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Traditionally lenders and insurers mitigate risk by screening borrowers and charging higher-risk borrowers higher rates.  This is done across all types of borrowing and insuring – home, auto, life, business, personal credit. This has always bothered me because it strikes me as self-fulfilling prophecy. Charging higher rates can only increase the risk of default. It’s also penalizing the people who need help the most. This is the opposite of the kind of system Americans like to see; we prefer one that reinforces opportunity for those who work hard, rather than just raising the bar for those who start closer to the bottom.

Recently a friend sent me an NYT article about Bruce Marks and the Neighborhood Assistance Program of America.  NACA focuses on the subprime market and has found a new way to mitigate risk. They mitigate the risk for the borrower rather than mitigating the risk purely for the lender. They do this by working with borrowers to create financial plans as part of the lending process. Instead of making borrowers with low down payments buy mortgage insurance, those borrowers pay into a neighborhood Membership Assistance Program.  Membership in the MAP gives them access to free financial and credit counseling. Further, the MAP can provide up to three months of mortgage payment assistance.  All assistance that protects the mortgage – by protecting the borrower.  Further, they engage the homeowners by creating Peer Lending Committees to review requests for assistance.

This is the kind of risk mitigation thinking we can use more of – ways of working together instead of against each other.  Reading the articles below it seems this hasn’t spread further because the founder is still very much in the culture of working against, he’s just redefined who he works against as other lenders.  Still, the ideas are good ones and remind me very much of grameen bank and their lending circles.

A Nonprofit Lender Revives the Hopes of Subprime Borrowers – NYTimes.com.

https://www.naca.com/nacaWeb/program/assistanceProgram.aspx

I was in a great conversation today among social investors. We hit many becoming-familiar themes and I thought I’d summarize them for a larger audience. A core organizing question: Is it possible to invest in a socially conscious way without a performance penalty? It’s a core question, The Stanford Social Innovation Review issue (http://www.ssireview.org/articles/entry/impact_investing) last fall captured and re-ignited the debate about impact and market rate returns.   This questioner did put money into two funds, one with sustainable & responsible metrics (SRI) and one pretty standard fund.  The SRI investment lagged the standard one last year.  What gives?  As we went around the room, answers include:

  • That was just one year, you need to follow those investments through full cycles and what you should see is that the SRI investments are taking less risk and cut the downswings short.
  • You’re evaluating the success of those two funds by standards that were set by the traditional investment market, so it’s no surprise that the traditional investment wins. The whole point of impact or sustainable & responsible investing is that you’re looking to do better on normally neglected metrics.
  • You just picked two funds, maybe you did a better job picking the traditional fund than you did picking your SRI fund.
  • You’re investing in funds of public equities, which are seeking to meet the overall behavior of already efficient markets.  The world is changing and millions of people are changing their behavior for a better world. If you can invest specifically in good companies offering the new products and services that help people change then you can profit from the move towards a better world.
  • How much is enough? Outperforming some other fund or index is fundamentally a relative measure: what’s the absolute measure of what you really  need?  And further, what’s the sustainable answer? In a world where the economy grows globally at 6%, and people’s retirements need to grow at 8%, investing is fundamentally extractive.
  • For folks who are blessed to feel they already have enough, the question is less one of how much money can I make but how much difference can I make while I invest at a risk I can tolerate.

Lots of fascinating food for thought, hope it can stimulate you as much as it did this group.

My experience with unions is pretty limited. I didn’t grow up in a union family – Dad was a federal government civil servant, Mom was a sales rep for various companies.  I married into a Boeing family but Dad is an engineer who ignored the SPEEA strike that occurred in the ‘90s and has some sort of union-contentious-objector status that lets him pay lower dues.   Brother-in-law worked for Boeing as a machinist for a while but mostly complained about how union rules on being able to run only one machine at a time made for a boring job, and it seemed like he would get into trouble playing gambling games at work to kill time.

Early in my philanthropic years I saw the film “Live Nude Girls Unite” about the unionization of the Lusty Lady in San Francisco. Happy to support women’s empowerment I supported the film.  It struck me at the time that in the little, scrappy situation the union was a great thing.  Up until a couple years ago there was also a Lusty Lady branch here in Seattle.  The director commented on how after the SF location unionized, the same benefits were extended to the Seattle location and so they did not unionize.  A few years later, the director reported, Seattle’s benefits withered away while SF kept theirs. One thing I learned was about the concept of an “open shop” vs a “closed shop”. The latter case means the job itself is defined as union or no, the employee can’t decide (like my in-laws at Boeing.)  The former case, the union needs to keep making a case for its value to the employees or they’ll stop joining.  It seemed to me that it was a great way to keep unions from being encrusted as another layer of management, as long as other rules were changed to make it maximally easy for unions to make that case for employees to join and renew.

My focus in consulting and investing is around entrepreneurship and total start-up companies.  We’re a long way from unions.  However for nearly a decade as an investor I’ve been looking for a way to ensure the companies I invest in will grow up to be good employers and to focus on all their stakeholders including the environment.  I really value the B corporation tool that grew out of folks associated with Investor’s Circle.  I’ve studied up on worker cooperativism and supported a worker cooperative in California and sponsored scholarships to visit The Cooperatives of Mondragon in Spain.   The US Steelworkers signed a memorandum of understanding with Mondragon that they would work together to figure out what the intersection of Unionism and Worker Cooperativism might be, but that was a few years ago and I haven’t seen much since.  My focus on how to measure social impact has continued.

This fall I’m focused on 4 projects: two are related to my condo building; the third is a Social Impact Investment Fund consisting of 10 accredited investors getting down to business of trying to agree on some shared investments and sorting out how we define impact as we go; and the fourth is running for the board of Central Coop, a consumer cooperative grocery store on Capitol Hill.  The combination of the last two is giving me some interesting insight.

For SIIF I interviewed a local entrepreneur and was really gratified to hear the language and commitment I seek around building a company as a community and engaging and respecting employees.  It seems to be very difficult to find this focus in entrepreneurs – there are so many things for them to focus on, especially when they talk to investors and if they have any sophistication (aka acculturation into the mainstream language around scale and financial return.) This entrepreneur also has really good business sense for a passionate farmer who started only a few years ago.  Turns out she was a “shop steward” – a union representative –  at UPS for 6 years and she credits that experience with teaching her good systems for managing people.

This particularly caught my attention because this month is the election at Central Coop and I have been “tabling” in the store. This means I stand near the registers with literature, encourage people to vote and make myself generally available for members who want to meet a candidate.  Many people prefer to focus on their shopping (I thank you for your patience as I sneak up on you and interrupt to ask you to vote).  Each day a few people will stop for a deeper conversation and I’ve noticed that in at least half of those conversations it will come up that this person is a union member/supporter.  How?  Well in one case we were talking about availability of natural foods and I mentioned Whole Foods and was rebuked for suggesting anyone might shop a non-union shop. In other cases it was how someone identified themselves as I asked them what membership meant to them.

Talking to these coop members and talking to this entrepreneur, I hear the passion and commitment around building an economically just, inclusive community that I seek as a social impact investor. For the first time I see that what I’ve been seeking from B Corporations and worker cooperatives– a way to direct both my consumer and investor dollar to building the kind of world I want to live in, is what these folks already perceive from unions.  Buy union not because it’s a tedious obligation of printing your democratic literature but because it guarantees living wages.  Buy union not because they have a monopoly on some service you need but because… well, I don’t know. I’m still more successfully indoctrinated with the image of unions as inefficient and bloated and antagonistic. It makes me a little sad, because perhaps here’s the tool I’ve been looking for but boy it’s looking rusty. But hopeful, because maybe I have many more fellow travelers than I realized, I’ve just been speaking a different language.

Today I finally got to visit Highline park in New York City, one of the top destinations people have mentioned to me as a “must see”.  It really is amazing.  A former elevated railway that “went to seed” it was ultimately embraced and over the course of a decade formalized into a mile-long, elevated, threading amongst tall buildings park. It will be longer when it is finished. Sitting in a spacious section, looking down its length with buildings rising on either side I had a mental flash to a “city of the future” like I’ve seen in Star Trek movies. The only thing missing was the traffic of flying cars overhead.  Suddenly, it clicked: that vision of the future has it backwards – we don’t want to add flying cars overhead, we want to leave them hidden below.  We should build our subway of the future Pioneer-Square-style:  by building new pedestrian walkways over top the roadways and turn them into subways, perhaps someday to be filled with electric, autonomously piloted vehicles.

There has been talk of the Highline as inspiration for what could be done with the Alaskan Way Viaduct, to imitate it in style and materials if not actually in elevatedness.  The Viaduct seems to be more problematic structurally and keeping it was not an option.  More importantly from a use perspective, its simply not well located.  It tracks along the fringe of the downtown residential and commercial core, not through its heart. For me the magic of the Highline is the embededness it has in the city – it’s very easy to imagine it becoming a major pedestrian commuter route. Bicycles & skates are not allowed and are discouraged by the style of pavement.  Walking the length of it seemed like no distance at all because it was so pleasant.

Several years ago the city seemed ready to throw in the towel on the Monorail.  It was completely non-functional for more than a year, but the arrival of the Seattle Center’s 50th anniversary seemed to provide the nudge to get it back working again so we could sigh over Elvis memories and lure downtown energy to the Seattle Center’s year of events.  My feeling is the Monorail has become Seattle’s Lace Doily.  Grandma made it years ago so it is sentimental though archaic and even a little tacky. We keep it out on our coffee table or bedside stand because we don’t have a sideboard or buffet.

Being in NYC really brings  home to me, a 12 year Belltown veteran, how much Seattle’s downtown is lacking for quiet spaces.  The urban geography there has a nice alternation of very busy London-style commercial high-streets with long quiet tree-lined blocks where the noise quickly drops off and one can actually hear the birds.  Our downtown layout doesn’t allow the same escape from traffic – one must go to Queen Anne, Wallingford or Capitol Hill.   We spent a long time in Seattle talking about a cut-and-cover option for the tunnel downtown, perhaps as we envision our future we can skip the cut and just go to cover to bring in more quiet greenery and pedestrian spaces to the sustainable heart of our downtown.

I’ve long passed the limit of what basic contacts functionality can do for me and wished for a CRM system. Customer Relationship Management: companies use such systems typically to track potential sales and then customers and multiple interactions with that customer. A well-used CRM allows the whole to become greater than the sum of its parts – that whomever you talk to from a company can represent the company as a whole to you because they can catch up on your context by viewing your past interactions with the company. That’s the ideal anyway. With the number of companies that re-ask the same information just passing me by phone from rep A to rep B I suspect the ideal is not often realized.
For me as an individual, a system more involved than just google or outlook contacts appeals because I’d like to remember not just individuals but relationships among individuals: who went to the talk given by Roy Messing on converting companies to cooperatives; who do I know who has ever attended BGI past or present? Who has ever attended a Plymouth Housing lunch at my table? Who have I had sushi chats with that would love to check out the new place on Eastlake with me? I’m getting old enough that I can remember the conversation, but I can’t remember who it was with!
I can kindof track info with labels and tagging but the tagging structure gets heavy. It’s also difficult to build queries out of multiple tags and then follow up with people based on those queries. Most importantly, with syncing and upgrading I don’t feel confident that the data will be retained intact and it’s a disincentive to put much effort into it. I decided I wanted a personal CRM.  Unfortunately CRMs seem to primarily be built for sales organizations doing B2B.  Even if they’re B2C, they build in the increasingly outdated assumption that each person has a single employer affiliation.

As a freelancer/consultant/community member, I also connect with people through more than just their employer – I have contacts I know as “fellow board member at X”, or contacts I know as “neighbor”. Again, tagging in theory would help me track all that, but often times I would like a contact for that organization or event itself with more information, and a way to make additional notes about the relationship – staff member, volunteer, investor.  I’m working with a company now to customize a commercial CRM product but this way of thinking seems to be really against the grain.   I’ve realized that the CRM databases put companies on par with people as contacts, in fact often times designing as if my relationship with the Company is the primary, and the people are just additional contacts to be tracked around that company.  I prefer to think of my database as being of people, who have different ways of associating: working for a company, working on a project, associating with a nonprofit or a campaign, attending an event.  Trying to set up my data that way has shown me that there are sometimes when my relationship is more with a company: when I’m getting electrical work done, for example.  I make my appointment with a sales person, then an electrician comes out.  The contact info I have is not for her (usually) or him (usually) but for XYZ electric.  Or a favorite restaurant, for example. I just have “Metropolitan Grill” in my contacts with a reservation line and I don’t know who will answer when I call.  I happen to also have Noi, the waiter we’ve had for 10 years, in my contacts, so I can ask him travel questions, but it’s a personal contact when I contact him, I don’t ask him if he’s got a table friday night.  So sometimes I do have a relationship with a company and not a person, but I guess it’s driven by the company itself being set up that way, and it seems to always be about a relationship that’s more financial than personal…financial first.

Suffice it to say, spending some time focusing on my contact database has drawn my attention to noticing: when do I have a relationship with a person, and when do I have a relationship with a company?

 

There’s a new foreclosure remedy being explored around the country, the use of Eminent Domain to bring mortgages under the power of local government.  Michael Sauvante of The National Commonwealth Group in Ohio gave a talk at a public banking conference in 2012 outlining the concept.  He has some action guides on his website, Main Street Matters.

He starts with some interesting ideas about how counties can get involved in the foreclosure process to help reduce fraud and inform homeowners about their rights and protections.

The essential idea is to use the process of Eminent Domain – which allows the government to force the sale of property.  We’re most familiar with it as used on Real Property – specifically Real Estate, to allow development of public infrastructure or even private infrastructure deemed in the public economic interest.  There are a number of current lawsuits over the use of Eminent Domain for oil pipeline expansion in multiple states.  Sauvante makes the point that Eminent Domain can be used for any kind of property, including contracts.  His idea is to use the power of county government to step in and buy mortgages for current fair market value (part of the legal requirement of the exercise of Eminent Domain) and then renegotiate payment with the homeowner.   Because the government will now be holding these mortgages, he pairs the idea with creating a public bank, though notes it can essentially function as a governmental department.

Newark, NJ is among the municipalities considering this idea, and David Dayen criticizes it in an article in The New Republic.   Eminent Domain seems powerful because it can be used to compel people to do things they don’t want to do, like sell part of their property. However  as David points out, the mortgage holders that most need help are the non-payers, and those are assets that nobody really wants because they’re not valuable.  It’s a good point, and David’s one example of an organization trying to do this is a for-profit organization, so unsurprisingly they’re not having much success.  Michael seems to have more of a non-profit entity in mind, one that could perhaps fundraise to withstand poor returns or losses. Further, one that defines “valuable” to be something greater than investment return; to include things like mitigated damage to the tax base and community fabric.  Avoided costs makes this more compelling to a local government than to a third party investor who doesn’t face those costs.

I also wonder if Michael & David are interpreting “fair value” differently.  David suggests that “fair value” would have to be based on the value of the contract which he defines as face value.  Michael may be thinking that fair value would be based more on the current market value of the underlying property.   That’s a very important difference for who gets to eat these losses, and David notes that mortgage holders have already started taking steps to solidify their claims, though looking at the base documents it seems to so far be saber rattling about potential future credit damage that might occur to municipalities that try this.

Richmond, California just hired the for-profit company to help them. The industry response, published in April is here and we’ll have to see what happens next!

Continuing the mashup theme of reposting readings that are too good to lose track of:   I checked out some of the resources on the Northwest Cooperative Development Center site to study up on producer cooperatives.  Ideally, you start with a few producers to establish what it will be.  I started reading the USDA’s “Vital Steps: A cooperative feasibility study guide” from their website and it had a section requoted from another guide that is too good to not share.  Cut & Pasted below: my source: http://nwcdc.coop/wp-content/uploads/2012/09/Vital-Steps-A-Co-op-Feas-Study-Guide1.pdf

“Creating ‘Co-op Fever’: A Rural Developer’s Guide to  Creating Cooperatives” (see references or http://www  .rurdev.usda.gov/rbs/pub/sr54/sr54.htm), author Bill Patrie mentions the following five characteristics of a  “project champion” who provides strong leadership:

  1. Credibility
  2. Financial stability
  3. Basic knowledge of the industry
  4. Willingness to accept the servant leadership  role
  5. A developer, not a promoter

Patrie defines these five characteristics (verbatim)  as follows:

1. Credibility  —Is the individual personally credible in his/her neighborhood? They need not be the  biggest farmer or the most active in commodity associations, but they must be respected for their judgment.  Avoid individuals who have tried every new idea that  has come around and are suckers for anything new. I look for people who finish what they start and can  take a long-term view.

2. Financial Stability  —Is the individual capable of  keeping his/her house in order? Producers who have failed before (especially if they have gone through personal bankruptcy) usually lack the credibility with  other producers and lenders to lead the project. They must be able to devote time away from their personal business to help develop the cooperative. This criterion is extremely limiting because many producers lack the time it takes to do the work without jeopardizing  their individual operations. I once worked with a cooperative whose interim board chair wanted to use  organizational funds to buy clothes. Her argument was that she would make a better impression on investors if she could afford to dress well.  [SM – sounds like Sarah Palin!]

3. Basic Knowledge of the Industry  —Is the individual familiar with the industry in a comprehensive way? Most value-added cooperatives are also vertically integrated. The project champion must have a basic understanding of the entire industry—from the first steps of production through processing to marketing to the final consumer. This is a tall order and can’t be  easily filled. The “Madison Principles”  are critical at  this stage of leadership selection.  Often, producers become enamored of a manufacturing technology or an available building and want  to quickly close the deal to own the facility or the  equipment. A true project champion must lead the  group through a market analysis prior to analyzing  processing facility and equipment needs. If an individual can’t be found who has this basic understanding of  the industry, then I look for a person who is willing to  learn.

4. Willingness To Accept the Servant Leadership Role  —The project champion is often uncompensated.  They will frequently be criticized, often unfairly, and sometimes insulted. Thin-skinned or quick-tempered  people often do not last in the pressure-cooker environment of creating a new cooperative enterprise. I  look for a project champion who has balance in her/his  life. They must have patience, people skills, a good  ense of humor, and a sense of what is ridiculous.

5. A Developer, Not a Promoter  —This is development work, not promotion. Promotion may get column inches in the local paper and a 30-second spot on the 6  o’clock news, but it won’t build a financially viable  company. While enthusiasm is important, it can’t replace critical common sense and solid business judgment.

These five attributes are important in a “project  champion” or leader of a cooperative development project

You can find a copy of The Madison Principles here. They seem to be what makes for a good cooperative. More commonly folks refer to the Rochdale principles, which are about what makes a cooperative.

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