Wednesday, January 30, 2013

Value. Returns. Purpose. What are we Maximizing?

Members of the Council on Foundations subscribe to a Statement of Ethics that includes the following:

“Our members manage their resources to maximize philanthropic purposes, not private gain; and actively avoid excessive compensation and unreasonable or unnecessary expenses. They pursue maximum benefit through their work, how they work, and by supporting the work of partners, colleagues and grantees.” home > about > Board & Governance > Statement of Ethical Principals

This leaves me wondering how “maximizing philanthropic purposes” relates to the commonly espoused tenet of institutional investing theory that institutions must invest to “maximize risk-adjusted returns”, and to its corollary, that business must be operated so as to “maximize shareholder value”.

What happens when effort to maximize shareholder value in order to maximize risk-adjusted returns actually serves to undermine philanthropic purposes?

The current system is too indirect, too speculative, too opportunistic to be a good fit for stewardship investing.

A better system will be more direct, more purposeful, more generational.

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