Archive for the ‘Assertively Responsible Investing’ Category

How do we know that our tax dollars end up serving the nation’s and communities’ good, rather than for other purposes, or donations to a not-for-profit, or investments in a social venture fund?

Its a dilemma whether the social capital is raised widely or are created by the social elite. Even organizations that have governing protocols  that are varied and democratic, end up serving an individual’s, or a clique’s version of social good.

I’m not proposing this question as an inhibition against donating or socially investing.

Not-for-profits, the ones that have a sense of responsibility that includes long-lived relationships with voluntary current and future contributors, know that their actions, their performance, affects the future of charitable sentiment indefinitely, not only their organizations’.

There are many legal ways to preserve the compliance with the original intention of a social investment or significant charitable donation. Current law governing not-for-profit organizations’ management of donated funds require that all current and long-term funds be managed according to a standard of fiduciary responsibility. In a nutshell that includes that funds donated for a particular negotiated purpose, be used only for that stated purpose, and that all funds held long-term be managed in a way that attempts to preserve the fund principle in perpetuity. There is no sunset for that obligation. Some donors create trusts to accomplish the same objective, that do have specified ending dates, but any endowment is held for perpetuity.

While a donor is alive, or even a generation later, trustees can hold social investment organizations and/or foundations accountable for their decisions and management. After a moderate period, the community of people alive capable of understanding the founder’s or donor’s intentions are gone. A foundation in particular, then takes on a life of its own. Often these foundations are large and in their role as institutional investor and as selective donors, are very powerful.

Grass-roots originating foundations and social investment organizations encounter the same dilemma, actually earlier, as there is no original individual donor. Discerning the sense of purpose for an organization that no longer has a passionate individual organizer even, becomes a dilemma. Boards can then become self-perpuating, and either opportunist or reviving their sense of principle.

Where an investment or foundation’s mission is defined very specifically, there are paths of accountability for adherence to that mission (if anyone is paying attention). So, for example, an investment fund to fund energy conservation in pre-existing dwellings, has a clear mandate. A social investment fund in supporting a specific region’s economic development starts getting more contreversial . For example, when a region achieves some sustaining economic viability (no longer needing a social welfare oriented purpose), the fund then faces the decision of either disbanding, or the knotty problem of choosing which luxury development path to invest in (even as that is in conflict with the original intent of serving as a social welfare enhancing fund).

Social investment funds or foundations, whose multi-generational mission is more vaguely defined as serving a general “public welfare”, have a much more confusing task of clarifying that their operations and decisions are realizing (or not) their stated mission.

The common method employed currently to realize good social investment governance and good foundation governance is through empowering boards of directors, and clarifying what personal and ethical characteristics are required of each board member.  (That can also create a cliquish elite governance, and/or fashions of desirable donations/investments rather than thoughtful responsible mission governance.)

There was a book written by Jeremy Rifkin in the 90’s, that I refer to often, “The End of Work”, in which he describes that the quantity of socially necessary work to meet human needs, is/has/will decline over time to the point that there is a status of constant high unemployment. Marx and Lenin wrote similarly, that modern technological innovation fuels a “reserve army of the unemployed”. One consequence of that concept, is that unless we socially are willing to let a large minority starve or become light criminals (unable to meet their financial promises), that society will have to shift to more social owned and purposed equity relative to individual wealth, supplying relatively more of more people’s means of living by shares of commonwealth.

Some have articulated the need for intentionally developing a community of individuals capable of overseeing the welfare of the community, guaranteeing that social institutions continue for social purposes. Ombuds. Boards overseeing boards. Originally self-appointed or rather self-assumed, extending for generations and generations (by blood, teaching ultimately, and/or revived by compassionate reasoning), fearless, deeply ethical (in contrast to superficially), institutionally empowered, even them accountable to others.

Enough “science fiction”.


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We live in an “ownership society”. The owners own. With the shift in retirement management responsibility socially from employers to self-managed 401(k) plans, 403(b), IRA’s and equivalent, MANY individuals see themselves as owners (if only for the returns of index mutual funds).

Among the idealistic baby boomers (talking about my generation), there was a class split between idealistic working people and idealistic affluent, with children of affluent trust-dependant acquiring control of their trusts and seriously thinking about the moral and other responsibilities of ownership (a good thing). Many distinguished social and ethical concerns as predominant over the rights and power of ownership as is articulated in the more anonymous financial economy.

To date, the state of the art in practice of social responsible ownership hasn’t proceeded very far. There is a great deal of funds (estimated at $3 trillion) in screened investment portfolios, including a majority that is institutional.

At the same time, many individuals and many entities that one would assume would adopt social responsibility approaches like university endowments and many large foundations with a charitable purpose, seek maximum return as their primary criteria of selection.

So, we have the phenemena of definite improvement in corporate social accountability, but realized only incrementally, and often their core businesses are not socially responsible so we have the dilemma of their success being a social failure, even as they are best in class and doing the best that they can in the businesses that they are in.

Socially responsibly screened funds are in pre-existing securities in pre-existing institutions. They just exclude some from their population or emphasis.

There are VERY FEW angel or venture paths for capital for innovative socially responsible organizations. The ones that do exist emphasize juicy cool investments in new technologies often (requiring large aggregations of capital to realize successful products/services), and do not attract much capital to common sense conservation oriented, low capital, smaller entrepreneurial applications. (Economies of scale in deal-making. Fixed costs of deals relative to variable return. Why not put $10,000,000 into a a single desert solar array, than $10,000,000 into 500 contracts for home energy deep retrofits?)

Between the tax law favoring investing/speculating in pre-existing securities, and socially responsible screened funds investing in pre-existing securities, that is where money goes, especially freely disposable funds. It structures at least a partial bubble, but more importantly it distracts from investment in the new.

Corporations are naturally risk-averse and are reluctant to spend money and people/talent on risky ventures, at least without high return or favorable market positioning as a consequence. An advocate for the greater good proposing a venture to a large corporation or any other source of private new capital is inevitably in a two steps forward, ? steps back situation, of trying to accomplish good by appealing to opportunism and not just as an abstraction.

It is good work to get a corporation to adopt a more energy-efficient methodology. Much much better done and struggled to accomplish than not.

There are people today that have noted some of the contradictions in the current socially responsible investing world, and have attempted to develop more responsive capital aggregations, that actually create new norms. They are few and far between.

Objectively, if there is any venture risk, they have higher risk profiles than the natural investment community will accept. The risk/return logic is imprinted, and only applied to measurable criteria.

Financial return is relatively easy to measure even with investment in a long-term horizon. “What is the liquidation/market value of my portfolio today compared to last year”. (or five or twenty years ago, whatever time horizon is relevant). Measurable.

Charitable value is harder to discern. Did my investment in x venture realize an improvement in the quality of life in my community, the region, the planet? How can I measure that?

So, if you combine the proportion of capital that is influenced to be return oriented from passionate greed, and the proportion from habitual orientation, and the proportion from ambiguity of measurement, and the proportion from absence of socially beneficial investment options, and the proportion from fiduciary law (compelling emphasis on return n trust or corporate entities unless specified by originator), it is obvious that capital will flow towards return.

Any current effort for sustainability will then have to lean on synnergies of profitability and social responsibility, moreso than social good or innovative long-term transitional thinking.

The features that would shift that proportion include:

Development of comparable social metrics thereby answering the question “what is the social affect of my social investment”

Development of charitable passion/values among those with discretionary capital

Promotion of the acceptabilityof “financial capital preservation with social capital return”

Development of scalable and successful genuinely social enterprises as a model (beyond serving the LOHAS population willing to pay premiums in product/service pricing)

Development of legal forms of organization and contracts modifying traditional fiduciary responsibility to include social return more prominently in the mix.

Development of means to reward in other forms than monetarily (or realize intrinsic reward) those that choose to invest for the social good prominently.

Its a big nut. Doable. Necessary if we are to redesign our economy for the sustainable future.

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