The Role of Investors and Leadership
An inherent tension exists within for-profit social ventures. Often they are founded by ambitious people who truly want to solve social or environmental problems, and see the marketplace as an effective means of doing so. As if often the case, though, they need capital to get these ventures of the ground. And as many of us know, investment capital rarely comes without some strings attached. If the business isn’t turning a solid profit, it likely won’t matter how much ‘good’ it is doing.
While investors have the right to demand some return on their risk, often a rift can open up between the profit-motivated investor and the change-minded entrepreneur. A profit motive will entail a certain set of decisions to achieve end goals. Similarly, a change motive also require its own path, which might diverge from the profit motive path. At a small scale, however, matches can be made that align sympathetic investors and their ‘patient capital’ with astute change-makers who see success as a combination of financial solvency and social or environmental problem solving.
But will those nice alignments be enough to course correct as noted in Part I of this post, or simply further incremental change with localized success but little ability to scale? Further, what happens at the slower moving, more institutionalized levels such as multinational corporations and policy-making? To achieve course correction requires throwing full institutional weight behind a new way of doing business and making rules. And it appears that nothing shifts institutional weight faster than incentives for personal gain. This, of course, raises a clear contradiction–I am suggesting a collective good created out of personal self-interest. How can this be…?
In any of the institutionalized chains of command, there are those that hold the ultimate purse-strings. In Corporate America, for example, influence comes from three different points of a triangle: consumers, investors and the government. Without appeasing those constituent groups, even the highest paid CEO will be powerless. So nudging the ship, this Ark of Challenges, will require a new incentive structure derived from both the top and bottom of the business ladder. Neither a top-down approach, nor a bottom-up one, will get the job done alone.
So this begs the question… what are those incentives? Well, money seems to work wonders.
From the consumer perspective, it is fairly straight-forward. Companies want to sell what people want to buy so very simply consumers must change their buying habits and hold companies accountable for the products, services and actions. Consumers have significant power to push companies in new directions simply by making different choices at the store.
As for investors and philanthropists, it’s time for them to take responsibility for the businesses they support. Whether a board-seated seed funder, distant shareholder, or donor, it is simply no longer okay to contribute cash to something that feels good without holding leadership accountable for multiple (or combined) bottom lines. One idea of how to throw weight around is to commit investment sums early on but allocate portions according to progress against performance milestones. Or better, don’t fund anyone that doesn’t have a change model that is crafted with the same integrity and diligence as their business model.
And what about the government? I’m sure there are many ideas but I’ll throw out tax incentives to start. Companies who achieve certain social and environmental performance standards would be eligible for tax breaks. Companies who tie executive compensation to meeting these standards, and actually achieving them, could be eligible for even greater incentives that are given directly to corporate leaders. Yes, I am suggesting that bonuses be tied to social and environmental performance just as much as financial, supported by the government but not at a cost to taxpayers. Companies that institute product end-of-life take back policies could gain even more. Businesses that use minimal raw materials could be rewarded. And so on. Leadership incentives would ensure sustainability was as high of a priority as financial return, as well as provide some cushion for executives worried about breaching fiduciary responsibility by looking ahead more than a quarter. The government has a role to play, but it need not be over-regulation (though certain policies like cap and trade or a carbon tax are indeed critical).
It would be folly to think that the collective power of small actions, if performed in concerted effort, cannot shift the direction of the ship just enough to set it on a new course. Part III of this entry will look at some real world examples. If any readers have suggestions of success, failures or good-faith attempts gone awry, please comment below.