Archive for April, 2010

4 stories catch my eye this week:

Social Impact Bonds – a new instrument being used in the UK.  From the described first test case, the idea seems to be: 1) private investors buy the bonds to fund an innovative new program that, if successful, will reduce social service costs for the government in the future because some needy population will have been aided.  2)  If the program is successful and the program DOES reduce government costs, the government shares the wealth by paying a return on the bonds.    How this makes sense to me: I once heard a theory of foundation funding being that foundations fund innovative new social programs for 3 or so years, long enough to prove their efficacy (or lack thereof) with the expectation that government will pick up the effective programs.  However government stopped picking up effective programs and foundations haven’t been able to sustain funding.  This instrument seems to me to solve that problem by making it a government program to start, but allowing private capital to take the risk of experimentation.  But better yet, if the risk pays off not only does the program stick but the innovators get some capital back!

Social Capital Marketplace:  Olivia Khalili does a nice roundup of the leaders in the social venture funding space in her blog: 15 Social Venture Capital Firms You Should Know About.  On the more traditional end of this range (but still very much in the range) I would also add my favorite Community Development Venture Capital firms: Pacific Community Ventures, Sustainable Jobs Fund, and Coastal Enterprises, Inc.   On the more social side there are a number of foundations that could be added:  RSF Social Finance for one.

Investors often talk about the importance of alignment of interests: between investors and entrepreneurs, and among the group of investors themselves.  One way to ease those tensions and keep everyone focused on the long term goals could be to create a revolving equity fund- returns on equity come back into the fund to be re-invested in more enterprises.  Two folks in NYC are establishing a fund to test it out. Check out the Presumed Abundance fund.

Something that as a member I’ve actually put energy behind: Investor’s Circle will pilot a new tool to do a social/environmental assessment of presenting companies at the conference this April 19th!   IC is partnering with the Global Impact Investing Network (GIIN) to use the Global Impact Investing Rating System (GIIRS) to rate presenting companies.  What that means at the implementation level is that all the presenting companies should be taking the B-Corporation survey now, and we investors will receive copies of their survey ratings at the conference.   We did a pilot last fall but the ratings were not shared with all investors.  B-Corp is designed to be entrepreneur-friendly and a little protective, part of working to gain wide acceptance, so my first experience was that it was a little opaque to me as an investor.  IC is now in a two-year effort to work with the ratings and see if we can’t make them more investor friendly as well.

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Sister Judy Byron from the Northwest Coalition for Responsible Investment (NWCRI) came and spoke to the Seattle area SRI Happy Hour for March.  NWCRI is a  member of the Interfaith Center for Corporate Responsibility (ICCR) .  Pam Rivers noted you can follow ICCR on Facebook and they have good posts – check it out!

Sister Judy started her presentation with some background: ICCR was founded in 1971 and began by asking General Motors to divest from South Africa.  That eventually grew into the larger divestment movement, which Bishop Tutu cites as one of the five reasons apartheid finally ended.  Today ICCR has 275 institutional investor members. Members must be faith-based, though there are Associate members  who are not faith-based and who collaborate with ICCR in filing resolutions and dialoguing with corporations, and affiliate members like As You Sow.  NWCRI was founded in 1994 as a  program of the Intercommunity Peace & Justice Center. It was headed by Bruce Herbert for its first  four  years.

NWCRI members meet  3 times/year. The annual meeting  of ICCR is in June is where they review the past proxy season (runs about April-June, when most US companies have their corporate annual meetings) and talk about the issues they’re working on and want to continue working on.  In the fall they’ll file resolutions with companies.  Companies can accept the resolutions or appeal to the SEC to omit the resolutions.  Often times the filing of the resolutions will open a dialog with the company about the issue which may lead the filer to withdraw the resolution.  If the SEC lets the resolution stand, it will appear on the proxy ballot at the next company meeting.

An example –  A  resolution was filed asking  asking  Goldman Sachs to issue a report comparing the compensation of senior executives to the median employee wage at the company.  The resolution was co-sponsored by the Nathan Cummings Foundation and the Benedictine Sisters  of Mt. Angel, Oregon .  Goldman challenged the resolution on a technicality, saying it contained misleading statements.  The very day Sister Judy came to speak to us, the SEC ruled in favor of putting it on the ballot. If you’re a Goldman shareholder, look for it on this year’s proxy ballot.

To file a shareholder proposal, a shareholder must have held at least $2000 worth of stock for at least one year.  Multiple shareholders can co-sponsor a resolution to meet the threshold.  Once presented, if the proposal earns at least 3% of the vote it can be presented again the next year. The 2nd year it needs to earn 6% of the vote, and the 3rd year and every year thereafter if the proposal gains at least 10% of the shareholder votes, it can continue to be submitted to the ballot.   When a shareholder proposal wins a majority of the vote… nothing has to happen. Shareholder resolutions are advice to the company and are non-binding.  However, a significant majority can certainly send a message.

Sister Judy recommended a book called The New Capitalists as a good study of the movement.  She herself worked on the 2002 proposal to GE that it report on its greenhouse gas emissions, and was gratified to read in the book that after the resolution got the support of 23% of shareholders, GE was spurred to take a closer look which eventually resulted in the 2005 rollout of Ecomagination!

Sister Judy made a point that was particularly interesting to me- that the religious orders through their ministry work have sisters on the ground in developing countries with first-hand experience of the issues they’re trying to address.  That experience informs their shareholder work and gives it authenticity.  She gave an example of sisters working in Africa and having first hand knowledge of the devastating impact of HIV/AIDS.  That lead to the order filing a resolution with Gilead Sciences asking for a report on how the epidemic impacted their business and how they were going to address it.  The resolution got 30% of the vote two years running before the company decided to open a dialog.  That dialog resulted in the development of a leading AIDS drug, licensing to 3rd world countries via Indian manufacturers and working on drug access issues for developing countries.

Faith Based orders are working on many issues with companies: water footprints, pollution, child labor in cocoa harvests.  A helpful aspect of working on an array of issues is that companies prefer to negotiate with faith-based organizations because there’s a wider palatte of issues to dialogue about – if a company can’t discuss one issue, perhaps they’ll discuss another. As opposed to single-issue non-profits which have a more targeted goal when engaging with a company and thus less room for dialog.

How can you get involved?  If you own stock directly, you can look for proxy ballots in the mail these next couple months.  It will be a form with a chance to vote for the members of the board of directors, confirm the selection of auditor, and possibly have a few other issues to decide.  You will see the management recommendation and can choose to vote with, against or abstain.  One strategy is to abstain on directors if you don’t know, to give other shareholder votes more weight. Folks at SRI-HH mentioned Proxy Democracy as a good resource for individual investors to see how institutions are voting.  One interesting aspect of proxy voting – it occurs over a period of multiple weeks and the company sees the votes as they come in. Further, the company can lobby shareholders to change their votes!  I learned about this when reading about HP’s much-contested acquisition of Compaq.  At any rate, the advantage to the small investor is that you can sometimes see how larger investors voted while there’s still time to imitate.

For mutual funds, most likely they just vote the proxies for you.  By SEC rule they have to disclose to you how they are voting, you can choose a mutual fund and contact them for a report.  You could apply pressure by writing and asking them to support various resolutions.  The As You Sow Foundation, which promotes corporate accountability, will post a guide to this years proxy season on April 6th,, here.  Their website is a good source of general information.

See if you can vote one issue this year!

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