The silver lining in the market collapse: social capital

Just as things are falling apart, I feel them starting to come together.  Amidst a free-falling roller coaster global economy, social capital is an encouraging bright spot.  While traditional profit-driven capitalism is failing us, the social capital movement is budding, striving to do good and make money at once, shattering the traditional for-profit, non-profit dichotomy.   I was a relative newbie amongst the brilliant, entrepreneurial and proactive attendees of the first Social Capital Markets Conference (SoCap08) which took place this week in San Francisco.  Lucy Bernholz posted last week about her preparation as a speaker for the conference, and I'm here to give my post-event summary and thoughts.    

SoCap08's tagline refers to the "intersection of money and meaning" where "doing well and doing good is the mantra of a new generation of entrepreneurs and the organizations that invest in them."  For so long, for-profits have been efficient and scaled but potentially evil (i.e. focused on profit at all costs) and non-profits have been benevolent but inefficient and underfunded (a great Stanford Social Innovation Review article by FSG speaks to this).  At last we are seeing more and more successful social enterprises that can turn a profit and maximize social impact at once.  Companies are adopting social missions alongside their profit-maximizing goals.   The Journal of Private Equity ran a fabulous article entitled "What Should Investors Know About Social Ventures?" which describes the space, listing Whole Foods, IKEA, Starbucks, Stonyfield Farm, Tom's of Maine, Patagonia, and Newman's Own as just a few of the "pioneering" socially responsible companies leading the space. 

Kevin Jones, partner at Good Capital and SoCap08 producer, pointed out in his opening remarks the fortuitous timing as well as the gathering momentum that the conference represented.  Conference organizers expected 300 attendees.  But 600 registered; 50% did so in the last 3 weeks, which you may recall as some of the worst weeks in Wall Street history.  The conference fee was around $1000 and people flew in from all over the world to attend, which is the most basic indicator of the excitement, energy and dedication gathering around the movement.  Perhaps the meltdown really catalyzed this convergence.   As the Skoll Foundation blog notes "Many see the financial meltdown as a unique opportunity to promote the idea of social capital markets and double or triple bottom line accounting. The meltdown has revealed the risk associated with profit maximization at all costs."

Katherine Fulton of Monitor Institute gave a fantastic keynote speech.  My consultant core may be shining through here, but she adeptly and logically dissected and described the industry and what needs to happen for it to prosper.  According to her framework, we will need to:  create industry defining funds as a beacon for how to address specific social issues, place substantial catalytic risk taking capital in mezzanine finance structures, develop an impact investing network, set industry standards for social measurement, and lobby for specific policy and regulatory change.    All of this converging under the guidance of outstanding leadership, and social capital becomes viable.    

One of the big questions of SoCap08 centered on how to make money while having an impact, an area where we've already seen some exciting things.  Microfinance and clean technology are two of the stars of social capital, having shown returns and impact, but I think that with adequate energy and investment, many aspects of social and environmental impact can become booming and even (modestly) profitable industries.  How can this be?  On the social impact side of things, one illustrative component involves treating employees fairly - providing healthcare and comprehensive benefits as well as humane working conditions and adequate vacation time.  It doesn't take a genius to realize that such an employer will very likely have lower than average absenteeism, turnover and costs from health care claims.  And each of these metrics results in cost savings, which help maximize returns.   Now, let's turn to environmental impact.  The green rush we are seeing is fueled by the promise of cost savings achieved through environmental adjustments, which may include energy savings, resource conservation, and transportation reduction and rethinking.  I don't want to go into any more detail, as details abound elsewhere, but you get the point - organizations that take sustainability as integral to their operations will relish savings and enhance profits.  So both social and environmental leanings can result in a fatter bottom line.  Lastly, Jay Godsall reminded me of the self-worth enhancing implications of doing good.  When people feel good about the impact of their work, their quality of life will be improved. 

Certainly there will be cases where a for-profit model misses the boat, however I see successful enterprises scaling most effectively using a for profit model.  As Elizabeth Funk of Unitus pointed out in Tuesday evening's SoCap debate on this topic, people are greedy, and in order to raise adequate amounts of capital for development and particularly growth, entrepreneurs must be able to promise returns. 

Coming out of the conference, a few questions remain:

• How do we measure social impact? This was a recurring question throughout SoCap08. SVT on Impact, a blog by my colleagues at SVT, Sara Olsen and Brett Galimidi, explores these topics from an experienced viewpoint.


• What is the best model for maximizing social return on a spectrum of non-profit to profit-maximizing? My guess is that the answer is somewhere in the middle, it will vary for each industry and sector and perhaps it doesn't really matter. What does matter is that we continue to work together and experiment with creating hybrid social enterprise organizations.

In any case, the conference was filled with bloggers and video cameras, so please check out all that is being written about the many fabulous sessions.     

Amie Vaccaro is an Associate with Social Venture Technology Group and is interested in environmental entrepreneurism and sustainable innovation. You can read her blog, ecofrenzy, which is focused on green business happenings and related commentary.