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Jumo-GOOD: The Future Is Now

August 22, 2011

(Antony Bugg-Levine is a managing director of the Rockefeller Foundation, the board chair of the Global Impact Investing Network, and co-author of Impact Investing (Wiley, 2011). The Rockefeller Foundation provided funding to Jumo. The opinions expressed here do not reflect the views of any institution with which he is affiliated.)

Future_is_now If you find yourself breathlessly thinking about the implications of the nonprofit Jumo.com's merger with the for-profit GOOD, Inc., I advise you to stop. Take a deep breath. Pace yourself. Because mind-bending deals like this one are only going to get more frequent in the years to come.

To understand why, you need to see this deal as a window into a gathering conflict between two world views. This might sound grandiose, but it's actually quite simple, as my co-author Jed Emerson and I describe in our new book Impact Investing: Transforming How We Make Money While Making a Difference.

For the past hundred years, especially in the United States, we have organized around two basic assumptions:

  • The only way for private citizens to address social problems is by providing grants to nonprofits;
  • The only purpose of investing and business is to make money.

These assumptions are the pillars of the "bifurcated world" that separates charity and investment. We have built layers of systems to support this worldview:

  1. Our legal systems provide a tax break to grantmaking foundations and nonprofits and separately attempt to protect the financial interests of investors.
  2. Our educational systems train do-gooders in policy schools for careers in public service and the social sector and train future titans of industry in business schools that focus on making money
  3. Our capital markets facilitate investment in profit-maximizing firms. Separate advisors and donor platforms increasingly coordinate gifts to nonprofits.
  4. Our language allows us to communicate separately about profit-making enterprises and social-purpose activity.

These systems work for anyone who stays within the traditional confines of the bifurcated world. That's why we don't get worked up about a merger between two nonprofits or a sale of one company to another. We have developed laws and language and practices to facilitate this activity.

But more and more people are not content to stay in the confines of the bifurcated world. These people, variably called "social entrepreneurs" or "impact investors," see the world differently. They believe:

  1. Business can make an effective and morally legitimate contribution to solving social challenges;
  2. Investors can actively target social and environmental value creation in their for-profit investments.

These simple beliefs remove the pillars on which our existing systems are built. Established policies and regulations, educational opportunities and career paths, capital markets, and language all fail to support their aspirations and practices. In fact, most of the time they get in the way.

Instead of waiting for new systems to catch up, social entrepreneurs and impact investors are forging ahead, bending existing systems to suit their needs. This can seem strange or even threatening to people still holding onto the bifurcated worldview. And the incompatibility of old systems with new aspirations creates disruption, as when a nonprofit signs a standard grant agreement only to sell itself to a for-profit company.

But defending the ramparts of the bifurcated world is not going to contain these pioneers. Instead, those of us tasked with securing a better future should focus on building the new systems that can harness their energy. For foundation executives that will mean creating new grant agreements that acknowledge the increasingly fluid line between nonprofit and for-profit corporate forms. It will mean recognizing the power our endowment investments have to contribute to our social mission and reorganizing our management and governance accordingly. And it will mean supporting regulatory reform that acknowledges how for-profit investment and private enterprise can complement philanthropy and government action.

Let's face it: if we're this worked up about a nonprofit ".com" selling itself to a for-profit called "Good," things are only going to get worse in the years to come.

-- Antony Bugg-Levine

Comments

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Antony, you mention "recognizing the power of our endowment investments" as a way for foundations to address the new reality you describe. The Foundation Center will soon release a research advisory about mission-related investment among foundations. The results show the number of foundations that are doing this and the percentage of their assets they dedicate to MRIs remains very low. This option has always been open to foundations but little utilized. To your mind, what has prevented and continues to prevent America's foundations from using far more of their nearly $600 billion in assets to accomplish their mission beyond the $44 billion or so they give out in grants each year?

Thanks Antony,

This analysis cuts right to the core evolution required in our legal, educational, and capital systems, and the language we use to describe and refine those systems. As you and your colleagues push the boundaries, it might be useful to know that there's a small cluster of us who have been bridging the nonprofit and for-profit worlds for decades now.

Our Arts Administration MBA program, for example, has been housed in the Wisconsin School of Business for over four decades, exploring the connections and potentials of for-profit practice toward socially focused ends.

The current trends seem less about moving from each pole toward the middle, and more about the growth of a rich and complete spectrum of opportunity between entirely not-for-profit and entirely profit-maximizing.

I find that my students are increasingly tax-status agnostic -- more focused on the outcome and the alignment of energy toward that outcome, than the particular organizational tradition involved.

You have hit the nail on the head. Social enterprises, B-corps, L3Cs, and other models combine both social good with profit so some changes are afoot but we need more acceptance in the financial marketplace. You raise a very good question about the way in which foundations invest their endowments. How do they choose? Does sustainability, social impact, governance or any of the other “do-gooder” measures enter into the decision? They should!

Nonprofit and for-profit interaction has been ubiquitous long before we started coining new phrases to describe it. Ma Bell was selling long-distance phone service to the Easter Seals before most of us were born. And for-profit contractors were building nonprofit schools and hospitals before that. It's when you get in the mass public's face about it that trouble erupts. And if these initiatives are ever going to rise to a level above interesting, we're going to be in the public's face. So there's a lot of work to be done educating the public to "think different" about all of this. It's not the inside crowd that discusses mergers between Jumo and Good that we need to worry about. It's our grandparents, our sisters, our brothers, our uncles, our insurance agents. That's where 75% of the giving in this country comes from, and that's where 75% of the growth has to come from.

Having been crucified once and survived it for being an entrepreneur with a new idea making a small profit on a massive civic engagement campaign, I can tell you that we don't need blogs like this on Philantopic. We need them in the New York Times.

Thanks for dropping by and leaving a comment, Dan. I love the Times (and still flip through the print edition every day), but I also think PhilanTopic is a wonderful forum for a post like this. Hope you'll consider sharing more of your views about philanthropy and social entrepreneurship with our readers.

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