Do Well and Do Good

For Profit, Non-Profit, or in Between?

The New York Times this past Sunday reported on the increasing trend of organizations with social missions to take for-profit legal forms rather than non-profit ones. The article talks about ePals, an online social learning site which started out as a non-profit but decided to make the switch over. 

There are a number of reasons why an organization with a social mission might prefer for-profit status. First and foremost in my mind is the ability of a for-profit organization to gain access to the for-profit capital markets. These in turn helps make the organization more scalable and help it to grow it with resources beyond what would have been available to it as a non-profit. Second, a for-profit orientation and bottom line focus often can help unsure the long-term viability and sustainability of an operation by making it a goal to have the funding of its operations occur from revenue generated rather than from or by outside donors. Finally, more flexibility often comes with a for-profit status.  This, for example, made Google.org go this route, since it wanted to make investments in other for-profit enterprises.

Bill Clinton and Arnold Schwarzenegger on the Unbanked

I came across an editorial published last month in the Wall Street Journal where Bill Clinton and Arnold Schwarzenegger team up to call on public, private and non-profit leaders to "join the effort" to help unbanked customers gain access to financial services and products.

It is unbelievable to me that half of households in California don't have basic savings accounts and more than 10% don't even have checking accounts. It's just as incredible to think that the people who can often least afford it will spend nearly $40,000 in his or her lifetime to turn their salary into cash. I've often written on this blog that what has made this country so prosperous for so many people in the past has been access to capital.  Without basic financial services at fair prices individual can't borrow money to invest in business and projects that help build their future, and they can't adequately save their financial resources (let alone grow them) in a way that creates stability for them in retirement or for their future generations. Nothing seems more contradictory to the promise of the American dream than this.

Some say that existing payday lenders already meet the needs of unbanked customers, or that Credit Unions can offer alternatives to some of the lenders that take exorbitant fees from their customers. While this may be true in a limited respect, it's clear that this isn't enough. Competition among current lenders hasn't brought down prices to reasonable levels and many people simply don't have access to or aren't part of Credit Unions.  What's more, current lenders seem to only view the unbanked market as a target for loan products.  What about saving products, capital accumulation products? If the only financial products that are offered through the channels that unbanked customers use are loan products, they will hardly move beyond them. At the end of the day, then, providing the products people need is just one piece of the puzzle. Education and financial literacy need to come along with it.

Getting People to Give Requires Stories, Not Numbers

Often, non-profits looking to inspire giving and involvement from members rely on numbers to tell their story. So I found this research (registration required) from Wharton marketing professor Deborah Small so interesting (full disclosure: I am a Wharton grad). Small argues that individuals are more likely to respond to stories and emotional arguments than to numbers and rational arguments.  At the end of the day, the act of charity then is an emotional one - not a rational one.

Hollywood has long known that personal stories are the way to get an emotional response from an audience, not facts. But I can't help but wonder about the implications of this research.  First off, what does this imply about the act of charity? If giving is an emotional act not a rational one, does that mean we care less about how effective our giving is? Does it mean that all we care about is making ourselves feel better rather than solving a problem?  In one of the studies by Small, she found that adding statistics to a personal story actually decreases the level of giving when compared to only using the personal story. What is it about our rational and logical selves that keeps us from wanting to help others? Does age matter in this scenario?  I cannot say for sure, but I do believe that the implications for non-profits and for businesses that are associating themselves with social causes is clear: your organization's appeal is an emotional one so don't forget that when appealing to your membership base .

Citi, JP Morgan and Morgan Stanley Create "Carbon Principles" for Energy Companies

Three major Wall Street firms announced last week the creation of Carbon Principles, " climate change guidelines for advisors and lenders to power companies in the United States," according the the release. Citibank (C) JP Morgan (JPM) and Morgan Stanley (MS) came together and consulted with both power companies and environmental organization over a nine month period before announcing the principles. Great post from the Cleantech Blog on this here.

It seems that the majors have recognized that the sands are shifting underneath their feet when it comes to how consumers want energy produced and, more importantly, when it comes to how the government is likely to regulate the industry and its emissions in the future.  As carbon taxes or a cap-and-trade system become more likely the big banks are afraid of financing energy projects and plants today that become economically problematic tomorrow if such new policies or regulations take hold. While Wall Street is clearly doing this in order to protect their economic interests and not for the benefit of the world's air quality, it is still an amazing example of the private sector leading the way and being just ahead of where the government and regulators are going (even if it's only because the regulators themselves have been slow to react).

Yes, Virginia, There is Motivation Beyond Self-Interest

It used to feel like any business-oriented person who suggested that there were motivating factors to human behavior other than self-interest might as well have been trying to convince the scientific community that Santa Claus really did exist. How times are changing.

I've often talked about how traditional economic models of behavior are imperfect because rational choice theory underpins them. This is the theory that we are all perfectly rational self-interested people and our behavior will be governed by our desire to maximize this self-interest. Yet more and more it is in vogue to suggest that people are more complex than this theory gives them credit for.  Last week it was Bill Gates at Davos making an argument for what he called a 'creative capitalism' that would harness the communal interest and interest in others that all people have.  This week the New York Times ran an editorial by Robert Frank on Sunday in the Business section entitled "When Self-Interest Isn't Everything."  Frank points out how people's involvement in political campaigns often defies economic theory. Their donation of time and money, his argument goes, cannot be adequately explained with economic behavioral models.

It's great to see the recognition of this in the media, particularly in the context of business discussions and agendas. The question remains, however, of how we take this momentum and translate it into a system or process that will outlive what some argues is a short-lived fad. That is where the real work needs to be done.

What Micro-Credit and the Subprime Meltdown Have in Common

One can have too much of a good thing. Take buying a home, for example. After WWII, the dream of home ownership went mainstream in part because it was supposed to bring a sense of economic and emotional stability into the average American’s life. No matter what, you could always go home.

Somehow, however, more than fifty years later we lost touch with these humble beginnings. Suddenly, rather than using home ownership to secure our economic stability, we were putting it in real jeopardy. Fueled by rising prices, cheap money, lenders with questionable intentions, banks that didn’t ask about the creditworthiness of the mortgages that they were buying, and ratings agencies willing to look the other way, things blew up. We all know the rest of that story.

On Gambling & Investing

Spend any time in the investing game and you can't but help to begin to draw parallels between investing and gambling. So I put my pen to work thinking about these two and what, if anything, we can learn from the folks in Vegas and Atlantic City.

Let's face it: you can’t consistently make money in most games at a casino. The odds that you make money in most casino games are known before you even step up to the table – and they tend to not be in your favor. Hold on, you say. You are different. You can beat the odds because lady luck is smiling on you this fine Vegas evening? Maybe so. But the key to understanding casino games is knowing that the long-term probabilities of any given event are far different than what might actually happen each time your roll the dice or put your chips on the table. Interestingly, the same goes for understanding Mr. Market.

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