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Here’s a challenge.  Type “theory of change template” into your favourite search engine, stare at your screen for five minutes and come away without a headache.  What comes up is a multitude of multiform flow charts with arrows and links and a whole technicolor set of slides.

Then, as I have over the past couple of days, you could call up some articles on theories of change. On the one hand you will find some over-blown eulogies to how you can change your organization’s effectiveness by adopting a particular approach to theories of change,  complete with those overwhelming templates. And on the other you will find the rather banal:  “An example of a theory of change is: “If we do A, then B will happen because of C.”   

Recently I have come across quite a few articles with analysis providing shocking data on just how pale and male the management of banks, asset managers private equity and venture capital funds continues to be and how they tend to invest in businesses that look just like them. These articles often go on to point out that financial institutions and businesses that have diverse management and boards tend to “outperform” those dominated by white men. And therefore, the argument logically follows, there should be greater representation of women and “people of colour” in senior positions in these businesses.  After all it just makes business sense.

It is this last sentence that worries me – not because it is wrong (frankly it’s a no-brainer) but because of what it implies. And what it implies is that there is no morality but profit and business success. Let me ask this question: If businesses and finance institutions run by highly diverse management teams, returned on average, exactly the same profits as those run exclusively by white men – would that mean it would be fine to maintain the gender and racial imbalance in business? Because that is the implication of “after all it makes business sense”.

I am helping someone write a funding document and have been looking through various templates, log frames and theories of change.  I am struck by how many of them begin with a “problem statement or definition”.    I do not often say nice things about capitalism, but it certainly has a jump start on development, philanthropy and the impact investing community in its emphasis on “opportunity.”  

There is a big problem with seeing the world as being comprised as a series of problems.   

There was an interesting conversation about profit on LinkedIn about a week ago.  In many of my posts and articles on LinkedIn I have stated that in a just economic system investors will have to get used to lower rates of profit than they have been accustomed to, and that excessively high profits are an important part of the explanation for increasing global inequality.

This has resulted in the reasonable perception that I am opposed to profit. I am not, but the conversation forced me to confront the question of what I mean by “excess profits” and how would a “fair” or “reasonable” return on investment be defined.  There is of course no answer to those questions, and it would be frankly absurd to try to regulate, or even create a voluntary code (all the rage these days) placing an upper limit on profits.

Why do we extol the virtue of “thinking outside the box” yet continually force so much of our thinking into tables, templates, lists and categories – and at what cost and to whose benefit do we do this?

Of course, classifying and organizing data is essential to the growth of human knowledge. The problem arises when this organisation of information comes to completely dominate how we think, and more importantly, how we act – as if we have no power of thought beyond these lists.

This tyranny of the template and the table creates major roadblocks in the path of those working for change and tackling social and economic inequalities.

Imagine for a moment that slavery were still legal globally, and it was recognised that it was immoral and should be abolished.  This is how the modern world might deal with it.

• The United Nations, after a decade of meetings would publish a thirty-page resolution, declaring it a moral imperative to end slavery by 2040, and would establish a new agency to oversee the abolition process, to set targets, and to publish key indicators measuring progress towards the abolition of slavery. At least 1000 non slave jobs would be created in this agency.

Harley Davidson is handing out shares in the company to all 4 500 employees. They are following the lead of investment giant KKR (which has >$200 billion under management.) In recent years eight industrial companies owned by KKR have awarded more than $500 million worth of shares to their employees.

The idea of workers sharing in ownership of the companies they work for has been gaining traction amongst a surprising constituency – company owners.

In the UK, the Employees Ownership Association is run by businesses, including such giants as Arup, to promote the idea that employee ownership is good for the economy, good for businesses and good for workers.

Back in the USA the baby boomer generation is (finally) aging itself out of business. There is a legacy of small and medium sized enterprises valued at hundreds of billions of dollars whose owners are dying or retiring – leaving the businesses vulnerable to closure or the being taken over and asset stripped by larger companies or vulture private equity funds. The Fund for Employee Ownership is one of a number of initiatives aiming to address a critical problem for business owners and employees alike. They do this both by financing the purchasing of shares on behalf of the workers, and by providing technical support, documentation and legal advice. This allows the owners to exit completely or to hold some shares and it ensures the ongoing success of the business and allows the workers to progressively take ownership of the enterprise.

First published on LinkedIn 22/09/2020

How much do you love your children? 

How big an impact has the arrival of wifi had on your life? 

Can you tell whether your current city councilor is better or worse than your previous representative?

I am sure you could answer these questions with conviction. I am also pretty sure there would not be too many numbers or graphs in your answers. For example, in telling me how much you love your children,  

President Ramaphosa recently “launched” the SASME Fund (although it has been around for some months.) This is a $1.4 billion Fund initiated by the CEO’s of some of South Africa’s largest companies, with a mandate to “invest in in scalable small and medium enterprises with the best potential for growth and sustainable employment creation in the South African economy.”  

In August 1994, barely months after South Africa’s first democratic election, President Nelson Mandela and George Soros met and agreed that the South African Government and The Open Society Institute (OSI) would co-finance and govern Nurcha, an institution intended to encourage, through guarantees, the banks to lend to small emerging black contractors.  These contractors were receiving contracts to build subsidized housing for the new government’s massive housing programme but could not raise project bridging finance from the banks.  I was privileged to be Nurcha’s founding CEO from 1995 to 2009.

In a recent article Diane Isenberg, founder and owner of Family Office Ceniarth investments, describes her intention to convert all Ceniarth’s investments to impact first investments.   In doing so she is living up to a philosophy she and co-author Neil Neichin expressed in an article a year prior:

those people who promise comfortable market-rate returns while solving global poverty are the equivalent of diet gurus promising that one can lose weight while eating limitless amounts of chocolate cake.

In my view Isenberg is naming an issue that is essential to how we understand impact investing. I am sure I am going further than she would in suggesting that there is a kind of unconscious market fundamentalism that has taken hold of large parts of the impact investing world.  I use the term fundamentalism quite intentionally.  It indicates:

Somewhere in the crazy wastelands of Twitter in the last week I stumbled across this If capitalism is such a great system, why does it have to come to socialism every ten years begging for a bail out.”

Of course it is not ‘socialism’ that is bailing out capitalism – so let’s rephrase the question: If big government is bad and the 'markets' (read large corporations) should be left alone to make profits and pay almost no tax in good times, why is it in bad times that governments should suddenly find hundreds of billions if not trillions of dollars to bail out those same big corporations?

The Impact Investing world is suffering from a severe case of hype(r)-inflation and excess ambition.

A report published by the Rockefeller Foundation in January 2018 noted:

“While impact investing has grown to an over $100 billion global industry, the scarce evidence of the social and environmental returns of these investments poses a threat to the continued growth of the industry.” (1)

Then, in April 2019, the Global Impact Investment Network (GIIN) publishes a report claiming that there are now $502 billion dollars of Impact Investment assets under management. (2)

GIIN notes that this “capital is at work to address the worlds social and environmental challenges.”

Two things come to mind:

First: that is a remarkable growth of nearly 500% in 15 months.

Second: So how are we doing now?  If there is scarce evidence of and social and environmental impact from $100 billion, what are seeing from $500 billion. The GIIN report is silent on impact, but if we look around us, we might say: “Not very much”.   Billions of people are as poor as ever, inequality is growing and the SDGs are way out of reach.

Perhaps its too soon to tell.  The GIIN report tells us: The industry must grow because “trillions of dollars are needed to successfully address the critical social and environmental challenges that face the world today such as the Millennium Development Goals,” and  “In order to meet global need much more capital will need to be unlocked for impact investing.”

Rajiv Shah, head of the Rockefeller Foundation concurs (3)

As the Global Impact Investing Network (GIIN) meets in Paris, I thought I would add some provocative tonic to conversations about the field. Reflecting on four decades as a social entrepreneur, and 23 years of investing in small enterprises I want to suggest some things to think about:

I have written a number of blogs criticizing the direction taken by those who drive the “impact investing” narrative.

Its time to move on and write about what we should be doing instead.

First a declaration:  This article is addressed to those who wish to invest in making real changes in the world and are willing to lose money in the process.   

This is not addressed to those who want to “do well (financially) by doing good”, nor those who want to “solve the world’s most intractable problems” which invariably means other people’s problems.   It is not addressed to those who believe that “market failure” is the root of poverty and inequality, and that the solution is therefore to mobilise “trillions of dollars” to extend the market to those who the market has marginalized. It is explicitly not addressed to those who seek “The Fortune at the Bottom of the Pyramid.” 

First remove the beam out of your own eye, and then you can see clearly to remove the speck out of your brother’s eye.

There has been a recent shift in narrative over the purpose of impact investing.    In the past “Solving the world’s most intractable problems” was a common tag line.  Now you are much more likely to hear that impact investing seeks to mobilise the $2.5 trillion dollars per annum “funding gap” that must be bridged if the SDGs are to be realised. If this is to be achieved, we are told then impact investing must be mainstreamed so that this unimaginable shortfall in funding can be achieved through the capital markets.

How much do you love your children?  

How big an impact has the arrival of wifi had on your life?  

Can you tell whether your current city councilor is better or worse than your previous representative?

I am sure you could answer these questions with conviction.  I am also pretty sure there would not be too many numbers or graphs in your answers.  For example, in telling me how much you love your children, you would not start by telling me about their grades at school if they are young, or about how much they earn if they are adults.  Those are important pieces of information in the arc of our lives, but they are not essential to our relationships. You would certainly not want to use such information to compare between two different children, or between your children and your neighbours’ children.

As the Global Impact Investing Network (GIIN) meets in Paris, (in 2018) I thought I would add some provocative tonic to conversations about the field.  Reflecting on four decades as a social entrepreneur, and 23 years of investing in small enterprises I want to recommend the following:

there is general agreement about the purpose of blended finance in impact investing.  Concessionary finance from the state or philanthropists is used to “allow”  (or entice) commercial investors to achieve a risk-adjusted return in social enterprises that they would usually avoid because the risks are perceived to be too high for the likely return.  Typically this will involve a junior lender that does not charge more for the higher risk, or some kind of ‘first loss” protection for the commercial investor, or the issuing of a guarantee that is not priced for the risk.  The idea is to mobilise the size of investments that only the capital markets can supply by gearing the concessional finance several times.  It is also possible that as an area of investment gets “de-risked” or commercial lenders come to understand that they have “mis-priced the risk”, that the gearing can improve, or (first prize) the commercial investors enter the space without support.