Last Thursday, Warren Buffett, MS ’51, and Bill Gates visited Columbia Business School. During the event, Gates identified energy — including renewable sources, like solar — healthcare and IT as the three sectors he sees as having the most opportunity for transformative growth in the foreseeable future. Buffett highlighted the high energy-efficiency and low environmental impact of rail transport as one of the key drivers of Berkshire Hathaway’s recently announced purchase of Burlington Northern Santa Fe Railroad. More MBAs than ever are looking for career opportunities in developing and investing in renewable energy. Where can they be found?

This past weekend, 50 Columbia Business School students were among the 2,400 attendees at the 2009 Net Impact conference at Cornell University. Net Impact is an organization for MBA students who share an interest in using business to make an environmental or social impact. Among the many panelists were leading investors in clean energy from Blackstone, Kleiner Perkins, JPMorgan Chase and Sequoia who spoke about what technologies and business models they believe have the greatest growth potential.

The investors focused on technologies that could, in the long run, be competitive without any subsidies or government support. To this end, they identified specific niches within energy-efficiency and waste-to-energy, as well as solar power.

Solar energy is viewed as an area with tremendous growth potential, with the U.S. market projected to grow 20-fold by 2020. Traditionally, solar energy has been extremely expensive and reliant on erratic government subsidies; however innovative leasing models, falling silicon prices and technological breakthroughs have reduced costs dramatically. Continued cost reductions along with carbon prices could make solar cost competitive with coal and natural gas.

Within solar energy, there are many technologies, and each has its own value proposition. Photovoltaic panels can be installed on rooftops for residential, commercial and industrial applications, or standalone, for us in utility-scale plants. Thin-film PV technology is very low cost but less efficient, making it the optimal solution for sites with plenty of space. Concentrating Solar Power (CSP) plants use mirrors to concentrate sunlight, which generates steam that spins a turbine to allow a much larger scale operation. All these technologies also have their downside — distributed PV generation does not permit economies of scale. Desert sites like those in the Southwest are most attractive for CSP, but CSP also requires a lot of water for cooling, as well as a challenging permitting and transmission environment.

In addition to solar, there is tremendous growth in wind, geothermal, combined heat and power, waste-to-energy and efficient energy. Nuclear energy is also slated for resurgent popularity. Repowering the world will provide tremendous opportunities for MBAs to generate value as investors, developers and operators of clean energy companies. Famed VC investor Vinod Khosla has invested in dozens of clean energy startups in the belief that the space will generate many $10 billion+ companies.

Photo credit: greenlagirl

They are two icons of American business — Warren Buffett, MS ’51, and Bill Gates. On November 12, Columbia Business School students will have the opportunity to connect with them in person. They will appear together in a special hour-long community forum at Columbia Business School, which will be filmed by CNBC for global broadcast. During the event, Buffett and Gates will field questions from students about the economy, the future of capitalism and corporate social responsibility.

It is the first time Buffett and Gates, who met each other in 1991, have appeared together at Columbia University. The last student forum they participated in was in 2005 at the University of Nebraska at Lincoln. Of the many bonds in their friendship, philanthropy and a shared philosophy of giving back to society is one of the strongest. In 2006, their relationship made the history books when Buffett announced that he would give the bulk of his estimated $40 billion fortune to the Bill & Melinda Gates Foundation.

Gates and Buffett’s latest ventures have been in recent headlines. Last week, Berkshire Hathaway announced a $26 billion deal for the railway company, Burlington Northern Santa Fe. Earlier in this year, Berkshire invested in BYD, a Chinese electric car company.

In a speech in October, Gates called for a new green revolution in agriculture and announced a $120 million package of agriculture-related grants to nine institutions around the world. Taking a page from Berkshire’s playbook, Gates wrote the foundation’s first annual letter this year and said the foundation will give away $3.8 billion in 2009.

CNBC will broadcast “Warren Buffett and Bill Gates: Keeping America Great” moderated by CNBC’s Becky Quick on November 12 at 9 p.m. and 12 a.m. ET . Join the conversation with other students on Facebook and on Twitter.

Photo courtesy of Columbia Business School

Today, one of TED’s offspring — an independently organized local version called TEDxEast — is taking place in New York City. Professor William Duggan, author of Strategic Intuition and co-author of The Aid Trap, written with Dean Glenn Hubbard, and Naif Al-Mutawa ’03, founder of The 99, are among the speakers at the inaugural event. Other speakers include author Suzy Welch, 10-10-10: A Life-Transforming Idea; Scott Heiferman, CEO of Meetup; and Chris Elam, artistic director of Misnomer Dance Theater. Ed Rashba ’04 and Melek Pulatkonak ’02 helped organize the event.

TEDxEast is streaming live from the City Winery in New York City from 1 to 6:30 p.m. ET on November 6. Check back soon for video clips from the event.

	Students at the University of Dar Es Salaam listen to a lecture.

At last night’s Community Forum, Dean Glenn Hubbard, professors Bill Duggan and Gita Johar, and Eric Tienou ’03 of Burkina Faso discussed economic development in Africa. Hubbard and Duggan’s recently published book The Aid Trap (see blog post) advocates for aid investment directly into the small business sector rather than charitable aid through NGOs. Hubbard, who also spoke last week at the “Peace Through Reconstruction” conference, has said that a Marshall Plan-like program is not only a moral and economic imperative, but also good foreign policy for the United States. (Watch a video of his presentation.)

One example of how the development of the small business sector is taking place is emerging through the School’s partnership with the University of Dar Es Salaam (UDBS) in Tanzania, Africa. The partnership is made possible through Goldman Sachs’ 10,000 Women program.

Several faculty members, including Murray Low, Eric Abrahamson and Gita Johar, spent last summer working in Tanzania to teach students and UDBS faculty members. The goal of their work was twofold: to prepare local students to earn a cobranded advanced certificate in entrepreneurship and business management, and to facilitate UDBS faculty members in learning interactive case method teaching. The School is also helping to establish a PhD program at the African university.

“The group of students was incredibly diverse,” Johar said about her experience teaching. “We had chicken farmers and dried fruit distributors to engineers, consultants and a range of microfinance entrepreneurs.” This summer completed the first of a five-year teaching exchange.

While many of the challenges for small business owners in Tanzania are familiar — management, staff turnover and competition — the biggest challenge, said Johar, is access to capital. “Friends and family are the bank,” she says, noting that bank loans are virtually nonexistent. Nonetheless, students were very enthusiastic about the material.

“We were thrilled,” she says. “They were very hungry to learn and apply the teaching to their ventures.”

Last week, Craig Newmark, the founder of Craigslist, spoke with Columbia Business School students about his experience as an entrepreneur and in social enterprise. He recalled the moment he realized that he wasn’t cut out for management early in the firm’s history (today he calls himself a customer service representative) and selected Jim Buckmaster to run the company as CEO in 2001. “The decision made me wince because I had to relegate control,” Newmark said. “But it worked. You need to know when to get out of the way and stop talking.”

So how does a start-up founder know when to get out of the way? We asked Brendan Burns, adjunct associate professor in the entrepreneurship program and who teaches the course Launching New Ventures, for his insight. This is what he told us:

In general, company founders fall into two simple categories: (a) first-time founders, and (b) repeat or “serial” entrepreneurs. In both cases founders tend to be special individuals whose idea(s) are spawned from a unique customer insight (often from a sales background), technical innovation (technology background) or a perception of a future opportunity (futurist/evangelist type). Company founders are not usually people who excel in process, building of an administrative infrastructure, compliance with various regulations, etc. That is not to say they are cavalier about it, it is just not at the top of their mind or specifically germane to building a company.

Since companies typically grow in phases, or between inflection points that call for different levels of infrastructure, a lack of process refinement usually helps, not hurts, in the earlier stages. Creativity, flexibility and openness are crucial to success in these stages. As you add more people (employees and partnerships), customers and the overall number of transactions, process and discipline become hugely important parts of “scalable growth.”

For every company, reaching that inflection point where things start to fall through the cracks is a true test of long-term viability. The exact metrics are different for every company, but the ability to anticipate these issues, add professional management to negotiate them and put ego aside in the pursuit of supporting the right outcome determines success or failure.

Not surprisingly, first-time founders fail more often than serial entrepreneurs at navigating these growth pains. Serial entrepreneurs more often have the self awareness to step aside or recruit executives with complementary strengths to support scale. Also, serial entrepreneurs more often go out and attract advisers who help hold them accountable to making these changes.

Photo credit: JD Lasica

	The shot that saved the High Line: a view of the elevated tracks before restoration.

Robert Hammond, vagabond artist and High Line visionary, begins with a photo: a grass-covered railway, 30 feet above the fray, careens up the west side and disappears into the cityscape, like a strip of Central Park cutting through Gotham. The picture matters because this whole elevated-railway-turned-public-park idea was difficult to visualize back in 2001, but the photo offers a glimpse. Hammond calls it “the shot that saved the High Line.”

Next up is John Alschuler, adjunct professor at Columbia’s Graduate School of Architecture, Planning and Preservation and chairman of Friends of the High Line. The High Line, Alschuler explains, is one and a half miles of elevated railway that extends from the city’s Meatpacking District to Hell’s Kitchen, a corridor whose proximity to river and railyards made it America’s most important manufacturing hub in the mid-1900s. All goods coming to or leaving New York eventually found their way onto the line, so to say that the High Line facilitated New York’s rise to industrial superpower is not hyperbole.

So there’s that. And there’s the photo. The combination of the two made for a compelling case to save the High Line. “We saw the chance to create a world-class urban amenity,” Hammond explains. “one that would appeal to a New Yorker’s sense of history and design and reinvigorate this historically rich but blighted edge of the island.”

Eight years of fundraising, planning and politicking later, that vision has been realized. The High Line, now beautified by glass and grass and public art, has become the unique park promenade that Hammond envisioned back in 2001. Per the plan, a new West Chelsea has taken shape around it.

	Robert Hammond shows the route of the High Line in an aerial view.

The transfer of air rights, a city planning mechanism that helped persuade naysayers and NIMBYs by increasing property values, allowed the neighborhood around the High Line to go vertical. This planning change coincided with the development boom of 2005, and the combined effect has been sudden and striking. The Standard Hotel, Frank Gehry’s IAC headquarters and countless other design-in-mind projects (one resembles plume of locomotive smoke) now stand as symbols of the new West Chelsea — no longer a dodgy enclave of abandoned warehouses, but the preferred address of athletes and actors, Nike and Google.

Of course there is criticism — too expensive, too narrow, too modern. And sure, in the wake the real estate collapse, appreciating these expensive (and mostly empty) towers requires a little suspension of disbelief. But walking the line for the first time on a late summer Saturday, it’s evident that something positive has happened here. While the critics are busy being critical, the rest of New York is enjoying their new park: a family walks their dog, a couple watches the sunset over the Hudson, a singer strums “Mr. Tambourine Man”. Let’s remember: five years ago this was an abandoned, blighted eyesore.

Hammond’s hope for the High Line is simple: he wants it to be a place New Yorkers — not tourists — go to and enjoy. He may get his wish: It certainly won’t photograph as well as Times Square, it won’t inspire people like Top of the Rock or offer the solace of Central Park. But it will be a great place to stroll on a Saturday, to appreciate New York’s past and present and enjoy sunsets and Bob Dylan covers — a great park, 30 feet above the fray.

Photo credits: Joel Sternfeld and Kirill Babikov

How is open source software a form of social enterprise? That was one of the many timely topics that surfaced at this year’s Social Enterprise Conference on October 9. A theme of technology — how it can be leveraged and developed for social endeavors — was prominent throughout the day. Dr. Craig Barrett, the retired CEO and chairman of Intel, was awarded the 2009 Botwinick Prize in Business Ethics, which was presented by the Sanford C. Bernstein & Co. Center for Leadership and Ethics, and gave the keynote address.

In a panel on “The Power of ICT in Social Enterprise,” several participants discussed the challenges of scaling microfinance and mobile banking. In another popular panel with Wikipedia’s Jimmy Wales, the encyclopedia founder addressed the question of open source software: “It solves a lot of incentive and trust problems,” he said. “It’s a powerful way of leveling the playing field and allowing for collaboration.” Wales went on to offer three tips for community design: 1) Open is not the enemy of quality, 2) You cannot have community without participation and 3) Participation can come in unexpected ways.

In his keynote address, Barrett discussed the ways in which Intel has used technology to do good, including its successful education program in 60 countries that is focused on math and science. He also named the challenges he sees for business leadership, drawing from his experience with the European Union’s anti-trust case against Intel that ended with a $1.45 billion fine against the company last May.

“The increasing role of government will put a burden on CEOs to respond to regulations in an appropriate fashion,” he said. Barrett lauded a recent Wall Street Journal op-ed by Coca-Cola CEO Muhtar Kent arguing against a proposed sugar tax as a way to tackle obesity.

Later he said, “The challenge for CEOs and business executives is to stand behind ethics in the face of governments that don’t have the same ethical background or breadth of view.”

Photo courtesy of Columbia Business School

	Secretary-General Ban Ki-moon with a sample of polar ice during his visit to the Polar ice rim on September 1, 2009 to witness firsthand the impact of climate change on icebergs and glaciers.

Today, the 2009 Social Enterprise Conference: From Vision to Practice is taking place at Columbia Business School. This year’s event features Craig Barrett, former chairman of Intel, as the keynote speaker, and the panel topics touch many areas of business and sustainability. One panel will touch on how the private sector can provide solutions for clean water scarcity; another will showcase successful social entrepreneurs. Many of the themes that are being discussed today came up as part of a debate we took part in last week at the Carnegie Council.

Last Wednesday, a team of second-year students made up of Irene Pipola ’10, Kayvan Parvin ’10, and myself participated in “The Future of Business and Sustainability” debate, hosted by the Carnegie New Leaders. The group debated with teams from the NYU Stern and Baruch business schools and explored various ways of using the private sector to achieve environmentally sustainable outcomes.

The debate took place on a cruise around Manhattan on a “green” boat powered by biodiesel fuel. The evening began with clips of the new film Shattered Sky, by Stephen Dorst, which explored the parallels between the current debate on climate change to the one that led up to the Montreal Protocol in 1987 that resulted in the regulation of industrial gases that were causing holes in the ozone layer. The Protocol has been very effective and levels of harmful gases in the atmosphere rapidly have stabilized in the years since it was passed with no economic impact on consumers.

Dorst was present, and we discussed the similarities between the two cases; in both, corporate lobbyists held up the legislation for years and winning public support was crucial to providing the political will for change. Most importantly, the leadership of the United States is key in both cases; it took 14 years after the discovery of the ozone-depleting properties of certain industrial gases to get global agreement — and U.S. leadership was crucial to bringing the world together to solve the problem. Similarly, the debate on how to regulate greenhouse gases to mitigate climate change has been going on for decades — and the lack of U.S. leadership has been fundamental to the inability of the world’s nations to reach an effective plan of action.

Once the debate started, our group put forth several innovative ideas on New York, business and sustainability. Kayvan identified innovative business models that could address the split incentives problem that causes many profitable opportunities in energy efficiency to go unrealized. Irene discussed how congestion charges and incentives for some businesses to operate at flexible hours could be cost effective tools to reduce the strain on New York’s public transit infrastructure. I insisted that solving the fundamental problem of the externalities associated with greenhouse gas emissions and climate change could not be addressed without putting a cap, and therefore a price, on those emissions.

Photo credit: UN Photo/Mark Garten

	Dr. Rohit Aggarwala ’00 spoke to the Sustainable Business Committee about his experience creating a “green” plan for New York City.

Last month a new alumni group, the Sustainable Business Committee (SBC), held its first event to launch Making Green from Green, an eight-part series that will run through June 2010. The SBC, which is part of the Columbia Business School Alumni Club of New York, was formed to help alumni and the extended community stay current with emerging green trends and put their careers on a sustainable path.

The launch event featured keynote speakers Ray Anderson, founder and chairman of Interface and author of the new book Confessions of a Radical Industrialist and Dr. Rohit Aggarwala ’00, director for New York City Mayor’s Office of Long-term Planning and Sustainability.

Anderson, who has been called “America’s Greenest CEO” by Fortune magazine, described Interface’s journey to zero waste, which began in 1994. Since then, Interface reduced net greenhouse gas emissions by 82 percent and water usage by 75 percent, and increased their use of renewable energy to 27 percent of the total. Sales increased by two-thirds, profits doubled, and total costs declined, with $400 million in avoided costs. Anderson challenged what he called a “false choice between the economy and the environment” and concluded that “if we, a petro-intensive company can do it, anybody can. And if anybody can, it follows that everybody can.”

Aggarwala led the creation of “PlaNYC A Greener, Greater New York,” a comprehensive plan to green New York City. The City, according to Rohit, did not start out with a desire to be green, but came to environmentalism out of necessity, as a by-product of long-term planning. The City is expected grow from 8.4 million to 9.1 million people by 2030. In a city where every square foot is spoken for, he said, sustainability becomes a strategic need. Aggarwala described how the bottoms-up market demand for sustainability is changing the City. It lost two court cases where it sought to require taxis to convert to hybrid technologies. However, despite no regulation, 21 percent of all taxis in the City are hybrids, and 50 percent of those entering the fleet are hybrids, most of which are owner operated.

The next Making Green from Green event will be held on October 20. It will include a building tour by the architects and builders of the LEED Platinum Queens Botanical Garden Visitor & Administration Building. To register for the event, click here. Participants who attend six events will receive a certificate of attendance. For more information on SBC or the Certificate Program, email sustainablebusiness@cbsacny.org

Is it time for a new approach to solving world poverty? That question is at the heart of a new book, The Aid Trap, by Dean Glenn Hubbard and William Duggan, a senior business lecturer at Columbia Business School. In it, they argue that direct loans to businesses similar to the Marshall Plan is a more effective way to help sub-Saharan Africa pull out of poverty, rather than direct aid from charities and NGOs.

Hubbard and Duggan argue the current economic aid system — where non-governmental organizations run development projects — isn’t working effectively and there needs to be a “reorientation” of aid directly into the business sector. In many poor countries local business sectors are suppressed, they say, and that leaves economic development to either NGO-type entities or large multinationals. Their answer is to open up the middle of the economy for local business in order to have long-term sustainable growth.

“The question is mid-sized businesses. If you look at growth in the U.S. over the past two centuries or the industrial revolution in Western Europe, it was centered on growth of mid-sized enterprises,” Dean Hubbard said in a recent video interview at Forbes.com. “Mid-sized businesses need a very different credit structure than either microfinance or large multinationals, and that is missing in much of sub-Saharan Africa. A business focus on aid could get that going.”

Read more about The Aid Trap and in a Q&A with Dean Glenn Hubbard.

	From left to right: Manisha Kathuria ’10, Marieke Van der Lans ’10, Marcela O. de Rovza, Tiago Sousa ’10 and Riccardo Boin ’10.

Our Pangea Advisors project started with a “field trip”… yes, even in New York City we had this amazing opportunity! We left campus on a rainy day and we traveled for a couple of hours by train, ferry and taxi cab to reach a remote corner in Staten Island. There, for the next three hours, we immersed ourselves in the reality of 15 Hispanic immigrants, who were mostly day-workers, attending an evening class in financial literacy.

Qualitas of Life, our client, offers community-based financial education workshops for Hispanic immigrants in New York City. Its mission is to give these men and women tools to improve their personal finances and provide more opportunities for their families. It is a young organization and it faces the challenge of attracting, exciting and retaining volunteers who facilitate the workshops. As a Pangea Advisors team we were asked to develop a plan to strengthen their volunteer organization.

After thoroughly understanding our client’s mission and objectives, we were ready to do some investigation. We conducted interviews with staff members, board members and volunteers to better understand the challenges for the organization. We then decided to benchmark Qualitas of Life with other successful non-profit organizations and their volunteer programs. To do so, we not only did desk research, but also interviewed key people working in other non-profit organizations in New York City that had succeeded in creating an outstanding network of volunteers.

We traveled up and down Manhattan talking to executive directors and volunteer coordinators. It brought us to the most interesting places that we would have otherwise never seen — such as the 32nd floor in a typical New York City tower next to Penn Station, which, as we stepped out the elevator, turned out to be a huge warehouse with kids’ clothing and toys. We were in the right place to meet the executive director of a great non-profit organization called Baby Buggy.

We spent several weeks on data collection, interviews and follow-up meetings with the client, and then we were ready to develop our final recommendations. Our Pangea Advisors team met early in the morning and spent the entire day defining the framework and guidelines for our report. In a small room in Warren Hall everything came together: all our individual insights and opinions, different views on the structure of the recommendations (not surprising with three consultants and one banker among us!) and a lot of humor. In the end, it led to six types of recommendations: raising awareness; identifying and recruiting volunteers; welcoming new volunteers; organizing and allocating tasks to volunteers; measuring and rewarding volunteers, and communicating effectively with volunteers.

We worked hard to make the recommendations very specific and tangible. For example, we made a sample spreadsheet for the allocation of tasks to volunteers and we wrote sample introduction e-mails to new volunteers. Before finalizing the recommendations, we discussed them in detail with Qualitas’ two staff members, who helped us by pointing out where we could be even more specific.

In the first week of August, the entire team was invited by Qualitas’ president and founder, Marcela O. de Rovzar, to present and discuss the final recommendations. They were excited about our recommendations, and we had an in-depth and fruitful discussion with Marcela and the Qualitas staff during which we got a chance to share our views on the various challenges faced by the organization.

Now, a month later, it is great to see that they have already been implementing most of our recommendations. We are still following Qualitas with a lot of interest and self-satisfaction.

Photo courtesy of Marieke Van der Lans ’10

	Students use reusable water bottles to reduce plastic waste.

The Columbia Business School community has always evolved with the times, and in recent years, through the tireless work of student leaders, school administrators and faculty members, the thread of sustainability has been woven into the fabric of the School.

Environmental sustainability is important not only in light of increased and increasing regulation, but also the opportunity that comes with it. The cover article in this month’s Harvard Business Review explains that sustainable practices allow business to capture two unique opportunities. First, as much of sustainability is related to reducing waste, companies with sustainable practices can reduce waste and subsequently costs in their value chains to grow their bottom lines. Second, the innovations that are developed to reduce waste can be used to create new products or services to grow a company’s top line. Sustainability could very well be the foundation of business growth for decades to come.

This year, it seemed only fitting to debut a green program as part of orientation to inform students from Day One that sustainability and environmental awareness are part of the MBA experience. Several changes, including waste reduction, recycling, and improved communication, have been made to orientation to reduce environmental impact while maintaining everything that students loved about orientation.

We reduced waste by distributing more materials electronically and we used recycled products where possible (for print outs, packaging for lunch). Peer advisors communicated the importance of green behaviors and extra signs were placed to inform students of recycling locations. In addition, peer advisors also advocated the use of reusable water bottles and coffee mugs that were distributed as part of orientation.

When orientation wraps up next week, we hope new students have had a small taste for one more aspect of what it means to be a Columbia MBA student. The lessons of environmental consciousness that were inculcated during orientation will last well beyond their two years and help to shape their business practices and leadership in an increasingly environmentally conscious world.

Photo courtesy of the Office of Student Affairs

Public outcry has a mixed history of leading to changes in foreign labor practices. For example, in the 90s anti-sweatshop activism led to some successful reforms in labor policy. Today the issue appears less visible. New research from a visiting scholar at the Bernstein Center for Ethics & Leadership examines how organizations respond to societal pressures for changes in their corporate social responsibility policies.

Noshua Watson, visiting Bernstein from INSEAD, studied the case of MAS, a Sri Lankan apparel manufacturer that supplies to companies like Victoria’s Secret, as part of her PhD dissertation. Professor Bruce Kogut advised her work. One of the questions she looked at was whether it is better to meet external demands and conform to industry norms for CSR, or for an organization to differentiate itself.

MAS is typical of many manufacturers in developing countries, where the low cost for implementing modern production methods and an available low-skilled labor pool are appealing. In 2003, the company created — and then heavily promoted — a robust CSR program called Go Beyond for the education and empowerment of its predominantly female workforce. The program has been a social and financial success and it has contributed to the company’s doubling of its revenue from $500 million to $1 billion between 2005 and 2008 by supporting strategic partnerships and bringing in customer donations, Watson found.

Watson concluded that the CSR program at MAS illustrates that there is a difference between “substantive compliance with human rights standards and superficial conformity with industry peers in the way the standards are implemented.” In other words, MAS outperformed the industry standard for CSR and in doing so, was able to leverage that success into growth.

However, Watson says it is not without risk to deviate from industry norms and that companies with a thicker financial buffer are better positioned to innovate new ways of implementing CSR.

“Companies that consistently go beyond industry standards and thrive tend to begin with additional resources that allow them to experiment with their CSR policy,” said Watson. “They also perceive that there will be gains from that experimentation even though simply conforming to industry standards would allow them to satisfy critics.”

Photo credit: hexodus

Even as Spain’s savings banks struggle to survive in the fallout of the banking crisis, one bank, Caja Navarra is pioneering a new way with what it calls civic banking. Their goal is to provide a new level of transparency and agency for customers by engaging them in a dialogue about where their money should be placed.

Caja Navarra is one of 46 regional savings banks in Spain called cajas. The operations are owned by local interests and governments, and the cajas comprise almost half of the country’s banking system. Unique to these regional unlisted mutuals is that they give a hefty piece of their profits to local causes. One criticism of the caja system is that the banks “have become a financial tool of whichever party governs the region.” However, Casa Navarra is doing something new: the bank donates 30 percent of its profits to a social cause that its customers decide upon — and there is transparency about exactly how much the bank’s profits are.

In the latest issue of the Chazen Web Journal, Nicholas Doimi de Frankopan ’09 sat down for a video interview with Enrique Goni, the CEO of Caja Navarra. (view the complete interview). Goni said that he doesn’t think that civic banking is a niche trend, but rather represents the future of banking.

“I am convinced that civic banking and our way to understand it is the pioneer,” Goni says. “I am personally convinced that banking activity has to change radically and if banks are not civic-minded in the future, they will not [exist].”

Earlier this year, as Spain’s commercial banks, such as Santander, went relatively unscathed by the banking crisis, cajas took a hit — Caja de Ahorros Castilla-La Mancha received a €9 billion bailout at the end of March — and they have been far more affected by delinquency and high-risk loans. That has placed renewed debate over the future of Spain’s savings bank system.

Photo credit: failurez

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About half way through my MBA I began to realize that I was not only learning new skills, but also a new way of thinking. The change in perspective was a bit unexpected. I knew I would learn analytic skills, leadership and marketing techniques at Columbia Business School, but I did not anticipate evaluating opportunities differently or gaining insight into why some business prosper while others fail. That perspective would have served me well in a number of situations. It is something I should have and could have learned in high school or even earlier.

About a year ago I decided to use this summer to try and teach kids about how to be entrepreneurial in business, in life and in their academic careers. A friend of mine runs a NGO in Mexico called PEACE Mexico. The organization hosts summer camps for children and she agreed to let me offer a program focused on entrepreneurship to middle school and high school kids. We opened the camp to public school kids in some of the smaller towns surrounding Puerto Vallarta.

At first, it was a bit of a hard sell — when you are 14 spending your summer learning how to run a business is not the most exciting proposition. But we created a fun and interactive curriculum that teaches entrepreneurship through English language classes, art workshops, games and outdoor activities. We hired most of our camp counselors locally and we also have six volunteer English teachers from the U.S., including Lauren Wall ’09.

On the first day of camp the students heard from a roundtable of local business people who spoke about their experiences as entrepreneurs. The business people spoke about the hard work, challenges and failures they have experienced as entrepreneurs in addition to talking about all the great parts of owning a business. One of the guest entrepreneurs distributes ice cream to local restaurants. Each flavor of ice cream is packaged in the skin of the fruit that it comes from (coconut, orange, etc.). The campers loved hearing about that business because ice cream is always a popular topic, but also because the business idea was launched almost a decade ago in a similar student business plan competition. The ice cream is now sold throughout all of Mexico.

	In addition to learning about entrepreneurship we also did all the things you are supposed to do at summer camp — go to the beach, play soccer, have water balloon fights. Both campers and counselors have had a great time.

We are now wrapping up the fourth and final week of camp. Our 60 campers have learned about famous entrepreneurs, considered their career plans and thought about how they can make a difference in their communities. They have also learned the four Ps of marketing (product, price, place and promotion) and discussed operating and financing businesses. Each group has created a plan for a business that they would like to launch and they will be pitching their ideas in a business fair to local entrepreneurs in hopes of finding funding.

Our students have come up with a range of business ideas. All are easy to start and appropriate for young entrepreneurs to run. One group of kids will take photos in their communities and use those photos to hold photo exhibits and to make calendars. With the money they collect from the calendars they will make improvements to their school (a new science lab is the first project they hope to fund). A second group is going to start a dance school and will teach dances to kids in their community for quincenas (a Mexican tradition much like a debutante ball or Sweet Sixteen celebration). A third group plans to open an after school program for primary school children where they will offer help with homework and extra curricular activities.

All of the business ideas are unique. And like all ideas, some will succeed and others will fail. However, our hope is that the lessons learned can be applied later in life when the students are faced with supporting themselves and their families. For many of the students who are attending the summer camp, life’s prospects are challenging. They come from low-income families and the chances are high that many will not complete high school. Even for those who do make it through high school and college, salaries can still be very low. In Mexico, business ownership is often the key to achieving a solid middle-class lifestyle.

Although I won’t have three months off next year to run the summer camp, the groundwork has been laid. The camp is self-sustainable and the curriculum can be reused. This year we charged kids 10 pesos a day to attend (about $0.80 USD). But not to worry, I haven’t given away all the secrets of business school — some of the kids can probably still benefit from getting an MBA later in life.

Melissa Floca ’09 received the 2009 Nathan Gantcher Prize for Social Enterprise.

Photos courtesy of Melissa Floca ’09

In the last post, we blogged on the growing study of social enterprise at Columbia Business School. One of the most enduring questions for the field is how to couple social objectives with the role of markets. Bruce Usher, adjunct professor in finance and economics and CEO of EcoSecurities, spoke about that question at an international social enterprise conference last March (complete video coverage of his lecture above).

	In what ways can the markets play a bigger role for social change? Please leave a comment.

“Market mechanisms can and will help social problems,” he said. In his presentation, he discussed several examples of successful ventures in the environmental sector, including Title 4 of the Clean Air Act, which reduced carbon emissions by 40% between 1990-2001. Usher also discussed the success of Renewable Portfolio Standards (RPS), Clean Development Mechanism (CDM), the role of microfinance and socially responsible investing.

“Markets force participants to internalize social costs and it becomes part of the daily way of doing things,” Usher said. “As a result participants change their behavior and they do things differently.”

Cover photo credit: Russell Smith

Columbia Business School’s Social Enterprise Program is poised to reach a milestone this fall when Professor Ray Fisman begins as faculty director, succeeding Ray Horton who stepped down as director of the program in the spring.

In the new issue of Hermes, the cover story tracks the development of the program under Horton’s guidance over the past 25 years. He attributes the proliferation of student interest in social enterprise to corporate scandals and a changing attitude toward the value of contributing to society. Last March, speaking at a social enterprise conference hosted by the Korea Development Institute and Columbia Business School, he elaborated on the meaning, scope and potential of social enterprise. (Complete video of his presentation above.)

Broadly defined, the field of social enterprise is the application of business skills and methods to social problems, Horton said. That can take place in many forms, from socially responsible investing and corporate responsibility to nonprofit management and social entrepreneurship. Horton says that one of the biggest challenges entrepreneurs in the social sector face is how to sustain growth.

	How does an entrepreneurial organization approach the challenge of scalability? Please leave a comment.

“The factor more than any other that clouds the potential of social entrepreneurs is the difficulty of bringing the organizations they found to scale, to sustainable scale,” he said. “The inability to attract sufficient resources converts many would-be social entrepreneurs into salaried employees of larger organizations...Fortunately, there are new developments and new institutions and new ways of using the market that will bring financial and human resources.”

NOTE: In a school-wide effort to conserve materials and reduce costs, Hermes magazine will no longer be mailed to alumni unless they confirm they would like to continue receiving it. If you are an alumni of the School, please log in and confirm your preference.

Cover photo credit: Simon Harvey

	What can London’s Brick Lane Mosque teach us about social enterprise?

How do you create a sustainable business while incorporating contrasting cultural identities as part of the organization?

For the past two weeks, a group of fellows visiting Columbia Business School grappled with these questions through the lens of Jewish and Muslim cultural history as part of the Ariane de Rothschild Fellows Program: Dialogue & Social Entrepreneurship. The program concludes today.

The fellowship, which is in its first year, is a blend of humanities and management training between the University of Cambridge, King’s College Cambridge and Columbia Business School’s Executive Education. The group of 28 Fellows is comprised of mainly Jewish and Muslim social entrepreneurs from the U.S., France and the U.K.

“The goal was to create a training program that addressed social challenges while building bridges,” says Firoz Ladak, executive director of The Edmond & Benjamin de Rothschild Foundation, the program’s sponsor. “We wanted to develop and provide practical tools for business development and work across ethnicities, nationalities and religion.”

Last Friday’s presentation by Ed Kessler, director of the Centre for Muslim-Jewish Relations at Cambridge, put the concept into action.

“What impact does it have on your work as a social entrepreneur when cultural, ethnic and religious identities begin to blur?” Kessler asked the group of fellows.

Changing the language and terminology used in an organization’s communications one fellow suggested. Another fellow said that an organization must accept, as part of its mission, that members will be part of multiple institutions.

	What challenges do you see for cultural or religious organizations? Please leave a comment.

Kessler, in his lively lecture, suggested that identity conflict can be resolved when a group can successfully “renovate memory for positive reasons rather than negative reasons.” He used London’s Brick Lane Mosque, which has been at times a church, synagogue and is now a mosque, as an example of an organization that had used its past history in a progressive way.

Ladak, whose own background is in investment banking, emphasized that the program is about blending both cultural and bottom line objectives.

"We’re engaging beyond tolerance,” Ladak said. “It is about creating a new paradigm and harnessing what is best from the worlds of social entrepreneurship, cross-cultural engagement and academia.”

Professor Bruce Kogut, faculty leader for Columbia Business School’s participation in the program, added “The program is teaching the skills they need to use the power of their social values and the power of the market to further their goals.”

The authors won the 2009 Pershing Square Value Investing and Philanthropy Challenge, which was made possible through a gift from Bill Ackman and Pershing Square Capital Management LP and awarded through the Heilbrunn Center for Graham and Dodd Investing.

Participating in the Pershing Square Challenge is the type of experience you go to business school for. Where else in the world do you have the opportunity to pitch a stock to a panel of value investing legends including Bill Ackman, John Griffin, Dan Loeb and Bruce Greenwald?

Our team came together quickly — Tim and Grant worked together over the summer at Blue Ridge Capital and John and Tim knew each other through the CIMA mentor program. Despite other recruiting, academic, and personal (like Grant’s son Griffin) commitments, we all agreed that our goal was to win the competition and that would be a priority for each of us.

We were keen to find a short to differentiate our work from the other 45 teams that were going to have very strong long ideas. After reviewing different sectors, for-profit education appeared to still be attracting rich valuations despite the severe downturn in the market and a questionable customer-value proposition.

We split the sector into three areas and each of us conducted initial diligence on a subset of companies. After reviewing all the major for-profit education stocks, we settled on the Apollo Group (parent company for the University of Phoenix) for three reasons. First, it had a rich valuation. Second, it has questionable business practices, and, lastly, the company cost U.S. taxpayers $250 million dollars through defaulted loans that the government guarantees. We believed highlighting the government subsidy of corporate profits dovetailed with the philanthropic goals of the competition.

We worked on the idea all semester, coming together weekly to discuss the team’s progress and ideas for different analyses. As we neared the submission deadline the measured pace became frantic and our weekly meetings turned into daily ones. In spite of our differing styles and opinions — Grant wanted to explain every detail, John wanted to explain nothing, and Tim wanted a balance — we shared a common goal and our discussions, though at times heated and lengthy, always ended with agreement.

After all the groups presented in the finals and we were waiting for the results, the three of us were remarkably calm. We all had a feeling of accomplishment, not from winning (we hadn’t heard the results yet!), but from putting together what we thought was a thorough and convincing stock pitch. Our feeling turned out to be spot on — we had won the competition and a prize of $25,000 to be used as a gift back to the School.

We took the responsibility of directing Mr. Ackman’s $25,000 gift very seriously. We agreed the money should be used to support both students interested in investing and students who will make a broader impact on society. We hope Mr. Ackman is pleased that the money will be going to scholarships for veterans returning from military service (as part of the Yellow Ribbon Program), a student with a focus on investing and community service, and to the Heilbrunn Center to support the value investing curriculum at Columbia Business School.

We would like to thank Bill Ackman for sponsoring the competition, the judges for taking the time to give us feedback, Erin Bellissimo and the Heilbrunn Center for supporting the competition and the class, professors Paul Sonkin ’95 and Caryn Zweig ’98 for their support in and outside the classroom, and all the mentors who took their personal time to help students and provide feedback throughout the semester.

Photo courtesy of the Heilbrunn Center

From left to right: Executive education account manager Alan Chen, Columbia Business School Professor Ray Horton, University of Massachusetts professor Brian Lickel, Professor Eric Abrahamson and Professor Daniel Ames. They recently returned from teaching a one-week program for nonprofit leaders in Riyadh, Saudi Arabia. Horton, the faculty director of Social Enterprise Programs in Executive Education, shared his thoughts about the experience.

Let me say up front that the assignment with the King Khalid Foundation was one of the most interesting and rewarding experiences I’ve had as a professor. It was also one of the most challenging.

A little background for our assignment: There’s a strong tradition in the world of Islam for giving, which Saudi Arabians certainly live up to. Yet nonprofit organizations have not played a very important role in the country historically because many of the wealthy simply hand out money directly to those in need or to charities that distribute the funds without maximizing the impact of each riyal. However, a growing number of Saudi leaders now recognize that “street-level philanthropy” of this kind tends to sustain poverty rather than reduce it. One of them is Princess Banderi AR Al Faisal, the director general of the King Khalid Foundation.

A growing movement for development
Princess Banderi is leading a movement among Saudi foundations to channel more charitable giving to nonprofit organizations whose programs are designed to address the poverty issue through human development rather than handouts. The success of that strategy depends on the ability of nonprofit leaders to manage their organizations effectively. In recognition of this, the Princess and her colleagues designated management training for leaders of the nascent nonprofit movement as one of the Foundation’s key initiatives.

To this end the Foundation decided it would sponsor the first-ever Executive Education program for nonprofit leaders in Saudi Arabia. With the help and coordination of Dr. Natasha Matic, a strategic consultant to the Foundation, the Columbia Business School program was selected to bring that management training to Riyadh.

It wasn’t an easy program to develop or deliver. We academics can say all we want about the “fundamentals” of nonprofit management, but many fundamentals in the U.S. are not the same fundamentals in Saudi Arabia. We spent a great deal of development time in the months leading up to the program working on our presentations until they received Dr. Matic’s stamp of approval. We thought we were well prepared when we arrived in Riyadh, but we still had some lessons to learn ourselves.

Teaching past cultural differences
I could go on for a long time about the cultural differences that become readily apparent when New Yorkers arrive in Riyadh, but the most obvious difference, on the street and in the classroom, is the relationship between men and women.

I think all of the participants were a little discombobulated at first to discover that the training would be provided in one room rather than two, and that women out-numbered men two-to-one. It took a day for everybody to start feeling comfortable, including us, but by day two things were starting to go smoothly. By day three, the men and women were engaged in lively debate with each other over the strategy projects Eric Abrahamson had designed for them; by day four, Daniel Ames had women and men choosing to negotiate with each other rather than with a member of the same sex. And by day five, I had everyone in the room laughing at me after I illustrated the importance of not wasting scarce resources in reference to some nonprofit leaders in New York City who use chauffeured cars rather than subways to get around — forgetting for the moment that there is no public transportation in Riyadh and, to make matters worse, that Saudi women are not allowed to drive cars. So much for cultural sensitivity.

While it was interesting to see the male-female dynamic change in the course of the week, what impressed me most was the passion these people brought to their professional lives, women and men alike. Many of them run nonprofits with small or non-existent staffs, small or non-existent budgets, and small or non-existent boards, conditions of nonprofit life that would seem to be discouraging. But when you hear them talk about the importance of their missions and the scale of the problems they’re fighting you begin to understand how motivated they are to make their world a better place.

In the end, I know the participants were grateful to the King Khalid Foundation and to us for the learning experience they received. I’m grateful to have had the experience too.

Photo courtesy of Alan Chen

It is no secret that the mobile phone industry is thriving in emerging markets, and that this growth has helped make cell phones the fastest spreading technology in human history. Less known, but equally as important, is that this growth has extended well beyond the ability to make phone calls. Today mobile operators in Africa, Asia and Latin America also offer their customers the ability to send cash to relatives, pay bills, and even check whether a taxi is legal or illegal, all via their cell phone. Many of these services have even begun transforming entire societies — in Kenya alone a mobile phone-based cash transfer service called M-Pesa has over six million customers.

However, despite these innovations, we believe mobile-phone based services remain limited relative to their potential in emerging markets because they rely on a fairly basic form of technology: SMS text messaging. These messages are limited to 160 text characters and due to their simplicity are simply not designed to deliver the advanced services we are accustomed to in more developed markets.

For us, these facts beg the question: when will mobile services in emerging markets evolve beyond text message technology? Relatedly, when will consumers in emerging markets embrace the enhanced functionality that comes with purchasing a more advanced handset? We believe that time is now, at least for certain customer groups. So-called “smartphones” — phones such as the Blackberry, iPhone and G1 that have the ability to download new software applications — have already transformed the way consumers in developed markets use and access data (iPhone customers alone have downloaded more than one billion applications). And certainly smartphones, which are in effect mini-computers, have even greater potential in emerging markets where relatively few computers exist. There is little doubt that smartphones will soon be more widespread in emerging markets yet a central question remains: who will build applications for these underserved customers?

Enter Frogtek, a for-profit social venture that began as an idea in the classroom at Columbia Business School and will soon begin formal operations in Colombia. Frogtek is premised in part on the theory that smartphones can solve several major problems endemic to emerging markets that text-messaging based technology solutions cannot. Of course, we recognize that getting customers to use smartphones in emerging markets today comes with a unique set of challenges. Perhaps most prominently, smartphones are still fairly expensive. Moreover, most software applications for smartphones were developed with a rich consumer in mind. These challenges are not insignificant.

For these reasons, Frogtek today is focused on what we believe can be a vanguard customer group in emerging markets, one that already has access to capital and a demonstrated need for simple and customized technology solutions: micro-retailers. The need we’re addressing is that most of these “mom-and-pop” shops do not keep sales records, which can result in inefficient business operations and even bankruptcy. Hence, our first product is an accounting and inventory management tool that allows a shopkeeper to use a smartphone as a point-of-sale device; the camera even doubles as a bar code reader. The phone generates basic reports about sales, inventory and profitability, and information is also uploaded to Frogtek servers wirelessly for secure storage and further analysis.

At this stage we have completed a prototype and will be working with SABMiller and a prominent Colombian NGO this summer to test our product with 50 shopkeepers. By the end of the summer we plan to have a complete version that we can distribute more widely in Colombia and eventually Latin America.

Accounting solutions are only the first step for Frogtek. If we are successful this summer and shopkeepers become comfortable using smartphones, we believe it will be relatively easy to develop and introduce additional products via smartphones such as micro-insurance and branchless banking. Time will tell whether our idea is premature but there is little doubt that smartphones are coming soon to an emerging market near you.

David Del Ser '08 is a 2009 Echoing Green Fellow. He is also the 2008 winner of the Nathan Gantcher Award in Social Enterprise at Columbia Business School.

Images courtesy of Frogtek

The upcoming transition at Xerox from Ann Mulcahy to Ursula Burns as CEO is an important benchmark for female corporate leadership. However, the news at Xerox doesn’t compensate for the fact that there continues to be a paucity of women in senior management positions, says Professor Ray Fisman. Why is that?

In a recent article for Slate, Fisman looks at one of the reasons the gender gap persists in some fields, like science and technology. He suggests that mentoring — beginning in the classroom — may be one area to consider. Fisman considered a study by University of California-Davis economists Scott Carrell and Marianne Page and James West at the Air Force Academy, about academic performance in math and science and professor gender at the Air Force Academy. The study demonstrated that female cadets who had female instructors had better performance than those with male professors (download PDF).

“Having a male instructor didn't just affect female cadets’ performance in their first-year classes — ramifications could be seen throughout their undergraduate careers. Not surprisingly, students who did well in their introductory science classes were more likely to go on to obtain science degrees (and presumably go on to science-related professions),” he writes.

Fisman brought the issue to a scientist and colleague at Barnard, Stephanie Pfirman, for her insight. She made the point that academic performance in young women is not only an environmental issue — but it is also a psychological one and that there needs to be more encouragement for women to “realize that getting an A- or even a B+ in an introductory course doesn’t spell the end of your career as a scientist, as many high-achieving young women believe.”

Without diminishing the very real issues that exist at the institutional level, we wanted to know more about how perfectionism may bottleneck female achievement, in the sciences and beyond, and how might mentorship meet that challenge?

We asked Cali Yost ’95, author of Work+Life Fit, who has written widely about gender and the workplace and mentorship issues, about that topic. She agreed that perfect is too often the enemy of good and that better mentoring could start to resolve this.

“There is a lot of pressure on women to be perfect at both work and at home,” says Yost. “Female mentors may say ‘You can’t do this job and have a life’ rather than giving a broad and innovative way to do both. They may not have had a lot of choices and flexibility when they were doing it 20 or 30 years ago, and so they are not able to mentor in that dimension. There needs to be more conversation around that.”

Yost points out that employers today are more willing to consider alternative and flexible options for women with families, for example. And that needs to be acknowledged in the mentoring process itself.

“One skill set for mentoring is that when mentees ask ‘How did you do it?’ the mentors talk about in such a way that shows that their experience isn’t the only way or answer,” Yost says. “They may say things that may not apply today and we need to facilitate the conversation and help mentors be creative in the context of today.”

Photo credit: Alvaro Canivell

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On Sunday, May 17, 2009, Matt Berry ’10 and I landed at the Mbarara airstrip in southern Uganda (see map) to begin our weeklong due diligence of Ruhiira Millennium Savings and Credit Co-Operative (RMSACCO), a tiny savings and loan cooperative to which Microlumbia is considering making a $10,000 loan.

RMSACCO is in the village of Ruhiira, roughly one hour on pot-holed roads from our home base in Mbarara. The entire region is covered by banana plantations, the favored crop which takes up over 60% of the arable land. The SACCO has 864 members, all with savings deposits. There is a minimum requirement to join, helping to inculcate a culture of saving in the village. The organization’s loan portfolio totals roughly $35,000, constraining its capacity to disburse loans. It works closely with the Millennium Villages Project (MVP), a multi-country, multi-sector economic development project led by Jeffrey Sachs, Director of the Earth Institute at Columbia University. Ruhiira is in the MVP’s Uganda project zone, and RMSACCO benefits from the increased economic activity related to the MVP’s initiatives. However, RMSACCO is not officially part of the MVP and has members outside of the project zone.

During our week with the SACCO, we became intimately familiar with its processes for appraising loans, recording transactions, and recovering bad debts. We conducted extensive interviews with the three employees — Cleophus, the manager; Jude, the loan officer; and Agatha, the cashier. We were greatly impressed with the SACCO’s knowledge of local economics and its abilities to track every transaction on paper. They have a computer, but no electricity; they hope the MVP will provide them with solar power soon. Without a computer, it is difficult for the SACCO to organize its data so that it can analyze its portfolio quality or devise a strategy built on key value drivers.

One of our key takeaways from the week is how compelling the local economics are. For example, a small investment in time and money can enable a banana farmer to increase his yields five-fold. In order to do that, though, he not only needs the money to invest in some basic modern tools and inputs — roughly $1,000 investment per acre, but most families own only a fraction of an acre — but also enough to live on so he can get by without selling bananas for the year the field is under rehabilitation. However, whereas most plantations currently earn roughly $375 per acre per year, a rehabilitated field earns roughly $1,850 per acre per year. Without institutions like RMSACCO, such investments are simply not possible.

We will present our findings later this year on RMSACCO’s social impact, operations, and likely ability to repay our loan to the Microlumbia Investment Committee. If the loan is approved, we will likely expand the relationship by asking the SACCO to work with Microlumbia’s consulting arm to implement some improved accounting procedures and to drive the loan portfolio in a more strategic direction. I am confident this would be an educational experience for the students and bear some operational benefit for the SACCO.

Photos courtesy of Pangea Advisors

The lowest rungs of the microfinance ladder are occupied by the poorest of borrowers in the world’s underdeveloped economies — and in many places the great majority of borrowers are women.

There is some difference of opinion on the benefit of this gender bias. One view holds that when men see women successfully turn microloans into income that supports the household (such as spending on education and health), men find their position as primary breadwinner threatened. Consequently, men frequently reduce their contribution to the household because they believe the size of the loans women wield is larger than it in fact is, and more friction ensues. The thinking here is that opening up borrowing opportunities to men would counteract these negative outcomes.

Other observers point to evidence that lending to women is more likely to result in better health and education levels for the household overall than lending to men, as men tend to spend surplus disproportionately on alcohol, tobacco and gambling at the expense of supporting the household. Proponents say that the gender bias produces an empowerment effect: not only is lending to women more likely to result in better health and education levels for the household, but it can be a transformative experience for other members of the household to see a women leading the household, managing a loan, working and bringing home money. There is still little empirical evidence about the consequences of the gender bias or what happens when efforts are made to counteract the bias by extending loans to men.

My colleagues Beatriz Armendariz of Harvard and University College London and Nigel Roome of the Free University of Brussels and Tilberg University have done some excellent preliminary work in Mexico investigating the bias question. Anecdotal evidence suggests that female borrowers do find it more difficult to manage their relationships with their male counterparts over tensions about money and power in the household. One proposed remedy is to involve men in borrowing groups (most microlending depends on a group dynamic to succeed and many groups are open only to women) to foster a sense of participation in lending and some parity in the household. In Mexico, when men were brought into the borrowing group, loan officers reported more investment overall, higher repayment rates, more sharing of both business and household chores and management, and decreases in household tensions.

Studies by others found that, in Africa, the empowerment factor is inconsistent and largely dependent on differences in regions and households; research in Bangladesh suggests that women borrowers frequently cede control to their husbands when choosing how to invest.

This evidence is noteworthy, but I caution against embracing this approach too soon. Until we know more about which practices produce the best outcomes and how they vary by geography and culture, we should view gender bias as a good thing that we should work to keep intact.

My own view is that it is preferable to forgo a certain parity in order that the next generation sees women as the primary breadwinners in households, even if that might extract a psychological cost on the household in the form of marital tensions. Because women are discriminated against in so many cultures it is a transformative experience to grow up with a female head of household. That alone argues for allowing the bias to persist.

Professor Suresh Sundaresan is the editor of Microfinance: Emerging Trends and Challenges. You can read more in a Q&A with Professor Sundaresan in this month’s issue of Ideas at Work.

Photo credit: McKay Savage

Naif al Mutawa ’03 of the Teshkeel Media Group, left, receives the Social Entrepreneur Award in the Middle East from Hilda Schwab, chairperson and co-founder, Schwab Foundation for Social Entrepreneurs at the World Economic Forum on the Middle East at the Dead Sea, Jordan on May 16.

It has been a big year for Naif al Mutawa ’03. The founder and creator of comic book company Teshkeel and The 99, an Islamic comic book series based on the 99 attributes of Allah, opened the company’s first theme park in Kuwait in March, and last weekend al Mutawa was honored with the Social Entrepreneur Award in the Middle East by the Schwab Foundation. Public Offering recently spoke with him about his adventures with superheroes and his advice for entrepreneurs.

How is a comic book a social enterprise?

I wanted to create alternative heroes that wouldn’t disappoint and would be positive. In so doing, I knew I needed to create something that would have legs in U.S. and Europe and Asia. One of the ideas that I send out through the series is that the values implicit in the 99 attributes of Allah tie us all together as people. Our focus is on the values that humanity shares while building a business around it and to create an alternative to those who would have others believe that there is a clash of values between Islam and the rest of the world.

How does the company fit into the larger trend of social enterprise?

We are a social enterprise through our values and the medium is comic books. It’s our philosophy that we are doing well by doing good. You hear about the philosophy of business at the School; this is the business of philosophy.

In the nearly five years since you launched the company, what has surprised you?

I have had to switch our focus. At first, we focused on protecting the property and creating the concept with [the artists] … We were covered extensively in the press and had a lot of positive publicity before we even had a product. I mistook that to think I could expand outside of the region, but that time might have been better spent focusing on the region. So we let go of that a little and we raised a second round of financing. We converted the company to an Islamic company and that allowed us to be accepted in new places, which led to the opening of the theme park and that allowed for more opportunity for us in the Middle East.

What advice do you have for entrepreneurs starting out?

Networks are very important. Never burn a bridge and don’t let your ego get in the way, because an opportunity may come down the road. It is also important to know the difference between luck and skill and don’t confuse the two — we got extremely lucky.

Photo credit: World Economic Forum/Nader Daoud

In a recent column for Slate, Professor Ray Fisman argues that the process of how executive compensation is determined — namely the practice of peer-pay comparison — has allowed the pay of top-level employees to snowball. Fisman suggests that the priority for pay must be realigned with performance. He writes:

… the lesson isn’t that we should dump the baby of peer comparison out with the bathwater. If CEOs and others should earn “what the market will bear,” how better to figure this out than to look at how the market is treating other CEOs? But this CEO labor market will work only if all companies also keep an eye on the more basic market principle that higher CEO pay must first and foremost be tied to the success of the companies they lead.

Accounting professor Sudhakar Balachandran argues that another potential effect of the peer-pay model is decreased sensitivity of pay-to-poor performance (see blog post “Paying for a Pulse”).

“Peer-pay comparison is typically motivated by the goal of trying attract and retain the best talent, which is often at odds with the other major goal in compensation, that of motivating performance,” says Balanchandran. “Businesses are trying to achieve multiple objectives that are conflicting with each other, and that tension has to be managed and resolved by the board.”

Balanchandran suggests that the balance for determining how to structure executive pay — where a firm must find and retain talent on one hand and motivate leaders on the other — creates a tension that is never likely to disappear. Recognizing and accepting that push-and-pull may be the first step for creating a new model for pay, he says.

“Some of the populism found in the business press these days is a little dangerous because it tries to pretend that tension doesn’t exist. And that can create a bigger problem because you are ignoring real economic tensions.”

Photo credit: Thomas Claveirole

Above: Members of the Social Enterprise Club with Joel Klein.

What are the most important characteristics for MBAs in the education sector?

Transparency, consistency and being genuine, Jemina Bernard, executive director of Teach For America, told students at a recent lunch with the Social Enterprise Club.

This year the club has organized events with education leaders from Uncommon Schools, The New Teacher Project, a meeting with New York City Schools Chancellor Joel Klein, Washinton D.C.’s chancellor Michelle Rhee, as well as the recent lunch with Bernard as part of its education initiative. The education events are part of the club’s peer-to-peer structure, which gives students within the club a group based around their particular career interest.

At the brown-bag event, Bernard added that TFA and the education reform movement are receptive to MBAs because graduates have “strong people and project management skills.”

As the business and education sectors continue to cross-pollinate, there are even broader lessons from the field of social enterprise that are shaping education reform say members of the club.

Lisa King ’09 says the education sector can learn to “replicate successful models and scale to meaningful impact” from the development of other social ventures.

Another lesson is to apply more quantitative methods for measuring what works, adds Jessica Hendrix ’09. “Social Enterprise has started to emphasize the ability to quantify results in order to measure success,” she says. “After quantifiable data exists, it is far easier to determine the success drivers which need to be replicated to spread successful results.”

Organization, rather than management alone, is another key distinction for successful education reform. “One can be a gifted manager or a talented planner, and that’s needed to keep an organization running,” says Joe Chmielewski ’09, the club’s co-president. “But to affect organizational change, you need to work with constituencies.”

“Organizing generates that buy-in and an enthusiasm and passion for vision that will carry it through the bumps in the road of implementation,” adds King.

Photo courtesy of Joe Chmielewski ’09

This post contains an update.

Sugar Plum didn’t make it and neither did Fred and Ginger. But Chocolate Fudge Brownie is a bestseller.

Not every flavor makes it to your freezer; but if you’re Ben & Jerry’s Ice Cream, you keep trying. Indeed, making ice cream has been a metaphor for the way the company has become a leader in sustainable business.

“Figuring out how to have a socially conscious business was like creating a new flavor,” Jerry Greenfield told students in a presentation at the Feed Your Conscience event on April 22. “We had no idea to do it, but it didn’t prevent us from trying and failing, making improvements and trying again.”

Greenfield spoke with Julius Walls, Jr., President and CEO of Greyston Bakery, at the event, which was sponsored by the Eugene Lang Entrepreneurship Center, the Social Enterprise Program, the Social Enterprise Club, the Green Business Club and the Columbia Entrepreneurs Organization. The presentations were followed with brownies a la mode.

Walls shared his experience connecting Greyston’s business model to a community mission and urged students to look beyond financial returns.

“It’s not about the dollar and making money,” he said. “It’s about people, planet and profits. You don’t have to give up one to serve another — business should serve humanity.”

Both leaders agreed that community outreach and ingredient sourcing have been key parts of their sustainability mission. In an audience Q&A, Greenfield responded to questions about the challenges of both becoming a public-owned company as well as a subsidiary of Unilever, which it has been since 2000.

“How do you maintain the mission in founder-driven entrepreneurial companies?” he asked. “The jury is still out. It’s very difficult.”

However, Greenfield said the strongest endorsement of the mission is in the bottom line.

“Our experience is that the more giving and caring we are, the more successful [the business] is,” he said.

UPDATE (5/6/09): Watch video from Feed Your Conscience ’09, now posted on Columbia Business School’s YouTube channel. -CN

Photo credit: Anna Berger

In developing countries, it makes up 41% of gross national income, 30% of the GDP, accounts for 70% of employment and in many countries is growing faster than the overall economy. This thriving area of growth is also known as the informal sector.

For those who haven’t spent much time in a developing country, you may be wondering this means exactly. The businesses that make up this sector are not gangster-run outfits operating in clandestine markets. Instead, they are unofficial businesses that operate openly. They are “tolerated” by local governments, which cannot or will not make the benefits of formality accessible to local business owners. The vast majority of people operating in this sector are simply trying to scratch out a living — and are sometimes thriving — by buying or selling goods.

However, the invisibility of these businesses, as well as their transactions with consumers, leaves the door open for opportunistic behaviors. Both my personal experience and the limited data I’ve been able to find lead me to think this is a much bigger barrier to business growth than is commonly understood.

I spent two years living and working in Kenya with informal businesses and small-holder farmers who operate as informal entrepreneurs selling produce. Time and again I heard stories of business deals gone wrong — of a middleman who bought produce on credit only to disappear without a trace and carry away hundreds of dollars worth of goods without paying for it. While the vast majority of businesses are honest dealers, and most transactions are smoothly conducted, it only takes a few such incidences to discourage otherwise worthwhile business investments. Would providing businesses with a virtual community to allow them to tap into their social networks to gain trust and credibility unleash an explosion of economic growth at the base of the pyramid?

My business partner Felix Macharia ’09 and I have set out to try this concept in Kenya, a country we both know well. Our business, Dango, seeks to create a referential mobile phone-based business directory and social messaging platform for the Kenyan marketplace. The system will work entirely on the simplest and most widely available ICT form available: text messaging. Imagine each of those thousands of informal businesses listed in a business directory accessible to anyone with a mobile phone? What if they were also linked to their regular customers, and through them, thousands of potential new customers? What if they could use their good reputation to find new customers and make bigger and better business deals? Dango will provide them a way to list their businesses, link with customers and reach out to new customers using their existing social networks. Non-business owners may use Dango as a social network and share news and information with groups of friends or formal groups like churches and student groups, and finding trusted businesses through the social networks inherent in these groups. If a Dango member searches for a car seller in a particular area, for example, he will be able to find one who is known to him through a friend or colleague.

Currently, Felix and I are conducting concept tests in Kenya and developing a prototype of the system. We will be in Nairobi this summer piloting the system with some select church and business groups. To get to this point, we’ve leveraged CBS’s resources tremendously.

Through the Entrepreneurial Greenhouse Program, CBS’s intensive incubator program for aspiring second-year entrepreneurs, we’ve gained exposure to entrepreneurs and investors and have been pushed to hone our business plan and pitches. Through the International Development Club’s Pangea Advisors, I was able to meet with leaders of top Kenyan businesses and social enterprises while conducting a field study of Kenyan businesses for Nancy Barry’s Enterprise Solutions to Poverty, a new organization that works with large companies and social enterprises in the developing world to create inclusive business models.

As a student in Professor Gita Johar’s “Global Marketing Consulting for Social Enterprise” class this semester, I led a team on a consulting project for Yasmina McCarty’s EMBA ’08 GreenMango, a fully localized online service marketplace that provides an easy way to find local small businesses for Indian professionals. The experience I’ve gained in working with GreenMango has provided me with an entirely new lens through which to see my own venture. Last but not least, the leadership experience I’ve gained as co-president of the International Development Club has given me confidence that I can lead a team in executing my vision to make Dango a reality. When I reflect on how I’ve been able to bring all of these experiences together in such a short two years, I am in awe of how much I’ve been able to accomplish.

As I prepare to walk out the doors of Uris Hall for the last time (as a student, at least!) I’m grateful for incredible opportunity I’ve had to bring my dreams closer to reality.

Photo credit: Ken Banks, kiwanja.net

Earth Day 2009 is here, and if you’re a business student or a practitioner, you might want to pay attention.

Long considered the province of treehuggers and other warm-hearted-but-corporately-challenged individuals, Earth Day in the 21st century has taken on a new importance. And unlike previous corporate excursions in the environmental realm during the ’70s and early ’80s, this time around the movement is unlikely to be subject to the whim of oil prices. Environmental progress touches a wide array of policy issues dear to the hearts of both liberal and conservative politicians: energy security, job creation, climate change and human health. In other words, sustainability and environmental issues are here to stay.

Last week the Environmental Protection Agency (EPA) issued a finding that carbon dioxide and other greenhouse gas emissions endanger “the health and welfare of current and future generations.” EPA Administrator Lisa Jackson cited the report as “the first formal recognition by the U.S. government of the threats posed by climate change.” The finding has far-reaching significance for U.S. business — whether through EPA regulation or congressional legislation, change is coming soon.

While some of the world’s leading organizations have made meaningful progress on their environmental impact, there remains a general lack of expertise on the way that business intersects with the environment. A focus on environmental issues appears likely to follow the same adoption path that the Internet experienced in the mid-to-late ’90s: from novelty, to practice by a few early adopters, to acknowledged competitive advantage, to business-as-usual.

Today, some of the world’s largest and best-run companies, including DuPont, GE, Sony, 3M and Coca-Cola, have already recognized the reality that their industry landscapes will be profoundly impacted by a greater focus on the environment. They have responded to these pending changes by devoting substantial resources to develop expertise on sustainable issues and how they can benefit from improving their environmental standing.

Given the direction in which these industry bellwethers are moving, business schools must start paying attention. The limited supply of managers educated in both business and the environment creates enormous opportunities for those students coming out of school with knowledge of both these areas.

Columbia Business School has been quick to recognize this, responding with a number of theoretical and practical learning opportunities for its students. Course offerings such as Finance & Sustainability, Green Marketing and New Developments in Energy Markets focus specifically on how students can maximize organizational performance in light of environmental opportunities. Practical experience in the form of cutting-edge programming and activities has been supplied by the recently formed Green Business Club, which had a membership of almost 200 students in its first year on campus.

Some examples of the Club’s recent events and advocacy include:

• “The Future of Business is Green” event with executives from Goldman Sachs, the Clinton Climate Initiative, the NRDC and McKinsey
• Unveiling of the UN’s Green Jobs Report
• PepsiCo Sustainability Tour
• Clean Tech Month
• LEED platinum campaign
• CFL lightbulb exchange
• Reusable happy hour steins
• Green Columbia initiatives, including increased recycling capacity and decreased paper waste

Through events and activities such as these, Columbia Business School is creating leaders who truly understand the importance of environmental impacts on business performance. While more apprehensive managers may think it unwise to divert their attention to environmental issues until absolutely necessary, savvy executives will see the advantages of being first-movers. For institutions with the mandate of preparing forward-thinking, strategic leaders, now is the time to start focusing on environmentally sustainable business. And that starts here, at business school.

Photo courtesy of the Green Business Club

This is part of a series of posts from the International Development Club.

On a recent Friday morning, we made our way with 25 fellow MBA students to the United Nations World Headquarters for a special visit. We all had one question on our minds: how does one actually get a job at the UN?

We learned that while it’s a difficult place to get one’s foot in the door, networking, perseverance and a willingness to live in relatively less-desirable locations can help you find a job with the prestigious organization.

After a lunch in the Delegates Dining Room, we met with Brett House, from the Office of the UN Deputy Secretary-General. He demystified the organizational structure and gave our group some insight as to where the skills of an MBA might be most valuable. He pointed to the International Finance Corporation (IFC), International Monetary Fund (IMF-Capital Markets), World Bank, Multilateral Investment Guarantee Agency (MIGA), Food and Agriculture Organization of the UN (FAO), United Nations Capital Development Fund (UNCDF) and United Nations Development Program (UNDP) as organizations within the UN that hire MBAs.

Next we met with representatives from the human resources department. They gave us an understanding of the hiring process (long and complicated) and its Galaxy Web site (jobs.un.org). Perseverance, it seems, is critical when applying for these jobs — as is recognizomg that resumés are not just going into a black box.

The human resource representatives stressed the importance of meeting all (or almost all) of the minimum requirements, particularly in regard to work experience. The typical applicants for positions requiring “minimum five years experience” have seven or eight years of experience. Furthermore, they said approximately 300 people apply to each position — with 5,000 applying for 200 internship positions — so make sure the CV you submit is your best effort!

The day’s highlight was a panel featuring four speakers from various organizations within the UN. Lucas Black ’00 SIPA, who works in the MDG Carbon Facility, opened the panel and discussed his work trading carbon credits and supporting emission reduction projects with significant benefits to the Millennium Development Goals.

Dr. Manuel Escudero, from United Nations Global Compact, spoke about his experience and how much one has to believe in the mission of the organization to succeed. He noted that smarts and hard work are great, but that it is the ability to deliver results and creativity that separates the best employees from the mediocre ones at the UN.

Elizabeth Leff ’99 SIPA, who works in Human Resources (Planning), discussed her transition from consulting to development work in Thailand to finding a job at the UN. She stressed that it is critical to have experience in a developing country under one’s belt.

Matthew Hochbrueckner ’06, who works at the Office for the Coordination of Humanitarian Affairs (OCHA) underscored that point, saying that he would not have gotten the job at the UN had he not taken the time to work in Eastern Europe and the Balkans after business school.

The bottom line for MBAs who want to work at the UN?

1. Manage your expectations. It is very difficult to get a job and the recruitment process is very long and extremely competitive.
2. Leverage any contacts inside the organization and try to obtain a short-term contract. This way you can get your foot in the door and have the opportunity to demonstrate your value to the organization. Once you prove you are “UN material,” it will be easier to find other UN jobs and ask for a position in a country in which you are interested.
3. Take big risks. Apply for positions in danger zones like Sudan, Iraq or Afghanistan, for which there is a very short supply of candidates. A couple of years stationed in one of these countries could lead to a lifelong career at the UN.

Photo credit: Ashitaka San

Have you ever ripped off the lid of a pizza box to make an impromptu plate? With the Green Box, Jennifer Wright ’09 (EMBA) and her business partners at environmentally conscious organization, inc. (e.c.o.) have made the task a lot easier — changing the way we consume pizza, one box at a time.

Along with her two business partners, Wright — who is part of the Entrepreneurial Greenhouse Program Master Class led by Cliff Schorer, adjunct professor and entrepreneur in residence — created the box from 100% recycled material. The top of the Green Box breaks down into four serving plates, while the bottom converts to a small storage box — perfect for that slice you’re saving for tomorrow’s breakfast.

Wright’s e.c.o. partner William Walsh is the engineering whiz behind the new box. Walsh’s aha! moment, Wright says, came in college, when as a football player he consumed his fare share of slices — only to be left with a pile of leftover boxes. Walsh, who found the boxes too unwieldy for the recycling bin, realized that they could be broken down and put to use. They just needed to be perforated in the proper places.

Eight years later, the new box is patented and ready for buyers. “It’s our entrée product,” says Wright, who along with her partners at e.c.o. is busy developing other like-minded products.

Wright attributes a large part of the product’s early success to the Greenhouse Program.

“The program has been a fantastic experience for me,” she says. “It has provided the platform to go beyond the plan and actually further develop the business, as well as the access to potential clients that would be otherwise difficult to achieve. In addition, the guidance and support offered by Professors Schorer and [Brendan] Burns has been invaluable.”

This is part of a series of posts to celebrate the 25th anniversary of the Social Enterprise Program and newly expanded nonprofit and social enterprise course offerings in Executive Education.

Today, the nonprofit sector is one of the fastest-growing areas of the economy. It is doing more and more of what the government used to do in social services, healthcare, education and culture. Along with the growth in this sector, there comes a greater need for leadership over bigger and more complicated enterprises. If nonprofit organizations are not performing efficiently, it affects our whole economy.

Nonprofit leaders have the same accountability to “stretch a dollar” as their corporate counterparts. We’re seeing a great deal more sophistication in how nonprofits operate and how they relate to the board and their constituents. Accountability is strong and forceful, and the media is playing a vital role in making sure nonprofits are accountable and transparent to stakeholders.

Another change we’re seeing in nonprofits is that wealth is no longer available to the same degree as in the past. Increasingly, there is more dependence on operating income rather than philanthropy. The skills required for growing capital on the inside are different from those you need for raising capital on the outside. This shift will transform nonprofits, because they now must be self-sustaining and enterprising.

I recently had the opportunity to work with Betsy Poirier ’08 at the Norman Rockwell Museum as part of the School’s Nonprofit Board Leadership Program. She brought a whole new level of expertise in how to commercially position the museum store on the Internet. Betsy’s experience exposed a real gap between the skill sets Columbia Business School students have and what most museums can attract and compensate.

How do nonprofits close that gap and attract that kind of talent? For starters, nonprofits need to offer compensation and benefits that can compete with for-profit organizations. They must also consider where they need talent. Do they need it at the operating level if it exists at the board level? The need for talent is acute at both levels, especially as demands on board members increase.

One solution to think about is to consolidate nonprofits under “umbrella” organizations. Perhaps several affinity organizations could operate within a “holding company” with administrative, IT and marketing services to better share limited talent and expertise. Nonprofits need to start thinking about what we can do collaboratively, given shrinking community resources. Nonprofits can use economies of scale to access leadership capital. They can also be more businesslike by creating growth paths and sharing corporate overhead and expertise. Community stakeholders will benefit as more output is gained from limited resources. In 10 years, we will not recognize the not-for-profit landscape as it enters the post-2008 world of economics.

Photo credit: Columbia Business School

This is part of a series of posts to celebrate the 25th anniversary of the Social Enterprise Program and newly expanded nonprofit and social enterprise course offerings in Executive Education.

MBA graduates often have the opportunity to work in the nonprofit world in two ways: organizationally, as a business manager in the daily operations, and strategically, as a board member. Lulu Wang ’83, who is a member of Columbia Business School’s Board of Overseers, is an expert in the latter. With her experience serving on numerous boards including those at Rockefeller University, WNYC Public Radio, the Asia Society and the Metropolitan Museum of Art, she has also been an active participant in the Nonprofit Board Leadership Program. The program, which is now in its third year, is part of the Social Enterprise Program and matches students with nonprofit board member mentors.

For you, why is being active in nonprofits important in your life? Was there an “ah ha” moment or event that was defining for you as a board leader?
My work with nonprofits has enriched my life, giving me a great return on my investment of time and financial resources. I’ve tried to be thoughtful and selective with which nonprofits I join, as I know I am most engaged when I can make a real difference. Whether enabling a major capital project or enabling a group of students, my defining moment as a board member has to come from seeing a positive impact that would not have happened if I had not been there.

With your experience serving on a wide variety of boards, are there any common themes or challenges in leadership that you see across all of them?
The one common attribute I’ve observed in the most effective board members is a genuine passion for the mission of the organization, paired with an expertise or talent that is much needed by the nonprofit.

As a supporter of the Columbia Business School Nonprofit Board Leadership Program, how do you see this program contributing to the future of nonprofit leadership?
I strongly believe that nonprofits benefit from the rigor and the accountability found in the best for-profits. The Columbia Business School Nonprofit Board Leadership Program provides the business skills that enable our students to go into the nonprofit sector and, while preserving the values of volunteerism and social commitment, help bring both focus and discipline to their organizations.

Photo credit: Courtesy of Lulu Wang

Shanta Devarajan started as a mathematician and ended up in banking somewhat unexpectedly. Today, he heads up the World Bank operations in Africa. In our recent interview at Columbia Business School, he discussed his practical and pragmatic approach to solving some of Africa’s most profound problems. His thoughts were both refreshing and reassuring.

Devarajan believes that the World Bank has an important role to play in disseminating knowledge and best practices for the provision of capital for infrastructure and human capital-based projects. The present economic crisis, he said, can show how the World Bank’s development agency can be beneficial in helping responsible countries in the region. He also stressed that the recent past has shown that there is no single solution to poverty; rather, different aspects of society need to be encouraged. These aspects include macro-economic stability, priming the private sector to be an engine of growth and a sober, responsible government.

For the complete interview, please visit the Chazen Web Journal.

This post is part of a series celebrating Professor Ray Horton’s final academic year as director of the Social Enterprise Program and the newly expanded nonprofit and social enterprise course offerings in Executive Education.

The ashes of crisis create fertile ground for change. Indeed, the very origins of Columbia Business School’s Social Enterprise Program can be traced to New York City’s fiscal crisis of the late 1970s. Today, a new financial crisis serves as a pivotal backdrop for founder Professor Ray Horton’s final year as the program’s director.

Horton recently reflected on the elements that have shaped the thinking of students in the program over the last 25 years, and he pointed to the considerable influence of both corporate scandals and the environment.

“The corporate scandals of the 1980s and early 2000s have had an impact on MBA students. And there was also the realization that we’ll be choking on our own air pollution 50 years from now if we don’t do something about it,” he said.

“But the great crash of 2008 has turned a huge number of students off about greed. I think people now understand the antisocial consequences of the finance game that major institutions were playing.”

That shift in student thinking underscores Horton’s own view that the traditional economic division between profit incentive and social good is fading away.

“The private sector and the nonprofit world are more alike than they are different,” Horton said.

However, as the students’ thinking — and the discipline itself — continue to evolve, there is one element that is a constant for the program: Horton’s own sense of service.

“I’ve always felt you have an obligation to pay back to society,” Horton said. “Part of my role at the School is convincing people that there is something beyond trying to make as much money as possible.”

Photo courtesy of the Social Enterprise Program

Last Friday, I participated in a dinner conversation at the World Economic Forum in Davos on whether economics itself is in need of a bailout. The consensus view, which included perspectives from several far more distinguished economists than myself, was that as a predictive social science, economics has not failed. That is, people do generally make decisions based on cost-benefit trade-offs and incentives, and thinking about human decision making in this way is a very effective means of understanding what people do in companies, markets and the economy as a whole.

The natural question, then, is why the world out there has such a dismal view of the so-called dismal science? My answer was that we, as economists, have been terrible ambassadors of the profession in two critical ways. First, we have not properly conveyed the limits to economic predictions. An economy is a very complex system with highly imperfect information and many moving parts. Perhaps more importantly, we also haven’t properly communicated — to students and to the public at large — that economics is about more than the straw man of perfectly efficient markets. Any sensible economist — from Berkeley to Chicago — understands this perfectly well.

What are the implications for policy, and for economics as a profession? First, we have to be a lot better at “selling” our ideas to the public. Rather than leaving it to journalists to parody economic theory, we need to get our voices heard in the public debate. Second, we could do with a dose of humility. If the popular perception is that economics should be an all-knowing, precise tool for fine-tuning the economy, it may be because a lot of economists have drunk a little too much of the economics-as-crystal-ball Kool-Aid themselves.

Photo credit: World Economic Forum

Walking home late at night, a man finds his neighbor searching for something under a street lamp and stops to help. “What have you lost?” the man asks. “My wedding ring,” the neighbor replies. “Are you sure you dropped it here?”

“No,” the neighbor answers. “I dropped it over there, but it’s dark over there and light over here. I am searching where I can see.”

This ancient and well-worn fable is, unfortunately, an apt description of a great deal of research on the characteristics of highly effective teachers. Previous work on this topic, including some of my own, focuses on information already being collected by school districts and state boards of education, such as whether teachers possess graduate degrees, obtain special certification, or have a degree from a selective college. But to the frustration of many, these “highly qualified” teachers are typically no better than their less-decorated colleagues, or not nearly as effective as one might hope, given that we hire and pay teachers based on these attributes.

In a recent study, my colleagues Thomas Kane from Harvard University, Brian Jacob from the University of Michigan, Douglas Staiger from Dartmouth College and I try to shine a new light on this topic. To do that, we surveyed hundreds of new math teachers in New York City and collected information on a number of non-traditional predictors of effectiveness, including specific content knowledge, cognitive ability, personality traits, feelings of self-efficacy and scores on a commercially available teacher-selection test. We then looked to see whether teachers who scored higher on these measures also led their students to higher gains in math achievement on standardized exams.

Our first finding was that none of the single measures we studied is a very strong predictor of student outcomes. In other words, there is no silver bullet, no pencil-and-paper test that will tell you exactly how good a prospective teacher will be in the classroom. However, we also found that the measures we collected can be used to build broader indices of cognitive and non-cognitive skills. Moreover, by pooling individual measures into indices, one gains modest, but statistically significant, predictive power to predict which teachers will be more effective than others.

Through low-cost mechanisms, such as our online survey, school officials can gather an expanded set of information on candidates to help them use their resources more effectively. Districts can do their own analyses to see which teachers tend to perform well, and can focus their efforts on increasing the pool of candidates with similar traits. Individual schools could use this information to decide the order in which to interview candidates or the particular issues they focus on during the interview process.

Researchers and policymakers agree that hiring good teachers is one of the most promising paths to improving school quality. But, if we want to find a new supply of great teachers, we need to change methods by which we search for them. Like the lost wedding ring, we might just be surprised with what we find.

Photo credit: Liz Marie

This is part of a series of posts from the International Development Club.

Handmade lingerie wasn’t at the top of my mind when I came to b-school.

Nevertheless, that’s one of the myriad surprises I encountered on my Pangea Advisors trip (formerly International Development Club Projects). Our client, Give to Colombia, an umbrella organization that liaises between U.S. donors and Colombian NGOs, wanted a monitoring and evaluation system to track the efficacy of the NGOs. We worked with the NGOs to expand their budgetary reports (e.g. how the donors’ money was spent) to include impact (e.g. how many lives were affected and by how much). Based on these case studies, we extrapolated a model of how to change the reporting criteria for all of their NGOs.

When my team (Chad Di Stefano ’10, Hernando Forero ’09, Omari Jinaki ’10 and Sachit Shah ’10) and I traveled to Colombia to meet the NGOs, we met Jorge Porras Suarez, an entrepreneur who hires women from sweatshops to make high-quality intimate apparel in better working conditions for better wages. Meeting Jorge recalibrated my notion of what industries an emerging market entrepreneur can target — and on what scale. If he can enter the luxury lingerie market and make deals with buyers in New York — keep your eyes peeled for the Black and White collection by Vanity Colors — why can’t someone else start farming sugarcane to supply an ethanol plant? Jorge reminded me that there aren’t any limits to entrepreneurship. If an idea is good enough, and the work ethic tough enough, the entrepreneur will succeed, regardless of frigid credit markets, living in a slum, or being told he can’t do it.

We also met a foundation that gives pregnant teens pre- and post-natal support, thereby cutting infant mortality in the catchment area from 5% to 1%. And another that builds bathrooms and sinks for the poorest schools in the area. It was humbling to work with people who will succeed no matter what; if we weren’t helping them them, they were focused enough to seek assistance elsewhere.

Being deeply involved in IDC brought my first semester to life. It’s been more than just the project: it’s been getting to know my peers outside of cluster F ’10 (no disrespect intended), meeting students from other schools at Net Impact and forgetting about my next Corp Fin valuation when I listen to a speaker at a conference. The most rewarding part has been speaking with prospective students who are where I was a year ago.

All of this reminds me why I came to Columbia Business School: for the entire experience, the practicum, the people and to gain the technical skills that will help developing world entrepreneurs seize their own opportunities.

I’m grateful that I had the chance to seize mine.

I’m not the only one jazzed about Pangea Advisors. Just last Thursday, more than 50 students and alumni gathered at a cocktail reception to formally kick off this outstanding student-run initiative. Feel free to contact any of us at IDC to learn more.

Photo credit: Chad Di Stefano ’10

This is the last in a series of posts on the challenges surrounding social entrepreneurship.

I have learned in my life as a business professor that just as being a good manager is not the same thing as being a good leader, being a media star is far different from being a good leader or manager. We live in an era where the media-friendly entrepreneur/founder must act on stage, under the spotlight. Many of the foundations supporting social entrepreneurs encourage what the French call mediatisation, supposedly under the theory that media attention draws resources to the enterprise. It also draws attention to the foundation or private investor who funds the star leader.

All of this comes at a cost. I wonder how many tragic failures we have created as a result of our preference for sparkling leaders, rather than ones who know their business and who know how to work on a team. I am absolutely for charismatic leadership, but I am wary of the prima donnas that we tend to create.

I would like to see fewer media leaders and more good team leaders in control of social enterprises. And I would encourage investors to put aside their egos in promoting excessive media attention. It is quite possible that when we have managed to develop better social capital markets, there will be less dependence on the egos of private investors who tend to bet on media figures.

It is a tragedy when an organization’s leader must leave his business and retire, or seek another role in the project. I can think of a social enterprise in Portugal that has done great things in its work with troubled youth. After 30 years of success, the company has slowed and the founder is in danger of seeing a total reversal of the gains it has made. The problem is that too much weight was attributed to the founder and not enough effort was spent creating a team around her that had real capacity or power. Not surprisingly, the leader has become too accustomed to the media spotlight to depart.

An equally painful case is the argument between two founders of an exciting enterprise engaged in funding new ventures in deprived urban communities in a European country.

One leader managed to attract far more media attention, and the chairman of the board threw his support to him for this reason. But was he the better leader or manager? This question appears to have been almost beside the point. As a consequence and despite ample talents, the other founder was forced to leave the enterprise he helped build.

A good entrepreneurial leader is not a substitute for good management, and an organization is more than just the leader. Success also requires team leadership and capable management. To build a successful social enterprise, we must make sure that teams lead the enterprise. And watch out for media-struck leaders.

The above is drawn from remarks made at “Leadership for the 21st Century,” an interactive training session held at the U.S. Ambassador’s Residence in Paris on October 23, 2008 to launch the Ariane de Rothschild Fellows Program: Dialogue & Social Entrepreneurship. The program aims to develop a network of social entrepreneurs with an interest in fostering a culture of mutual respect and dialogue among Jewish and Muslim communities. ]]> Fri, 16 Jan 2009 13:11:56 EST ]]> Entrepreneurship Leadership Organizations Social Enterprise Strategy

A friend of mine recently donated storm windows to his daughter’s school. Not exactly a splashy gift, but that was entirely by design: he wanted to make a statement about giving according to the school’s needs instead of tying his donation to getting his name on a building.

This perspective on philanthropy is particularly welcomed by non-profits that are struggling to make ends meet during the current financial downturn. However, it is but one piece of a larger need to apply sensible economics in informing giving decisions.

I am a strong proponent of outcomes-based philanthropy — donors can and should demand to see that organizations use their dollars wisely. Yet if everyone demands that every dollar translate into incremental programs or services, grantees are left trying to figure out how to cover the overhead costs that are part of running any organization (or fudging the numbers they present to donors). Organizations may need to pare back services in response to hard times, and if they’re to avoid going into a downward spiral, donors will need to show a willingness to provide bridge funding to weather the financial storm.

As always, groups will be tempted to compromise mission in exchange for donor dollars. This is part of life in a non-profit, and as the going gets tougher, these temptations will multiply. This only reinforces the importance of having a clear sense of purpose and mission, so as to not lose sight of why you’re in this business in the first place.

Alumni are invited to attend “Squeeze Play: Philanthropy in a Recession”, an event with Professor Fisman and other guests on Tuesday, January 13th 2009 at 6:30pm. Register here.

Photo credit: Anna Vignet

We asked faculty members to look back at the year and give us their pick for the best idea or book of 2008. Here’s what they said.

Professor Joel Brocker
Best idea: Behavioral economics and decision making
Why? “This year it’s been quite exciting to see the related fields of behavioral economics, behavioral finance and behavioral decision making coming into the popular domain,” said Brockner. “The fields refer to the psychological influences on decision making, and how people don’t always adhere to ‘economically rational’ views of decision making. There have been a number of books on this topic in recent years, such as Blink by Malcolm Gladwell, and in 2008, Nudge: Improving Decisions About Health, Wealth, and Happiness by Richard H. Thaler and Cass R. Sunstein.”

Professor Eric Johnson
Best idea/book: Nudge: Improving Decisions About Health, Wealth, and Happiness by Richard H. Thaler and Cass R. Sunstein
Why? The book’s notion of choice architecture is very powerful for firms and policymakers because they can make changes within their organizations for almost no money, said Johnson, who reviewed the book for Science magazine earlier this year.

Professor Rita McGrath
Best books: The Game-Changer: How You Can Drive Revenue and Profit Growth with Innovation by A.G. Lafley and Enough: True Measures of Money, Business, and Life by John Bogel
Why? Both of these topics, growth and a reordering of business values, will be key in the coming year, according to McGrath. “There will be a structural shift and we’re seeing the early warnings that will happen,” said McGrath. “Financial innovation is not the only kind of innovation. It is a great time for innovators to be looking forward for two reasons. First, tough times mean we have no choice but to be creative; a lot of great companies started this way. Secondly, when resources are hard to come by, people have to behave with more discipline. They test assumptions and impose a more disciplined approach.”

Professor Ray Horton
Best book: John Maynard Keynes: Economist, Philosopher, Statesman by Robert Skidelsky
Why? “I read this book last August while capitalism as we’d come to know and love was melting down into what now looks like the most severe downturn since the Great Depression,” said Horton. “Keynes had been out of vogue among most economists and policymakers for more than a quarter-century, dating back to the ‘purification’ of capitalism by Milton Friedman and other monetarists. If anyone wants to understand why we’re all Keynesians now, to borrow a phrase from Richard Nixon, Skidelsky’s biography provides the answer: Capitalism is very unstable from time to time, and from time to time the state needs to bail it out in order to get it up and running again.”

Professor Paul Glasserman
Best idea: The Federal Reserve’s managed sale of Bear Stearns
Why? “It was executed quickly (over a weekend) and creatively (given that Bear was not subject to regulation by the Fed). The Fed’s only exposure is a collateralized loan, backed by the type of mortgage-backed securities the TARP was later created to prop up,” said Glasserman. “Employees and shareholders suffered from Bear’s collapse, but the managed sale may have been the most effective step taken this year to try to limit the spread of the financial crisis.”

Professor Ray Fisman
Best book: Gomorrah: A Personal Journey into the Violent International Empire of Naples’ Organized Crime System by Roberto Saviano
Why? “The Camorra, Naples’ version of the Cosa Nostra, out-Godfathers The Godfather and out-Sopranos The Sopranos. Sometimes, as the saying goes, truth is stranger than fiction (and in this case it’s certainly a lot more violent). As a scholar of economic gangsterism, it is really striking how often Saviano emphasizes that Naples’ mob bosses are rational businessmen of crime,” said Fisman. “You’ll never look at a ball of mozzarella the same way again.”

This is part of a series of posts on the challenges surrounding social entrepreneurship.

The case of Ethos Water offers us an example of the challenges in financing a social enterprise and why we need to improve the instruments available to do so.

A little background: the founder of Ethos, Peter Thum, wanted to create a bottled water company that donated part of its revenues to a fund to improve water supply conditions in poor countries. Founded by Thum in 2001, Ethos was acquired by Starbucks in 2005 for a total of $8 million.

A one-liter bottle of Ethos Water sells for around $1.80. A fraction of this price is given to NGOs that work to improve access to clean drinking water in underdeveloped countries. Starbucks aims to raise $10 million in donations by 2010. Of the $1.80 sale price, however, only $0.05 is donated.

The concept and purchase of Ethos have been the topic of much criticism in the blogosphere. One blogger, writing from France, summed it up:

We agree — it's a little weird. I am not challenging these criticisms except to add that $0.05 is not negligible and that $10 million is still $10 million. Every penny counts.

I use this example to discuss the company’s initial funding. Ethos was founded in 2001 by partners Thum and Jerry Greenfield and two angel investors. Three years later, eBay founder Pierre Omidyar invested in Ethos after it had experienced difficulties. Less than 10 months later, Ethos was sold to Starbucks, where the CEO is a friend of Omidyar. After the 2005 sale to Starbucks, all of Ethos’s original investors left with capital gains. During its four years of independence Ethos never experienced a profit, though it did contribute more than $100,000 dollars to several NGOs.

In the sale, the founders stipulated that Starbucks must continue to contribute revenues to a fund under their control. Instead, I would like to advance the idea today that it would have been better to create financial instruments in social funds independently. We would prefer to see the creation of financial instruments and markets that are designed specifically for social enterprise.

To do this, it may be necessary to create alternatives to the legal status of non-for-profit organizations that still provides the fiscal benefits of charitable giving. In return, shareholders agree to allow a portion of the capital gains be automatically reinvested in a social investment fund. More interestingly, it could be encouraged that these shares be traded in markets, which would improve liquidity and also attract a new segment of investors.

The story of Ethos is an example of the immaturity of existing financial markets today for the financing of social enterprises. It is scandalous that we have not managed to create financial instruments better adapted to the needs of social enterprise. We must create new, innovative markets for financial help in social enterprise.

The above is drawn from remarks made at “Leadership for the 21st Century”, an interactive training session held at the U.S. Ambassador’s Residence in Paris on October 23, 2008 to launch the Ariane de Rothschild Fellows Program: Dialogue & Social Entrepreneurship. The program aims to develop a network of social entrepreneurs with an interest in fostering a culture of mutual respect and dialogue among Jewish and Muslim communities. ]]> Wed, 24 Dec 2008 11:30:40 EST ]]> Entrepreneurship Social Enterprise Strategy Video clip from “Business Ethics in the 21st Century.” Courtesy of WLIW21.

Business leadership has fallen under the microscope in 2008. Part of this scrutiny has been a renewed look at how business schools fit into the leadership landscape. Recent op-ed articles by Dean Glenn Hubbard (“Back to Basics”) and by Professor Ray Fisman (“The Marie Antoinettes of Corporate America”) examine the role of business education and ethical leadership.

Dean Hubbard discusses challenges and solutions for business programs and students. He writes:

Especially since students graduating today find themselves in management positions sooner than was the case in business even just 10 years ago, management education needs to focus on social intelligence and leadership development training. Also, schools must bridge academic theory and current, real-world experience so students can hit the ground running, making immediate contributions to the organizations they join or ventures they launch.

Professor Fisman, co-writing with Rakesh Khurana of Harvard University, supports a broadening of the business education to instill a sense of social purpose in MBAs. They write in their op-ed:

Adding another perspective to the conversation is a new documentary, “Business Ethics in the 21st Century,” which premieres tonight on WLIW21 at 7:30 p.m.

Hosted by executive-in-residence Bill Baker (author of Leading with Kindness), the show examines the topic of leadership through the lens of social enterprise. Interviews with industry leaders from Unilever and GE and professors Ray Horton, Bruce Kogut, Geoff Heal, Ray Fisman and Dean Glenn Hubbard examine how CSR, corporate governance and executive compensation play a role in leadership ethics.

“At the end of the day, it’s not enough to turn a profit,” says Baker. “There’s a clear indication that to be successful, we must bring good business and character traits to the marketplace.”

“Business Ethics in the 21st Century” airs on WLIW21 on Monday, December 22 at 7:30 p.m. and on THIRTEEN on Saturday, December 27 at 9:30 a.m.

This is the first in a series of posts on the challenges facing social entrepreneurship. The following is drawn from remarks made on October. 23, 2008 at “Leadership for the 21st Century,” an interactive training session held at the U.S. Ambassador’s Residence in Paris.

I want to consider the question of strategy and competition among social enterprises. Is it true that there is no competition between organizations? Or do social enterprises need to be better equipped to function in the context of competition?

Among the conditions often attached to a foundation’s money is that the social enterprise receiving it must disseminate its business model to other organizations. This is not easy because there is little incentive to do so or time to allocate to this project.

I propose an alternative for exchanging knowledge that does not put a considerable burden on the people who must share it: co-location. Consider the model of La Ruche, a social enterprise that provides collective space to other social enterprises. A beehive offers a collective space where bees — the social entrepreneurs — meet and the exchange of knowledge can go through informal channels. Social enterprises that co-locate in this kind of setting are not in competition, for by design, they serve different needs by different means. Instead, the shared collective space creates a community of practice with positive incentives to share knowledge — without creating competition.

Whereas voluntary sharing knowledge is a good thing, we should not ignore that competition still exists everywhere and is itself an important driver of the dissemination of good ideas. Though often painful, it can serve us collectively if we give it the respect it deserves. Take this example: a very talented entrepreneur had the idea to create a company that would employ people with disabilities and allow the customers to share the experience of being disabled. The idea sold very well, and it came time to design a strategy to implement the concept in the real world.

But when the entrepreneur arrived in a major European city to study the possibility of implementing his business model, he was surprised to learn that he had arrived too late. Someone else had seen the idea and already launched the project. The entrepreneur was very disappointed and felt betrayed by a stranger.

When an idea is copied, who is in the wrong? In the business world, the fault lies with the creator: it is his responsibility to protect his idea and devise a strategy to exploit it.

But let’s not overlook the big picture: even though the case was disappointing for the entrepreneur, the social enterprise concept was still allowed to spread.

Like the previous example has shown, competition does not prohibit the dissemination of good ideas. However, instead of foundations demanding that the social enterprises they fund involuntarily disseminate their ideas, we should provide the tools and knowledge to entrepreneurs and equip them to effectively grow their business and innovations in the context of competition.

Photo credit: Peter Shanks

“My dad gave me a lot of good advice when I was growing up, including the following pearl: ‘Net worth is usually more a function of how much one spends than of how much one makes,’” said Professor Ray Horton, director of the Social Enterprise Program, when considering the question of whether you need to be “rich” to launch a successful social enterprise. “You don’t need to be rich to be happy or, for that matter, to be a social entrepreneur. If there is one thing that social scientists have nailed down, it is that money (beyond some minimal standard) and happiness are not strongly correlated.“

The question also came up at the Social Enterprise Conference on October 24. While many business people who have experienced financial success often have a second act in socially oriented causes, social enterprise stands alone as a business model. The four panelists speaking at “The Frontlines of Social Entrepreneurship” event considered the question. Here are a few of their remarks:

“If you turn in your salary to work 18 hours to do good for no money, you better have made a ton of money [before]. But can you do good every day until then? Yeah, absolutely. Get rid of the fine print. Stop making stuff out of garbage. Everybody in this room can do good starting one minute from now. Make a good decision so that the social change starts as you think about the rest of your life. Then, if you make a lot of money, maybe you want to donate some number of years to some crazy thing, but until then just be a nice guy.” Rob Wunder, Co-Founder, Yummy Earth

“I think you can start a company that makes money and does good. I am not sure if a model of social enterprise that is solely about doing good and that is not designed to make any money is scalable. It’s hard. Random, bad things happen and all of sudden you don’t have the capacity to respond. The design of the company, from the ground up, should be [geared to] doing something that makes the world better while still making money.” John Katzman, Founder and CEO, The Princeton Review and 2tor.

“A lot of people in business school ask if they should go and get skills at some consulting firm or investment bank first. I feel that at the end of the day, what’s important is that we all take step closer to what we want to be doing. The secret is that it is much harder to find interesting work and a way to make a difference, and it takes time to get there. It’s not just in one day that you're going to find the answer of what your social enterprise is going to be. What’s important is to take a step towards that path. And in the years when you're just trying to make money or get skills, while those skills may help you, you should also be searching for ways to get you closer to what you want to be doing.” Jeremy Hockenstein, Founder and CEO, Digital Data Divide

“I think you need to pay yourself first and that's enough. You don’t need to make lots of money, and there’s no need for greed … You go do what feels good and take care of you and your family.” Danny Kennedy, Founder and President, Sungevity

Do you think you need to be “rich” to be a social entrepreneur? Please leave your comments.

Photo credit: Linus Bohman

We must admit that we knew very little about Grameen Shakti when we filled in the application for the International Development Club project at the beginning of the summer of 2008. The information package outlined a rural energy company related to the Grameen Bank, the Bangladeshi microfinance organization created by 2006 Peace Nobel Prize winner Muhammad Yunus. However, the intersection of microfinance and rural energy piqued our interest.

On the one hand, energy needs in developing countries’ rural areas are overwhelming: more than two billion people do not have access to modern forms of energy like electricity or oil while a third of the energy consumed in these countries comes from burning wood, crop residues and animal dung (PDF). On the other hand, microfinance, pioneered by Professor Yunus in the 1970s and probably the most successful business innovation to serve low-income consumers, has opened new possibilities to fight poverty beyond traditional government programs and international aid.

How can innovations in microfinance be applied to rural energy?

Yunus and Dipal Barua, one of his students when he started Grameen Bank, founded Grameen Shakti (the name literally translates to “Rural Energy”) in the mid-1990s with the mission of empowering rural people by giving them access to green energy and income. Grameen Shakti’s clients purchase green energy equipment such as solar panels with an in-house microloan that they can pay back over three years. After that, they own a source of electricity that usually lasts up to 20 years. In addition to solar energy, Grameen Shakti provides energy products like Improved Cooking Stoves and Biogas Plants.

The organization also makes smart use of available technology; for example, Barua receives daily text messages with solar panel sales per office. And they are a truly grassroots organization: all employees are Bangladeshis and most of the funding comes from their own operations.

Like the bank, Grameen Shakti achieved almost immediate success and has grown very quickly. Barua now heads the organization, which employs more than 2,000 people and has offices all over rural Bangladesh. It has installed close to 200,000 solar panels in households across the country and plans to reach one million in the next three years.

During the three months we worked in New York and the two weeks we spent in Dhaka, we helped them refine a plan to train young women to install and repair the solar home systems. We had the opportunity to see first hand how poor rural women provided with appropriate training and tools are able to earn a living by producing and repairing electronic accessories for the solar panels.

Nilufa, pictured at the top of this post, left a profound impact on us: she is 21 years old and has one son. Abandoned by her husband, she is now supporting her son and her family by producing at home hundreds of electronic accessories every month.

We returned to New York with the feeling that we had learned much more from them than they had learned from us and convinced that local social businesses have a great potential to change the lives of the poor.

Above: Part one of Jeffrey Immelt’s Botwinick Prize acceptance speech on October 24. Watch the speech in its entirety.

Jeffrey Immelt, chairman and CEO of General Electric, visited Columbia Business School on October 24 to receive the Botwinick Prize in Business Ethics, which is organized under the auspices of the Sanford C. Bernstein & Co. Center for Leadership and Ethics and its director, Professor Bruce Kogut, the Sanford C. Bernstein & Co. Professor of Leadership and Ethics.

The three keys to ethical leadership, Immelt told a capacity crowd at Riverside Cathedral, are keeping the company financially safe, operational excellence and protecting the future. He shared his thoughts on the industry’s future, citing its need for “a regulatory structure that is industry focused, led by domain experts” as well as more investment into technological research and development. He also encouraged the education of more engineers.

GE spends $6 billion annually in R&D, Immelt said. While this investment may not show returns on GE’s near-term balance sheets, it signals Immelt’s intent to lead the company into a clean energy future. He said:

We can make a clean energy future. This is an extremely solvable problem. Most of the technology is on the shelf today. There’s been a pitiful amount that’s spent in energy technology over the past 25 or 30 years. Even if the price of oil is considered low today at around $70 or $75 a barrel, maybe half what it was two months ago, it’s still four times higher than it was the previous 25 years. So the need to create this clean energy future, I think, is both a social imperative as well as an economic windfall for the people that figure out how to do it, and in my mind should be job one of the next administration because it’s so highly solvable. It requires investment in renewable technology; it requires rejuvenation of core technologies like clean coal, nuclear power.

It requires a build-out of the national grid. It requires the evolution of new technologies like battery and solar and technologies like that. But I would say in the next 10 or 20 years, countries like the United States and much of the developed world can really develop an energy infrastructure that is diverse, that is protected, that is economical and that can create lots of jobs while we’re at it. So the first thing I would say in our new society, in our innovative society has got to be an incredible focus on energy because it’s so solvable.

This is the second in a series of posts from the International Development Club.

Each semester, the International Development Club (IDC) matches student teams with organizations around the world to work on over a dozen consulting projects. The aim is to put together teams that can apply the business thinking that we study at CBS to help organizations that work to improve lives across the developing world. At the same time we want to provide students with the opportunity to gain exposure to working in the field of international development. We have served a wide range of clients (PDF) that includes foundations, non-profit organizations, multilaterals, non-profit consulting firms, social entrepreneurs and for-profit businesses that have a positive social or environmental impact.

Teams work from New York with their clients throughout the semester and travel to visit them during breaks with support from the International Development Consulting Project Travel Fund from the Social Enterprise Program. Donors include the program’s advisory board members and Deutsche Bank. Each team is matched with a project advisor that provides mentorship throughout the project. Project advisors are typically international development practitioners, consultants at firms here in New York, or CBS faculty members.

But where do IDC projects come from? In the past, the IDC has sourced projects from organizations that have experience working with students or from organizations that we have partnered with in the past. A number of projects each semester also come together as organizations are networked with the IDC.

This semester the IDC is working to restructure its projects program to relaunch as a branded pro bono consulting group in the spring semester. The new structure will raise the profile of the important work that our members are doing and help us to source more and higher quality international development projects each semester. Additionally, the relaunch aims to:

1. Source a balanced portfolio of projects each semester that matches student interest in geographies, industries and organizations
2. Increase impact for client organizations by consistently providing high quality deliverables
3. Identify an advisory board to advise and oversee the student-run group
4. Create ongoing relationships with the most exciting clients in order to have a pipeline of high-quality projects
5. Create ongoing relationships with project advisors who can provide appropriate mentorship to teams semester after semester

The IDC Projects team is hard at work preparing to relaunch for the spring semester. However, we urgently need a name for this exciting new IDC initiative. The name should capture the uniqueness of the IDC brand and be fitting of an MBA student-run pro bono consulting group that works with some of the most innovative organizations in the field of international development. With a community full of consultants — not to mention aspiring marketing gurus and budding entrepreneurs — there must be one of you out there who can come up with the perfect name for the new group! Submit your ideas online here by Friday, November 7th. If you have more than one, please feel free to share them all.

The International Development Club aims to cultivate passionate leaders who aspire to make a global impact by applying cutting-edge business thinking to development issues. The IDC offers consulting opportunities with enterprises throughout the developing world, a speaker series and an annual Washington DC careers trip. Last year, the IDC spun off Microlumbia, the first student-run microfinance fund of its type.

Lindsay Kruse ’06 is speaking on a panel as part of the Social Enterprise Conference on Oct. 24, 2008. The panel will discuss ways to lead and implement change in K-12 education, with a focus on improving teacher quality.

There is no more urgent or important work than providing children from low-income communities the same high quality education that their affluent peers receive. There is no more effective means to accomplish this end than by creating schools of the highest quality. Uncommon Schools (Uncommon) was founded to create more “uncommon” schools — uncommonly good, extraordinary, autonomous and distinctive.

We aim to serve 11,500 students. Recognizing that leveraging human capital in this work is critical, we must do the following in order to achieve our goal:

• Ensure that teaching is seen as a challenging profession that provides ongoing growth and development
• Recruit the highest quality teachers
• Develop purposeful and strategic efforts to retain teachers and leaders
• Recruit and develop tenacious school leaders who drive student achievement
• Foster strong management support and processes
• Define clear performance feedback to align the goals of student achievement with teacher performance
• Ensure that our workforce is diverse and represents the needs of the students we serve

We are working to recruit diverse, high-quality teachers and to ensure that our teachers receive regular feedback as well as opportunities to stretch and develop professionally. We have created a dual-leader model to allow instructional leaders to focus on the core of student achievement while operations leaders manage all non-instructional functions. We have created a yearlong fellowship program that includes a residency within one of our schools and a personalized development plan.

Uncommon has built — and continues to build — a diverse home office staff of educators, MBAs (including six CBS alums!) and other driven professionals to ensure that our organization is poised to address these challenges in a systematic, sustainable way. Uncommon provides a great opportunity for MBAs than to have a deep and lasting impact on this, the greatest civil rights issue of our time. MBAs are bringing their skills to bear across all aspects of the education world. At our organization, we have MBAs working as managing directors, as school-based operations leaders, and from the home office in finance, leadership development, operations, and real estate.

Should you be interested in exploring opportunities at Uncommon, feel free to contact us.

Photo credit: Uncommon Schools

Nonprofits around the country are wondering how they will weather the economically turbulent days ahead. If a recession — or worse — hits, charities can expect to see their contributions decline along with the incomes of the individuals and companies that fund them (conventional wisdom among economics researchers is that a 10% decline in income generates around a 4-8% drop in giving). Government funds won’t take care of the shortfall, as budget-balancing states cut back, as well.

Some charities have a “rainy day fund” that they will use to cover their deficits; some will even choose to eat into their endowments. But few organizations have the billion-dollar cushions of the Harvards and Yales of the world, and endowments’ returns are being hit by the market decline, too. This leaves no option but to cut back on programs — a cruel irony since for many nonprofits hard times are precisely when their services are needed most.

In the current environment of greater needs and lesser means, what's a philanthropist to do? First and foremost, the current environment underscores the importance of giving thoughtfully and strategically. The best predictor of someone’s choice of charity today is whichever one he wrote a check to last year. But this isn’t a time for philanthropic inertia — a dollar given to one organization means one dollar less that’s available to give to some other, potentially more worthy cause, what economists refer to as the opportunity cost of funds.

Think hard about the biggest problems out there to be solved and survey the charity landscape for organizations that most effectively address your chosen set of needs. The focus should be on outcomes: How many indigents were fed by a soup kitchen? How many unemployed — who would otherwise have remained jobless — were taken off the welfare rolls by a job training program? And what did it cost to generate these outcomes? Identifying and funding the “highest productivity” charities is more important than ever. With increasing number of watchdog organizations as well as large foundations carefully assessing charities’ activities and publicizing the results, it’s possible for even smaller donors to evaluate and compare potential beneficiaries and to give strategically.

Economic hard times may also be cause to reprioritize what you see as the greatest needs. The arts are an eminently worthy cause, for example, but art museums’ needs do not wax and wane with economic cycles in the same way that those of social service organizations like soup kitchens and homeless shelters do. So, at least while times are bad, you may wish to reshuffle your giving portfolio to focus on causes designed to buffer the impact of economic downturn on those most affected.

Organizations with sizeable reserve funds may not face the same financial crunch right now as those living hand-to-mouth. For years now, Harvard alums have been questioning the merits of writing checks that effectively get direct-deposited into the school’s 30-something billion dollar endowment. With rising needs elsewhere, the case to be made for giving to the fat cats of the nonprofit world becomes ever-harder. It’s hard to imagine that Harvard’s students or faculty, cushioned as they are by an outsized endowment, will face see too much of a cutback in services in the days ahead, even in a worst-case economic scenario.

Finally, think about how much you can really afford to give. I’ve already argued that whatever you choose to give, you should do it strategically. But if you truly want to practice strategic philanthropy in tough economic times and have the means to do so, practice “countercyclical philanthropy,” giving more when the needs are greatest.

A version of this article also appeared on Forbes.com.

Photo credit: Oblivion Ratula]]> Thu, 9 Oct 2008 13:22:46 EDT ]]> Organizations Social Enterprise

This is the first in a series of blog posts from the International Development Club.

Much of the political discussion surrounding the $700 billion bailout passed by Congress last Friday has revolved around how the plan will affect ordinary “Main Street” Americans. Yet the financial crisis has had an impact world wide. Will the economic “base of the pyramid” — the three to four billion people in the developing world who earn under $3,000 per year — feel the pain?

It is estimated that large portions of many developing countries’ GDPs are held in the informal sector. In Nigeria, for example, it is estimated that two-thirds of the country’s economic output takes place outside of any economic and legal regulation. Unfortunately, this means that many people developing countries (90% in Nigeria, for example) have the dubious “advantage” of being unbanked. They draw income, pay expenses, and hold savings in cash and rarely engage with the formal capital markets in any direct way. While they may not be adversely affected by the financial crisis, people in developing countries are affected by other issues, such as the increase in food prices. That cost was up 40% in 2007 alone according to the UN Food and Agricultural Organization and it has effectively lowered the income of millions of people already living without a financial cushion.

The fact remains that an enormous swath of the world’s population has never had access to the wealth-generating power of capital markets that we, until recently, have taken for granted. This should prompt us to consider how we can best help the world’s poor access the wealth-magnifying capacity of well regulated formal financial markets without exposing them to the type of reckless behavior demonstrated by of some of the major American financial institutions in recent years.

Our upcoming Social Enterprise Conference will feature practitioners who have some interesting thoughts to contribute on this topic, especially in the areas of private equity and microfinance. What are your thoughts on how financial institutions can move into emerging markets safely? Please leave your comments.

The International Development Club is involved with projects as diverse as SME (Small and Medium Enterprise) development initiatives in emerging markets, the ongoing evolution of microcredit, and base-of-pyramid inclusive business strategies employed by multinationals. Last year the IDC spun off Microlumbia, the first student-run microfinance fund of its type. The IDC also offers consulting opportunities with enterprises throughout the developing world, a speaker series and an annual Washington DC careers trip.

Photo credit: Shubert Ciencia

Last night, John McCain and Barack Obama came together to praise the value of national service. Volunteerism is an important aspect of what makes a society civilized. Contributing to the community at large is not only good business or good government; it’s also the right thing to do.

But to what extent can bureaucratic forces foster national service without stifling it? McCain reminded the crowd that the federal government has its limits, and Obama shied away from the idea of compulsory “national civic service.”

Perhaps the best way to promote a culture of service is through business education. At Columbia Business School, we learn to appreciate not only the facts of the case in question but also the issues surrounding and clouding the situation. In Leadership, we are always taught that raw intelligence only gets you so far and that emotional intelligence is the true determinant of success. Learning how to insert the relevant resources to the relevant people at the relevant time is essential to a Columbia MBA. It is this knowledge that is required to organize or help movements that people care passionately about. This is the kind of service that all Americans would like to see at the heart of this country.

MBA students must also learn another element of service — that to whom much is given, much is expected. An MBA equips people with the skills and knowledge to be more socially conscious precisely because the degree is part of such an august tradition. It should escape no one’s attention that service is an essential component of leadership. In today’s society, there is no shortage of good causes for which our skills can be put to use. For every person there is a cause that rings strong and true. As McCain stated last night, “It’s not about the individual — it’s about the cause that they serve.” This discussion, which occurred on the seventh anniversary of the tragic events of September 11, reminded Americans of a greater common cause.

By happenstance I’m lecturing on John Maynard Keynes in my Modern Political Economy course today. I don’t ask my students to read the whole of The General Theory of Employment, Interest and Money, which would indeed be cruel and unusual punishment, but I do require them to read chapters 10, 12 and 24. Those, to me at least, are most essential to understanding the General Theory. Chapter 12 certainly makes the carnage on Wall Street a bit easier to understand; it also is a reminder that recovery isn’t going to be easy. Quoting Keynes:

A conventional valuation which is established as the outcome of the mass psychology of a large number of ignorant individuals is liable to change violently as the result of a sudden fluctuation of opinion due to factors which do not really make much difference to the prospective yield; since there will be no strong roots of conviction to hold it steady. In abnormal times in particular, when the hypothesis of an indefinite continuance of the existing state of affairs is less plausible than usual even though there are no express grounds to anticipate a definite change, the market will be subject to waves of optimistic and pessimistic sentiment, which are unreasoning and yet in a sense legitimate where no solid basis exists for a reasonable calculation.

So far we have had chiefly in mind the state of confidence of the speculator or speculative investor himself and may have seemed to be tacitly assuming that, if he himself is satisfied with the prospects, he has unlimited command over money at the market rate of interest. This is, of course, not the case. Thus we must also take account of the other facet of the state of confidence, namely, the confidence of the lending institutions towards those who seek to borrow from them, sometimes described as the state of credit. A collapse in the price of equities, which has had disastrous reactions on the marginal efficiency of capital, may have been due to the weakening either of speculative confidence or of the state of credit. But whereas the weakening of either is enough to cause a collapse, recovery requires the revival of both. For whilst the weakening of credit is sufficient to bring about a collapse, its strengthening, though a necessary condition of recovery, is not a sufficient condition. (emphasis added)

These days, Keynes is not very popular in some circles; in truth, he is a bit hard on the neo-classicists in chapter two. But behavioral economics, which is now mounting a serious attack on the neo-classicists (at Columbia Business School as well as in the discipline), owes a lot to Keynes, as the above quote makes clear. As he wrote more than seven decades ago, strengthening credit is a necessary but not sufficient condition for recovery. We need to restore some confidence too, which is probably where political leadership comes in.

Tonight, Senators McCain and Obama will speak about public service here at Columbia University. They are likely to talk about creating a program for a year of national service. That is a fine idea, but what strikes me today is that there is a management gap in service: Social organizations need people with managerial skills to better achieve their goals and support their mission.

The greatest constraint in solving the world’s most pressing problems, from health care to environmental policy to poverty, is not a lack of ideas. Many great minds, including those of large numbers of Columbia faculty members, are focused on research relating to society’s most fundamental challenges.

What the social sector still needs, however, is management. Management, along with the ability to get things done, is the scarcest skill among those who devote themselves to service. A desire to do good is an absolute requirement, but in order to navigate complex social and governmental channels and effectively create change, one must be equipped with the knowledge and skills necessary to analyze, decide, and lead.

That’s what business schools do. Top business schools are producing MBAs whose management skills will be invaluable in the social sector—even if they are not necessarily the people who are running nonprofit organizations. I argue that what a lot of development and health care reform efforts are missing is the involvement of people who know how to manage and run large, complicated organizations. If management is the scarce skill, then that means business schools need a seat at the public service table.

Columbia Business School’s involvement in Africa and other emerging markets and its health care management, entrepreneurship, and social enterprise programs are just some of ways we are committed to service. We also have programs to train principals for New York City schools and work with community businesses here in Upper Manhattan. We are taking management skills and actively applying them to public service.

Senators Obama and McCain have already demonstrated their understanding of the critical importance of business in creating and sustaining economic growth. It is my hope that when they take the stage this evening at ServiceNation’s Presidential Candidates Forum, they will also convey the need to engage business and businesspeople in the social sector.

As part of an ongoing series, the Wall Street Journal asked top political and business leaders how they would spend $10 billion to create solutions for some of the world’s problems. Sidney Taurel ’71, chairman of Eli Lilly & Co., expressed his wish list in an op-ed in Monday’s paper.

“I would invest half of the $10 billion in comprehensive treatment programs that could be sustained by the countries with high incidence of [malaria, tuberculosis and HIV/AIDS], and which have leaders committed to long-term solutions,” Taurel writes. “I would use the remaining half of the $10 billion to foster investment in research, and I’d leverage it as I would the treatment programs — by working to make it sustainable.”

What problem would you tackle — and how much would you spend — to make significant progress solving a global crisis? Please add your comments.

Ron Gonen ’04 will change the way you think about recycling. He’s been honing his strategy ever since the day he convinced his high school of the economic benefits of purchasing reusable metal silverware instead of plastic.

Get tough love

When you’re an entrepreneur in the midst of traditional businesspeople, everyone wants to pat you on the back and encourage you. But when you get into something like the Entrepreneurial Greenhouse Program and you’re in the company of other entrepreneurs, you get a much higher degree of constructive criticism, which is critical to the success of any new venture.

You have to believe in yourself when starting a business like this. Before you pitch the idea to anyone else, you first thing have to sell it to yourself, and keep convincing yourself of its potential every day. But you also have to be humble enough to acknowledge areas for improvement.

Once I had committed myself to launching RecycleBank, I needed people who were going to tell me at key junctures: “That’s not going to work.”

Articulate the benefits

People want to do good things, but it helps when they’re given an incentive.

In the RecycleBank program, we make the incentives explicit, by rewarding people with points based on how much they recycle. These points can then be redeemed through our corporate partners — vendors as diverse as Apple, Chipotle and Zales.

I’ve tried to communicate to a variety of constituents that in all the actions that we take, if we think about the environment, we can also think about the ways to cut costs. I don’t want people to think about helping the environment as just the right thing to do — which it is — I also want them to see that it’s an effective way to generate positive financial return.

Make it scalable

In 2004, I was operating this business out of my apartment on the Upper West Side, and now, in 2008, we’re already providing service in 10 states.

In the beginning, growth was largely supported by millions of dollars in private equity investments, but at this point, I hope that we’ve done our last round of fundraising.

Since RecycleBank’s revenue comes from our ability to divert trash from landfills, this program is naturally sustainable.

I believe we can continue to grow with the support of our Reward Partners, leaders in local government and our team. We’ve been incredibly successful, reaching 90 percent of households in the areas we’re operating within and increasing recycling rates by more than 100 percent.

And I’m confident that we’ll soon be able to reach the entire country, as we keep making it easier for more people to see the immediate rewards of their recycling efforts.

Photo Credit: RecycleBank

Yesterday I suited up in my shalwar kameez and GreenMango uniform and joined my team for their daily fieldwork. As we made our way through the slow moving Hyderabad traffic, someone started a discussion on marriage. And then one of my female staff members, who often goes to temple, said, “Actually, madam, we are also praying for you that you will have a marriage!” We all had a good laugh.

When I decided to move to Hyderabad, India, I knew I would not exactly be the norm. I would be a single, Caucasian woman running an internet business for low-income clients. If anything, I figured I would stand out because I wasn’t Indian or because I wasn’t from Hyderabad.

In fact, it’s being a female entrepreneur that makes me an anomaly. Some 95 percent of the meetings I have in a given week are with businessmen, nearly all of our company investors are businessmen and my most trusted advisers are businessmen.

When my business partner (another woman) and I went for our legal incorporation in Hyderabad, our lawyers kept asking for our fathers’ and husbands’ signatures. This would not be possible, we explained. This started a long line of questioning and a lot of laughter as to why a single woman would start a business. One of my most memorable experiences in this regard came when I tried to get a wifi internet card from Tata Indicom. As I was applying, the staff kept asking me funny questions about my living situation, for example: Did I stay with someone?, Where did my family stay?, etc.

When they finally learned that I lived alone and did not have a husband, they triumphantly proclaimed, “Ma’am, you will need to fill special application. This is the spinster application!”

Of course, the irony of all of this is that women in India and Indian women around the world are incredibly accomplished. At the highest levels, you see amazing women as leaders in business, politics, law, medicine, science and academia. So, I wonder why do I not encounter these women more often? Are there too few of them? Are they only at the huge corporations, but not in the small and medium businesses that I interact with? Are they not in my sector? Are they not in my city?

Perhaps after a few more years here, I’ll understand. But at the end of the day, I’m not too bothered and recognize that all I have to do is accept the reality and move forward. Sometimes standing out disadvantages you. Sometimes it helps. At this point, my primary focus is making my business a success, regardless of the roadblocks or how I am perceived.

I devote much more energy to thinking about how to build a company that creates opportunities for my clients (both male and female business owners) to succeed. It is a task that is easier said than done, especially given the divisional realities I’ve observed: Having spent less time in the public sphere, women tend to have less local knowledge, such as where to go for certain goods, who to contact for certain services. Women and men come into GreenMango with very different salary histories, which seems only partially due to their work experience levels. As we build up our team, there are certain positions where I know a man would be more traditionally suitable. And I also know that the way I handle hiring decisions is what impacts whether or not women like me will continue to be anomalies in Hyderabad.

Adapted from remarks delivered at the Kikkoman conference, “The Economics of Green: Finding a Balance between Economic Growth and the Environment,” hosted in honor of the 35th anniversary of Kikkoman’s opening of its plant in Walworth, Wisc. — the first manufacturing plant of a Japanese company in the United States.

The challenges of climate change have inspired myriad debates about how best to arrive at an appropriate solution. Within these debates, many wonder: Who is ideally suited to spearhead the charge?

We’ve already seen that, despite public policy foot-dragging, the business community has played a very constructive role in working to solve the problems caused by global climate change. And I believe that in the future, it should be business leaders who shape the proposals currently debated in the political process.

The demands of globalization have long motivated the business community to develop creative solutions to multifaceted problems.

In 1972, Yuzaburo Mogi ’61, chairman and CEO of Kikkoman Corporation, made Kikkoman the first Japanese company to open a manufacturing plant in the United States, an accomplishment that has proven its worth by withstanding the test of time.

Kikkoman has maintained positive relationships with the surrounding community in Wisconsin, and paved the way for other foreign transplants.

Today, the company is a model of corporate citizenship at every level — from the local to the global.

Mogi recently announced that Kikkoman will sponsor an Environmental Studies Scholarship in cooperation with the University of Wisconsin-Madison, and this fall will open a research and development laboratory in Madison’s University Research Park.

This is the kind of active partnering and collaboration that will be the key to delivering workable and sustainable answers to the potentially crippling environmental challenges we face.

As we move forward, the United States should lead and take action early in the mission of environmental stewardship, while encouraging and regularly reviewing the actions of other key nations. The work of the global community needs to be coordinated to address the seriousness of the problem — and it is possible to do this while protecting U.S. economic interests.

All of these things are surmountable.

There are certain practices that take place in the for-profit world that can benefit us in this sense. For example, strict accountability, transparency and financial purity are the kinds of things that, like it or not, Sarbanes Oxley has taught us. I think a lot of this can be applied to the nonprofit world.

Having said that, for the most part people work here because they believe in a noble cause and want to do good works. As we borrow some of these techniques in the for-profit world, we have to be very mindful of making sure that we don’t turn antiseptic and lose our soul and our heart.

We do amazing things every single day. We’re filled with heroes here, and it’s so easy to feel inspired. In my former life I definitely worked for companies with higher purposes, but at the end of the day you’re counting widgets, you’re counting dollars. Here, we’re counting lives impacted — it’s extraordinarily inspiring.

The conversations at the Red Cross are so different than the conversations that go on in the corporate world. Here, we ask: How do we galvanize people from 42 states to get into Iowa and help people clean up after the flood? How do we get enough emergency response vehicles to drive around with hot meals to keep these people fed? How many people can we shelter in high schools and dormitories?

So when I say we have to revitalize the brand, I don’t mean redo or replace. We don’t want to change what the brand stands for, since it’s such an international treasure. You see that red cross and think: help is on the way. I don’t want to change that. I just want to turn it into something hip and exciting. Part of that involves becoming more consumer-focused. Here, it’s all about putting our brand in front of people so that they donate time, money and blood.

UNICEF is a good example of brand revitalization. And I think when you have a beautiful legacy, it shouldn’t be that hard. Our favorability and affection rating is highest among 18 to 34 year-olds, so we just have to tap into that and make it so that the Red Cross becomes part of the fabric of the way they become philanthropic. That generation is so in tune with community service. They want to change the world, and we just have to let them change it with us.

Gail McGovern ’87 was named President and CEO of the American Red Cross on April 8, 2008. In both 2000 and 2001, Fortune magazine recognized her as one of the 50 most powerful women in business. She is a graduate of the Executive MBA Program at Columbia Business School.

Yasmina McCarty ’08, a graduate of the EMBA-Global program, was a recipient of the Cartier Women’s Initiative Award last year in recognition of GreenMango, a company she developed with business partner Nandini Pandhi.

On May 31st, my business partner Nandini and I got the call we had been waiting for all month. It was from Echoing Green, an organization that provides seed funding and support to social entrepreneurs with “bold ideas for social change.” This year the fellowship had been ridiculously competitive, with nearly 1,500 organizations applying for just 20 available spots. When we learned we were one of the lucky 20, irrepressible smiles rose to our faces and we danced for joy around the apartment. It was an honor to be included with such an inspirational group of individuals.

But what exactly is a social enterprise? And how are we delivering on our bold idea for social change?

Last Saturday, I had my weekly conference call with a top strategy consulting firm that generously donates their time to support GreenMango. While we were talking about GreenMango’s revenue model and customer segmentation, our consultant realized exactly how “bottom of the pyramid” GreenMango is.

“Yasmina,” he said, “why on earth are you focusing on these businesses making a few dollars a day? Have you come here to run a business or do some charitable work? Creating a viable business with this customer segment is damn difficult. Damn difficult. And I’m really not sure you can pull it off.”

Indeed, building a social enterprise is one of the toughest things I have embarked on yet. And of course, it’s not just me who finds this challenging. McKinsey’s recent global survey of 4,000 executives in 116 countries found that 84 percent embrace the idea that a corporation has some social role in addition to its responsibilities to its shareholders. Just three percent of these executives think they are doing a good job delivering this social aspect.

Our vision is to build an organization that delivers financial returns to its investors, provides a positive workplace for its employees and increases the income of millions of low-income entrepreneurs. The customer element is a challenge but to me, tenable; it’s the core of our business. There are millions of informal entrepreneurs in developing countries — carpenters, tailors, electricians, plumbers, mechanics, embroiderers — who struggle to grow their businesses because they are invisible. GreenMango is an affordable marketing platform for them to promote their business and find new customers locally.

Now add in the benefits for our employees. We are operating in India, where staff turnover last year was 40 percent (i.e., nearly half of the country changed jobs). To counter that, we have built a dynamic environment: we spend for staff development and training and have clear career paths. We invest into our employees not only because it’s good for them, but also because it’s good for us. Year to date, we have had zero percent attrition.

Finally, we come to the third tenant of our vision: Delivering an excellent ROI for our investors. Our model is generating revenues but in order to succeed, we must deliver a high level of profits quarter after quarter.

Only time will tell if we can pull off all three elements of our plan.

In the end, of course, there is no clear definition of a social enterprise. And the longer I work at building GreenMango, the more I believe it is just the sum of the many small decisions I take every day. To what lengths will I go to ensure our employees are taken care of? How far will I challenge our team to find ways to serve the poor and semiliterate? How far will we push ourselves to find a revenue model that works at the bottom of the pyramid but delivers topline profits to our investors?

At our EMBA Global graduation, we were challenged and inspired with this quotation from George Bernard Shaw: “The reasonable man adapts to the world. The unreasonable man adapts the world to himself. Therefore progress rests upon the unreasonable man.”

In an effort to reduce turnover, the NYC Department of Education established a formal teacher-mentoring program several years ago based on a nationally recognized model. Recently, I studied the effects of this program on New York teachers.

One of the most interesting findings was that teachers were more likely to return the following year if they were assigned a mentor that used to work in their school. In contrast, it did not seem to matter whether their mentors had many years of experience, used to teach the same subject as them, or had a similar demographic background — things that you’d think might be characteristics of an effective mentor.

What this signals to me is that what is important in the mentoring process in regards to retention is providing employees with what economists call location-specific or firm-specific human capital. Learning how to navigate the local environment seems to be an important issue for new teachers, whether it is dealing with the school administration, connecting with the particular kinds of students at the school or understanding other local institutions. Mentors can even help provide some of the small details that make life on the job easier, like where to get a good, inexpensive lunch or how to shorten the morning commute.

Finding policies that reduce teacher turnover are important for two reasons. First, research that I and other economists have done shows that more experienced teachers are more effective at raising student achievement. Second, turnover is typically highest in the schools serving the most disadvantaged kids. Quite simply, more experienced teachers tend to migrate to schools with fewer poor and low-achieving students. So, the benefits of increasing retention among new teachers are going to accrue to the children who need the most help.

Turnover is an important issue that all firms face, not just in teaching, and the lessons from my work with teachers in New York can also apply to professional development and training in other industries and occupations. One way to reduce turnover is through financial incentives, but another important tool is giving employees the support that makes their job more pleasurable and less stressful. Mentoring — with an eye towards local issues — is a policy worthy of attention.

Yesterday was the last day of school in the New York public school system.

This got me thinking about the helplessness that I and many others feel about the situation there. We desperately wish that Thabo Mbeki would do something to topple Robert Mugabe, the anticolonial crusader turned brutal warlord. But that doesn’t seem to be in the cards. And if local politicians are going to let this happen, what’s to be done?

In recent years at CBS, I’ve grown accustomed to hearing many around me proclaim the potential of business to solve the world’s problems. And I actually believe it myself, to a large degree.

But if this is the case, what (if any) is business’s responsibility in humanitarian disasters such as the one we’re witnessing in Zimbabwe? (or Darfur or Chad or Myanmar?) At a minimum, it surely includes holding off on shipping arms to Zimbabwe to keep Mugabe’s reign of terror alive. But is there a more proactive approach that the business community should be playing in South Africa? And what about here at home?

According to a 2008 report from the Aspen Institute, MBA programs definitely influence the way students think about the role of business and its relationship to society once they become managers and leaders.

Many of the report’s key findings were related to shifts in student attitudes on corporate social responsibility. The Institute reported that:

• Business school students are thinking more broadly about the primary responsibilities of a company. In addition to citing shareholder maximization and satisfying customer needs, the students surveyed in 2007 also said that “creating value for the communities in which they operate” is a primary business responsibility.
• MBA students are expressing more interest in finding work that offers the potential for making a contribution to society (26 percent of respondents in 2007 said this is an important factor in their job selection, compared with 15 percent in 2002).
• Though MBA students are clearly seeing the benefits of social responsibility in terms of a good public image, they aren’t seeing the connection to such other business benefits as increased revenue, fewer legal or regulatory problems or reduced operating costs.

After the deregulation of the Reagan and Thatcher eras, corporations did not become ethically focused overnight. So how can we account for this?

What I’ve found is that there’s been a shift in corporations’s mindset about the relation between high ethical standards and the bottom line, which might best be understood as “enlightened self-interest.”

Corporations now see that a narrow understanding of self-interest is going to hurt them in the long run. Thanks to globalization, corporations have had to make significant ethical decisions. For example, when expanding into regions of the world where there is little corporate governance legislation (or where it’s not implemented), U.S. corporations face the question: “Should we operate according to U.S. standards, or should we take advantage of the fact that this country’s standards are lower than ours?”

Corporations have learned that operating according to the bare-minimum ethical standard does not serve them well in terms of both public image and bottom line. Quite a few corporations had to contend with consumer backlash, boycotts and significant declines in sales thanks to NGOs who called attention to subpar practices relating to labor and the environment.

The capital markets have also provided incentives for corporations to behave responsibly. Roughly 10 percent of all professionally managed funds are explicitly designated as socially responsible investment funds with prominent environmental, social or ethical components — and this does not include the many other funds, such as University endowments, that also take these aspects seriously. It is therefore reasonable to say that approximately 25 percent of all professionally managed money has some socially responsible component attached to it.

The bottom line is that companies have learned that abiding by a narrow understanding of self-interest is going to hurt them in the long run. And we’ve seen evidence of how ethical behavior is good for the health of organizations of all sizes, across all industries — particularly those that sell directly to consumers. Risk reduction, lower employee turnover, cost savings, increased profits and stability in the stock market are just some of the benefits companies have experienced by taking CSR seriously.

It’s becoming clear to both corporations and their consumers that we all affect one another, and in some ways, we all depend on one another.

The gap between rich and poor has widened in America over the past few decades. And we’re getting increasingly better evidence that technology is one of the main culprits.

In the computerized workplace of the 21st century, skills and education are becoming ever more valuable, and those that don’t keep up with this technological revolution are left on the wrong side of the so-called digital divide. That’s the rationale behind government subsidies for computers and all sorts of corporate-giving programs focused on computer education. But anyone who has witnessed the gaming power of the modern PC is surely aware that these machines won’t necessarily be used for educational purposes if placed in the hands of an easily distracted teenager.

This is the topic of this month’s Slate column, where I report on the results of a study by Cristian Pop-Eleches, my colleague in Columbia’s economics department. Pop-Eleches and his coauthor, Ofer Malamud, find that distraction won out over more studious pursuits when unchaperoned kids were given subsidized computers by the Romanian government.

Obviously, this hadn’t been the government’s intention in designing the program (nor is this the intent of the host of other efforts that similarly focus on providing poor kids with computer access). The Romanian experience with computer subsidies also serves as an object lesson on the importance of having mechanisms in place for evaluating the impact of social programs, whether they originate in government or through corporate philanthropy.

I’m hoping that companies whose philanthropic activities focus on computer education will pay attention to Pop-Eleches’s study in designing their programs, and more broadly, I hope that companies become as serious about measuring the impact of their philanthropic pursuits as they are about tracking profits and losses.

When I was an undergraduate, I volunteered in a Bosnian refugee camp in the former Yugoslavia. It was there that I first heard about modern-day slavery.

After I graduated, I became an investment banker and got my MBA. But I remained haunted by those stories.

I knew that very little was being done to stop the industry of human trafficking and exploitation and that its size and scope were only increasing with time. So I made a radical decision.

I thought: There are a lot of MBAs in the world, but there don’t appear to be many applying their business backgrounds to solve the problem of modern-day slavery.

So, in the summer of 2000, I decided to set aside my corporate aspirations and embarked on a series of research trips. For the past eight years, it’s been my mission to decipher how best to attack the economic forces that perpetuate human exploitation, specifically, sex slavery.

To my surprise, there was almost no hard data and no cogent analysis of how the sex-slave industry worked globally. I realized that someone with a business background needed to analyze how the industry works from an economic perspective, because that’s the best way to ascertain how to eradicate it.

The essential economic formula of slavery is to minimize the cost of labor so as to maximize profits (the cost of labor represents 60 to 75 percent of the cost structure of most legitimate businesses). Sex slavery takes this equation and puts it on steroids, because the operating costs are paltry compared to the massive revenues generated by millions of consumers purchasing sex from slaves every day.

In the unit economics of a sex-slave operation, there tend to be modest up-front fixed costs (mostly slave acquisition), minimal operating costs and almost no cost of risk (the penalties for being convicted of running a slave operation). Entrenched socioeconomic factors, such as global poverty and bias against gender and ethnicity, create an enormous supply of potential slaves — putting the up-front cost of slave labor at historic lows. In the United States before the Civil War, slaves were purchased for about $40,000 to $50,000 and might generate a return of about 5 to 10 percent per year. Today, sex slaves can be bought for as little as $200 throughout Asia to up to $10,000 in parts of Western Europe and the United States but can generate annual profits of greater than 1,000 percent.

The supply side of the global slave industry could take generations to ameliorate, therefore short-term abolitionist tactics should focus on the market force of demand. To materially disrupt demand, we have to create an upward shock in the cost structure of operating a slave business, and the most vulnerable component of this is the real cost of risk — which is now basically zero around the world.

The most poignant aspect of my research in the midst of all this economic analysis has been the humbling, inspiring courage of the victims. Some of these slaves recounted their experiences for the first time to me and a translator, believing their stories might make a difference. I hope these stories will motivate people not only to be outraged but also to be part of the targeted steps that are required to abolish slavery once and for all.

Based on his eight years of international research, Siddharth Kara’s book Sex Trafficking: Inside the Business of Modern Slavery will be published in January 2009 by Columbia University Press.]]> Tue, 3 Jun 2008 13:16:07 EDT ]]> Business Economics and Public Policy Social Enterprise World Business

Commencement seems an appropriate time to reflect on the meaning of a business education. In the spirit of taking on the question, the Social Enterprise Program at Columbia hosted a discussion by Rakesh Khurana, a professor from Harvard Business School, who recently came out with a somewhat critical assessment of the state of business education in his book From Higher Aims to Hired Hands.

In his discussion, Professor Khurana traced the history of modern business schools from the late 18th century, when they first appeared in universities such as Columbia. Prior to this, there had been many business schools, but they were all for-profits and more like today’s vocational institutes.

The move of business schools to America’s elite universities was decidedly controversial. At Columbia, the trustees voted to keep business out, but they were overruled by Nicholas Butler, president of the University at the time. He argued that the rise of modern business had created a class of professional managers who were now essential to society’s well-being, and it was incumbent upon Columbia and other institutions of higher education to provide a training ground for America’s future business leaders.

Underlying this was the assumption that business and management should be elevated to the status of a profession, like law and medicine, based on a common body of knowledge and a sense of higher social purpose — and hence belonged in universities.

But Khurana expressed skepticism that this “professionalization” has been successful. To condense his 500-page book’s arguments into a single sentence: Modern business schools provide a hodgepodge of course offerings that teach a disconnected set of tools; they have lost sight of their social purpose; and their graduates leave prepared to be investment analysts and consultants, not leaders.

You may or may not agree with Professor Khurana’s claims (you can watch the video of his presentation here). Regardless, he presents a useful opportunity to consider what business schools are all about.

During spring break we traveled to Ghana with the mission of developing a marketing strategy that would increase tourism and investment in Kumasi, Ghana’s second largest city. Our goal was to collect information and make the necessary contacts to help us implement our recommendations.

Kumasi, as part of Columbia’s Millennium Cities Initiative (MCI) is working on a number of projects in infrastructure, health and education that will hopefully bring the city closer to the Millennium Development Goals (MDGs). Our project is a key component of that effort due to the obvious benefits that the increased economic activity can bring to the city.

The first lesson we learned might seem obvious, but is very important: You can’t market a product you don’t know. The many hours we spent reading reports on Kumasi and browsing what was available online didn’t give us much of an idea of what we discovered in the end.

What we discovered was a city with a rich history as the capital of the Ashanti Kingdom and the home of many local crafts such as Kente cloths and Adinkra prints. We also learned about areas with untapped tourism potential such as Lake Bosomtwe and the Bomfobiri Wildlife Sanctuary. On the business side, despite all the challenges, we found a local administration working to improve the infrastructure and we discovered some intrinsic advantages of Kumasi over other cities in Ghana.

Even though it is the second largest city in Ghana and has more than a million inhabitants, Kumasi has serious infrastructure challenges surrounding its road network, electricity, water and Internet (getting our emails in Kumasi took a painfully long time). Many businesses complain that the centralization of government services in the capital, Accra, is a heavy burden to their productivity.

The team has been working hard on the project and we are in the process of developing an actionable set of recommendations for the city that we think can make a difference. The rest of the team — Kenny Hsu, Dario Cacciatore and Andre Le — will travel to Kumasi again in May to formally present our proposal and to start working with the project stakeholders to help Kumasi achieve the MDGs.

This consulting project was supported by the Social Enterprise Program’s International Development Consulting Project Fund, for the Earth Institute at Columbia University.

Yasmina McCarty ’08, a graduate of the EMBA-Global program, won the 2007 Cartier Women’s Initiative Award in recognition of GreenMango, a company she developed with business partner Nandini Narula.

On February 1st I moved to Hyderabad, India to officially start GreenMango’s operations. That first day, a lot went wrong.

After a 29-hour journey, I arrived at the Hyderabad airport with my entire life in suitcases and the driver wasn’t there to meet me. Apparently there was a little mix up on the whole a.m./p.m. thing.

When he did finally arrive, he informed me that the guest house my business partner Nandini Narula and I had booked for the month (and secured with a deposit) was no longer available. I found another guesthouse to stay in for the night, and finally had a chance to rest, until someone else walked into my room — they had double booked the place.

I had a very low moment where I thought: “Oh my god, what have I just done?” Two weeks prior I had graduated with my MBA (as part of the EMBA-Global program) and watched my classmates take phenomenal jobs in the world’s business capitals as prestigious bankers, consultants, etc. And here I was moving to a new country, to a city I didn’t know and trying to start a company — what was I thinking?!

As my jetlag faded, my excitement about GreenMango returned, and since then our experience has been absolutely amazing. In our first week here we found a place to stay, set up the office, brought our first staff on board and signed up our first nine customers — it was exhilarating. All the months of planning and preparation were over and we were on our way!

I now stay in a lovely flat, where the rich sounds of life in India waft into my window every morning. We have a small but growing team, who are invaluable with their hard work and belief in GreenMango. And best of all, the customers are excited and signing up for our product.

Every day greets me with an unending list of problems waiting to be solved (e.g., how to get work done when the cricket match is on) and opportunities waiting to be grabbed (e.g., how to structure partnerships with Goliath when you are David).

But I couldn’t be happier and am truly enjoying every minute of this adventure.

One of the more remote places to do business is Tajikistan, a mountainous republic in Central Asia. Recent events aren’t helping: an energy crisis appears to have set in motion a food shortage, and the IMF claims that the National Bank of Tajikistan misrepresented its creditworthiness to secure loans.

Still, the economy is growing, and we were excited to see it firsthand over spring break. All semester we had been working with a local bank, the First MicroFinanceBank of Tajikistan (FMFB), on assessing the viability of providing commercial loans to small and medium enterprises (SMEs). In mid-March Lukas Bauer ’09 and I traveled there to gather research that could help us identify the factors that would determine whether or not that could work.

After arriving in Dushanbe, the capital, we went first to the bazaar to meet with small-business owners. We found retailing practices that would usually cause great concern: bags of cash were transported hundreds of miles to pay suppliers; there was no maintenance of current accounts or accounting books; and monthly sales tracking (or any, for that matter) was conspicuously absent.

In the framework of commercial finance, these business practices would preclude an assessment of the chance of default, a necessary element to judging the risk that the bank would incur by providing a loan. However, the framework of microfinance allows lenders to protect portfolios through diversification: while a default of the size of most commercial loans could cripple the financier, the combination of multiple borrowers and the small size of individual loans protects the bank’s lending portfolio from collapse.

The next day we boarded a plane for Khorog, the capital of the Gorno-Badakhshan Autonomous Region (GBAO), the remote mountainous province that comprises nearly half of the country’s territory. In ninety breathtaking minutes we flew over the 20,000-plus foot Pamir range, observing the isolated villages and seasonally passable unpaved roads below (we would spend nineteen hours driving back). We were beginning to understand the complexity of the challenges faced by GBAO businesses.

Over the next three days we visited clients in the rural districts of Roshtkala and Rushan, discussing the finer points of locally significant activities such as Pamiri residential construction and chicken incubation. They pointed to real challenges facing their business, ranging from changing consumer preferences to across-the-board inflation on basic commodities.

We were awed by the lengths to which owners went to start their businesses. One dentist brought fragile equipment over steep mountain passes from China. Other aspiring industrialists drew deeply on capital loans to create outbound supply chains.

By the week’s end, we had a real sense of the needs of the customers. They called for more credit, lower interest rates, less up-front paperwork and most vociferously, longer loan durations. From the bank’s perspective, however, these requests had to be balanced with risk level, transparency and the costs such changes would pose.

Our challenge now is to resolve this disjunction. Over the next month, our team — Ossama Soliman ’08, Gervasio Guareschi ’09 and Michael Hsueh ’09, along with Lukas and myself — will be researching microfinance institutions around the world that make loans in similarly inhospitable terrain.

After final exams, part of our team will travel to Dushanbe to present our recommendations and plan the next steps with the bank.

Microfinance will not be a panacea for Tajikistan; even if the FMFB succeeds in meeting its clients’ financial needs, deeply rooted economic and political problems will still limit business opportunities.

Nevertheless, the bank has already demonstrated that the provision of finance markedly improves the odds that entrepreneurial endeavors will blossom into productive and profitable enterprises. We aim to convey the insight from more mature organizations that will enable the bank to both succeed commercially and make as broad a social impact as possible.

This consulting project was organized by the International Development Club and sponsored by the Social Enterprise Program.]]> Tue, 29 Apr 2008 15:22:00 EDT ]]> Business Economics and Public Policy Corporate Finance Social Enterprise World Business

Should the U.S. join the Kyoto Protocol, or at least play a positive role in the search for a successor? Or is this too costly, or otherwise “fatally flawed,” as our president has suggested?

Humanity as a whole needs to address climate change: it has the potential to alter the world around us dramatically, and for the worse. Preventing or at least minimizing climate change will not be cheap, but it will still be a good buy.

Roughly speaking, reducing greenhouse gas emissions to the level consistent with limiting climate change to around 2 degrees Celsius (about 4 degrees Fahrenheit) will cost in the range of 1-2 percent of world income.¹

We need to compare this cost with that of allowing climate change to continue — a harder number to compute. The most thorough and most recent estimate put the cost at “at least 5 percent” of world GDP, with “at least” here indicating that this assumes a rather conservative estimate of temperature increase and includes in the calculation only the costs of climate change that are captured in market transactions.

So this estimate would include the costs of land lost due to increases in sea level, or of reduced agricultural output, but not of species driven extinct by changing environments, or of the spread of disease vectors in a warmer world and many other non-market costs.

My own estimates are that the nonmarket costs are probably going to be bigger than the market costs, so the total could be 10 percent or more of world income.

If you can spend 2 to save 10, that’s a good investment — if the 2 and the 10 are both spent and saved today. A problem in the climate change case is that we spend the 2 now, well before we save the 10: we invest 2 to make 10, but we invest the 2 now and get the 10 spread over many years starting in 2040 or thereabouts. So we have to worry about the discount rate: over long periods it makes a big difference. I argue that the right discount rate for society to use here is very low, so investing 2 now to make 10 in the future still makes sense. But some of my colleagues disagree.

Another element in the calculations is that there is always a small but non-zero risk that the extent and impacts of climate change will be far greater than the central estimates of the IPCC. They admit this and give quite large error bars around their figures. These error bars are asymmetric: the mean increase is in the range 2-4 degrees C with no chance at all of less than 1 degree (we are already at 0.75) and some chance of 6 to 8 degrees. The upper end of this range would not just be costly: it would be disastrous. So we have to see climate policies as insurance policies, insuring against the small risk of a disastrous outcome. We can apply techniques from risk management to work out how big a premium it is worth paying: it could be several percent of GDP.

Back to the Kyoto Protocol. If we want to reduce emissions, then there are three ways of doing this:

• Order firms to emit less (command and control)
• Tax emissions
• Introduce a cap-and-trade system, as the U.S. did for SO2 under the 1990 amendments to the Clean Air Act.

Kyoto chose the last of these three, and the European Union has embedded this in its internal approach to reducing emissions. This also seems to be the preferred method in the U.S. states that are moving to reduce greenhouse gas emissions.

To economists cap-and-trade or taxes are clearly the preferred options, and politically it seems that cap-and-trade is way ahead. Taxes are a political liability, and cap-and-trade has the merit of generating new tradable securities, which the investment banking community loves. If we follow this route, then the CO2 market could become a multi-trillion dollar market within ten to fifteen years.

Photo Credit: Mila Zinkova]]> Tue, 22 Apr 2008 10:07:29 EDT ]]> Business Economics and Public Policy Risk Management Social Enterprise

For years, I’ve been running “divide the pie” experiments with students at Berkeley to try to understand how people (or at least students at Berkeley) make decisions about giving.

One of my collaborators, Professor Daniel Markovits of Yale Law School, suggested that we take our experiments to New Haven to see how Yale Law students change their pie-dividing behavior after sitting through a semester of classes.

As at CBS, Yale Law students are randomly assigned to instructors in their core classes. But unlike Columbia, there can be very large differences in the material covered, depending on whether you are being taught by, say, an economist or a philosopher.

So with this experiment, we were trying to find out if differences in what and how materials were covered translated into differences in students’ giving decisions.

I must confess that I hadn’t wanted to run the Yale experiments — I have always believed that we teachers exert some influence over our students, but I thought it was more in the domain of ignoring sunk costs and figuring out how to establish entry barriers. And I certainly hadn’t expected any differences in giving decisions to show up after a single semester of classroom instruction.

But as with a lot of things in life, I was wrong. As I wrote in this recent Forbes article, it turns out that exposure to economics makes a big difference in how students split the pie, in terms of both efficiency and outright selfishness.

It’s a sobering message for teachers such as myself: students learn much more than the facts from us. What we do in the classroom matters for students, not just for learning how to maximize profits, but also for figuring out what it is that we should actually be maximizing.

This post is part of a series in honor of the School’s Leadership and Ethics Week and was first published in the Columbia Daily Spectator.

A common way to define business ethics is as the interplay between two agents: the company’s stakeholders and the law. But a company has many stakeholders, and since it’s impossible to do what’s best for each one — how do companies decide where the tradeoffs occur?

Consider coal mining in West Virginia. In the Appalachian Mountains, coal companies employ techniques called mountaintop removal and valley fill, in which they use huge amounts of explosives to remove tons of topsoil and rock in order to access seams of coal within the mountain. This resulting topsoil and rock is than scraped by dragline cranes into the adjacent valleys.

Photographs of this process are quite striking — the environment around these mines is devastated. The clear-cutting and topsoil removal destroys whatever native forest existed on the site. The valley fill creates havoc in the local watershed, and thus the surrounding water table is often unsuitable for anything, let alone human consumption.

Ask an environmentalist about this process and watch out. The destruction of pristine mountain wilderness eliminates the possibility of sustainable tourism revenue for the local inhabitants and destroys the intrinsic value found in the natural world (although some would argue against this point). Burning coal also produces a great deal of harmful emissions, including carbon — the main culprit in global warming.

Ask a union worker and you’ll get a slightly different — but equally big — response. Mountaintop removal has caused the coal industry to shed thousands of mining jobs over the past few decades, effectively breaking the power of the mining unions and the protection they engendered.

But in looking for solutions, this example unravels into a more complex ethical dilemma.

Underground coal mining is extremely labor intensive and dangerous, and the additional costs are likely to be absorbed by the end consumer — raising a number of issues as to how low- and middle-income families could afford higher energy prices.

And according to the Energy Information Administration coal generates 48.6 percent of our country’s electricity — yet there is no easy alternative. Natural gas is subject to severe price fluctuations and requires importation terminals near which no one wants to live. Not to mention that most of the world’s proven natural gas reserves are located in Russia and the Middle East — not exactly regions that one would categorize as ideal sites for a reliable energy source.

Oil carries the same risks, and solar, hydro, wind and nuclear power are in no position to provide this much electricity. Based on their current levels of output, it will take decades until they are as efficient as coal.

So the fact remains that coal companies are providing an affordable and necessary service to the electricity consumer and high returns to their investors, and yet industry practices are ruinous to the natural environment and the human communities around the mines.

Here lies the new frontier of business ethics. The idea that an ethical business must simply follow the law and provide the highest returns to shareholders while doing so is dying a long-overdue death. There are far too many examples of laws being designed and interpreted to suit powerful industries for this myopic belief in the rightness of the letter of the law to be anything but wishful thinking.

Right and wrong in the business world must be constantly examined by all participants in the decision making process and answer the question: What are our priorities? Tradeoffs must be weighed, sacrifices must occur and eventually, a decision must be made in which there are winners and losers. As a society — and especially as a business community — it is our responsibility to determine the balance between these winners and losers in a manner that reflects the ideals we wish to pass on to future generations.

Blankfein insisted that this is not pure philanthropy, but that it is in Goldman’s business interest. Shareholders should like it.

Here’s his argument: Educating women — especially in business — promotes growth. If developing economies grow faster, that’s good for Goldman’s business. The firm manages IPOs from the newly formed companies, gets to finance them, merge them, invest in them through private equity deals, etc. So promoting global growth is good for Goldman, and promoting women’s education is a cost-effective way of promoting global economic growth.

Mark Tercek, a senior executive at Goldman, spoke to my class last week about Goldman’s environmental policies, which are equally spectacular. The firm gave away a huge parcel of land in Patagonia to the Wildlife Conservation Society; built some of the greenest buildings in the United States; acquired a fleet of hybrid limos; forced TXU to drop plans for eight new coal-fired power station in the recent buyout of TXU by Goldman, KKR and TPG; invested heavily and early in renewable power; and has persistently and forcefully promoted green behavior by its clients. Tercek gave similar arguments for why they do this: it’s good for Goldman. Why?

We need a healthy environment to survive and prosper, and only if we survive and prosper will Goldman do likewise. There were some other arguments too, in both cases, the most interesting being about motivating the firm’s employees and making them proud to work for Goldman.

Bottom line? What’s good for the world is good for Goldman. Remember the old saying — attributed to “Engine Charlie” Wilson, the then CEO of GM — “What“s good for General Motors is good for America”? There’s been an interesting order reversal here. And we’ve gone global too.

It’s a striking claim: by giving money away, we make ourselves better off — not just psychologically or ethically, but financially too. For every $1 we give away, more than $1 comes back.

Can this be true, or is someone deluding him- or herself here?

I have to plead the economist’s occupational disease — skepticism. But there is a possibility of validity.

Analytically, the issue is whether someone gains from providing a public good at his or her own expense. Global growth is a public good, as is a better environment. Generally the answer is no, it doesn’t pay any individual to provide a public good. But if the provider is also a major consumer of the public good, it could be the case.

So the issue is whether Goldman is dominant enough in its field to be sure that the lion’s share of the new banking business generated by growth anywhere in the world comes to it. Maybe that’s the case; certainly that’s what they are banking on.

So during winter break, I was one of 30 CBS students who traveled to Africa to write case studies about successful entrepreneurial businesses on the continent. (See previous posts here and here.)

Our goal was to develop a world-class business school case study about Computer Warehouse Group (CWG). This project presented the opportunity to dispel the myth that there are no sophisticated businesses on the African continent — or worse, that businesses there can only get ahead through corruption.

We knew only that the firm had experienced explosive growth over the past few years, achieving some $100 million in revenues in 2007. We knew the firm was an early reseller for Dell, and that it was an important partner for a variety of blue chip Silicon Valley firms, including Cisco, Sun Microsystems and Oracle. We understood CWG’s strategy to position the firm as a strategic partner capable of delivering turn-key IT solutions for big companies, and we knew that a well-known global private equity fund had made an offer to purchase a minority stake in the company.

And until we got to Lagos, we didn’t have any sense of this company’s culture. Was it a one-man show, heavily dependent on its charismatic founder, Austin Okere? Or did it have people and processes in place to ensure continued growth into the future? Did employees at the bottom live the values expressed by those at the top? Or was it more of a show to impress customers, potential investors or other stakeholders?

To answer these questions about the company’s culture, we interviewed dozens of employees, from the most senior management to the most junior customer service and sales teams.

As it turned out, we couldn’t have picked a better company to lay these stereotypes to rest. The company has thrived in difficult circumstances because of an entrepreneurial culture that embodies the work ethic, personal responsibility and integrity of its founder. The firm has distinguished itself from the competition by consistently delivering on promises to customers and is one of Nigeria’s 50 fastest growing companies.

A rep from Cisco told us that the firm is “probably the most entrepreneurial company in Nigeria, certainly in the most entrepreneurial in IT sector.” The founder of the competing firm, who has since sold his business to a larger international player, expressed similar respect for his former rivals.

Because the case study requires a valuation of the company, we also spent a good deal of time learning about the country’s capital markets in general and the private equity group’s offer in particular. We interviewed senior leaders at several private equity firms, the founder of a local investment bank and high-ranking officials from Citigroup. The information we gained from these meetings was invaluable for understanding the similarities and differences between Nigerian capital markets and those of more developed economies.

We concluded our trip with a visit to the Lagos Business School, a member of the Association of African Business Schools and a huge supporter of our project. The folks there not only linked us up with Computer Warehouse Group at the outset but also booked our hotels and even provided our team with a driver during our stay. The school’s ultramodern facilities and helpful administrators were very impressive. We are excited that our work will help contribute to the world-class institution they are building in the heart of Africa.

But my nervous tension is dwarfed by the excitement that only a once-in-a-lifetime opportunity can create. Columbia’s new Entrepreneurship in Africa Master Class has me traveling to Nigeria to write a case study on Computer Warehouse Group, West Africa's leading IT systems integrator.

I’ll be working alongside three close friends from Columbia’s class of 2008, Jindrich Zitek of the Czech Republic and two Lagos natives, Gbolade Arinoso and Lara Junaid. We'll interview many of Nigeria’s leading banks, private equity groups, IT firms, oil companies and telecommunications providers to flesh out the company’s story.

Ultimately it’s the chance to tell this story that generates the most excitement for our team. Computer Warehouse Group started in 1992 as a tiny Dell reseller committed to empowering its employees to provide superior customer service to business clients. Over the past 15 years, these principles, combined with the entrepreneurial spirit of its founders, have allowed the company to grow into a $100 million IT powerhouse providing comprehensive hardware, software and networking solutions for corporations throughout West Africa.

Over the next week, our team intends to write a case study about Computer Warehouse Group's phenomenal rise. We hope it will provide locally relevant teaching material for Africa’s leading business schools.

More next week . . .

Two weeks ago, I blogged about the mounting combination of anxiety and excitement leading up to my trip to Nigeria. Outside of the exceptional opportunities for investors in the country’s capital markets — which did little to soothe my fears as a traveler — I’d heard few reassuring stories about Lagos. Meanwhile, my imagination went to work on the news reports, rumors and exaggerated tourist tales I had heard, conjuring up images of an urban center descended into anarchy.

I should have known better!

Jindra Zitek ’08 and I arrived at the Lagos airport expecting to be harassed by an unruly mob of aggressive taxi drivers, con artists or worse. We found instead only a few families waiting for their loved ones. The first person to approach us was our smiling classmate, Gbolade Arinoso ’08, wearing his finest traditional Nigerian clothes. From the moment we exited the airport, we knew we’d have to throw all preconceived notions about Lagos out the window.

In fact, throughout our week in the city, we were struck by how poorly we’d misimagined the place. At no point did we feel threatened in any way. Rather, we were welcomed warmly by everyone we met, from security guards and restaurant workers to private equity investors and government officials.

In the end, it was this inviting stance toward foreigners that made our project such a success. Our goal was to write a world-class business school case study about Computer Warehouse Group, West Africa’s leading IT systems integrator. As soon as we explained our project, we found that the local business community was quick to rally around us. Even normally secretive private equity firms were willing to openly discuss their valuations of the company!

Ironically, it was the very hospitality that made our trip so exhausting: the 9–5 work days were simply too short to speak with all the people who so generously offered their time. We frequently found ourselves meeting deep into the evenings, exploring the intricacies of valuing the IT services company in the Nigerian context. We learned more than we ever imagined — about the firm, the country and, most of all, about the tricks our imagination can play on us when we operate on incomplete information!

Photo credit: The New Black Magazine]]> Wed, 12 Mar 2008 15:56:17 EDT ]]> Business Economics and Public Policy Organizations Social Enterprise World Business This was my eighth consecutive year attending the annual meeting of the World Economic Forum at Davos. When I first attended in 2001, two months after joining the Schwab Foundation, I spent most of the time trying to figure out how to maneuver the labyrinth of private events, workshops, nightcaps and plenaries, as well as the thousands of extremely important people — a challenge for even the most adept networker, which I was not.

To give you an example of what I mean, that first year I found myself guiding the late Yasser Arafat to the men’s room and having a tête-à-tête with Oprah Winfrey.

Nine months later, as the Forum was gearing up for Davos 2002, September 11 changed the world. Soon thereafter, Klaus Schwab took the unprecedented and risky decision to bring the forum’s annual meeting down from the Swiss Alps to the heart of Manhattan as an expression of solidarity with the people of New York City and the United States. Not only was the entire atmosphere of the event changed, it was also the first time social entrepreneurs were included in the forum’s annual meeting.

Since then, social entrepreneurs have become a growing fixture at Davos, and business and government representatives welcome them happily and warmly. One of the most important approaches we have used is to give them speaking roles on key panels and in workshops where their issues are being discussed by other experts.

This year, we organized a session entitled “Innovations in Leadership” to explore new models of leadership that are urgently needed in an increasingly interdependent world. We heard from living legends like Muhammad Yunus, Jimmy Wales and Nicholas Negroponte. The session brought leaders in business, media and technology innovation together with social entrepreneurs to discuss the benefits and challenges of operating through networked and open systems. Such approaches eschew traditional “command and control” models in favor of a more “viral model” — emphasizing that the minds of many are far more powerful than those of a few.

So, while the mainstream media reporting from Davos has focused on the U.S. and global economies and their woes — serious issues indeed — there is an untold story. A band of Davos attendees, including some 45 social entrepreneurs, have been seizing the opportunity brought about by present chaos to advance new business models that ultimately promise to combine markets and meaning.

“We’re overwhelmed by the professors and alumni who have helped Microlumbia. It’s a fantastic thing to do at Columbia and a great example of what you can do only at business school.”

“First, labor productivity, the source of all value to Smith, could max out; second, the state could intervene too much; and third, capitalists could eat up the natural resources upon which production rests.”

Horton, who is head of the Social Enterprise Program at Columbia, thinks Smith’s third factor is the reason that interest in social enterprise is spreading. The past decade alone saw a tenfold increase in interest.

“There is a growing awareness in the business community — and among business school students in particular — that we can’t continue to behave as we have in the past without destroying the environment,” said Horton.

“Most students still place a lot of value on making money, but they have a much more pluralistic sense of value than they did even a decade ago.”

According to the article, nonart subjects such as donations, budgets, construction and attendance are increasingly dominating the time and energy of museum administrators. And as a few prominent museums search for new directors — including the Metropolitan Museum of Art — curators interested in advancing are looking toward programs like this one to add business skills to their résumés.

“It’s easier to teach a curator how to manage than it is to teach a manager to have passion for art,” said Professor Ray Horton, faculty director of the new program. “That is the underlying assumption in the curators’ program. Because to lead in the art world, you have to have both.”

The center is run by Elizabeth W. Easton, and relies on faculty expertise from CBS Executive Education.

I think education is important in ways that are obvious to every human being out there. You think about what education did to your life, you think about the teachers who changed your life, you think about the knowledge you developed.

For the country and for the city, education is important for two reasons, and one is that we have a racial and ethnic achievement gap in this country that is the greatest shame of this great nation.

The idea that skin color or poverty can determine the quality of the education you get is wrong. It’s fine for rich people to have bigger houses, larger cars, more diamonds — but a better education is morally wrong.

That moral issue takes on another dimension as we move forward in an increasingly globalized competitive economy, and I think it’s going to create enormous economic challenges.

We cannot have an education underclass in an increasingly competitive global economy. If you watch what’s going on in the rest of the world, there are people out there — quite literally — looking to eat our lunch.

And it is so critical to the transformation to have people who are bringing entrepreneurial, innovative juices — who instinctively get accountability, who understand leadership and care deeply about management. In the world of education, when I talked like that in the beginning, people looked at me like I was nuts. This was an alien language.

But at its core, education is a service-delivery challenge — if you don’t lead it, manage it and create the proper incentives in order to make it happen, it won’t happen. It’s about cultural transformation. That’s why the kids from business school want to come and be a part of it.

The core leaders that I have at many levels in the system are not people who came from the education schools — they’re people who came from the business schools, and from the business sector.

That causes me a lot of political heat, but that’s just fine, because if you don’t inject entrepreneurialism, accountability, innovation, differentiation, all of those things — you know what? We’ll continue to get the same pitiful results that we have gotten for the last 50 years in American education.

Rebranding initiatives are becoming more common among nonprofits — particularly educational institutions — as these organizations adopt marketing strategies that previously were used only in the for-profit world.

Possible reasons for this shift? Increased global competition may be putting pressure on nonprofits to better distinguish themselves from similar organizations. And the Internet is providing easy outlets for messaging, along with examples of the value of a solid branding strategy.

But as nonprofits move toward for-profit strategies, how do they balance promoting their brand with promoting their underlying altruistic mission? (The Red campaign comes to mind). And are there limits to how far brand managers should go to adopt what have traditionally been for-profit tools?