Economic Forum and gave a speech essentially saying that charities and governments cannot solve the world’s problems alone. He called for a new creative capitalism and the entrance of the private sector (businesses and innovation) into the work of caring for others. These are exciting times.

Businesses are having to change ways and explore better ways of pursuing interests. The new fad is corporate social responsibility (CSR). I long for the day when companies have no CSR departments because social responsibilities and social aims are so interwoven into their mission and actions and operations and vision and strategy that it is every (by giving it no place, it occupies every space). Please take a moment and watch this 5 minute video called We First. Why is it that we make money in the first place? Is it just profit for profit’s sake? Watch the video.



Someone was criticizing me recently saying that I don’t believe in for-profit work or working for for-profit entities. They asked me “how do you think non-profits function?” “Where do you think non-profits get their funds from?” So I want to introduce the simultaneously ancient and emerging field of social enterprises.

So what is a social enterprise? A social enterprise is a socially-oriented business venture created to solve a social problem or market failure through entrepreneurial private-sector approaches that increase effectiveness and sustainability while ultimately creating social benefit or change. But that’s a somewhat technical and long definition.

In simple terms a social enterprise is an organization that uses business models (like a for-profit company) in order to achieve social aims (like a non-profit). For-profit companies deal with a bottom line. Social enterprises often deal with what’s called a double-bottom line (people and profits) or a triple-bottom line (people, environment, and profits) instead of the traditional bottom line of profits. Social enterprises can legally be classified as for-profits or even non-profits. The legal classification doesn’t actually matter. What matters is that they have some means of a revenue-generating streams to propel the organization towards its aim and mission.

Now there are many benefits to working as a social enterprise instead of a traditional non-profit. I’ll list a few below. This is not a comprehensive list.

1. Traditional non-profits often depend on grants, contracts, funds, and donations from the private sector, the public sector, and private individuals. Social enterprises have their own means of generating revenue so donations and grants and fund raising becomes supplementary or optional.

2. Social organisations working in community or international development often deal with the problem of people not valuing the service or product provided because it’s free. By charging a fee for it, it creates a sense of value and a sense of ownership by the person who worked hard for the money to purchase the service or product. This often leads to better care of the service or product and ownership over its maintenance. However, if the price is set too high, the business pricing model becomes a hindrance or prohibition to those who desperately need such services.

3. Social enterprises have the potential to be more sustainable than traditional non-profits. This does include financial sustainability (#1), but it goes beyond that. Especially in community and international development, this includes the sustainability that comes from building the capacity in the community’s people to do the work. Social enterprises provide opportunities for jobs due to the revenue generation. This gives opportunity for training, and if it goes well enough, possibly expansion in other locations.

So to review, social enterprises have social aims.
Social enterprises create value.
Social enterprises are agnostic about legal form.
The "S" (social) drives the "E" (enterprise).

Now there are many ways to be a social enterprise and many companies claim the title (because there are certain benefits if people view you as a social enterprise). The differences in types of social enterprises depend on a few criteria:

1) How good is the social good you are producing? (an organization can be socially neutral or socially evil)

2) Do you directly produce the social good or do use the profit from some other economic activity to then do social good? (social good from product/service or social good from use of profit)

3) Is your social aim placed on par with or ahead of your profit aim?

4) Do you generate all of your revenue alone or do you supplement it with donations and fundraising and grants?
Let’s look at how John Rougeux categorises the nuanced spectra of organizations. I’ve added italicised examples of organisations that fit into some of the more positive categories.

———

Above is the old school way of dividing organizations: for-profits and non-profits, or businesses an charities. Non-profits help social problems, for-profits make money. An easy categorization, but hardly accurate, and certainly outdated. It’s also makes a dangerous assumption, that the good created for society is most easily judged be assessing an organization’s tax status. This paradigm assumes that there is no overlap between the two (i.e. all non-profits create more good for society than all businesses). The world isn’t that simple, and below is a more accurate depiction of how organizations might be categorized (click the image for an enlarged version):


At the left hand side of the spectrum are entities that harm society, and to the right are organizations that seek social good for society. For the purposes of this illustration, “social good” is the generally positive intent of an organization’s product or service, or the positive outcome sought from the way the product or service is delivered. Favorable results that stem from job creation, economic growth, etc. are not represented here.

These categories don’t imply that a business or charity is either “all good” or “all bad”, either; there are bright and ugly sides to any organization, but these nuances can’t be included here. Instead, this spectrum ranks how actively each type of organization generally seeks to better (or worsen) society.

For-Profit (Active Social Ill) – these are companies that actively harm the world through their actions. Thankfully there are few of these, but Girls Gone Wild is a good example. Sorry, no link included here.

For-Profit (Social Ill from Company) – a business that harms society through the way it runs itself falls into this category. A shady mortgage company certainly fits the bill. A company that packaged, sold, and traded sub-prime mortgages would fall into this category as well.

For-Profit (Social Ill from Industry) – these are entities that operate in an industry in which unwanted social outcomes are generally unavoidable. Coal mining, for example, provides a needed product, but no matter how it’s done and no matter how coal is used, it harms nature.

For-Profit (Neutral) – a business that doesn’t actively harm society, but doesn’t go out of its way to improve it, could be defined as neutral. A large number of businesses would fall into this category, like a local car dealership or a hedge fund.

For-Profit (Social Good at Discretion) - it’s not uncommon for a large corporation to develop its own foundation to make grants to other non-profits, and that’s how these businesses would be categorized. This is ranked lower than other categories, because donations are not necessarily tied to sales or the behavior of customers. The Hewlett-Packard Company Foundation and the Dell Foundation are two examples.

For-Profit (Social Good from Revenue/Social Good from Profit) – companies like Patagonia and Newman’s Own pledge a minimum percentage of revenue or pre-tax income towards causes. These arrangements directly link the success of the company with donations to charities. Another example is my church’s coffee shop Ebenezers Coffeehouse in which 100% of the profits go towards fighting human trafficking, economic empowerment, housing, orphanage projects, etc. Ben & Jerry’s Partnership Program fits into this category. They allow non-profits to run fee-discounted/free franchises and employ youth in jobs through this effort.

For-Profit (Social Good from Product) – this is a gray area, but there are certainly some businesses whose products are genuinely designed to improve people’s lives. A medical device company, like Medtronic, fits this bill. A new friend, Kohl Gill, runs Labor Voices, a group that rates and reports on working conditions and factories overseas and then sells this information to companies like a Nike or a Sprite so that they don’t employ such factories and the employers have to shut down or change their ways.

B-Corp (Social Good Before Profit) – these are a more recent creation, but more and more business are created with the intention of a double- or triple-bottom line, in which social outcomes are placed on par or even before the pursuit of profits. Better World Books is a good example of this. The Body Shop’s environmental, pro-animal, and fair-trade work is another example. Ben & Jerry’s is another example.

Non-Profit (Advances Culture) – organizations like the art museums, opera houses, performance centers, and the like all seek to improve society, and in general, the more of these, the better.

Non-Profit (Corrects Social Problems) – these are charities that seek to feed the hungry, house the poor, heal the sick, and so on. It would be difficult to make an argument that these types of organizations don’t deserve their own place at the far right of the spectrum.

There are a number of social enterprise/entrepreneurship conferences, workshops, competitions, accelerators, and incubators. These events and groups are helpful to social enterprises at different stages of development. One of the most difficult developmental points is initial funding or seed funding. So there are groups like incubators or accelerators that were established to help aid the launching of social enterprises. They locate and work with social entrepreneurs and organizations, help formulate a business plan, provide seed funding, help form a board, create a long-term sustainability plan, help locate partners and networks, and then set the enterprise off on its own hopefully to succeed and thrive. A few incubators, accelerator programs, competitions, and conferences are listed below.

Socap (biggest social enterprise conference I know in the world)
Ashoka
Ashoka Changemakers (their competitions)
Endeavor
Acumen Fund
Skoll Foundation
Praxis Labs (accelerator program)
And the list goes on and on and on. . .

HOPE: EVOKE A DIFFERENT FUTURE

I took a 10-week course from the World Bank Institute. There were about 19,000 people in the course from all over the world.

Every week we received an e-mail telling us to log in. We did and we read a 6-7 page graphic novel set in 2020 dealing with some world crisis. We were then given a mission. Each mission had 3 objectives. The first objective was educational (do a lot of learning and reading and report on it); the second action-based (you had to do something to solve the problem in your community on a small scale); the third was imagination-based (you had to imagine the world in the future with the problem solved and write about it). Each week there was also a quest, a writing portion to write about you as a hero and what motivates, inspires you, bothers you, moves you, your background and environment, your mentors and helpers, etc.



Each week focused on a different problem: food security and agricultural development, water security and development, the energy crisis, women’s empowerment, crisis networking, etc. The list went on and on for 10 weeks. And the goal was to use social innovation and social entrepreneurship to address the problem. We followed along the story of the secret global agents who were social innovators and used their skills to solve the problem in the year 2020. It was a very cool game and course. I really enjoyed it though it was a lot of work (the 2nd objective each week took time).

If you completed 1 objective from each week and each quest you were called a hero.
If you completed 2 objectives from each week and each quest you were called a certified hero.
If you completed 3 objectives from each week and each quest you were called a legendary here.

I think certified heroes and higher received a certificate saying they finished the course. At the end of the course, you were allowed to submit a proposal developed as you worked each week and collaborated and discussed. Some would win mentorship prizes, some would win travel funding for a summit that is to happen in DC later. The top 20 would win a seed grant to launch their social enterprise and get started.

I submitted two proposals; neither was chosen. But I am helping and advising a friend from the class who is doing a film project on the Story of Happiness. He won a mentorship and chance to put his project on Global Giving and if he can get $4000 from 50 donors in a few weeks he gets a permanent spot there. So I’m helping him a bit, while I still pursue my own AIDS research and student summer project program (ask me later).

The game was designed by game designer Jane McGonigal who thinks games can change the world. Instead of telling her story, I’ll let you listen to her tell how she has created games that are changed the real world, not the virtual one.



http://www.ted.com/talks/lang/eng/jane_mcgonigal_gaming_can_make_a_better_world.html

http://www.wired.com/epicenter/2010/02/jane-mcgonigal/

WE CARE

WE CARE


Definitely over my life time I’ve seen a global increase in the number of catastrophes--both man-made and natural. Earthquakes, tsunamis, famines, floods, wars, epidemic diseases, terrorist attacks . . .the list goes on. In fact, never have I felt more unsafe. I’m sometimes overwhelmed or feel hopeless. Working in government, you sometimes question how much high-level policy can do.

Every now and then someone on the ground, in the midst of the crises we face, forgets how hopeless the situation seems, overcomes powerlessness, and comes up with a simple, innovative solution that doesn’t save the world, but saves a few people, people with names. From there, it grows. That’s what Dr. Laura Stachel did.

Dr. Stachel, an obstetrician-gynecologist, traveled to northern Nigeria in 2007 with a team to investigate emergency obstetric care, and she was overwhelmed by what she saw. She saw the lights go out during an emergency cesarean surgeries, women bleed to death with no blood bank or a phone to call a surgeon, women routinely turned away and babies die due to a lack of light and no ability to perform resuscitation without power.

But she actually did something about it. She gathered the requisite technical knowledge, formed an interdisciplinary team, and launched a non-profit that created a suitcase-sized, portable, solar-powered electric system that can be used in places where there is no lighting and power to do surgeries safely or call surgeons or power a blood bank for a woman in labor.

The non-profit is called WE CARE - Women’s Emergency Communication and Reliable Electricity. And in the first 6 months they showed results, saving lives in a few countries. Since that time they have deployed solar suitcases in 9 countries including disaster relief in Haiti. WE CARE was honored as a 2010 Global Social Venture Competition (GSVC) winner and an Ashoka Changemakers finalist. Both GSVC and Changemakers are programs that incubate or award promising social enterprises. WE CARE plans to produce a 2nd-generation solar suitcase, build local capacity in countries for manufacture and distribution, and continue to improve maternal care by powering ultra sound machines, fetal monitors, computers, and videos.

The wonderful benefit of this social innovation is that though it came about to solve a problem in Nigeria, it can be used around the world, and it can be used to power any medical equipment needed at night for any surgery or procedure.

We Care Solar: Saving Mothers & Infants with Solar Powered Lights and Communication from Jose Vergelin on Vimeo.