Tuesday
September 4
2018

James Militzer

A 21st Century Approach to Social Progress: Cross-Sector Partnerships as a Possible Solution

With the size of the problems facing our world today, many leading thinkers have come to the same conclusion: The most promising solutions are those that operate at a similarly massive scale.

That means we can no longer afford to take a piecemeal approach to global challenges, hoping that government programs or social sector organizations working alone will handle the heavy lifting. Instead, what’s needed is a collaborative approach that brings together leadership, innovative thinking and resources from the public, private and philanthropic sectors.

A new book, “Social Value Investing: A Management Framework for Effective Partnerships,” explores how these partnerships can reach their full potential. In it, authors Howard W. Buffett and William B. Eimicke present a five-point management framework for developing and measuring the success of cross-sector partnerships. The book provides tools to maximize collaborative efficiency and positive social impact, along with practical insights for private sector CEOs, public sector administrators and nonprofit managers hoping to build effective cross-sector collaborations.

NextBillion spoke with the authors via email about their framework, the upsides (and downsides) of these partnerships, and how collaborators from very different sectors and backgrounds can work for the common good. You can read the Q&A below—and during the month of September, subscribers to our weekly e-newsletter NextBillion Notes can also read a free chapter of “Social Value Investing.” Click here to subscribe, and click here to learn more about the book.

 

James Militzer: Why did you write “Social Value Investing,” and what’s the core message you hope to get across in the book?

Howard Buffett and William Eimicke: We wrote “Social Value Investing” because we believe many of the world’s most significant challenges—poverty and unemployment, hunger, damaging climate change, and access to affordable housing, education and health care—can be met using cross-sector partnerships based on long-term strategic plans and proven elements of effective management.  We developed this belief over a decade of research, study and work with cross-sector partnerships—many of which have made a measurable positive difference in people’s lives in developing and developed countries around the world. Our book describes successful partnership models in India, New York City, Brazil and Afghanistan whereby mission-driven social sector organizations, government agencies and for-profit companies come together in various combinations to benefit their communities, while also reaching the independent organizational objectives of each partner.

The book compiles the elements of these successes (and several disappointments) into replicable principles and practices for other organizations and their leaders. While the principles were inspired by the private sector (specifically, the management approach of Berkshire Hathaway), they are applicable regardless of organizational type. These core elements—process, people, place, portfolio and performance, applied through a detailed, long-term strategic plan—can enable cross-sector partnerships to help address our most important societal challenges effectively and efficiently.

 

JM: Why do you see cross-sector partnerships as such a promising vehicle for social change? Can you provide an example from the book that illustrates their potential impact?

HBWE: Based on our research and experience, we have learned that no one organization or sector has the capacity and expertise to address many of our most important social objectives. As we describe in the book, government historically took on many of society’s most difficult challenges and did so with some success, such as former U.S. President Franklin Roosevelt’s New Deal, President Kennedy’s manned moon landing and related NASA initiatives, and President Johnson’s Great Society programs. It should be noted that private firms contributed significantly to those successes—but they did so as contractors or in parallel support initiatives.

However, in our modern, post-privatization, hyper-connected and globalized economy, government lacks the capacity, scope, skills and trust to operate with the authority and expertise it did in the 20th century.

For example, in the book we describe how the government of India worked for nearly two decades on a program to create a universal, biometric identification card. The program, developed under the leadership of then Prime Minister Manmohan Singh, enabled the country’s huge population to access a wide range of government services, and helped control corruption. In 2014, current PM Narendra Modi reshaped the program into a cross-sector partnership, bringing in technology sector expert and leading Indian business mogul Nandan Nilekani to engage the private sector as a partner in building the network and serving the public. Nilekani worked with India’s world class tech firms to build the infrastructure (similar to what these firms do for American Express and other global companies) and engaged more than 150,000 local entrepreneurs to process and enter over 1.2 billion people into the Aadhaar ID system.

Today, members can access government benefits such as cooking gas and food subsidies as cash on their secure Aadhaar card, and can store and produce important documents (including voter registration and drivers’ licenses). They can also use the system through their mobile devices to access private bank accounts and health care services through a partnership with Apollo Hospitals e-medicine programs, found in public clinics across the nation. Just recently, Modi proposed a new government health insurance program covering approximately 500,000 citizens, to enable them to receive care in private hospitals using their Aadhaar card.

 

JM: Alternately, what are the downsides to these types of partnerships? Can you provide an example of one that went wrong, and briefly discuss why it failed?

HBWE: Partnerships are complex and labor intensive, and they require skilled, collaborative leaders and the active involvement of the people and places being served. Partnerships often require multiple funding sources with various levels of risk and cost, properly sequenced, and a process that is efficient, open, transparent and accessible. In the book, we devote an entire chapter (chapter 13) to the Rio Summer Olympics of 2016. While the Games themselves were widely considered a success, in the aftermath, a series of negative consequences emerged, including charges of corruption, community displacement and some dilapidating venues. Many positive longer-term impacts have also emerged, including a significant expansion of the Rio mass transit system and increase in its ridership, the creation of the internationally renowned Museum of Tomorrow (now the second most visited attraction in Brazil) and the reuse of Olympic participant housing as affordable apartments for Brazilian civil servants.

Unfortunately, local public and private partner leaders focused almost exclusively on getting the facilities ready on time for the event, virtually ignoring public participation and transparency, which are necessary for place-based solutions. As a consequence, a number of public and private leaders are facing trials and prison for corruption, many communities and advocates remain angry and alienated, and a significant national recession ensued. Had the five elements of successful partnerships been followed—process, people, place, portfolio and performance in the context of an explicit long-term plan—some of the negative consequences could have been avoided and the positive impacts magnified.

 

JM: What are some of the keys to maximizing the potential benefits and avoiding the possible risks of cross-sector partnerships?

HBWE: First, be mindful of the five elements in establishing and managing the partnership. Second, make sure that all stakeholders are engaged and support the long-term goals and organizational roles and responsibilities in the program/project strategic plan. Three, use the 15-point Social Value Investing Partnership Checklist provided in the book to keep the partnership on track to achieve its critical social objectives. While all 15 items on the checklist are extremely important, among the most crucial are a comprehensive strategy, collaborative leadership, broad public participation, agreement on complementary contributions, and measurable indicators that help to define success in terms of reaching mutually shared goals.

 

JM: How do you respond to the criticism that public-private partnerships can lead to the unnecessary, potentially costly privatization of services that are better provided by government, rather than by private players focused, in part, on making a profit?

HBWE: We view cross-sector partnerships organized in accordance with the Social Value Investing management framework as (typically) a better option than traditional privatization. Government alone cannot solve some of our most important and pressing social challenges—but neither can private firms. And traditional public-private partnerships are often focused on infrastructure alone and frequently ignore the social sector, the fastest growing sector in many countries.

As we describe in one of the book’s examples, social sector partners made the restoration of Central Park and the creation of the High Line in New York City possible, and we believe they can be crucial partners in collective efforts to make quality housing, education and health accessible and affordable for all. But the social sector alone lacks the scope and resources of the government, and the efficiency and cutting-edge technology of leading private sector firms.

If social progress was first led by government in the 20th century and then accelerated by privatization as that century ended, we believe social progress in the 21st century will be led by the types of cross-sector partnerships profiled in our book. Profit can drive efficiency and innovation and thereby make social objectives that are otherwise unachievable an affordable reality. Cross-sector partnerships that define success in terms of mutually shared goals can make it so.

 

JM: In the book, you’re fairly critical of the relationship between philanthropic donors and grantees. What do you see as the main problems in the donor / grantee relationship, and how can these be improved?

HBWE: There are many aspects of a donor / grantee / beneficiary relationship that can be unhealthy. For example, try to consider what it’s like being a program beneficiary of an aid program. Frequently, beneficiaries have to take what they are given in order to survive, and therefore have no choice over what they are receiving. In other words, they have no agency over their life in a given time or during a series of life circumstances (for some refugees, for example, this may last most of their lifetimes). Furthermore, the nonprofit sector does not typically operate as though it were within a market system (in part because beneficiaries have no choice), which means there are few natural feedback loops when things aren’t going well. In this construct, who is the “consumer”? Would it be the beneficiary receiving the product or service, or the donor who is paying for it? In contrast, the private sector has a clear path from product or service to consumer with these feedback loops built in—if a consumer doesn’t like a product, they stop purchasing it because they often have an alternative choice.

Limited agency or choice is indicative of the broader relationship (and inefficiencies) between donors and grantees as well. In this dynamic, you often hear of donors who are imposing their wishes or world views on grantees and beneficiary programs, whether or not they are accurate or appropriate. So whether the misbalance is between beneficiaries and grantees, or grantees and donors, challenges often arise due to the inherent differences in power dynamics. We go into this in greater detail in our book, and offer some considerations and shared principles we believe are important. You can find this in chapters 7 and 8 where we outline and discuss place-based collaboration, and also in our Partnership Checklist.

 

JM: What are some lessons you’d offer to impact investors, and how is impact investing different from Social Value Investing?

HBWE: It’s easy to understand how and why impact investing as a practice, and Social Value Investing as an approach, can be grouped together. However, the two are very different and not directly comparable. Impact investing is typically about an investor who is interested in making a financial return while improving the world at the same time—or about an investment or group of investments doing the same in some measurable fashion. On the other hand, “Social Value Investing” outlines strategies for many different kinds of collaborators (often including impact investors) to partner together to accomplish their goals and shared objectives concurrently.

More specifically, “Social Value Investing” may hold lessons for an impact investor who is interested in working more effectively with a local city government, a foundation and a nonprofit educational program on a neighborhood revitalization project, to take just one example. Such parties could consider our five management areas, the book’s observations and lessons, and our Partnership Checklist as a bit of a roadmap for how to plan and manage such a collaboration. They could then use tools found throughout the book, such as the Impact Balance Sheet and Impact Rate of Return methodology, to collaboratively define, measure and track program success throughout the partnership.

 

JM: Where do you see the philanthropic sector in 10 years, in terms of its relationship with impact investing? Specifically, how fully do you think the trend toward for-profit investing approaches will be incorporated into philanthropy, and do you see any reason for caution there?

HBWE: In part, this depends on how one defines impact investing. Arguably, foundations have been engaged in impact investing since the 1960s with the emergence of program-related investments. More recently, we have seen new financial tools such as social impact bonds, which we outline in the book’s chapter 10. Here we discuss how to use a portfolio approach to finance cross-sector collaborations.

It is likely that we will see increases in the amount of resources available for financial tools that have some level of return expectation. Consider that a philanthropic grant almost always has a negative-100 percent financial return—meaning, none of the money is returned to the donor. Going forward, we believe that the sector will see more and more philanthropic dollars falling into the category of negative-99 percent returns and above. This means some money will be returned to donors through tools such as forgivable debt, long-term no-interest loans, etc. Furthermore, and somewhat related, the sector is seeing more and more philanthropically-oriented dollars being distributed through charitable LLCs, rather than private foundations. These LLCs face far fewer regulatory restrictions than private foundations, which may also lead to more dollars being used in philanthropic ways, but with more and more for-profit practices associated with the activity. Again, this is an area where we believe the tools and resources found in our book can be helpful to those who are learning about and engaging in this kind of work.

 

James Militzer is an editor at NextBillion.

Image courtesy of Pixabay.com.

Homepage photo via: Pexels.com

 


 

 

Categories
Investing
Tags
books, impact investing, partnerships, philanthropy, public private partnerships, social change, social impact, social innovation