All posts by Rod Schwartz

If social impact feels hard to measure, try thinking about externalities

I recently taught a class of business school students at the ESMT business school in Berlin. Trying to explain impact and how to measure it is not an easy challenge, although this is hardly news for anyone who has tried to do so, especially in the charity or impact enterprise sector when made to do so by funders. Students find two concepts particularly challenging.

The first of these is what can be considered social or ethical. We discussed examples such as a cooperatively-owned house of prostitution in Amsterdam, or a beer company that manufactures ales made from bread that would otherwise go to waste. Whether or not you consider these to be “social” depends on your belief system. You might find any form of alcohol immoral, and you might feel similarly about prostitution. This also veers into questions about absolute or relative truth, which are well outside the scope of this piece. These are big questions, but hard to resolve.

The second relates to the question of measuring impact. Even something as seemingly straightforward as assessing carbon dioxide emissions has difficulties. It relies on self-declarations and companies might not always be 100 per cent honest about things. Nor does the story end with carbon dioxide: what about sulphur dioxide, nitrous oxide, particulates and the host of other things floating about that account for air pollution? These relate to just one or two of the 17 UN sustainable development goals. And how am I to explain to students how they can compare emission reductions on the one hand with clean drinking water, or educational attainment in poor countries, or helping someone with disabilities to achieve independence? This is hard stuff, and our impact navigator, ClearlySo Atlas, which is based on the UN SDGs, takes a shot at doing some of this, with a solution focused on the needs of venture capital and private equity firms.

Rather than take the students through the complexities of impact assessment, I spoke with them about externalities. Any student who has taken economics classes is fully aware of these. They are what are passed on to society as an unintended consequence of the main thing an organisation does, and they can be positive or negative. Firms involved in chemical manufacturing do not wish to pollute; it’s just an unfortunate by-product of the manufacturing process. Large banks did not want to threaten the world’s financial system in 2008; it is just an unfortunate and undesirable (and undesired) effect of what they try to do, which is structure deals, trade securities and pay themselves well. Whatever you think of banks, nobody employed by them actually wished to cause the world’s taxpayers’ harm by what they did. It was an externality.

Many of the businesses ClearlySo helps generate positive externalities. Some relate to their primary activity – JustGiving, for example, which facilitates charitable donations – or are secondary, as with HCT, which is a bus company that also helps disabled people learn how to travel independently with public transport. Some are even unintentional.

Society foots the bill for the negative externalities generated, as in the crash of 2008 or as a result of pollution. Governments are recognising this and working to “internalise” externalities through taxes or charges. My view is that they should also reward companies that generate positive externalities.

In any event, impact is closely related to the externalities generated by organisations. The money saved by exchequers when firms generate positive externalities – the thesis behind the innovation called the social impact bond – or the cost to society in fixing the impact of negative externalities, is one way of thinking about impact and how to measure it. At the very least, my students seemed to get it when I used this explanation.

This blog first appeared on Third Sector on 04 September 2017.

Why “impact enterprises” outperform

Last week I had the pleasure and privilege of attending the annual social impact review of the HCT Group. HCT has been a client of ClearlySo for quite some time. In fact we met the company about a decade ago, so readers are welcome to take my comments with a pinch of salt.

This annual review has become a key date in the impact enterprise equivalent of the summer calendar. Dai Powell, the chief executive of HCT, discussed trends and how they are increasing the impact of their operations. HCT, as many readers already know, is a charity, but is also considered one of the UK’s largest impact enterprises.

The event was punctuated with glowing references to the various enterprises that provided products on the night. The venue was the St Luke’s Community Centre and the beer was Toast Ale. The highlight of the event was a funny video about someone with disabilities who had gone through independent transport training ans was now able to travel on buses and trains alone. Another video featured HCT chairman Sir Vince Cable, who was appointed leader of the Liberal Democrats on the very same day as the presentation. This video was not as funny, although I suppose that depends on one’s sense of humour.

What struck me during the meeting was the realisation that this company has been enjoying rapid growth at a time when the UK bus market has been in relative stagnation. I’m sure there are many factors behind HCT’s success, but I think there is one factor in particular we can’t ignore: values are “in”.

Observers who dwell on the limitations of enterprises with a social, environmental and/or ethical impact overlook the advantages of being an impactful organisation, especially these days. More and more, people want to work for organisations with values, people want to purchase from organisations with values, people want to invest in organisations with values and, luckily for HCT, local authority commissioners really want to purchase from organisations with values.

This point really was driven home (pun not intended) to me when one of the guests who presented at the event was a commissioner for the three boroughs of Kensington & Chelsea, Hammersmith & Fulham and Westminster. He spoke about how great HCT was and how excited they were about the contract they had recently signed. I suspect the Grenfell Tower disaster happened well after this contract was agreed, but now it’s hard to imagine any other outcome. Up and down the country commissioners are increasingly asking themselves questions such as “does this provider have the best interests of our community in mind, or its firm’s profitability and its personal bonus pool?”

For this reason, among others, HCT has grown at a compound rate of 12 per cent in revenues since 2009 in comparison with a relatively flat UK bus market. Other organisations we work with have seen similar growth and, in many cases, it is the social value provided that is winning the contracts. I believe there will be a lot more of this going forward as more and more commissioners and consumers get on board (sorry again).

This blog was originally published on Third Sector on 26 July 2017.

In Praise of Angels: how angel investors are shaping impact investing

I love angels. A 2011 CBS News survey found that 77% of American citizens believe in the existence of angels. And whilst I was born in the United States, these are not the angels I’m praising in this blog! I’m referring to a group of high net worth investors (HNWIs) who invest in the early stage impact-oriented deals that we support.

From the very start of ClearlySo, angels have played an immensely vital role in our company’s development. In 2010, we began by doing “Social Investment Speed Dating” in which 8 to 10 angels met 8 to 10 potential investees.  Believe it or not, these speed dates resulted in numerous transactions.

In 2012, we brought structure to this network and launched a small tightly-managed and very engaged group of investors called ClearlySo Angels who sit at the centre of our much larger Individual Investor Network. These two networks formed the backbone of our business in the early days and remain vitally important to us for identifying the future stars of the impact investment sector. Angel investors also provided much of the capital which has enabled our firm to survive.  We have over 40 angel investors at present and are always looking for great angels to join our growing base of supporters.

Long before a meaningful institutional investment impact investment marketplace formed, angel investors in the UK where the only game in town. Frankly, an institutional market is only still starting to form.

So, what makes angel investors so great? First, they can do what they want. They do not operate through committees, subcommittees, task forces, departments and all the fabric that is required of large financial institutions. Angels can act on impulse – they can do as they please and can do it quickly. Angel investors also have a substantial amount of money, particularly when they act as a group.  At ClearlySo, we currently have over 700 angel investors in our networks, and this means we can galvanise a significant amount of capital for early growth impact businesses.

Angel investors typically possess skills, expertise and experience which have helped make them wealthy in the first place (especially those who have made rather than inherited their wealth). When they get involved in young companies, they significantly enhance the human capital of the business and the social capital via the contacts and networks they possess.

Therefore, angel investors are a critical part of the UK ecosystem for growing important high-impact businesses, which can deliver great returns and change the world in the process. A good example is the story of Justgiving, which was recently highlighted in a blog post by my colleague Mike Mompi.  Since the formal launch of our networks in 2012 we have assisted 95 early stage impact businesses to raise more than £44m of capital. Many of these growth companies have also gained nationwide recognition – nowhere has this been more celebrated and more obvious than the UKBAA’s recent Angel Investment Awards ceremony, which took place on 6th July 2017.

Several of my colleagues from ClearlySo attended this dinner and we invited several our investor and investee clients to join us.  In the run-up to the ceremony we were aware that six of our previous clients were up for awards which made the evening particularly exciting for us. We were delighted that four of ClearlySo’s former and current clients – 3 impact businesses and 1 impact angel investor:

Bulb Energy won Scale Up Team of the Year.

Fair Finance won Best Social Impact Investment.

Powervault won Best Angel-Crowdfunding Investment.

Meganne Houghton-Berry won Angel Investor of the Year.

(You can find a full list of the other winners here.)

These awards have been going for twelve years, but the special category for impact has only been in place for five years (ClearlySo clients have won the award four times out of those five!).  This signifies how recently impact entered the mainstream.

Apart from the shameless bragging on my part, I think there are a few important points to make about the significance of this event. First, is the rising importance of angel investment in the early stage ecosystem in the UK as exemplified by the growing popularity and influence of the UKBAA and of HNWIs generally. Secondly, it’s fascinating to us that in just five years organisations and individuals linked to impact have seen their share of the awards grow from one token award in 2012 to 3 awards into 2017. I believe in the next 10 to 20 years it will be considered weird for a business not to have some impact story. Perhaps by that point there will be no need for impact categories and we will recognise that all firms deliver impact.

This is really the essence of our thinking at ClearlySo. It also formed the core concept around which ClearlySo ATLAS was developed. ClearlySo ATLAS is our recently launched product which expertly and efficiently assesses the impact of all investees of private equity and venture capital fund managers. Angels have led the way in impact investing, and I believe that PE/VC firms will be right behind them. Both Angels and PE/VC firms have significant and influential stakes in their investees, and as they start to care about impact, the world will see change.

While UK financial regulations mean that we are not yet permitted to market to mainstream retail investors, we hope that will change and look forward to the day when all individuals will become impact investors. Now more than ever we need them – and lots of them.



Perfect as the Enemy of the Good

As the CEO of ClearlySo I get invited to join committees to “foster impact investment”, or such-like.  These committees are normally chock full of well-intentioned, intelligent and experienced professionals and are invariably interesting.  Inevitably, one of the recommendations always seems to be to collectively ask the Government to “do more”, which usually means funds, grants, or tax credits, or some series of goodies from the Treasury.

There is no doubt that the funding provided by successive governments has helped enable the impact investment sector here to become the most diverse, innovative and developed in the world.  But enough is enough.  In fiscally constrained times it feels indecent to ask for more.  ClearlySo has routinely opposed impact investment tax credits in particular, because they generally benefit wealthy investors, which feels inappropriate.

But the tax system is a very powerful policy tool, so recently at one of these committees I did make a recommendation to utilise this tool in a fiscally neutral fashion to encourage more positive impact, and simultaneously discourage negative impact.  It is what I call “fiscal tilting”, and I have been writing about it for years.  Its premise is this: tax things we want less of and shift those revenues (or a portion thereof) to things we want.  As the Meerkat says, “simples”.

Organisations creating negative externalities (e.g. pollution) would have to pay, and the funds would be recycled to entities generating positive externalities, creating a new source of income for charities and high-impact enterprises that are currently doing their good work “for free”.

In fact, such a change would probably be revenue-positive as government would need to spend less because charities and others would do more, and firms would generate less mess for taxpayers to clean up.  Capital markets would respond to these policy changes and amplify the effects by further penalising firms which did bad things and favouring those doing good.

Whilst some were supportive, other colleagues seemed nervous.  “What exactly would you tax?”  “Who would decide how it was spent?”  The truth is that I had no idea, but figuring out what we want more or less of, as a society, does not seem beyond the realm of human intelligence.

I do not know how such a system would work perfectly, but our current tax system is a shamble.  Surely an experiment is worthwhile—I feared that a search for the excellent was threatening the good.  On reflection, I think it may be that or worse.  My sense is that radical change is threatening.  We operate in existing systems and normally they work especially well for people like me on such committees.  We will fight hard for a bigger slice of the pie, but question how it is baked or if we should be having pie at all and there is deep unease.

Simple ideas (e.g. the “Tobin” tax, a basic income) are derided as overly simplistic.  The proposers are overwhelmed with objections and inundated with technicalities.  In my view, let’s first decide if an idea has merit and then, if we believe it might, try it out in a small way (as Finland is doing with the latter).  The fact that things as they are work poorly means our downside risk is limited.

However, this is not how things work, so in the spirit of moving things along, let me offer a specific (and very rough) proposal.

  • We manufacture far too much stuff and the strain on our natural resources is irrefutably unsustainable. So, let us tax physical “stuff” by weight.  I would only exempt residential homes and food as well.
  • Let’s raise £1 billion. Any less, it’s not worth the bother.  The tax you pay is the weight of stuff you sell, divided by the amount of stuff bought in the economy, times £1 billion.
  • The money is used to help eliminate homelessness and provide those without homes with food and shelter.
  • If it works, the Government announces that more of this is coming

Naïve?  Absolutely.

Unrefined?  Definitely.

Arbitrary?  Without a doubt—feel free to improve upon it.


This post was first published on Third Sector.

Starting New Markets: What Counts as Success and the Possible Sale of Big Society Capital

In mid-April, it was announced that Australia’s Macquarie Bank had acquired the Green Investment Bank (GIB) in the UK for £2.3 billion.  The GIB was launched in the UK, under the Conservative-Liberal Democrat coalition in 2012, to facilitate a marketplace for renewable energy investment in the UK. It was an initiative designed to fill a state funding gap for tackling climate change by attracting private funds to finance investments related to environmental protection and improvement.

Following the announcement, there was some concern in the marketplace that the new owner would asset-strip the GIB and that their intentions were far from the more noble aspirations of the Coalition Government.  Historically Macquarie has not been noted for its green credentials.  Only time will tell.

The UK has an honourable history in developing government-backed initiatives to kick-start markets considered important for a variety of reasons.  The listed venture capital firm, 3i, was originally started as the Industrial and Commercial Finance Corporation (ICFC) in 1945 to provide badly needed long-term funding in the post-war environment.  The concept was to foster the development of a market for entrepreneurial businesses in the UK and it became the first, and, for many years, the dominant VC firm in the UK market.  Its original stakes were owned by the major UK banks as well as the Bank of England and after a merger and several re-branding exercises, it floated in 1994.  After the business was listed all the banks gradually sold off their stakes.

The Commonwealth (formerly Colonial) Development Corporation (now CDC) was also begun by government initiative.  It was founded in 1948 by the Atlee Government with the mission of fostering business development in the former British Empire, starting with agriculture.  It has gone through many iterations, re-brandings and restructurings over the years, but like 3i and the GIB, it has a core mission which is not, and was not meant to be, solely about profit maximisation.

Big Society Capital (BSC) was another in a series of such UK initiatives.  Commencing in 2012, it was funded by the commercial banks (£200m), and received an initial allocation of £400m from unclaimed assets in the “dormant accounts” of UK banks.  It may invest the £600m subject to certain criteria, but I would argue its overriding mission is to build the impact investment market in the UK, which governments of all stripes have considered to be in the best interests of the UK.  In my view* it has been the most significant development in the UK impact investment market.

Some time ago, in a public meeting, I asked the then new Minister for Civil Society, Rob Wilson MP, if he expected to consider BSC becoming wholly privately-owned given that the GIB was in the process of being sold off, and also whether the new May administration was less committed to impact investment.  His reply was not altogether clear, but observers should note that there is form for UK governments to get excited about some new concept or initiative, establish a vehicle to finance it, support it and then sell it.  This is all part of impact investing (and early stage investing, and renewables investing and investing in developing markets) becoming part of the mainstream—a trend which all of us at ClearlySo strongly support.

To me, it’s not a development to moan about or feel sad about, but part of a process of moving markets onward, in a way that benefits society.  Were BSC to become wholly privately-owned (and I have no reason to think this is imminent or even planned) it would be an event which would mark a new stage in impact becoming closer to the mainstream—a next step in an unfolding process.

And just as a footnote, it is interesting that BSC’s first CEO has just been appointed CEO of CDC!


*In the interest of transparency, please note that BSC has an equity investment in ClearlySo of circa 9% and also has some £600k+ of debt outstanding to the company.

This article was first published on Third Sector.

The ethics of running a charity or impact enterprise

Of all the things that bothered me about Tony Blair, and there were many, the one that probably  worried me the most was the extent to which his actions often seem to follow from a deep-seated view that if he did something it was almost by definition right. The thinking seemed to go something like this: “I am a good guy and therefore if I feel something is good and the right thing to do, it is by definition the right thing to do”.

Normally I refrain from blatantly political points in this column but I think Blair is a well-known example of the sort of behaviour pattern we sometimes observe. Strong conviction is a very funny thing. We admire people who possess it, and it is vital in the work we all do in impact investing, but we recognise that when individuals or groups of people have too much of it, there can be serious consequences. Terrorism is the worst and most extreme example of this.

I must confess that I sometimes observe some of this behaviour in charities or high-impact enterprises.  Let me be clear about what I mean: I have seen actions by charities and impact-driven businesses that, in my judgement, did not adhere to appropriate ethical standards. My reaction to this was sometimes dismay but I have also been downright shocked. On these occasions, I came across a rationale which is like the Blairite one described above. The fact that the aim of these organisations is to enhance society and achieve some positive social, ethical or environmental impact somehow obviates the need for behaviour which is consistent with good governance, proper behaviour and even in some cases the law.

For obvious reasons, I’m not going to go into specific examples. However, I’ve encountered cases where organisations simply choose not to pay bills, or manipulate accounts, or mistreat staff or a wide variety of other actions which, to be frank, I have rarely observed in the private sector. And I used to work for Lehman Brothers!!

Please understand that I’m not suggesting this is widespread or common, and most of the organisations that we work closely with at ClearlySo show a high degree of integrity in the work they do. But I think that because of the sector’s use of the words “social” or “impact” to describe what we do, we must hold ourselves to a higher standard when it comes to ethical behaviour.  The impact of not doing so affects not only the enterprise involved but also casts a shadow over us all. Consider the scandal which emerged last year around charities and their fundraising behaviour towards the elderly which was uncovered in the media, or the widely-reported problems at Kids Company.

Sometimes I do think the higher level of scrutiny, and the higher standards to which charities and high-impact enterprises are subject seem unfair, but that is the world we live in. For example, Baroness Hogg was recently demoted at the Bank of England for failing to appropriately disclose on a timely basis her brother’s role at Barclays. Mark Carney, The Governor of the Bank of England, made it clear that a “one strike you’re out” policy for such “honest but serious mistakes” was not going to apply to all financial institutions, but suggested that considering MPs’ reactions and the Bank’s position, this action had been taken.  We find other organisations being held to high standards because of their ethical or impact orientation—like the Church, for example.

Organisations must not feel their “higher purpose” gives them license to behave without regard to standards.  If they do, it damages themselves and the entire sector.  And an array of audiences is watching carefully and judging.

This blog first appeared in Third Sector on 29/03/2017. 

The benefits of collaboration in impact investment

I recently had the opportunity to give a workshop presentation at the annual SEIF congress in Zurich, Switzerland. SEIF is an outstanding Swiss organisation that helps to develop high-impact enterprises in the Swiss, German and Austrian market and is also building an impact angel network. We at ClearlySo have had the pleasure of working with it cooperatively over many years.

It is therefore not surprising that I was asked to speak about “bringing together different partners to create new models in impact investment”. It felt rather daunting, and I sometimes think that actors in impact investment spend far more time talking about the benefits of cooperation than practising it. However, as it developed, it seemed to me that there were many different types of cooperative or collaborative endeavours and that each worked differently in supporting innovation in impact investment.

The first example I gave I described as “client collaboration”. As observers know, ClearlySo launched ClearlySo ATLAS in December 2016. This is a tool focused on private equity and venture capital fund managers, and it assesses the impact of their conventional private equity investments. The spark for this idea was a conversation with Octopus Investments four to five years ago, which continued as we designed ClearlySo ATLAS. As this was a new product in a new market, we decided to work with the PE/VC community in developing it. In a sense, the end-buyers played a significant role in constructing what they would later buy. ClearlySo coordinated all of this, but the cooperation of client prospects was essential.

Second, I spoke of “partnership collaboration” in the case of the Big Venture Challenge. This was a programme funded by the Big Lottery Fund and managed by UnLtd Ventures. After the first pilot of the programme, UnLtd wanted to improve its effectiveness and contacted three partners: the Shaftesbury Partnership, the Social Investment Business and ClearlySo. Each had a specific role to play and was allotted a share of the programme budget. Our role was to help the more than 100 high-impact ventures to secure external investment, which was matched by grants from the BVC. Securing impact investment is what ClearlySo does, so UnLtd gained access to this expertise at a reasonable price and we delivered our objectives with a combination of existing and new resources.

Finally, the third type of collaboration I would describe as “competitive collaboration” and is a key feature of nearly all impact-investment deals, although I used the landmark HCT quasi-equity transaction as an example. In such deals, each party seeks, as best it can, to get what it wants. HCT is looking for low-cost finance, the end investors (in this case led by Bridges Ventures) are looking for a high return, and we are looking to complete the transaction and secure a fee. If each party pushes too hard, the deal falls through and everybody loses. Everyone needs to work together while pushing for their own interests to get the best possible deal. Such competitive – or even antagonistic – collaboration is the essence of all investment transactions.

In conclusion, collaboration is essential to pushing the frontiers in impact investment, but there are different types of collaboration, and each might be more or less appropriate in different circumstances. In collaboration, there has to be a successful outcome for all – there can be no winner take all, or things speedily unravel, which some of you may know as the “prisoner’s dilemma”.

This blog was first published here for Third Sector on 01/02/2017.

Looking Back at 1848, 1968 and 2016—Three Revolutionary Years

Much has been written about 2016 as it came to an end – it was a year of dramatic surprises, traumatic events, uncertainty, and the deaths of many well-known figures – and it has the makings of one of those years that goes down in history as particularly significant.  Two others, one of which I experienced personally, seemed to rival the year gone by in historical importance—1848 and 1968—and so, for reasons I am not even sure I fully comprehend, I thought to write a bit about all three.  (Note: This is very much a “Western” perspective—but I am very much a Westerner, having been born in the USA).  Initially I had hoped that by analysing and contrasting these three years, I might be able to better understand what is happening today, or even gain some insight into what might come next. Although conclusions seem hard to draw, I hope that some of my reflections strike you, the reader, as worthwhile.  What I have also noticed, for those of you with a particularly numeric orientation, is that all these years are evenly divisible by 2,3,4,6 and 12.  Not suggesting these numerical properties are causal factors, just that this fact caught my eye.  J


1848—The Year of Revolutions and a Yearning for Democracy

Across Europe, the year of 1848 saw a series of unprecedented political upheavals in many countries, especially in Europe and Latin America, with France and the Habsburg Empire (which had been the political centre of Europe for many decades) being particularly affected.  I am not an historian, and I defer to those of you who are, but it seems widely accepted that these uprisings were democratic in orientation following the widespread disaffection of the mass of people with their political leaders, many of whom were the remnants of European monarchic dynasties.  Many failed, some succeeded, but change eventually followed—to put it in the modern context, it had some features of the “Arab Spring” of recent years— often leading to messy, violent and sometimes chaotic attempts of the populace to secure for themselves rights denied to them by the privileged and the powerful.  Their rewards were similarly not immediately apparent, yet change did eventually take place and western societies slowly became more democratic.

Technological advances played a huge part in the spread of disaffection, with the growth of the popular press.  Wide swathes of Europe followed global events to an extent that was previously impossible.  What is interesting, and is a pattern which repeats throughout history’s significant years, is how such media enables the mood of events in one location to spread to/inspire another.  Populations also became even more concentrated, a feature of industrialisation, which further facilitated the rapid spread of ideas.  And ideas directly relevant to the lives of overworked and exploited urban labourers were developed in response.  For example, in February of 1848 Karl Marx and Friedrich Engels published the Communist Manifesto.  The failures of harvests (e. g. the Great Irish Famine) and rapid rises in food prices, suggests nature also played her part in this dramatic year.

Yet things were not bad for everyone—the California Gold Rush began in 1848!


1968—A Calamitous End to Post-war Simplicities and the Liberal Age

As a kid born in New York in 1957, I could easily be accused of overestimating the significance of 1968.  But it was a traumatic year for America, which felt, and still appears to have been, the centre of the industrialised “free world” at the time.  In 1968, the Western world was flooded by Coke/Pepsi, Hollywood movies, Boeing airplanes (the first 747 jumbo jet was introduced in September) and Ford cars, and in the same way global the USA dominated global events.  Also, I came of age—or at least felt I did—that year.

By any standards, it was a massive year, beginning with the capture by North Korea of the USS Pueblo and the lengthy and scary standoff which followed.  However, US involvement in Asia in that year was dominated, as was the entire decade, by the defining conflict in Vietnam.  The “Tet Offensive” began at the end of January, surprising the United States, which in February suffered more casualties than at any other time in the conflict.  The war cost $77 billion in that year ($527 billion in 2016 dollars), the most spent in any single year.  In March was the “My Lai Massacre” of Vietnamese civilians, which, together with the gloomy death toll reported nightly on the news, caused popular support for the war to plummet.  Later that year, in October, President Johnson finally announced the cessation of all bombing operations in North Vietnam.   These and other events eventually forced him to abandon hopes of seeking re-election.

Violence was not limited to Southeast Asia, and hit home domestically with a vengeance.  In April, the civil rights leader Martin Luther King Jr. was assassinated in Memphis.  In June, presidential candidate and Democratic Party hopeful Robert F. Kennedy (RFK) was murdered in Los Angeles (his brother, President John F Kennedy, was killed in November 1963).  At that time, RFK was looking likely to win the nomination of the Democratic Party (putting him on a path to challenge Richard Nixon in November).  The Democratic convention, in Chicago, was famously marred by violence as police (apparently unprovoked) attacked protesters, sending over 100 to hospital, and arresting many more.  This politically tinged clash took place as “race riots” flared up in cities like Newark, Baltimore, Washington DC, and Los Angeles, partly in response to the King assassination.

Civil rights were a key theme of 1968, as the Olympics saw runners Tommie Smith and John Carlos gave their famous “Black Power” salutes causing immense controversy.  America had become a violent and divided nation—or at least these long-established divisions came to the surface and into our living rooms, courtesy of Walter Cronkite and other respected news “anchor-men”.  Racial division was not only limited to the USA as in April, British politician Enoch Powell delivered his “Rivers of Blood” speech.  Violence was also not a US monopoly—riots spread to London, Berlin, Rome and, most spectacularly, Paris. The “Troubles” also began in Northern Ireland as Catholics protested over inequality in housing provision, eventually sparking the first Civil Rights march there in August.  Ideas spread globally, as did action, as downtrodden groups took inspiration from what they saw as their international “brethren”.  Whereas 1848 saw revolutionary fervour was spread by newsprint, the spirit of 1968 was disseminated by the cathode ray tube—the images of bombing in Vietnam and major cities ablaze entered our living rooms—and I recall these images vividly.

1968 also saw the hopeful “Prague Spring” eventually crushed by Soviet tanks in late August, with the Soviet invasion of Czechoslovakia.

But 1968 also struck some hopeful notes on issues such as race and women’s liberation.  Star Trek aired America’s first interracial TV Kiss (between Lt. Uhuru and Captain Kirk).  Yale announced it would admit women (it is shocking that this was not the case until 1968) and several groups launched targeted protests against the Miss America Beauty Pageant.

It was also the year which saw Apollo 8, a manned spacecraft, orbit the moon and rock music took the world by storm.  The Beatles formed Apple Records that year, filmed the Yellow Submarine and launched the famous “White Album”.  Arlo Guthrie, for the first time, performed “Alice’s Restaurant”, a song with strong anti-war messages, at the Newport Folk Festival.

In summary, it was a year when nations divided and clashed, and we saw nearly all of it on TV.  For me, the year seemed to be:

  • The end of the post-war era.
  • A year when the prosperity enjoyed since the early 1950s started to come to an end.
  • A time when socially conservative norms of nations, around race, gender, religion, sex, drugs and music were challenged.
  • A moment when a Liberal agenda came into focus, which advocated for loosening restrictions on how we as individuals could behave in our private lives.
  • A point in time when the spirit of individualism came into focus, in accordance with the promise of the US Declaration of Independence of, “life, liberty and the pursuit of happiness” for all.
  • A year when this “happiness” was seen, in part, to be measured by the individual prosperity achieved—and that freedom to further individual prosperity had come to be seen as a vital component in the development of liberal democracy.
  • The moment when liberalism, democracy, and capitalism were seen together three intertwined and key bulwarks against the feared spread of global communism.
  • But a year when, despite the fear of the Soviet Union and its ideology, popular support for an ongoing military Cold War came to be questioned, as did the US permission to act as global policeman.

Interestingly, although many of the notable actions and developments were inspired by the left or progressive forces, they were met with a resolute reaction from the conservative forces of the right, and nowhere that I can remember did the political left emerge.  When I consider the direction of the protests, the art and the songs of the era, it is striking what followed.  George McGovern was badly defeated by Nixon, who won over 60% of the vote and every single state except Massachusetts and the District of Columbia.  In fact, nowhere in the major western countries did a radical left wing alternative emerge.  The UK saw Harold Wilson and Ted Heath trade places, Germany was run by Willy Brandt and Helmut Schmidt and France by Pompidou, Giscard d’Estaing and Mitterand.  The “Empire” was challenged by the 60s, struck back, and came out clearly on top.  Not very different from 1848.

But at the same time there were also important progressive changes in social policy—especially in areas like civil rights, gay rights, and gender-based issues—despite politicians who were rather ill-suited to implement these.  However, it was certainly not the dawning of the “Age of Aquarius” for which some had hoped, and sung about.


2016—Shock, Awe and a Changing of the Guard

It is far too early to assess the impact of the wrenching changes in 2016.  We shall come to the electoral events below, but one of the key aspects of the year as it unfolded was the death of so many of our heroes—the heroes of this “Liberal Age” which began in the 1960s.

I think this is best exemplified by the death of Muhammad Ali, whose life embodied so much of the aspects of the section above on 1968.  A black man, an African-American, a convert to Islam, a championship boxer, a poet of sorts, a challenger of the obligation to go to war in Vietnam (and went to jail, in his prime, because of his convictions), an astute user of the medium of television—and perhaps the greatest sports personality of all time.  This is not to denigrate Arnold Palmer, who was an excellent golfer, had a dramatic impact on the sport, and also died this past year, but Muhammad Ali shook and shaped the world.

In music, which may well have been the art-form-of-the-era, there were many important deaths.  David Bowie and Prince Rogers Nelson (Prince) challenged sexual norms and were among the greatest rock musicians of all time.   Sexual issues also were important in the illustrious career of pop musician George Michael.  A host of other musicians, including Leonard Cohen, passed away in 2016.  The importance of pop/rock to those of my generation, and the fame these performers achieved, helped to mark an already momentous year.

The other monumentally significant death was that of Fidel Castro, the communist thorn in America’s capitalistic side for over half a century.  His death, perhaps more than any other, at least from a political perspective, marks the end of an era.

But surely what sticks out in any analysis of the events of 2016 was the long string of political surprises, as it seemed as if nearly every single key democratic plebiscite went exactly in the opposite direction to the way the pundits expected and to the way the “Liberal Elite” had hoped.  The first domino to fall was the UK’s Brexit vote on 23 June.  Days before the vote odds in excess of 5-1 were available to those courageous or insightful enough to bet on “Leave”.  Even on the night, well after the polls opened, despite the sense that “something was going wrong”, foreign currency markets and betting odds persisted for a long time in signalling a “Remain” victory.  Financial markets and their participants seemed to be in a state of denial.  Such a pattern was repeated in the shocking upset in the US Presidential election—which was odd given that the mood of an angry electorate was clearly in the air and Donald Trump was on a roll.  Odds of 4-1 were available days before the election and it was late in the night when Trump became the betting favourite.  Matteo Renzi, the former Italian Prime Minister lost his constitutional vote and in Colombia, citizens voted down a peace agreement with the FARC guerrillas that took years to negotiate—democracies were observing their electorates becoming stroppy, unpredictable, anti-elitist and vengeful.

The other thing that marks 2016 was the fact that this became the revolution spread by social media—what newspapers were for 1848 and TV was for 1968, cyberspace was the way in which ideas and images spread in 2016.  Twitter, Snapchat, Facebook, Instagram and other sites did not cause anything, but facilitated ideas and moods to spread like wildfire.


Conclusions—maybe a few

At the top of this piece I made the point that it was very difficult to draw any conclusions from the short summaries of the three years above.  Now, as I often do, I will summarily ignore my own advice, and attempt to draw out a few points of interest—at least to me:

  • After revolutionary years, the empires do strike back—and normally win. They have the power, the resources and all the old cards are stacked in their favour—but as the years pass, the hard-fought-for changes often materialise.  Frequently, there is a difference between political change—which may or may not even take place – and social change, which can be immense, although frustratingly slow.
  • Substantial changes in the media (from printed press, to TV, to social media) can facilitate revolutions. They do not cause them, but innovations clear the path for revolutionary ideas to spread.  In all three years, radical ideas spread across borders likes flames in a raging fire—like-minded souls are the tinder in an ideological conflagration.
  • In some senses, the “Revolution of 2016” can be said to have begun in the Middle East in 2010, when Mohamed Bouazizi (in Tunisia, on 17 December) set himself ablaze in despair at the state of corruption in his country and the ill-treatment he suffered. This triggered the “Arab Spring”, which spread into over a dozen other countries, the consequences of which are still being felt.  I have not cited 2010 as my third year, not because it lacks the properties of numerical divisibility of 2016, but because this is a story about “the West”.  Citizens in Western countries have taken longer to rise up—it could be lack of courage, having more to lose, living in more established democracies or a host of other explanations, but the dynamic is similar, and is a function of the fact that………
  • ………the issue of our age is the “haves versus the have-nots”. Arabs rebelled against rulers whose corruption filled them with rage.  The elites’ pockets seemed to be lined with the wealth of the nation, and the grotesquely unequal way it was shared was no longer acceptable, especially with the majority suffering in a terrible state.  I see the same pattern and fundamental reality in the West.  The pathways to inequality may differ but the affect is the same—fewer people getting much, much richer, while the lives of the many become poorer, more uncertain and more miserable.  So far, Western citizens have resorted mostly to the ballot box to express their anger, but this may not last.  African-American rage at police shootings in the United States surfaced during 2016, and became violent.  This may not have ended in 2016 and the anger may not have surfaced solely because of racial division.  The dividing lines are also multiplying: rich vs. poor, old vs. young, homeowners vs. renters, immigrants vs. the “entrenched”, savers vs. borrowers, urban vs. rural, cosmopolitan vs. nationalist, educated vs. uneducated, elite vs. the rest.  Across the West, societies are bitterly divided, with many 50/50 splits (the Brexit vote, the Trump election)—this is before we start going into ethnic, religious, and other sources of division.
  • Racial, ethnic and religious strife has been a feature of the revolutions of each of these years, but I do not believe that this sort of tension is the cause of any of our conflicts. I just think that when things turn ugly, political leaders and others with malicious intentions prey upon such biases to achieve their aims.  This was evident in the Trump victory, it was there in the Brexit vote, as it was in 1968 and, from what I have read, in 1848.  Sadly, I fear that it will always be with us—a dastardly lever for the malevolent to pull when the time feels right.

Irrespective of the gloomy sound of much of the above, I feel the broad overarching thrust of history is progressive (yes, I am ever the optimist).  Long term changes have been and will be towards the good, even if established powers use all means of treachery to thwart progress.  It is odd indeed that folks like Boris Johnson and Donald Trump became champions of the angry citizens who felt let down by their leaders, but the hero of the proletariat, Karl Marx, was very far from working class.  History has a sense of humour.

All the best in 2017!!

Reflections on the Death of My Dear Friend, Mentor and First Boss: Jack Rivkin

I learned just a few hours ago that a dear old friend of mine, Jack L. Rivkin, passed away two days ago—on Election Day in the USA.  Each of us grieves in a different way—as an ex-analyst, the way I tend to come to terms with things is by writing about them.  I only ever became an analyst because of two people who, against all evidence, had faith in me—and one of them was Jack.  The other was a woman, who I do not think would be at all offended if I said that no single person has had as much impact on my professional career as Jack—I will miss him immensely.

I read the brief statement announcing his death put out by his recent employer.  It seemed so limited that I felt especially driven to write something which brings to life this extraordinary character and human being.  Much of what I could say about him is personal—of great interest to me—but of no interest to most readers.  I also feel especially compelled to write about something positive—particularly in these gloomy times.  So, permit me to indulge myself with a few paragraphs about this exceptional man and offer, from his life, some bright spots amidst the all the darkness.

Jack was “intellectually curious”.  In truth, I rarely used the expression until I met him, but have probably overused it ever since.  He had that childlike wonder about so many things.  Those of us around him, found his curiosity infectious.  It helped make him a top-flight investment professional, of course, but describing him as such misses the unique point of the man.  That he rose to senior levels at several firms is true, but is a one-dimensional view of someone with many facets, driven always by the passion to listen, to learn, to question, to challenge, to understand and to go beyond.  Meetings with him would always start late and run way over—he could sit and chat endlessly about a topic and was unperturbed by the consequences.  In these anti-intellectual times when complexity is avoided, discussion and enquiry replaced by soundbites and facts rendered irrelevant, Jack’s passion for knowledge, truth and understanding help me to remember much better days.

Jack was gender-blind.  At a time when Wall Street had hardly any women, Jack hired them in abundance.  In fact, as I recall, well over 1/3 of the Research Department for which I worked was female.  And this department became top-ranked on Wall Street, winning many awards.  Jack had taken a team which was barely in the top ten and turned it into the best by far, eclipsing larger and better-funded teams at such Wall Street heavyweights like Merrill Lynch and Goldman Sachs.   This was the subject of one of Harvard Business School’s most popular case studies, “Lehman Brothers: Rise of the Equity Research Department” in 2006.  Inspiring management was a factor, but I always felt his “secret sauce” was that he valued people on their merit—other factors were not of concern.  This was felt not only by the women in the department, but by everyone.  And he was indifferent to the puerile and predictable attempts to undermine what he had built.  Given the recent election and the attitudes revealed, Jack’s humanity and respect for all provides a striking contrast.

Jack possessed courage, as is partly evidenced by how he built his department.  He also was able and willing to speak truth to power—and did so, often suffering the consequences.  Had he played the game at Lehman, where I worked, I think he could have come to run it. I am also of the opinion that had this happened, the firm would not have gone under.  This is particularly significant given that the collapse of that firm nearly brought the global financial system down with it.  But my impression was that those running the firm feared his intelligence, his competence, his integrity and his increasingly well-regarded success across the firm.  He simply had to go.  Jack not only stuck to his principles but was also principled in his work.  This was much less rare in finance in those days but it was definitely uncommon.  I hardly need to draw the comparison again with modern times.

Finally, Jack was a real person.  He had an engaging smile, played very competitive tennis, loved green pens, co-authored a book, could admit when he was wrong, was genuinely liked and admired by those who worked for him, enjoyed young people (always a good sign), wrestled at university, enjoyed life, was true to himself–intellectually honest as well as curious.

I shall miss him greatly and will remain forever in his debt

Does profit with purpose offer something unique?

I have been involved in the area of impact investment since 1999, and during that time there have always been passionate debates about philosophy, politics and money. One of the most recent of these is the debate over the “profit-with-purpose” business and its growing relevance.

For the uninitiated, PWP companies operate like normal businesses, except, crucially, they are values driven. This can be a function of a “mission-lock”, statements a company’s constitutional document, or its more informal mission statement – something that means the business is not just about profit-maximisation. Various bodies have differing views regarding how firm and explicit such statements need to be, but they are distinct from the regulated “social enterprises” which, for example, receive favourable tax treatment under Social Investment Tax Relief.

I am not sure exactly why PWP businesses are suddenly in fashion, but I have several theories. First, I think the pool of capital available for investing in organisations which are destined to deliver sub-market returns is limited. This constrains the growth of impact investment overall. In the US far more deals are transacted and these are in the PWP space. There is also the growth of BCorps – private companies that meet social, transparency and accountability standards – globally, which is very American in its origins and this mentality is spreading. Big Society Capital’s investment criteria are partly set by its founding Act of Parliament, which restricts its capacity to back intermediaries that support PWP businesses. I sense BSC straining against these limitations, which threaten to hamper one of its key goals: the overall growth of impact investment in the UK.

In the interest of transparency, I should note that ClearlySo and its predecessor, Catalyst, have supported PWP businesses since 1999 and have never seen much point in arbitrary restrictions – for example, a maximum permitted dividend pay-out ratio – as the arbiter of what is and is not impact investment.

But opposition to the drift into PWP businesses has some sound philosophical bases. There is a deep-seated fear that the “values of the market” will encroach on the more values-driven impact investment world and change its nature. This view has been well-articulated by commentators such as Dan Gregory and David Floyd. The three-dimensional investment world that ClearlySo regularly advocates – where investors consider risk, return and impact – is still different from the existing mainstream where only risk and return matter. If we lose that difference, the movement for values-driven investing has lost.

I think the debate is also about money. Traditional third sector organisations, especially charities and the more tightly-controlled social enterprises, fear that PWP businesses will crowd them out in terms of investment. This is especially true with regard to the £600m which is under the control of BSC. The third sector sees that money as very much theirs – seeing any encroachment by PWP firms as a threat. I see their point – to see this BSC pot seep away into what are perceived as more mainstream businesses feels threatening.

While I can understand their position, on balance I support the expansion of PWPs. Despite some market values creeping in to impact investing, I believe that the only way to address the scale of social problems we confront is by encouraging mainstream capital into impact investing; seeing the investment world from the 3D perspective mentioned above. Many new innovative models will be supported and tremendous social, ethical and environmental impact will be generated. Traditional charities may indeed lose some of the BSC-backed investment that would have been headed their way, but the £600m, even when combined with matched funding, was never going to be enough to offset the effect of austerity.

This blog was first posted on Third Sector on 28/10/16.