NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Editor’s Note: Check out other NextBillion articles on the 2012 Harvard Social Enterprise Conference here and here.

“We really are at a crossroads,” The Economist’s Matt Bishop observed at the opening of the second day of Harvard’s Social Enterprise Conference. We’ve reached a point in time to rethink how markets work, and how more people can share in the benefits of the global economy, he noted.

Social entrepreneurs and their allies have been fond of saying this for some time. But Occupy and the other protest movements of 2011 really drove the point home, Bishop said. He joked that the crowd of nearly 1,500 conference attendees had gathered at “the home of the 1 percent,” Harvard Business School. He added that the day’s discussions about innovation, economic inclusion, and social change would be important for rethinking how markets can serve more of the 99% around the world.

Ashoka Founder and CEO Bill Drayton echoed Bishop’s introduction. “Right now I believe we’re at the most profound transition point in the history of our species,” he said.

Today’s social entrepreneurs are showing the world a new model for what Drayton calls collaborative entrepreneurship – a model of changemaking that based on empathy, and on working in teams that cut across traditional distinctions between the public, non-profit, and private sectors.

If the present moment is an inflection point in history, Drayton said, the past was a time when processes were based on repetition – people doing the same things again and again, working through the same social systems, caught in the same patterns of cause and effect.

Today’s challenges of poverty, environmental crisis, and political instability need solutions that will emerge from new patterns of action, Drayton said. “We’ve got to tear the walls down between government and business and society.”

Vanessa Kirsch, founder of New Profit Inc., spoke in more specific terms. She noted that the social enterprise ecosystem has made major progress and has matured a lot in the last ten years. Social entrepreneurs can now get more funding, easier, and faster than ever before.

Governments also are starting to create a more supportive enabling environment for social entrepreneurs by adopting policies to foster social innovation, she said. The public sector is also experimenting with new methods to catalyze social change such as social impact bonds. The UK government is promoting these bonds and the state of Massachusetts has started to offer them as well.

While Drayton and Kirsch both described much progress in the social entrepreneurship field, Drayton voiced concerns about short-lived enthusiasm for the concepts of “social enterprise” and “impact investing” that might fail to deliver.

A wave of excitement for social investment comes every six to seven years, he said, bringing a lot of energy and capital. But it doesn’t go anywhere unless the supply of investment opportunities continues to increase.

Social entrepreneurs have their work cut out for them to create more viable models for change. Drayton encouraged the audience at the close of the session: “Help your friends have the courage that you have” to try to create a better world. Kirsch mentioned her philosophy of “powerful vulnerability” and added, “take risks and people will help you. Do it now.”

Afternoon Keynote: Judith Rodin, Rockefeller Foundation

If the morning session looked back on the progress social entrepreneurship has made in recent years, and on the challenges of the present, the afternoon plenary session focused on what the future holds for the field.

This year’s Pitch for Change competition awarded five social enterprises top honors. They included Ho’oulu Pacific (first place), Jamela Oil (runner up), Emprofit (third place), and Essmart (audience choice).

Afterwards, Judith Rodin of the Rockefeller Foundation delivered a keynote address about the future of social entrepreneurship.

“Rarely do we think of our leaders as innovators, and rarely do we think of our innovators as leaders,” Rodin said. That needs to change.

In 2010, “innovative” was the second most-used term on LinkedIn, behind “extensive experience.” But we need more real innovators, and leaders with the courage to take risks and the vision to see things in new ways, she said – individuals with the courage to be creative and the vision to scale bold new ideas.

Rodin described leadership and innovation as twin pistons that help to drive one another. “Leadership drives innovation; innovation drives leadership,” she said.

She cited a range of approaches to leadership and innovation.

During her presidency at the University of Pennsylvania, the neighborhood in West Philadelphia adjacent to Penn’s campus had fallen into decline: unemployment and crime were rising, stores had closed, and houses were in need of repair. Rodin helped mobilize the university community to help restore what is now known as University City. Penn invested in the neighborhood, restoring houses and selling them back to residents; worked with local teachers to build a model school; and developed deserted commercial corridors. (She writes at length about the experience in her book The University and Urban Revival.)

In New York, Mayor Michael Bloomberg has tried to institutionalize innovation through initiatives such as the NYC Center for Economic Opportunity, which manages an innovation fund to support new approaches to poverty alleviation in New York City, along with in-depth evaluation of the approaches it supports.

Massachusetts Governor Deval Patrick is leading efforts to bring social impact bonds to Massachusetts and President Obama included $100 million in funding for social impact bonds in his proposed 2012 budget.

Throughout her speech, Rodin touched on a theme that ran throughout the entire conference: innovative ways to use technology to support a range of goals, including environmental sustainability, financial inclusion, and political participation. From Massachusetts, where the eCatch app is helping with the sustainable management of fisheries, to the Middle East, where social media have helped to propel sweeping political changes in the past year, technologies that enable new kinds of communication and collaboration are enabling change in unprecedented ways.

Rodin described the new equation: Holding leadership accountable + Bringing stakeholders together = New ideas

And, she added, “the view that you can change the world with ideas is becoming a well-established reality at the outset of the 21^st century.”

Thinking about the future of social entrepreneurship, Rodin noted that the Rockefeller Foundation will celebrate its centennial next year. Part of that celebration will involve a new commitment to collaborate with the communities the foundation’s initiatives are intended to serve, and to use technology and crowdsourcing to gather ideas for solutions.

“We are past the period when smart people sitting in rooms in the US can tell people in poor neighborhoods and in the developing world what to do,” she said.

She also echoed two other important themes from this weekend’s conference:

Rockefeller Foundation is interested in resilience, she said, and in supporting more robust individuals, institutions, and businesses that can weather shocks and thrive amidst adversity. Failure is something to learn from – not something to fear.

When asked about impact assessment and quantifying performance, she noted, “I don’t think we’re going to get to impact unless we work towards getting better measures.” Social entrepreneurs need to gather quantitative and rich qualitative data to track performance, and to make sure they are making the impacts they try to achieve.

Closing session: David Blood, Generation Investment Management

At the close of the day, Goldman Sachs alum David Blood addressed a thinning crowd in HBS’s Burden Auditorium. He described his career with Goldman and his more recent work with Generation Investment Management, a social investment firm that he co-founded with former Vice President Al Gore.

Blood talked about the current crisis in capitalism and said, “I still feel very strongly that finance can do good things, and that markets can do good things, and that capitalism can do good things. Markets are an efficient way to allocate capital and resources.”

But the kind of sustainable capitalism that we need, he said, needs to address long-term impacts, and to consider social and environmental factors. Such a system should have different incentive structures from the current regime, along with new regulation, and it should put a price on externalities.

So are his ideas for this kind of capitalism catching on?

Blood admitted that when he talks to his former colleagues at Goldman Sachs, many of them roll their eyes and think he’s rambling about values, not creating value.

But Blood insists that “the business case for sustainable capitalism is strong.” There is no reason why financial profits and social impact cannot be aligned, he said, especially in the long run.

He commented that public opinion of financiers is at an all-time low, and that investment bankers are dangerously close to losing all credibility in the eyes of the public.

Capitalism needs to evolve, Blood said. He outlined three broad points for the audience members, especially the business school students in the crowd:

1. You don’t have to check your values at the door when you take a job at a large investment bank or consulting firm.

2. Collaboration is critical. Social entrepreneurs need to encourage more collaboration across the public, non-profit, and private sectors.

3. Social entrepreneurs and financiers alike should focus on what matters: the impact of their work.

Blood sees an essential role for business to play in solving major global problems. “There isn’t enough money in philanthropy to address the challenges. To the extent that we can get businesses to address them, that’s a good thing,” he said.

Doing this means thinking about new ways to deploy capital for social change. “We need patient capital and blended capital,” he said.

“We need to find ways to provide capital to [social] businesses that need to grow” in such a way that they can remain focused on their social mission, without abandoning it because of pressure from outside investors with other motives.

Early in his speech, Blood mentioned that he was attracted to Goldman Sachs because of the firm’s strong values. In the question and answer session following his talk, one audience member asked Blood how he viewed Goldman’s values in light of the accolades the firm has received for its work through programs like the 10,000 Women Initiative, on the one hand, and fines paid for unethical business behavior, on the other hand, including the $550 million fine Goldman paid to the SEC in 2010 to settle claims that it had misrepresented mortgage deals to investors.

The audience member said that was intended as a softball question, to which Blood replied: “Remind me not to answer your fastball.”

He said he was proud of the 18 years he spent at Goldman, and that some of the people implicated in the past year’s scandal are no longer working at the firm. He also conceded that critics of financial institutions, like the Occupy Wall Street movement, have a point. The rules of the market system need to change and “for senior folks at investment banks not to realize that, that’s a real shame.”

As the Q&A continued, he added that it’s important for social entrepreneurs to maintain the highest standards of ethical behavior, measurement and impact assessment, and performance.

“Social entrepreneurship is one of the most noble fields there is. I think it makes you a better person,” he said.