Study Question (Session 6)

Hello Class:
Well, amazingly we are in session 6. For those of you who are going to be missing class next week (I hope that is very few), please answer the following questions and submit your answers to me via email prior to class on Monday.
I would also take a look at these questions to help guide your reading.
Happy Tuesday! Nice work on the case write ups guys.
Michelle

1. What are the key differences between a foundation and x-prize type competitions? Which of these two constructs (foundation, hybrid or competition) best describes Google.org's structure? Explain.
2. List and explain the six truths that McLeod and Crutchfield claim contributed to the success of non-profit organizations. Do you agree? Why or why not?
3. Letts, Ryan and Grossman argue that Foundations can learn a lot from the venture capital model. Briefly describe their argument and critique there conclusions.

Growing Pains

In this class we have debated theories on social chance and critiqued the corporate manifestations of many people's personal dreams. I think it is valuable to be exposed to all these examples so we can have technical tools to be leaders in this field. Additionally, though social entrepreneurship is an inherently emotional industry and for us to be good leaders it is helpful to understand how emotions can both exacerbate or ameliorate progress. As such I thought I would share some of the emotional growing pains I am going through to provide company for anyone going through the same, perspective for those who are not and as a form of personal catharsis. Hopefully it goes without further saying that this is not directed as a personal critique of anyone.

Sometimes I don't think I am cut out to be a social entrepreneur. I don't think I can handle my professional performance being so closely associated with my personal passions. I have come to expect a certain level of compensation that affords a means to satisfy personal happiness, opportunities for my future family, and lasting legacy of my existence on earth. In my case I have come to accept and rationalize that those things will likely require significant compensation. And in the name of sustainability if I can add more value than what I extract, then my propensity for the luxurious is justified. I don't feel that I should have to apologize or justify my behavior beyond this and would hold anyone else to the same standards and leave it up to them to determine how much they feel comfortable extracting given what they choose to put in.

I like to think of myself as a good person, who wants to do good things and hopefully inspires other people around him to do the same because they might enjoy life a little more. By no means am I perfect at this and one of the blessings of being in classes like this is that I am around so many people who believe this as well and have so many qualities that I would like to emulate better.

It is also for this reason that I get frustrated when the more I learn about the industry of social consciousness the more I feel like no matter what I do in life, how much money I helped raise or the causes I help it will never be enough in the eyes of some. Maybe these are my growing pains of being a "mainstream business person" entering into social sector. And, yes there are plenty more managers and execs in corporate america for whom the work I do will never be enough. However, in corporate america I was able to rationalize not meeting those expectations because I was focused on contributing to all these good things beyond monetary profits that more embodied my personality as a whole. Not just the part that could analytically maximize profits.

But in the field of social improvement I am trying to do a job where the success of my career is measured on how much good I do. So if someone were to critique that I wasn't doing enough, it feels like an attack on my core values. Ironically, I find myself wrought with emotions that I felt when first started working in corporate america trying to understand my place. Feelings of anger, inadequacy, depression, confusion and a general sense of feeling overwhelmed. Eventually, I learned to compartmentalize criticism from my emotions. Mostly through a series of great mentors who met my frustration with patience, empathy, and understanding as well as actual techniques to channel this emotion into effective, action oriented ideas that created value for the company. They didn't help change my personality or values, but they did help me to be more effective in expressing my passion in contsructive ways.

I think a lot of the angst I have felt learning about social enterprise is an anxiousness to find my place and actually feel like I can add value the way I used to according to corporate america. I guess I'm surprised at how personally I take it.

Whole Foods Multiples

Worth noting -- Whole Foods currently has the highest valuation multiples among a selection of public grocery store companies. It pays to be organic...

Company Name	TEV/LTM Revenue	TEV/LTM EBITDA	LTM Gross Margin	LTM EBITDA Margin
Delhaize Group (ENXTBR:DELB)	0.4x	5.4x	25%	8%
Ingles Markets Inc. (NasdaqNM:IMKT.A)	0.4x	6.0x	24%	6%
Kroger Co. (NYSE:KR)	0.4x	6.9x	24%	5%
Ruddick Corp. (NYSE:RDK)	0.6x	8.2x	30%	7%
SUPERVALU Inc. (NYSE:SVU)	0.3x	5.6x	23%	6%
Village Super Market Inc. (NasdaqNM:VLGE.A)	0.3x	5.9x	27%	5%
Whole Foods Market Inc. (NasdaqNM:WFMI)	0.7x	10.3x	35%	7%
Winn-Dixie Stores Inc. (NasdaqNM:WINN)	0.1x	8.4x	27%	1%

High Price of "Organic"

Also related to this week's case. I've attached an article below that describes the "plateauing" of the organic market, which can have a real impact on Whole Foods and other natural food retailers. The article cites price, skepticism, and confusion as the three reasons for the decline in organic consumption.

So much of our class has focused on business incentives, ie are businesses making CSR decisions for economic or altruistic reasons? That same line of thinking extends to consumers. Even the most dedicated consumers have a limit in terms of the premium they are willing to pay for organic food, or other social/environmental positive products. With an increasing uncertainty in the economy and rising commodity prices, consumers are now having to face difficult consumption trade-offs. John Mackey even stated in the case that Americans allocate a much lower percentage of their budget to food, but organic food is worth the premium. As this premium increases it will take an even greater benefit to offset the cost.

Unfortunately, the benefit is not clear to many consumers. Whole Foods has tried to convey information about organic foods along with the products, but the ever changing definition and poor consumer education has only increased confusion. This is despite the government actually creating a standard by the USDA in 2001. If it is still confusing for organic, imagine how bad it must be for "green."

The question is then, will companies make the investment to overcome this skepticism and confusion to illustrate the benefits...and, will consumers be willing to pay even in recessions?

http://money.cnn.com/2008/04/23/news/companies/organics_backlash/index.htm?postversion=2008042314

John Mackey profiled on CNBC's American Made

I'm currently watching a profile of Howard Schultz and John Mackey on the new CNBC series American Made. Research for the case? Sure. Sunday night procrastination? Probably. So far it's a good mainstream media profile of two entrepreneurs who have built CSR into their business. I'd suggest TiVo-ing a re-run. Link: http://www.cnbc.com/id/19470020

Hugh Hefner and the Maloof brothers will be profiled next week. They're not exactly social entrepreneurs by our definition, but definitely entrepreneurs who are very social.

NYT Article on the Environmental Costs of Shipping Groceries

Since the case referred to this, I thought people might be interested in reading this NYT article from Saturday's paper:

Environmental Cost of Shipping Groceries Around the World

I was shocked to see that food transportation studies show that the industry only contributes to 3% of total emissions. I'm glad that this is being treated with skepticism. As Mackey points out in the case, local sourcing is often extremely difficult and requires a network of suppliers from different regions. Hopefully, they'll be able to get more accurate numbers over the next couple of years.

Does a focus on efficiency hurt long-term growth/objectives?

This article is kind of long, sorry.... But I felt it was a worthwhile article since it touches on many of the issues we've been discussing in class on on the blog.

I'm not sure how I feel about the author's suggestion that project-based funding and a focus on efficiency and milestones can hurt an organization's long-term planning and goals. I have seen the benefits of using milestones to track programs' successes (and monitor their failures), but I also understand the frustration with trying to track some of the less tangible things. For instance, I found it frustrating to track progress among participants in an ESL program I was running. You can run evening ESL classes for months and often the biggest successes are not in the test scores, but rather in everyday life. I was most proud of our students' progress when a parent could start communicating with her child's teacher or a student suddenly understood how to read a subway map. Yet, milestones were very helpful in tracking participants' progress in the job training program we ran. The formula was simple: if they are making more money than when they started the program and if they get a raise 3 or 6 months after graduating, you know that your program is successful. It seems that some things are just too difficult to track....

From the NYTimes....

Can Foundations Take the Long View Again?
New York Times
January 6, 2008

By Denise Caruso

As business leaders like Ted Turner, Bill Gates and George Soros have moved vast swaths of their private wealth into the philanthropic sector, market expertise has migrated there, too. As a result, foundation directors, trustees and advisers from corporate America have taken a stance that the return on charitable dollars should be tangible and measurable, and should drive capital flow in much the same way that earnings figures do in commerce.

“In the 1980s and early 1990s, there was a huge push for private philanthropy to be more accountable and to spend more time being goal-driven,” said Kathleen Enright, the executive director of Grantmakers for Effective Organizations, a Washington-based coalition of foundations that promotes ways to improve nonprofit results.

Advisers and trustees compelled foundations to redirect their unrestricted grants to more discrete, short-term projects — for example, distributing mosquito nets in malaria regions — that would deliver a measurable bang for the buck.

“The reason the nonprofit sector exists at all is because it can fund and invest in social issues that the for-profit market can’t touch because they can’t be measured,” said Paul Shoemaker, a former Microsoft employee and entrepreneur who is now executive director of the Seattle affiliate of Social Venture Partners International, a philanthropic network. “The nonprofit ‘market’ is not designed to be efficient in that way. Yet we’re applying the same efficiency metrics to both sectors.”

As a consequence, when foundations switched to project-based accounting, they forced grantees to sacrifice long-term effectiveness for short-term efficiency, Ms. Enright said. Nonprofits could no longer afford to focus on important strategic activities like advocacy or working for social change, which require “deep resources and the ability to change tactics overnight if the situation demands it,” she said.

In addition, critics say, project-based funding allows grantees to collect only a fraction of their real overhead costs. According to “In Search of Impact,” a 2006 study of foundation grant-making practices from the Center for Effective Philanthropy, foundation chief executives will allow a nonprofit to add only 10 to 30 percent of direct project costs for overhead. Some refuse to provide any operational costs at all.

The financial strain knocks many promising nonprofits out of business.

“Everyone is managing against the perception that nonprofits are supposed to be low-cost and low-overhead,” said Thomas Tierney, chairman and co-founder of the Bridgespan Group, a Boston-based consultancy and search firm for nonprofits that was founded at Bain & Company. The only way for nonprofits to increase their working capital is to take on more projects, which in turn keeps increasing the amount of capital they need — a “vicious cycle that perpetually starves them of capacity,” Mr. Tierney said.

The issue is not a lack of charitable capital. In 2005, grant-making foundations distributed more than $36 billion on assets of $550 billion, up from grants of $1.94 billion on assets of just over $30 billion in 1975, according to the Foundation Center, an organization based in New York that maintains a comprehensive database on the philanthropic sector in the United States.

Based on its data, the Center for Effective Philanthropy concluded that the present situation was limiting the effectiveness of those charitable dollars. After surveying nearly 20,000 grantees of 163 foundations and interviewing 79 foundation chief executives and 26 leaders of nonprofits, it recommended that to maximize the impact on grant recipients, foundations “should make larger, longer-term operating grants” of unrestricted funds that can be used to support the organization and its overall mission, not just specific projects or programs.

Two other recent publications reached the same conclusion: the “General Operating Support Action Guide” for foundations, published by the Grantmakers group in July 2007; and “Daring to Lead 2006,” a survey of nearly 2,000 nonprofit executives conducted by CompassPoint Nonprofit Services and the Eugene and Agnes E. Meyer Foundation.

Their findings echo the experiences of a handful of foundations at the vanguard of the movement to provide more operating support to charities over the last 10 years. They include the William and Flora Hewlett Foundation, the Edna McConnell Clark Foundation, the Philadelphia Foundation, the Whitman Institute and organizations like Social Venture Partners.

These grant makers have successfully shown that providing nonprofits with operating support “does not mean forking over tens of thousands of dollars and relinquishing expectations for results,” the Grantmakers’ report said.

Instead, they have built due diligence and accountability measures into their agreements that go much deeper than simple project budgets and reports.

The Edna McConnell Clark Foundation in New York, for example, has created a detailed system for evaluating results of general operating support grants to organizations that work to improve the lives of low-income youths.

David Hunter, the former director of assessment at the foundation, said in an interview published in the Grantmakers’ report that agreements between the Clark foundation and its grantees include specific milestones that are clear indicators of progress. They include benefits for the youths who benefit from the nonprofit’s charitable work, not just “process milestones for the organization.”

Each of the three reports concluded that general operating support yielded better results for foundations and grantees alike, particularly as larger grants are offered over a longer period.

Yet in 2005, according to the Foundation Center, only 20 percent of grants from the largest private and community foundations were designated for general operating support. A majority of foundation leaders polled in the studies acknowledged that unrestricted operating funds were better and more effective for grantees. But they continue to focus their grant-making on project support, they said, because they prefer its clear-cut results and because their boards often mandate project support as a way to show a foundation’s prominence in a specific funding area.

WHILE this may be good for a foundation’s image, Ms. Enright said, it can turn nonprofits into glorified vendors that provide only the services the foundation requests, sapping the sector of both passion and innovation.

“The presumption is that the donor knows more about how to address a given problem than its grantees, and I think that’s usually not a correct presumption,” she said. “More operating support can shift the locus of action and ideas to the people who are closest to the problem.”

Denise Caruso is executive director of the Hybrid Vigor Institute, which studies collaborative problem-solving. E-mail: dcaruso@nytimes.com.

Good News Regarding SRI Funds

The below excerpts are from a March 2008 Worth Magazine article (http://www.worth.com/Editorial/Wealth-Management/Investment-Risk-Management/Feature-Portfolios-With-Purpose-Print.asp).

I was interested to see the conclusion that SRI funds actually tend to outperform, although the difference is statistically insignificant (as much as most active managers suck at what they do, they might as well be socially responsible while they do it). Also of interest is that nearly 10% of high net worth money under professional management is now allocated to SRI investments. As this number grows I would expect it to result in more active fund managers challenging public companies to improve their CSR initiatives and in more companies implementing CSR programs to attract new purchases of their equity because -- apologies to Milton Friedman -- job #1 for management is not actually to maximize profits but to maximize shareholder value, and if CSR helps them do that then it is better for everybody.

"Growing interest from investors is prompting deeper and more sophisticated analyses of SRI’s effect on the bottom line. This, in turn, has undermined the conventional wisdom that SRI equals poor returns. Late last fall, the United Nations Environment Program and Mercer Consulting released a report of 20 academic studies overturning that old notion, with half of the studies correlating SRI with positive performance. Of the remaining 10 studies, seven reported that the effect was neutral, and the other three showed it as negative.

Among mutual funds, the academic research reveals that SRI funds slightly outperformed conventional funds on average returns, with a difference that was so small as to be statistically insignificant, according to Meir Statman, a finance professor at Santa Clara University in California. The key factor denting returns was the cost of the funds—not the incorporation of ESG concerns—which lends credence to the indexing approach that the Jubitz family favors. Meanwhile, the Domini 400 Social Index slightly outpaced the S&P 500 in the overall span from its debut in May 1990 to June 2006.

The recent proliferation of investment vehicles with socially responsible elements reflects a huge new wave of demand. Affluent individuals poured $17.3 billion into separately managed accounts with social screens in 2005, contributing to a tenfold leap in assets in these accounts since 1995, according to the Social Investment Forum. In North America, 6 percent of wealthy individuals requested social screens in 2006, allocating 8 percent of their portfolios to this strategy, according to Merrill Lynch/Capgemini’s 2007 World Wealth Report.

With 9.4 percent of the $24.4 trillion under professional management now allocated to SRI, money managers expect social and environmental concerns to play an ever-larger role in mainstream investment management, suggests research by Mercer cited in the Social Investment Forum’s report."

Our Responsibility and Commitment to the Cause

I was intrigued, excited, yet discouraged after hearing Andy Funk's discussion of social ventures and his experience with funding such ventures. One thing he said really struck me: Andy said that sometimes people will approach him fully committed to their cause, understanding that financial gains in their company were secondary to social impact. However, once those businesses took off and made significant profits, people tended to focus more on profits, and the social impact of their business took a back seat.

This statement made me wonder whether we too will face the same issue. We are all business leaders of the future. Although we have similar passions for making a social impact through business, how will we ensure we stay focused on the social goals we've set for ourselves? How do we keep each other on the right path? Or is the Friedman mentality that "the social responsibility of business is to increase its profits" enough? How do we know that pursuing profits will actually lead to social impact?

Google goes Green

Try to use http://www.ecoogler.com/ instead of plain Google from now on…they plant trees for every search you make on their system.

Some thoughts on U.S. Microfinance

Isabel Maxwell's presentaion on Grameen America hit close to home, since as I mentioned in class I worked in microfinance in NYC for 2 years before Anderson. I was somewhat surprised at what she called the "failure" of microfinance institutions in the U.S. Admittedly, MFIs have struggled to figure out where exactly they fit in the U.S. lending spectrum and how they can be sustainable. However, ACCION New York is over 15 years old; is currently 70% self-sufficient and lends about $1 million/month. That sounds like impact to me. (Loans under $30K are considered micro.)

The organization is by no means perfect - interest rates could be lower (10.99-17.99%) plus fees with some special programs offering lower rates. After class I asked Maxwell whether they had looked into any best practices in the U.S. and to my surprise Grameen had not. I'm also curious to see how the group loan scenario, which has been wildly successful abroad, will play out in the U.S. Interestly enough, most of my clients were very reluctant to get anyone else involved in their loan (even though a co-signer was often required). ACCION New York used to do some group loans but pretty much phased them.

Finally, we spent a lot of time discussing the 98% repayment of Grameen borrowers to date. At ACCION, delinquency was about 6%, which was considered at the lower end. Anyway, if you're interested in learning more about U.S. microfinance, definitely check out www.accionnewyork.org and feel free to get in touch as I'm always happy to chat. And just to confirm one last thing: there is definitely no shortage of Dominican-owned salons in Jackson Heights.

Debate between John Mackey and Michael Pollan

In his book The Omnivore's Dilemma, Michael Pollan criticized Whole Foods for not offering enough local foods and being "Big Organic", among other things. In response, John Mackey wrote Pollan a letter countering Pollan's criticisms and Pollan followed up with a response to Mackey's letter.

Their correspondence led to a debate at Berkeley in February of 2007. The video is really long (around 2 hours) and covers many of the same points as the correspondence, but it's worth watching if you're interested in the environmental and social issues around food production and have some free time.

The letters and the video all bring up a number of topics we've discussed in class, like whether businesses that aim to be socially responsible are just opening themselves up to extra scrutiny and how good is good enough when you're an ethical brand.

Innovative ways to access capital (from Chicago Microfinance Conference)

I attended the Chicago Microfinance Conference at the University of Chicago on Friday April 18th. I was happy to connect up with Matt and Amanda who were also there, along with other Andersonites.
The theme of the conference was Competition and Collaboration between the different players in the industry.

So many major points were brought up in the sessions that I visited. Some of these topics echo what we have been talking about in class as well as what we are reading for the upcoming class. And so I will probably raise some of the relevant issues as separate blogs.
The terminology "Patient Capital" came up in these discussions.

Matt and Amanda, feel free to chime in if you attended this session.

Some of the innovative ways to access capital in this arena: (since my background is not in Finance or Accounting, please excuse any mistakes in the descriptions.)

Bond Offerings:
Many institutions are raising money through international bond offerings. The Microfinance Bank of Azerbaijan has issued its first ever international bond issuance which is also the very first international bond offering in the country.


Growth Guarantees Transactions:
This is practiced by organizations such as Grameen Foundation.
Investors can use their assets to provide credit. The donor-guarantors do not give up their money, but enable their assets to be put to valuable use as guarantees. Commercial banks in turn issue letters of credit to local banks to support financing for the selected MFIs. Each dollar provided as a guarantee is leveraged several times for the MFI in their own currency through a variety of transaction structures such as term loans, credit lines, and bond issues.

Portfolio sale:
This is practiced by organizations such as Grameen Foundation and SKS India. Capital is raised by selling part of its portfolio to a large commercial bank. The assets of the MFI then go on the bank's books.

Securitization of Microfinance Credits (True Sale):
Assets(loans or receivables) are transferred to a special purpose vehicle (SPV) often in the form of a trust. This "true sale" shields the assets if the originator goes bankrupt. The SPV issues bonds for which the loans or receivables act as collateral. These bonds are sold to investors through an intermediary bank. The proceeds of the bonds are paid to the originator.

In 2006, BRAC, the largest MFI NGO in Bangladesh, serving 5 million members, created a AAA rated micro-credit securitization which will provide it $180 million of financing over 6 years. A special purpose trust purchased the receivables from BRAC and allows it to reduce its on-balance assets and also disburse more funds.

IPOs
This is a hotly discussed subject especially in the case of the Mexican MFI Compartamos.

Here is an excerpt from the following site:

http://www.microfinancegateway.org/content/article/detail/41736

In April 2007, Mexican microfinance institution (MFI) Banco Compartamos made an initial public offering (IPO) of its stock. The original investors who created the company in 2000 sold off part of their shareholding to public investors at an astonishing profit.

The Compartamos IPO was 13 times oversubscribed, and the share price surged 22% in the first day of trading alone, even though the offering price was twelve times the book value of the company. Investors walked away with $450 million for 30% of their shares - which ultimately represented a 1,150% premium over the book value. Most of these gains went to not-for-profit development agencies - a Mexican NGO, the International Finance Corporation, and ACCION International - but a third of the proceeds went into the pockets of private shareholders.

The biggest reason for the high sales price was that Compartamos had been generating very high profits (returns on equity above 50% a year), driven by very high interest charges to borrowers (about 86% a year).

Not surprisingly, the news raised a lot of eyebrows. Two concerns predominated in discussions among industry observers.

• Did the high interest rates place an unreasonable burden on Compartamos’s borrowers, contrary to the social objectives of the company and its majority shareholders?
• Did the early donor grants that Compartamos received before it commercialized in 2000 wind up enriching private parties?

Free Market Case for Green

Peter Robinson, a researcher for the Hoover Institution at Stanford, interviewed T.J. Rodgers, the founder and CEO of Cypress Semiconductor Corporation, about his involvement with Sun Power Corporation on the National Review's Uncommon Knowledge.

Chapter 1 has a very interesting exchange where Rodgers talks about building products that bring profits to his shareholders and mentions nothing about the 'higher good.' Clearly, these two speakers proscribe to Friedman's thoughts on business and social responsibility. If the free market is ready to embrace these technologies and they are profitable for investors, that's exciting. While it's great that solar is on the verge of having a positive ROI for investors, I'm more excited about the implications this has for society in general and the US' reliance on fossil fuels.

The question is then even if a business is in a socially responsible or green space, is that business automatically categorized as a socially responsible business? Or does being deemed a socially responsible business require clear intent on the part of the leaders of the company? I'm curious to hear what the class thinks about this.

Chapter 1 - Free Market can deliver solar
Chapter 2 - Global Warming "probably not catastrophic"
Chapter 3 - Solar reaching the point of worthwhile ROI
Chapter 4 - Political Plans and Global Warming
Chapter 5 - Energy alternatives outside solar

Chapter 4 is also interesting b/c it argues against government incentives and taxes in the energy space. If you haven't seen these two commercials, check them out. Nancy Pelosi and Newt Gingrich in one, and Pat Robertson and Al Sharpton in the other. These seem to ask for government involvement on energy, actually more climate, issues, but are unspecific in their recommendations.

Unlikely Alliances Ad - http://www.sfgate.com/cgi-bin/blogs/sfgate/detail?blogid=14&entry_id=25803

1% For the Planet

Hi all,

I just discovered an environmental nonprofit, 1% For the Planet, that seeks to enroll as many businesses as possible as members who commit to donate 1% of their annual sales to environmental nonprofits. Their mission is: "Use market forces to drive positive environmental change by inspiring companies to give."

They themselves are a nonprofit, and in addition to fundraising they operate based on membership dues, which are determined via an unspecified sliding scale. Interestingly, the membership dues can be considered by the member companies as part of their annual 1% giving. 1% FTP enrolls the business members, and vets interested nonprofits, and then the member companies donate directly to an environmental nonprofit of their choice.

I personally wonder if there is a ceiling to the size of companies (by sales) that 1% FTP will be able to enroll. In 2007, with over 700 members, donations approached $30m USD, which is a significant contribution to the work of environmental nonprofits. The website has a "Why to Join" section that discusses benefits to the member companies, but I find myself skeptical that we'll ever see a GE or Nestle or Wal-Mart on the membership roster. As for Wal-Mart, "Net sales for the fiscal year ended Jan. 31, 2008 were $374.526 billion."* If they were a member of 1% FTP, that would commit them to a donation of $3,745,260,000. Kinda crazy to try to wrap your mind around.

So could 1% FTP ever hope to land a huge business, or will their model have to be to "drive positive environmental change by inspiring" a helluva lot of small (relatively) "companies to give"? It seems unlikely shareholders would be particularly thrilled (Friedman certainly wouldn't). All of this said, a lot of good can occur through the model of enrolling thousands of small businesses, so it's not as if there isn't a lot of potential good to come from this venture.

Another potentially interesting question: does 1% FTP provide a convenient service for companies, or would many of them be better off developing relationships with nonprofits or other social ventures themselves? I think one thing 1% FTP will eventually provide is significant marketing via a recognizable logo (I learned about them because a company whose e-mail list I'm on had the 1% FTP symbol at the bottom of their latest advertising e-mail).

* http://walmartstores.com/media/resources/r_2533.pdf

Can locally focused social enterprises be social ventures?

In week 1 Professor Greenblatt talked about the 8 traits of social ventures. It got me to thinking about entrepreneurial non-profits that have a local focus. I looked at three firms, Mama's Hot Tamales (LA), Homeboy Industries (LA) and Harlem Children's Zone (New York). All earn most of their revenue from earned income and each focuses on a specific geographic area. From my estimation they qualify for 6 of the 8 criteria (see table). The founder's are not business people and each is the face of their organization. They also have no ambition to expand out of their geographic area. How should we define these firms? If they are not social ventures, then what are they? Social enterprises? Earned income driven non profits? I understand how Method and Wild Planet Toys fit the mold, but are we cutting out other ventures by the definition we are using?

8 Traits of Social Ventures	Homeboy Industries	Harlem Children's Zone	Mama's Hot Tamales
Product is Socially Responsible	Yes	Yes	Yes
Driven by real business people	No	No	No
Informed by history of activism	Yes	Yes	Yes
Focused on double/triple bottom line	Yes	Yes	Yes
Execute plans of smart, slow growth	Yes	Yes	Yes
Live principles inside/outside company	Yes	Yes	Yes
Exhibit transparency	Yes	Yes	Yes
Strong leaders but not cult of personality	No	No	No

Coke Purchase of 40% of Honest Tea

I'm copying a link to an article in the Baltimore Sun describing Coke's recent purchase of a 40% stake in Honest Tea. http://www.baltimoresun.com/business/bal-bz.tea16apr16,0,7713638.story .While Honest Tea is obviously a for-profit entity, the article reminded me of some of the issues raised in the Dees article about non-profits that either undertake for-profit activities or partner with corporations. Are the organizations (or in this case Honest Tea) susceptible to mission creep or does it make good business sense? I would argue for the latter though with some concern about losing Honest Tea's sense of authenticity.

CEO Seth Goldman makes the case for taking advantage of Coke's distribution network, including an exclusive contract with McDonald's to reach thousands of more consumers and influence healthier diets. I would be curious to hear if you guys think Honest Tea is selling out or moving its mission forward.

Disruptive Innovation - Minimally Invasive Surgery in the 1980s

The first laparascopic cholecystectomy (gall bladder removal) procedures are a great example of disruptive innovation that has ultimately revolutionized surgical care. Surgeons developed the first laparoscopic cholecystectomy procedures utilizing video controlled technology for minimally invasive procedures in the late 1980s. Physicians recognized common tools at an optimal point on the existant technology curve - the camera and clip applier with utilization of existing laparoscopic instrumentation. Cedars-Sinai performed about 287 laparascopic cholecystectomy procedures in 1987 that grew rapidly to 1973 in 1990. By 1995, 630,000 of these procedures were performed in the US due to the dramatic reduction in patient recovery times and hospital stays in half, reducing huge costs, while also improving patient outcomes. Innovation in the healthcare industry is strongly needed both in practice and in insurance coverage, and disruptive solutions can be simply arrived by medical practioners.

Secondly, I would be interested in seeing if the Minute Clinics have any impact on public health on the whole. More benefit would likely stem from companies providing more funding for the many assisted clinics (i.e. many free and community clinics in the Los Angeles area that provide physician care from UCLA and surrounding hospitals) to the underserved population.

Biodiesl versus Food in emerging economies

Today's WSJ (April 14, 2008) front cover detailed an interesting problem regarding agriculture and renewable energy. Biodiesel production is heavily reliant upon agriculture infrastructure and production. Food prices have risen as much as 83% in the past three years and many people are struggling to put food on the tables. Leaders of organizations such as the World Bank (Robert Zoelick) are trying to put these problems in perspective. Leaders of countries like Haiti are downright pissed that we devote resources to making renewable energy if it leads to increases in food prices. At some point it becomes a tradeoff between the lesser of two evils: starvation and fossil fuels. I would appreciate any thoughts regarding this conundrum.

Bob

Net Impact Event - Public-Private Partnership Symposium

This seems like a timely event after tonight's discussion regarding the blurring of the lines between the for profit and not-for-profit sectors. It should be a great event (and I am not just promoting it because I helped plan it ;-)

It would be great to see you there!

Public-Private Partnership Symposium

Addressing Disparities in Education, Health, and Housing

The Symposium will bring together industry leaders from the private, public, and non-profit sectors to discuss how public-private partnerships are addressing social disparities in Los Angeles County. Following a keynote address, UCLA faculty members will moderate panel discussions with industry leaders in education, health, and housing. We will close with a networking reception at the School of Public Affairs patio. The Symposium is a collaborative effort by public policy and business graduate students who are interested in the use of integrated strategies in policy solutions.

UCLA School of Public Affairs
Thursday, April 24, 2008
5:00-7:00 pm, reception to follow

To Register: http://www.eventbrite.com/event/108804437

Study Questions Session 4

Hi class
Below are the study questions for Session 4
If you are not going to be attending the next session please send me your responses electronically before the start of class on 04.21.
Also please remember that your one page proposals for your white papers are due next week.
Cheers
Michelle

1. In the “Nothing Ventured, Nothing Gained”, what is the profile of the expansion capital “social enterprises” need to grow?
2. What are the three types of capital that epitomize characteristics of the gap that the authors discussed in the article? Provide a comprehensive explanation of each. If possible please provide an example in each category.
3. Discuss the solutions that the authors propose to address the “capital” gap.
4. How does Drayton define the social entrepreneurs’ needs? How does Ashoka meet these needs?

Ratings System for Social Ventures

As a newbie to the topic of social entrepreneurship, I've been particularly interested in our class discussions on the issue of founder intentions and "purer means of motivation" as factors to consider when determining the authenticity, sincerity, or better yet, "goodness" of CSRs.

In "What Matters Most," Hollender writes, "Corporate responsibility issues are not black and white. There is no such thing as a perfectly responsible company." That said, I found it somewhat ironic that Hollender, in one of this week's readings , "A New Kind of Company," thinks "a successful rating system is vital for the social responsibility movement to succeed." Hollender's fear of credibibility loss to CSRs amidst a sea of greenwashed, window-dressing American corporations is understandable. Ever the skeptic, I can't help but question the effectiveness of and difficulties involved in establishing a rating system for social ventures such as the one being pushed by B Lab. In order for a ratings system to exist, there must be, an assumed set of ideal standards. But who gets to decide what CSR "goodness" entails? Who decides what makes the check-list? Although the intent of B Lab's founder Gilbert is to "help consumers separate good companies from good marketing," I forsee all sorts of conflicts of interests that will ultimately emerge and muddy up the good intentions of the organization if the ratings system is not thoroughly thought out.

Net Impact & SRC Event on Nau

Hi all - just got this over the wire from the SRC. Seemed very appropriate for this class!


UCLA Anderson Net Impact and the UCLA Sustainable Resource Center
invite you to join us for:

Ian Yolles and Nau's Revolutionary Sustainable Business Model

When: Tuesday, April 29th, 7:00 pm
Where: UCLA Anderson, EDR
Light food and refreshments will be provided

Started by a group of former Patagonia and Nike executives, Nau was
formed as a sustainable clothing company from the ground up. All
aspects of the business from materials to distribution, design
philosophy to donatation programs have been designed with the
principles of sustainability in mind. Vice President of Marketing Ian
Yolles, formerly of Patagonia, will be visiting UCLA Anderson to
discuss Nau's unique business model and Nau's newest storefront at
LA's Beverly Center, scheduled to open on April 30th.

To RSVP, follow this link:
http://gsa.asucla. ucla.edu/ reservations/ ?q=node/60

Learn more about Nau at www.nau.com

To see an article on Nau from FastCompany:
http://www.fastcomp any.com/magazine /116/features- leap-of-faith. html

If you have any questions or trouble registering, email me at:
alistair.ono. 2009@anderson. ucla.edu

The Rich Get Richer

I found the Dees article "Enterprising Nonprofits" interesting, specifically as it relates to his discussion of how some traditional nonprofits, such as colleges and universities, have chosen to manage their capital requirements along the Social Enterprise Spectrum.

To that end, I found the following survey published by the National Association of College and University Business Officers (NACUBO):

http://www.nacubo.org/documents/research/News%20release%20&%20fact%20sheet_2007_NES.pdf

The study examines college/university endowments of varying sizes and analyzes 1.) how those endowments are invested (i.e. in what asset classes) and 2.) the average return by endowment size.

The results are somewhat striking (if not surprising). The larger endowments tend to invest much more heavily in alternative asset classes (e.g. hedge funds, private equity, real estate), while the smaller endowments stick much more to a "traditional" stocks, bonds, cash mix.

By spreading money around to different types of investments, these larger endowments also command a much higher average rate of return than do their smaller counterparts. For example, endowments of greater than $1 Billion had an average annual rate of return over the past 10 years of 11.1%, while endowments less than or equal to $25 million had returns of just 6.7%. On a pool of money that size an annual difference of nearly 4.5% over 10 years is huge!

While managers of smaller endowments might not have access to the full spectrum of asset classes, I wonder if there are other reasons that can explain why these managers seemingly choose to eschew alternative investments as a way to enhance portfolio returns (and smooth volatility).

Any thoughts?

In case anyone is interested, here are links to both tables I referenced...

http://www.nacubo.org/documents/research/Average%20Asset%20Allocation%20of%20Total%20Assets_2007%20NES.pdf

http://www.nacubo.org/documents/research/Average%20Investment%20Pool%20Compounded%20Nominal%20Rates%20of%20Return_2007%20NES.pdf

Mixing Initiatives to Maximize Value

Today I was talking with a friend who is a 4th grade teacher at a charter school in Sacramento. He told me about his idea for a web site where his students could complete math problems and earn money for global development initiatives. I think it's a good idea - give students an incentive to practice math problems and teach them about global development issues at the same time - while giving them a way to do something about it, though very minor.

He got the idea from http://www.freerice.com/ , which donates rice when people answer vocabulary questions correctly. The site is advertising-supported.

I mentioned that the Gates Foundation supports initiatives in both education and global development and they could look at this as a way to create value using existing resources and funding commitments. They could say that they'll be giving a nickel for each question answered correctly, when they're actually going to give anyways. He would to see a scenario that provides an additional increment in funding when each question is answered. I think this would result in a lower donation per question, but is more honest in that answering the question correctly actually creates the incremental donation.

I'm interested in hearing what the class thinks about this idea.

Back to Walmart

So I've never blogged before so bear with me :). In light of the posts below on the evils of Walmart I wanted to add an article. Maybe I am an optimist, but I truly believe that the tide has turned with corporations becoming more willing to work on their social responsibilities and I often feel that encouragement helps more than criticism. Yes, I agree, Walmart could be more socially responsible, do it faster, and be more transparent about it. But...I don't think anyone can deny that they are trying. Considering we all want the same thing, do we really think that criticism will get us results faster than positive reinforcement? It certainly won't make us feel as good. What would a real psychologist recommend?

Haley

Wal-Mart's mixed 'green' bag
Results from the giant retailer's audit of its social and environmental practices show just how hard it is to grow a company and be eco-friendly at the same time, writes Fortune's Marc Gunther.

By Marc Gunther, Fortune senior writer
November 16 2007: 4:07 PM EST

Here are some things you probably didn't know about Wal-Mart. Last year, the world's biggest retailer:
Generated 20.4 million tons of carbon dioxide emissions
Improved the efficiency of its fleet by 15%
Sold 100 million compact fluorescent light bulbs
Stopped doing business with 2.3% of 8,873 overseas factories it audited because of poor labor conditions
Paid an average hourly wage of $10.76
Employed 15,695 American Indians
Gave away $301 million in charitable contributions
Encouraged its employees to lose weight, and heard back that they lost, collectively, 184,315 pounds

These are among the findings in Wal-Mart's new sustainability report, a 59-page fact-filled document that should demonstrate, once and for all, that the company is serious about becoming more ethical, responsible and environmentally sustainable.
That's not to say that the report brings unalloyed good news. In fact, it offers ample evidence of how far Wal-Mart still has to go as it tries align its business model of "everyday low prices" with its social and environmental responsibilities.

On the plus side, this is the first time Wal-Mart has published a comprehensive audit of its social and environmental practices. That's an enormous undertaking for a company that has 7,000 stores in 14 markets around the world and booked $345 billion in revenue last year.

The scope of Wal-Mart's activities is impressive, especially around environmental issues. It is buying solar power, making its trucks more efficient, selling organic food and cotton, reducing its waste, trying to bring more sustainable practices to industries as diverse as gold mining and packaging, and going beyond legal requirements to get potentially hazardous chemicals out of the products on its shelves.

"The company is moving in the right direction, and learning as it goes" says Gwen Ruta, director of corporate partnerships at Environmental Defense, an advocacy group that has two employees working full-time at Wal-Mart's Arkansas headquarters.

On social issues, Wal-Mart has improved its employee health insurance programs. A Hewitt survey reported that Wal-Mart's health benefits were slightly above average, when compared with 20 unionized and non-unionized retailers and grocers. It has also stepped up its monitoring of overseas factory conditions, an area where the company was vulnerable in the past.
A consultant who worked with Wal-Mart on the report, and asked not to be identified, told me: "They are doing some absolutely great work, and are not getting sufficient kudos."

But the report also shows that Wal-Mart faces enormous challenges on its path to sustainability. One example: The company can operate its stores and its fleet more efficiently, but as it opens new locations and adds more trucks -- in other words, as Wal-Mart keeps growing -- it will tend to pollute more.

Last year, the report says, Wal-Mart's greenhouse gas emissions actually rose by 8.6%. Whether this is good or bad for the planet depends on whether Wal-Mart took business away from less efficient competitors. That's all but impossible to know, but clearly there's a tension between growing the company and reducing its environmental impact.

Another example: The company has a long-term goal of generating "zero waste," but to date doesn't have an accurate measurement of how much garbage it dumps. So, again, there's no way to know how much of a difference Wal-Mart is making.

Environmental Defense also points out that lots of data in the report lack context. The report says that newly-installed restroom sinks in stores reduce water flow by 80%, but doesn't say how many new sinks were deployed or in what percentage of Wal-Mart stores.

The company reports that it sells 22 seafood products that are certified as coming from sustainable fisheries, but doesn't say what percentage of its seafood products, or overall sales, they represent. "You can't make sense out of some of the numbers," Ruta says.

Similarly, while Wal-Mart deserves credit for encouraging its employees to take on "personal sustainability projects" -- they volunteer to recycle, cook healthier meals and exercise more -- knowing how much weight some lost isn't meaningful unless we measure it against the weight that others gained.

More broadly, the most interesting sentence in the report is probably this one, from Wal-Mart CEO's H. Lee Scott's introduction: "We have found that there is no conflict between our business model of everyday low costs and everyday low prices and being a more sustainable business."

Wal-Mart sees green
In a sense, that's surely true. Wal-Mart has always been a business superpower when it comes to efficiency. It's no wonder that the company can get mobilized around the idea of saving energy and reducing solid waste.

But Wal-Mart's business model, as currently practiced, also means sourcing products in global markets at the lowest possible costs. The company imports billions of dollars of goods from China, where labor and environmental laws are poorly enforced and where dirty coal powers the economy. Even if China can be persuaded to clean up its act, "shipping things all over the world is environmentally problematic," the Wal-Mart consultant notes.

Still, everyone who has worked inside Wal-Mart, without exception, tells me that the company is willing to grapple seriously with such questions. That's why the greening of Wal-Mart, however imperfect, remains a very big deal.

American Apparel In the WSJ

I came across a provocative article about American Apparel following their recent IPO on the front page of the Wall Street Journal today:

http://online.wsj.com/article/SB120796037535209509.html?mod=todays_us_nonsub_page_one

(I saved the article to my desktop, so let me know if you can't see the link and I can email it to you!)

The majority of the article focuses on the various controversies surrounding the company and CEO Don Charney. Since we debated briefly during the first class about whether the company could be considered ethical I thought you all would find this interesting.

The article spends little time discussing the "ethical" foundations of the company... really only mentioning it in one paragraph:

"At a time when many large clothing makers were moving their manufacturing overseas, Mr. Charney attracted attention to the brand by electing to make all of the company's clothes in a Los Angeles factory and by championing social causes like immigration reform and universal health care. Tailors at American Apparel's factory receive subsidized health-care benefits and generally make twice the minimum wage. The factory's proximity also allows Mr. Charney to create new designs, and get them to stores, the week after he's conceived them, a speed unheard of in the industry."

Phrased this way it sounds like the Charney's motivation for operating overseas was based more on quick style turnaround than any social cause. From the overall tone of the article, it's not too hard to tell the author's negative opinion on the company... I'm inclined to agree :) Anyways, enjoy!

SRC Events - Tuesday 4/22/08 and 4/29/08

Hey all:
Saw these emails from the Sustainable Resource Center and thought they would be of interest.

CW

+++++++++++++++

As part of UCLA's Eart Day events, the UCLA Sustainable Resource Center is proud to cosponsor a screening of:

End of Suburbia
Oil Depletion and the American Dream

This provocative documentary, a regular on the film-festival circuit, examines the history of suburban life and the wisdom of this distinctly American way of life. A post-World War II concept, suburbia attracted droves of people, giving rise to sprawl and all that comes with it -- good and bad. How has the environment been affected by this lifestyle, and is it sustainable? Canadian director Gregory Greene dares to ask all the tough questions.

"We're literally stuck up a cul-de-sac in a cement SUV without a fill-up" - James Howard Kunstler

http://www.endofsuburbia.com/

Date: April 22nd, 2008
Time: 6:30pm
Location: UCLA Anderson School of Management, Executive Dining Room

Light refreshments will be provided

RSVP requested, but not required: http://gsa.asucla.ucla.edu/reservations/?q=node/62

(the more people RSVP the more likely the food numbers will be accurate- thanks!)

++++++++++++++++++++++++

UCLA Anderson Net Impact and the UCLA Sustainable Resource Center
invite you to join us for:

Ian Yolles and Nau's Revolutionary Sustainable Business Model

When: Tuesday, April 29th, 7:00 pm
Where: UCLA Anderson, Executive Dining Room
Light food and refreshments will be provided

Started by a group of former Patagonia and Nike executives, Nau was
formed as a sustainable clothing company from the ground up. All
aspects of the business from materials to distribution, design
philosophy to donatation programs have been designed with the
principles of sustainability in mind. Vice President of Marketing Ian
Yolles, formerly of Patagonia, will be visiting UCLA Anderson to
discuss Nau's unique business model and Nau's newest storefront at
LA's Beverly Center, scheduled to open on April 30th.

To RSVP, please follow the link:

http://gsa.asucla.ucla.edu/reservations/?q=node/60

Learn more about Nau at www.nau.com

To see an article on Nau from FastCompany:
http://www.fastcompany.com/magazine/116/features-leap-of-faith.html

If you have any questions or have trouble registering, email me at:
alistair.ono.2009@anderson.ucla.edu

Generic Prescription Program Still Profitable for Wal-Mart

From our discussions to Wal-Mart's new initiatives for $4 per 30-day supply of commonly prescribed dosages of generic drugs, I am curious to see the coverage of the 300 generic drugs offered and as to where, likely offshore countries, the active ingredients to these generic drugs are being chemically synthesized. The impact of product quality of generic drugs is uncertain as prescription substitutes for physicians with FDA approval requirements. Therefore, physicians tend to prescribe brand name prescription drugs even at the county and VA hospitals where I rotated as a medical student. Patients and families with low income receive medical coverage under Medicaid, and I would realistically anticipate that this population would not utilize Wal-Mart's policy based on existing medical assistance programs direct with the hospitals that they receive care. Prescriptions at the VA hospital for veterans and their families are subsidized almost completely for their medical expenses. The Medicare program also has its prescription coverage for the population age 65 and older and some under age 65 that are disabled or in end-stage renal disease.

Wal-Mart likely targets the income bracket of working families above what Medicaid covers. Given the extremely low cost of producing general active ingredients for these prescriptions and economies of scale for such production at Wal-Mart and Costco, this program is still hugely profitable for Wal-Mart. I've attached below some information published by the Department of Commerce to show a few benchmarks although most of these brand name prescriptions are what is prescribed by physicians and generics would likely not cover these medications.

Celebrex: 100 mg Consumer price (100 tablets): $130.27 Cost of general active ingredients: $0.60 Percent markup: 21,712%
Claritin: 10 mg Consumer Price (100 tablets): $215.17 Cost of general active ingredients: $0.71 Percent markup: 30,306%
Keflex: 250 mg Consumer Price (100 tablets): $157.39 Cost of general active ingredients: $1.88 Percent markup: 8,372%
Lipitor: 20 mg Consumer Price (100 tablets): $272.37 Cost of general active ingredients: $5.80 Percent markup: 4,696%
Norvasc: 10 mg Consumer price (100 tablets): $188.29 Cost of general active ingredients: $0.14 Percent markup: 134,493%
Paxil: 20 mg Consumer price (100 tablets): $220.27 Cost of general active ingredients: $7.60 Percent markup: 2,898%
Prevacid: 30 mg Consumer price (100 tablets): $44.77 Cost of general active ingredients: $1.01 Percent markup: 34,136%
Prilosec : 20 mg Consumer price (100 tablets): $360.97 Cost of general active ingredients $0.52 Percent markup: 69,417%
Prozac: 20 mg Consumer price (100 tablets) : $247.47 Cost of general active ingredients: $0.11 Percent markup: 224,973%
Tenormin: 50 mg Consumer price (100 tablets): $104.47 Cost of general active ingredients: $0.13 Percent markup: 80,362%
Vasotec: 10 mg Consumer price (100 tablets): $102.37 Cost of general active ingredients: $0.20 Percent markup: 51,185%
Xanax: 1 mg Consumer price (100 tablets) : $136.79 Cost of general active ingredients: $0.024 Percent markup: 569,958%
Zestril: 20 mg Consumer price (100 tablets) $89.89 Cost of general active ingredients $3.20 Percent markup: 2,809
Zithromax: 600 mg Consumer price (100 tablets): $1,482.19 Cost of general active ingredients: $18.78 Percent markup: 7,892%
Zocor: 40 mg Consumer price (100 tablets): $350.27 Cost of general active ingredients: $8.63 Percent markup: 4,059%
Zoloft: 50 mg Consumer price: $206.87 Cost of general active ingredients: $1.75 Percent markup: 11,821%

Can Wal-Mart be Green-ish?

In response to Stacey's question about Wal-Mart, I am skeptical about the company's intention and how to evaluate their relatively recent efforts to be green. During Monday’s class, I realized that, as is the case with gauging social impacts, it is difficult to evaluate Wal-Mart role in mitigating the effects of the health care crisis solely through “Minute Clinics.” Despite the challenge of examining these potential contributions, I have trouble separating Wal-Mart’s notorious reputation for mistreating its employees. Whether Wal-Mart intended to help the health care issue or not, the company is far from responsible. My feelings, in part, are a result of a book and documentary that I mentioned during our discussion in class entitled, Wal-Mart, The High Price of Low Cost. The 2005 film, by Robert Greenwald, challenged the way I thought…and shopped.

I am one of the few students who raised their hand in class, admitting that they had never visited a Wal-Mart. Experiencing a Wal-Mart is on my to do list, but, after becoming aware of the company’s behavior, I vowed not to make any purchases that support these business practices. I understand that I am fortunate to have the luxury of choice; I can buy similar products from competitors that may charge more for the same goods. There are many that cannot boycott based on principle.

To Wal-Mart’s defense, they have made several attempts to become “greener.” The company hired Blue Sky Consulting to help with the process. Some stores have tried solar panels and skylights to reduce the use of power. Additionally, some stores have attempted to use organic cotton. However, one clear flaw with this as a social policy is that consultants can only advise clients; they cannot force them to adopt a specific level of behavior.

Even with these efforts, I feel that both the film and book reveal a side of Wal-Mart that makes it virtually impossible to categorize the company and many of its business decisions, like the minute clinics, as socially responsible.

For more information about the film, check out the link below:

http://www.walmartmovie.com/

I own the documentary and I am happy to loan it out if anyone is interested in a light-hearted flick.

GreenBiz.com

Just to add some more info to Martin and Stacey's posts. One of my favorite green sites www.greenbiz.com just posted an article about Marriott. They also just posted one about Wal-Mart and their greening efforts in China as well. There is also a new article on Ethical Brands associated with jewlery (e.g. non-blood diamonds)

Wal-mart: http://www.greenbiz.com/news/news_third.cfm?NewsID=55866
Marriott: http://www.greenbiz.com/news/news_third.cfm?NewsID=55860
Ethical Brand Jewelry: http://www.greenbiz.com/news/reviews_third.cfm?NewsID=55850

Also if you like to get green info while you work out/commute. Greenbiz has free weekly podcasts on all sorts of topics that you can download to your iPod. Great for staying on top of various industry trends without adding to our reading lists. God I wish we had this for Strategy Case Studies :-)

AGG

Nestle Water Under Attack

Hi folks! I came across the following article on Nestle's recent water wars in the April 14th issue of Businessweek. The article complements our last class discussion fairly well. Enjoy.
http://www.businessweek.com/magazine/content/08_15/b4079042498703.htm

Green Initiatives at Marriott

The below is an excerpt from the blog of Bill Marriott, Chairman and CEO of Marriott International:

"It's Environmental Awareness Month at Marriott, so I want to pick up our discussion on the environment. Judging from some of the comments you've sent, there's a lot of interest in global warming. Many of you challenged me on whether our company's efforts were strong enough and that's really great. That's why I started my blog --because I want to hear from you.
What you had to say mirrors consumer trends, especially in travel. People want to do business with companies that do the right thing. I think conserving natural resources and reducing Marriott's environmental footprint is the right thing to do. I told you about how we're going to reduce greenhouse gas emissions by six percent by 2010. Actually, that's on top of the 11 percent reduction we've already made.

But our environmental efforts don't end at our front door. My dad felt strongly about creating a caring corporate culture. It revolves around service for our guests and our communities. We call it our Spirit to Serve. This month it will take center stage as our associates around the world volunteer their time and partner with Clean Up the World.

We'll be cleaning up shorelines - like the Thames in London and the Potomac River here in Washington, DC, and beaches like Taba Heights in Egypt. In Jordan, the desert is consuming what's left of its forests, which are only one percent of Jordan's land. Near the capital, Amman, our associates are planting trees. The government is even calling it the Marriott Forest.
We've set a goal of planting 3,000 trees around the world this month. Experts say each one of these trees will remove one ton of carbon emissions from the atmosphere over their lifetime. The Dayton, Ohio Marriott is planting trees and building a bird sanctuary. And the Frankfurt Marriott in Germany will begin converting its wet waste into a new energy source called marsh gas.

We have a video about some of these projects. And, of course, we want to see what you're doing to save the environment that could result in an eco-vacation to Costa Rica. Just go to You Tube to learn more.

There's so much we're doing around the world and much more we will do. April will be designated Environmental Awareness Month at Marriott, but it's a 24/7 effort. I'm Bill Marriott and thanks for helping me keep Marriott on the move. "

I think Marriott deserves credit for increasing transparency of their CSR via this blog and soliciting feedback from their customers. This is an illustration of how CSR initiatives can increase customer loyalty by involving customers and other stakeholders in the initiatives, which can result in both higher profits (via lower customer turnover and acquisition costs) and a positive environmental impact. I think this is a great way that "shared value" can be created.

The link to the blog is: http://www.blogs.marriott.com/default.asp?item=555490 and an overview of their green initiatives is at: http://www.blogs.marriott.com/environment/.

Walmart

As a follow-up to the conversation we had tonight on Walmart's move into low-priced pharmaceuticals, what do people think about Walmart's "greening" efforts?

While a portion of these sustainability efforts may be attributed to "greenwashing," there is certainly a good business case to be made for the cost/energy savings Walmart is experiencing. As a global company, it also makes sense for Walmart to manage risks associated with climate change, resource shortages, potential policy changes, etc.

Given the scale of Walmart's operations, as well as the power it wields over its suppliers, Walmart's environmental improvements could have enormous impact (regardless of intention)...

Are there dangers in giving Walmart too much credit - or not enough?

Study Questions: Session Three

Below are the study questions for session 3. If you are planning on missing class next Monday, please email me that you will not be attending. Study Questions are due before 7pm (start of session 3 class). If I do not receive your study questions, you will not get credit.

Additional reminder
Please email me your group name and members. I noticed a lot of you have not signed up as of yet.

Nice class discussion this evening.
Cheers
Michelle

Study Questions

Christensen, Baumann, Ruggles, and Sadtler article:

1. Summarize the distruptive-innovation model? How does this model differ from the catalytic innovation model?

2. The articles authors’ assert that the Minute Clinics are an example of catalytic innovation. What arguments do the authors use to substantiate this claim? Do you agree or disagree?

Dees article

3. What are they key reasons Dees provides for Non-Profit organizations commercialization efforts?

4. What are the dangers of pursuing this strategy? How can non-profit organizations overcome these issues?

5. Do you believe Dees argument that a non-profit’s commercial programs do not need to be profitable to be successful? Explain?

Milton, Measuring Environmental Externalities & The Role of Regulation in the U.S.

(I apologize in advance for the lengthy nature of my post)

I read Milton's article and my knee-jerk reaction, was that we were assigned the article to get a fired up about an underlying statement that managers of firms should not deviate from maximizing profitability even if it means that sacrificing profits is for something socially or environmentally positive. I'll admit I felt that Milton came off as insensitive to social plight, however I don't think his theory is wrong. In fact not only do I agree with his theory, I believe that his theory actually strongly supports an argument for social entrepreneurship if one accounts for environmental and social externalities appropriately the equation of profit maximization.

Milton summarizes his argument that "there is one and only one social responsibility of business–to use it resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud."

He does not imply that companies should act in socially irresponsible ways. I think the two most important points in this statement are the "efficient use of resources" and "staying within the rules of the game". If companies followed this statement there would be opportunity to influence the profit maximizing behavior of firms by putting economic dollar value on "social benefits and costs".

This is already occurring in the example of Green House Gas (GHG) emissions. The Global Reporting Initiative (GRI) (www.celb.org/xp/CELB/downloads/GRI_2002.pdf) is an initiative to essentially create an international metric system by which companies can report their GHG emission. This would pave the way for things like treating GHG emission as a commodity and thus dollarizing air pollution to be factored into project NPVs. The end result is the opportunity for firms to make more educated decisions about the efficent use of their resources.

Playing within the rules of the game is how Milton factors in government regulation as the force that stipulates the boundary conditions on all the variables that go into profit maximization. This also supports the other opportunity for those who want a company to function in socially responsible ways in the Milton economic world. While Milton argues that companies and CEO are not people; In a republic or democracy, governments are a representation of the populous. Thus, it is in my opinion the responsibility of those who argue for social responsible corporations, to use the government as a tool to set laws that require companies to have a minimal level of social responsibility. As our ability to measure these environmental externalities increases, the expectations of our companies should increase as well.

This brings me to my question for the class.

How should regulation of social externalities be implemented in the U.S.?

To get this started, the thought that has rolled around in my head since I started learning more about social responsibility is that this question seems very analogous to issues that the U.S. has had with capitalism and financial transparency. Lack of financial reporting standards and transparency caused the stock market crash in 1929 which resulted in the formation of the Securities and Exchange Commission (SEC). The SEC influenced policy through what is now independently known as the Financial Accounting Standards Board (FASB) and their Generally Accepted Accounting Principles (GAAP). This made it mandatory for all public U.S. companies to report a minimal level of financial information and suffer penalties if they did not comply with certain financial standards. I believe in order for the U.S. to make an impact in social responsibility a similar mandatory reporting structure must be created. The GRI guideline seems like the most comprehensive document out there in terms of reporting and many Fortune 100 firms are beginning to use it as the "gold standard" of CSR reporting, but it is still only voluntary, and unfortunately when we ask everyone to play nice and use the honor system we end up with Enrons and Drexel Burnham Lamberts.

Update: Blog Posting

I have received some emails about students being unable to create new blog posts. I have investigated the issue and it seems that I will need to invite each one of you separately to my "blog" team. You will receive an email invitation. Please accept the invitation. If you do not have a google account you will be asked to create one.
I am in the middle of pulling together your email addresses and I will send the invitation as soon as possible. In the meantime, please go ahead and use the comment area to post new blogs for the time being.

Study Questions for Session 2

Hi everyone
Below are the study questions for session 2. As mentioned in class, students who will not be attending next week's class, should hand in these questions at the start of session 3 on Monday. I recommend that everyone take a look at the questions and be prepared to discuss them in class

How does Milton Friedman define social responsibility? What arguments does he use to rationalize his argument? What problems or issues arise given this definition?

Michael Porter and Mark Kramer identify four reasons corporations give to justify their Corporate Social Responsibility initiatives. What are they? According to the article, what are their strengths and weaknesses? Do you agree or disagree?

According to Porter and Kramer, how should companies determine what corporate social initiatives to start? What processes should a company use to identify these core initiatives?

Compare and contrast Porter and Kramer’s definition of social responsibility with that provided by Klaus Schwab? Are their similarities? What are the key differences?