Social Value Investing: A Framework for Effective and Efficient Partnerships
In the 1960’s, Americans took to the streets in great numbers, demanding that their government grant basic civil rights to all citizens (regardless of gender, race, or religion), end the Vietnam War and use the savings to fund what Lyndon B. Johnson called a “War on Poverty”. Progress has been made here and around the world on all these issues (although we are still at war; just the place has changed). Among the more significant positive changes in the world in recent decades, extreme poverty has been cut in half, billions have gained access to clean water, and child mortality is down nearly 60 percent. Yet we still face extreme and worsening income inequality, droughts, flooding, extreme weather, wild fires, dislocations brought on by climate change, and so on.
July, 23 2019 | Howard W. Buffett & William B. Eimicke
Just as in the 1960’s, today’s younger Americans in particular are vocal and active in their demand for a better world. For example, millennials say that making a positive difference in the world is more important to them than professional recognition. Another study found millennials rank creating social value as the primary purpose of business—not creating profit. Many successful businesses create social value as they pursue profit through the jobs and income they provide and the goods and services they create. What these studies suggest is that if businesses increase more explicitly and directly the social value they help produce, these companies will likely attract more millennial customers.
Over the past decade of research at Columbia University, we found numerous examples of businesses increasing their profits over the long -term by partnering across sectors with public officials, nonprofit managers, and community members—these non-profit partners are also serving the public interest at the same time. The creation of the High Line and the revitalization of Central Park in New York City are outstanding examples of different sectors sharing success throughout entire neighborhoods through a partnership between business, government, philanthropy, and community. It is not easy, and it is not always successful, but we have found cases from all over the world where these partnerships can achieve more equitable and inclusive solutions when leaders collaborate to consider the impact that their decisions have for society over longer time horizons.
Could the same type of cross-sector partnership build the long-delayed rail tunnel under the Hudson River between New York and New Jersey? We believe it could and have found similar successes in many parts of the world that would support our view. For example, India’s Prime Minister Narendra Modi’s government is accomplishing a much larger project—building a national digital highway—by partnering with the country’s world-class technology companies to connect all citizens to voting, banking, government assistance, health care, records keeping, and more. Modi recruited Indian business leader Nandan Nilekani’s help in designing a partnership plan, which connected the national government, large tech companies, and the private Apollo Hospital organization with more than 100,000 community- operated common service centers. These service centers are working with local entrepreneurs to enroll 1.3 billion residents, provide access to the system, and share in the profits.
In recent years, U.S. public sector leaders have been less aggressive than Modi in championing cross-sector partnerships to meet important social challenges. A notable exception is former New York City Mayor Michael Bloomberg, who worked closely with the partnerships that created the High Line and restored Central Park. He also worked with major tech companies such as IBM and Microsoft to reinvent fire prevention and policing, resulting in dramatic reductions in fatal fires and serious crimes. Another cross-sector partnership he helped create used social impact bonds to reduce recidivism at Rikers Island jail. The program was not successful, but similar initiatives in the UK and other countries have produced positive results and profits for investors.
While the U.S. federal government has been slow to embrace the cross-partnership model—witness the much discussed but never initiated national infrastructure programs (still in the concept stage after two and a half years of press releases from the White House and Congress)—many private sector leaders are urging CEOs to lead their companies toward making a “positive contribution to society” beyond just financial performance. Government alone is no longer sufficient to address many of the major challenges facing our country and the world. We believe engaging the private and social sectors to work with government can lead to solutions creating a better society for all.
Government will still need to play a major role and private collaborators will need to make a fair profit. In the long run, profit and social value are compatible; indeed, both are essential to our future economic prosperity. To participate in these partnerships effectively and efficiently, private sector leaders will need to emphasize collaboration as a guiding principle, more so than competition. Our research indicates that successful collaborations begin with a common framework applicable across private sector CEOs, nonprofit managers, philanthropists, and public servants. We call the framework social value investing. It is inspired by Berkshire Hathaway and modelled after the company’s application of value investing—one of history’s most successful investment paradigms. Like value investing, social value investing employs a long-term investment strategy that attempts to unlock hidden or intrinsic value. It approaches this goal through five aspects of effective partnership management: process, people, place, portfolio, and performance.
Society has made great strides over the past few decades, though it still has far to go if it hopes to overcome some of the most intractable challenges in front of us. Only through the active, collaborative participation of all three sectors can we build a sustainable and fair society in which every person has an opportunity to grow and prosper.
Howard W. Buffett is an adjunct associate professor and research scholar at Columbia University’'s School of International and Public Affairs. He served as the executive director of the Howard G. Buffett Foundation and coauthored the New York Times best-seller 40 Chances: Finding Hope in a Hungry World (2013). Previously, Buffett oversaw economic stabilization programs in Afghanistan and Iraq for the U.S. Department of Defense. He also served as a policy advisor for the White House Domestic Policy Council, where he coauthored the president’'s cross-sector partnership strategy. William B. Eimicke is professor of practice and founding director of the Picker Center for Executive Education at Columbia University’'s School of International and Public Affairs. He previously served as New York City’'s Deputy Fire Commissioner for Strategic Planning and Policy, as the housing “czar” of New York State, and as a housing policy and management consultant to vice president Al Gore’s National Performance Review. He has coauthored four books on topics including effective public management, contracting, sustainability, and management innovation.
 Steven Radelet, The Great Surge: the Ascent of the Developing World, Simon and Schuster, 2015, p. 5.
 Joint Monitoring Programme for Water Supply, Sanitation and Hygiene, Progress on Drinking Water, Sanitation and Hygiene: 2017 Update and SDG Baselines (Geneva: World Health Organization and the United Nations Children’s Fund, 2017), p. 12, fig. 16.
 World Health Organization, “Children: Reducing Mortality” (Factsheet), October 2017, www.who.int/mediacentre/factsheets/fs178/en/
 A Pew Research Center study found that 84 percent of millennials report this sentiment, cited in Howard W. Buffett and William B. Eimicke, Social Value Investing: A Management Framework for Effective Partnerships, New York: Columbia University Press, 2018, p. 5.
 A 2013 study by Deloitte cited in Buffett and Eimicke, p. 4.
 Buffett and Eimicke, chapter 5.
 Ted Smalley Bowen and Adam Stepan, “Digital India,” Picker Center for Executive Education at Columbia University’s School of International and Public Affairs (SIPA) Case Study, SIPA-15-0009.0, 2015.
 Buffett and Eimicke, chapter 11.
 Buffett and Eimicke, pp. 235-236, 255, 305.
 A Sense of Purpose, accessed at: https://www.blackrock.com/corporate/investor-relations/larry-fink-ceo-letter