Initiatives
Collaboration in New Jersey

A communication with Jonathan Cloud and Victoria Zelin ... March 2013

Burgess COMMENTARY

Peter Burgess

Open a pdf of the Stout paper

Dear Jonathan and Victoria

A quick thank you for yesterday ... I am sorry that I somewhat over-stayed my welcome. Time flies when you are having fun.

With regard to the purpose of the corporation and the responsibility of the management ... I found this paper by Lynn Stout on 'The Problem of Corporate Purpose' http://www.brookings.edu/~/media/research/files/papers/
2012/6/18%20corporate%20stout/stout_corporate%20issues.pdf

I think this is the thesis of her book ... but I am not sure. I wish I had heard what she had to say in person when she came to the ISE.CHRMS Breakfast Seminar last December.

As in many things related to law, the British Law is probably easier to understand than the American version ... and the Companies' Act 1947 and its updated kin more recently is pretty clear that the shareholders interests are primary. The former head of Barclay's made this abundantly clear in a televised interview about a year ago.

My own experience in US corporate management was relatively simple. The job was to use the company's resources to strengthen the company to maximize profit. I believed in the importance of business ethics ... right and wrong ... etc., but these concepts had no place in the formally articulated purpose of the company and its legal environment. That was a long time ago ... but I am not at all sure that the legal situation has changed very much, in fact, Lynn Stout seems to suggest that the stock price is even more important in the last 20 years than it was a long time ago.

Nevertheless, I think Lynn Stout makes a very good case for complementary metrics so that the performance of the company can be better understood by the stockholders, Board of Directors and decision making C-level executives. I am aware of many initiatives that are trying to provide these complementary metrics, but so far none of them seem to be hitting the mark. Whether I can structure TrueValueMetrics so that it can be accepted both by the corporate accounting community and the many constituencies in the outside community and society is the challenge. I know it can be done ... whether I can do it, is another question.

With regard to the many questions that got raised yesterday ... I spent a happy evening and a good part of the night trying to digest our conversation.

I particularly like the idea that community is the center of everything. For me this raises the question of how does one go about measuring the progress and performance of a community. I consider progress to be the improvement in the quality of life of the community ... the sum of ALL the groups in the community. But what are the bounds of the community ... and what role is community government, and community banks, and businesses in the community ... and schools ... and hospitals ... and utilities ... and ... and ...! In the corporate accounting function ... the metrics are independent of all of the operating units. The same needs to apply for community metrics ... but how to do this? It is interesting to think of how the framework of National Accounts can scale down and be relevant at the community level ... and in some ways this is one of the things that TrueValueMetrics does.

Organization and metrics. In the corporate world ... GE for example ... everyone knows who they report to and the metrics being used. The corporate structure facilitates expanding to scale. In the not-for-profit world it is way more difficult to scale, and many efforts to scale have resulted in the undoing of good works. What sort of organizational rethink could help to sort this out? Are there specific constraints that keep the typical not-for-profit smaller than optimum. I would identify lack of appropriate metrics and difficulty with financing as two issues ... not to mention an unhealthy level of competition. There may be a huge need, but there are small resources available to get the need satisfied. The motivation of not-for-profit leadership is an asset that should be used most productively, and as I see it, this gets accomplished not by merging independent entities, but by enabling these independent entities to grow. Part of this is to have things that are needed easily outsourced.

The financial community prides itself on innovation ... with some justification. In the main the innovation has benefited the financial community, but this need not be the only beneficiary. I watched the microfinance sector become an 'asset class' in the financial world when the Microfinance Investment Vehicle (MIV) was created. In my view it became a disaster for the microfinance world when money profit return took over, but it shows what can be done in terms of financing flows when the capital markets get mobilized. I am very interested in seeing Impact Investing emerge as an asset class, but it absolutely must have appropriate metrics in order to be sustainable. PACE, the Collective Investment Fund (CIF) initiative, SOCAP and the work of Durreen Shahnaz in Singapore developing a Social Impact Investment Exchange are all parts of this. There is a lot going on in this space. It is very important.

Where does complementary currency fit into all of this? There is evidence that a complementary currency helps to stabilize a local economy ... but these alternative currencies can have the opposite outcome. I have concluded that the idea is good, but that small may be better than big. There are already too many entities that are too big and out of scale relative to their customers and working staff. A complementary currency has the potential to create credit where it is most needed ... built on top of the value that is especially important for the community, and of no interest to money center institutions.

Where does the community bank fit in? Many small banks are no longer community banks but merely remote branches (albeit nominally independent) of the money center banks. Maybe a community bank should be the local 'Federal Reserve' of the community's alternative currency. This is to some extent what has happened, I believe in some of the longer lasting complementary currencies.

Where do local professional firms fit it? Accounting firms should become part of the infrastructure for the community level application of community level value metrics. Engineering firms should be engaged with the issues of technical sustainability ... design, oversight, etc. Real estate firms have local knowledge that should be invaluable.

Where do community governance institutions fit in? PACE is an example. Also Municipal Bonds. Whether or not the Municipality should be the main source of financing for the community or some financing entity that is community based but 'private' is a discussion to be had. There probably should be both.

Where does 21st Century technology fit in? Most of the data should be available 'in the cloud'. There are all sorts of issues to be addressed. The technological capability exists to do amazing things. The quantity of raw data is increasing exponentially, but quality is a huge issue. In my view there is a need to redirect the effort to things that would be more useful ... and the definition of more useful still has to be distributed. I like the potential of initiatives like Ushahidi not only applied to emergency situations but to normal community situations.

There are many elements in the real world ... pulling them all together into a coherent package is a challenge ... but it must be done. Yesterday was very helpful. Your history and experience is different from my own, but there are a huge number of areas where there is overlap, and many areas where experience and capability are complementary.

My hope is that something very positive and powerful might emerge from this ... and again my apologies for not being very time conscious yesterday.

Peter