Balancing Social and Financial Returns
Many of the articles you read about business acting as a force for good in the world tend to be a bit light. Not this one. It’s quite thoughtful. Here’s the highlight if you can’t spare the time to read the full piece:
It may be that if we want better companies, we have to change the way we invest in them. Our expectations for good are only worth as much as what we’re prepared to suffer as investors. If we expect bigger and faster returns all of the time, it’s not surprising that we end up with companies that are less good than we want.
“It’s immensely fulfilling for people to come into contact with what their money is doing,” he says. “People think investors want higher returns and the borrowers would rather have lower rates of interest to pay. But that doesn’t happen. Often, it’s the opposite. Invariably, the investors stand up and say, ‘This environmental and social impact you’re having is so compelling that if you want less return, I can probably do that.'”
Personal connection changes the nature of transaction and leads to a more cooperative, human-sized arrangement, Shaffer says. In other words, it’s the exact opposite of what happens when you invest in a mutual fund, and you’re 10 steps away from what a company does with your money. In the future, we need to build more direct, accountable relationships into investing, so we knew where our capital is going. Replicating something like RSF’s pricing meetings on a larger scale—say, in agreeing on the size of shareholder dividends—would lead to a more responsive type of enterprise. Could Wall Street organize quarterly forums where companies and investors would discuss the ratio of financial to social returns?