Stanford Social Innovation Review

Stanford Social Innovation Review

Summer 2011 | Volume 9, Number 3

The Elusive Craft of Evaluating Advocacy | The Challenge of Organizational Learning | Local Empowerment Through Rapid Results

The Elusive Craft of Evaluating Advocacy

By Steven Teles & Mark Schmitt

The Challenge of Organizational Learning

By Katie Smith Milway & Amy Saxton

Local Empowerment Through Rapid Results

By Nadim Matta & Peter Morgan

Achieving Sustainability Through Integrated Reporting

By Robert G. Eccles & Daniela Saltzman

The Problem with Fair Trade Coffee

By Colleen Haight

Roundtable on Shared Value Summer 2011 | Vol. 9, No. 3

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Contents Features

Published by the Stanford Center on Philanthropy and Civil Society

Summer 2011 • Volume 9, Number 3

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The Elusive Craft of Evaluating Advocacy

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The Challenge of Organizational Learning

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Local Empowerment Through Rapid Results

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Achieving Sustainability Through Integrated Reporting

By Steven Teles & Mark Schmitt The slowness and unpredictability of the political process makes it difficult to use traditional measures to evaluate the effectiveness of advocacy organizations. There are, however, unconventional methods one can use to make strategic investments in that arena.

By Katie Smith Milway & Amy Saxton Disseminating insights and know-how across any organization is critical to improving performance, but nonprofits struggle to implement organizational learning and make it a priority. A recent study found three common barriers to knowledge sharing across nonprofits and their networks, as well as ways and means to overcome them.

By Nadim Matta & Peter Morgan Why local ownership and commitment are the exception and not the norm in most development efforts—and what development professionals can do about this problem.

By Robert G. Eccles & Daniela Saltzman Integrated reporting—the combination of a company’s financial and nonfinancial performance in one document—is a crucial step to creating a more sustainable society. It is being practiced around the globe by companies as varied as Philips, Novo Nordisk, PepsiCo, and Southwest Airlines.

On the cover: Illustration by Gordon Studer

Summer 2011 • Stanford Social Innovation Review

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RE S E A RCH

REV I E W S

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The New Bottom Billion | Making the News | From Graft to Golf | Doctor in Your Pocket | Virtue or Else | The Emotions of Aid

W H AT W O R K S

67 Amplifying Local Voices

69 One Acre at a Time One Acre Fund feeds the world’s poor by helping them feed themselves.

By Corey Binns

71 Crowdsourcing Microfinance Bankers Without Borders applies skills-based volunteering to poverty alleviation.

By Kathy O. Brozek

C A S E S T U DY

74 The Problem with Fair Trade Coffee Fair Trade-certified coffee is growing in consumer familiarity and sales, but strict certification requirements are resulting in uneven economic advantages for coffee growers and lower quality coffee for consumers. By failing to address these problems, industry confidence in Fair Trade coffee is slipping.

By Colleen Haight

18 Ethical Philanthropy Patricia Illingworth, Thomas Pogge, & Leif Wenar’s Giving Well Review by Chip Pitts

21 Just Instincts Peter Corning’s The Fair Society Review by Roberto De Vogli

F I R S T P ER S O N 23

Social Innovation in Washington, D.C. A look at what’s needed next to create the right policy environment for innovation and results.

By Michele Jolin

27 Being the Only B The owner of the only certified B Corporation in Kentucky assesses the pros and cons of the certification.

By Terena Bell

Q&A

30 Roundtable on Shared Value Executives from 10 major corporations gathered in New York City to discuss the innovative ways that they’re putting societal issues at the core of their companies’ strategy and operations.

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E D I T O R ’ S N O TE

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L ETTER S

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25 The Miracle of Financial Inclusion The founder of the Kashf Foundation argues that microfinance can benefit Pakistan’s next generation.

By Roshaneh Zafar

Stanford Social Innovation Review • Summer 2011

Mothers of Invention | Thriving on Failure | Antipoverty Apps | Matchmaking for Philanthropists GlobalGiving’s storytelling project turns anecdotes into useful data.

By Suzie Boss

16 Philanthropic Practices Leslie R. Crutchfield, John V. Kania, & Mark R. Kramer’s Do More Than Give Review by Matthew Bishop

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16 New School Economics Dean Karlan & Jacob Appel’s More Than Good Intentions Review by Kevin Starr

W H AT ’ S NE X T

14 The Holy Grail for Nonprofits Jeanne Bell, Jan Masaoka, & Steve Zimmerman’s Nonprofit Sustainability Review by Jim Schorr

A CT I O N

L A ST LO O K

O N THE W E B

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Editor’s Note

B y E r i c Ne e

Defend the Public Sector

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ocial innovation is a three-legged stool. The nonprofit, for-profit, and public sectors each play important roles in addressing social problems. Today, however, there is a wholesale attack on one of those legs—the public sector. The attack is taking place not just in the United States, but in Europe as well, where government programs and the taxes that support them are rapidly being eroded.

It is true that the role of the public sector needs to be rethought. Many problems that people once believed could be addressed only by creating government programs or regulations can in fact be better solved by creatively enlisting the business and nonprofit sectors. Allowing businesses to trade carbon emissions, for example, is in some instances a better way to slow climate change than creating government regulations. And nonprofits like Habitat for Humanity do a better job of providing housing for low-income working families than some government programs.

But the public sector still plays an essential role in providing services like universal public education, basic scientific research, and health care for the poor and seniors. Over the last few decades, however, there has been an erosion of support for the idea that these types of programs are necessary and should be publicly funded and controlled. Tax rates, particularly for the wealthy, have been slashed, which has led to growing government deficits and the rollback of numerous public programs along with public worker pay and benefits.

This trend was not inevitable. Rather, it is the result of a concerted attack on the public sector by some conservatives. President Ronald Reagan was an early proponent of this approach, but it has caught fire with contemporary Republican politicians such as Rep. Michele Bachmann and Sarah Palin. These conservatives call their strategy “starving the beast” (the beast being the public sector).

Instead of creating a society in which the public, nonprofit, and for-profit sectors work together to solve social problems—i.e., social innovation—I am concerned that we are moving toward a society where the role of the public sector has been markedly reduced (except for functions like national defense, police, and fire protection), many heretofore public services have been privatized (such as roads and education), and the nonprofit sector is left to pick up the pieces (by running food banks and volunteer-created parks and housing).

Many of the most important social innovations of the past—such as Social Security, Medicare, and land-grant universities—are firmly rooted in the public sector. These programs provide a benefit to all of society and should be paid for with taxes, not through donations or philanthropic investments. We should not be under any illusion that programs of this scale can be replaced by the nonprofit or for-profit sectors.

It is important for people and organizations that believe in social innovation to become involved in the political struggle now being waged to determine the future of the public sector and of our society. n 4

Stanford Social Innovation Review • Summer 2011

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Letters Feeding the Poor Bravo to Panera for instituting such a brilliant consumer engagement strategy (“Retailing with Heart,” SSIR, vol. 9, no. 2, p. 55). Since my high school days, when I would go with friends to our local Panera for donations for a school bake sale, the company has made it a priority not just to operate extremely profitably, but also to espouse a community feel throughout its retail stores. At the Net Impact conference last fall I heard Seth Goldman, CEO of Honest Tea, describe how his company set up racks of their drinks on college campuses across the country for people to grab a bottle. A box for payment was there for people to pay via the honor system. Students at many college campuses paid the $1 per bottle and some even more. Whether the students knew it or not, Honest Tea was engaging consumers on an emotional level. Strategies like this go far beyond simplistic cause marketing campaigns.

Shawn Basak Consultant Mission Measurement Chicago

I have been following the Panera Cares story with much interest and hopes that it would be a success. I am part of a small group that started what we call Third Tuesday Suppers in Geneva, a suburb of Chicago. We have been putting on a meal once a month that over 18 months has grown from 100 to 500 guests. It is amazing to hear the stories of how unemployment has affected our normally affluent area and that we are able to make a little contribution to people’s lives.

We try to offer a restaurant-type meal, serving everyone with the same dignity but without the check. So far we have been able

Despite the limited contexts that they operate in, if Panera, Karma Kitchen, and others like them are able to inspire more people to experience their interconnection with each other, it will take humanity a small step forward.

—Birju Pandya

to sustain through donations of money and food, including Panera, which last year donated rolls for one of our dinners. Keep up the good work—there’s much to do.

food, null the check, and ask everyone to pay forward whatever they want for each other. Whatever the deeper intention of both these models, neither Panera nor Gayle Taylor Karma Kitchen is set up to “feed the hunCo-Coordinator gry.” Today, the world produces enough Third Tuesday Suppers food to feed everyone, but it doesn’t hapGeneva, Ill. pen because of the boundaries we create Panera’s pitch is that donations generally amongst ourselves. Despite the limited balance out—but that’s only because they contexts that they operate in, if Panera, position their honor-system restaurants Karma Kitchen, and others like them are in upscale neighborhoods. There are cerable to inspire more people to experience tainly more homeless people than Panera’s their interconnection with each other, it capacity, so if they actually opened it up will take humanity a small step forward.

Birju Pandya to all hungry people, they simply couldn’t Managing Director sustain themselves.

Armonia I volunteer for a restaurant experiNew York ment called Karma Kitchen. It started at a Oil and Gas Subsidies restaurant next to People’s Park where it shared a wall with a tattoo parlor in down- The authors (“Picking Green Tech’s Winners and Losers,” SSIR, vol. 9, no. 2, p. town Berkeley, Calif., and has now spread 30) write that “With a convenient, low-cost, to other cities. On Sundays, volunteers and pervasive energy infrastructure in place, rent a restaurant space, prepare cooked

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green technologies must prove themselves much bigger advantages. Second is the more affordable or better performing to dis- ability to attract talent. With stock options place their competitors. By and large, the and higher wages the pool of management only way green energy has been able to meet talent is bigger. Third is market discipline. that standard is through government subsi- With the for-profit model you HAVE to dies that bridge the gap between actual cost deliver value or folks won’t pay up.

Jon Carson and grid parity.” That may be true, but you CEO and Chairman fail to mention the subsidies that oil and gas BiddingForGood companies receive from the government as Boston well. The price of oil and gas does not reflect We’ve chosen the for-profit model because the true price because it fails to internalI wanted to focus my activities on meeting ize costs such as pollution, damage to our our social and profit goals. While working environment, health, and other costs. If we with nonprofits I observed that the execupriced oil and gas accurately, green energy would be better able to compete. How about tives were forced to spend too much time meeting the requirements of government a carbon tax?

Violetta Muselli agencies and funders. The time they spent San Francisco on those activities diverted them from Vision 2020 more productive use of their time. I am The article (“Better Vision for the Poor,” also much more comfortable knowing that SSIR, vol. 9, no. 2, p. 66) looks at several I am responsible for producing the revenue organizations offering vision services for necessary to scale my business. We may low-income people. The Focus on Vision ultimately convert to a hybrid to ensure Foundation is able to mass-produce adjustthat when we retire or sell the business, we able spectacles based on the Alvarez/ are assured the continuation of its social Lohmann principle. These eyeglasses, component.

Joe Hunt called Focusspec, were designed for lowManaging Director income people living in remote areas. We Workforce Enterprises have exported them to 36 countries, espeNew York cially those in the developing world, but Terrific article. You nailed it. There are ways even some segments of the United States. to anchor mission, protect directors, proWe challenge (invite) all existing initiavide for greater transparency, avoid investives to join forces to realize the goal set by tor control issues, raise money in the capital Vision 2020. Some organizations want to restrict eyeglass dispensing to optometrists. markets, and stay pure to the social mission (and even do it at the “bottom of the pyraBecause of the slow pace of production of mid”) without surrendering too much for certified optometrists worldwide, however, taxes along the way. These structures are a this may be a pipe dream, and is not in the bit complicated and involve bending the arc interest of the needy.

Jan in ’t Veld of traditional forms, but are certainly worth Co-Founder and Vice President the time of an entrepreneur to consider.

Focus on Vision Foundation Eindhoven, Netherlands

Business Models I have started several for-profit social enterprises (FamilyEducation Network and BiddingForGood) and have found there are three main advantages to the forprofit model (“For Love or Lucre,” SSIR, vol. 9, no. 2, p. 42). First is access to capital. There is way more investor capital than grant capital. Furthermore, most nonprofit funding sources only want to back pilot projects but are not interested in scaling. This is where the for-profit model has 6

Stanford Social Innovation Review • Summer 2011

includes nearly 200 Chicago-area organizations that provide various forms of volunteer-based tutoring and mentoring in the non-school hours. I operate one of these, and also lead the organization that collects and shares this information. Is it realistic to think that the boards of each of these groups could all be composed of people who have civic reach and access to power?

I don’t think there are enough people to fill this role, especially since tutoring and mentoring programs compete for board members with hospitals, faith groups, arts groups, and other types of nonprofits.

To help solve this problem, I’ve been trying to act as an intermediary to get people who do have civic reach to become a virtual board of directors, using their influence and power to help the city have great tutoring and mentoring programs in every poor neighborhood. This has its own challenges, but it seems that it would take the involvement of far fewer leaders if they were pointing their efforts to the entire city, not just one or two nonprofits.

Daniel Bassill President and CEO Tutor/Mentor Connection Chicago

I have found the best boards to be a blend of “movers and shakers” and the people with deep knowledge of the program or the target population. Too many of one kind of board member, at the exclusion of the other, has not been as effective as the blend.

Andrew Marks Board Member State YMCA of Michigan Allegan, Mich.

The points made in the article are excellent, and they also apply to many governR. Todd Johnson mental boards and commissions. I worked Partner for a board that had almost none of the Jones Day Palo Alto, Calif. qualities described in the article. It was a constant struggle to keep them focused Effective Boards on and contributing to the mission of the The article (“Increasing Civic Reach,” SSIR, organization. Governors and other elected vol. 9, no. 2, p. 25) provided great advice officials who appoint board members that any nonprofit should aspire to achieve. would be wise to follow the advice in the In the real world, however, there are thouarticle, and pick board and commission sands of nonprofits doing different types members for the reasons given, and not of work, but there are only a limited numfor crass politics.

Mark Brenman ber of people in any geographic area that Senior Policy Advisor fit the descriptions in this article of having The City Project Olympia, Wash. “civic reach.” I maintain a directory that

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By Jessica Ru vinsk y Eco n o m i c D e v e lo pm e n t

The New Bottom Billion

photograph by Monica Alexandra Terrazas Galvan

3 Aid is increasingly focused

on the “bottom billion” in extremely poor, mostly African, nations. But according to a new analysis, most of the world’s poor no longer live in these countries.

The 960 million poorest people on the planet—or three quarters of the 1.3 billion who make less than $1.25 per day— are now in middleincome countries, says Andy Sumner of the Institute of Development Studies in Sussex, United Kingdom. What happened is that “most of the world’s poor live in a relatively small number of countries, countries like India and Nigeria, which have become richer in average terms” and recently graduated from low-income to middle-income status, Sumner says. “But at the same time, poverty doesn’t seem to have fallen much.” The new wealth hasn’t been broadly distributed.

Back in 1990, it was true that poor people (93 percent of them) lived in poor countries. In such a world, ameliorating global poverty is more straightforward, Sumner says: “It’s about aid and resource transfer.” But when most poor people live in countries with substantial domestic resources, giving money isn’t enough. It “pushes development in ultimately a more political direction,” he says.

Traditional donors and international NGOs may move “toward thinking about how they can support progressive forces of change,” Sumner says.

It is now even more important to “build up and support the expansion of local civil society in developing countries, so that

tions, and tax havens.

Sumner’s analysis broadens the question of how to ensure a better world, says Nancy Birdsall, founding president of the Center for Global Development in Washington, D.C. “As fewer and fewer countries are poor in average terms

High-income housing sits atop a slum in Mexico City, which has the eighth largest GDP of any city in the world.

and house fewer and fewer of the world’s poor, should what used to be aid money go toward what are now increasingly called global public goods?” Perhaps the next step is “dealing with problems like climate change, or the need for more agricultural research, or health technologies that could be deployed in poor countries but less poor countries as well,” Birdsall says.

A careful look at world poverty throws a lot of conventional wisdom into question. To really help the poor now, says Sumner, “the first thing is to think about development way beyond aid.” n

local NGOs can call their own governments to account.”

Fragile middle-income countries such as Nigeria and Pakistan may still benefit from development assistance, but governance and domestic taxation and redistribution policies are becoming more important.

Emerging powers such as China and India (which give aid to other countries) are less and less likely to need or even want aid, and more likely to be concerned with coherence in policies on trade, migration and remittances, climate negotia-

Andy Sumner, “Global Poverty and the New Bottom Billion: What if Three-Quarters of the World’s Poor Live in Middle-Income Countries?” Institute of Development Studies, 2010.

P u b l i c R e l at i o n s

Making the News 3 The media introduce social

movements to the masses, but how do social movements make it into the media? Among environmental groups, “there’s this small number of organizations that really capture the lion’s share of attention,” says Kenneth Andrews, associate professor of sociology at the University of North Carolina at Chapel Hill.

And they aren’t the flashy, controversial ones you might expect.

Although most researchers study issues and organizations that already have made a big splash, Andrews and his coauthor sampled all the environmental organizations in North Carolina and then read all the coverage that those 187 groups received in 11 major daily newspapers over a two-year period.

“Our sample includes everything from grassroots, completely volunteer-run groups, to groups with a dozen or more staff who are working full time for the organization,” Andrews says.

By far the most attention went to the more professional and formalized organizations, which used routine advocacy tactics and worked on issues with which reporters were familiar.

The results for environmental groups echo findings in other relatively mature and stable sectors of social movement activism.

Among civil rights groups, “the one that dominates media coverage over the course of the 20th century is the NAACP,” Andrews says. “There are more radical groups and more radical tactics that come and go, but the groups Summer 2011 • Stanford Social Innovation Review

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Stanford Social Innovation Review • Summer 2011

rot that’s involved for poorer countries is development aid,” Monteith says. For example, Sweden and the Netherlands recently withheld millions of dollars in health aid to Zambia after finding evidence of embezzlement. That loss has got to hurt. But if Zambia clamps down on bribery in response, losing development aid could ultimately turn out to be good for development. n Bård Harstad and Jakob Svensson, “Bribes, Lobbying, and Development,” American Political Science Review, 105, 2011.

H e a lt h

Doctor in Your Pocket 3 Texting again at 3 a.m.? Your

phone could tell your doctor.

The habits and symptoms your smartphone can know about you are fast becoming part of a powerful medical toolkit.

Mobile software applications collectively known as mHealth have the potential to extend the reach of health interventions far beyond that of traditional care, especially for chronic diseases. After all, treatments for diabetes, asthma, or obesity require everyday vigilance, not just occasional clinic visits.

New and valuable mHealth apps are coming out all the time. But for each one, the developer has to reinvent all the basic components, creating from scratch the data path from phone to caregiver. “The rate of innovation and the spread of this technology are held back because everything is coming out one siloed product or project at a time,” says Deborah Estrin, professor of computer science at the University of California, Los Angeles.

Instead, Estrin suggests, the field could develop an open architecture in which

Cartoon by Aaron Bacall/www.cartoonstock.com

that have long-standing relation- L a w that corruption can be selfships to the media have a kind of reinforcing. “The problem is legitimacy that makes them the that the more you invest, the obvious one to turn to when more you have to pay in bribes.

“In India, as elsewhere in the This then discourages you [reporters] are trying to understand what’s happening.” A con- developing world, the old busifrom investing,” says Harstad. ness of corruption is meeting frontational organization can Without that investment, the a new rival: the Washingtonstage an occupation of a state firms don’t grow and may never style business of persuasion.” building and call the paper, but reach the threshold where they So commented columnist coverage is steadier when the would switch to lobbying.

Anand Giridharadas in the paper’s calling you.

So how can developing May 18, 2006, edition of the It’s the professional organinations escape this trap?

International Herald Tribune. zations where employees find Harstad’s analysis paradoxiLobbying and bribery are themselves answering the phone. cally suggests that punishing both time-honored ways to “Reporters call Environmental bribery only reinforces it: High seek influence. The most Defense Fund (EDF) because of penalties for corruption merely important difference between its science and economics and increase the cost of bribing, them, according to economist law expertise,” says Georgette further slowing growth. But Bård Harstad of Northwestern Foster, North Carolina media that prediction is not necessarUniversity’s Kellogg School of director for EDF, one of the ily borne out by the facts, says most heavily cited organizations Management, is not that one is Charlie Monteith, counsel at legal and the other a crime. It’s in Andrews’s study. “The EDF White & Case in London and a that bribery doesn’t last as long. key architect of the UK Bribery strength in creating marketWhereas successful lobbying Act 2010. In the aftermath of based solutions is something that changes the rules, bribery only reporters respect and trust.”

9/11, the US Department of bends them. Harstad built a EDF’s position at the interJustice began enforcing the mathematical model to track section of environment and Foreign Corrupt Practices Act in economy is also important to its and explain why bribery is more earnest, says Monteith. “There common in poor countries and media success. “It’s partly what has been a sea change in the last lobbying in rich ones. “If you are five to seven years. I see more the groups do that makes them effective, but it’s partly what the bribing, you get permission to ethical behavior, and it has, a lot break the rule only once,” says media care about that allows of it, been prompted by enforceHarstad. “If you want to break them to be effective,” says ment action,” he says.

Andrews. Local papers will write the rule later, you have to pay It’s not just a big stick that about local economic and politi- again.” For a small firm paying motivates change. “The cara small bribe, that is cal issues, and an awareness of cost-effective. But in this coverage can help small a thriving economy, movements gain visibility. corrupt bureaucrats New organizations with essentially price fewer resources can promote themselves out. themselves by “figuring out where the media already are, in “When the company grows, the bribes a very practical sense, whether become bigger and that’s at city council meetings bigger. Eventually or at other kinds of community it’s cheaper for the events,” Andrews says. They big company to should ask themselves: “What are the things that routinely get lobby to change the rules,” says Harstad. covered in the news, and what This analysis are the ways to make an orgasuggests a natural nization’s events or agendas evolution away relevant?” n Kenneth T. Andrews and Neal Caren, “Makfrom bribery. But ing the News: Movement Organizations, a closer look at “Did you notice how he was suddenly interested in our Media Attention, and the Public Agenda,” American Sociological Review, 75, 2010. sales pitch when I mentioned a substantial bribe?” the model shows

mHealth applications share common building blocks. Such an infrastructure could spark innovation in much the same way that the Internet’s standard protocols revolutionized many sectors of the economy.

Creating an mHealth app would enable the patient to report drugs and dosages, symptoms and side effects at any time, so the doctor could respond quickly and with more accurate data. “If you’re doing teens and asthma, or you’re doing overweight teens who are at risk of diabetes, or you’re doing new moms who have not lost their pregnancy weight and are at risk of cardiovascular disease—all of these completely different diseases and demographics need basically the same components, but with very different skins and flavors to them,” says Estrin.

Specifically, every app needs

a way to prompt the user for One of those problems is information—How much does privacy. On current versions of it hurt? What time did you take mHealth applications for the VA, your meds? How high is your self-assessments are maintained blood sugar?—to collect data by the user on the phone, “and and feed information back to the only way to share the data the patient and the health care is to actually bring the device provider. The data also could to the providers, hold it up, and come from smartphone sensors show it to them,” says Hoffman. that capture how much the Estrin’s alternative is a “personal patient moves around or talks data vault” that could securely on the phone. capture and share information.

At the Department of “Let it go someplace where it’s Veterans Affairs’ (VA) National encrypted in the cloud in its full Center for PTSD in Palo detail, and it’s available only to Alto, Calif., psychologist Julia you” and the parties you choose, Hoffman agrees. “The probsays Estrin. lems are so complicated that it The mHealth revolution doesn’t make sense to struggle will make the most difference with them over and over again, in underserved populations. “If and then to let other health care you are wealthy and can afford providers” do the same, she to see a therapist twice a week says. “Building this common and have a personal trainer, infrastructure that we can tie probably nothing can beat that,” into allows us to solve the most says Estrin. “So how can we difficult problems just once.” start to bring that level of per-

sonalization to people for whom seeing a human being that often is just not in the cards?” n Deborah Estrin and Ida Sim, “Open mHealth Architecture: An Engine for Health Care Innovation,” Science, 330, 2010.

Environment

Virtue or Else 3 When a company breaks

the law, the Environmental Protection Agency (EPA) would really rather it just say so.

And many of them actually do.

Under the EPA’s Audit Policy, violators who voluntarily report themselves can get certain penalties reduced or waived if they commit to ongoing selfregulation. The companies set up internal compliance procedures and promise never to do it again.

“These firms have agreed to do something above and beyond

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Ideas Research what’s required by law,” says Jodi Short, an associate law professor at Georgetown University.

But is that promise any more than window dressing? Short found that when firms commit to policing themselves, they do in fact have better compliance outcomes—under certain conditions. “There are things regulators can do to promote the meaningful implementation of self-regulatory commitments,” she says. In particular, watching them is more effective than warning them.

Looking at hundreds of industrial facilities subject to the Clean Air Act across the United States between 1993 and 2003, Short showed that surveillance of self-auditing firms increases compliance, whereas overt threats decrease it: Those companies that started self-regulating only when the EPA said it would punish them did not improve compliance outcomes. Coercion reframes self-regulation from a question of corporate honesty to a catand-mouse game, says Short, and “you can’t sustain voluntary regulation without a certain amount of non-calculative motivation—motivation to just do the right thing.”

The practice of imposing compliance auditing as a part of enforcement action settlements has become widespread across a range of fields, Short says. But her research shows it doesn’t help—a finding that field experience confirms. “For a self-audit to be effective, you really need to have major senior management buy-in,” says James Salzman, the former European environmental manager for S.C. Johnson, now a professor of law and environmental policy at Duke University. “And senior management buy-in is more likely

if it comes organically than if it comes at gunpoint.”

This is not to say that sanctions aren’t important. “There’s a lot of data to suggest that big sticks lead to better compliance,” Salzman says. But it is regulators’ watchful eyes more than their shaking fists that make firms follow through on self-policing promises.

Short’s findings suggest an important role for social movement activism. As the idea of a “corporate conscience” spreads across industries—from occupational health and safety to industrial food processor inspection to financial auditing—one of the most important motivators is visibility. Activists offer “another source of surveillance,” Short says. “They can provide another set of eyeballs.” n Jodi L. Short and Michael W. Toffel, “Making Self-Regulation More Than Merely Symbolic: The Critical Role of the Legal Environment,” Administrative Science Quarterly, 55, 2010.

Civic Engagement

The Emotions of Aid 3 “One death is a tragedy; 1

million is a statistic,” Joseph Stalin is supposed to have said. The more people we see suffering, the less we care. It’s an unfortunate quirk that psychologists so far have blamed on our brains: Humans are tuned to individuals, the thinking goes; we are just not capable of feeling compassion for whole groups.

A new study calls that comfortable conclusion into question. “The collapse of compassion is an active process,” says Daryl Cameron, a doctoral candidate in social psychology at the University of North Carolina at Chapel Hill. “It’s not some passive limitation on human experience. It’s the end

A mother holds her malnourished child at a camp for internally displaced persons in Kebkabiya, North Darfur.

result of an active choice not to feel something.”

Cameron designed a series of experiments to find out why four people in pain don’t get quadruple the sympathy of one.

In one test, he had 60 college students read about one, four, or eight children from Darfur.

The students who said they were better at regulating their emotions—who don’t easily lose focus or control, and usually know how to make themselves feel better—reported being less upset by multiple Darfur children in crisis than by one. In another experiment, different students reading about these same children were told either to let themselves fully experience their emotions or to think objectively and be detached. Again, those who proactively regulated their emotions showed a collapse of compassion when viewing

eight victims compared to one.

This suggests that people are perfectly capable of responding emotionally to groups. They just steel themselves against it. “If you really took everything to heart, to the full magnitude that all these disasters truly deserve, you’d probably be sitting home rocking yourself in a closet all day,” says Elizabeth Dunn, a social psychologist at the University of British Columbia who was not involved in the research. “We need to be able to cope.”

Our capacity to empathize with a large number of people is good news for disaster relief, says Cameron. “If it is a choice, rather than a constraint, then we can try to get people to decide differently what they want to feel, and toward whom.”

The bad news is that we seem to care only when we don’t have to act. Cameron’s other experiment compared students who had been prompted with the idea of a donation with students who hadn’t. “When people did not expect to have to help on the basis of their emotions, they experienced more emotion toward eight victims than toward one victim,” he says. Opening your heart is a lot easier when there’s no expected cost. n C. Daryl Cameron and B. Keith Payne, “Escaping Affect: How Motivated Emotion Regulation Creates Insensitivity to Mass Suffering,” Journal of Personality and Social Psychology, 100, 2011.

Summer 2011 • Stanford Social Innovation Review

13

Ideas Reviews The Holy Grail for Nonprofits Review by Jim Schorr

The notion of financial sustainability is something of a holy grail in the nonprofit sector these days.

Jeanne Bell, Jan Masaoka, Virtually all non& Steve Zimmerman 208 pages, Jossey-Bass, profit board mem2010 bers and executives today face financial situations that at best constrain their ability to grow or at worst threaten their very survival. On each of the six nonprofit boards on which I’ve served in recent years, the topic of financial sustainability has been an ongoing discussion, albeit one that too often finds itself on the back burner. The absence of strategic frameworks to help structure nonprofit leaders’ thinking and planning for sustainability certainly hasn’t helped.

Given this context, the timing seems especially ripe for Nonprofit Sustainability from co-authors Jeanne Bell, Jan Masaoka, and Steve Zimmerman. The authors, all respected nonprofit executives and consultants, have developed a framework that will help nonprofit executives take an approach that integrates financial performance and social impact considerations in strategic decision making. The book’s premise is that “financial and impact information can and must be brought together in an integrated, fused discussion of strategy,” which is true and increasingly important. Much as 21st-century corporations are integrating social responsibility and sustainability practices in their business models, 21st-century nonprofits must integrate financial considerations with their social impact priorities as well. It’s all reflective of the movement toward a broader perspective of organizational performance and NONPROFIT SUSTAINABILITY: Making Strategic Decisions for Financial Viability

Jim Schorr is a professor at Vanderbilt University’s Owen School of Management, where he teaches coursework on social enterprise and CSR. Previously, he was executive director of Juma Ventures and a co-founder of Net Impact. He currently serves as a trustee of the Nature Conservancy of Tennessee and as board president of Oasis Center, Nashville’s leading nonprofit organization for disadvantaged youth.

14

Stanford Social innovation review • Summer 2011

the idea of “blended value” that Jed Emerson gave us many years ago.

Beyond this important premise, Nonprofit Sustainability’s primary contribution is a framework for operationalizing the integration of financial and social impact.

The “Matrix Map,” a standard 2 x 2 matrix that is the trusted friend of every good consultant, is a simple but powerful model for assessing the impact and profitability of a nonprofit’s programs. In this model, programs are reclassified as “business lines” and include fundraising efforts as well. Each business line is assessed on its impact and profitability and then plotted at the appropriate point and scale on the matrix. Through this process, nonprofit executives get a clear picture of both the absolute and relative performance of each important program and fundraising effort. No doubt the picture this exercise reveals will be enlightening for many nonprofit leaders and put them in a better position to make smart resource allocation decisions. A simple, easy-to-use framework that gives nonprofit leaders sharpened strategic clarity about the value of programs and initiatives? For that alone, we should all hail the arrival of the Matrix Map. It should be noted, and more overtly than it is in the book, that the Matrix Map is a direct descendant of Boston Consulting Group’s Growth-Share Matrix, which dates to 1968 and is familiar to everyone who has since pursued an MBA. The BCG Matrix famously gave us “Stars,” “Cash Cows,” “Question Marks,” and “Dogs,” and suggested that companies should classify and manage their product portfolios accordingly. Nonprofit Sustainability’s Matrix Map gives us “Stars,” “Money Trees,” “Hearts,” and “Stop Signs,” and suggests that nonprofits classify and manage their program portfolios accordingly. If it sounds like the Matrix Map is essentially the BCG Matrix applied to nonprofits, it’s because that’s exactly what it is. Even so, the Matrix Map’s lineage doesn’t change the fact that its ap-

plication to nonprofits is at least somewhat novel, and it does create a potentially important new tool for nonprofit boards and executives.

The first half of Nonprofit Sustainability develops the Matrix Map as a model and helpfully illustrates its use and applicability through a variety of examples and situations. The second half is largely filler, seemingly purposed around the need to reach a certain page count to achieve book status. Part Four in particular, a 32-page laundry list of every imaginable fundraising and earned income vehicle, bears little relevance to the Matrix Map or its application. Rather than an encyclopedic list and description of earned income types, a chapter on how social enterprise models could be evaluated using the Matrix Map model would have been far more valuable. Similarly, although the book does devote a few pages to the Matrix Map’s usefulness in potential merger evaluations, surely there is more to say about how this tool can help facilitate nonprofit merger and joint venture activity, which has to be one of the biggest untapped opportunities in the sector.

Nonprofit Sustainability is a book that would’ve been, and probably should’ve been, a great article in the Stanford Social Innovation Review, where the core idea and useful Matrix Map could have found a larger audience. Nonetheless, I fully intended to order copies for the executive directors and board chairs I work with, until I found it priced at a whopping $35 for a paperback edition. Although Nonprofit Sustainability and its Matrix Map deliver an important idea for nonprofits, it’s an idea that should have been delivered more accessibly and affordably. Something isn’t right about a business model that takes a good (but hardly proprietary) idea for nonprofits and turns it into a high margin, low volume product.

Perhaps that’s a critique of book publishers more than the authors, but Nonprofit Sustainability is ultimately a product of both. ■

12 WHO ARE

CHANGING THE WORLD Courage. Imagination. A willingness to take risks.

That’s what it takes to work on the frontlines of social change. To mark our 75th anniversary we created the Ford Foundation Visionaries AwardS, honoring innovators who put these qualities to work every day.

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Ideas Reviews

New School Economics Review by Kevin Starr

I like Dean Karlan. I like his work. Our Mulago Foundation funds his organizaDean Karlan & Jacob Appel tion, Innovations for Poverty Action (IPA).

320 pages, Dutton, 2011 We do whatever we can to get others to fund IPA. Disclaimers out of the way, here’s a two-sentence summary of Karlan’s More Than Good Intentions: This book is a gem. Anyone serious about aid, philanthropy, or impact investing should read it, maybe a couple of times.

More Than Good Intentions lays out a new approach to exploring and testing solutions to the thorny problems of global poverty.

Yale University professor Karlan and his coauthor, IPA project associate Jacob Appel, have produced a book that is very readable, hugely useful, and often entertaining. Metrics geeks looking for a technical manual will be disappointed; those of us looking for a practical way to understand what works will not be.

Karlan and his colleagues at IPA are part of a new movement in development economics, a movement spearheaded by Esther Duflo and Michael Kremer and represented by a small army of researchers all over the world.

As Karlan puts it, their work consists of a “two-pronged attack” on the problem of finding the best solutions to poverty: 1) using rigorous evaluation methods akin to clinical research to test poverty solutions, both old and new; and 2) understanding problems and interpreting results using the lens of behavioral economics.

Karlan and Appel believe that understanding what works for poverty alleviation programs boils down to one deceptively simple question: “How did people’s lives change with the program, compared with how they would have changed without it?”

The primary—but not only—tool that Karlan et al. use to answer that question is the randomized controlled trial (RCT). In an RCT, a pool of subjects is randomly divided into intervention and control groups; MORE THAN GOOD INTENTIONS: How a New Economics Is Helping to Solve Global Poverty

Kevin Starr is the managing director of the Mulago Foundation and the Rainer Arnhold Fellows.

16

Stanford Social innovation review • Summer 2011

the former gets the interventions and the latter does not. The two groups are fundamentally alike—both are measured before and after, and the impact is the difference between what happened to the intervention group and to the control group. RCTs are not new. The novel element here is the systematic and creative application of RCTs to test poverty solutions in the real world.

RCTs have their flaws, and there has been an understandable backlash against them.

They can be expensive and complicated; perfect control groups are a myth; and results are too often too broadly interpreted. Yet Karlan is not doctrinaire about RCTs. He simply believes that you should measure from the beginning, measure the right thing, get good quality numbers, and make a case for what would have happened without you.

One of the best examples in the book doesn’t involve an RCT, but instead a “natural experiment” in Kerala, India, in which areas without cell phone service served as controls for a study of how fishermen used their phones to find where to get the best price for their catch and increase their profits.

Both the work and book benefit enormously from the application of behavioral economics, which goes beyond the narrow utilitarianism of classical economics to examine how real people make decisions. Behavioral economists assume that we don’t operate on the basis of simple cost/benefit calculations, but have many different priorities, and that what may at first seem irrational often is not. Karlan and Appel use this approach as a tool to interpret results, make predictions, and come up with new ideas and hypotheses. In doing so, they draw on the strengths and flaws common to all of us and provide a respectful picture of the poor—not as some faceless other, but as us in different circumstances.

Given the overall clearheadedness of the book, one thing that puzzled me was the way that Karlan pulls his punches on microcredit. He reports that women entrepreneurs in Sri Lanka were often worse off after taking loans; that the poorer entrepreneurs in South Africa showed no effect from loans; and that even those entrepreneurs who did make more money often did so by shedding employees and typically spent the increased

profits on consumer goods rather than reinvesting in their businesses. That said, he comments brightly that “it does not mean that … the enormous amount of enthusiasm [microcredit] has generated is necessarily misplaced.” Well, what exactly does it mean?

Perhaps he’s just being nice, but if this methodology is as powerful as he’d have us believe, he should have something a bit more definitive to say about microcredit.

Still, More Than Good Intentions is a relentless and honest effort to find out what works and why. We really need what these new school development economists are providing. We’ve done far too many things that didn’t work for far too long. But it is not enough to show what works: The one missing element in Karlan and Appel’s fine book is a discussion of what it takes to turn research findings into real change. In a sector that does not yet channel resources toward impact, all that we learn about the behavior of the poor will be wasted unless we learn how to change the behavior of government bureaucrats, NGO executive directors, and the people who run foundations. ■

Philanthropic Practices Review by Matthew Bishop

The paradox at the heart of being an effective philanthropist is that it is not Leslie R. Crutchfield, all about the money.

John V. Kania, & Having a dollop of Mark R. Kramer 250 pages, Jossey-Bass, 2011 cash to give away gets you into the philanthropy business, but it has surprisingly little to do with whether you make a success of it. This is what Warren Buffett was getting at when he said, “It is far easier to make money than to give it away effectively.” Bill Gates reinforced the point when he told me, during my research for Philanthrocapitalism, that his foundation, the biggest the world has ever seen, is a “tiny, tiny organization”—his point being that despite all his and Buffett’s billions, the Bill & Melinda Gates Foundation cannot achieve its ambitious goals unless it leverages far larger resources and organizations to help.

DO MORE THAN GIVE: The Six Practices of Donors Who Change the World

Matthew Bishop is US business editor of The Economist and co-author of Philanthrocapitalism: How Giving Can Save the World.

THEY BELIEVE in fairness and justice. They’re not afraid to take the tougher road. They see the possibilities of a world where people have a voice in the decisions that affect them.

That’s what we call visionary.

EMPOWERING

WOMEN TO FORGE THEIR

own FUTURES ELA R. BHATT

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building 21ST-century

SOCIAL MOVEMENTS JEREMY HE I M A N S Co-Founder and CEO Purpose New York, New York

MAKING ART THAT

PROVOKES and TRANSFORMS GADO

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HARNESSING

TECHNOlOGY FOR SOCIAL GOOD YO CHAI BENK L E R

Berkman Professor of Entrepreneurial Legal Studies Harvard University Cambridge, Massachusetts

Ideas Reviews How to turn philanthropic dollars into significant impact, even if you have far less to give away than Gates, is the subject of this excellent new book by Leslie Crutchfield, John Kania, and Mark Kramer. Their first point is that change requires serious commitment, and although they do not advocate putting all your eggs in one basket—a portfolio of causes is okay—they argue that nothing can be achieved without focus. Who can disagree with them that the scattergun funding approach of many foundations is a recipe for impotence?

Once the cause has been selected, an effective philanthropist should embrace one or ideally more of six practices. Top of the list is something far too many foundations run away from: advocacy. I remember my surprise when David M. Walker, former US comptroller general and president of the Peter G. Peterson Foundation, told me that many donors do not even consider campaigning for policy change because they think it would cost them their charitable tax break, when only partisan lobbying would do so. The authors agree with him, arguing that, for many causes, the best option for what they call a “catalytic philanthropist” is to find ways to influence government action. They cite successful examples of advocacy ranging from the Ford Foundation’s promotion of civil rights and the Heritage Foundation’s ushering in of Reaganism to the relatively small Tow Foundation’s work to improve juvenile justice in Connecticut.

The second practice is even more at odds with normal practice in the foundation sector, and to my mind even more on the money: embracing the profit motive. “You might think it is unfortunate that social problems can’t be solved by the nonprofit sector alone, but it turns out that business has a lot to offer as a vehicle for social progress,” the authors say. They back up this argument with several compelling examples, including General Electric’s efforts to create state-of-the-art maternity wards and the Shell Foundation’s development of new forms of financing for small- and mediumsized companies in poor countries. Any foundation with an endowment would do well to follow the example of how the Nathan Cummings Foundation has pursued its 18

Stanford Social innovation review • Summer 2011

social justice mission through highly effective campaigning.

The third practice is perhaps the most shocking in that it needs to be highlighted at all. It is to forge networks of peers, to pursue social change as partners. Obvious, yet as the mystified authors rightly ask, “Why don’t more foundations actively collaborate with their peers?” Practices four, five, and six are less startling. Catalytic philanthropists empower their partners and the people they are working to help. They “lead adaptively,” meaning that they “perceive and respond to opportunities in the environment, orchestrate activity among key players, and shape conditions so that others can make progress toward the cause.” And they build foundations that are “learning organizations.” On the last point, the authors rightly argue that the systems of measurement that foundations use should be designed not just with the goal of demonstrating compliance with predetermined objectives, but also to enable a continuous conversation about what is, or is not, working. “Catalytic philanthropy is an ongoing process of learning and adaptation,” they conclude.

Inevitably, there are flaws in any book with clear-cut prescriptions. In Forces for Good, Crutchfield’s earlier book with Heather McLeod Grant on the best practices of nonprofits, the organizations profiled were selected through a rigorous survey of nonprofit leaders. In this book, it is not entirely clear how the examples of success were chosen; certainly, the search process does not seem to have been comprehensive. And although the authors acknowledge early on that they include some clients of FSG, the consulting firm that employs all three of them, this reader would have preferred those clients to have been identified explicitly when their stories were told. It also gives too little credit to other writers in the growing field of philanthropic studies, including in this journal, where many of these ideas have been aired initially.

But that is to quibble. This is an inspiring book, full of nuggets of wisdom and compelling stories of success, that should be read by every philanthropist who is serious about trying to change the world. ■

Ethical Philanthropy Review by Chip Pitts

Much evidence exists that a golden age of philanthropy is upon us, as corporations, Patricia Illingworth, Thomas Pogge, wealthy individuals, & Leif Wenar and ordinary Ameri320 pages, Oxford cans give at record University Press, 2011 levels, and often with higher standards for effectiveness and impact. Consequently, there’s a great need for reliable information about who should give, whether the giving is accomplishing its aims, and how to give and evaluate giving more effectively.

Into the breach step the editors of Giving Well, an interdisciplinary volume of essays.

Patricia Illingworth, Thomas Pogge, and Leif Wenar promise an “unmatched introduction to the ethical issues surrounding giving.” With contributions from such academic luminaries as Peter Singer, Thomas W. Dunfee, and Pogge himself, expectations run high, and many of the essays are indeed substantive and stimulating. The problem is that much of the information in the book isn’t new; the contributions from Singer, Dunfee, and Pogge repeat ideas and even entire essays published elsewhere. And the ideas presented in the new essays in the collection are often inaccessible because of excessively turgid academic prose.

Exceptions exist. For example, the essay

by Stanford University political scientist Rob Reich is both clear and illuminating, extending his prior explorations of tax incentives for giving. Reich finds wanting the two main justifications for charitable deductions: taxable income and government subsidies to charities, which as currently implemented tend to benefit wealthy citizens instead of the general public or the poor.

But he notes that a third, even more defensible rationale for giving—encouraging pluralism—also fails, because the regressive design of deductions in most countries disproportionately favors the rich. (I might add that the bias toward supporting particular dominant religions in the United States GIVING WELL: The Ethics of Philanthropy

Chip Pitts teaches corporate social responsibility at Stanford Law School and Oxford University. He is the co-author and editor of Corporate Social Responsibility: A Legal Analysis.

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Ideas Reviews and many other countries also could undermine the pluralism rationale.)

Truly indispensable, despite being reproduced from elsewhere, are Singer’s essay on the duty of citizens of more affluent countries to help the global poor, with giving based on citizens’ income levels, and Pogge’s essay on the complex array of issues, such as maximizing the number of lives that can be saved, that international nongovernmental organizations should consider. Although readers may disagree with some of the points made by these authors, no one serious about ethical giving can fail to engage with them at some level.

Still, I would have hoped for more insights into current philanthropic trends, such as the mechanisms by which the Bill & Melinda Gates Foundation is transforming global health through its public-private partnerships, investments, and strategic and business approaches. Notwithstanding Dunfee’s insightful essay, “The Unfulfilled Promise of Corporate Philanthropy,” there

is too little information about the exciting new contributions many corporations are making to persistent global challenges, such as poverty, inequality, health, water, food, illiteracy, climate change, conflict, and war.

Multinational corporations are recognizing that the natural and social systems in jeopardy are important to their businesses and to people around the world.

They are bringing their core competencies, strategic resources, and drive for results to help address root causes as well as symptoms of problems. This is significant, since the scale of the world’s challenges transcends the abilities of any single player. What we need are multi-stakeholder and rightsbased approaches to sustainable development, as evidenced by the United Nations Global Compact and the call to action for corporations to support the U.N.’s Millennium Development Goals.

Illingworth’s essay highlights the crucial importance of fostering social capital

through infrastructure, laws, norms, and values that enable trust and cooperation.

She rightly points out that global social capital is undermined by the policy of limiting deductions to donations to charities within the United States. She could have included, however, examples of concrete philanthropic initiatives enhancing social capital besides microfinance, especially given the criticism it has encountered recently.

The rest of the essays in this collection vary in quality from the outstanding (Roger C. Riddell’s survey on the value and limits to foreign aid), to the relevant and interesting (Alex De Waal’s examination of how humanitarianism in Sudan has contributed in unexpected ways to good and evil outcomes), to the ill-conceived and misleading (Leif Wenar presents stale and sophistical arguments against aid, as does Ken Anderson against international NGOs).

Wenar unfairly and myopically evaluates Singer’s approach to poverty alleviation, excluding all the nuance and recognition of the complexity of giving in Singer’s argument. He adopts such an unrealistically

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Stanford Social innovation review • Summer 2011

skeptical view of aid that—his disclaimers notwithstanding—his argument would seem to discourage donations altogether.

Anderson attacks multi-stakeholder action by calling it “global governance,” inaccurately defining this well-established concept as “one overarching lawgiver for the planet,” without addressing its widespread acceptance as coordinated action involving nonstate and state actors. Although it’s fine that such contrarian views are included in this collection, it is too bad that Singer and the others were not given a chance to respond to these mischaracterizations.

Giving Well may gloss over some of the most salient aspects of giving trends, but it usefully brings together a number of valuable essays that explore the promise of new directions of philanthropy. Its main contribution may be that it highlights the vital need for greater and more ethical generosity—and for continuous improvement of the effectiveness of the “new philanthropy.” ■

Just Instincts Review by Roberto De Vogli

In the aftermath of a

THE FAIR SOCIETY: The Science of Human financial crisis in Nature and the Pursuit which 34 million peoof Social Justice ple lost their jobs and Peter Corning

60 million have been pushed into severe poverty, Peter Corning’s The Fair Society could not be more timely. In a poignant and well-articulated book, Corning tackles some of the fundamental contradictions plaguing the United States and other social systems: Is it just that none of the architects of the biggest robbery in world history went to jail? Is it fair to ask the victims affected by the fraud to pay for the budget deficits caused by the financial plunderers? How long will “we, the robbed people” continue to tolerate such injustices?

Corning is adamant that the unfair distribution of power and wealth among and within societies is at the basis of existing and impending crises: climate change, nu256 pages, University of Chicago Press, 2011

Roberto De Vogli is an associate professor at the University of Michigan School of Public Health. His research focuses on how globalization, economic inequalities, and psychosocial factors affect health and health inequalities in developed and developing countries.

clear proliferation, peak oil, water and food shortages, financial meltdown, social unrest.

But Corning’s book is not a treatise on the global crises resulting from turbo-capitalism. The Fair Society, instead, is a rigorous attempt to reconcile the science of human nature with the pursuit of a fair socioeconomic system. The questions raised in his book—Is justice a social obligation or the interest of the stronger? Are we inherently just or selfish? Are capitalism and socialism fair? What are the central features of a Fair Society?— have been the central preoccupations of philosophers such as Plato, Rousseau, Hobbes, Hume, Locke, Kant, and Marx.

The importance of these questions cannot be overstated. For the last 30 years, socioeconomic policies at the national and global level have been dominated by free market fundamentalism, an ideology based on the assumption that people’s primary motivation is the pursuit of profit. In most established democracies, this doctrine has guided the macroeconomic agenda of both conservative and liberal administrations, or what Gore Vidal called “the two right wings” of the “Property Party.” It also has directed the global economic policies of international financial institutions, such as the International Monetary Fund, the World Bank, and the World Trade Organization, with disastrous social and economic effects for the developing world.

Working from the presumption that all people are inherently selfish, the proponents of free market fundamentalism have argued that their doctrine is the only public philosophy that works. It is a pity that countless studies, some of them quoted in Corning’s book, show exactly the opposite.

To be sure, the science of human nature is far from conclusive. Existing evidence largely indicates that people are at times selfish, competitive, and unjust and at other times altruistic, cooperative, and fair. More important, cross-cultural research shows that our sense of fairness and unfairness is largely shaped by the social and environmental circumstances in which we live.

In the last chapters of the book, Corning proposed a “biosocial contract” to develop a fair society in the United States and around

the world, which he describes as a “collective survival enterprise” able to satisfy the “primary needs”: thermoregulation, waste elimination, nutrition, water, mobility, sleep, respiration, physical safety, physical health, mental health, communications, social relationships, reproduction, and nurturance of offspring. A fair society, the author argues, can be created through policies aimed at promoting full employment, ensuring a living wage, strengthening welfare services, reforming the private sector, and developing a more equitable tax system. Corning argues that this biosocial contract can overcome the limitations and unfair qualities of both capitalism and socialism. Capitalism, he believes, is too unequal to allow poor people to meet their basic biological necessities, and socialism is too indifferent to meritocracy and innovation.

Corning’s proposal, I am afraid, is likely to be dismissed by both free market evangelists and the so-called moderate liberals.

The former will judge it as an attack on their narrow conception of freedom; the latter will disregard it as a pie-in-the-sky idea.

Corning’s proposal is necessary and on target, but at least two observations can be made. First, it is too reductionist to depict most human actions as motivated by what Corning calls the “underlying survival challenge.” There is more to life than satisfying our primary needs. Our existence has some deeper, more creative meaning than mere survival and reproduction.

Second, although Corning’s idea for a fair society is depicted as something new, the author admits that it is largely based on “a society that more closely resembles what already exists in countries like Denmark, the Netherlands, and Sweden.” Although northern European countries can be considered models of social capitalism, they are far more social than capitalist. It is curious that Corning does not address this fact. Is it too controversial to be acknowledged?

Still, it is refreshing to hear a public intellectual like Corning call for the pursuit of a fair society. Many will surely be skeptical about this proposal, or simply view it as sheer utopia. But the real utopia is the belief that the current social system can proceed unchanged. ■ Summer 2011 • Stanford Social innovation review

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Ideas First Person Social Innovation in Washington, D.C. A look at what’s needed next to create the right policy environment for innovation and results By Michele Jolin

Illustration by Timothy Cook

On June 30, 2009, foundation heads, business leaders, and leading social entrepreneurs—including icons like Geoffrey Canada, Bill Drayton, and Dorothy Stoneman—gathered in the East Room of the White House to hear President Obama challenge the nonprofit, philanthropic, and private sectors to create a “new kind of partnership” that would lead to the most innovative, effective solutions to our nation’s toughest challenges. Given the historic magnitude of today’s problems, President Obama recognized that the federal government’s traditional approach and pace would not drive the dramatic progress that is needed in our communities. He said that the work of the country’s most effective nonprofits and foundations “is important in any year. But at this particular moment, when we’re facing challenges unlike any we’ve seen in our lifetime, it’s absolutely critical, because … let’s face it, there’s only so much that Washington can do.”

The president said, “Instead of wasting taxpayer money on programs that are obsolete or ineffective, government should be seeking out creative, results-oriented solutions” in communities and “helping them replicate their efforts across America.”

To drive this agenda forward, President Obama launched the White House Office of Social Innovation and Civic Participation, an idea first presented in a spring 2008 Stanford Social Innovation Review article. The office is charged with helping the federal government identify and invest in the most innovative, effective community solutions and to partner with philanthropy to make faster, more lasting progress on our nation’s challenges. The office also helps create tools to invest government resources for greater impact, enlists other sectors to help government tackle the nation’s and support scale, both of which are critical in later stages of the challenges more quickly, and creates a more favorable policy enviinnovation cycle. Foundations have carefully navigated their partronment to support innovation and evidence-based solutions. nerships with the government, focusing on areas of common interWith the launch of the office, some est and leveraging limited philanthropic dollars to enhance were justifiably skeptical about whether government action. And because the underlying principles and MICHELE JOLIN is a segovernment could be a good partner in strategies for the agenda have appeal for both Democrats and nior fellow at the Center for American Progress finding and investing in innovation. Others Republicans, the agenda has not become partisan. The ideas are and a member of the were concerned that philanthropy’s indeneither ideological nor political: The goal of the agenda is to have White House Council for pendence could be compromised. And still Community Solutions. greater impact with limited government resources; to learn from She served as senior adothers were concerned about the agenda and invest in what is working in communities around the country; visor for social innovabecoming partisan. to catalyze action rather than assume government has the answers; tion at the White House These concerns have dissipated someand to use greater competition and other market mechanisms to in 2009-10. what as the social innovation agenda has foster innovation and implement lasting solutions.

The views expressed here do not necessarily represent those of taken shape. Although government lacks the White House Council for what has been accomplished? the flexibility and tolerance for risk that are Community Solutions, the Corporation for National and After two years, there are a number of encouraging signs that this critical to innovation, government investCommunity Service, or the US government. social innovation policy agenda has helped make the federal govments can be structured to fund evaluation Summer 2011 • Stanford Social Innovation Review

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Ideas First Person ernment a more effective partner and has created a policy environment that is conducive to greater innovation and more effective solutions. Below are three examples: The Social Innovation Fund. The Social Innovation Fund (SIF), based at the Corporation for National and Community Service, was created by a bipartisan majority of Congress and signed into law in April 2009. The fund is designed to give government a tool to identify innovative, evidence-based solutions, to help these solutions build more proof points, and to spread these solutions to other communities of need. Because government is not experienced in identifying innovation, SIF grants of $1 million to $10 million go first to intermediary organizations, such as Jobs for the Future, which are responsible for selecting innovative organizations in communities across the United States. In July 2010, SIF awarded grants to 11 intermediary organizations, which then selected local subgrantees around the country. Unlike many other federal grant programs, the SIF makes evidence of impact a criterion for investment. In addition, foundations are critical partners in this new investment strategy: For every dollar invested by the federal government through the SIF, intermediary and community organizations must match funding from private sources. The Obama administration has created other innovation funds, such as the Investing in Innovation (i3) program at the Department of Education, and has proposed two funds at the Department of Labor.

But all could be vulnerable to funding cuts by Congress, despite the fact that they invest in programs with evidence.

Prizes and Challenges. For years, federal agencies in science and technology have used prizes to encourage creativity and solutions to specific problems. Despite their success, agencies focused on human services had been reluctant to use this strategy, probably because the problems are more interconnected and the solutions harder to develop. Given the magnitude of the challenges in these areas, however, the Obama administration developed several model prize competitions in human services areas, including a prize for community colleges, one to reduce childhood obesity, and another focused on stimulating small and medium enterprises globally.

Building on this, in December 2010, Congress granted clear authority to all federal agencies to conduct prize competitions, underscoring that this is an important and legitimate tool for idea generation.

White House Council for Community Solutions. In December 2010, the president created a White House Council for Community Solutions, made up of leaders in philanthropy, business, academia, and the nonprofit sector, to identify and help catalyze the most effective community solutions, especially those focused on engaging young people in the workforce. Often these kinds of White House councils focus on policy recommendations; this White House council will focus especially on supporting and catalyzing action in communities, underscoring the administration’s belief that progress on tough social challenges depends on concerted community action.

what is needed next?

In just two years, significant progress has been made on the social innovation policy agenda, especially given the enormous economic and foreign policy challenges facing the Obama administration. To 24

Stanford Social Innovation Review • Summer 2011

build on the momentum, a number of steps need to be taken.

First, the philanthropic sector needs to better define and communicate its role in partnership with government. For decades, foundations have worked with the federal government on initiatives, including the Welfare to Work Partnership in the Clinton administration and the Malaria No More initiative in the Bush years.

Recently, however, foundations have done even more to leverage their limited dollars—playing a critical and effective role in shaping efforts to spur innovation and direct more federal dollars toward evidence-based solutions. Foundations also played a critical role in providing research and data to help design new federal government innovation initiatives, especially around prizes and challenges.

Going forward, philanthropy needs to clarify its role, so that limited philanthropic dollars continue to be spent in the most highly leveraged way. Because philanthropic dollars are dwarfed by federal government spending on most social issues, foundations should continue to allocate resources strategically: investing in risky, early stage innovations that are not appropriate for taxpayer dollars; matching public dollars to advance foundation priorities and goals; investing in building evidence of impact to help smaller initiatives become eligible for larger federal investments; supporting learning and knowledge exchange among federal grantees; funding reports and analysis that provide the substantive content to guide the design of national policy initiatives; investing in advocacy campaigns to shape federal policy; and creating incentives for local community leaders to collaborate around a common goal.

Second, the federal government needs to repurpose existing funding streams toward more innovative solutions that have evidence of impact. Given the budget constraints at both the federal and state levels, government must be able to do more with fewer resources. In too many instances, programs currently funded by government do not have sufficient evidence that they are working.

In some instances, federal dollars should be repurposed to conduct the evaluations necessary to justify continued commitment of taxpayer dollars. In other instances, federal funding should be ended for programs that are simply not working and redirected to programs that do work. One critical way to accomplish this would be to create more innovation funds in federal agencies, modeled on the SIF or i3 programs. Another option would be for the federal government to use, where appropriate, pay-for-success structures to provide incentives for programs that focus on critical outcomes.

The Obama administration’s FY 2012 budget includes language to allow federal agencies to pilot social impact bonds, similar to those being tested in the United Kingdom.

Third, the federal government needs to eliminate barriers and create incentives, with philanthropy, for innovative organizations and community leaders to collaborate. Across the country, too many high-impact organizations are working in isolation. Although they are having an effect on the lives of the people they serve, their work is not being leveraged or adopted by others for a larger impact.

Too often federal and state funding streams flow in a way that encourages this kind of isolated activity. Given the reach of the federal government, it can do more to eliminate these barriers to collaboration and partner with philanthropy to stitch together isolated successes to achieve greater collective results. n

Ideas First Person The Miracle of Financial Inclusion

The founder of the Kashf Foundation argues that microfinance can improve the lives of Pakistan’s next generation By Roshaneh Zafar

Illustration by Timothy Cook

Writing this essay takes me back to November 1994 when I embarked on a journey to Bangladesh. My purpose was to spend time with Muhammad Yunus and his team at Grameen Bank to learn about microfinance firsthand. Perhaps it was the intrepidity of youth or perhaps it was sheer foolhardiness to have left a promising career at the World Bank to follow a dream. Many years later, I met the novelist Paulo Coelho, and his words continue to resonate in my mind. He told me, “Roshaneh, remember to pay the price of your dream!” So what was this “grand dream” that propelled me to cross the length of South Asia?

I remember arriving at Dhaka airport, clutching a notepad and holding a pen, with the immense desire to understand how Grameen had managed to empower millions of poor women through the simple technique of providing small, affordable loans. What was this fairy dust that allowed millions the ability to turn their dreams into reality? There were many things I learned during my 10-week sojourn in Bangladesh. They are perhaps best reflected in the story of Khairunissa Begum, a woman in her 50s whom I met in a remote village in the Bay of Bengal. It took me 24 hours on a launch from Dhaka to reach her small village in Patuakhali. I was stuck both by the area’s majestic natural beauty and by the simple lifestyles of the people.

Khairunissa had taken a loan of $100 from the Grameen Bank and invested it in her business. From that first loan transaction and the confidence it imparted, over time she built up a minifinancial empire in her community by owning a mithai (sweetmeat) store, a poultry farm, and a thriving public telephone call prise, and he was willing to give me a loan of $10,000 to start a office. In other words, Khairunissa had become the business project along Grameen’s lines. But where was I to start and how? tycoon of her area. Khairunissa’s story is typical of many microfiThe first thing I had to do was to overcome my own insecurities; nance clients who start life in the throes of poverty facing an the fear of failure tormented me. But Yunus said, “Roshaneh, if ocean of indignity, where the only things they own are the clothes you fail, tell the world it was Dr. Yunus’s fault!” I was lucky to on their back. In her case, she started her life owning only one sari, have mentors like him who understood what it meant to set up a which she would wash from one side first and then wrap the wet new entity from scratch. end around herself before washing the other side, as she did not The first step involved an extensive dialogue with women have the resources to buy another. Through the help of microacross urban and rural Pakistan, where my colleagues Sadia loans, she now owns dozens of colorful saris, along with assets Khan and Mahbina Waheed and I set out to understand the conlike a home and livestock, which she never could have imagined straints and challenges facing female business managers. I heard possessing a decade ago. time and again from self-employed women that they had the ROSHANEH ZAFAR is I was bitten by the microfinance bug skills, knowledge, and aspirations to grow their businesses, but founder and managing after spending time at Grameen. But I was director of the Kashf they lacked access to capital to expand to the next level. During Foundation in Pakistan. not entirely confident that I could transfer this research expedition, I was sitting with a young woman in a Previously, she worked the learning to Pakistan. Yunus was adaremote community in Okara, Punjab, who wove extraordinarily for the World Bank in mant that Pakistan needed a similar enter- Islamabad. beautiful baskets and dreamed of selling her wares in Lahore, Summer 2011 • Stanford Social Innovation Review

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Ideas First Person A recent study by the UK Department for International Development, titled Access-to-Finance, has shown that more than 86 percent of households that require microfinance and other financial services in Pakistan are deprived of them. Also, overall microfinance operations in Pakistan are focused on retailing loans through a group lending approach, and there is little work being done on microsavings. Since 2002, however, eight microfinance banks have been established to offer savings accounts. Yet only 2.9 million people have access to these savings services, or around 12 percent of those who need them.

Currently, Kashf is providing loans from $150 to $500 to 300,000 families through a network of 150 branches. Originally, we followed a group lending approach, like Grameen Bank, but two years ago we moved to a business appraisal lending model, where we focus on building the entrepreneurial capacity of women and their families. The past few years have been difficult for the country, however, both economically and socially. Some politicians, seeking cheap public favor, have instituted Many people ask me whether the work of Kashf can loan write-offs, weakening consumer make a difference in a country where 85 percent of credit discipline and our ability to expand households live on $2 or less a day. our programs. In turn, we have modified our methodology by focusing on a more Thus I assumed that the moment I arrived in a village, I would not customized lending approach. see women transacting business in marketplaces and that most Our new approach involves an extensive appraisal with our female businesses would be home-based. clients of the businesses they intend to invest in, as well as So on my first day of work as a Kashf loan officer in a village advice and training in areas such as debt management, financial 25 kilometers outside of Lahore, I was pleasantly shocked to budgeting, and savings. This focus on client education ensures meet a female entrepreneur. When I went up to her to ask her that a strong and responsible relationship can be established whether she was sitting at her husband’s store while he was between the customer and the microfinance institution, and away on an errand, she was both offended and amused by my that financial decisions result in economic opportunities for the question. At that moment I realized that I had imbibed millenclient and her family. We have introduced an extensive client nia of patriarchal attitudes by making this assumption, and relations program, which includes a complaint resolution prothat I needed to change how I saw my own society. When I cess and telephone hotline. Furthermore, over the past 17 years, went into the store, she had customers. She asked me to sit we have realized that there was a missing link in our work: down while she sold her male clients cigarettes and other items. Savings is equally important for the economic empowerment of Then she told me about a dozen other women like herself who women and their families. As a result, we established the Kashf were buying and selling, negotiating and contracting business, Microfinance Bank, a licensed entity that offers savings products within and outside this community, and intermingling in the to our clients along with credit and insurance. world of men.

Many people ask me whether the work of Kashf can make a Pakistan has been associated closely with the war on terror difference in a country where 85 percent of households live on and highlighted as a country that continues to be a nursery for $2 or less a day. This question reminds me of the story of a boy radical extremism. There is some truth to this picture. And yet, who found himself on the seashore surrounded by thousands of if we use this brush to paint a portrait of the country, our view dying fish. The boy started to pick up one fish at a time and will be too simplistic, for Pakistan is a complex country facing throw them back into the sea. A man watching him from afar major economic, social, and political issues. Unlike other parts came up to him and asked why he was wasting his time. The boy of South Asia, Pakistan was a latecomer to the field of microfisaid that if he could save even one fish, he would have fulfilled nance, and it was only after the Kashf Foundation’s inception in his purpose in life. I agree that microfinance is not a silver bullet, 1996 that the concept of low-income microfinance emerged. but it certainly changes lives. I recently met Kiyenat (which Like other parts of the region, however, the microfinance sector means universe in Urdu), the daughter of one of my clients. She in Pakistan grew rapidly, at an average rate of 40 percent per was dressed in a clean blue uniform with blue ribbons in her pigannum until 2007 and with a market penetration rate of 10 pertails, and when I asked her about her school day, she quickly cent. In other words, despite the rapid growth of the microfitook out her English workbook and proudly shared her lesson nance industry, today it meets the needs of only 10 percent of with me. That is the change that microfinance can make. It can the overall households that require such access. change the opportunities for the future generations. n 26

Stanford Social Innovation Review • Summer 2011

Illustration by Timothy Cook

Pakistan’s second largest city. I realized that I had to help her with a financial solution, and that a specialized microfinance program targeting women from low-income communities was the need of the hour.

From 1995 to 1998, I launched a small action research program for microlending in three communities around Lahore. This was a period of myth-breaking for me and for many people—economists, civil activists, academics—who questioned the wisdom of what I was planning to do. I was extremely lucky that my own family, who are broad-minded intellectuals and have excelled in the diverse fields of law, art, and civil society, was sold on the idea of my development experiment and supported me from its inception. The first myth that I had to break in my mind was the visibility of women’s role in the local economy. I had grown up with the belief, corroborated by Muslim feminist literature, that lowincome communities are divided into male and female spaces.

Ideas First Person Being the Only B

Illustration by Timothy Cook

The owner of the only certified B Corporation in Kentucky assesses the pros and cons of the certification By Terena Bell Being the only one of something—whatever that something is—generally has one of two results. Either it makes you hot stuff or it backfires. In business, you hope for the first. It’s supply and demand at its finest: Less of you increases the desire for you. But move away from theory and into practice, and real life may not always work that way. Sometimes being the only one of something means that fewer people understand you or realize what you truly have to offer. Instead of becoming rare, you become an anomaly—the product people aren’t quite sure what to do with, an outcast.

I am the owner of In Every Language, Kentucky’s only certified B Corporation. Not only are we the only B in Kentucky, which means we’ve been certified as a socially responsible business, we’re the only B in our industry. So if anybody understands what it’s like to be the only one of something in business, it’s me.

Even before certification, In Every Language was a social enterprise. Based in Louisville, Ky., In Every Language provides translating, interpreting, and other language services to clients around the world. That’s the business part of what we do. When it comes to the social part, we do two different things.

First, the community nature of translation is inherent.

Translators take what one person says and translate it into another language, so another person can understand. Without translators, information wouldn’t pass correctly between cultures and countries, international misunderstandings would develop, and wars could start. The American Translators Association claims that it takes less time to train a fighter pilot than it takes to train an Arabic interpreter, and the interpreter is more important to national security.

Less frighteningly, community interpreters help patients better understand their course of care and help immigrants obtain access to community services. Both translators and interpreters provide access to information and knowledge that the language barrier blocked before. Being a translator automatically means being a helper. The sheer fact that In TERENA BELL is CEO of Every Language is a translation provider In Every Language, a cerautomatically integrates social cause into our tified B Corporation located in Louisville, Ky. Her business because, regardless of the message work with the company translated, social benefit lies in the act of has been recognized by two Kentucky governors, translating itself. and she has both spoken For me, though, this wasn’t enough. and published internaAlthough the translation industry is replete tionally on translation inwith social benefit, not every translation com- dustry topics.

pany is a social enterprise. In Every Language is the industry’s only certified B Corporation for a reason: We do translation differently.

tackling two global problems at once When I started the company in 2005, I wanted a full-time job that mattered. I was already freelancing as an interpreter at Kentucky Refugee Ministries, working with Louisville’s Francophone African population. Interpreting gave me a life. Any other job I took seemed fruitless, without soul. It was only when I was interpreting that I felt fully alive, as if I were using a gift from God to benefit others. While interpreting, I disappeared and became a catalyst for change. The tremendous help that translating and interpreting affords others is why I opened In Every Language. I realized not only that refugees and immigrants need interpreters, but that there is also an abundance of bilingual, trained professionals who need jobs.

Enter Translation Plus Two, In Every Language’s unique approach to translation and the second part of our social mission.

Summer 2011 • Stanford Social Innovation Review

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Ideas First Person Our company slogan is Translating Words, Transforming Lives, because we’re trying to help solve two global problems at once: the language barrier and world poverty.

In addition to providing translation services, we contract 100 percent of our translators from socioeconomically disadvantaged groups, such as refugees, people from undeveloped or underdeveloped countries, and women from cultures where they are not allowed to work outside the home. We also help these contractors become certified translators and grow their own translation microbusinesses.

I had hoped that fighting poverty and the language barrier would be a bandwagon everyone would want to get on, but not in Kentucky—or at least not at first. Immediately after we opened the company, some people at Kentucky nonprofits turned against In Every Language. The director of one resettlement agency accused me of trying to take advantage of “poor refugees” for personal gain.

This hurt. How could offering professional work to someone who needs and deserves it be considered taking advantage?

It didn’t take long to understand what she meant. She didn’t really think I was taking advantage of refugees; she thought I was profiting from them. In Every Language is the first for-profit language service provider to contract members of Kentucky’s refugee population. I am not Kentucky’s first social entrepreneur, but I was definitely the first one she had ever met.

Since then, In Every Language has had to prove itself repeatedly.

We turn six in August 2011, and I still find myself explaining social entrepreneurship and why it’s important. Ironically, social entrepreneurship is a fundamental part of Kentucky culture, as our state’s history is agrarian and community-based. But Kentuckians have never called their efforts social enterprises, and even though community farms may be the most elemental type of social enterprise there is, most small farmers don’t think of themselves as businessmen. To them, businessmen are J.R. Ewing—ruthless and in suits—not everyday working people. The people who lead organized social enterprise movements unfortunately have done little to dispel this stereotype.

Their marketing and certification efforts have focused on the coasts, with B Lab in particular certifying 108 B Corps in California compared to one each in Iowa, Kansas, Idaho, and Kentucky.

Fortunately, the hostility in Louisville’s nonprofit community has gone away, and Kentucky’s refugee resettlement agencies and other community organizations have come to see In Every Language as a partner. We team up to interpret mayoral debates and work together on making interpreter training more accessible to those considering translating or interpreting as a career.

B Corporation certification helped resolve some of these public relations problems. In particular, the status has helped differentiate us from for-profits that focus solely on their bottom line. Our actions have earned us respect, but being a B has earned us understanding.

We describe it to people like this: B Corp is a national movement, but the commonwealth of Kentucky has yet to recognize it as a legal filing status, so we’re filed as an LLC for now. We’re allowed to keep our money, but legally we’re bound to a mission just like nonprofits.

the csr disconnect Even though In Every Language helps the economically disadvantaged, we like to sell to those a bit better off: the Fortune Global 28

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500. After all, for a for-profit business to be sustainable, it has to make money. We earn revenues by selling translation and interpreting. Although many smaller businesses or local nonprofits may need those services, it’s big business that’s able to pay for them. So we market ourselves to the Johnson & Johnsons of the world, who are not located in Kentucky.

You would think that being a social enterprise would give us a competitive edge with this market. Unfortunately, when those responsible for purchasing translation hear “social enterprise,” many think “nonprofit.” When they think “nonprofit,” they think “unprofessional” or “no good.” In the world of professional language services, quality is king. One mistranslated word in factory instructions and workers could chop off their hands. A misinterpreted phrase in a doctor’s appointment could lead to death. Our work is important and we must do it well. Say “refugee,” “impoverished,” or “discriminated population” loud enough and some potential clients question quality. In fact, one even said: “You need to drop this B Corp thing. No one understands what it is and it makes you look like amateurs.”

When we first became a B, I thought the certification would help. The big plan was to sell our services to socially responsible corporations through their CSR departments. But at many businesses, there’s a disconnect between those responsible for CSR and those contracting for translation services. The CSR officers I meet love our model, but most have no idea who at their company is in charge of translation. Even when they do, the actual translation buyer must still be swayed. It takes considerable work to convince buyers that our translators are of the utmost quality. In fact, because of the stigma that arises from their backgrounds, I’d say they’re better than translators at other companies where quality isn’t immediately questioned. Our translators are highly experienced, degreed, and certified. When we come across less qualified translators, we refer them to competitors whose quality standards are less strict. This way, they can gain the experience needed to work with our clients. In the end, our quality procedures must be stricter because of the stigma against our translators’ backgrounds.

Still, being the industry’s only B has hurt us.

We have a solution, though: We’re banking on people caring.

Maybe Translation Plus Two isn’t the right fit for every customer, but not every customer is the right fit for us. Again, we’re looking for people who care. We’re looking for customers who get excited by the fact that a Somali woman can grow her translation business while still respecting her husband’s wish that she not work outside her home. We’re looking for customers who love that their Bosnian interpreter has a success story, that he first learned how to interpret professionally while working in the camps for the United Nations High Commissioner for Refugees. These are the clients we want to work for. These are the people whose materials we’re proud to translate.

We’re not perfect. No person or company is. But In Every Language has a strong mission and a clear sense of its corporate and social identity. Our staff is determined. We’d rather be the only B than not be a B at all. Because being a B means that you as a customer have proof that our mission is not just self-serving. We want to be held accountable. n

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Ideas Q&A Roundtable on Shared Value Executives from 10 major corporations gathered in New York City to discuss the innovative ways that they are A growing number of multinational corship to society. They also predict that it will tages available from addressing them. porations—including Unilever, Intel, and drive the next wave of innovation and proThe idea that companies should creWal-Mart Stores—are embracing a new way ductivity growth in the global economy as ate shared value carries many implications of doing business, one that puts societal isit opens managers’ eyes to immense human that corporate leaders are only beginning sues at the core of the company’s strategy needs that must be met, large new markets to understand, which is why we brought and operations. This approach differs from to be served, and the internal costs of social together corporate practitioners to share traditional “corporate social responsibility,” deficits—as well as the competitive advantheir experiences and discuss evolving which is often built around compractices. On Dec. 8, 2010, execuJohn Kania FSG, Mark Kramer FSG tives from 10 major corporations pliance with environmental and social regulations, improving the gathered at Goldman Sachs’s New corporation’s reputation, and unYork City headquarters to disfocused charitable giving to a varicuss how their companies were ety of causes frequently unrelated implementing shared value. They to the business. were brought together by FSG, the The new approach to doing Stanford Social Innovation Review, business, dubbed “creating shared and the Committee Encouraging value” by FSG co-founders Mark Corporate Philanthropy (CECP).

Kramer and Michael Porter, exSome of the companies—such as tends well beyond those practices.

Cisco Systems, Hewlett-Packard, (See their cover story, “Creating and IBM—have been taking a Shared Value,” in the Januaryshared value approach for some February 2011 issue of the Harvard time. Other companies—such as Business Review.) Shared value is Western Union, Alcoa, and Intercreated when companies generate Continental Hotels Group—are Roundtable Participants: economic value for themselves in a new to the approach. But all of the John Kania, managing Talya Bosch, director of director, FSG corporate social responsibility, way that simultaneously produces participants—which also included Western Union Tony Kingsbury, senior leader, value for society by addressing soGoldman Sachs, Dow Chemical, Dow Chemical, and Dow Executive Roslyn Dickerson, senior vice cial and environmental challenges.

Medtronic, and PG&E—are enthuin Residence, Sustainable Products president of corporate responsibiland Solutions Program at the Companies can create shared value siastic about the results and prosity and public affairs, InterContiHaas School of Business, Univernental Hotels Group (IHG) in three distinct ways: by reconceivpects for the future. sity of California, Berkeley Paul Ellingstad, director of ing products and markets, redefinThe candid discussion, led by Mark Kramer, co-founder and the office of global social innovamanaging director, FSG ing productivity in the value chain, Kramer and FSG managing direction, Hewlett-Packard Noa Meyer, vice president, and building supportive industry tor John Kania, was wide ranging David Etzwiler, executive Goldman Sachs clusters at the company’s locations. and posited a number of interestdirector of Medtronic Foundation, Kathy Mulvany, senior and vice president of community Shared value taps the capacity ing shifts in the way companies director of corporate affairs, affairs, Medtronic (has since left Cisco Systems of global businesses to solve soaddress social problems when Medtronic) Dina Habib Powell, cial problems, just as social entrethey pursue shared value. It proReginald Foster, regional president of Goldman Sachs preneurs do through smaller-scale foundly changes the relationship manager of corporate citizenship Foundation, and global head of and corporate affairs, IBM the office of corporate engagement, enterprises. Porter and Kramer between companies and nonprofit Goldman Sachs Ezra Garrett, executive direcbelieve that widespread adoption organizations, creating a mutual tor of PG&E Corporation FoundaBeth Schmitt, director of reof a shared value approach could interdependence and heightened tion, and director of community cycling for Alcoa North American Rolled Products, Alcoa relations, PG&E reshape capitalism and its relationaccountability for delivering re30

Stanford Social Innovation Review • Summer 2011

Photographs by joe vericker, photobureau inc.

putting societal issues at the core of their companies’ strategy and operations.

Photographs by joe vericker, photobureau inc.

sults. Shared value engages companies more deeply in social issues, holding the promise of far greater resources and a multitude of innovations to address today’s most urgent needs. Above all, it accelerates and expands the potential for social impact as major corporations launch initiatives that reach millions of people at a pace and scale that have rarely been achieved by the nonprofit sector. At the same time, as the participating executives acknowledge, shared value demands a delicate balance between social needs and corporate profitability that is not easily achieved.

Mark Kramer: Let’s start with the question of motivation. When did your company begin to adopt the perspective of shared value, and what prompted that change?

Ezra Garrett: At PG&E, a paradigm shift

occurred in the aftermath of the mid-2000s energy crisis. Our CEO, Peter Darbee, made a bold public statement: that we believe climate change is real, and that as a member of the utility industry we have to take the leadership role in finding solutions to that

problem. So we articulated a vision of being the leading utility company in the United States, and to support that we outlined four simple goals, to be a leader in engaged employees, delighted customers, environmental leadership, and total shareholder return.

That reflects the triple bottom line concept of shared value.

We then said, “Why don’t we propose a really aggressive program to help incentivize our customers to use less energy?”

Colleagues in the industry—and I don’t mean just the utility industry, but big businesses—asked us: “What in the heck are you thinking? How can you encourage your customers to use less of your product?” But we knew it was the right thing to do and we knew that we could work within that framework to provide offsets to the customers to take those steps.

Where the value creation really happened was when we were able to bake these incentive programs into our corporate strategy. Instead of it being just a PR thing, we really put skin in the game, to make sure that customers actually did reduce their usage. We’re committed to paying a pretty

hefty fine if customers don’t meet those goals. And it has worked. Over the past 30 years energy usage in the United States has gone up 50 percent per capita, whereas in our service area it’s remained steady.

The challenge on the philanthropy side of the company was, how do we create a new charitable program that is reflective of our environmental leadership goal? So, for example, we created a program with Habitat for Humanity where we fund the installation of solar on every Habitat home built within our footprint in Northern and Central California. Major change is a challenge for any organization, and for a 100-year-old utility company like us, it really took something as drastic as the energy crisis to get us to initiate that change and see it through.

David Etzwiler: For Medtronic, the shift be-

gan when we moved into emerging markets.

It became clear to us that the old innovation model that we had used in the United States and other developed countries is not effective when you try to develop and sell products for the middle and the bottom of the economic pyramid. Instead, we had to Summer 2011 • Stanford Social Innovation Review

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Ideas Q&A go into a community and start from scratch by asking the question, “What’s not happening here that could happen, and how do we address it?”

Sometimes the answers to that question are coming from those of us who spend time with NGOs. Other times it’s coming from our government affairs folks. And other times it’s coming from our business mod-

liked the idea, and it led to the creation of the Cisco Networking Academy. It was driven both bottom-up and top-down. You have to have executive leadership that absolutely believes in it and is passionate about it, as John was then, and John Chambers, our current CEO and chairman, is today. He absolutely believes it is relevant to the business. He continually says that social invest-

Kathy Mulvany Cisco, David Etzwiler Medtronic, Paul Ellingstad Hewlett-Packard

el innovation folks. As a result, there was a slowly developing Aha! moment—that we’re really learning innovation through shared value. Our CEO absolutely drank the Kool-Aid with us. He assigned a top-level executive committee to oversee this work.

And we engaged in a process that led us to underscore the vision of working to serve folks in the middle and bottom of the economic pyramid.

Kathy Mulvany: At Cisco it really began with our employees. In the early days of Cisco we were based in East Palo Alto [California], which is not the safest neighborhood in the world. Some of our employees wanted to get engaged in the community. We happened to be next to a school, and we thought, “We’re a technology company, let’s go in and wire the school for Internet access.” But as often happens, we realized that it’s one thing to give technology. It’s another thing for that technology to actually have some benefit if nobody knows how to use or maintain it.

Out of that realization, an employee said, “Why don’t we teach the students how to use the technology?” John Morgridge, who was our CEO and chairman at the time, 32

Stanford Social Innovation Review • Summer 2011

ment and giving back to communities is the right thing to do, and it’s also very good for business.

Roslyn Dickerson: The beginning for IHG was new leadership at the company and a shift in our strategy. Heretofore, we approached the business as an operating company. Heads in beds. We didn’t much care about their experience. We just wanted them in our hotel.

Our new CEO came from Cadbury Schweppes, a consumer brand company, and he began our transition to a brand-led company. Now it isn’t just about the head in the bed. It is the guest’s experience that matters. Our mission as a company today is to create great hotels guests love.

In our research we found that there are a few things that factor into the customer’s experience. First, we discovered that the customers’ love of the experience is directly correlated with the service they receive. If the person working at the hotel is happy, I [the customer] know I’m going to get better service. If they’re better trained, I’m going to get better service. If they’re using healthier products, I know I’m going to get better service.

Another factor that arose in our research about the customer’s experience was the notion of safe hotels. We expected customers to bring up the importance of having a safe hotel. What we didn’t expect was that a safe hotel was associated with having a safe environment and a safe planet. And last, we began to consider a very interesting philosophical question that our board of directors raised after looking at all of the data. And that question was, what’s the role of a hotel in society today? That took us down a path of understanding what the hotel represents to a community. Hotels are a very intimate thing. If you live in a small town, you know. They are the place where you have bar mitzvahs and weddings and some of the best experiences in your life. And it’s also where you go for shelter in times of need. We learned that we already had a connection to the community that we just weren’t leveraging.

Those were the catalysts for us. We’ve got a lot of data and good anecdotal information. Now we’re pulling it together to represent both the environmental sustainability component of this work and the community component of this work.

Reginald Foster: IBM has a long commitment to contributing to society, but recently we found that more and more of our customers were talking and thinking about these things. We did global CEO studies, which found that CEOs as a group were ahead of the public in being concerned about sustainability, climate change, and these kinds of issues. They were worried about the impact on them, on their kids, and so on. So one of our new programs is something called the Smarter Cities Challenge, which will award $50 million in grants over three years to 100 cities around the world to help them solve health, traffic, safety, grid, water, these kinds of problems that are all related to growth and sustainability.

Paul Ellingstad: In the last 10 years

Hewlett-Packard has gone though an interesting time. Under our former CEO, Carly Fiorina, we were really engaged in social innovation. It was like clockwork. She would be in Davos one week and in South Africa the next week. We did some fascinating things around digital inclusion in South Africa in particular. Unfortunately, at that

time the company’s financial and operational performance did not consistently match the amazing things that were being done in terms of social impact.

The pendulum then swung under CEO Mark Hurd; the next five years were very focused on financial and operational performance and social impact reverted to a more traditional corporate philanthropy model.

Since late 2009 we’ve undergone a transformation, moving from the philanthropy model to begin really looking at how we leverage the 300,000 employees and all the expertise we have in solving social problems.

Kramer: It’s clear that the reason a company embarks on a shared value strategy can vary widely. The shift can be driven by customers, employees, CEOs, markets, and external events. Before we dive into some other questions, I’d like to hear from the rest of you about your shared value programs. Noa, what is Goldman Sachs doing?

Noa Meyer: The Goldman Sachs Founda-

tion is focused on economic growth and opportunity, which is aligned closely with the

Goldman Sachs employees are clamoring to assist those two programs by serving as mentors and providing feedback on business plans. There’s just an enormous amount of interest and desire by our employees to be involved. Our work is obviously serving the communities in which we live and work, but it is also providing the roughly 30,000 people who work for Goldman Sachs opportunities to use their skills in ways that are meaningful for them.

Talya Bosch: Like many other companies

here, Western Union is an old one—about 160 years old. We probably started with the idea of shared value as soon as we started moving money, although we certainly wouldn’t have known to call it that at the time. We obviously are proud of our philanthropy and the Our World, Our Family program. We also consider corporate citizenship as giving back to create economic opportunity.

What’s emerging for us is a much more intensive and purposeful focus on the shared value piece. A lot of the money that moves through Western Union is repatriations—

would think to come up with a practical answer to the question “What do we do to serve the world profitably?”

Beth Schmitt: I’m probably the only per-

son at the table who’s not part of a corporate affairs organization or a foundation.

I’m embedded within Alcoa’s North American world products business. That says something about how Alcoa has integrated sustainability as a core business strategy throughout the organization.

Alcoa is an integrated aluminum company, from mining to recycling. I’m responsible for delivering shared value by helping to drive the recycling rate up for all of the rolled products that we sell. Energy savings, greenhouse gas emission savings, all benefit the communities in which we operate.

I work with NGOs, government organizations, and other interested parties to increase diversion rates and bring those natural resources back into our operations. It’s a three-pronged approach, developing products that serve customers, serve markets, and serve communities.

Tony Kingsbury: I pulled together a list of

Tony Kingsbury Dow Chemical, Beth Schmitt Alcoa, Talya Bosch Western Union

work of Goldman Sachs the company. We launched 10,000 Women about three years ago, based on research that looked at how increasing the participation of women in the labor force increases GDP. Today, more than 3,000 women in 22 countries have graduated from the program. A little over a year ago we launched 10,000 Small Businesses in the United States. We started in New York and are also in Los Angeles and New Orleans.

sending money home. It’s up to half the GDP in some developing nations. It is double all sources of international aid combined.

What I get to wrestle with every day is how you translate Western Union’s scale into shared value. We care a lot about the underserved, traditionally migrants and the bottom of the pyramid. We also find that small businesses are not necessarily well served. But it actually isn’t as easy as you

36 new products, which are what I call candidates for breakthroughs to world challenges. Here’s one example. We all hear about the bad oils that are clogging up our arteries and leading to heart disease or diabetes. Dow has innovated healthy high Omega-9 and soon Omega-3 oils. These are canola-based oils, so there’s virtually no difference in how they are grown, and there’s no difference in how they taste. The neat thing about this innovation is that it’s a win, win, win. These healthy oil products are becoming popular in the United States, Canada, Japan, and Europe. We hope soon, throughout the world.

Another example is solar shingles. This is an asphalt shingle but with photovoltaics built into it. We came up with the idea after going out to our customers in the building and construction industry, who told us that the installation cost for photovoltaics can be as much as or more than the actual product. With solar shingles, you can provide photovoltaics much more cost-effectively by dropping installation costs and integrating it into the roof without the need for special construction techniques. We’re just coming Summer 2011 • Stanford Social Innovation Review

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Ideas Q&A out with those, and there’s far more demand for them than we can supply. Now we just have to figure out how to ramp up quickly.

Kramer: Ideally, companies create solutions like those that Dow has, ones that benefit the company, society, and the environment. But that isn’t always the case.

As philanthropic programs get integrated more tightly into a firm’s core business it can create problems. Reg, is Smarter Cities purely a philanthropic program? And how do you avoid the appearance or reality of self-dealing, in which your grants might seem to benefit IBM’s consulting business?

Foster: To clarify the terminology, IBM has talked about smarter planet and smarter cities in our business approach and the need to find new solutions to public safety, health, education, electric grid, and other system issues confronting us, especially in cities— where more than half of humanity now live.

Smarter Cities Challenge is our competitive philanthropic grant program that allows cities to apply for grants of IBM consulting help to tackle these critical problems. We are bringing the best of our expertise and talent to our philanthropy to help solve problems, which we think is critical to being effective.

Similarities will always exist between grants and business when companies give of their expertise, but we will administer the grants with transparency and integrity, and that is what is required to achieve real change.

Bosch: The separation of church and state

raises some interesting challenges for us at Western Union. We have given grants to organizations in Uganda to work on how financial literacy information can be distributed via mobile phone. Now, very rapidly, Uganda could become a business opportunity for us. How do we work with our marketing teams, how do we work with our business team, and how do we develop new products for that market while making sure that our philanthropy is effective? We had a great opportunity to work with Mercy Corps, our close partner in Haiti, to fund some of their mobile phone work. We decided not to, because we knew that mobile money would soon be a business play for us.

To give you yet another example, we recently bought a company called Custom 34

Stanford Social Innovation Review • Summer 2011

House Solutions, which is now Western Union Business Solutions. In the United Kingdom, one of their largest markets is the nonprofit sector. That presents a shared value opportunity as well as a number of challenges. How do we work with nonprofits in our grantmaking who could also become our clients in another arm of the company? How could we use Custom House Solutions to generate shared value? These are tricky issues.

Mulvany: Cisco’s social investment goals

are aligned to our business, but when it comes to the Cisco Foundation there can be no direct business benefit to the corporation, so you have to be very aware of the

we would never have had if we had simply written a check. So it’s a much different relationship but a stronger one.

Dickerson: We were engaged with lots of partners, many focused on education, which is so broad I don’t know how you win in that space. And as a hotel company we didn’t feel it was relevant enough to our business—we couldn’t win in that space. Today, we don’t have education as a focus. We have hospitality training as a focus, which is a very specific thing. I’ve been pleasantly surprised at how well nonprofits understand the reasons for the change. One of the things that I’ve also found about having that kind of focus

Roslyn Dickerson IHG, Dina Powell Goldman Sachs, Ezra Garrett PG&E

rules of engagement. For example, as we move into health care from a social benefit perspective, we are not going to be funding those engagements through the Cisco Foundation but rather through the corporation.

Kramer: That raises an interesting point.

What impact has shared value had on your company’s grantmaking and its decisions about which NGOs to partner with?

Foster: First of all, it dramatically narrows whom you might work with and what you might decide to do with them. It’s narrower but it’s deeper. I don’t want to go quite this far, but we almost wouldn’t do a grant now unless there is value and contribution on both sides. Because not only do we have something specific that we want to accomplish, but we are engaged in a way that we have a window on the results that

is that it allows you to say “No” respectfully, which is quite important to developing and maintaining relationships.

Dina Powell: That’s true. And to Reg’s point, yes, you are entering into deeper relationships with NGOs. Our partnerships with NGOs and academic institutions are anchored in our shared commitment to achieving measurable results. We work closely with our implementing partners to clearly define what success looks like and then tailor each program and grant to maximize our partners’ ability to reach those goals.

Ellingstad: We’ve found some very good so-

cial entrepreneurs, such as Bright Simons, from Ghana, who founded a company called mPedigree that allows people to use their mobile phone to verify whether a medication they purchase is authentic or counterfeit. We

developed the technology solution and partnered with mPedigree to bring it to the market. But one of the problems we’ve had is trying to sort through the large number of social entrepreneurs there are around the world and identify the ones we want to work with.

One of the things we’ve done to help us filter them and make the process more efficient is to partner with the Schwab Foundation for Social Entrepreneurship, which helps us identify high-potential social entrepreneurs.

Kramer: One of the things that’s so exciting about shared value is the scale on which you all are talking about your projects. Cisco has nearly 4 million graduates of its Networking Academy, Goldman is empowering 10,000 Women, Dow’s solar shingles are flying off the shelves. These are large-scale impacts that nonprofits don’t often reach.

Kingsbury: NGOs are a critical piece in

identifying the opportunities, but are not usually able to scale to the appropriate size.

The corporate entities can come in and take these things to scale. Most NGOs are not set up to affect a million lives. If you combine NGOs’ local knowledge with our ability to scale up, you can really create value on both sides.

By the same token, we have to listen to NGOs so that we don’t go to the wrong place or do the wrong thing. Sometimes we come with our preconceived notion of what the solution should look like. Sometimes it’s “Hi, I’m from Midland [Mich., Dow headquarters) and I’m here to help.” Or “Here’s the way we’re going to do it.” We need to listen to them, but then we need to provide the scaling opportunities.

Garrett: We are the second largest landowner in California, so our reach spans a very diverse geography and set of demographics across the state. We are also the sole gas and utility provider for most of the 15 million people living within this footprint, so people have very high expectations of us. If we’re not conducting our business in a way that is responsible and that acknowledges the impact of our business on their neighborhoods and the environment, then it’s big trouble. Big trouble for us, big trouble for our shareholders, and big trouble for our government regulators as well.

Laura Herman FSG, Noa Meyer Goldman Sachs, Reginald Foster IBM, Charles Moore CECP

Powell: In this increasingly globalized world

there are really three legs of the stool that have to work together—government, private sector, and nongovernmental organizations. For many years it was the government that came up with ideas, and the private sector was asked to fund and scale them.

Today, many organizations are showing the government that innovative ideas to combat the world’s most pressing problems can come from a variety of places, and the public and private sectors can work together to bring innovative solutions to scale.

One example is the Overseas Private Investment Corporation (OPIC), an independent US agency, which launched a lending facility for women in Monrovia, Liberia. They announced this commitment at the Clinton Global Initiative. They were so excited about the program, which pledged to award $30 million in growth capital to SMEs [small and medium enterprises] in Liberia. The challenge, however, was that Liberia’s tumultuous history had left the economy fragile and without a large supply of qualified loan recipients. And this was especially true for women who had been out of school for years.

We received a call from the chairman of OPIC saying: “We are searching for loan recipients, but it is clear that many entrepreneurs do not have the training to be successful at growing their businesses. Is there any way you would consider a 10,000 Women program in Monrovia?” That was three years ago. Today, 75 women have participated in 10,000 Women and many of them have access to capital. This partnership is an impor-

tant example of how public-private models are enabling us to join forces to reach broader populations in larger numbers.

Mulvany: The challenge we’ve faced in scal-

ing the Cisco Networking Academy is how you create a program that is globally consistent yet locally relevant. The power of the program is that every student around the world goes through the same curriculum and is eligible for the same certifications in the end. A student getting a 93 in Kabul, Afghanistan, is just as good as a student getting a 93 in San Jose, Calif. That’s the power of the network and why people are so eager. In addition, we don’t push the academy on anyone. What we have found is that success lies in a pull. When communities and countries see the value of information and communications technology skills education and what it can do for capacity building in their country, they want it and ask for it. The only way that the Cisco Networking Academy has been able to scale to 165 countries and a million students a year is because it is a partnership.

The educational institutions we partner with have to create the classroom, hire the teacher, promote the courses, and get the students into the classrooms. We provide them with the curriculum and the instructor training as well as the network foundation for all of the assessments and the learning management system. But it absolutely works only because local entities take ownership.

Bosch: We didn’t have a model where we

said, “Here, let’s offer this to the world.” We Summer 2011 • Stanford Social Innovation Review

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were co-creating what would work. But solutions to some social problems are more easily scalable than others. The notion of working with government in some way might be a scalable idea, but we’ve been struck by how much some of the things we thought would be scalable, programs that we could package, actually need to be customized.

For example, we have had a program for many years in which migrants in the United States raised money for their local communities in Mexico, and it is matched by us and by the governments of the Mexican states where the communities are located. We thought this was a great model that should be scalable anywhere.

Well, not necessarily, even in Mexico.

Not all government entities at the federal, state, and local level have money available at the same time. Even though that program hasn’t worked as a global model, it did help us create a new diaspora business program for Africa and a new partnership with the United Nations Development Programme.

Kramer: Most successful organizations have strong measurement systems. There is also a move afoot to create shared measurement systems across many different nonprofits in the same field. How do you measure success and how important is that to sustaining support for shared value programs within your company?

Powell: We have learned through the last

few years at 10,000 Women that holding yourself accountable is critical, but how you actually conduct that measurement and assessment is also important because it has the potential to be something that you can share. Our goal was to reach 10,000 Women. Today, the program operates in 22 countries and 3,500 women have been reached with management education, access to capital, mentoring, and networking.

Goldman Sachs’s culture emphasizes quantifiable results. Even before we launched the program, senior leadership expected a system for measuring the numbers of women reached and the impact of the program. Today, we have a designated measurement and evaluation person at each of our programs. In Rwanda, India, China, and Brazil, part of our grant pays for an M&E 36

Stanford Social Innovation Review • Summer 2011

liaison who tracks the women from the time they enter the program and at various points after graduation to measure job creation and revenue growth.

Mulvany: If you move to the model of

shared value and you want business to be more engaged, the business will absolutely want to see measurement. “Show me that there is real social impact. We are willing to potentially invest more if you can show real value.” But it is a challenge to get consistent metrics. We try to encourage a common set of metrics across our NGO partners and our social programs. It would go a long way if there were one set of standards around what social impact is.

Ellingstad: We’re being very, very careful

that we don’t get into a marketing campaign style of measurement and evaluation, where we say, “Look how great we are.”

You also need to make sure you are measuring the right things over the right time frames. Some of the very first houses that Habitat for Humanity built fell into disrepair because they hadn’t focused on creating a sustainable model. It’s not just building housing, it’s also how you empower the community so that it takes ownership.

John Kania: We’ve been talking a lot about the current state of shared value programs.

Looking forward, how do you think shared value will play out in the future, and how might it change at your company?

Etzwiler: In corporate America you will know shared value has taken root when it’s part of the strategic plan. That’s something we are beginning to do at Medtronic. Moving into emerging markets has caused us to look at health differently. It’s a whole different market when you start looking at models of care that exist and don’t exist, and the expertise that doesn’t exist, and how you can play a role in complementing that with shared value.

Dickerson: As time goes on, eventually it’s not shared value, it’s simply new business development. And there are lots of places inside the organization where new business development occurs. It will allow us to have an even broader scope that takes into

consideration what’s going on out there in the community, what’s going on in government, and what’s going on in our own business organization.

By demonstrating the ROI of shared value thinking, we are going to have lots more people inside the organization who want a part of that. We haven’t done that yet. But it’s part of what we want to do, to drive it down to each and every brand. What shared value means to an InterContinental Hotel is going to be very different from what it may mean to a Holiday Inn Express. It will be tons of work, but I can see it being integrated into our company over time.

Kingsbury: Will people say, “Let’s give Tony

$100 million for Breakthroughs to World Challenges to go work on something?” The answer is no. Products will be developed only if they make business sense. But if we can develop ways to provide lower-cost clean water so that we can enter new markets, then absolutely money will be available. If we don’t, somebody else is going to do it and capture the value there, so why not us?

Schmitt: You have to be committed to

shared value for the long term. It can’t be something that is this year’s campaign, and next year you are on to something else. Aluminum is an energy-intensive industry, and I don’t think the energy issue is going to go away. Being efficient, smart, and innovative in energy usage is not just a competitive advantage, it’s a matter of survival. That’s what makes sustainability a very long-term strategy for us.

Ellingstad: We’re going back to where we

were when Bill [Hewlett] and Dave [Packard] founded the company—the ethos that you’re not here just to make money for the company and shareholders. It’s about the organization as well as the employees actively contributing to the communities in which they work and live.

If this is going to be sustainable 100 years from now, it’s got to be part of your corporate values, the fact that your company is a part of a broader ecosystem that contributes to creating societal value. Business must work with governments and with NGOs to build better societies and better communities. n

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The Elusive Craft of Evaluating Advocacy

By Steven Teles & Mark Schmitt Illustration by Gordon Studer

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ery few big social changes happen without some program to another, to a more malleable form of evaluation form of advocacy. When these efforts succeed, based on assessing the theory of change underlying an inithe results can be transformative. Consider tiative. The development, refining, and implementation the recent expansion of charter schools of these tools constitute a growing industry. or health care reform in the United Unfortunately, these sophisticated tools are States. Good ideas like these almost wholly unhelpful in evaluating advoThe political did not catch on widely just because they cacy efforts. That’s because advocacy, even process is chaotic worked. They happened because of crewhen carefully nonpartisan and based in and often takes years ative investments in public persuasion, research, is inherently political, and it’s to unfold, making it difficult legislative action, and political activity. the nature of politics that events evolve to use traditional measures to Most successful foundations and rapidly and in a nonlinear fashion, so an evaluate the effectiveness nonprofits understand the imporeffort that doesn’t seem to be working tance of advocacy. Over the last demight suddenly bear fruit, or one that of advocacy organizations. There cade, foundations have put more seemed to be on track can suddenly are, however, unconventional resources into advocating for the polilose momentum. Because of these pemethods one can use to evaluate cies they believe in, with some notable culiar features of politics, few if any best advocacy organizations successes. Yet grantmakers have often practices can be identified through the and make strategic hesitated to plunge in. Sometimes they sophisticated methods that have been deinvestments in that worry about appearing too political or parveloped to evaluate the delivery of services. arena. tisan. But more often they hesitate because Advocacy evaluation should be seen, effective advocacy is difficult, and evaluating therefore, as a form of trained judgment—a whether various approaches are working is even harder. craft requiring judgment and tacit knowledge—rather That is not the case when it comes to service delivery prothan as a scientific method. To be a skilled advocacy evaluator grams—such as well-baby clinics or job-training classes—where requires a deep knowledge of and feel for the politics of the issues, foundations, universities, and government agencies have developed strong networks of trust among the key players, an ability to assess sophisticated tools for evaluating the effectiveness of these efforts. organizational quality, and a sense for the right time horizon against The tools range from controlled experiments, to extracting from which to measure accomplishments. In particular, evaluators must experience best practices that can be adapted from one successful recognize the complex, foggy chains of causality in politics, which Summer 2011 • Stanford Social Innovation Review

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make evaluating particular projects—as opposed to entire fields or from large businesses. The movement used every trick in the book (as well as creating some new ones), and the result was legislation organizations—almost impossible.

If foundations embraced the judgment-laden character of the ef- that never made it to the floor of the US Senate, with the very real fort—rather than giving up on advocacy or feeling they are falling possibility that action will be delayed by years, if not decades. short when their evaluations lack the scientific patina of service delivMost advocacy efforts look more like the push for cap and trade ery program evaluations—the benefits would be profound. Funders than like health reform. That is, even the best designed and resourced could structure programs, often involving multiple unlikely bets, in initiatives usually fail to achieve even the more modest of their goals. ways that are more likely to succeed. Advocates could feel comfortable The American political system is profoundly wired for stasis, and changing course as necessary. And foundations would be more likely competition for limited agenda space is fierce. In an overwhelming to take chances on big efforts to change policy and public assump- percentage of cases, organizations fail to get substantial traction on tions, rather than retreating to the safer space of incremental change. their agendas for change. Conversely, items often wind up on the political agenda by random and chaotic routes that may have little to do with advocacy campaigns. If it is hard to know whether advocacy Advocacy Is Different played any part in a policy outcome, it is harder still to know whether The word advocacy is in many ways a misnomer. Funders do not, any particular organization or strategy made the difference. The fact for the most part, give organizations money to simply fly the flag that in 2010 Congress passed health care reform and not global warmor make the case for a particular policy. Their goal is to change ing legislation may have been mainly a function of dumb luck, rather actual social, policy, and political outcomes. And ultimately, ad- than an indication of which advocacy campaign was better executed. vocacy efforts must show progress toward those outcomes. But Or it may tell us more about the enthusiasm or skill with which the the relationship between the work to create those outcomes, and campaign was implemented, rather than the general applicability of the actual results or signs of that progress, can be elusive, because its tactics or strategies.

Despite the number of groups that will present themselves as the advocacy by its nature is complicated and its impact often indirect.

Consider, for example, the campaign for US health care reform. decisive force behind any legislative accomplishment, no successful The effort that culminated in 2010 was the result of decades of work, advocacy effort is the result of any one organization or initiative. including a previous, high-profile failure in the early 1990s, waves of Health care legislation, for example, owes its passage to many efstate-based reform, and numerous incremental efforts at the national forts. Some were far from government, such as the academic work level. Advocates invested hundreds of millions of dollars in initiatives at Dartmouth College that showed how escalating health care costs ranging from media campaigns encouraging television producers to could be contained while improving services. Some weren’t directly include stories of the uninsured, coalition-building projects, univer- focused on health care at all, such as political organizing around a sity- and think tank-based research, and grassroots initiatives. The broad progressive agenda and candidates. basic outlines of reform policies were worked out well in advance, in When specific forms of advocacy—an aggressive grassroots advocacy groups and think tanks, which delivered a workable plan campaign, or a behind-the-scenes, cross-partisan strategy involvto presidential candidates. Important interest groups who could ing paid lobbyists—receive credit for changes in policy, advocates block reform, such as small business, had been part of foundation- adopting those strategies in the future may claim the strategies supported roundtables seeking common ground for years. Technical themselves are a marker on the road to success. But tactics that may problems had been worked out. And tens of millions of dollars had have worked in one instance are not necessarily more likely to sucbeen set aside as long ago as 2007 for politically savvy grassroots ceed in another. What matters is whether advocates can choose the advocacy initiatives targeted at key legislators. After a very long slog, tactic appropriate to a particular conflict and adapt to the shifting the outcome was the Patient Protection and Affordable Care Act. moves of the opposition.

Now consider the effort in the United States to pass legislation to Sometimes the most effective effort might be a disruptive innocontrol global warming, which in many ways resembled the strategy vation that does not follow known strategies. Consider MoveOn.org, to pass health care reform. Advocates of cap and trade engaged in for a time one of the country’s most effective multi-issue advocacy what can only be called a mammoth effort, over more than a decade. organizations. But for years after its establishment in 1998, the orgaAmong other things, environmentalists drew on the services of a for- nization attracted skepticism, because its primary strategy—repeated, mer vice president who made an Oscar-winning movie, spread their small actions by members—was so different from the organizational message for more than a decade across a remarkable span of media membership model previously considered the standard of success.

Disruptive innovators may require a long period of trial and error, (up to and including children’s cartoons), corralled a wide range of well-funded environmental groups to support a single strategy for during which the policy landscape, and what strategies work within reducing carbon (cap and trade), and attracted substantial support it, may change significantly. For example, when the Tax Reform Act of 1986—an iconic example of unlikely, bipartisan success—was Stev en Teles is an associate professor of political science at Johns Hopkins passed, the political climate in Washington, D.C., was characterUniversity. He is the author and co-editor of several books, including The Rise of the Conservative Legal Movement: The Battle for Control of Law. ized by extremely weak parties, strong congressional committees M a rk Schmitt is a senior fellow and director of the fellows program at the and subcommittees, significant room for bureaucratic and interest Roosevelt Institute. He was previously executive editor at The American Prospect, group entrepreneurship, and pervasive cross-party coalition building. director of policy and research at the Open Society Institute, and policy director for former Sen. Bill Bradley.

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today’s national policy process, characterized by polarized, highly disciplined political parties.

Advocacy efforts almost always involve a fight against a strategic adversary capable of adapting over time. Practices that once worked beautifully get stale once the losers figure out how to adopt the winner’s strategy or discover an effective counterstrategy. There was a time when­­­bombarding the Congress with phone calls was an effective way of exercising influence by indicating mass support, but it became nearly useless once everyone did it. Strategic litigation was a genuinely disruptive innovation in the 1970s but declined in impact as its targets developed their own organizations and figured out ways to push back against public interest lawyers. The declining returns on political tactics that are a result of the repeated, competitive nature of advocacy makes it almost impossible to evaluate advocacy strategies against the metric of best practices.

Evaluating Advocacy Is Hard Similar resources and advocacy strategies, therefore, can generate very different results. Sometimes political outputs are reasonably proximate and traceable to inputs, but sometimes results are quite indirectly related and take decades to come to fruition. Some advocacy efforts have a specific goal in mind, but in other cases the objective is broader and the benefits are reaped by groups other than those who paid the costs. Any effort to evaluate advocacy must be able to account for these and other complicating features of the terrain of policy and institutional change, but these facts in themselves can’t help us evaluate advocacy. Indeed, they are more useful as guides to what not to do.

When evaluating service delivery programs, such as food banks and after-school enrichment programs, it is relatively easy to establish benchmarks to measure a program’s effectiveness. By and large, most organizations are able to show some visible progress toward reaching their goal every day (even if it’s just one hungry person getting breakfast). But the chaotic, nonlinear character of policy agendas means that funders cannot pretend to know where they are in the process. Most of the time, very little seems to be happening. As University of California, Santa Barbara, sociology professor Verta Taylor points out in her classic study of the women’s movement, a cause can remain in “abeyance” for decades, but if the fires are kept burning, it’s possible to get things moving when conditions become more permissive.1 These long periods off the agenda can be broken quite abruptly and without warning. That is why it is important to continue to fund and pursue the quiet work—such as the long process of slow persuasion and litigation that led to the repeal of the “don’t ask, don’t tell” policy in 2010—even when attention is elsewhere. If one doesn’t, then opportunities may be missed when the political weather changes.

Advocacy strategists, conditioned by funders, are accustomed to presenting a plan of action in which a large change is preceded by interim goals and achievements. A plan to achieve nationwide reform on a key issue might have as interim goals the passage of state ballot referenda, a specified number of co-sponsors for legislation, or passage of an incremental reform. An organization that can present a plan for advocacy with a well-marked path to success seems like a

business with a coherent plan pointing to profitability, and thus the safest bet for strategic grantmaking. Such a project can be evaluated as to whether it is achieving its projected interim goals.

But successful advocates know that such plans are at best loose guides, and the path to change may branch off in any number of directions. Interim achievements, such as the passage of a state ballot initiative, can be idiosyncratic victories. Incremental legislation often satisfies politicians that they have dealt with a problem while exhausting the capacity of grassroots advocates to keep pushing forward. Given the competitive nature of advocacy, such early underthe-radar successes may even have the unintended consequence of mobilizing the opposition, making later change more difficult.

Successful advocacy efforts are characterized not by their ability to proceed along a predefined track, but by their capacity to adapt to changing circumstances. The most effective advocacy and idea-generating organizations, such as the Center on Budget and Policy Priorities or the Institute for Justice, are not defined by a single measurable goal, but by a general organizing principle that can be adapted to hundreds of situations. Rather than focusing on an organization’s logic model (which can only say what they will do if the most likely scenarios come to pass), funders need to determine whether the organization can nimbly and creatively react to unanticipated challenges or opportunities. The key is not strategy so much as strategic capacity: the ability to read the shifting environment of politics for subtle signals of change, to understand the opposition, and to adapt deftly.

The US system of government is characterized by parallel, loosely coupled agenda-setting processes at work simultaneously at different levels of government and across institutions. In sharp contrast to service delivery programs, then, advocacy projects cannot realistically experiment in one place in the hopes that successes can be scaled up. Successful advocacy projects must simultaneously pursue opportunities at the local, state, and federal level, as well as across governmental institutions. Sometimes these efforts need to be organized into a well-coordinated network, whereas in other cases they are best left uncoupled, pursued as a portfolio of distinct bets on the assumption that donors have little or no idea which strategy is likely to be successful. Under such conditions, it makes sense to evaluate the portfolio as a whole, not the individual projects.

Successful efforts to change public policy often require grassroots as well as elite strategies, because opposition in either quarter could derail the idea. For example, decades of work within the medical profession built elite support for comparative effectiveness standards to ensure appropriate treatment, but with no grassroots effort, it was effectively mischaracterized as “death panels.”

Building advocacy projects that cover a range of political institutions and processes means that massive amounts of effort will seem wasted, because most will be unconnected to the final outcome. This waste, however, is unavoidable, because neither funders nor the organizations they support can know which strategy will be effective ahead of time.

Because funding is finite, there can be a tendency to view issues and advocacy efforts as if they are in competition for a limited amount of political capital or public attention. But success on one issue often builds a foundation for others by creating a sense of political momentum, restoring faith in government, establishing a precedent, or Summer 2011 • Stanford Social Innovation Review

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creating habits of cooperation within legislative institutions. Even failure to achieve an identified goal can leave energy and momentum to achieve the goal in other ways. The massive push for the Equal Rights Amendment, for example, fell short in its constitutional goals but led to change through the courts that realized much of its larger ambitions.

Issue domains that may seem quite distinct in a donor’s mind are rarely so in politics. Because issues spill over from one domain to another (issues of poverty affect health and education), particular issues are almost impossible to disentangle from general ideas and broader governing philosophies. Consequently, the fortunes of issue-specific mobilization may be due to actions conducted within that domain, but they may be reinforced by mobilization in another domain entirely, by generic, ideological activity, or by more neutral scholarly research. For example, over the past decade, efforts to reform K-12 education have focused on innovations such as charter schools and performance pay for teachers that are often opposed by teachers unions. The perception of teachers unions as powerful and intransigent was then transformed into a backlash against all public employee unions, manifested most recently in the proposals to end collective bargaining in Wisconsin and other states.

That is why it is difficult to accurately attribute the success of any advocacy project to a particular organization (or even issue-specific network). External effects of organizational activity (benefits created by one organization that are reaped by another) are pervasive in advocacy in a way that they are not in service delivery programs.

Evaluators are faced, therefore, with the challenge of capturing all the benefits that an organization is generating, as well as preventing it from taking credit for benefits that are produced by others or that are due to good fortune rather than skill.

Evaluating Advocacy Despite these many challenges, there are ways grantmakers can effectively invest in and evaluate the success of advocacy campaigns.

One thing grantmakers can do is to use a spread-betting approach to making grants. A spread-betting approach invests in a wide range of organizations, strategies, scenarios, and even issues. Failing to fund the seemingly quirky, unproven strategy that turns out to be appropriate to the circumstances is just as big a loss as funding something that does not work out. Spread betting, therefore, requires that funders have an organizational culture that does not punish even a considerable number of failures, so long as they are balanced over the long term by a few notable successes.

Grantmakers should also focus on the aggregate return on investment of their entire portfolio of grants, not the success or payoff of any one grant. An investment in an issue in which no action has occurred, even for a long time, may not be a bad use of resources. But this will only be clear when a particular issue is judged in the context of a range of other bets put down by the donor. Only then can a donor have a sense of whether his resources are generating what investors call “alpha”—excess returns over the average. Portfolio evaluation, by averaging out a number of investments over a longer period of time, also prevents the risk of over-attribution of success or failure to factors that are entirely exogenous to the activities of those they are investing in.

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Funders should evaluate their portfolio of investments using the longest feasible time horizon, recognizing that the political process does not end after a piece of legislation passes or a court decision is handed down. It allows for the assessment of what University of Virginia political science professor Eric Patashnik calls “policy durability”—whether a reform actually sticks or creates a platform for further change.2 Some reforms, such as airline deregulation and tradable permits for sulfur dioxide emissions, generated powerful reinforcing dynamics that kept the policies from being clawed back, even in the face of initially strong opposition. But other changes that seemed momentous at the time, such as the Tax Reform Act of 1986, unraveled bit by bit over the years. Viewing policy enactment as only one step in a much longer process focuses donors’ attention on what really matters—whether a policy sinks deeply into society and political routines. Funders may not be able to wait for years after reforms pass to judge whether their investment was worth it. But at the very least they should consider the possibility of reversal (or extension) in their evaluations, and evaluate the strategies of advocates by whether they have a plausible plan for protecting what they have won.

Some policy changes matter because they change the playing field on which subsequent action can occur. For example, the state welfare reforms of the 1980s and early 1990s did much more than change policy in the states where experiments were carried out: They altered the entire debate and emboldened policymakers to try more ambitious national changes.

In many cases, policy changes have political feedback as one of their primary objectives. Investment in green jobs, for example, when it emerged as a policy priority in 2005 or so, was billed by its supporters as a “strategic initiative” that, in addition to being good policy, might create a lasting labor-environmentalist alliance, mobilize voters around an optimistic economic vision, put a bright face on the tough choices of carbon pricing, and create a message of reduced oil dependence—not just create jobs and improve the environment. To some extent, the idea achieved those goals even as the policy itself fell short. Libertarians’ litigation on issues like school choice and property rights was designed to detoxify their brand among racial minorities, along with achieving substantive policy and legal goals. The long-term effects of policy change on the character of politics can be at least as important as those that are produced by the policies themselves.

Evaluate the Advocates We have argued that grantmakers should evaluate the success of advocacy efforts by thinking of them as long-term, portfoliobased, and inclusive of diffuse and indirect effects. We would now like to take this argument one step further—making perhaps our most radical suggestion—that funders may be better off eschewing evaluating particular acts of advocacy, and instead focus on evaluating advocates. We believe that the proper focus for evaluation is the long-term adaptability, strategic capacity, and ultimately influence of organizations themselves. This is the grantmaking model that the Sandler Family Supporting Foundation used to help create the Center for American Progress and ProPublica, and that the Walton Family Foundation uses to promote educational competition.

Evaluating advocacy organizations means paying close attention to the value they generate for others, rather than only focusing on What Makes a Good Evaluator their direct impacts. For example, the Center for American Progress’s Advocacy evaluation is a craft—an exercise in trained judgment—one Campus Progress and The American Prospect’s writing fellows program in which tacit knowledge, skill, and networks are more useful than the focus a great deal of effort on developing the talent of their younger application of an all-purpose methodology. Evaluators must acquire advocates, writers, and activists. As a result, these organizations and accurately weigh and synthesize imperfect information, from regularly lose their younger staff to more prominent organizations. biased sources with incomplete knowledge, under rapidly changing Although this approach doesn’t add much direct value to the two or- circumstances where causal links are almost impossible to establish. ganizations, it does create enormous value for the larger ecosystem. There is a natural temptation to formalize this process in order to In this instance, the advocacy evaluator needs to understand that in create at least the appearance of objective criteria, but it is far better some cases staff turnover reflects organizational success, not failure. to acknowledge that tacit knowledge and situational judgment are The best way to evaluate an organization whose influence is ex- what really underlie good advocacy evaluation, and to find evaluators tremely diffuse is for grant officers to be close to the political action who can exercise that judgment well. It’s the evaluator, rather than and thus able to make informed judgment calls on how it conducts its the formal qualities of the evaluation, that matters. core activities. This was the practice of many conservative foundaIf scientific method is an inappropriate model, where can granttions, whose staff devoted much of their time to simply reading the makers look for an analogy that sheds light on the intensely judgprimary work of their grantees, rather than asking them to generate mental quality of advocacy evaluation? One possibility is the skilled problematic metrics and lengthy reports designed solely for purposes foreign intelligence analyst. She consumes official government reof evaluation. Empowered by their boards or donors to trust their ports and statistics, which she knows provide a picture of the world own judgment of good, appropriate work, this foundation strategy with significant gaps. She talks to insiders, some of whom she trusts, has been vindicated many times over in the real world of politics and others whose information she has learned to take with a grain and the marketplace of ideas. of salt. In many cases, she learns as much from what she knows are Equally important is an organization’s strategic capacity, which lies as from the truth. It is the web of all of these imperfect sources can be defined not only as its formal strategic plan, or the wisdom of of information, instead of a single measure, that helps the analyst its senior leadership (two factors that funders tend to focus on), but figure out what is actually happening. And it is the quality and exalso the organization’s overall ability to think and act collectively, perience of the analyst—her tacit knowledge—that allows her to and adapt to opportunities and challenges. A good organization has create an authoritative picture. a coherent and inspiring internal culture, the ability to consistently The best intelligence analysts are really applied anthropologists. identify and motivate talented people, acquire and process intel- They study a particular culture, in a particular place, that works difligence, and effectively coordinate its actions. Effective advocacy ferently in practice than it does on paper. Cultures are often characterorganizations—such as Planned Parenthood, which recently ma- ized by a “hidden structure” that is largely invisible to outsiders and neuvered through a significant shift in their political alliances on sometimes poorly understood even by insiders. Many cultures actureproductive rights—have a record of innovating and reorganizing ally develop a lack of transparency precisely to prevent comprehension by outsiders. Discovering how a culture works requires one to create when their tactics don’t work as well as they once did.

Yet another way to measure an organization’s quality and in- networks of informants and use research methods such as participant fluence is through “network evaluation”—figuring out its reputa- observation. This requires trust, which may take years to develop. tion and influence in its policy space. Although this is probably the What marks a good intelligence analyst, and a good grantmaker most important form of knowledge, it is also the most difficult to in the field of advocacy, is the ability to penetrate those opaque acquire. Where organizations are in competition with each other for surfaces to detect patterns of influence. Foundations engaged in resources, peer evaluations may be too harsh. When organizational advocacy need to build this capacity internally, strive for substanleaders have close personal links, their assessments are likely to be tial continuity (and thus institutional memory) among those who too generous. And of course, all advocates have profound incentives possess these skills, and respect the value of trained, subjective to overstate their own importance. judgment in making key decisions.

Participants in a policy network may be hesitant to share accurate The characteristic features of the terrain of politics—chaotic information with outsiders with whom they lack ongoing relation- agenda setting, pervasive misinformation, overlapping responsibilships, such as consultants hired by the foundation. Advocates may ity—mean that no one metric can capture the reality of influence. reveal their challenges only to those whom they trust profoundly. Donors do themselves a disservice by even looking for one. Only by Nonetheless, members of policy networks generally do develop rea- trying to make sense of policymaking activity through the simultasonably accurate assessments of which of their peers they listen to neous application of multiple ways of knowing can donors get closer and trust, who does good work, and who policymakers take seriously. to finding out what they need to know. n What donors are really looking for is network centrality—which actors play vital roles in issue networks. It is not too difficult to use Note s network mapping to figure out these connections. The real art of 1 Verta Taylor, “Social Movement Continuity: The Women’s Movement in Abeyance,” American Sociological Review, 1989: 761–75. advocacy evaluation, which is beyond the reach of quantitative methods, is assessing influence, which is what funders are really paying for. 2 Eric Patashnik, Reforms at Risk, Princeton, N.J.: Princeton University Press, 2008.

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The Challenge of O rg a n i z at i o n a l Learning Disseminating insights and know-how across any organization is critical to improving performance, but nonprofits struggle to implement organizational learning and make it a priority. A recent study found three common barriers to knowledge sharing across nonprofits and their networks, as well as ways and means to overcome them.

By K at i e S m i t h M i lway & A my S a xto n

Illustration by Anna & Elena Balbusso

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einventing the wheel—this well-worn phrase describes collecting information, reflecting on it, and sharing the findings, to imone of the oldest of human follies: undertaking a project prove the performance of an organization. or activity without tapping into the knowledge that alAuthors ranging from the late business historian Alfred D. Chandler ready exists within a culture or community. Individuals Jr. to MIT Sloan School of Management senior lecturer Peter Senge are blessed with a brain that, some of the time, remembers have emphasized the value of knowledge and learning inside organiwhat we’ve already learned—or at least that we’ve learned zations. But, to use another well-worn phrase, this is easier said than something. But what about organizations? done. In the fall of 2010, a Bridgespan Group team surveyed 116 nonConsider the views of Kim Oakes, director of sharing profits about how they learn—and how they translate the knowledge and communities of practice at the Knowledge Is Power gained into practice, to increase their impact and fulfill their misProgram (KIPP), a national network of 99 charter schools serving sions. We then explored these topics through interviews with more 27,000 students via 1,900 teachers. Oakes told Bridgespan’s research than half a dozen organizations, which were recommended by their team: “We know that about 80 percent of our teachers create materi- peers for their innovative approaches to learning. als from scratch. … It became increasingly important to connect our The results of the survey indicate that nonprofit leaders care teachers, so that they could build upon one another’s ideas rather deeply about capturing and sharing knowledge across their programs than work in isolation.” and fields. But they also identify three significant impediments to Or consider World Vision, an international Christian develop- organizational learning: a lack of clear and measurable goals about ment organization with an annual budget of more than $2 billion using knowledge to improve performance; insufficient incentives operating in 93 countries. World Vision was facing the consequences for individuals or teams to participate in organizational learning of rapid growth. In the words of Eleanor Monbiot, its senior director activities; and uncertainty about the most effective processes for for knowledge management: “We were growing at 10 to 15 percent a capturing and sharing learning. These issues also surface in foryear. We had moved from everybody knowing each other vaguely, to profit organizations, according to outside studies, where knowledge a breaking point. … The No. 1 need was to know what people were hoarding between business units can result from competition for resources.1 In the nonprofit sector, however, 97 percent of survey up to, where the best practices lay.”

KIPP, World Vision, and a host of other nonprofits, large and small, respondents said their leaders value knowledge sharing as a means are tackling the challenge of making their organizations as smart as to achieve their missions. Still, many of them struggle to do it well. the individuals who constitute them. In short, they are engaging in In this article, we look at the components of organizational learnthe hard work of organizational learning: The intentional practice of ing; explore the challenges surrounding its goals, incentives, and 44

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processes; and provide examples of organizations working to address barriers to sharing knowledge. In an age driven by technology and information, organizational learning has not just become part of the successful 21st-century nonprofit; increasingly, it is a key ingredient. creating Impact through learning

Gaps in the Learning Cycle

More than 90 percent of the nonprofit leaders we surveyed reported that they care deeply about learning and actively strive to model knowledge capture and sharing within their organizations. And the majority appeared to be devoting significant resources to this work. The challenge, these leaders report, is defining clear goals for organizational learning, creating adequate incentives to invest the time it takes to capture and share knowledge, and designing intuitive processes that capture and disseminate knowledge.

Developing organizational knowledge and integrating that knowledge into everyday practice can be a powerful tool for multiplying an organization’s impact, especially as it grows. But a nonprofit doesn’t have to be a multisite, multimillion-dollar agency, or even have a dedicated knowledge management function, to benefit from The Goals Gap clear goals, incentives, and well-developed processes for organiza- The good news is that leaders say that they care a great deal about tional learning. If you train your staff, circulate meeting minutes, learning. But a third of the nonprofit leaders we surveyed report share programmatic best practices across sites, measure the impact that their senior managers have not defined clear and compelling of your programs, discuss metrics with your board of directors to learning goals. And nearly six in 10 said they don’t track metrics inform decisions, or present your results at professional confer- for learning at the organization level. Without clear goals and metences, you are practicing knowledge management. Indeed, one of rics, it becomes that much harder to effectively deploy knowledge the tricky aspects of this topic is that learning-related activities resources, measure progress, and influence behavior across the orare varied and can sit in many different parts of an organization. ganization. So how might nonprofit organizations set clearer goals In some organizations the locus of activity is in staff training; for for learning—goals that clearly advance mission? others it may be in impact assessment or performance management.

World Vision considers its mission accomplished when children Wherever learning sits, the key is that it be closely connected to the have access to education and health care, participate in their comorganization’s mission and impact. munities, and experience God’s love in their lives. Following a period This connection is also the biggest challenge. Although 98 percent of fast growth, its leaders believed that rapidly sharing information of nonprofit organizations reported in our survey that they collected on effective practices (and failures) from one field of operation to the a lot of information, a third of them said that they were unable to next would be a key to changing children’s lives. They translated the reflect on it and integrate it in a meaningful way into program ac- broader strategic goals of the organization into a subset of knowltivities. Our research tells us that to be intentional about organiza- edge goals, including the goal of deploying best operating practices tional learning, organizations need to focus on doing four things across all relief and field operations. And they broke this down into well.2 (See “Four Elements of Organizational Learning” on p. 47.) specific activities and tasks necessary to expedite know-how around First, leaders must champion organizational learning. They need the world for practices such as training community health workers in to demonstrate their commitment by setting a vision and goals for AIDS prevention and patient care, increasing yields for subsistence learning connected to furthering the mission. And they must act as farmers, and boring wells in arid regions. role models by participating in learning activities. Second, leaders To devolve ownership of these goals across the networks, the orneed to foster a culture of continuous improvement that values or- ganization focused on strengthening communities of practice (CoPs), ganizational learning. The culture reinforces learning by providing virtual gatherings of far-flung World Vision experts in areas such as incentives for learning behaviors and by measuring and communi- education, health, agriculture, and water, whose shared experiences cating results of learning. Third, the organization needs to define a could drive institutional learning and change. As of March 2011, learning structure that specifies the people who are accountable for World Vision had 23 CoPs with a combined membership of more than capturing, distilling, applying, and sharing knowledge. The struc- 10,000, all using a SharePoint Platform nested within the organizature also should include networks and coordinating tactics that help tion’s global intranet. Each CoP is staffed with a senior leader, who information flow among the people who need it, when they need it. listens to needs across fields and sets a responsive knowledge-sharLast, the organization must design intuitive knowledge pro- ing agenda, abetted by a dedicated administrator who manages and cesses that are aligned to how people work. These processes spec- stimulates ongoing collaboration and discussion around key issues. ify how staff members define a learning agenda, and how they CoP members engage in different ways and groupings: Some capture, distill, and apply knowledge. These processes also in- plug in to listen and learn; others actively develop, review, and colclude the technology systems for exchanging knowledge, but they laborate on global documents, including strategies and standards for need to keep people-to-people interactions at the heart of them.3 their respective areas. Ongoing discussions take place around best practices, advice and support for applying them, and research proK atie Smith Milway is a partner at the Bridgespan Group and head of the posals to find better answers. The CoP itself is the one place where firm’s Knowledge Unit. She was founding global publisher at Bain & Company and members and broader management can find all the knowledge assets is author of numerous books for adults and children, including The Human Farm and The Good Garden, both tales of transformational learning. for a given sector, analyze them, and use them to manage change.

A m y Sa xton is a former Bridgespan Group manager in San Francisco. In March Most CoPs also have regular WebEx meetings, where members can she was named CEO of Summer Search, a national youth development nonprofit discuss issues in depth, as well as an annual meeting where a subset headquartered in San Francisco. Saxton previously worked with the Broad Foundation and began her career as a consultant at the Monitor Company. of members come face-to-face to share and strategize.

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According to Monbiot, “We’ve had (CoPs) for years but they’ve been pretty informal. We’re trying to operationalize these and to ensure that all staff are involved.” Now that each of these communities has a formal leader—with a staffing allocation and administrative support—they are making strides. The health care CoP has been particularly successful, attracting 900 members in a matter of months, who now act as champions of effective primary health care practices throughout the system. Monbiot believes that clear leadership and goals are a factor in the group’s size and that most World Vision partner organizations have health specialists on staff hungry to share specific technical expertise.

Arizona’s Children Association (AzCA), a near century-old child welfare and behavioral health agency that links organization learning goals to its merger strategy, is another example of an organization that has achieved remarkable results because of its improved organizational learning process. Twelve years ago it decided to move beyond residential treatment for children, adding home-based supports and earlier interventions for families and children to its services. The organization pursued this expansion through mergers and acquisitions, growing its annual budget from $4.5 million to $40 million over 10 years. Throughout the process, AzCA not only acquired staff and programs—it acquired knowledge. As Fred Chaffee, president and CEO, told us: “We gain a nucleus of expertise because we got an agency and brought it in. … Then growth occurred because we have a statewide system and a knowledge base.”

The results of carefully managing the learning and sharing of a knowledge base can be powerful. One AzCA acquisition was the New Directions Institute for Infant and Brain Development, which teaches the science of brain development and specific strategies caregivers can use to enhance children’s learning. AzCA integrated that knowledge into its other services through a series of 13 workshops that New Directions co-founder Jill Stamm and her staff have given to AzCA professionals—about 450 employees—to ensure that they understood the growing emphasis on prevention. To reinforce these ideas, the workshops mirrored community outreach to caregivers and were filled with messages from the neuroscience community

that apply directly to very young children and their families. Why teach youth workers about young children? Says Stamm: “Say, for example, a family has an out-of-control 10-year-old. Chances are they have a 2-year-old crawling around, too. We wanted all our staff working with youth to help ensure that the 2-year-old gets a better start and does not spin out of control.” The key is to understand root causes of behavior.

As a result of these workshops, says Stamm, AzCA professionals across Arizona began to incorporate prevention into their jobs.

Some of the caseworkers in Prescott and Flagstaff changed their home visitation agendas to include discussions of children’s brain development. Now the regional AzCA offices always include the New Directions curriculum in their new-employee training, and New Directions is training caseworkers in four other states. Chaffee reports that the careful integration of personnel, budgets, and programs, as well as of knowledge from new organizations, has allowed AzCA to more than double the number of clients served and has reduced costs per beneficiary by 11 percent to as much as 40 percent. It’s also allowed AzCA to fundraise for merger efforts, because prevention can demonstrate payback in the cost and quality of a program.

Smaller organizations, too, testify to the impact of clear learning goals tied to mission. Adoption Resources of Wisconsin (ARW) is a $2.2 million statewide organization with 17 staff dedicated to finding a good, permanent home for every child in Wisconsin. It carries out its mission by offering information, training, and support to families and professionals and through ongoing advocacy work. The goal of its learning efforts is to determine which information and training is getting results for kids who need homes.

For ARW, this means learning how many people are seeking information from them, what they’re looking for, and whether the information is meeting the needs of adoptive parents or their intermediaries. According to CEO Colleen Ellingson, “We have a massive database, where we log how we’ve serviced anyone over the existence of our organization. We have 60,000 unique visitors per year. Every month we’re looking at data on website usage. What are [current or prospective parents] looking at? What aren’t they looking at?” Program managers study these usage patterns to FOUR ELEMENTS OF ORGANIZATIONAL LEARNING identify trends and respond to them, continuously improving their services.

Culture values organizaLeaders are committed to tional learning: organizational learning: Getting the technology right ■ Aligned beliefs and ■ Clear vision and goals for took time. ARW started with values organizational learning several, small, customized data CULTURE OF ■ Reinforcing incentives ■ Champions and role systems in the mid-1980s. Five SUPPORTIVE CONTINUOUS models ■ Commitment to years ago, it migrated to the DeLEADERS IMPROVEMENTS measurement of results fran data system to track greater volumes of data. Throughout, Organizational learning Organizational structure is Ellingson has promoted techDEFINED INTUITIVE processes are embedded aligned to support into daily workflows: nology investments as a way to organizational learning: LEARNING KNOWLEDGE ■ Defined processes to learn more, reduce cost, monitor ■ Defined roles and responsiSTRUCTURE PROCESSES set learning agenda and bilities for capturing, progress, and develop initiatives. capture, distill, apply, and distilling, applying, and For staff at World Vision, share knowledge sharing knowledge AzCA, and ARW, the goals of ■ Technology platforms ■ Networks and coordination knowledge capture and sharing Summer 2011 • Stanford Social Innovation Review

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are championed at the top and connect directly to the impact they hope to create—respectively helping the poorest of the poor toward self-sufficiency, helping youth break out of destructive patterns, and giving kids homes to call their own.

The Incentives Gap

to Oakes, the rewards for participating in organizational learning activities are of three types: achieving better student outcomes by leveraging the collective wisdom of KIPP teachers; enabling personal satisfaction by providing a means for teachers to expand their impact beyond their classroom and school; and helping teachers find kindred spirits among fellow teachers, which builds community and can help retain effective teachers. Says Oakes: “We want teachers to build on each others’ work. Giving them a [learning] tool so they don’t have to recreate the wheel is the key. But giving them access to other educators, who think like them and are dedicated like them, helps them really participate in the broader organization and mission.”

The chance to deeply influence an organization or field can provide another intrinsic reward for staff to share what they know. The employees of In My Shoes, a small, peer-mentoring organization for youth aging out of foster care, find motivation there. As a newly acquired unit of AzCA, In My Shoes is using knowledge sharing to further twin goals: tuning the ears of child welfare professionals to the child’s voice in foster care decisions and smoothing the road to independence for fostered youth. At a recent training of 85 child welfare professionals, In My Shoes founder Christa Drake spoke about how a move into foster care can result in loss of independence, connections with family, and community. It’s frightening, she says, and yet, in the ebb and flow of the system, it is the adults’ voices that are listened to. Through storytelling, testimonials, and role-playing, In My Shoes is getting its message across and reaping policy changes.

Arizona child protective services now requires every new social worker to receive training that includes perspectives of foster care youth. And Arizona community colleges have begun designating and training counselors to work with youth coming out of the foster care system, addressing personal needs that go far beyond course recommendations. For Drake, these are huge rewards.

Strategic clarity around the “why” of organizational learning can bridge the first gap in the learning cycle. But creating a culture that motivates each person in an organization to capture and share knowledge actively requires a rewards system beyond the clarity of a compelling goal—and this is where about half of the nonprofits we surveyed experienced a problem. Leaders report that they fail to clarify incentives for individuals, for teams, or for their organization as a whole. Yet incentives at multiple levels are often exactly what it takes to transform a goal into a priority that rises above competing demands.

About half of the nonprofits we surveyed do not evaluate or reward some of the behaviors that support learning. Specifically, four out of 10 nonprofit leaders said they don’t incorporate knowledge capture and sharing into how staff members are evaluated. In our interviews, we heard that measuring and encouraging learning behavior was the area where nonprofits struggled most.

A straightforward incentive strategy builds organizational learning responsibilities directly into the job. The Council on Foundations (COF), a national nonprofit membership association whose members’ collective assets exceed $300 billion, has no dedicated knowledge staff. Instead, knowledge is becoming an explicit part of the job descriptions for their member-facing staff, which make up about half of the organization. COF uses a customer relationship management (CRM) database to track interactions with members.

It also uses CRM tracking to inform performance reviews, measure and evaluate staff on how well they capture and pass on learning to colleagues, enable richer services to members, and collaborate The Process Gap across departments to pass on best practices.

FSG, a 70-person nonprofit consulting firm, believes incentives Once clear learning goals are established that align tightly to the start with whom you hire. The firm uses knowledge sharing as a mission, and individuals and teams feel motivated to reach for them, criterion for recruiting, and evaluates it as part of performance re- at least one key question remains for many nonprofit staffers: How? views. Hallie Preskill, FSG’s executive director of strategic learning Through what processes do we capture knowledge, share it, and use and evaluation, says: “We look for a certain kind of person—smart, it to increase our impact? The most important first step in closing humble, and curious. Wanting to share what they learn is part of their the how gap is to make these processes intuitive. Identify who needs DNA.” She notes another motivator: productivity. “People recognize the knowledge, where the best opportunities lie for learning, and that sharing knowledge saves time and increases productivity,” says what systems fit best with the way people already work.

Preskill. “When a content area surfaces that we need to understand For many organizations, the No. 1 goal of organizational learning better, we’ll put a note on the intranet and people respond. Within is to identify, codify, and disseminate best practices to ensure that they are used across the organization. But KIPP goes about things an hour, you will hear from six colleagues with tangible ideas.”

At the same time, FSG’s human resources system rates perfor- differently. “Knowledge sharing for KIPP is particularly powerful mance and recommends pay increases based in part on the extent because we don’t have a master curriculum,” says Oakes. “Even to which an employee contributes to the firm’s development of in- within the regions, school leaders and teachers have discretion over tellectual capital. In 2010, FSG hired its first director of knowledge how they’re going to run their classroom. We’re not going to tell you, management, who is developing a firm-wide knowledge manage- ‘Here is what to do in 3rd-grade math.’ But we know there are fantastic ment system so that people can access, store, and share information things happening across the board; there are teachers who are getting comprehensively and in real time. Says Preskill: “It is about people results through creating an academically rigorous curriculum, but still bringing joy into their classrooms each day. … This past year, we idenand technology.”

Not all incentives and rewards have to be explicit. KIPP, for ex- tified 15 of KIPP’s most effective teachers and videotaped them and ample, sees a link between organizational learning, increased staff made their content available online. We’re highlighting the practices effectiveness, and intrinsic rewards for effective staff. According of these teachers, but we’re not saying this is the only way to do it.”

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Creating a Knowledge-Sharing Process To design a more robust internal learning and knowledge-sharing process, start with a few questions about the key actors who create and consume knowledge, then identify their learning needs, and finally identify where knowledge is created, how to capture it, and the resources required to do so.

Key questions

Define actors

Identify their learning needs

Identify high value sources of knowledge

n Who are internal and external actors? n What natural groups of actors, or learning communities, exist?

n What are actor’s learning needs? n Through what vehicles do actors already learn?

n Where is knowledge n How will knowledge created? be captured? n What knowledge n How will knowledge needs to be captured? be codified? n What are the n How will knowledge priorities? be shared?

The online system, called KIPP Share, which was developed by the Cambridge, Mass., start-up Better Lesson, includes documents and multimedia and was designed to walk the line between highlighting effective practices and out-and-out recommending them.

Besides displaying videos that demonstrate the practices of great KIPP teachers, KIPP Share helps new teachers find helpful classroom materials that experienced teachers have already created.

And it remedies a major gap in knowledge flows that KIPP had faced: When teachers moved to non-KIPP schools, their precious materials left with them.

But virtual systems tend to become truly useful through painful user feedback, and Oakes was candid about the system’s flaws before developing KIPP Share with Better Lesson. “We found that we had tens of thousands of documents, but it was hard to make the most of them. Also, we learned that teachers want to understand the context of the document. Let’s say I searched for the US Constitution. On the old system, you’d get a laundry list of documents that had something to do with the Constitution. Great, but who is the teacher who created it, how does this document play into broader context? Now you get a list that tells you how the document fits into the curriculum of the teacher who created the material. It isn’t just about resources, but also about who created them.”

Oakes notes the importance of designing systems and processes that align with an organization’s culture. For KIPP, it was important to design a system that respected autonomy in what and how to teach.

“We are learning a lot along the way and realize there is no one perfect solution to sharing,” acknowledges Oakes. “We are learning how important it is to continue to support in-person gatherings where teachers can exchange ideas, create relationships, and build community.”

KIPP is in the process of creating measures of success for the new system. Ultimately, KIPP is looking to make an impact on students.

Clearly, this kind of national network or multisite entity creates rich opportunities for organizational learning—both virtual and face-to-face. Within such systems, effective tactics can range from the idea-specific to the broad or field-based. The Nature Conservancy, for example, makes extensive use of peer reviews for proposals on significant initiatives—such as mitigating coastal effects of climate change. One peer review tactic involves a board of peer reviewers, who sit in a circle and, one by one, name the proposal’s strengths— until they start to repeat themselves. Then they go around again, this time naming the proposal’s weaknesses. This way, the author of the proposal gets a dose of highly concentrated learning, directly

Define processes for each source

Translate processes into tangible steps

Align resources and support to new capabilities

n What tasks make up each process? n What capabilities and resources are required to execute the tasks?

n What staffing and other resources need to align to execute each task? n Where do you need to add resources and incentives?

from peer experts, before he or she begins to implement a strategy, which can help avoid missteps.

Getting Better at Organizational Learning

In the early days of the Internet, it was said that the World Wide Web was the globe’s greatest library—only that all the books were on the floor. Many nonprofit leaders and staff no doubt have had similar feelings about their organizations: The organization’s hardwon knowledge is just lying there on the floor—or worse, checked out with the departure of a key employee.

But it doesn’t have to be this way. Ensuring that knowledge flows throughout an organization, informing the quality of service to clients whose lives depend on it, takes hard work. But the steps required of leaders are pretty clear. (See “Creating a Knowledge-Sharing Process,” above.) They need to set learning goals that resonate because they advance the organization’s mission; they need to reinforce a culture that rewards knowledge capture and sharing; and they need to engage staff in creating intuitive processes for making it all happen.

Technology advances may provide the tools for sharing knowledge more broadly and effectively, but as examples like KIPP, World Vision, and the Nature Conservancy show, adoption rates rise when the people-to-people element of shared learning is kept robust. This element provides context and enables advice and collaboration and, well, makes learning satisfying. Indeed, technology becomes a true multiplier of organizational learning when put in service of deeper person-to-person connections and exchanges. n The authors thank the Alliance for Children and Families, the Boston Foundation, the Charles Stewart Mott Foundation, the Skoll Foundation, and World Vision for inviting their constituents to join the survey. They also thank their research team—Peter Ross, Tessa Bysong, Aaron Pick, Jennifer Sauve, and Kelly Greenwood—and advisors Bradley Seeman, Ann Goggins Gregory, and Nan Stone.

Note s 1 Peter M. Senge, “Taking Personal Change Seriously: The Impact of Organizational Learning on Management Practice,” Academy of Management Executive, 17, no. 2, 2003.

2 Grantmakers for Effective Organizations “Learning for Results,” GEO Action Guide, December 2007; Ralph Hamilton, Prue Brown, Robert Chaskin, et al., Learning for Community Change: Core Components of Foundations that Learn, Chicago: Chapin Hall Center for Children at the University of Chicago, October 2005; Atul Gupta and Jason McDaniel, “Creating Competitive Advantage by Effectively Managing Knowledge,” Journal of Knowledge Management Practice, October 2002; and Neill Allan, et al., European Guide to Good Practice in Knowledge Management, Part 1: Knowledge Management Framework, Brussels: European Committee for Standardization, March 2004.

3 Richard Steele, Sivan McLetchie, and Chris Lindquist, Getting Social Media Right: A Short Guide for Nonprofits, The Bridgespan Group, October 2010.

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Local Empowerment Through

Rapid Results Why local ownership and commitment are the exception and not the norm in most development efforts—and what development professionals can do about this problem.

I

By Nadim Matta & Peter Morgan Illustration by Jakob Hinrichs

t was June 2005. Eight women arrived at the meeting hall in Antananarivo, Madagascar, dressed in their Sunday best. The Ministry of Health & Family Planning had asked these community volunteers to participate in a full-day family planning workshop.

Over the course of the day, these eight women, all of them trained through a program funded by the US Agency for International Development (USAID), listened to dignitaries and met the event organizers, watched a video, and participated in team-building exercises. But most of the time was spent with their teams. At the end of the day, each team emerged with a goal and a plan to increase usage of family planning services in the communes surrounding their community health centers, within the next 100 days! Shortly thereafter, the leader of one team broke into tears. “When everyone left the room, I started sobbing,” the woman said. “I had just committed to my colleagues and to ministry officials that we would increase the regular users of family planning services by 30 percent in the next 100 days. We had never been able to do anything like this before.”

One hundred days later, in September 2005, Jean Louis Robinson, the minister of health, celebrated the extraordinary results achieved by these teams, with

special praise for the community volunteers. The eight teams had far exceeded their original goals. Instead of the targeted 30 percent increase, the number of regular users of family planning services had increased by a factor of five—from an average of 50 visits per week in each center to 250 visits per week.

These teams did not use any innovations or new technology. At the workshop no one introduced a global “best practice” on family planning, or spoke about social marketing and social media. Instead, the community volunteers, along with their other team members, had walked door-to-door, talking with people in their neighborhoods about family planning. This might be viewed as low-tech work, hard on the feet and tedious. Yet those who participated were engaged and enthusiastic. They had produced the tangible, groundbreaking outcomes that had eluded others for several years.

These teams achieved breakthrough results by using a process that we call Rapid Results. The practices built into these initiatives have evolved organically from work pioneered by Robert Schaffer and his colleagues in private sector consulting engagements stretching back 50 years.1 After introducing this work in developing countries,2 with support and sponsorship from the World Bank, Schaffer Consulting spawned the Rapid Results Institute as an independent NGO focused on building capacity to provide coaching support for this work to local organizations in low-income countries.3 During the 10 years we have used this process, we have witnessed how resourceful and persistent people can be Extraordinary Results Through Ordinary Knowledge

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in using their available knowledge and techniques to achieve goals the optimal location for a health center designed to serve a cluster that are meaningful to them. We have also observed that when the of villages. Furthermore, Rapid Results should not be used as a way existing knowledge falls short, they are motivated to fill these gaps to organize the implementation of predetermined solutions in careand have a greater readiness to use an infusion of external input. fully scripted ways, because its transaction costs would be too high No doubt there are many situations where one can stumble on to warrant the additional value it can provide in these situations. the right mix of people and circumstances that make this resourceThis approach is not a silver bullet. Development effectiveness fulness and persistence a naturally occurring phenomenon. Unfor- has many unsolved riddles. Our aim in this article is to shed light tunately, this is not the norm. And it is particularly lacking in public on one of these: how to overcome the implementation gap—the gulf sector agencies engaged in development work in low-income coun- between knowing what is important and actually making it happen. tries. Our experience is that there is plenty of untapped capacity for performance in these agencies, but several systemic barriers prevent From Rice In 2005, Madagascar was one of the poorest counFarming this potential from translating into actual performance. tries in the world, measured by GDP per capita.5 to Family First, the grand design of most development projects, typically The Malagasy culture favors large families. For Planning hatched by outside development professionals, makes local ownernewly married couples, the common blessing is ship of this work difficult. Second, the hierarchical structure of most “May you have 14 children—seven girls and seven boys.” Starting in public sector agencies in low-income countries, coupled with the 1990, the Ministry of Health & Family Planning had been pursuing implicit rules for allocating credit and blame, make it unappealing a national policy around modern family planning services. Many for middle managers and frontline staff to commit themselves to programs had been implemented to reduce the fertility rate: trainperformance goals. Third, in many low-income countries, the public ing health agents, inaugurating celebrations for National Family views public sector workers as incompetent or corrupt. And public Planning Day, and distributing contraceptives through community sector workers often view themselves as victims of a dysfunctional programs. Despite these investments and the continued focus of system that encourages corruption and rewards inefficiency. Conse- the ministry, progress had been disappointing. Over a period of 15 quently, public sector workers on the whole assume an identity that years, the usage of family planning services by Malagasy women of childbearing age in the central region of Analamanga had indoes not promote accountability and professionalism.

Rapid Results stimulates high performance in spite of these sys- creased by a mere two percentage points, from 10 percent in 1990 temic barriers, by helping leaders create a protected work environ- to 12 percent in 2005.

The Rapid Results approach had been brought to the attention of ment where these barriers are temporarily neutralized, and where ownership, commitment, and a professional identity are possible. Robinson at a government workshop sponsored by the World Bank.

This does not change the system. Nevertheless, the initial progress This approach had been earlier introduced in Madagascar to help and experience of success that are enabled by this temporary pro- avoid the shortage of rice that had provoked street riots that year. cess create the energy, momentum, and confidence people need to After the workshop, Robinson convened a few of his senior aides for a planning session with the Rapid Results coaching team, who tackle systemic barriers to performance.

The thinking behind our work aligns with views advanced by non- suggested that the ministry start by focusing on one theme and one traditional development thinkers stretching back to economist Albert region. After some discussion, the group selected family planning, Hirschman in the 1950s, up to the current scholarship of economist and Robinson instructed his director of health services to contact William Easterly, author of The White Man’s Burden: that long-range Norolaolao Rakotondrafara (also known as Lalao), a medical doctor comprehensive “planners” can have a limited impact on develop- serving as director of health in the Analamanga region. ment, and that the real breakthroughs will come from “searchers” who are attuned to small solutions that work in the local context.

The Choreog- Each Rapid Results initiative 6 focuses on achievraphy of ing an ambitious goal in 60 to 120 days. The strucThe approach is a natural fit for what Harvard University profesEngagement ture of the initiative is simple, although highly sor Ronald Heifetz refers to as “adaptive problems”—ones that can be solved only if people in the community or organization change choreographed in three acts—pre-launch, launch, and implementatheir values, attitudes, or behaviors.4 An example of an adaptive tion—each designed to neutralize one of the systemic barriers to problem is promulgating safe sex behavior as a way to fight the performance. spread of HIV/AIDS. The approach is not a good fit for purely technical problems that can be solved by an expert working by himself Pre-Launch: Creating the Space for Engagement and Ownership or by decree from someone in authority, for example, figuring out Most development work is based on the implicit assumption that the country participants are “willing but unable” to make progNadim M atta is a founding board member and president of the Rapid Results Institute and managing partner of Schaffer Consulting. He works with executives ress because of gaps in their functional knowledge or techniques. at Fortune 500 companies on change and results acceleration. With his colleagues In many instances, however, it is just the opposite. People’s “willat Schaffer and the institute, Matta introduced the Rapid Results approach into ingness” to act is far more problematic than their “ability” to act. public sector agencies and NGOs in several developing countries, mostly in subSaharan Africa.

That’s because donor analysts often dominate the design phase and Peter Morga n is an independent consultant living in Washington, D.C. He frequently produce plans that are too complex to be implemented. specializes in capacity and institutional development and has worked in Africa Judging the risks and potential benefits, public sector staff see that and Asia with most of the major international development agencies, including the World Bank and the United Nations Development Programme. more work is involved for which they will receive no additional pay, 52

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and that senior managers will claim the credit. Too little time is to create an emotional and psychological case for frontline workers spent on the crucial issue of encouraging ownership and of creat- to make a commitment to significantly higher performance levels. ing a protected space within which vulnerable middle-level staff Two weeks after the planning session between the coach and Lalao, can try new things. the eight community volunteer women showed up to the launch Act I—the pre-launch—reverses this dynamic of disempow- workshop. These volunteers joined teams that included staff from erment. In Madagascar, Lalao was honored to be selected as the the community health center, nurses’ aides, schoolteachers, and other operational leader of this effort, but she was also skeptical, having women from the neighborhood. The day began with speeches from seen consultants come and go over the years. Serving as a constant local dignitaries about the importance of family planning. Then the testing ground for other people’s ideas was risky business, and it dignitaries and their entourages left, and the Rapid Results coach was not improving health delivery in her district. took the stage. She described how similar teams in Nicaragua, SiLalao’s first meeting with the Rapid Results coach caught her by erra Leone, and other low-income countries had committed to 100surprise. The coach did not attempt to convince her of any particular day goals, despite their initial skepticism. She showed video clips solution, but instead shared examples of how teams in other countries of individuals describing their experiences in these efforts. To set had created their own solutions to varied challenges—from farmer the stage for goal setting, she engaged the teams in a competitive productivity to school enrollment to HIV/AIDS prevention—and exercise involving the passing of tennis balls, challenging them in had achieved significant results in 100 days. several rounds to reduce their time. Planning and laughing among Even more surprising, the coach invited Lalao to turn down themselves, the volunteers and their teammates began to loosen up. the challenge if she did not feel the timing was appropriate for her.

The coach then presented the task. Each team would define its It would be difficult for Lalao to turn down a request originating own 100-day goal for increasing the use of family planning services at the ministerial level, but the coach offered to make the case for and then develop a work plan for achieving that goal. Lalao spoke launching the process in another region, allowing Lalao to bow out about why she believed these teams, and this approach, would gengracefully. Without pressing for an answer, the coach scheduled a erate compelling results. She then left, saying that she would return follow-up work session. at the end of the day to hear about their goals and plans.

When they met again, a few days later, Lalao had decided to go The teams plunged into conversation, reviewing records from forward. In development work, the importance of having a coun- their community health centers, sharing what had been tried in try champion, in this case the minister of health, is now accepted prior family planning efforts, and weighing possible goals. The day as conventional wisdom. What is often not considered is how this culminated in a public presentation of the teams’ goals and plans, atchampion creates the space and safety for others, such as Lalao, to tended by Lalao and many of the dignitaries who had made speeches also take ownership of the process. The shift from compliance to earlier that day. Each goal was characterized by three signature eleownership can happen only when operational leaders have a genu- ments of Rapid Results initiatives. ine choice in the matter.

First, the goal was focused on both program and capacity outOther dynamics were also at work. Lalao was given the sense that comes. Goals were set for increasing, by a certain percentage, the she could try the approach out for 100 days. If it didn’t work, she number of regular weekly users of family planning services. The decould shift to another activity without great difficulty or disruption. liberations also included people developing and practicing new skills.

The short time frame is a departure from the usual “comprehensive, These were enshrined in a “team contract” for how team members big-bet” design that increases the sense of potential risk. would interact with each other and deal with potential setbacks and Lalao and the coach worked late into the night to get ready for the issues over the next 100 days. Second, the emphasis was on rapid aclaunch. They identified team members who would assume account- tion. Within 100 days each team had to declare victory or declare a ability for progress, and others at various levels providing critical shortfall. Third, the goal was intended to be truly ambitious. After support. Inviting a range of people to interact with the teams would each team developed its plan, the coach asked whether they were give these people the opportunity to take partial credit for the results. “90 percent confident” of reaching the stated goal. If the answer was “Yes,” the coach challenged the team to increase their target. The Launch: Nudging Teams Toward Commitments Act II—the one-day tennis ball exercise set the stage for this, by anchoring the teams launch workshop—has two objectives. The first, and the more fa- in a recent experience of achieving a seemingly impossible goal. miliar, is the crafting of goals and plans that the teams believe can As the teams presented their goals and plans, the meeting hall be accomplished in 100 days. The emphasis is on the application of was bristling with enthusiasm and energy. Underneath the bravado, tacit country knowledge and experience and identifying opportuni- however, team members were anxious about the challenge of the task ties and resources, rather than the conventional transfer of inter- ahead. In such situations, it is perfectly rational behavior to avoid national best practice through a detailed analytical “design” phase. taking on commitment and accountability, given the likely allocation The second objective is to create the conditions for forging a of blame and credit. Yet over and over, Rapid Results teams exhibit new organizational contract between the leadership (the minister this seemingly irrational behavior, without being coerced or being and his senior team), the sponsor (Lalao), and the teams. To make promised payment or special incentives.

Rapid Results work, country staff must believe that new ideas can We believe that two factors contribute to this counterintuibe tried, that credit and recognition will be possible, and that their tive behavior. First, the stories of Rapid Results teams making siggoals and activities will be supported by the hierarchy. The intent is nificant progress despite equally daunting odds appeal to people’s Summer 2011 • Stanford Social Innovation Review

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intrinsic sense of pride: “If others can find and implement solutions in 100 days, why not us?” Second, the new organizational contract choreographed at the launch workshop provides a safer and more encouraging environment for making commitments. Paradoxically, the temporary 100-day time frame of this contract makes it more credible. For people in the public sector in developing countries, the prospects of large-scale, comprehensive, long-term change are usually suspect. Politics intervene. Ministers and permanent secretaries change too fast to be held accountable for their promises. Donors lose interest and resources disappear. By contrast, the short duration of a Rapid Results initiative is credible because frontline staff can see the possibility of follow-through for a short period of time.

Implementation: Experiencing a New Sense of Identity Much of the focus in development work is on intent, policy, advocacy, prescription, and design—the “what should be done” questions. The implicit assumption behind this approach is that insightful analysis and good ideas will generate the support and momentum to make operational progress on the ground. And yet we know from experience that the actual implementation of a program can grind to a halt in the face of unanticipated resistance and obstacles, regardless of the elegance of any prior analysis or intent. Without continuous problem solving and persistence, the best designed projects and strategies are doomed to fail.

The 100-day period thus becomes more than a way to implement the work plan developed by the team. It is also an opportunity to shape and reinforce a new identity among team members as capable, resourceful, and innovative professionals. This emerging identity is enabled and reinforced by two other factors. One is a feeling of group engagement and cohesion that shifts the focus from individual to group accountability. The other is the supply of continuing operational support in the form of coaching and advice.

Act III—implementation—began on the day after the launch workshop. The teams divided up their areas and assigned a section to each member, with a target number of house visits per week. Each community volunteer taught some of her teammates what she had learned about family planning techniques in her USAID training.

Their core strategy was to go house-to-house, talking with women about family planning services at their community health centers.

One team also focused on thought leaders in the communes: Soon after the team started its work, pastors in the district began to subtly weave family planning messages into their Sunday sermons. Team members took on other tasks: preparing collateral materials for the visits (such as demonstration kits) and ensuring that the community health centers could handle the additional demand for services.

Each week the teams met to review progress, guided by a local coach trained in supporting teams. Gradually, the team leader began to run these weekly reviews, with the coach observing and providing feedback after each session. The coach intervened a few times to nudge the teams forward. When the initial house visits were not well received and some teams were about to back off, the coach reminded them of the tennis ball exercise at the launch session. One of the teams decided to completely rescript the conversations with the women so the focus was on the family’s general health. The script proved to be much more effective than the direct approach.

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By day 50, all of the teams had exceeded their 100-day goals. The coach helped Lalao convene a workshop to review progress, share experiences, and challenge the teams to begin to think about how they would sustain their results following the first 100 days. After this midpoint review, there was another surge of energy and creativity as each team sprinted to outpace the others. At the end of the 100 days, the teams had increased the average number of women using family planning services at each center from 50 women a week to 250 women a week.

Over the 100-day period, the behavior of participants in this process begins to change. Implementation is hard work. Commitments must be clarified and then honored. Team members must communicate and collaborate, with each other and with outsiders.

A tremendous amount of detail must be navigated. For most people, this discipline does not come naturally. The coaches help team members stay the course and build new habits along the way.

The coaches also help participants overcome setbacks and obstacles that emerge during implementation. Some of these are rather trivial, such as the bureaucratic hoops team leaders have to jump through to secure the funds needed to buy tea for team members at the midpoint review. When faced with these and other more substantive obstacles and frustrations, the natural response of many teams is to revert to the familiar pattern of waiting until someone, typically more senior, intervenes to deal with these issues.

At these critical moments, the coach frames the team’s response to the obstacle as a conscious choice to self-empower: “We can wait and then explain to colleagues at the ministry and in this community why we were not able to make progress. They will surely empathize and understand. Or we can create an alternative around this obstacle. We may not be able to change the system, but we need not be defeated by it. This is your choice.” With each obstacle surmounted, people’s confidence level increases. Over the course of the 100 days, many team members begin to view themselves in a new way. Rather than feeling like victims of the “system,” they begin to view themselves as goal-oriented professionals who are capable of dealing with challenges that impede their progress.

The key contribution of the coach in the implementation phase is to help team members focus on outcomes and process at the same time. In development work, focusing on results, especially short-term results, often led to compromises in developing local capabilities.

Rapid Results coaches help resolve this tension. They use the focus on results and the short duration of the team’s life span to motivate, legitimize, and lower the risk of experimenting with new behaviors and acquiring new skills and capabilities. By doing this, they create a positive spiral of results achievement and capacity development.

Between June 2005 and May 2006, more than 100 initiatives focused on family planning were launched in Madagascar’s Analamanga region. During that period, the coverage rate of family planning services (the percentage of women of childbearing age who were regular users of family planning services) increased from 12 percent to 17 percent. This was a five percentage-point increase in nine months, contrasted with a two percentage-point increase in the previous 15 years, with minimal additional financial investment.

Beyond the 100 Days: Sustaining the Initial Results

As they had envisioned at the outset of this effort, Robinson and his team introduced Rapid Results initiatives in each of the 22 regions of the country and extended the scope of teams to the ministry’s immunization and antenatal care programs.

A similar story of sustainability and scale-up unfolded in a schoolbased HIV/AIDS prevention effort in Eritrea. The initial team was one of six Rapid Results initiatives that were sponsored by the Eritrean Ministry of Health in March 2004.7 Each team focused on making progress, within 100 days, on one element of the country’s national strategy for HIV/AIDS prevention and care.

The initial school-based prevention team focused on influencing the behavior of 100 boys and 100 girls at six schools in the capital city of Asmara. The team decided to introduce life skills programs, delivered by peers as an extracurricular activity, building on technical training that UNICEF had delivered to the ministry. This team’s achievement generated enthusiasm and interest in the ministry and in the targeted schools. The Ministry of Education, with minimal technical support and outside help, expanded this model into a national program. Within two years, every school in Eritrea was running a school-based HIV/AIDS prevention program, modeled after the initial initiatives in Asmara.

Although teams often succeed by working around the systemic obstacles in the somewhat artificial construct of Rapid Results initiatives, sustaining the breakthrough results of these teams requires changes in the way performance is managed, and embedding some of the practices the teams learned into existing systems for delivery and management.

In the case of family planning in Madagascar, this involved several shifts that Lalao introduced, with support from Robinson. Reports of usage of family planning services in the community health centers were aggregated weekly at the commune and district levels and were reviewed by Lalao before being delivered to the ministry. Lalao used these metrics as a management, motivation, and learning tool, timing her visits to the health centers based on these reports, to probe and to learn. Lalao also organized conferences so that community health centers and the Rapid Results teams could share experiences across communes and districts. In addition, Lalao and her directors engaged international family planning NGOs in the process, partly to secure funding to compensate community volunteers for daily expenses. This helped integrate the volunteers more fully in the outreach programs of the community health centers.

These methods to institutionalize the initial gains might have been adopted without the waves of Rapid Results initiatives, and it is possible that adopting these may have generated similar results.

What we have found, however, is that the readiness to pursue this type of thinking increases significantly because of the energy, confidence, and commitment unleashed by Rapid Results initiatives.

Scaling up this work requires even more attention to systemic issues. In both Madagascar and Eritrea, staff members at the respective ministries were trained to provide support to Rapid Results teams operating at the level of community health centers and schools. District-level resources assumed new managerial responsibilities. New roles for managing, supporting, and reporting

Scaling Up: the Leadership Challenge

this work had to be defined and clarified.

In Eritrea, the ministry revised the national curriculum to embed the life skills programs being used by the Rapid Results teams.

In Madagascar, three service areas (family planning, antenatal care, and immunization) were integrated to pave the way for the scaleup of Rapid Results teams at the community health center levels.

These steps and changes require thoughtful assessment of the current situation and elaborate planning—generally commissioned by the head of the organization and engaging all layers of management.

In Madagascar and Eritrea, and in several other sites, scale-up emerged organically after the initial Rapid Results teams completed their 100-day initiatives. But scale-up is by no means assured. In many other instances it did not happen. Initial Rapid Results initiatives on HIV/AIDS prevention in Mozambique, for example, generated exciting initial results, but did not take root in the sector or the country.

Much research and experimentation will be needed before we fully understand the factors affecting sustainability and scale-up of this work. Perhaps this will always remain more of an art than a science. It may be a form of development entrepreneurship. In most places it works, and in some it spontaneously scales. And where it does, the process evolves and adapts to respond to the emerging barriers to performance.

It is clear though that the role of leadership is critical. At the core of each scale-up story are individuals who have stepped up to drive a multifaceted change process. Some were anointed leaders, like Lalao and Robinson, who created the space for the initial teams to perform and then shaped the scale-up process, tackling the systemic issues that stood in the way.

Other leaders emerged as part of the process, such as Negusse Meakele, a subdirector who served on the initial school-based prevention team in Asmara. Meakele became a change catalyst, rallying his superiors at the Ministry of Education and working with them to shape the scale-up phase. It was unusual that a young man at a subdirector level would take such an active role in an Eritrean ministry. But Meakele brought the credibility and the confidence that comes from delivering dramatic results in 100 days. Perhaps the most enduring legacy of Rapid Results work is the space it creates for new leaders to emerge, giving them the legitimacy to advocate for change in their organizations and their communities. n Note s 1 See Nadim F. Matta and Ronald N. Ashkenas, “Why Good Projects Fail Anyway,” Harvard Business Review, September 2003.

2 Other developing countries include Eritrea, Ghana, India, Kenya, Mozambique, Nicaragua, and Sierra Leone.

3 The Rapid Results Institute introduced this work and developed local resources to support it in Ethiopia, Rwanda, Sudan, Uganda, and Zimbabwe. Resources trained by Schaffer and the institute in turn introduced this work in Burundi, the Central African Republic, Liberia, and Tanzania.

4 Ron Heifetz and Marty Linsky, Leadership on the Line: Staying Alive Through the Dangers of Leading, Boston: Harvard Business Press, 2002.

5 At GDP of $700 per capita, Madagascar in 2005 was tied with Afghanistan and the Republic of Congo for 141st out of 145 rankings.

6 We refer to these as Rapid Results initiatives rather than Rapid Results projects to avoid confusing this work with development projects that are often multiyear efforts.

7 For a detailed account, see Nadim Matta, “Unleashing Capacity in Developing Countries,” in Rapid Results! How 100-Day Projects Build the Capacity for Large-Scale Change,

by Robert Schaffer and Ron Ashkenas, San Francisco: Jossey-Bass, 2005.

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Integrated reporting—the combination of a company’s financial and nonfinancial performance in one document—is a crucial step to creating a more sustainable society. It is being practiced around the globe by companies as varied as Philips, Novo Nordisk, PepsiCo, and Southwest Airlines. By Robert G. Eccles & Daniela Saltzman

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Achieving Sustainability Through

Integrated Reporting

PHOTO ILLUSTRATION BY DAVID HERBICK, LEDGER PHOTOGRAPH BY CHERYL GRAHAM/ISTOCKPHOTO

O

n Jan. 25, 2011, at a press investors, and other stakeholders in South conference held at the Africa are very supportive of integrated reJohannesburg Stock Ex- porting and excited about the opportunity we change, the world’s first have to help lay the foundation for spreading guidance document for this practice on a global basis,” he said. But companies practicing integrated reporting companies cannot be the only force behind was issued. This was precedent-setting, as integrated reporting. “All of us are responsible only a handful of the world’s top 30 stock for creating a sustainable society,” said King, exchanges provide guidance on nonfinan- “and I think NGOs have a critical role to play cial reporting. The Johannesburg Stock as representatives of civil society.”

Exchange went a step further. As of March This article explores the strengths and 1, 2010, it has been requiring companies to challenges of integrated reporting and how submit integrated reports or list elsewhere. the public, private, and nongovernmental An integrated report is a single document sectors can collaborate to create a worldwide that presents and explains a company’s fi- movement that requires organizations of all nancial and nonfinancial—environmental, kinds to act more sustainably. social, and governance (ESG)—performance.

The impetus behind issuing this document was the King Report on Governance for South The State of Corporate Africa 2009 (King III), written by Univer- Reporting Today sity of South Africa professor Mervyn King, Every company listed on a stock exchange is which recommended that companies and required to issue on at least an annual basis other organizations produce integrated re- a financial performance report. These reports connecting material financial and sus- ports are based on a set of accounting stantainability information. King III was created dards—typically International Financial to maintain South Africa’s leadership in stan- Reporting Standards or US Generally Acdards and practices for corporate governance. cepted Accounting Principles—that define It also reflects the country’s intention to be the information reported in a company’s “at the forefront of governance internation- income statement, balance sheet, and notes ally,” as the report states. “We believe this to the financial statements. High-quality and has been achieved because of the focus on transparent financial reporting that presents the importance of conducting business re- an accurate view of a company’s financial porting annually in an integrated manner, i.e., condition is one of the bedrocks for fair and putting the financial results in perspective by efficient capital markets. Companies, their also reporting on how a company has, both external auditors, standard setters like the positively and negatively, impacted on the Financial Accounting Standards Board in economic life of the community in which it the United States and the International Acoperated during the year under review; and counting Standards Board, and regulators how the company intends to enhance those such as securities commissions all make positive aspects and eradicate or ameliorate substantial efforts to ensure high-quality the negative aspects in the year ahead.” 1 financial reporting by listed companies. In South Africa’s integrated reporting re- 2010, the total market value of these 45,517 quirement is an important step toward cre- companies was about $52 trillion, with revating a more sustainable economic, social, enues of some $46 trillion and total employand environmental society. King hopes it will ment of nearly 200 million people, according cause a worldwide domino effect. “Companies, to the World Federation of Exchanges and

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Capital IQ, respectively. By comparison, global GDP that year was countries, Australia, Brazil, and Japan being more active than China, $58 trillion, illustrating how significant corporations have become. India, and the United States. The European Commission is considGiven the large amount of financial, natural, and human resources ering making ESG disclosures mandatory. Currently, Australia and controlled by these companies, it is important that investors have Brazil have the highest number of companies publishing nonfinanaccurate information when making their resource allocation deci- cial performance reports. In 2009, there were approximately 1,400 sions. Similarly, other stakeholders, such as employees and customers, companies issuing nonfinancial reports using the G3 Guidelines, a need this information to decide where to work and from whom to buy. 29 percent increase from 2008. In 2012, the NGO Global Reporting Financial reporting has institutional legitimacy, thanks to a va- Initiative will release its G4 Guidelines, which will be a steppingriety of factors. They include measurement, reporting, and auditing stone for signatories to produce integrated reports. standards; effective enforcement mechanisms, including courts of Although the original intention of nonfinancial reporting was law for redress of fraud in the financial statements; sophisticated to provide information of interest to stakeholders, shareholders are internal control and measurement systems; and information tech- paying increasing attention. For example, a representative of Aviva nologies that enable rapid capture and aggregation of data. But finan- Investors, an international coalition of large institutional investors cial reporting also has its critics, who cite its increasing complexity, facilitated by the U.N.-backed Principles for Responsible Investment, making it hard for all but the most sophisticated users to understand sent a letter in January 2011 to the CEOs of the world’s top 30 stock the reports. There is also the difficulty of finding the most relevant exchanges asking them to encourage their listed companies to iminformation, the time lag in issuing reports, the paucity of informa- prove disclosure on sustainability performance and strategy. The lettion about the risks being taken by the company to create value for ter calls for stock exchanges to “consult with companies on how they shareholders, and the backward-looking nature of the reports. Ques- should be integrating sustainability into long-term strategic decision tions about whether a financial report presents a “true and fair view” making—e.g., highlighting risks and opportunities within the existof a company cannot be adequately answered, because the reports ing business model on their website and in their financial report. This do not contain information on nonfinancial performance that can includes encouraging companies to undertake integrated reporting.”2 Steven Waygood, head of sustainability research and engagement at determine a company’s long-term financial picture.

As a result, an increasing number of companies are voluntarily Aviva Investors, said he sent the letter because “we need this data in starting to produce sustainability or corporate social responsibility order to assess the wider risks and opportunities associated with a reports. Typically, they contain information on a company’s environ- company. Without it, we cannot properly integrate these issues into mental (e.g., energy and water usage and carbon emissions), social valuation models.” Waygood believes that stock exchanges and their (e.g., labor practices, employee turnover, and workforce diversity), regulators have a crucial role in fostering integrated reporting. “Inteand governance (e.g., independence of the board and approach to grating sustainability into valuation helps to ensure that capital flows risk management) performance. In some cases, they also include in the direction of more sustainable companies,” he said. “This can information on the company’s philanthropic and community activi- only be a good thing for long-term investors and the broader economy, ties. Frameworks and standards for the information in these reports and we believe that exchanges have a responsibility to help.” are not nearly as well established as they are for financial reporting.

Nevertheless, investors are increasingly interested in nonfinancial information. In July 2009, Bloomberg added ESG data to its infor- The Emergence of Integrated Reporting mation offerings that cover thousands of public companies. Now The Danish company Novozymes, whose core business is industrial Bloomberg’s 300,000 customers see ESG data, such as toxic discharge, enzymes, microorganisms, and biopharmaceutical ingredients, is water usage, and more than 100 other indicators, from companies like generally considered the first company to issue an integrated report, General Electric and Deutsche Bank. In the second half of 2010, cus- which it did in 2002. The first US company to issue an integrated tomers in 29 countries accessed more than 50 million ESG indicators. report was the diversified manufacturing company United TechThere are also several important nonfinancial reporting initia- nologies in its 2008 annual report. The next year these companies tives. The NGO Global Reporting Initiative’s G3 Guidelines are a were joined by American Electric Power, PepsiCo, and Southwest good start for a set of reporting standards. And the NGO Account- Airlines. Other early adopters include the Danish diabetes care comAbility has issued the AA1000 Assurance Standard, which provides pany Novo Nordisk (2004), the Brazilian cosmetics and fragrance assurance on nonfinancial information. Also relevant is the Climate company Natura (2008), and the Dutch health care and lighting comChange Reporting Framework issued by the Climate Disclosure pany Philips (2008). Given the industry and geographical diversity Standards Board. The percentage of companies publishing reports of these companies, it is unlikely that they knew about each other’s on their nonfinancial performance varies by country, with European efforts. But their reasons for issuing integrated reports are similar.

They include a commitment to sustainability, defined broadly in Robert G. Eccles is a professor of management practice at Harvard Business financial and ESG terms terms; a belief that an integrated report School. He is the author, with Michael P. Krzus, of One Report: Integrated Reporting is the best way to communicate to shareholders and other stakefor a Sustainable Strategy and the editor, with Beiting Cheng and Daniela Saltzman, of The Landscape of Integrated Reporting: Reflections and Next Steps. holders how well a company is accomplishing these objectives; and Daniela Saltzm an is a second-year MBA student at Harvard Business School. a recognition that integrated reporting is an important discipline Previously, she worked at Goldman Sachs and Generation Investment Management for ensuring that a company has a sustainable strategy. in London. She is the editor, with Robert G. Eccles and Beiting Cheng, of The Landscape of Integrated Reporting: Reflections and Next Steps.

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referred to as One Reports, did so before any literature existed on the topic, showing how practice often leads theory in new management ideas. Although some of the seeds for integrated reporting go back as far as John Elkington’s concept of the triple bottom line in 1994 and to work by this article’s co-author Robert G. Eccles and PricewaterhouseCoopers on ValueReporting in 1999, the first use of “integrated” in this context is Allen White’s discussion of Novo Nordisk’s “integrated, balanced, and candid reporting” in a June 20, 2005, Business for Social Responsibility brief titled “New Wine, New Bottles: The Rise of Non-Financial Reporting.”

In August 2005, Solstice Sustainability Works published a 16-page white paper called “Integrated Reporting: Issues and Implications for Reporters,” sponsored by Vancity, Canada’s largest member-owned and -directed credit union. This paper was ahead of its time—too far ahead of its time—and largely disappeared from view. Eccles and Michael P. Krzus were not aware of it until after the publication of their 2010 book, One Report: Integrated Reporting for a Sustainable Strategy.

Since then, a number of articles, papers, and blogs have been written on integrated reporting, as well as a free e-book, The Landscape of Integrated Reporting: Reflections and Next Steps, published in November 2010 following an integrated reporting workshop at Harvard Business School. Companies now have the benefit of an increasing body of literature on integrated reporting, and those writing about it have the benefit of an increasing number of companies that are practicing it.

Although South Africa is the only country that has mandated integrated reporting, Denmark, Norway, and Sweden require sustainability reporting to varying degrees, and the Grenelle II legislation in France will require “all major French listed and non-listed large companies to disclose in their annual reports how they take into account the environmental and social impacts of their activities as well as their contributions to developing a sustainable society.” The legislation also requires this information to “be verified by an independent third party.” 3 These efforts may soon become Europe-wide.

According to a January 2011 report of the European Sustainable Investment Forum, “After years of engaging in dialogue with industry stakeholders, disclosure of nonfinancial information by companies is poised to move from a voluntary to a mandatory basis.” 4 Complementing these regulatory and legislative actions is the Sustainable Stock Exchanges Initiative, which is studying how exchanges can work with investors, regulators, and companies on ESG reporting. Australia, Italy, Japan, Korea, and New Zealand are exploring the formation of national organizations to advocate for integrated reporting. They all plan to coordinate with the International Integrated Reporting Committee (IIRC), formed in July 2009, and with the Prince’s Accounting for Sustainability Project, which in 2007 proposed the creation of a Connected Reporting Framework. The IIRC plans to release a draft framework in June 2011 and is working to get integrated reporting on the agenda of the G-20 meeting hosted by France in November 2011.

The Benefits of Integrated Reporting Integrated reporting begins with a single report on a company’s financial and nonfinancial performance. An integrated report is not intended to be a compendium of every single piece of performance

information. Rather, it brings together material information on financial and nonfinancial performance in one place. Ideally, it also shows the relationships between these material financial and nonfinancial performance metrics, although this is uncommon, even among the most sophisticated companies practicing integrated reporting today. Examples of the kind of information that would be included in an integrated report are: How much water does a company use per unit of production compared to its competitors? To what extent do energy-efficiency programs reduce carbon emissions and lower the costs of production? What is the impact of training programs on improved workforce productivity, lower turnover, and greater customer satisfaction? How do improvements in customer satisfaction lead to greater customer loyalty, a larger percentage of the customer’s spending, and higher revenue growth? How is better management of reputational risk through good corporate governance contributing to the value and robustness of the company’s brand?

Although integrated reporting is still in its infancy, it is possible to identify three classes of benefits. The first is internal benefits, including better internal resource allocation decisions, greater engagement with shareholders and other stakeholders, and lower reputational risk.5 The second is external market benefits, including meeting the needs of mainstream investors who want ESG information, appearing on sustainability indices, and ensuring that data vendors report accurate nonfinancial information on the company.6 The third is managing regulatory risk, including being prepared for a likely wave of global regulation, responding to requests from stock exchanges, and having a seat at the table as frameworks and standards are developed.7 Of course, integrated reporting is not a panacea for improving resource allocation decisions or a silver bullet for solving contemporary problems with financial and nonfinancial reporting, particularly as it is so young. Companies interested in implementing integrated reporting face a number of challenges, beginning with the fact that no globally accepted framework specifying what goes into an integrated report exists. But there are a growing number of examples of integrated reports from which companies can learn. A closely related problem is that there is no globally accepted set of standards for measuring and reporting nonfinancial information. Although the G3 Guidelines can be useful, they may not be entirely appropriate to a company’s circumstances. As a consequence, few companies have internal control and measurement systems for nonfinancial information that are of the same quality as for financial information. Simply gathering all the nonfinancial and financial information to issue an integrated report is a formidable challenge in most companies.

Users of integrated reports also face constraints that limit the value of integrated reporting to them today. The lack of a framework and standards for nonfinancial information makes it difficult to compare the performance of different companies, a core feature of investment analysis. Another limitation is the small number of companies practicing integrated reporting, and the fact that it will likely be adopted across industries and countries to varying degrees. Questions exist about the reliability of the information reported by companies. For the most part, having any type of third-party assurance on nonfinancial information in the report, let alone on the entire integrated report, is voluntary. And even when assurance is provided, it is not done with the same degree of rigor as the audit of a financial report.

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Although these challenges are significant, they can and must be overcome, and quickly. A sustainable society requires that all of its companies practice integrated reporting, so that resources used today do not jeopardize access to resources for future generations.

There really is no alternative to integrated reporting. This still infant idea needs to grow into a strong and robust management practice.

Doing this requires a cross-sector approach that involves the public and private sectors, and civil society as represented by NGOs.

Philips: An Example of Integrated Reporting Headquartered in Amsterdam, Royal Philips Electronics is a diversified company focused on the health care, lifestyle, and lighting sectors. Philips first streamlined its financial and sustainability reports into an integrated report for its 2008 annual report. It continues to do so because the company considers “sustainability to be a driver of growth and an integral part of the Philips DNA.” 8 The adoption of integrated reporting at Philips can be attributed to three motivating factors: increased efficiency, reduced cost, and improved communication. Pierre-Jean Sivignon, former chief financial officer of Philips, said integrated reporting started as an exercise in streamlining. “The goal with producing the annual report,” he said, “was threefold: Do it in a cost-effective manner and quickly, so as to get the finance team focused back on this business as soon as possible.”

To expedite the creation of the financial report and the sustainability report, while meeting US and international legal requirements, an integrated paperless document made most sense. From the perspective of Henk de Bruin, global head of corporate sustainability at Philips, the impetus behind integrated reporting was transparency and a one-channel communication on company performance. “There are synergistic elements between the finance discipline and sustainability discipline. The finance discipline has learned to be high-quality data oriented, while the sustainability discipline emphasizes communication and a stakeholder approach toward multiple audiences, such as financial and sustainability analysts in the investor world and governmental and nongovernmental organizations. Sustainability reminds finance that we don’t communicate just for legal reasons to meet statutory obligations and inform shareholders, but that one-channel communication can be used for so much more.” De Bruin notes that the integrated report serves as a business card for the company both externally and internally. “It highlights to employees what is going on around the organization in a clear and easily accessible format. … It increases their pride in the company knowing Philips takes sustainability seriously.” Externally, the benefit of the online integrated reporting model is that Philips can better understand what users care about and improve the annual report going forward.

The roots of integrated reporting at Philips can be traced to 1998, when it produced its first environmental report. In 2008, the company issued its first integrated report and accompanying website.

Sustainability issues were woven into the report in both quantitative and qualitative form, and received limited assurance coverage by the company’s auditors, KPMG. The 2008 integrated report showcased ESG metrics such as the net promoter score, which measures customer satisfaction and loyalty to the Philips brand; employee engagement information, including perceptions and attitudes related to employee 60

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satisfaction, commitment, and advocacy; sales of green products; and operational carbon footprint. The website offered a tool for creating individualized reports and a user survey for stakeholder engagement.

Although the 2008 integrated report and website set the foundation for Philips’s new reporting initiatives, the 2009 and 2010 integrated reports and their websites show deeper linkages between and analysis of financial and ESG information. Starting in 2009, the annual report website included economic indicators in sustainability performance and identified the opportunities and risks related to sustainability, linking them to other relevant sections. Unique to the 2010 annual report website is a feature that allows users to select the role of “sustainability analyst,” “financial analyst,” or “employee” to see different views of the data. The website also offers the report in Mandarin. The 2010 home page features interactive charts with both financial and ESG information under performance highlights, reinforcing the link between the two. Users see that in 2010 Philips invested more than €450 million in green innovations, achieving the 2012 target of €1 billion invested in green innovations two years ahead of schedule; and that the company aims to invest a cumulative €2 billion during the coming five years.

Although opportunities still exist for Philips, integrated reporting has been an important catalyst in bringing sustainability to the forefront of the management team agenda. Critical to this goal will be ongoing stakeholder engagement. Simon Braaksma, senior director at Philips’s corporate sustainability office, commented: “These collaborations get board-level attention within the company. Stakeholder engagement is a key part of our business operations, expanding our knowledge of markets and improving our products as we balance our financial and ESG goals.” As an example, Philips is involved with the Dutch Sustainable Trade Initiative (IDH), which creates multi-sector partnerships to achieve the United Nations Millennium Development Goals. Philips is participating in the IDH Electronics Program to improve working conditions for 500,000 workers in China’s Pearl River Delta. This form of stakeholder engagement enables Philips to create a more sustainable society while expanding its presence in a growing market. The approach also highlights the integrated nature of business results and sustainability as well as the role integrated reporting can play in fostering multi-sector partnerships.

The Role of Civil Society Although most of the current focus on integrated reporting is on companies, the concept applies equally well to many types of organizations. Virtually any organization that uses financial, natural, and human resources should practice integrated reporting. The U.S.-based National Association of College and University Business Officers is exploring integrated reporting, and Dean Nitin Nohria of the Harvard Business School plans to produce a One Report on the school. Living PlanIT, the high technology start-up for sustainable urbanization, is developing an application of integrated reporting for cities along with its partners Microsoft and Cisco Systems.

As representatives of civil society and in collaboration with the public and private sectors, nongovernmental organizations have a major role to play in promoting integrated reporting, particularly through their advocacy role and what Waygood calls “capital market

campaigning.” This is based on two complementary techniques, argues Waygood, of “first, pressuring investors to invest capital in one company or sector rather than another; and, second, using the rights and influence associated with share ownership to voice concerns directly with company directors and senior management.” 9 NGOs can act at a more strategic level through formal partnerships with institutional investors. An example of an NGO working with investors is the Oxfam Better Returns in a Better World Project, facilitated by the Principles of Responsible Investment (PRI), which is assessing the potential for investors to contribute to poverty alleviation. The project made two recommendations for institutional investors. The first is “develop, implement, and report on their responsible investment strategies, with a particular focus on how they will address poverty.” The second is that “asset owners explicitly demand and reward investment managers that take particularly proactive responses to responsible investment.” 10 Another example of NGO investor engagement is the Access to Medicine Index. Developed by a group of prominent institutional investors with the help of the PRI, the index is designed to encourage pharmaceutical companies to develop, implement, and report on policies that give people in developing countries access to affordable medicines. Twenty-seven investors, managing a total of $3.3 trillion in assets, signed an Investor Statement that, among other things, commits them to “take into account the analysis generated from the index as appropriate in the ESG analysis we conduct on the companies we invest in.” 11 NGOs can direct investor groups to influence industry associations, stock exchanges, standard setters, regulators, and legislators to encourage and require integrated reporting by companies. NGOs also can use their public policy advocacy muscle to argue that the current structure of capital markets acts as a constraint against sustainable development for two main reasons: short-termism and market failure. Focusing on short-term financial targets clearly creates a disincentive to make investments that produce positive economic and sustainable returns, such as reducing a company’s carbon emissions and waste and improving its working conditions.

NGOs can advocate for a longer-term orientation by investors, just as they can by companies. They also can lobby government entities to require companies to internalize the environmental and social costs they create by placing these liabilities on their balance sheets, thereby addressing the market failure problem. Obviously, NGOs cannot do any of this unless ESG performance information is available from companies. One hopes the desire for this information will create an incentive. And as time goes on, investors will be in a position to compare the performance of their portfolio companies practicing integrated reporting to those that are not.

Similarly, NGOs can pressure government, in its many levels and functions, to practice integrated reporting. Focusing solely on GDP is no different from focusing solely on quarterly earnings.

British Prime Minister David Cameron has made this distinction part of his Big Society campaign. In a November 2010 speech he said, “It’s time we admitted that there’s more to life than money and it’s time we focused not just on GDP but on GWB—general well-being.”

Citing recent market failures, Cameron continued: “Governments have failed to sufficiently internalize companies’ environmental and social costs such that the consequent economic development

is fully sustainable. … As a result of government’s failure to internalize these costs on company balance sheets, the capital market does not incorporate companies’ full social and environmental costs.”12 But if governments were practicing integrated reporting, they would have incentives to address this market failure. Requiring companies to put financial and nonfinancial externalities on their balance sheets will improve the management of natural, human, and financial resources at the company level. It also, in the aggregate, will improve performance at the country level.

NGOs have an important role to play in the creation and enforcement of frameworks and standards for integrated reporting. They can engage with the IIRC and support its efforts. They also can help ensure the proper practice by companies and use by investors and other stakeholders of integrated reporting by monitoring public and private sector entities that have an enforcement role. In doing so, they will be the “watcher of the watchers,” representing the interests of civil society, to ensure that those responsible for the application of integrated reporting frameworks and standards are doing their job.

Finally, if NGOs expect companies and investors to put their selfinterest in a broader social and longer-term context, they must do the same. NGOs advocating for integrated reporting must practice it themselves. Like all organizations, NGOs use financial, natural, and human resources to accomplish their objectives—admittedly at smaller levels than large corporations and governments. They need to disclose their use of these resources, practicing the same level of transparency they want from companies, investors, and the government.

The clock is ticking for creating a sustainable society. In some areas, such as climate change, there are those who believe it has already struck midnight. But we must get on with it, starting with each and every one of us as citizens of the world, whether we represent public, private, or nongovernmental interests. Now is the time for all three sectors to acknowledge and act before it is too late. n Note s 1 King Code of Governance for South Africa 2009, Institute of Directors South Africa, 2009.

2 United Nations Principles for Responsible Investment Letter to Stock Exchanges. http://www.avivainvestors.com/media-centre/2011-archive/xml_025537.html 3 Disclosure of Non-Financial Information by Companies: Eurosif’s Response to the European Commission Consultation, European Sustainable Investment Forum, Jan. 28, 2011.

4 Ibid.

5 Robert G. Eccles and Michael P. Krzus, One Report: Integrated Reporting for a Sustainable Strategy, Hoboken, N.J.: John Wiley & Sons, 2010: 146–56.

6 Ibid.

7 Robert G. Eccles and Kyle Armbrester, “Two Disruptive Ideas Combined: Integrated Reporting in the Cloud,” IESE Insight, no. 8, 2011.

8 Rudy Provoost, chairman of Philips’s Sustainability Board and CEO of Philips Lighting, Philips press release Feb. 18, 2011.

9 Steven Waygood, “Civil Society and Capital Markets” in Sustainable Investing: The Art of Long-Term Performance, edited by Cary Krosinsky and Nick Robins, Earthscan, 2008: 178.

10 Helena V. Fiestas, Rory Sullivan, and Rachel Crossley, “Better Returns in a Better World: Responsible Investment—Overcoming the Barriers and Seeing the Returns,” Oxfam International, November 2010.

11 Investors statement on Access to Medicine Index website: http://www.accesstomedicine index.org/content/investors-0 12 Allegra Stratton, “David Cameron Aims to Make Happiness the New GDP,” The Guardian, Nov. 14, 2010.

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Action What’s Next

What Works P. 67 Case Study P. 74

By Suzie Boss H e a lt h

Mothers of Invention

photograph by eileen hohmuth-lemonick

3 For expectant mothers and

newborns in the developing world, the difference between life and death can hinge on the simplest things: battery-powered light for the village midwife, screening for anemia, or a reliable map and transportation to the nearest clinic.

There’s no shortage of breakthrough ideas—from low-tech baby warmers to bicycle ambulances—for improving the health of newborns and mothers in under-resourced areas. The challenge is getting good tools and information to the front lines in regions where pregnancy remains a leading cause of death among women of childbearing age. That’s where Maternova comes in. This social enterprise based in Providence, R.I., has a vision to accelerate innovation in the field of maternal and neonatal health by harnessing everything from the Web to suitcases.

Founder Meg Wirth has spent 15 years focusing on maternal and neonatal issues from a policy perspective. She also has had on-the-ground experience that opened her eyes to day-today challenges. In policy and practice, she has noticed two recurring questions. “First, where are the health facilities? It’s amazing how many governments can’t answer that question very well,” Wirth says. “Second, what are the lifesaving tools and how do we get them?”

Maternova is helping to answer these critical questions with its new online innovation

A community health nurse at a clinic in southwestern Malawi talks to women about birth control.

platform. The website serves as idea marketplace and information channel for disseminating best practices, identifying gaps, and encouraging more innovation. “We’re not passively tracking information,” Wirth adds.

“We play the role of arbiter.”

No region has a corner on good ideas. Some solutions are coming from Western universities through graduate schools of engineering, public health, medicine, and business. “We’re also seeing novel ideas coming from the developing world where providers have had to improvise or come up with work-arounds,” Wirth says. A doctor in Bangladesh, for example, has developed an absorbent mat that shows at a glance how much blood a patient is losing during childbirth. Engineers in India have designed a portable device to screen for anemia without needing to prick a finger.

Maternova currently showcases nearly 100 solutions, “and that’s just the tip of the iceberg,”

promises Wirth. To expand its impact, the organization focuses on three strategies. First, it tracks innovation on the Web so that good ideas gain traction, and possibly financial backing, more quickly. “The Internet and technology can amplify voice and speed the transfer of ideas from low-resource areas,” Wirth says.

Second, Maternova packs complementary products into kits that can be distributed on the ground—either in bulk by partner organizations or in small numbers by travelers packing them into their suitcases. Obstetrics kits, for example, include 10 inexpensive tools. Midwives who are on the receiving end are providing real-time feedback to improve products and fine-tune the kits.

Third, Maternova maps the location of obstetrics services using Web-based tools that can be updated in real time. One of the first is a widget that allows for instant updating of information about 42 clinics in a region of Mexico, including their location, hours, medical supplies, and specialized services. “This is lightweight technology, very easy to use,” Wirth says.

Although Maternova has received start-up support from the SEVEN Fund, the Rockefeller Foundation, and others, the organization intends to sustain itself as a for-profit social enterprise. Revenue sources include a small margin on bulk product sales and fees for licensing the custom mapping software.

Already, Maternova has earned praise from the Buckminster Fuller Challenge. In naming Maternova one of 21 semifinalists for 2011 (from a pool of 162 entries), the judging panel said: “Maternova is a highly innovative, unique project in its field, visionary but powerfully practical.

All its initiatives are designed to be flexible: to be able to absorb rapid feedback from the field to constantly redesign and improve what they offer, and to be as elegantly designed, simple-to-use and effective as possible.”

Elegance notwithstanding, Maternova does not sugarcoat its message. The landing page shares this stark statistic: “One woman dies every minute in the context of trying to give life.” n Nonprofit Management

Thriving on Failure 3 It seemed like a smart idea

when four nonprofits with a shared focus on climate change came together to build an online platform for grassroots organizing. They had financial resources, passion, technical expertise, and time to devote to the project. Yet despite those advantages, the Climate Network sputtered. Within a year, the project was jettisoned.

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Action What’s Next

64

may feel like a risk to say, we kind of messed up [with your funding],” says Good. “We’ve found that being open and transparent actually builds better relationships with our donors.”

Scott Gilmore, founder of Peace Dividend Trust, was one of the first from outside the engineering field to share his organization’s shortcomings on Admitting Failure. Peace Dividend Trust works to make peace and humanitarian operations more effective, efficient, and equitable.

Failure in the aid sector, he says, “is the elephant in the room. The aid industry as a whole has not achieved a fraction of what we hoped it would, especially when you consider the resources. We can’t continue to be secretive about what’s not working.”

Gilmore says his organization tries to learn from missteps, “much like a Silicon Valley startup. We’re constantly trying to improve what we do, adapt, adjust. When a project fails, that’s not necessarily a bad thing—it allows us to cross something off the whiteboard.”

Airing those lessons on a public site feels riskier, Gilmore admits, especially for nonprofits that rely on funders. He was reassured when, right after posting a report critiquing his own management decisions, two donors signaled their approval of his public mea culpa.

A few weeks after Admitting Failure launched, Gilmore heard another prominent voice endorsing the wisdom of failure.

Investor and philanthropist Warren Buffett, speaking to the press in Bangalore, India, had this to say about his grown children’s philanthropic efforts: “If everything they do is successful, they’re a failure. It means they’re taking on things that are too easy. They should be taking on things that are tougher.” n

Stanford Social Innovation Review • Summer 2011

M o b i l e T e c hn o l o g y

Antipoverty Apps 3 In a rural village in Orissa,

the poorest state in India, children often wake up in mud huts with hunger gnawing at their bellies. Until recently, they faced only two choices: Go to school and improve their long-term prospects through education, or

Children at Citta Middle School in Orissa, India, use cell phones to access mPowering’s incentive and rewards program.

skip school and work for a pittance so they can buy a little food. A new organization called mPowering is using technology to deliver a third option: Go to school and earn credits that can be redeemed for food, medicine, and other incentives.

The mPowering model leverages rewards to improve the lives of “the poorest of the poor,” says Kamael Ann Sugrim, co-founder and president of mPowering. “The ultra poor spend 80 percent of their income on food but still fail to meet their daily nutritional needs,” she explains. “That leads to people making short-term decisions because they’re hungry.

We want to help them make long-term decisions that will lead them out of poverty.”

Thanks to mPowering, now there’s an app for that. The organization doesn’t provide direct services. Instead, mPowering connects with nonprofit partners such as Citta, which provides education, health care, and other services in high-poverty areas. When Sugrim visits project sites like Orissa or Bhaktapur, Nepal, she finds high concentrations of extreme poverty—as well as cell phone

coverage that rivals what she has back home in Silicon Valley.

Through its partners, mPowering distributes smartphones loaded with mobile apps to monitor desired behaviors, such as kids attending school or expectant mothers accessing prenatal care. Participants can cash in their earned credits for “food, medicine, books, or even extras they’d never be able to afford, like bicycles,” Sugrim says.

To implement the program, mPowering has created new job opportunities for adults who serve as local project liaisons.

“They tend to be young leaders who want to help their community,” she explains. They’re also handy with mobile devices, which they use to record attendance or take photos to document positive moments.

With another mPowering app, data collected at the project sites is channeled back to donors in real time. For instance, a

photograph by gabriel gastelum, courtesy of mpowering

End of story? Not exactly.

This false start lives on as one of several “good failures” being showcased and analyzed on a new website called Admitting Failure. Launched in January by Engineers Without Borders (EWB) Canada, Admitting Failure is intended “to catalyze a shift in the development sector to be more open to talking about and learning from failure,” explains Ashley Good of EWB. “Failure’s only bad when it’s repeated.”

It’s no coincidence that an engineering organization is behind the site. “Engineers work from a problem-solving approach,” Good says. “It’s iterative—figuring out what works, what doesn’t, and then trying it again.”

On top of that, EWB approaches development work with a healthy dose of humility.

“Our attitude is, you need to be open to trying others’ ideas and not think you have it all figured out,” says Good. “Admitting when you’ve done something wrong is part of that.” Since 2008, EWB has been publishing failure reports about its own development projects in Africa “as a tool for us to learn about mistakes on the ground.” The new site is an attempt to broaden that conversation across the development sector.

When development projects don’t go as planned, “admitting failure is only the first step,” says Good. “That doesn’t change anything. But if you learn from what happened and integrate those lessons into your organization, then you’re driving a culture shift.”

Admitting Failure has generated plenty of buzz since the launch. So far, though, others have been slow to contribute their own stories (no whistleblowing or finger-pointing is allowed). Fear of negative response from donors might be a factor. “It

donor might get a Facebook photo showing a sponsored child celebrating perfect school attendance or eating a nutritious lunch. These real-time updates will help keep donors engaged, Sugrim predicts, “especially the 17-year-olds who are on Facebook and Twitter but also are looking for ways they can make a difference. We think this can unlock this interesting group of young donors and hold their attention.”

Sugrim says the idea for mPowering began to take shape after she spent five years in the corporate world, most recently at Salesforce.com. Co-founder Jeff Martin spent a decade at Apple Computer before starting Tribal Brands, which combines entertainment marketing with mobile technology. Their shared goal is to take advantage of ubiquitous technology, “and reach the bottom

bottom of the pyramid,” Sugrim says.

One of their first challenges was to develop picture-based mobile applications to get around literacy and translation issues. The picture-based apps run on smartphones, not the simpler cell phones that are more common in the developing world.

MobileActive, which focuses on mobile technologies for social change, has documented the use of phones to promote health care, microfinance, literacy, and other efforts. “Fairly simple apps are accomplishing a lot of interesting things,” says Katrin Verclas, co-founder of MobileActive. But the human dimension typically proves harder than app development. For mobile projects to succeed at the bottom of the pyramid, “you really have to understand your users.”

That’s a message mPowering

What is social enterprise?

is taking to heart. “We’re challenging ourselves to take into consideration the behaviors and needs of the ultra poor,” says Sugrim. “What gets them motivated? What are the barriers they’re facing? The technology is cool,” she says, “but we don’t want to forget the issues they are dealing with every day.” n Social Media

Matchmaking for Philanthropists 3 Foundation Source Access is

a new online meeting place designed to introduce nonprofits to funders who cherish their privacy. Think of it as eHarmony for the family philanthropic set.

Family foundations tend to be smaller, younger, but sometimes more flexible than the

grand old names in philanthropy.

That can make them a good fit if you have an innovative nonprofit project in search of funding—but only if you can find them. Many private foundations don’t accept unsolicited grant applications and are short on paid staff to field inquiries. “These are the philanthropies you never hear about,” acknowledges Andrew Bangser, president of Foundation Source, which manages nearly 1,000 of the nation’s 80,000 private foundations.

The new platform, launched in early 2011, “expands their universe of potential grantees,” Bangser says. The website is intended to provide funders with access to “critical information they need to make good decisions for allocating resources.”

Designed to incorporate blogs, forums, photos, user ratings, and Facebook and Twitter

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a) an engine for economic growth

b) a way to solve social problems

c) BOTH!

*hint* turn this page upside down for the answer Looking for ways to make a lasting difference in this economy?

Social enterprise is an engine for social and economic growth.

Attend the 2011 Social Enterprise Alliance Summit this fall in Chicago. The time is now. Be part of the movement.

Fueling Economic Growth, Driving Social Impact Learn more and register at www.se-alliance.org Answer: c

photograph by gabriel gastelum, courtesy of mpowering

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Summer 201 1 • Stanford Social Innovation Review

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Action What’s Next feeds, the site has a familiar feel for anyone who uses social media. That includes most Foundation Source clients, who tend to be first-generation philanthropists. “Many are individuals who made money starting their own business or running a hedge fund. They approach philanthropy the same way they approached their other successes,” Bangser says. That includes being tech savvy and accustomed to online networking.

Nonprofits can post an online profile of their organization, including third-party ratings from organizations such as GuideStar or Charity Navigator.

They can also list multiple projects, with detailed information about the issue being addressed, anticipated outcome, and budget needed to move forward.

Posting was free to nonprofits when Foundation Source Access

launched, attracting more than 700 organizations to the site within three months. By mid2011, nonprofits can expect to pay a modest registration fee. For small nonprofits that don’t employ professional grant writers, Bangser adds, this can “dramatically reduce fundraising costs.”

Like the Common Application for college, one proposal reaches the whole pool of potential funders. “Nonprofits that work hard to update their site and keep it relevant will be the ones that donors will notice,” predicts Michele Demers Gluck, director of the Foundation Source Access website. We expect to see the cream rising to the top.”

For philanthropists who want to learn more about issues, Foundation Source Access also offers content pages and blogs focusing on specific causes, such as education, global water and

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keep current with SSIR Live!

sanitation, or response to disasters. Along with a public forum, there’s also a private discussion area where foundation folks can talk among themselves in what Bangser describes as “a trusted network.” Already, he says, likeminded foundations are starting to pool resources. “When our members meet face to face, they get interested in funding each other’s projects. Now, we’re seeing that happen online,” he says, with typical grants in the $10,000 to $20,000 range.

Could online matchmaking change the game for philanthropy? Not necessarily, cautions Henry Berman, CEO of the Association of Small Foundations.

Its 3,000 member foundations have assets ranging from $1 million to $500 million, but are typically staffed by only one or two people. “Most of our members do research that involves shoe

leather. They’re engaged in their communities and learn firsthand about the issues that interest them,” says Berman. Although he agrees that technology tools are increasingly useful for foundations, “so far, no one has figured out how to transmit the firmness of a handshake.”

Nonetheless, many nonprofit organizations seem eager to try out this new platform. Diane Daley says she “wears many hats” as marketing and volunteer coordinator for Share Your Care Adult Day Services in Albuquerque, N.M. She registered two projects soon after Foundation Source Access went live. So far, her organization hasn’t received any nibbles from potential funders. But help could be just a click away: From the page view that only foundation clients can see, every project page features a prominent “make a grant” button. n

Missed any of our SSIR Live! webinars? No problem, you can now listen to them at your convenience. Each webinar is archived at www.ssireview.org/webinars, and your pay-per-view registration includes unlimited access to that webinar for one year from the original recording—plus downloadable slides.

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hot topics and powerful ideas 66

Stanford Social Innovation Review • Summer 2011

Action What Works Amplifying Local Voices

GlobalGiving’s storytelling project turns anecdotes into useful data

By Suzie Boss

photograph byy john hecklinger

A couple of years back , an American visitor to the slums in Kisumu, Kenya’s third largest city, handed out bumper stickers asking an open-ended question: “What does your community need?

Tell us.” That got people talking. Their stories revealed growing dissatisfaction with a community-based youth sports organization that was receiving funding through GlobalGiving, a nonprofit marketplace for matching donors with projects. Eventually, and with community approval, the donor funding stream was redirected to a new organization that enjoyed stronger local support.

That’s far from the end of the story, however. Inspired by what happened when people were given a voice in Kisumu, GlobalGiving has continued to fine-tune its strategies for soliciting and making sense of the stories people tell about the projects intended to help them. For nonprofits and potential donors, “this helps you see what you’re doing through the eyes of the beneficiaries,” explains John Hecklinger, chief program officer for GlobalGiving.

Listening to stories may seem simple, but turning this into a method for monitoring development work has meant drawing on fields as diverse as complexity theory, behavioral psychology, and technology. Although GlobalGiving’s typical partners are grassroots organizations with small budgets, the storytelling project has garnered grant support from the Rockefeller Foundation because of potential benefits across the development sector.

“There are thousands of small organizations that will never be able to afford or manage typical monitoring and evaluation functions,” says Nancy MacPherson, managing director of evaluation for the Rockefeller Foundation. “This could be a way to help smaller grantees be more systematic.”

The big goal, Hecklinger adds, is helping organizations get to better results more quickly. “We hope this leads to much faster and earlier detection of successes and failures to make the marketplace work better,” he explains. “It’s a way to create an organized and convenient mass of information that helps everyone from donors to beneficiaries make better decisions about what gets funded and what gets done.”

ested in analyzing what he calls “micro-narratives.” These are the snippets of conversation we exchange while waiting in line at the supermarket or talking around a village campfire. They turn out to be quite useful for providing a snapshot of what’s on people’s minds.

Over the past decade, Snowden has developed a system for gathering and making sense of large quantities of micro-narratives.

Listening to soldiers’ stories can improve troop safety in combat zones. Sales representatives’ stories can yield important insights for marketing. Until the GlobalGiving project came along, however, this approach had never been applied to development work.

Central to the Cognitive Edge approach is the conviction that storytellers are best qualified to interpret what their own narratives mean. Snowden has devised a simple system that enables people to put their stories into context. For example, if people are sharing stories about justice in their community, they might be asked whether a specific example is more about retribution, restitution, or revenge.

They show how their story relates to those three potentially intertwining meanings by placing a dot on a triangle.

Cognitive Edge’s proprietary software, called SenseMaker, then Beneficiaries of the Trans-Nzoia Youth Sports Association in Kenya evaluate the organization through stories.

making sense of stories David Snowden, a Welsh cognitive scientist and founder of a UKbased firm called Cognitive Edge, acknowledges that storytelling “is kind of in fashion with a lot of organizations.” Gathering heartwarming stories for their emotional appeal is not his aim. Rather, he’s interSuzie Boss is a journalist from Portland, Ore., who writes about social change and education. She contributes to Edutopia and is co-author of Reinventing ProjectBased Learning.

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Action What Works Solicit Stories to Evaluate turns this raw information into data that violence by police against youth. The orgaPrograms can be visually represented and analyzed to nization’s goal has been to keep kids out of reveal patterns. With large volumes of data, Allow storytellers to interpret trouble,” Hecklinger says, “but now they are the result “is like a 3-D landscape,” considering new strategies to work with the their own narratives Snowden says. “You are able to see patpolice as youth advocates.” Similarly, Enable people to put their terns, attitudes, and belief systems,” as stoTYSA’s efforts to protect the rights of chilstories into context ries form clusters around particular topics. dren got little mention in most stories, even The data can be filtered according to the Generate action from story- though that’s a major emphasis of programstoryteller’s gender, age, or other variables. ming. “It is a gap we are seeing, a gap telling assessment quickly Irene Guijt, a Dutch consultant in organibetween our service and the community’s zational learning and evaluation, discovered awareness,” explains a TYSA staffer.

Snowden’s work just as she was finishing her doctoral dissertation.

Storytelling doesn’t necessarily present a solution, Hecklinger As a method of generating fast feedback in the development sector, notes, “but it can help organizations develop a hypothesis.” she saw this as “the best of both worlds. You get the value of stories The 2,500-plus stories collected in Kenya cited the work of more and the merit of statistical analysis so that you can see patterns.” She than 200 organizations. Many were previously unknown to the envisioned how this information could shape community decision GlobalGiving team. Through stories, Hecklinger points out, “you making “and lead to more innovation. It’s not a bunch of stories sitdetect what’s going on in your network and also outside it. You find ting in a dead library.” Guijt brokered introductions between the out what you didn’t even know to ask.” As a result, some new orgaRockefeller Foundation, Cognitive Edge, and GlobalGiving, and was nizations have been invited to join the GlobalGiving platform. “If soon part of a pilot project to test the storytelling approach in Kenya. you want to replicate innovation in the field,” he adds, “you have to be able to find it first.”

learning from the field Marc Maxson directs evaluation for GlobalGiving (and was also the bumper sticker-wielding visitor to Kisumu). He’s eager to develop better evaluation and monitoring methods for the 1,000 organizations that are GlobalGiving partners. Most operate on slim budgets with small staffs. Few have ever experienced a formal program evaluation. The handful that have been evaluated, he adds, have most likely never seen a copy of their own reports.

The storytelling approach can drive down the cost of evaluation to about 5 percent of more traditional methods, Maxson estimates.

It’s also a way to gather community feedback—positive or negative—and share it quickly. “You don’t have to wait years for formal evaluation. This makes it cheaper for everyone to be effective.”

During the pilot year of the storytelling project in Kenya, Maxson saw “a 180-degree turn” in how grassroots organizations view monitoring and evaluation. “Instead of thinking of this as something that happens from the outside—from above—now it comes from within the community,” he says.

Maxson worked with local nonprofits to recruit native Kenyans who would gather stories from people they already knew in the community. Paid “scribes” underwent brief training in how to gather stories and have people interpret them. What motivates people to share their stories? Story sharers were entered into a lottery for a chance to win $100. Beyond that, says Hecklinger, “they have to see a value—that something might change as a result.”

Scribes were encouraged to ask deliberately open-ended questions. For example: “Tell us about a community effort that was successful (or one that failed).” Some stories that bubbled up spoke to broad community concerns, such as crime or jobs. Others were more specific and set the stage for follow-up by local service providers.

One cluster of stories mentioned the Trans-Nzoia Youth Sports Association (TYSA), a GlobalGiving partner that provides a range of services—school fees, uniforms, nutrition, and medical care—to children in the Rift Valley of Kenya. “A lot of the stories were about 68

Stanford Social Innovation Review • Summer 2011

more to learn The eclectic team working on this effort agrees that there are more lessons to be learned. With a second round of funding from the Rockefeller Foundation, new projects are under way in Uganda and, soon, Tanzania to gather more stories and fine-tune best practices.

To share lessons learned, GlobalGiving has published an online guidebook called the Real Book for Story Evaluation Methods, coauthored by Maxson and Guijt. Among their conclusions: Community feedback needs to include multiple perspectives— those who have received services as well as those who haven’t. It needs to happen fast, so that feedback can be applied quickly to make improvements. It needs to generate action to make story sharing worth doing. And participants must be open to surprise— and willing to learn what they didn’t expect to learn.

GlobalGiving is working on strategies to make sure that stories collected will get back to the communities as well as to potential donors. The organization’s online platform will soon be updated with maps to show story locations, along with narrative feedback on individual project pages. Meanwhile, the role of technology to accelerate story gathering is still being worked out. Unreliable Internet connections in Kenya made Web-based tools impractical during the pilot.

Eventually, there may be a role for SMS texting using mobile phones.

Guijt hopes to introduce the storytelling approach to other contexts, such as tracking values across the cotton supply chain.

Already, she has a sense of where storytelling is appropriate and where it’s not. “This works best in situations where there is room to adapt en route. If you’re talking about a five-year program that’s set in stone, forget it. But if you anticipate a lot of obstacles between A and B and are willing to make changes along the way, then this approach becomes interesting,” she says.

Maxson ends her book with this advice: “Keep listening and keep sending these messages back and forth so that the people with the cash hear from the people in the grass of every grassroots project.” n

Action What Works One Acre at a Time

One Acre Fund feeds the world’s poor by helping them feed themselves

photograph by Stephanie Hanson/One Acre Fund

By Corey Binn s

During a summer internship in 2005, Andrew Youn found himself standing in the middle of a dirt road in Bungoma, a district in western Kenya. On one side of the road, the business school student met a family who had grown an impressive two tons of maize on an acre of their land, enough to feed all of their children for a year and have some left over. But Youn met a family living just across the road who hadn’t eaten that day. They had managed to harvest only a half-ton of maize from the same sized plot of land and had lost a child to starvation. “I felt like someone had just struck me on the head and said, ‘Fix this, you idiot,’” says Youn.

When he returned to Northwestern University’s Kellogg School of Management that fall, Youn drew up plans for One Acre Fund (OAF). The organization provides farmers who live off their harvests with a loan of about $75 to buy a bundled package of seed, fertilizer, eight training sessions, and crop insurance. Farmers pick up these supplies and receive training at depots set up no farther than two kilometers from their homes. Two weeks after a harvest, farmers must repay the loan.

The model is simple. But so is the solution to feeding the approximately 100 million subsistence farm families, who account for a large share of the world’s poor people, says Youn. “We have known for decades how to make their farming twice as productive— seed, fertilizer, training, and market access. This is an incredible opportunity that for some reason has gone untapped throughout the world.”

Since OAF opened for business in January 2006 to 40 farm families in Bungoma, it has experienced considerable growth. In 2010, OAF served a total of 30,000 families in six districts in Kenya and Rwanda. This year, Youn, who started the enterprise with $7,000 of his own money, aspires to raise $5 million, earn about $4.5 million in program revenue, and reach 60,000 families, “We have built everything for scale from the beginning,” he explains. “Our ambition is to make a real dent in helping out the world’s subsistence farm families.”

Corey Binns writes about science and health for Popular Science, Scientific American, Women’s Health, and Scholastic’s Science World.

Noelle is one of the 26,000 farmers in Rwanda who receives a bundled package from the One Acre Fund.

local staff, localized expertise To reach so many families and still make an impact, Youn made critical choices about both the organization’s staffing and its model—the investment package for farmer families. First, Youn and his colleagues decided to staff the field organization completely with local farmers, who are then trained and fostered by the organization. Today, OAF counts 60 staff members who all live locally. “This makes our program delivery very inexpensive and lean, and I also believe that these ‘regular’ farmers are able to deliver superior training in our context,” says Youn.

One of OAF’s earliest clients, Everlyne Mamai from western Kenya’s Chwele District, looked frail when she signed up to farm with the organization during a hunger season. During this time, families typically eat 40 percent less food than in the plentiful months. With profits from her first OAF harvest, Everlyne made bricks. With the profits she made from selling bricks, she bought Summer 201 1 • Stanford Social Innovation Review

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Action What Works a cow and named it One Acre Fund. While Youn and other OAF staff members live Help the Poor Help Themselves her husband continues to grow maize as in the rural parts of Kenya and Rwanda, so Create simple, scalable mod- that they can carefully monitor the success an OAF farmer, Everlyne has worked her els that work across regions way up the organization. She handed out and failure of their farmers. OAF officers loans and supplies as an OAF field officer.

Staff field organizations with annually conduct randomized trials by meaWithin a year she was promoted to her trained, knowledgeable locals suring the harvests of OAF farmers and current position as a field manager, where comparing them with the yields of farmers Partner with government she now oversees five field officers. She who have yet to sign up for the program. agencies devoted to poverty They then share their results with everyone recently completed a six-month management program run by OAF where, with from donors and farm families. “We can tell solutions other top managers, she learned to give precisely what impact we’re having,” says constructive feedback and to use Microsoft Word and Excel. Her founding board member Matt Forti. “For every planted acre, we’re extra income has paid for an addition to the family’s home and tripling the yield that comes out of the ground.” secondary school tuition for two of her children. Most imporfundraising for aggressive targets tant, Everlyne’s family no longer starves during the region’s As they regularly prove the model’s success and expand, Youn hunger season. and Forti have had to evolve their fundraising strategy. “We conTo reach as many families like Everlyne’s as possible, Youn stantly revisit our funding model,” says Forti. Five years ago, developed a scalable model inspired by McDonald’s. Just as the fast-food chain has made each store operate uniformly by system- Youn began fundraising by asking his business school classmates for $20 donations, enough to support a farm family of six for atizing it and de-skilling every job, One Acre Fund takes a similar one month. But those small gifts could not sustain the organizaapproach by offering only a simple, easily replicated bundle of tion’s rapid growth. The OAF 2011 budget adds up to $7.5 milsupplies for farmer families. Once some organizations have built trust within a community, they’re often approached to do more— lion, but its ambitions are even grander. Within the next 10 years, Youn hopes to serve 1.1 million farm families, or about 5.5 fund a library or build a school. Youn and his team have made a point not to take on any extra commitments. “One Acre Fund has million people. “Even though small gifts will always be one of our strategies, we’re not complacent to think that they can fund said, ‘We’re going to do what we do well and we’re going to do it our next stage of growth,” says Forti. with laser focus,’” says Anne Marie Burgoyne, a portfolio director Their tenacity has brought fairly large grants and prestigious recof the Draper Richards Kaplan Foundation and a former OAF ognition from the Draper Richards Kaplan Foundation, the Skoll board member.

Foundation, and Pershing Square. In 2010, OAF brought on Tony But Youn admits not all growth has been easy. “We have gotten Kalm, the organization’s first full-time fundraiser. In addition, Forti everything wrong at some point—our agronomy, our repayment procedures, our HR [human resources] practices, our farmer enroll- says they are always looking to evolve their board of directors and are searching actively for new members, especially those familiar ment strategies.” OAF throws out dozens of trials every few with franchising operations like Starbucks and McDonald’s. months, and Youn isn’t afraid to admit that most of them fail.

Burgoyne notes that this carefully selected board works as a credThe organization took one of these missteps when they ible proxy for Youn when he is in Kenya. recruited a few dozen farmers for initial trials in Uganda. The Still, keeping up with Youn’s ambitions to reach 300,000 farm relatively larger land sizes in Uganda where population pressures families, or 1.5 million people, by the end of 2015 will take much have yet to hit hard, unlike in Kenya and Rwanda, give Ugandan more fundraising and efforts from groups other than OAF. The farmers less reason to improve their yields from a single plot. team is looking for more partnerships with governments and possiInstead, they prefer just to plant on additional land. As a result, bly NGOs. “Andrew sees a limitless need out there and always OAF found that Ugandan farmers had a lower demand for their seems to meet his very aggressive targets,” says Forti. services. “Given that there are tons of other countries where our For Youn, the most gratifying part of the job is talking to model does fit, we decided not to launch in Uganda in the near families in the rural areas, and seeing the food that they have future,” Youn says. stored in their homes in bags provided by OAF. Kenyan farmer In the countries where One Acre Fund already operates, it Christine Walela used her first bean harvest to buy a cow, which works alone. It doesn’t partner with NGOs because in the rural produces daily milk to sell. She then produced a maize harvest areas that OAF serves there are none; its customers are off the that tripled her prior harvest and allowed her to put two of her grid. Yet Youn has intentionally made his model open source in children in a better school. What’s more, she has a metric ton of the hopes that others will adopt and move it into underserved food stored in her home right now. That’s more than enough to regions. In the meantime, OAF has worked to collaborate with feed her family for a year and have leftovers. Her story is a very governments. Already, they have formed a strong relationship common one for OAF families. in Rwanda, working on the country’s behalf to hand out govern“They are using their surplus to invest in school fees, cows and ment-issued vouchers for fertilizer. Political unrest in Kenya has chickens and goats, new businesses, and new roofs for their houses,” slowed progress there. But OAF has been invited to make a presays Youn. “It is a really wonderful thing to see.” n sentation to Kenya’s Ministry of Agriculture in November 2011.

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Action What Works Crowdsourcing Microfinance

The Grameen Foundation’s Bankers Without Borders initiative applies skills-based volunteering to poverty alleviation By K at h y O. B roz ek

photograph Courtesy of the Grameen Foundation

What happens when crowdsourcing is applied to the microfinance sector? Bankers Without Borders, an initiative of the Grameen Foundation, has embraced crowdsourcing—the process of leveraging a large group of people to take action on a project—to develop its volunteer corps. Crowdsourcing has succeeded mostly for technology-focused organizations: Wikipedia has used it to build an online encyclopedia, and Unix has deployed it to develop open-source computer systems. Yet translating it to microfinance had never before been done.

The Grameen Foundation opened in 1997 to support and grow the microfinance sector. It was inspired by the success of Grameen Bank, which provides microcredit to the rural poor in Bangladesh.

For years, the foundation relied on an ad hoc approach to working with volunteers. But with the growing interest in the microfinance sector, the volunteer program became unwieldy. In November 2008, outside funding from J.P. Morgan enabled the foundation to launch a pilot volunteer program, naming it Bankers Without Borders. Alex Counts, the foundation’s CEO, saw an opportunity to replicate the way some corporations inspire customers and others to take action on behalf of a corporate mission.

The premise of Bankers Without Borders is that a critical mass of skilled professionals, if strategically placed, can reduce costs and help microfinance institutions (MFIs), social enterprises, and the Grameen Foundation itself operate more effectively to alleviate poverty. “It’s time for nonprofits to follow the lead of the commercial sector, which is so successful at mobilizing people to promote its products and brands on essentially a voluntary basis, often using social media,” says Counts. “We hope to mobilize thousands to use their professional skills to help the world’s poor rise out of poverty.”

The Grameen Foundation’s initial goal was to have 300 professionals with finance or other business expertise register to apply for assignments in the microfinance sector—both within and outside the Grameen Foundation—by March 2010. But the number of volunteers exceeded 3,000 by that date without a promotional campaign. By the end of 2010, the database swelled to more than 5,600 registered volunteers, from which 440 volunteers were selected to work on more than 150 microfinance projects. Almost half of the volunteers deployed through 2010 came from the United States and about a quarter from Asia. J.P. Morgan has committed an additional $3 million to the initiative through early 2013.

Kathy O. Brozek is a writer and management consultant based in San Francisco who works with organizations that have a social mission, including socially responsible investing. Previously, she held finance and marketing positions in the financial services industry.

Jamie Dunchick (far right), a J.P. Morgan employee, observes a borrower meeting in India.

new role for volunteers Bankers Without Borders’ success in scaling can be attributed to several factors, but there has been one essential element: redefining the role of volunteers. “Many nonprofits think of volunteer management in a stovepipe, where volunteers are supervised by one designated manager,” explains Shannon Maynard, the initiative’s director. “With skills-based volunteering, that simply won’t work— we teach the entire organization how to be volunteer managers.”

Rethinking volunteerism meant that Bankers Without Borders had to be nimble, similar to a start-up company. The Bankers Without Borders staff constantly asked themselves: What will make the entire process efficient? What will allow the program to scale up? What time commitment will attract volunteers and still produce substantial results?

The Bankers Without Borders staff helps project managers at MFIs, social enterprises, and the Grameen Foundation assess and craft human resource needs. If a manager asks for a volunteer full time for three months, staff will likely offer a small team with complementary skill sets for a shorter term, say up to three weeks, to better suit volunteers’ schedules and foster multidisciplinary collaboration. Bankers Without Borders also streamlined the reporting Summer 201 1 • Stanford Social Innovation Review

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Action What Works process for project managers and voluna critical time Innovate Volunteerism Foundation executives believe the teers, reducing paperwork by using conferTeach the entire organiza- Grameen Bankers Without Borders initiative could not ence calls to gather information. tion to manage volunteers come at a more critical time, as the microfi“I started off as a big skeptic. nance sector has been under fire for veering too Volunteerism with highly skilled people Consider skills-based far from its poverty alleviation mission. “MFIs can be inefficient, since you have less convolunteering need to get back to basics, since there’s an eletrol over how they work,” says Malini Develop detailed scopes ment of truth in the criticism of the sector,” Tolat, a program manager at the Grameen of work to better use says Counts. “Some [MFIs] have lost their way Foundation. “Now I use volunteers quite by focusing more on financial profits and less frequently. We developed very detailed volunteer hours on the social impact aspect.” scopes of work and applied the same rigor Despite its popularity, there is skepticism about Bankers Without in interviewing as we would for hiring consultants.”

Borders, arising from the debate about poverty solutions and meaTolat used three volunteers at Ruma, a microfranchise based in suring program impact. Dean Karlan, professor of economics at Yale Indonesia that enables the rural poor to sell prepaid mobile phone University, says: “Bankers Without Borders may have positive benairtime. Overall, Tolat has deployed six volunteers to deliver data efits and MFIs have reasons to support it; it’s a great way to engage analytics, trend analyses, market research, and a new management volunteers and raise awareness of poverty. But the question is about reporting system. The dollar value of their consulting work is estiimpact. Does [the program] alleviate poverty? You need rigorous mated at more than $30,000. impact evaluations to show that. Are there data that prove it works?”

For projects that stretch over a longer time frame, Bankers The Grameen Foundation has created a Progress out of Poverty Without Borders has volunteers contribute hours incrementally. Eight Index (PPI) certification process to help MFIs monitor their sucemployees from MasterCard, for example, worked over a six-month cess in alleviating poverty. PPI is a tool developed by the foundaperiod to create a market entry strategy to support the Grameen tion that helps MFIs determine the poverty level of their clients and Foundation’s program expansion in Colombia. The employees were then track it over time. Volunteers help evaluate whether MFIs are part of a leadership development program that places select employcorrectly using the PPI, applying standards developed by microfiees on cross-functional projects to build their leadership skills. This nance stakeholders. was the first time MasterCard worked with an external nonprofit in “I looked at this project as another assignment at J.P. Morgan, and this capacity; another MasterCard team has been assigned for 2011. applied the same level of rigor and due diligence,” explains Luis Baca, Now the Grameen Foundation has a replicable framework for develan associate at J.P. Morgan in London who traveled to Peru, his oping market entry strategies in other countries. native country, to conduct a PPI certification. “Though outside the What is motivating so many professionals to do this voluntary work? The top three reasons cited by Bankers Without Borders reg- project scope, I interviewed NGOs, agencies, funders, and others in Peru to form my own qualitative assessment about the MFI.” istrants are a desire to help the poor, a strong belief in the work of Starting in January 2011, MFIs certified by the Grameen the Grameen Foundation, and interest in microfinance. Only about Foundation will be listed on the Microfinance Information Exchange 15 percent of the deployed volunteers are paid for their consulting (MIX) website, which was founded by the Consultative Group to work, which typically comes from a corporate partner of the founServe the Poor in 2002 to improve transparency among MFIs and dation. The rest of the volunteers work gratis and either have salaprovide a means for standardization. The PPI certification is ried jobs, are retired or semiretired professionals, or are graduate Grameen Foundation’s first “Blueprint Project”—long-term projects students and professors at American business schools. that enable volunteers, specially selected and trained through online Aurélie Daligand, senior legal counsel at danone.communities, classes, to provide services that require less staff involvement. a social enterprise incubator based in France, received assistance Bankers Without Borders intends to replicate its volunteer from an investment banker based in Mumbai, India. The volunteer assistance model. In late 2010, it established a global network of gave a handful of hours each week over six months to help build a clean drinking water business in India. “I felt like I was a true client, in-country organizations, called Alliance members, who can help not just pro bono,” says Daligand of the arrangement. “He was very to identify and scope projects for volunteers. Promuc of Peru, Contactar of Colombia, and Access Development Services of India available and his financial expertise and knowledge of the local were selected in a competitive process to be the first Alliance environment were excellent.”

Thanks to communications technology and the analytical nature Program members. Each will receive seed capital and operational support to use volunteers to provide pro bono consulting services of many projects, volunteers often work remotely. In fact, more to MFIs and social enterprises in their regions. than half of the volunteer hours contributed to the Grameen “Ten years from now, you will see the vast majority of microfiFoundation were not in the field, a major factor in scaling. One nance and information communications technology organizations remote project involved 10 finance professionals who created a taking advantage of skilled volunteers as a result of our work. And country risk assessment framework for 30 developing countries on because of those volunteers’ insights and contributions, we all will behalf of the Grameen Foundation. Going forward, Maynard estibe smarter at doing our job of helping poor people help themselves,” mates that there will be a 50-50 split between projects worked on says Maynard. n remotely vs. in the field.

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Action Case Study The Problem with Fair Trade Coffee Fair Trade coffee refers to coffee that has been certified as “Fair Trade” by FLO or Fair Trade USA; the term Fair Trade refers to the certification model of FLO and Fair Trade USA; and the term fair trade refers to the movement to improve the lives of growers and other producers through trade.)

FLO rules cover artisans and farmers who produce not just coffee but also a variety of goods, including tea, cocoa, bananas, sugar, honey, rice, flowers, cotton, and even sports balls. Its certification process requires producing organizations to comply with a set of minimum standards “designed to support the sustainable development of small-scale producers and agricultural workers in the poorest countries in the world.” 2 These standards—31 pages of general and product-specific standards— detail member farm size, electoral processes and democratic organization, contractual transparency and reporting, and environmental standards, to name only a few. Supporting organizations, such as Fair Trade USA, in Oakland, Calif., ensure that the product is properly handled, labeled, and marketed in the consuming country.

Like many economic and political movements, the fair trade movement arose to address the perceived failure of the market and remedy important social issues. As the name implies, Fair Trade has sought not only to protect farmers but also to correct the legacy of the colonial mercantilist system and the kind of crony capitalism where large businesses obtain special privileges from local governments, preventing small businesses from competing and flourishing. To its credit, Fair Trade USA has played a significant role in getting American consumers to pay more attention to the economic plight of poor coffee growers. Although Fair Trade coffee still accounts for only a small fraction of overall coffee sales, the market for Fair Trade coffee has grown markedly over the last decade, and purchases of Fair Trade coffee have helped improve the lives of many small growers.

Despite these achievements, the system by which Fair Trade USA hopes to achieve its ends is seriously flawed, limiting both its market potential and the benefits it provides growers and workers.

Among the concerns are that the premiums paid by consumers are not going directly to farmers, the quality of Fair Trade coffee is uneven, and the model is technologically outdated. This article will examine why, over the past 20 years, Fair Trade coffee has evolved from an economic and social justice movement to largely a marketing model for ethical consumerism—and why the model persists regardless of its limitations.

Peter Giuliano is in many ways the model of a Fair Trade coffee advocate. He began his career as a humble barista, worked his way up the ladder, and in 1995 co-founded Counter Culture Coffee, a wholesale roasting and coffee education enterprise in Durham, N.C. In his role as the green coffee buyer, Giuliano has developed close working relationships with farmers throughout the coffee-growing world, traveling extensively to Latin America, Indonesia, and Africa. He has been active for more than a decade in the Specialty Coffee Association of America, the world’s largest coffee trade association, and currently serves as its president.

Giuliano originally embraced the Fair Trade-certification model—which pays producers an above-market “fair trade” price provided they meet specific labor, environmental, and production standards—because he believed it was the best way to empower growers and drive the sustainable development of one of the world’s largest commodities. Today, Giuliano no longer purchases Fair Trade-certified coffee for his business. “I think fair trade as a concept is very relevant,” says Giuliano. But “I think the Fair Trade-certified FLO model is not relevant at all and kind of never has been, because they were doing something different than they were selling to the consumer. … That’s exactly why I left TransFair [now Fair Trade USA]. They’re selling a different thing than they’re producing.”

Giuliano is among a growing group of coffee growers, roasters, and importers who believe that Fair Trade-certified coffee is not living up to its chief promise to reduce poverty. Retailers explain that neither FLO—the Fairtrade Labelling Organizations International umbrella group—nor Fair Trade USA, the American standards and certification arm of FLO, has sufficient data showing positive economic impact on growers. Yet both nonprofits state that their mission is to “use a market-based approach that empowers farmers to get a fair price for their harvest, helps workers create safe working conditions, provides a decent living wage, and guarantees the right to organize.” 1 (In this article, the term Colleen Haight is an assistant professor at San Jose State University, currently on leave to serve as the economics program officer at the Institute for Humane Studies at George Mason University. She previously worked at Adams Corp., a Silicon Valley start-up that was acquired by Adobe Systems.

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photograph by Janet Jarman/Corbis

Fair Trade-certified coffee is growing in consumer familiarity and sales, but strict certification requirements are resulting in uneven economic advantages for coffee growers and lower quality coffee for consumers. By failing to address these problems, industry confidence in Fair Trade coffee is slipping. By Colleen Haight

photograph by Janet Jarman/Corbis

the origins of fair trade The idea of fair trade has been around since people first started exchanging goods with one another. The history of trade has shown, however, that exchange has not always been fair. The mercantile system that dominated Western Europe from the 16th to the late 18th century was a nationalistic system intended to enrich the state.

Businesses, such as the Dutch East India Company, operating for the benefit of the mother country in “the colonies,” were afforded monopoly privileges and protected from local competition by tariffs. Under these circumstances, trade was anything but fair. Local workers often were compelled through force—slavery or indentured servitude—to work long hours under terrible conditions. In the 1940s and 1950s, nongovernmental and religious organizations, such as Ten Thousand Villages and SERRV International, attempted to create supply chains that were fair to producers, mostly creators of handicrafts. In the 1960s, the fair trade movement began to take shape, along with the criticism that industrialized countries and multinational corporations were using their power for further enrichment to the detriment of poorer counties and producers, particularly of agricultural products like coffee.

Adding to these perceived economic imbalances is the cyclical nature of the coffee business. As an agricultural product that

Jesus Lopez Hernandez picks ripe coffee “cherries” on a farm associated with Cooperativo Las Brumas, near Matagala, Nicaragua.

is sensitive to growing conditions and temperature fluctuations, coffee is subject to exaggerated boom-bust cycles. Booms occur when farm output is low, causing price increases due to limited supply; bust cycles occur when there is a bumper crop, causing price declines due to large supply. Price stabilization is an objective commonly sought by less-developed countries through commodity agreements. Thus the International Commodity Agreement (ICA) evolved as a means to stabilize the chronic price fluctuations and endemic instability of the coffee industry.

The first of these agreements arose in the 1940s to provide stability during wartime, when the European markets were unavailable to Latin American producers.

After the war, a boom in coffee demand made renewal of the agreement unnecessary. But during the late 1950s, down cycles threatened economies once again. The ICA essentially was little more than a cartel agreement between the member countries Summer 2011 • Stanford Social Innovation Review

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Action Case Study Specialty Coffee Retailer, an industry (coffee producers) to restrict output durCase Study Questions site, specialty coffee in 2010 ing bust periods to maintain higher prices, Why do successful economic resource accounted for $13.65 billion in sales, onestoring the surplus beans to sell later when justice models sometimes third of the nation’s $40 billion coffee output was low. Because the US governlose their power? industry. The Specialty Coffee Association ment was concerned about the spread of of America reports that approximately 23 communism in Latin America, it supported What are the pitfalls of ethimillion people in the United States drink the cartel by enforcing import restrictions. cal consumerism—for both specialty or gourmet coffee daily. Fair In 1989, however, with the fall of the Berlin producers and consumers?

Trade coffee, which has grown steadily Wall and the waning of communist influin 1998 to 109,795,363 ence, the United States lost interest in supWhy hasn’t FLO significantly from 76,059 pounds pounds in 2009,5 constitutes only about 4 porting the agreement and withdrew. altered its model? percent of that $14 billion market.

Without US enforcement, the cartel fell The primary way in by which FLO and prey to rampant cheating on the part of its Fair Trade USA attempt to alleviate poverty and jump-start ecomembers and eventually dissolved. Attempts have since been nomic development among coffee growers is a mechanism called made to resurrect the cartel—but though it exists in name, it a price floor, a limit on how low a price can be charged for a prodremains largely ineffective. uct. As of March 2011, FLO fixed a price floor of $1.40 per pound Recognizing the dire circumstances confronting farmers during of green coffee beans. FLO also indexes that floor to the New the late 1980s, when the price of coffee once again plunged, fair York Coffee Exchange price, so that when prices rise above $1.40 trade activists formulated a system whereby farmers could obtain per pound for commodity, or non-specialty, coffee, the Fair Trade access to international markets and reasonable reward for their labor. In 1988 a coalition of those economic justice activists created price paid is always at least 20 cents per pound higher than the price for commodity coffee. the first fair trade certification initiative in the Netherlands, called Commodity coffee is broken into grades, but within each grade Max Havelaar, after a fictional Dutch character who opposed the the coffee is standardized. This means that beans from one batch are exploitation of coffee farmers by Dutch colonialists in the East assumed to be identical to those in any other batch. It is a standardIndies. The organization created a label for products that met cerized product. Specialty coffee, on the other hand, is sold because of tain wage standards. Other similar organizations arose within its distinctive flavor characteristics. Because specialty coffees are of a Europe, eventually merging in 1997 to create FLO, based in Bonn, higher grade, they command higher prices. Fair Trade coffee can Germany, which today sets the Fair Trade-certification standards come in any quality grade, but the coffee is considered part of the and serves to inspect and certify the producer organizations. specialty coffee market because of its special production requireethical consumerism ments and pricing structure. It is these requirements and pricing Why do we care about fairly traded coffee? One reason is the impor- structure that create a quality problem for Fair Trade coffee. tance of coffee to the economies of the countries in which the crop To understand how the problem arises, one must understand is grown. Coffee is the second most valuable that the low consumer demand for Fair commodity exported from developing counTrade coffee means that not all of a partictries, petroleum being the first. For many of U.S. Imports of ular farmer’s coffee, which will be of varyFair Trade-Certified Coffee the world’s least developed countries, such ing quality, may be sold at the Fair Trade as Honduras, Ethiopia, and Guatemala, cofprice. The rest must be sold on the market Year Pounds of Percent Coffee Annual Growth fee exports make up an enormous share of at whatever price the quality of the coffee the export earnings, comprising in some will support.

1998 76,059 n/a cases more than 50 percent of foreign A simple example illustrates this point.

1999 2,052,242 2,598 exchange earnings.3 In addition, many of the A farmer has two bags of coffee to sell and 2000 4,249,534 107 coffee growers are small and their busithere is a Fair Trade buyer for only one bag.

2001 6,669,308 57 nesses are financially marginal.

The farmer knows bag A would be worth 2002 9,747,571 46 Although some of the world’s poorest $1.70 per pound on the open market countries produce coffee, the preponderbecause the quality is high and bag B 2003 19,239,017 97 ance of that production is consumed by would be worth only $1.20 because the 2004 32,974,571 71 the citizens of the world’s wealthiest counquality is lower. Which should he sell as 2005 44,585,323 35 tries. The United States is the world’s sinFair Trade coffee for the guaranteed price 2006 64,774,431 45 gle largest consuming country, buying of $1.40? If he sells bag A as Fair Trade, he more than 22 percent of world coffee earns $1.40 (the Fair Trade price) and sells 2007 66,339,389 2 imports; the combined countries of the bag B for $1.20 (the market price), equal2008 87,772,966 32 European Union import roughly 67 pering $2.60. If he sells bag B as Fair Trade 2009 109,795,363 25 cent,4 with other countries importing the coffee he earns $1.40, and sells bag A at the TransFair USA 2009 Almanac. remaining 10 percent. According to the market price for $1.70, he earns a total of 76

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every pound of Fair Trade coffee sold in the United States, retailers must pay 2004 2005 2006 2007 2008 2009 10 cents to Fair Trade USA. Europe 279,400 352,065 429,915 521,065 767,300 855,717 That 10 cents helps the orgaNorth America 123,385 210,685 430,600 504,565 578,567 636,917 nization promote its brand, Australia/NZ n/a 1,650 4,765 7,500 18,500 26,567 which has led some in the Japan 915 2,165 2,450 3,685 5,833 6,533 coffee business to say that Fair Trade USA is primarily Others 483 a marketing organization. In Total 403,700 566,565 867,730 1,036,815 1,370,200 1,526,217 2009, the nonprofit had a Joost Pierrot, Daniele Giovannucci, and Alexander Kasterine, “Trends in the Trade of Certified Coffees,” International Trade Centre technical paper, 2010. budget of $10 million, 70 per$3.10. To maximize his income, therefore, he will choose to sell cent of which was funded by fees. The remaining 30 percent came his lower quality coffee as Fair Trade coffee. Also, if the farmer from philanthropic contributions, mostly from foundation grants knows that his lower quality beans can be sold at $1.40 per pound and private donors. (provided there is demand), he may decide to increase his income People in the coffee industry find it hard to criticize FLO and by reallocating his resources to boost the quality of some beans Fair Trade USA, because of its mission “to empower family farmers over others. For example, he might stop fertilizing one group of and workers around the world, while enriching the lives of those plants and concentrate on improving the quality of the others. struggling in poverty” and to create wider conditions for sustainThus the chances increase that the Fair Trade coffee will be of able development, equity, and environmental responsibility.6 “I’m hook, line, and sinker for the Fair Trade mission,” says Shirin consistently lower quality. This problem is accentuated when the Moayyad, director of coffee purchasing for Peet’s Coffee & Tea Inc. price of coffee rises to 30-year highs, as it has done recently.

“When I read [the statement], I thought, there’s nothing I disagree One of the unique characteristics of the FLO and Fair Trade with here. Everything here I believe in.” Yet Moayyad has concerns USA model is that only certain types of growers can qualify for about the effectiveness of the model, mostly because she does not certification—specifically, small growers who do not rely on persee FLO making progress toward those goals. manent hired labor and belong to democratically run cooperaWhole Foods Market initially rejected the Fair Trade model. tives. This means that private estate farmers and multinational The supermarket chain only recently began buying Fair Trade companies like Kraft or Nestlé that grow their own coffee cannot coffee, through its private label coffee, Allegro, in response to the be certified as Fair Trade coffee, even if they pay producers well, demand from their consumers. Jeff Teter, president of Allegro help create environmentally sustainable and organic products, Coffee, a specialty coffee business begun in 1985 and sold to and build schools and medical clinics for grower communities.

Although the cooperative requirement may seem unusual, it fol- Whole Foods in 1997, said that his main concern has been the quality of Fair Trade coffee. “To get great quality coffee, you pay lows logically from the experience of Paul Rice, founder and presithe market price. Now, in our instance, it’s a lot more than what dent of Fair Trade USA. Rice spent most of the early 1980s working the Fair Trade floor prices are,” he says. As for social justice for with cooperative farmers in Latin America, studying and implementing training programs for small farmer organizations on behalf coffee growers, Teter responds: “We were living the model at least 10 years before Paul Rice and TransFair people got started here of the Nicaragua Agrarian Reform Ministry under the Sandinista administration. In 1990, he became the first CEO of prodecoop, a in America. … Paul Rice and his group have done an amazing job fair trade organic cooperative representing almost 3,000 small cofconvincing a small group of vocal and active consumers in fee farmers in northern Nicaragua. Then in 1998, he founded Fair America to be suspicious of anybody who isn’t FT.” Rice disagrees, Trade USA. Rice sees cooperatives as the key to the empowerment arguing, “Fair Trade is the only certification program today that of the independent coffee farmer, providing a union-like type of col- ensures and proves that farmers are getting more money.” lective bargaining power that enables cooperative leaders to negotian imperfect model ate pricing for the individual members.

My field and analytical research has found that there are distinct Membership in a cooperative is a requirement of Fair Trade limitations to the Fair Trade model.7 Perhaps the most serious chalregulations. Another core element is the premium—the subsidy (now 20 cents per pound) paid by purchasers to ensure economic lenge is the extraordinarily high price of coffee. “The market today is five times higher than when FLO entered the United States. The and environmental sustainability. Premiums are retained by the cooperative and do not pass directly to farmers. Instead, the farm- market’s at $2.50 (per pound for commodity coffee) today vs. the 40 cents or 50 cents (per pound) it was at in 2001,” says Dennis ers vote on how the premium is to be spent for their collective Macray, former director of global sustainability at Starbucks Coffee use. They may decide to use it to upgrade the milling equipment Co. This price shift dampens farmers’ desire to sell their high-qualof a cooperative, improve irrigation, or provide some community ity coffee at the Fair Trade price. Many co-ops, according to Macray, benefit, such as medical or educational facilities.

Fair Trade USA is a nonprofit, but an unusually sustainable one. are choosing to default on the Fair Trade contracts, so that they can do better for their members by selling on the open market. Macray, It gets most of its revenues from service fees from retailers. For

Worldwide Sales of FLO-Certified Coffee (60 kg bags)

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Action Case Study who is now an independent sustainability consultant with clients such as the Bill & Melinda Gates Foundation, says the default problem is seriously compounded by the perceptions of quality. Some roasters express concern that the quality of Fair Trade coffee is not at the same high levels as other types of specialty coffee sold alongside it. “For some cooperatives the Fair Trade price became the ceiling, not the floor. … Many Fair Trade buyers do not see a reason why they should pay any more than the fair trade price for the value that is Fair Trade,” explains Macray.

In the past, coffee growers were often isolated in remote regions and had little access to market information on the value of their product. Unscrupulous buyers might offer only very low prices, taking advantage of farmers’ lack of information. Today, however, growers have access to coffee price fluctuations on their cell phones and, in many cases, have a keener understanding of how to negotiate with foreign distributors to get the best price per pound.

In addition, the growing demand for very high quality coffee has led to a tremendous increase in the number of buyers traveling to more remote regions to ensure the supply they require.

Another important flaw is FLO’s inability to alter the circumstances of the poorest of the poor in the coffee farming community. Although FLO does dictate certain minimal labor standards, such as paying workers minimum wage and banning child labor, the primary focus and beneficiary is the small farmer, who, in turn, is defined as a small landowner. The poorest segment of the farming community, however, is the migrant laborer who does not have the resources to own land and thus cannot be part of a cooperative. In Costa Rica, for example, most small farms, including those selling Fair Trade coffee, employ migrant laborers for harvesting, particularly from Nicaragua and Panama. Rice believes that because the “yields are so low on a small farm and it’s basically family run, the migrant labor issue is not as relevant.” But at the same time he admits that the benefits of Fair Trade do not reach migrant laborers; he says he wants to expand the model to serve this population.

Rice has never wavered from his view that Fair Trade’s “central goal is to alleviate poverty,” and he is adamant that the organiza-

Green Mountain Coffee Roasters in Waterbury, Vt., sells more than 100 coffee selections, including Fair Trade blends.

men or moneylenders. At those farm unit sizes and yields, no one is viable in the global market if they stand alone.”

Another challenge for FLO is the issue of transparency in business dealings. FLO regulations require a great amount of record keeping, to ensure that individual farmers have access to all information pertaining to the cooperative’s sales and farming practices, enabling them to make more informed business and agricultural decisions. But this record keeping has proven to be a hurIt is rare to find a coffee roaster or retailer today that does dle in some cases. In addition to being not address social issues in some way. Some do so by time-consuming, it has also raised lanoffering Fair Trade coffee. Others have their own programs. guage and literacy barriers. Certification forms, for example, only recently were tion’s model is as relevant as it was 20 years ago. But during that made available in Spanish. “They want a record to be kept of every time many of FLO’s provisions of have become duplications of daily activity, with dates and names, products, etc. They want regulations already in place in Latin American countries, such as everything kept track of. The small producers, on the other hand, minimum wage requirements, credit financing, and contracting can hardly write their own name,” 8 said Jesus Gonzales, a farmer at Tajumuco Cooperative in Guatemala. Records kept by cooperaterms. “I just don’t think that the benefits are trickling down,” tives have shown that premiums paid for Fair Trade coffee are says Philip Sansone, president and executive director of the often used not for schools or organic farming but to build nicer Whole Planet Foundation (the philanthropic arm of Whole facilities for cooperatives or to pay for extra office staff. Gerardo Foods). Rice disagrees and defends his model. “The small holders Alberto de Leon, manager of Fedecocagua, the largest cooperative in Latin America would have no way of climbing out of poverty,” he says. “One-acre farmers standing alone are pretty much always in Guatemala selling Fair Trade coffee, told me during my 2006 field research, “The premium we use here [at the cooperative]— going to be victimized by stronger market forces, be they middle78

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you saw our coffee lab, it is very professional.”

Although the cooperative lab may improve quality or sales or aid in member education, it is not necessarily where consumers who buy Fair Trade coffee think their money is going.

Macray says coffee consumers want to know that the extra premiums are being used for social services. “Many licensees have started to question whether the premiums were being used for social good: schools, education, health, nutrition, and so on,” he says.

“It became difficult to tell the story of where that premium was going. So in your retail shop, you want to be able to tell your customers, yeah, how we provide all this extra funding for these co-ops and it made these differences.”

FLO also provides incentives for some farmers to remain in the coffee business even though the market signals that they will not be successful. If a coffee farmer’s cost of production is higher than he is able to obtain for his product, he will go out of business. By offering a higher price, Fair Trade keeps him in a business for which his land may not be suitable. There are areas all over Latin America and Africa where the climate and growing conditions are simply not conducive to coffee growing. “Fair Trade directs itself to organizations and regions where there is a degree of marginality,” explains Eliecer Ureña Prado, dean of the School of Agricultural Economics at the University of Costa Rica. “We’re talking about unfavorable climates [for coffee production]. … Regions that are not competitive.”

photograph by Dave G. Houser/Corbis

the future of fair trade coffee The FLO model has changed little since its inception. Although the Fair Trade price and premium for coffee has been adjusted upward over time, the rules and regulations have remained fairly static. Fair Trade’s chief legacy may be greater consumer awareness among coffee drinkers. “We generate awareness to create demand in the market,” explains Stacy Wagner, public relations manager at Fair Trade USA. And they have had tremendous success doing so. Today, according to Wagner, 50 percent of American households are aware of Fair Trade coffee, up from only 9 percent in 2005.

Representatives from Starbucks, Peet’s, and Green Mountain Coffee Roasters (which owns such brands as Caribou Coffee, Tully’s, and Newman’s Own) all report a push from consumers for more transparency of contract and socially responsible business practices. It is rare to find a coffee roaster or retailer these

days that does not address social issues in some way. Some do so by offering Fair Trade coffee. Others, however, have sought out other solutions, such as adopting other certifications or by developing their own programs. “A number of importers and exporters in the coffee business are saying we can get more money into the pockets of farmers through direct trade than if we use the FLO model,” says Macray.

Examples of businesses that have risen to meet consumer demands include Starbucks, Peet’s, and Whole Foods’ Allegro coffee. Although Starbucks offers Fair Trade coffee as one of a number of options, they also have put into place a C.A.F.E. Practice—a program that defines socially responsible business guidelines for their buyers. Many coffee producers have taken note of this model and made their practices more sustainable to attract the attention of Starbucks’ buyers. Likewise, Peet’s buys a lot of coffee from TechnoServe, an organization working to improve the business practices of farmers in developing countries. “One of the objections to Fair Trade could be that the term ‘cooperative’ doesn’t perforce equate to ‘farmer,’” says Moayyad. “Just because a certain price is guaranteed to the cooperative, doesn’t actually mean that the farmer is receiving it.”

With TechnoServe, farmers get a much higher percentage of the proceeds—up to 60 percent more according to Moayyad, even though their stated focus is “developing entrepreneurs, building businesses and industries, and improving the business environment.”9 TechnoServe’s model focuses on quality production and farm management. “It’s not a charity,” says Jim Reynolds, roast master emeritus of Peet’s, who has more than 30 years of buying experience. “It’s building skills and better business organization, so they can run their own co-ops more efficiently and earn better pricing by finding good buyers.” Teter also follows this type of socially responsible corporate investment. Allegro pays well above the Fair Trade price to obtain the quality coffees its customers want. In addition, 5 percent of Allegro’s profits goes to charity, and 85 percent is spent in growers’ communities.

“The model for sustainable coffee that was popular five years ago has changed quite a bit,” says Macray. “Five years ago, it was common practice to just go out and buy certified coffees and check the box; and today it’s about integrating sustainability and transparency into your supply chain. Companies are making it a core way of doing business.” n Note s 1 Fair Trade USA website: www.transfairusa.org.

2 www.fairtrade.net/aims_of_fairtrade_standards.0.html.

3 International Coffee Association website: www.ico.org.

4 Ibid.

5 TransFair USA 2009 Almanac, p.10.

6 www.transfairusa.org.

7 Colleen Haight, “Is Fair Trade in Coffee Production Fair and Useful? Evidence from Costa Rica and Guatemala and Implications for Policy,” Mercatus Policy Series, Policy Comment 11, June 2007.

8 Jesus Gonzales from the Tajumuco Cooperative, Guatemala, as quoted in Un Mundo de Certificacion, a video produced for the 2005 Specialty Coffee Association of America meetings in Seattle.

9 http://www.technoserve.org/who-we-are/our-approach.html.

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Im a ge s th a t i n s p i r e

What happens in a country with a population of 5 million, only 100 to 150 lawyers, and a dualist legal structure, comprising a formal stratum inspired by colonial legal structures and an informal stratum of tribal practices enforced by local courts? Corruption. Confusion. Lawlessness. And many citizens wrongly placed or simply stuck in jail because of bureaucratic inertia and mishaps.

(The photograph above by Fernando Moleres shows the registration room of Sierra Leone’s Pademba Central Prison.)

Timap for Justice was founded in 2003 by lawyers Simeon Koroma and Vivek Maru to provide free justice services in Sierra Leone. The model is built around the training and supervising of paralegals, who have knowledge of both formal law and government and the country’s 80

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Arrested Justice communities and tribal codes. Litigation and high-level advocacy are used only when a paralegal is unable to achieve resolution, when the injustice is severe, or when there is a possibility of legal impact.

Koroma points to a case in Kaniya Village, where half of its youth were placed in police custody or went into hiding. The reason: a police crackdown following a report of arson made by a group of cattle herders.

Timap’s paralegal found that nine years earlier the village’s inhabitants were directed by village chiefs to share land with the herders. The herd flourished and eventually encroached on the farmers’ land, causing the

farmers to complain to the chiefs and police. But according to the farmers, their complaints fell on deaf ears because the herders had bribed the authorities. Timap and the community came up with a solution: to build a fence, with the herders providing the resources and the farmers the manpower. Timap also helped free the imprisoned youth and made it clear to the police, who had been demanding money for bail, that bail in this case is free.

Timap’s successes have not gone unnoticed. In August 2010, the nonprofit expanded the number of paralegals it employs from 26 to 41 and more than doubled its office locations from 13 to 29, thanks to funding from the Open Society Foundations, the German aid agency GTZ, the World Bank, —Tamar a Str aus BRAC, and others.

photograph by fernando moleres

Last Look

“In this maledominated industry, I was amongst the first to employ women… This was a mission for me after completing the 10,000 Women program — to pay it back to my society.”

— Divya, India Goldman Sachs 10,000 Women Scholar

HOW ONE WOMAN’S SUCCESS TRANSFORMS THE LIVES OF MANY.

Divya, in India, is a graduate of Goldman Sachs’ 10,000 Women program, a five-year worldwide campaign to drive economic growth by giving 10,000 women a business and management education as well as access to capital, networks and mentors.

Now in its third year, the program is in more than 20 countries and showing promising early results — 70% of graduates surveyed have increased their revenues, and 50% have added new jobs. To date, more than 3,000 women have been reached through a network of more than 70 academic and non-profit partners.

Divya took over a label manufacturing business from her father. To get the skills she needed to optimize her business she applied to the 10,000 Women program. Since graduating, her revenues have grown by over 100% and her workforce by 25%.

Her success has enabled Divya to hire and promote more and more women, and become one of the few employers in India to offer paid maternity leave. Today, she’s transforming her business into a modern enterprise, and her employee’s futures. goldmansachs.com/10000Women

PROGRESS IS EVERYONE’S BUSINESS

©2011. Goldman Sachs & Co. All rights reserved.

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