Consider how far we've come from the business mottoes that captured the zeitgeist 10 or 15 years ago. Facebook's old internal mantra, "Move fast and break things," encapsulated the brash Silicon Valley ethos that unleashed the transformative power of digital technology.
Now, as unintended consequences of that technology have come into focus, a new mantra--coined by John Paul Farmer, Director of Technology and Civic Innovation at Microsoft--is defining a new era with a greater awareness of ethical responsibilities: "Move purposefully and fix things."
That certainly speaks to our mission as a family office: to invest with purpose and for profit. But with a growing number of investors (and startups) interested in businesses with a social component, it's important to parse the marketing rhetoric of entrepreneurs who promise that their companies will disrupt for the greater good and make people's lives better.
As an impact investor, I seek out ventures with ESG (environmental, social and governance) principles baked into their business models and practices. But as the impact investment movement matures and those active in the space get more rigorous about where they put their money, they're going to look and listen closely for disconnects between lofty pronouncements and the realities of how companies operate and actually make their money.
Beyond the numbers, here are some things we look into when conducting due diligence as impact investors:
Having access to information is key to evaluating ESG. How difficult is it to get? How are questions received and answered? What nonfinancial performance metrics are readily available? Companies that overlook ESG factors miss capturing information beyond financial statements that could indicate higher risk exposure.
Everyday Decision Making
At the best companies, values are reflected in everyday decision making, from their supply chain to their end users. (We were surprised to learn a few years back that an automaker in our portfolio had been cited by Human Rights Watch for supplying industrial equipment to the Sudanese army.) Governance should be seen as a proxy for management quality and good corporate citizenship.
In evaluating direct investments in companies, we also look at things like gender disparities in the boardroom and in management ranks, healthcare benefits, maternity and paternity leave, and policies that contribute to diversity, inclusion and a safe workplace.
Broadly speaking, how companies treat people--from their investors to their employees to their customers--is material to long-term financial performance. Does the company have a listening culture, giving people space to have a voice? Does it take a personal interest in what's going on in people's lives outside of work? Sometimes it's even nice to see a leader who makes time for his kids' sports events, though pulling it off consistently is--yes--a challenge for many hardworking entrepreneurs.
This is intangible because it relates to a company's culture and values, and how leaders foster trust and deep relationships. Do leaders have the courage to reveal personal values and take positions on issues they care about? Do they feel emboldened to advance a mission or cause in an environment that increasingly judges companies on values beyond product and service quality? How are a company's values expressed in its philanthropic endeavors? And to what extent do such efforts succeed in galvanizing employees around a shared sense of purpose?
A willingness to be candid and transparent, in touch with the wider world and responsive to shareholders--and to employees, the planet as a whole and the communities in which we do business--this should be the new normal.