OxfordJam Update
Panahpur will be launching our new publication at the must-attend guerilla Social Investment event of the year – yes … Oxford Jam. Ring Master Ben Metz is busy cranking up his publicity machine, which means that all of your devices will have the same inbound messaging. In case you haven’t yet heard, and in Ben’s own words:
“Things are warming up ahead of OxfordJam this year. We are again running in parallel to the Skoll World Forum on Social Entrepreneurship in Oxford from 28th to 30th March. Get the dates in your diary!
Last year more than 700 Social Entrepreneur leaders attended, from the UK and across the world. This year we have a new venue, more than double the size of last year. Check out Arts at The Old Firestation to have a look around!
Last year we noticed that a lot of people had something to offer or were looking to meet a particular need. This year we are opening The Marketplace to match these offers to needs, and vice versa. We’ll have a large space dedicated to The Marketplace and we hope to fill it with all manner of Market-y type activities.
Last year OxfordJam was a totally analogue gig. This year we are going digital and will be using Pathable to create an online community – OxfordJam Live! This allow all participants to design their schedule, communicate with all attendees and engage with The Marketplace virtually.
OxfordJam Live!, our online community goes live any day. The initial schedule will go up at the same time. Watch this space for more information – and spread the word!”
Is Freedom Bankable?
The bonus issue has been covered here before. This analysis of the problem and recommended solution remains my view. But continued failure to address causes in favour of tackling symptoms yesterday claimed, in Stephen Hester, an innocent victim
Many have little sympathy for him – he is already enormously wealthy, and very highly paid. He is working for a state-owned bank, and therefore de facto is a ‘public servant’ – in a context of swathing public sector redundancies and pay freezes. The share price of RBS has been clobbered in a year of contraction, and it is unconscionable in our current society that someone working for a bank requiring a state bail out should be paid such a big bonus. It is not unreasonable to expect him to be sensitive to these things.
Others point out that Hester took the job after RBS had effectively gone bust and been bailed out by the taxpayer. The balance sheet he inherited was a bag of nails and he has worked tirelessly to reduce the risks to which the bank (aka the tax payer) is exposed and so protect us all from further losses. Furthermore, in the same way that not all footballers are the same, nor are all bankers – Wayne Rooney is highly paid (and earns more than Stephen Hester) because he is judged worth it by his employer. In the same way, top bankers earn top money because they are judged worth it. Stephen Hester was judged worth it when his contract was agreed.
Many sympathise with both perspectives. So what to do? Mercifully, civilisations such as ours have certain foundations on which we fall back when we encounter vexatious questions.
A relevant foundation is the rule of law. Stephen Hester had a contract, offered to him by RBS when it was already majority-owned by the taxpayer. This contract included bonus arrangements required to attract someone of Hester’s calibre. The notion that somehow Hester has a ‘moral duty’ to reject his bonus is bogus. Rather, those who offered Hester his contract, and who agreed it, have a moral duty to speak up for Hester’s right to take what he has earned in good faith.
The second notion is that of freedom. Stephen Hester was offered a contract and accepted to serve under its terms. That he has honoured his terms of that contract and done a good job on behalf of the taxpayer-owners is not in question. Yet his right to accept his bonus without becoming in his words, a pariah, was taken from him. When a society accepts that the rights of its citizens can be over-ridden by its collective mood as to an individuals ‘moral duty’, then no one is safe. Freedom is compromised, just as it was by the McCarthy inquisitions.
An issue of special interest to the social investment community illuminated by this is whether government is a trustworthy counterparty. Hester’s experience might be used as evidence that the government will renege on deals or exert unfair pressure when an adverse wind blows. This certainly reflects the recent experience of the ‘unlawful’ (according to the High Court and the Court of Appeals) feed-in-tariff review. If investors or management cannot trust government as a counter-party, the nascent social investment market may well stall.
Endless tricky questions are thrown up: Is it the fiduciary duty of those managing the RBS asset on behalf of the taxpayer to do so in a way that will maximise the interests of the taxpayer? Might failing to offer bonuses to potential candidates to lead the bank rule out the entire field of those qualified to do the role well? Would doing this constitute a breach of fiduciary duty? Is a public service motivation now a core part of the person spec for anyone working at RBS? Do those with a strong public service ethos tend to end up with successful careers as bankers? Are we to blame a lack of bankers-with-a-public-service-ethos on bankers? Shall we blame unacceptably low salaries in parts of the public sector on those whose highly developed sense of service has led them work for sums which allow society to under-value them so gravely? Is anyone still awake?
Perhaps it is time for us to look beyond the easy target and direct our anger to towards the causes of these problems, not the symptoms. I refer you to the comments I made some time ago.
A New Year’s Resolution for our Politicians?
In terms of quantity of money spent for social purpose, government swamps the rest. Charitable and business contributions are important, but ultimately they pale in comparison to Government spending.
So if it is to ever achieve any significant change, the emerging world of Social Investment must work with government, this dominant funder, for social outcomes.
2011 has been encouraging for evidence of a cross-party appetite amongst politicians to make this happen. Excellent work over many years by both parties, culminating in the establishment of Big Society Capital, and universal support for the concept of the Social Impact Bond and emerging potential of ‘Payment-by-Results’ have transcended the political divides. This gives investors like us confidence. Politicians appear to have collectively reached the logical conclusion that the state will be hampered in its ability to spend for social outcomes for the foreseeable future, and so it is in the interests of society to see others step up to fill the gap left behind.
Call it the Big Society or the Good Society, it is about getting other players to invest for social outcomes. And these social investors will only operate in any material way if they can do so in collaboration with government. Competing with, or operating in isolation of, state spending would be futile given a context where government – to a considerable extent – is the market. Or at least the customer.
Yet any investor – whether they be a social or a purely financial investor – can only invest where there is a reliable counter-party. If the counter-party looks or smells unreliable, then investors cannot invest – they have a fiduciary duty not to.
Government has, since 1945, operated as a monopoly interest. It has been the dominant funder and has therefore called the shots. So it has been free to change its mind or move the goalposts ‘for the greater good’. This has led to an entrenched culture and set of behavioural norms.
Markets – whether they be financial or social investment – cannot tolerate such behaviour. It introduces uncertainty and risk, two bad words for investors. For example, by behaving in a way that the High Court said yesterday was ‘legally flawed’ – and, by doing so, causing certain social investors to potentially lose their shirts – government risks destroying the ability of social investors to participate in anything where it may be a counter-party. In doing so, it points a gushing hose with one hand at the flickering flame of an emerging market onto which it enthusiastically pours fuel with the other.
Politicians have rightly been declaring – as Adam Smith did in the Theory of Moral Sentiments – that markets must serve society or else risk losing legitimacy. They are urging, and forcing where possible, behaviour and culture change in the City.
Yet if they are serious about wanting social investors to turn up in the embryonic social investment marketplace, they must also set their own house in order. They must urge and force behaviour and culture change in government.
Perhaps a goal for 2012, a New Years resolution for politicians might be to embrace this need. A good start would be to act lawfully, as a reliable counter-party aligning with investors who respond to their own initiatives to boost social or environmental good.
Liberty for Safety?
They that can give up essential liberty
to obtain a little temporary safety
deserve neither liberty nor safety
- Benjamin Franklin, Historical Review of Pennsylvania (1759)
So the most revealing week of the Eurozone crisis ends, on Armistice Day of all days.
The ‘Greater Europe’ project is as old as the hills. Ironically it was the Greeks who had the first proper go, followed by the Italians (aka Romans) and then a Belgian (Charlemagne, was born near modern day Liege).
Hitler was an Austrian opportunist who took advantage of fertile ground in post-Weimar Germany to pursue his personal and well supported Greater Europe project – which latterly became inseparable from his toxic anti-Semitism and general insanity.
Whatever the original motives of the current European Union, it has in the last few weeks become (whether by accident or design) the Greater Europe project of our time. The way in which a Eurocrat (albeit a ‘Greek’) has been installed in Athens by Brussels has stirred memories of Herod and Quisling. There is a similar process underway in Italy, where like in Greece there is absolute intolerance of any suggestion that the electorate might be consulted.
If a Greater Europe is to be finally established, where European countries are managed by a federal government operated out of Brussels (instead of Athens, Rome, The Vatican or Berlin), then Brussels needs German financial firepower.
Britain, along with the rest of the world, is encouraging the Germans – with their stacks of cash – to cough up and give Brussels what it wants. From the perspective of the economic realist, simply take the Euro to its inevitable and logical conclusion. And as one investing into a distress situation, write your own terms. What’s not to like?
Doing this is, say the markets, the mother and father of all no-brainers. It is demonstrably in the best economic interests of everyone – be you a creditor nation within the Eurozone, or a trading partner reliant on Eurozone economic health (and debt repayment). Most of all, it is in the best economic interests of Germans. By saving the Euro, you prop up the value of the money that you are owed, you prevent your own currency from appreciating and so leaving you uncompetitive, and you prevent meltdown in the economies of your key trading partners.
And yet, obstinately, the Germans hold out. Why?
As the only nation within the Eurozone with the firepower to save it, the Germans have a stark choice – cough up or leave.
Coughing up would be to give immense power to Brussels. It goes against all the anti-authoritarian, pacifist, democratic instincts that characterise their magnificent response to the national nervous breakdown of 1945. To do what is demanded would be to collaborate with everything that they now stand against.
But the alternative is to exit the Euro. Were they to choose this alternative, they would sacrifice their killer economic hand and exchange it for bad debts and an appreciated currency in an economic train smash. They would be cutting off their own nose.
Yet in doing so they might, just might, take power directly away from an emerging authoritarianism, and in the same move they may return it directly to the voters of Eurozone countries. Such an option could leave the Brussels emperor with no clothes.
Today, on 11.11.11, could it be Angela Merkel and her discussions in Berlin that stand alone against a global consensus that would sacrifice “essential liberty to obtain a little safety”.
In Britain, today, we took a minutes silence to remember those who gave their lives to stand against the forces of tyranny both in 1914-18 and 1939-45. Perhaps it was a minute for us to consider the way in which the great wheel of history turns.
Pearls of Wisdom
There was an excellent private event hosted by Coutts last night for some of their high capacity philathropists, and they were exploring the topic of Impact Investing. Even versus the very high standards that I’ve experienced in other private banks in this area, this was outstandingly good. One of the speakers, Jamie Cooper-Hohn founded the Childrens Investment Fund Foundation. She gave four pearls of wisdom to philathropists which are worth repeating – they have every bit as much relevance for impact investors as they do for philanthropists:
1. Use evidence
2. Understand the context rather than impose your ideas of what’s needed
3. Think about the exit before you begin – or be willing to fund stuff for a very, very long time
4. Be an engaged funder – do not rely on self-generated data
She concluded with a quote which is a great encouragement to all of us who are trying to engage with outcomes, as opposed to inputs:
“No battle plan ever survives the first contact with the enemy”
We can vouch for that!
Carry On … up St Pauls!
By Andrew Perry, Chairman
O, how enjoyable has been the short, or possibly, long running comedy playing out on the steps of our greatest institutional monument. All “gas and gaiters” – bishops and archbishops, even Prime Ministers and Boris, all getting their four’ penny worth.
The protestors a sort of amateur version of the ancient prophets, who would speak profound truths even though few understood them. But, as truly committed professionals, these prophets would do proper stuff, like marry harlots, dance naked, sit under juniper trees. They shook the establishment by their persistent cries, however inarticulate. The cocked eyebrow of the establishment will not, of course, be impressed by any of this.
And what about the treasury custodians of Church establishment finances? Contrary to what many think, these are ‘good and faithful servants’. Like the Israelite slaves in Egypt who had to make bricks without straw, these men and women have to support a monumental edifice (Church,diocese, stipend,pension and all the rest) with declining (financial) return and zero growth in church attendance.
More to the point is the encouraging sign that many treasury officials are trying with some success to persuade their more conservative colleagues to take a more holistic view of Capital and Investment. The emerging market of Social Investment is a place where the more brutish aspects of capitalism can be changed.
So “What would Jesus do”? He was not one for health and safety and he was used to camping out. He can speak for Himself but I think He might have rather enjoyed watching these “Kings of the Earth” having their bubbles burst. And, being one for whom the future held no terrors, he might have enjoyed the complete uncertainty of what to do next.
As a UK-based foundation looking to use our firepower (capital) more directly for our purpose, the idea of social (or ‘impact’) investment is a natural one for us. Our perspective makes us keen to see more capital able to move into positive social investments, so we are especially interested in investment opportunities that can attract capital at scale.
We were therefore very pleased to invest – along with other UK foundations – in Empower Community, a charity-backed, start-up social enterprise with the mission to accelerate the transition to sustainable low carbon local economies, by bundling portfolios of small energy projects (starting with FIT-backed solar PV for social housing) into portfolios suitable for pension funds. Income from every project is passed back to local community funds to help pay for further initiatives for the benefit of those communities where the project is undertaken.
The first deal was to be (and still could be) a ground-breaking £175m investment by a pension fund based on the Feed-In-Tariff.
The UK government has been strongly encouraging us foundations to engage in social investment – as Francis Maude said, “there are tens of billions of pounds in philanthropic organisations. This should be allowed to be used to generate mixed returns”. The Charity Commission has recently issued excellent new CC14 Investment Guidance to Charitable Trustees to enable more social investment, not least thanks to helpful interventions from the government. The Prime Minister has promised that this government will be the ‘greenest government ever’. We identify closely with the need to protect our planet.
So we were surprised, to say the least, when the government yesterday announced changes to the feed-in-tariff regime, bringing forward a review from the end of March to the 12th December. Without a simple carve-out for social enterprise backed schemes, this effectively scuppers Empower Community.
Panahpur has engaged fully in the emergent field of social investment (as desired by the government) – one such investment being in this innovative scheme to use a government incentive to return excess value to poor communities whilst unlocking capital into green investments.
We understand that there are a number of reasons for the government changing the goalposts on the feed-in-tariff, and that is a debate that we do not wish to comment on. There are strong arguments on both sides.
The point here is that a bigger principle risks becoming collateral damage in this. There is so much more to lose than the small cost of making an accommodation for the few schemes such as Empower Community. Such schemes are robustly parked on the bullseye of so many things that the government is trying to achieve – big society; involving institutional capital-at-scale to engage in social investment; charitable foundations using their balance sheets for their social purpose; greener government; empowering local communities to take action for themselves. They are also relatively small, as yet, in the scheme of things. An exemption for social enterprise schemes taking advantage of the FIT would not cost materially.
It is not too late. The governments consultation period is now underway. I hope that they have the good sense not to undermine so many of their own arguments by allowing such promising green shoots of an emergent social investment industry to be so comprehensively torn up as collateral damage in another debate.
A Sense of Perspective
I have just returned from Bangladesh visiting a business that we co-own, which provides a platform for a number of community interventions – provision of stable employment, adding value through the supply chain, working with the impoverished and so on. The area, Nilphimari in Northern Bangladesh is currently suffering from the Monga, which means ‘the hunger’. There is no shortage of food, but there is 90% unemployment in an area dependent on agriculture and where there is still 6 weeks to go until harvest time. Paid under $1 per day during harvest and planting seasons, the people are expected to save a portion of that income to pay for the months where there is no work. Another name for the Monga is ‘mora kartik’, which means “months of death and disaster”.
Reading the paper on returning to Britain, I read of the very real distress of a couple in Athens, both retired public sector workers who retired in their 50s, whose pension payments had recently been cut from Euro3,500 to Euro2,500 per month. How were they to live? Athens, they say, is not a cheap place to live. They may even need to move house!
Whilst not seeking to diminish the real distress felt by that couple, it did strike me, on my return from Asia, that we in Europe might have developed a grotesque sense of entitlement.
The more that we are able to connect with the realities of life in much of the rest of the world – where over 1 billion people live on less than a dollar a day and where access to quality healthcare, education and justice is an impossible dream – then the more easily we will be able to adjust to the radical changes to our own quality of life that is surely coming.
And the more we will realise that, in the big scheme of things, it could be a lot worse.
Monopolies and ‘Democratisation’
Mo-nop-o-ly (n): The exclusive possession or control of the supply or trade in a commodity or service.
We generally think that monopolies are a bad idea. They tend to result in vested interests serving themselves, without proper accountability.
Odd, then, that from the perspective of capital provision, almost everything in a modern capitalist society is operated as a monopoly.
Whilst there may be competition in the free market for customers, all public businesses are owned by private capital which has aligned together in marketplaces to seek exclusively financial return. Capital operated through markets, aggregated together, acts as a monopoly – it is the exclusive supply of capital-at-scale.
Meanwhile, the state invests for social outcomes. No other capital pays for the delivery of the education service, the NHS, and so on. Therefore, the state operates as a monopoly funder.
So our society has, on the one hand a monopoly funder seeking profit – and on the other hand, a monopoly funder seeking social outcomes. Both of these are desirable things. But by operating in isolation of one other, in silos, it means that neither has more than a passing interest in how it affects the other.
Yet we know that investment capital can leave behind a devalued social landscape, increasing the need for state investment. And we also know that the market distortion caused by state provision excludes almost all private capital from the provision of social services.
What we are starting to grasp is that, by being excluded from a major part of the economy (investing in provision of social services), private capital is forced to sweat the remaining areas of the economy too hard -so hard, in fact, that they collapse under the burden. Rather as the inhabitants of Easter Island did.
And where private capital does contract with government to deliver social services, interests are dis-aligned as the governments seek exclusively social outcomes, whilst the private capital seeks exclusively financial outcomes. PFI.
This black-and-white world of investment and taxation, at odds, avoiding one another where possible and playing cat & mouse when they must is mutually destructive.
The technicolor world of blended capital structures provides the possibility for the state, as asset owner, to democratise ownership of public services. Blended capital structures enable social investors (e.g. communities, interest groups and charitable foundations) and private financial investors to invest alongside the state for social outcomes. By retaining a ‘carried interest’, the state remains a stakeholder and can build in whatever protections (‘investor rights’) that it requires to protect the social mission. This ‘democratisation’ is, therefore, quite unlike ‘privatisation’.
Government currently finds itself surrounded by self-serving, unaccountable vested interests, whether in financial markets or social service monopolies. And this dark place will only get darker in an environment of declining revenues and increasingly hungry and belligerent mouths to feed. The imperative to pay down national debt will add a chill wind.
‘Democratisation’ may just offer government a ladder out of the hole that it finds itself in.
Hope and Joy
Too often, those fighting for a more just world get lost in the abstract. Working to re-interpret notions of Fiduciary Duty, for example, is important, but it can be somewhat dry.
Directly intervening to try to prevent a child from being sold into sex slavery is different. Anger and despair, and profound fulfilment and joy are commonplace.
This film is like a gift from those who are on the front line to those who are not, to encourage us. Anita, a heroine of ours, shares her joy as she returns a child from illegal imprisonment in Bangalore to her family in a village, and the excitement of a successful brothel raid.
We are all on the same side, whether we work to influence capital markets in the West, or to intervene directly in the cities of India. Our common goal is that people may experience the joy of a life free from exploitation and injustice.
(for those who are impatient, the girl being reunited with her family is the final 5 minutes of this remarkable film)
