Blending Profit and Nonprofit Values
What would happen to our world economy if for-profit businesses measured social, environmental, and cultural returns on investment, and nonprofit businesses were actually financially viable? Jed Emerson, GSB lecturer in business and a senior fellow with both the William and Flora Hewlett Foundation and the David and Lucile Packard Foundation, claims that the traditional separation between the profit and not-for-profit business models is shifting, providing a new blend of values.
In fact, the "blended value" proposition is at the core of Emerson's work. He proposes that in the past we have limited our perception of business profitability because we focus on quarterly economic gain and have elaborate financial systems to track that. He says, "We've lost sight of the reason we create companies and make investments: to make our lives better—the manifestation of the human drive toward value."
Despite the trend for socially conscious business enterprise, he believes we undervalue the social, cultural, and environmental impact of business activity because we have no definitive measures. He is calling on academics and business leaders to generate a hard-headed business approach to measure the social return on investment, or SROI, as a way to tell the wider story of the success of a business enterprise.
"I just reject that you can't quantify a social return. If people are going to claim a value and not actually track it, they have no right to make that claim. An investor needs more than a picture of a smiling face from a program for inner city youth; you need to be able to track how your intervention is going to keep a kid from moving into the juvenile justice system," Emerson says.
Emerson began his career as a social worker in New York and San Francisco, where, he says, he was perceived as highly successful because of good media coverage and political connections. This perception still frustrates him, as it was not based on a real measure of the success of his programs in the lives of the people he was serving. From 1989 to 2000, he worked in philanthropy with the Roberts Enterprise Development Fund. REDF invests in nonprofits that hire the formerly homeless, including at-risk youth, and has demonstrated the viability of measuring the social return on their investments. He noticed interesting financial trends there. "With REDF, although the primary value was social and not financial return, the organizations were financially viable," Emerson says.
Outside the nonprofit model, it's also possible to mix financial and social values to the benefit of the whole organization. He gives as an example ServiceMaster, the international corporation with billions in annual revenues, which hires mostly undereducated employees and then invests heavily in training and development. "This is not a classic profit choice, but it gives employees a sense of power, which increases the overall success of the company, all built on an alternative sense of value and mission. Many companies are missing the opportunity to capture greater value by ignoring the social capital component."
Emerson advises a wide range of institutions, from large non-governmental organizations to for-profit multinationals subject to the effects of social and environmental impact regulations. He says, "I realized that what had traditionally been separate goals and missions are now the same conversation. The fundamental issue for all investors and business leaders is what do you value? How do you understand the value proposition of your company or investment plan? All the rest of your decisions grow out of that understanding."
Emerson also is in ongoing conversation and debate with the foundation communities, a perfect arena for the blended value proposition and its primary application, the use of "total assets" to support the stated values of an organization. He rejects the classic foundation model, which assigns only 5 percent of assets for charitable giving and manages the remaining 95 percent of the corpus for economic profit only. "Of all institutions, foundations are established to pursue wider social considerations; that only 5 percent of their assets are used that way is offensive. What does it really mean for foundations to create value?" he asks.
Emerson, whose grandfather taught rhetoric at Stanford in the thirties and forties, is speaking and writing on his blended value proposition to both academic and wider audiences. He is not seeking to develop a definitive business value system from a mountaintop, but rather to engage people from all arenas to grapple with the question of value as it makes sense in their work. "The Center for Social Innovation at Stanford is the perfect place for me to be affiliated," he says. "It cuts across academic disciplines and provides a platform to be engaged in broader areas of inquiry. It's a great way to step outside of our main track and still be supported by the institution, to pursue cross-discipline inquiry and be in dialogue across boundaries."
Blending Profit and Nonprofit Values
A Capital Idea: Total Foundation Asset Management and the Unified Investment Strategy, Jed Emerson, GSB Research Paper 1786, January, 2002
Enterprising Nonprofits: A Toolkit for Social Entrepreneurs, J. Gregory Dees, Jed Emerson, and Peter Economy, John Wiley & Sons, 2001
Strategic Tools for Social Entrepreneurs: Enhancing the Performance of Your Enterprising Nonprofit, J. Gregory Dees, Jed Emerson, and Peter Economy, John Wiley & Sons, 2002