ShaulaBlog - clear-eyed capitalism

Book Review - Killing the White Man’s Indian

Bordewich, F.M. (1996). Killing the White Man’s Indian: Reinventing Native Americans as the end of the twentieth century. New York: Doubleday.

The “white man’s Indian” in the title of the book refers to archetypes such as “drunk Indian”, “noble savage” and “selfless caretaker of the earth” that obscure the real complexity of Indian identity and complicate relations to the rest of the United States. This book is a history of those relations organized around various themes: the changing attitude of majority government towards Indians, the legal conflicts over defining who counts, the history of land relations, Indians and their identity as environmentalists, conflicts over Indian remains and artifacts, alcoholism, and education. The book is written in a casual register in that it uses an episodic style: each theme is separated into a chapter and introduced with a story opener. Once the story opener lays the outline of the conflict, the chapter goes into more depth about relevant history, describing significant persons in personal detail, mentioning relevant legal acts, and including related stories about experiences of other individual Indians in other tribes. The chapters generally close with a conclusion of the opening story.

In the introduction the author explains his choice of the term “Indian”, as opposed to Native or Aboriginal, as the term most currently used in institutions and by tribes themselves. Indians differ significantly from other minority groups in that they have reservations and tribal status. The theme of the book is that clarity around our shared history is necessary for us to move forward.

Our shared history starts out in conflict for land. Although the colonies and the early U.S. Government made various efforts to restrict settlement and reserve land for Indians, invariably those agreements were not respected by settlers in search of land, and often treaties and agreements were simply betrayed by the government. The key story in this section is one of lost opportunity: the Cherokee Nation in the southeast made an effort at assimilation: they adopted a constitutional government and they adapted many American ways. The new US Government essentially sold them out to the state of Georgia in 1802 by agreeing to evict the Cherokees in return for Georgia relinquishing claims to modern-day Alabama and Mississippi. The author notes that precedent dates back to the Scots being evicted from the highlands with a change in rule, and the Acadians being booted to Louisiana from Canada. In 1828 gold is discovered in the heart of Cherokee land and Georgia formally annexes the land and begins revoking Indian rights. The Cherokees sued and lost in court, then supporting missionaries sued and won but to no avail, in 1828 federal troops hearded the Indians into camps and begin the Trail of Tears, marching them off to Oaklahoma. This process marked a clear shift in relations from ambiguity and sometime equality to clear subjugation by the U.S. government. During the 1800s Indians were simply regarded as a barrier to Manifest Destiny in need of extermination. Ranchers could actually get government funded off-season work killing Indians. This history is largely overlooked but the effects carry through to today. The Cherokees did eventually recover as a tribe and the author interprets this as a parable of persistence, renewal and adaptation.

The question of identity has long been a tricky one: whites have both romanticized and demonized the Indian image, and the federal government has wanted simple tests for benefit determination once they committed funds in a shift from extermination to management. Who is an Indian? Possibilities include: someone who wears feathers and beads, someone who lives on a reservation, someone who is enrolled in a tribe, someone who self-declares on the census, someone who matches the Hollywood ideal, someone who obeys tradition, or someone who can prove descent or a blood quantum level. Current laws are actually contradictory – the definition of an Indian for the purpose of distributing benefits is not the same as the definition of an Indian to get product artisan labeling in some states. Tribes at the time of colonization actually varied considerably in size and structure, and over time they’ve been decimated, scattered and formed into new alliances. The government has recognized tribes and dropped recognition over time.

Relations with tribes finally begin to shift significantly in the 1970s, in a way that impacts all the issue areas covered in the book. In 1975 the Indian Self Determination Act formally shifts administration of Indian benefits from the Bureau of Indian Affairs to the tribes themselves, and in 1977 a review commission asserts that Indian tribes are sovereign political bodies and relations should be founded on principles of international law. While this has been the basis of much forward movement, most importantly allowing Indian Tribes to finally control their land and resources, the transition from wards to self-determination is a rough and still evolving story. Like any local government, tribal governments have been vulnerable to corruption and mismanagement, but tribal members have had little success appealing to the federal government for intervention. Details of legal jurisdiction have dragged on through multi-year legal disputes: do Indians have jurisdiction over other Indians on their land?; do Indians have jurisdiction over white property owners within reservation boundaries? (such private property was created during a period in the 1930s when the government attempted to convert Indians away from communal property ownership); can Indians enforce old treaty rights?; do Indians have legal claim to their own artifacts that were essentially looted in the 1800s? The 1970s through the 1990s have been a period of fairly steadily strengthening Indian rights and claims, to the point where tribes now exercise real power over water and land, and whites are beginning to lose out in conflicts. But without a shared understanding of history, it’s difficult to come to a shared understanding of current settlements and many whites feel bitterly wronged.

Two challenging aspects of Indian identity stand out as part of their struggle today: the definition of Indians as the original caretakers of the environment, and a historically molded pattern of defining their identity in opposition to whites. These two frameworks create challenges for maintaining Indian identity while building economic power based on the natural resources Indians now control such as water, fishing rights, land and forests. Building that economic power also requires education, political negotiation, and using white-developed expertise—tools with a long history of ultimately being used to the detriment of Indians. A mix of history and environmental ideology leads many individual Indians to take isolationist positions and creates barriers to the negotiation necessary for economic integration that can alleviate poverty and underdevelopment. The challenge is to align that development with “the resanctification of the earth that has become for a great many Indians a medium of salvation that far outweighs its economic cost, a way to reconnect with the tribal past and with the lives of ancestors who, during generations of systematic cultural repression, seemed beyond reach across a vast divide.”

This book was recommended to me by an associate of the Squaxin Island Tribe. Unfortunately it’s no longer in print, www.bookfinder.com is my favorite used book search engine.

Green Community Development Venture Capital?

Good lending practice caps how much money can be loaned to a small business based on their cash flow, as well as debt-to-asset ratios. Growing simply based on cash flow can result in very slow growth. Some communities have taken the next step and created Community Development Venture Capital Funds, funds organized to provide an equity investment component to enterprises whose growth will benefit the community with increased jobs and tax revenue. Investors are often local governments and banks motivated by CRA credit. Returns are anticipated to be higher than for loan funds, but the lifetime of CDVCA funds is usually 10 years and very few of them have closed yet as this is a somewhat new opportunity. The Community Development Venture Capital Association did a model portfolio study and concluded that returns of the oldest funds are likely to be around 15%. (Community Developments: Investments, Spring 2007). The struggle for all these types of investments is that in an arena of profit maximization, they are easily overlooked as “not market-rate” for their class.

A challenge for CDVC funds is finding enough opportunities to place capital when the pool of potential investments has been narrowed to explicitly avoid the kinds of deals that easily attract funds from traditional investors. The costs of finding these deals can be higher but is usually offset by partnering with a community development loan institution that can act as a screening/referring body and reduce the cost of due diligence.

The premise of working with lenders is that risk can be mitigated through relationship, and thus the CDVC firms can tolerate making investments where the winners don’t need to provide all the return from only 10% of the portfolio, because the potential for losing is reduced. Partnering with loan funds can also reduce costs through careful sharing of staff and office resources. This is necessary because the smaller size of community development VC funds (often 10 million or less) means lower potential for operating revenue – 3% on a $5 million fund is an annual revenue of 150,000, not much to pay staff or have an office. Like Venture Capital funds, these funds also take a percentage of profits at the back end, usually this is how fund principals are compensated in a traditional model, but they’re usually also wealthy capitalists who can afford to take payment on the back end. CDVC staff is more commonly salaried.

Leaning on the loan funds to do first-level due diligence saves resources, though likely the fund would want to identify other sources of deal flow, perhaps local universities. Going to traditional angel groups would defeat the purpose of working to place capital in underserved communities and industries. Having a clear definition of targeted social return will be important to aid in investment selection and avoid falling into “investments nobody else wants” as a primary target, which seems a recipe for failure. The measure most successful CDVC funds have in common is targeting job creation for low-income workers that leads them out of being low-income. Having a non-profit advisory service partner that can help the growing enterprise design career paths, provide employee training, help with recruiting and other challenges of growing an enterprise can improve the chances of success at minimal cost, as well as save the investee companies from the burden of doing the additional research and trial-and-error associated with implementing new internal systems.

What have other funds done? SJF Ventures in North Carolina capitalized its first fund in 1999 at 17 million and its second fund closed in 2007 at 28 million. They have a partner non-profit that offers technical assistance, including a “getting ready for equity” class. Their criteria: “Require $1 million to $5 million in equity financing to produce rapid expansion; Offer compelling solutions to urgent problems in large markets; Generate rapidly growing sales, typically already greater than $1 million per year; Represent management teams with deep domain expertise in their respective industries and a commitment to positively impact the world.” (SJF website) SJF works in social value on a deal-by-deal basis. In one case, for a company to receive funding they required the company provide health insurance for their existing and future employees – AND they were able to provide free assistance for doing that with their technical assistance partner. (Personal conversation with Bonny Mollenbrock). SJF Advisory Services, the technical assistance partner, does not appear to operate a loan fund.

CEI Community Ventures in Maine is organized as a wholly-owned subsidiary of their technical assistance non-profit. Their first fund closed in 1996 with a total of 5.5 million. Their second fund closed in 2001 with a total of 20 million. Their target investments: “$750,000 in a range from $500,000 to $2 million. We anticipate exiting each portfolio company at appreciated multiples within 5 to 7 years. Each fund portfolio is diversified by business stage, industry, geography and social benefit.” (CEI Ventures website). Their criteria: “Quality Management Team with relevant experience, visionary leadership, deep commitment and cohesive approach; Prospects for Attractive Return with an appealing market opportunity, realistic projections, appropriate valuation and pragmatic exit plan; Competitive Advantage through proprietary interest in technology, intellectual property, distribution system or other unique situation; Social Benefit including quality employment opportunities. Each portfolio company is required to sign an Employment and Training Agreement (”ETAG”), securing a commitment to hire individuals with low income backgrounds.”

Pacific Community Ventures closed their third fund, PCV III, in 2007 with $40 million, after a very well publicized successful exit for a prior portfolio company: Timbuk2. PCV II raised 13.2 million in 2003 and their first fund was 6.25 million, closed in 2001. They look to invest 1 to 5 million in a company in the southern California region. Their areas of focus are food products & distribution, non capital-intensive manufacturing, and green growth sectors of alternative energy, health & wellness. They also invest in education. Like the other funds, they look for traditional opportunities for growth: proven management, strong revenue growth, substantial margins and defensible competitive advantages. They have very well developed internal social metrics and they also look to develop a low-income workforce with opportunities for employee growth, both in on-job skills and life financial skills. And unlike a traditional VC, when they negotiated their investment in Timbuk2, they negotiated a stake for employees as well, resulting in over $1 million being distributed across 40 line workers when the company got bought.

A cleantech CDVC fund, partnered with a Green For All focused non-profit, is something I could really get excited about.

A visit to Uncle Tom’s Cabin

For Christmas my Mother gave me an interesting book of women’s literary criticism. I flipped through somewhat at random and found fascinating reading about the lives and writings of both Margaret Mitchell (author of Gone with the Wind, published in 1936) and Zora Neale Hurston (who wrote Their Eyes were Watching God, published in 1937.) Both critiques referenced Uncle Tom’s Cabin, by Harriet Beecher Stowe. From those, I discovered that Uncle Tom’s Cabin was the bestselling book of the 19th Century after the Bible. And yet, as I finish my 2nd graduate degree, I have never read it, it has never been on any suggested reading list of mine, but I certainly have heard many references to it, and I am of course acquainted with the use of the phrase “Uncle Tom” as an insult. It seemed time to fill this gap in my education.

The Seattle Public Library has The Annotated Uncle Tom’s Cabin, annotations by Henry Louis Gates, Jr, and Hollis Robbins. At times, the annotations get a little tedious, for example when they note that such and such behavior or phrase would “be racist to any modern reader.” Yes, thank you, I can see that it is, I’m sorry you were worried I might not. Sometimes the annotations are unwelcome foreshadowing when they say things like “this is the first indication that character such-and-such is going to die.” What? It wasn’t obvious to me! I didn’t want to know that! But overall the annotations are very valuable, particularly for those of us not well versed in quoting scripture. Many of the characters, particularly Tom himself, quote scripture, and the annotations help the reader along in knowing what the next, unquoted but clearly implied, line of scripture would be, or illuminating the larger biblical story that is being referenced for its parallels to the current situation.

The book was written to incite abolitionist passion in the heart of every legally white American, particularly women who comprised the bulk of the novel-reading public. Prior to writing for the anti-slavery National Era newspaper (where Uncle Tom’s Cabin was originally published as a serial), Stowe wrote for Godey’s Lady’s Book. The book is alternately gripping, melodramatic, and a bit preachy, as one might expect from a novel with a political aim. During one particularly long character monologue I found myself briefly reminded of Robert Heinlein. Supposedly when Abraham Lincoln welcomed Harriet Stowe to the White House for a visit in 1862 he said “So you’re the little woman who wrote the book that started this great war”!

Published in 1852 Uncle Tom’s Cabin sold 300,000 copies in the US in its first year, 2 million world-wide in its first two years and was translated into 37 languages. In more than one debate between characters, Stowe draws parallels between capitalists/laborers and slaveholders & slaves. This perhaps led to the book’s popularity in countries like Russia, where even Tolstoy read it. Harriet Beecher Stowe’s Uncle Tom is a Christian martyr – hardworking, positive attitude and obedient – until ordered to do something more actively immoral than simply make the best of his role in the system of slavery, at which point he is clear that while his human master may own his body & its labors, God owns his soul and is to whom he is ultimately accountable. After two such occasions, he is whipped near to death, at which point he forgives his tormentors, has his wounds washed by caring supporters and at last he rests in a shed for two days and dies on the 3rd. Even I can recognize that biblical reference to the death of Christ. Tom of the book is no “Uncle Tom”.

So how did this character’s name become synonymous with sellout? It seems worth some pondering to me that Uncle Tom seems to have “sold out” by being co-opted. My first clue was a picture caption explaining that “By the turn of the twentieth century, Uncle Tom had become such an icon that he even appeared on whiskey bottles, like this one from the United Distilling Company of Cincinnati.” Seeking validation that this was the source of the sell-out, I did a little websurfing and discovered The Jim Crow Museum of Racist Memorabilia.

The “why” of the museum is long, involved, and worth reading, and I will pull this excerpt: “The mission of the Jim Crow Museum is straightforward: use items of intolerance to teach tolerance. We examine the historical patterns of race relations and the origins and consequences of racist depictions. The aim is to engage visitors in open and honest dialogues about this country’s racial history. We are not afraid to talk about race and racism; we are afraid not to.” It is Dr. David Pilgrim’s thorough writing on The Tom Caricature that explains that the many derivative works, significantly stage performances and later film, quickly degraded Uncle Tom into variations of weak, old, passive, happy, childlike servants. These are the Uncle Toms that made it to the sixties and became the source of intra-racial taunts. Dr. Pilgrim breaks down some of the usage and documents examples. He also has some interesting analysis of “Tom” roles in films over the decades and their evolution.

The book still fresh in my mind, I went to see The Waters of Babylon at the Seattle Repertory Theatre. At one point the Cuban character, Arturo, tells the legend of the death of Chief Hatuey, leader of the indigenous peoples of Cuba. To my astonishment, it nearly mirrors the story of Prue from Uncle Tom’s Cabin. There’s a version of Chief Hatuey’s death here. Another webpage traces the story to the “History of the Indies” written by Father Bartolomé de las Casas. Researching him leads me to the following :

“Historia apologética de las Indias”, for instance, has been only partly printed in the “Documentos para la Historia de España” (Madrid, 1876). The “Historia de las Indias”, the manuscript of which he completed in 1561, appeared in the same collection (1875 and 1876). His best-known work is the “Brevísima Relacion de la Destruycion de las Indias” (Seville, 1552). There are at least five Spanish editions of it. It circulated very quickly outside of Spain and in a number of European languages.

Fascinating. It makes sense to me that American abolitionists would have familiarized themselves with prior writings on the subject. So did Harriet Beecher Stowe copy the story from Father Bartolomé’s 1552 publication, or did the 1875 editors use Prue’s story from Uncle Tom to embellish the story of Chief Hatuey? Only going to the source will tell, but either way, anti-oppression movements have deep global roots.

Accountable Compassion

I’ve been thinking of calling my collection of activities “full spectrum capital” (but the domain name is already camped on). Good Capital and Tim Freundlich were really key inspirations for me in their emphasis that it’s a continuum between philanthropy and investing, not buckets. The Heron Foundation also looks at their activities this way. I think it was in a break time discussion at SRI in the Rockies that someone suggested that one could regard a charitable gift simply as an investment with a -100% return. On that scale, a community investment note at 3% is meaningful.

Community Economic Development appeals to me because I’m attached to measurable results, and managing my foundation has at times been a struggle for me. I believe in accountability – down to how I spend my own personal time, I see how a lack of accountability leads to a lack of focus. Tim talks about how doing investing with non-profits instead of just gifting can give them an accountability that can be helpful. With my grant making, I’ve been trying to figure out what appropriate accountability is. One limitation is that I have to invest some of myself and my time to hold someone accountable, and there’s been a limit to that. A second challenge is trying to figure out how to be compassionate but still have some kind of standards.

I found an example in coffee growing. In the December 2007 issue of Tea & Coffee, there’s an article about work illycaffé is doing in Brazil. They’re doing it outside the Fair Trade system so it’s not exactly Fair Trade but it’s similar. Most people have only a vague idea that Fair Trade means workers get fair wages. It’s actually a complicated setup where specific Fair Trade price mark-ups are paid into specific funds that are then allocated by worker cooperatives. It’s also more than that – Fair Trade means working to help supplier-partners develop their own businesses, growing capacity and quality. What illycaffé is doing mirrors that.

The key components of what they’re doing are: 1) they have a clear standard of success – they are able to set a quality bar for coffee and measure whether or not a bag of coffee meets that bar. 2) there’s a clear reward for meeting that standard – they will buy at a premium every bag of coffee that meets their standard. 3) The provide opportunities for local farmers to learn how to meet their standard, via the illy University of Coffee and the illy Coffee Club, which teach management, environmental stewardship and technical training. Finally, They achieve visibility for these programs via an annual competition (Prêmio Brasil De Qualidade Do Café Para Espresso) where the winners receive prizes and illy gets preferential rights to buy the coffees submitted. Another nice summary of their work is here.

This to me seems like an excellent model – it establishes a well-understood, transparent system that the farmers can choose to participate in or not. Should farmers choose to participate at least some of the costs and rewards are clear, and a path to successful participation is provided. This is community economic development – here’s what success looks like, here are the tools, though in the US we tend to fall down on the “and here’s some(ideally free) help in understanding and using the tools” for true accessibility. That first step in the ladder is what Washington CASH provides locally.

The whole chain is what I would like to provide with my foundation, but it takes a well resourced leader to set all that up and manage it, and I have to admit The Massena Foundation is not that. Larger organizations, and particularly corporations like illy, DO have that kind of capacity, which leads me to believe that this kind of work is what corporate philanthropy should be. At the Corporation 20/20 conference last November in Boston, one of the speakers focused on the need to get corporate money out of politics, and for him also out of communities. It’s too easy with their relatively more significant resources for corporations to drive community decision-making. I thought that was interesting and I agree there’s a fuzzy line between corporate grant-making and marketing. But in Community Economic Development – large, stable, well organized corporations have a completely unique value to offer – access to markets and access to well-developed systems and training. Sharing that access would be worth more than any dollar grant they could make.

Case Studies on Sustainable Business

We read a series of mini-case-studies (UVA-ENT-0100) put together by Andrea Larson of The Darden School at UVA, guest professor at BGI this quarter. As I read through the cases a few themes emerged for me: First, in product reformulation, supply chain collaboration is key. Several cases are about premium products standing out in commodity categories. Branding matters, and creating a technical metabolism (wherein materials are truly recycled to become new of what they were old, instead of being downcycled to a different, less recyclable product) is key to true sustainability. Another theme that emerged is that goal setting is everything – if you believe that it’s not possible to be both cost efficient and green then you won’t get there – you have to set it as a goal. Finally, when working to be green – don’t just think about the product, think about the whole product lifecycle.

Supply Chain collaboration is key – several of the cases talked about the need to work with all members of the supply chain to design a new product. Climatex Fabric was an example of a company needing to find mill partners and yarn twisters that would work with a new process. NatureWorks PLA plastics a product that is challenged by as-yet not having deep enough supply chain relationships and control to allow it to ensure GMO-free product. Without control of the supply chain, they have limited control of the product. In the Nike case, they are described as essentially a “complex global supply chain” management company. To protect their brand, they had to develop “a new dimension to supply chain management.” Not only are they setting standards for their suppliers to meet, they’re supporting NGOs to develop the organic cotton industry – investing to create supply chain partners for the future.

Standing out in a commodity category – interestingly from the case studies I see two slants on this – Method (household cleaners – available at Target) is an example of a company that used their sustainability plus sexy branding to stand out from a commodity category and be visible to the customer. They used brand identity to create a premium product, so they could command a premium price, so they could be environmental without making their environmentalism their primary selling point. This way they could reach out to mass market instead of just the environmental niche. Coastwide Labs, making cleaners for commercial janitorial settings, is an example of an environmental product that stands out from a commodity market, but it seems slightly reversed in that they designed to be an environmental product and their sales are driven by customer demand (one example: municipalities passing Precautionary Principle purchasing ordinances), thus allowing them to command a premium. So in one case, they’re using sexy branding to drive demand to pay for sustainability, in the latter case demand is driving sales and allowing them to command a premium for sustainability. I wonder what their relative volumes and margins are, I’d guess Method is higher volume/lower margin than Coastwide, compensating for age of the company. EcoWorx carpeting is described as breaking out in a commodity category, but their case is almost one of being forced to play catch up when a competitor (Interface) takes a successful lead with sustainable product, as well as being driven from behind by the kinds of industry voluntary agreements that form to avoid regulation.

Goal Setting – Shaw Industries, makers of EcoWorx, is an example of setting a goal to become infinitely recyclable and getting there because of the set objective, though it took them many years and almost a million dollars in research. The Coastwide labs example is a particularly good one – they lowered costs overall not by making the product itself (cleaning solutions) cheaper as they made it less toxic, but by making the packaging cheaper & the dispensing more efficient. Those two improvements were most likely available to them independent of making the product environmentally friendly. Business is all about priorities, and those priorities stayed low on the list until the goal of making environmentally friendly products raised the need for lowering costs which raised the priority of those cost reduction options. It was the setting of the goal that made the difference. NatureWorks PLA is another product that was created by first setting a goal to create it.
Nike has also set long term goals and developed metrics that lead them to explore all areas of their product supply chain and internal corporate operations.

The whole lifecycle – Method standing out in their commodity category with sexy packaging, Coastwide cutting packing costs as part of cutting overall costs to support their price point – both are examples of how the packaging is just as important as the product in forming the whole proposition. The textile examples of EcoWorx and Climatex are cases where the end-of-life for the product was a key part of the proposition, and the supply chain examples show how the pre-life of the product is a key part. When going sustainable, taking a total lifecycle approach is essential.

Start as you mean to go on…

…but savor what you have today. I recently checked out the website for a new local company, Julep Nail Parlor, and followed along to the blog by its entrepreneur founder, Jane Park. She had recently written a post about about the tensions between working to put good process in place from the beginning, but also wanting to personalize and enjoy things while they’re small. Someting about that value she was seeking to hold resonated for me.

Interestingly, the phrase of my own that first came to mind was: don’t let the perfect be the enemy of the good. For me that touchphrase is a reminder that one can analyze forever, but to accomplish something you need to get out and do it well enough. On the face, that’s seems the opposite of what she is talking about – she’s out there doing it, and hanging onto some perfect even when she knows she’ll have to relinquish it eventually for good. So why do those two mantras connect for me? After some feeling about it, I think it’s because both are ultimately saying it’s about the journey, not about the end. That concept for me has been a big shift that BGI is helping me internalize rather than merely intellectualize. Who We Are and How We Work Together is more important that what we actually do.

In entrepreneurship we’re now reading Built To Last, and that seems to be what they’re saying as well. They talk about being clock-builders rather than time-tellers: To build a truly great company, your product goal has to be the company itself more than any particular product. The company can then stand on its own, independent of the founders.

Collins and Porras also talk about core values vs practices. In the ParlorGames blog, Jane mentions a friend questioning her commitment to handwritten notes when it’s something she won’t be able to continue. It’s not consistent with “start as you mean to go on”. When talking with Darrin that catches his attention – he particularly dislikes when people justify a decision primarily on consistency. Consistency, perhaps, is a practice, not a value. And so for Julep, “start as you mean to go on” may be a practice they work to follow,but the core value seems to be something deeper.

“Begin as you intend to go on” (what it evolved to in my brain) also reminds me of another cherished guide-phrase: “Every step you take towards justice must have justice in it.”, I can still remember the visiting interim director of the Highlander Center saying it, with a smile. There is an end, but how we get there matters. “Be the change you want to see in the world.” And now I have Colins and Porras, saying we should be clock-builders, not time-tellers.

Additional Info on Board conflicts of interest…

I was forwarded a paper (thanks Jorji!) on how more diverse boards tend also to do a better job with basic board responsbilities. This paper has an excellent section on board conflicts of interest (a topic just a few posts ago) that covers the topic better than I did, so I’m including it wholesale.

from Nonprofit Governance in the United States by Francie Ostrower for The Urban Institute.

Financial Transactions between Nonprofits and Board Members Under the law, board members owe the nonprofit a duty of loyalty, which requires them to act in the nonprofit’s best interest rather than in their own or anyone else’s interest (Brody 2006). The IRS Good Governance guidelines caution that “in particular, the duty of loyalty requires a director to avoid conflicts of interest that are detrimental to the charity.” 10 Against this background, the purchase of goods or services by nonprofits from board members or their companies raise special concerns about who such transactions really benefit. In a guide for board members, one state attorney general’s office warns that “caution should be exercised in entering into any business relationship between the organization and a board member, and should be avoided entirely unless the board determines
that the transaction is clearly in the charity’s best interest.”11
In 2004, a proposal to restrict nonprofits’ ability to engage in these transactions was included in the Senate Finance Committee’s draft white paper but met with considerable opposition from some nonprofit representatives. The president and CEO of Independent Sector, for instance, warned that prohibiting economic transactions “could be extremely detrimental to a number of charities. . . . Public charities, particularly smaller charities, frequently receive from board members and other disqualified parties goods, services, or the use of property at substantially below market rates.” A similar objection was voiced by the executive director of the National Council of Nonprofit Associations, which is composed primarily of smaller and mid-size nonprofits.12 There has also been concern over the impact on nonprofits in rural and smaller communities, where a trustee’s law firm or bank may be the only one in the area.13 Regardless of disagreement over whether public charities should be allowed to engage in financial transactions with board members, there is agreement on the fact that any such transactions should be transparent to the board, and that policies are in place to ensure that such transactions are in the nonprofit’s best interest. Recent IRS draft guidelines are emphatic on this point. They call on boards to require members to disclose annually any financial interest that they or a family member has in a business that transacts with the charity, and to “adopt and regularly evaluate an effective conflict of interest policy” that, among other things, includes “written procedures for determining whether a relationship, financial interest, or business affiliation results in a conflict of interest” and Nonprofit Governance in the United States 7 specifies what is to be done when it does.14 Furthermore, as noted earlier, the IRS has instituted a question on the Form 990 asking nonprofits whether they have a conflict of
interest policy in place.

Corporate Hypocrisy… or Marketing?

In the last several years I’ve begun shopping at my local natural food co-op, because I want someone to navigate the increasingly shoal-infested waters of understanding food chemicals and what might or might not be good for me. The PCC Natural Markets is wonderfully informative and activist on issues relating to packaging, genetically modified foods, organics and dairy methods among many other issues. In the last year they’ve taken on High Fructose Corn Syrup (HCFS) - an ingredient more and more correlated with, though perhaps not yet proven to be causing of, poor nutritional health. About two years ago I myself decided to use this ingredient as an indicator of food I didn’t want to be eating and have nearly eliminated it (and therefore many surprisingly ordinary products, like ketchup) from my diet. Over the last year PCC worked with many of their suppliers to eliminate the ingredient from their stores. Some suppliers reformulated, some products were dropped.

In the January 2008 newsletter the PCC appropriately trumpets this accomplishment, but notes that one challenge is that some companies have simply switched from listing HFCS in their ingredient labels to instead calling it “glucose fructose syrup”. I have noticed previously that Gatorade is one such product, and I confess I was a bit suspicious when I saw it. A quick websurf reveals that “glucose fructose syurp” is what the UK calls HFCS. This is interesting to me. Clearly, the message has gotten through that customers don’t like to see HFCS on product labels because at least Gatorade, owned by PepsiCo since 2001, has made an effort to disguise it. That kind of deliberate deception is simply nauseating to me. If they know customers don’t like it, they should formulate away from it. To meet the market’s taste and cost considerations but dissemble about how (because customers might actually use that in their purchasing decisions, even if you disagree about their reasoning) is evil.

This reminds me of something that has long irritated me about business advertising. Look at any corporate TV advertising for business systems: Microsoft, HP, you name it. You’ll see a racial rainbow of shiny workers in whatever office they’re gleefully employing the product in. Obviously at least the marketing department has figured out that diversity and equity are values that mean something to their target audience. Human Resources probably knows it too, but damned if corporate leadership does because those TV ads are nothing like reality.

In B-school it was interesting to take marketing as someone who has always been outside the field – they almost convinced me that marketing really is the core of business. Unfortunately these examples show where marketing gets its bad reputation: the marketers seem to know what’s right - but apparently all they can do is talk about it. It’s a problem that they do, even though they can’t seem to make it happen.

Book Summary- The Wisdom of Crowds – James Suroweicki

I found this a little bit like “The Tipping Point” in that it’s full of interesting anecdotes, many of which I’ve heard before, but by the end of the book I’m not clear that it all adds up to something. So doing a book review was helpful. At some level, this is a book about economics - how we synchronize our activities, often via money. I started off on audiobook and that was somewhat enjoyable. The author reads the opening, and then a professional voice reads the book. He reads fairly slowly though, so I ended up switching to the book itself.

At the book’s core is the contention that under the right circumstances, groups can be smarter than the smartest individuals among them, and the book is about the situations where that is true. The author supports the anecdotes with academic studies.

In the opening the author identifies 3 types of problems:

Cognition problems – ones that have right answers (at some point in the future, the answer can be judged correct or incorrect), like who will win the Superbowl or who will win the next election. Voting is an established way of aggregating judgments.

Coordination problems – getting people to work together like traffic, or connecting buyers and sellers. Coordination problems can be solved by everyone working in their self interest once the rules are set up – like traffic driving on the right hand side of the road in the US. Social Norms and conventions minimize coordination problems.

Cooperation problems – people need to work together like a in a tax system, or a salary negotiation. Cooperation problems require a broader definition of self interest and the use of trust. Fortunately, studies show that people care about fairness and strong reciprocity is a deeply embedded norm that helps with cooperation. Capitalism needs transparency & trust to minimize transaction costs.

There are three conditions that help a group be wise:

Diversity – particularly in thinking and experience. Someone less “smart” can make the group smarter because they’re less redundant. Diversity is more important when trying to generate alternatives than when trying to choose among a fixed set, usually in cognition problems. Diversity can actually cause problems in solving coordination problems (fewer shared norms & conventions) or cooperation problems (less trust).

Independence – members of the crowd need to rely on their own thinking and experience to make their decision, rather than changing their opinion based on what other members of the crowd think. While this is critical for cognition problems, it’s less helpful for coordination or cooperation problems.

Decentralization – related to the above two, decisions are made where the knowledge is. For good decision making in large groups or communities, aggregation of the decentralized decision making is the next key. It’s important to aggregate judgments, not just raw data, to maximize taking advantage of decentralized knowledge.

Dangers that make groups unwise:
Lack of diversity and independence can lead to groupthink and herding. Poor leadership can create confirmation bias – a tendency to evaluate new data against an already made decision. Dissent, conflict and independence are key to good decision making. Too much dependence in our decision making can lead to bubbles and crashes.

My net: Diversity is key to good decision making, but making decisions at scale requires coordination and cooperation which is challenged by diversity. Figuring out how to aggregate the diversity into coordinated cooperation without losing the value that was generated is a key challenge we face.

An example of institutionalized discrimination

I’ve been re-evaluating how I run my family foundation and I recently re-read my foundation bylaws. In an effort to live up to my social justice mission, I’ve been working to involve community members and grantees in my granting decisions. One squidgy issue has been ethical concerns about having members of grantees actually on my board. Because board members are prohibited from benefiting personally from grant money, we need to draw careful policy lines about who votes on what to make sure that no one can be accused of directing dollars into their own pocket. This has always seemed like a perfectly rational ethical line, but it tends to reinforce the “have”/”have not” divide – the haves decide to how much and when to give to the have-nots. Letting the advisory board make recommendations with separate board approval is a reasonable way to handle this, unless you’re seeking actual empowerment. But empowerment potentially opens the door to corruption to have folks empowered to direct dollars to their own pet projects.

It was with some interest, however, that I noted a specific clause in my largely boilerplate bylaws that allows board members to earn consulting fees from the foundation for performing whatever work they might normally perform professionally. I suppose that means if one of my board members were a laywer, perhaps I’d want to just use them to draft an expenditure responsibility contract, because I already trust them and know them to be competent, since they’re on my board. The Robin Hood foundation was recently criticized for doing just this sort of thing: that financial advisors who were on the board were earning fees for managing funds where Robin Hood had invested. I thought that was unethical, an investing friend thought it would be fine but of course they should have waived their fees (but they didn’t). There was a mix of opinion in the news as to whether or not this was unethical, so we have a prevailing social norm that maybe directing business to yourself is merely being prudent, not corrupt. The Robin Hood foundation did change the investments, however.

The Robin Hood example leaves us with a choice on the ethics of paying fees to board members for additional services (a foundation expense), but the law is fairly clear that paying grant monies to a board member via employment at a grantee (a foundation grant) is not ethical. Yet I perceive the latter example to have more distance, and thus less self-interest in the payment. Most interesting to me is that both foundation expenses and foundation grants count equally to the foundation’s annual 5% payout for tax purposes.

So why is there a clause in my boilerplate bylaws explicitly endorsing one of these behaviors? I can only assume it’s historical, from a perspective that there are those who are experienced and knowledgeable and not in need of grants, who of course do lots of internal cross-business, and there are those who need charity, destined to remain excluded from decision-making power.

This to me is an excellent example of institutionalized discrimination (to be very technical and specific, classism). My institution, reasonably following the examples of what’s been done before, has embedded within it default language that reinforces imbalanced power structures. To not take advantage of that language based on prevailing social norms is a weak correction; a strong commitment to undoing the institutionalized discrimination of the past means I need to actively question default power distribution, discover the institutional props behind it, and change them so equity is not about a prevailing social mood, but institutional structure. In this case, changing the structure would mean at least deleting the endorsement of fees to board members from my bylaws.

The baby boomers can claim civil rights marches and anti Vietnam demonstrations. For Gen X to lay a claim to history worth keeping, we need to take those grand visions and institutionalize them.