National conversation on corporate purpose, and whither the individual investor

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As a long time impact asset manager, early B Corp and Public Benefit Corp, we at Grassroots Capital Management have followed the discussion generated by the Business Round Table (BRT) statement with satisfaction.  The BRT statement and the commentary from Margot Brandenburg and Council of Institutional Investors (CII) brings out into the open an unresolved tension in our economic system.

Margot’s cautious welcome makes a key point:  for the BRT statement to be more than another exercise in “impact washing”, corporations should be held accountable.  But the CII makes a valid critique:  asking CEOs to be accountable to multiple stakeholders will leave them accountable to none, and will actually further shift power towards them.  More importantly, the CII critique notes that it is not their job, as custodians of pensions and savings, to decide to forgo financial return for other objectives of their choosing.  In fact, it is our responsibility as the investors who entrust our savings and pensions to them.

For years now, foundations have been justifiably taken to task for the hypocrisy of dribbling out 5% to address poverty, racial and gender inequality, climate, and other issues even as their entire corpus is invested indiscriminately, including in fossil fuels, payday lenders, sweatshop production, etc.   The same hypocrisy characterizes us as individuals when through negligence we allow our savings and pensions to be invested in sociopathic companies in pursuit of a few more basis points of return, never bothering to scrutinize where their money is going.  Full disclosure:  most of us are guilty.

The myth of “no trade offs” aggressively promoted by the GIIN and others is not just silly and delusional but damaging, because it relieves us as individual investors of the hard work of deciding, “what do we value and how much are we willing to pay for it.”  Not all the world’s pressing problems can be solved with premium ice cream and designer sunglasses.  Some will take years of trial and error, testing new product and delivery models, and someone will have to pay for it.  Microfinance, the poster child for a sustainable, pro-poor impact business, required decades and billions of dollars in subsidies to arrive at its current commercially viable business model.  Scaling business models that provide access to quality education, ensure safe water, mitigate and adapt to climate change, deliver treatment for diarrhea and malaria will take substantial subsidy as well, though one hopes, less time.

Several years ago, Grassroots tried to launch an “impact first” fund to support microfinance institutions that had strong track records of social performance and were financially sustainable.  Private investors had zero interest:  the threshold to get a meeting to discuss any emerging market private equity investment was 20% IRR.  Even DFIs politely but quickly ushered us out the door when we suggested there needed to be willingness to accept trade offs, even if those trade offs may not always materialize.  Putting impact first requires resources and commitment (as we have written here and here). In the years since we have seen other “impact first” funds get some traction, so maybe we were too early or could have improved our messaging.  But such funds are still outliers – the niche of the niche – when they should be the core of the impact investing universe, with the “have your cake and eat it too” funds at the periphery.

It’s great to hold corporations’ and institutional investors’ feet to the fire.  But we need to recognize that the real responsibility lies with us as individual investors.  Until we vote with our dollars, the institutional investors who manage all our money and the corporations they fund will keep doing what we are telling them to do, not by our words but by where we put our savings in pursuit of the highest financial return.

One final note to bring the focus back to the BRT:  one action that is in their exclusive power is to direct their formidable lobbying efforts to supporting a fairer and more progressive tax system in the US.  The US has led the global effort over the past 35 years to skew the tax system away from the wealthy – individuals and shareholders – and towards the less affluent.  Given the challenges faced in the US and globally, this unbridled greed is unconscionable and frankly, evil.  We look forward to the BRT’s next statement, which we expect will address this issue.