SMC Speech for Fiduciary Capitalism Conference, 10/5/09
SMC Speech for Fiduciary Capitalism Conference, 10/5/09
Lauren Speeth final
Thank you. I’m very pleased to be here, and to have been asked to share a few thoughts on fiduciary capitalism. As you know, I’m here as both a businesswoman and the head of a philanthropic organization, The Elfenworks Foundation. During my tenure at the foundation, I’ve had to think more, and think harder, about fiduciary capitalism than I ever did in my previous five—well, almost five—decades on this earth.
Before we started TEF, we were Elfenworksdotcom, and we still are. At the dotcom, we do multimedia and PR, primarily in the music, film, and web spheres. At the foundation, we’re the elves behind the scenes. We were inspired by the Carter Center model of partnership and servant leadership. Our mission is to empower other nonprofits whose mission is to fight domestic poverty and mitigate its effects. We think of ourselves as social entrepreneurs empowering social entrepreneurs … as a sort of venture philanthropy … as intelligent compassion in action.
For example, we did the original web design for inequality.com, the site of the Stanford Center for the Study of Poverty and Inequality, an online clearinghouse for research on poverty and public policy. And, by the way, release 2.0 of the site is almost ready; I hope you’ll check it out.
We’re also the elves behind the UCSF Center for Vulnerable Populations website, also coming soon, and several others. We do other technology solutions as well. We’ve created a webinar solution for an organization called Children of the Night, which rescues runaway and abandoned girls from the mean streets of child prostitution. And we’re working with an organization called Boys Hope Girls Hope, which helps at-risk youth, to think of new ways to use technology in Sao Paulo, Brazil, where they now offer public services in addition to running a group home for children.
Fundamentally, I think, we are storytellers, and a big part of we do is tell stories about the remarkable people and organizations who are doing the most amazing things to help the poor and the marginalized and the forgotten. In fact, on October 15th we will honor three of these visionaries at our third annual In Harmony With Hope awards celebration in Mountain View. [Show invitation.] I invite you to join us there.
So, those are my bona fides, so to speak. Now, when I talk about fiduciary capitalism, I like to go back to the story of Andrew Carnegie, the first really transformative philanthropist from the world of colossally successful entrepreneurs.
Carnegie started his working life at 13, as a bobbin boy. He worked 12 hours a day, Monday through Saturday, for $1.20 a week. When he retired, at age 66, the steel empire he had built sold for $120 billion—in today’s dollars. And that was just one of his many successes. At its height, Carnegie’s personal fortune was $298 billion—second only to John D. Rockefeller’s $318 billion.
Reference point: Bill Gates was worth about $58 billion before the economy tanked last year; now poor Bill’s nut is a measly 40 bill.
Carnegie is also known, of course, as one of the founders of philanthropy. “The man who dies rich,” he famously said, “dies disgraced.”
Get rich, then give it away: that, apparently, was Carnegie’s form of “ethical entrepreneurship,” and I suppose you could do worse. I also think we have to give Carnegie extra credit for declaring his views about money fairly early in life, when he was certainly rich but not yet super-rich. He wrote:
Man must have an idol and the amassing of wealth is one of the worst species of idolatry! No idol is more debasing than the worship of money! … To continue much longer overwhelmed by business cares and with most of my thoughts wholly upon the way to make more money in the shortest time, must degrade me beyond hope of permanent recovery. I will resign business at thirty-five …
Now, Carnegie did not “resign business” until he was 66 and rich as Croesus. Even so, his allegiance to his ideal didn’t waver, and he died with “only” $30 million to his name—that’s in 1919 dollars, the equivalent of several billion today. But that money, too, was given away in due time; and it continues doing good things through the various Carnegie foundations and other philanthropies it established.
Along with many of the super-rich of his era—a group often referred to as “the robber barons”—Carnegie was also associated with monopolistic rapacity, ruthless anti-labor practices, and other none-too-savory ways of doing business.
In other words, he got rich the old fashioned way—meaning any-old-way.
What I lament is this: The “amassing of wealth”—what Carnegie himself called “the worst species of idolatry”—is still the overriding goal of business as it’s taught in our institutions of so-called “higher learning.”
I’m not saying MBAs are nothing but a bunch of ruthless, amoral robber barons. But I wonder. I think most students enter business school basically believing that businesses exist to produce goods and services, provide jobs, fuel the economy, all that good stuff. But research shows that most leave b-school having learned that businesses exist for one reason alone: maximizing shareholder value, as much and as fast as possible, at all costs.
That’s not good, and here’s why: that kind of capitalism does not maximize shareholder wealth, in the long run or even the short.
That’s because when businesses single-mindedly pursue the fast road to profit, and nothing but, they can and often do shift costs onto others: employees, customers, communities, society at large—and that means you and me, pal.
I’m talking about those elusive but very real gremlins we learned about in economics, called externalities. Remember? Externalities are the costs or benefits of doing business that are shifted onto others—although right now I’m talking only about negative externalities, the costs that somebody else pays.
For example, a power plant with outdated equipment spews huge volumes of carbon into the atmosphere. It could retrofit or replace the equipment and greatly reduce emissions. But that would cost millions, put the plant at a competitive disadvantage, and cut into profits—all internal costs that the plant, and its management and shareholders, would bear.
Instead, the costs of belching out carbon by the megaton are shifted far and wide in the form of externalities. To children who suffer higher levels of asthma in communities downwind. And to later generations, who will inherit rising oceans, food and water shortages, disease pandemics, and other consequences of climate change.
Through my work with the Elfenworks Foundation, I’ve come to understand poverty as an enormous complex of externalities, much like climate change.
Consider the costs of poverty—
Starting with hardship and hunger …
leading to social dislocation and shattered communities …
more mental illness, drug and alcohol abuse, and crime …
exposing more children to the hardening and hopelessness that flourish in poor and dysfunctional homes, schools, and neighborhoods …
and adding to the burdens on the criminal justice system, social services, and hospital emergency rooms.
Now, it’s a fair question whether “business” is responsible for shifting all these externalities, these costs, onto us. But there’s no question who pays the bill, sooner or later—we all do. The entrepreneur as well as the homeless addict … the taxpayer as well as the convict … every consumer, every shareholder, every citizen.
Just as with pollution, it is past time that we recognize that poverty completely changes the cost-benefit analysis of how we conduct and manage business.
I hope that’s at least one reason why we’re all here for this conference. I hope it will be at least part of the discussion.
Fiduciary capitalism is more than active investors—although that’s a very good and, I think, even a Nobel-economics-prize worthy first step.
We also need to define what active investors should be seeking, and how they should be thinking—just how they need to conduct the cost-benefit analysis that guides their activism.
We need to do the same for business leaders, board members, and regulators—to empower them with the understandings, the tools and metrics, and the values of a truly fiduciary form of capitalism.
We need to spread the word that “return on humanity” is at least as important as return on investment.
I thank you for your advocacy on this issue.
LS remarks for Fiduciary Capitalism Conference
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