By Lesa Ukman
There’s been a zeitgeist shift within our culture. From Milton Friedman’s shareholder capitalism—the goal of a business is to maximize profits for stockholders as a reward for investing in the company—to stakeholder capitalism, which accounts for the needs of the larger ecosystem in which businesses operate.
Evidence of this shift toward good can be seen on Wall Street, Main Street and Madison Avenue. Some examples:
- The rise of Benefit (B) Corporations. Launched in 2006, more than 2,500 companies have become certified B Corps.
- The mainstreaming of Impact Investing: financing with the intent of generating positive social impact alongside financial return. Such investments grew 76 percent between 2014 and 2016, according to the Global Impact Investing Network.
- The shift from cause-marketing, which links donation to a nonprofit to buying something, to advocacy branding, which rewards people for doing something, such as volunteering.
- The explosion of crowdfunding, which has democratized philanthropy, allowing people to support projects with modest contributions, spurring funding of social enterprises worldwide.
- New models such as the social bond initiated in 2016 by Starbucks to support a stable of ethical coffee growers.
Clearly, two of the biggest trends impacting business today are social media and social responsibility or what we at call social opportunity. While often treated as two separate strands, these are inextricably linked.
In a world where what you do with your time and influence is a large part of how much influence people want to give you, a strong social good idea becomes a rallying cry for the entire organization.
Sociability is not about superficial conversations, done right, it opens doors through which people can enter and play a role in your organization. Increasingly, organizations of all types—public, private and nonprofit….teams, entertainers, Fortune 500 companies, start-ups, social entrepreneurs—are grounding value creation strategy in social purpose.
Similarly, sports, arts, entertainment, events and nonprofit partnerships are being used not only to build brands and businesses but also to create social progress, online and off.
The integration of the physical, digital and biological worlds are defining a 4th industrial revolution. As the world shrinks and our connectivity increases, some of the most important values in business are not “what I can get out of others”, but “what I can give, how I can be of service, and what opportunities can I create in which we can all win.”
For decades, price, quality, and convenience have been the principal drivers of consumer purchasing decisions. Today, those drivers are competing with another important motivator: social capital. Individuals and corporations are turning attention to social good in response to new forms of communication and access to information that cast a spotlight on the values people, organizations and businesses reflect.
OPENING THE BLACK BOX ON GOOD
Yet, for all the momentum around good and all the good being done, current approaches to valuing good are broken. Primary problems include:
- Measuring outputs rather than outcomes. We report things like 63,000 children participated but leave out the results of the participation. Did graduation rates increase among the children participating? By how much? At what cost? And, how does it compare to the other initiatives aimed at increasing graduation rates?
- Rewarding compliance rather than innovation. The Better Business Bureau and Charity Navigator rate nonprofits by much money is going to overhead versus mission. This too overlooks outcomes. And, it favors big, established nonprofits over start-ups. The pioneers trying new approaches to solving social challenges need to invest in building advocates, awareness, research and more. But these are all considered “overhead” and nonprofits are penalized for investing here.
- No transparency. Scorecards and other box ticking exercises currently used are not actionable; they neither capture the full range of social benefits or costs nor enable comparisons across initiatives. We need to open the black box on impact so that decisions on which, say, homeless nonprofit to invest in, volunteer for, etc., are grounded in research-backed data that reveals which creates the most social capital for each dollar invested.
- No universal currency to ascertain the amount of social capital created. Without such a metric, organizations good at promoting themselves rather than ones doing the most good, attract the most funding.
In sum, there is no tool to aid decisions on what to sponsor, where to donate, where to volunteer and which organization to advocate for—decisions that determine which initiatives and movements will survive and thrive and which will not.
So, we set out to transform the space, applying the transformative power of big data and big insights to social good programs. We are known for the frames we developed to value and measure sponsorship ROI. This time around rather than assessing social good investments through the lens of what it produced for brands and rightsholders, we would look at value through the lens of the beneficiaries and society at large.
We call this social capital, using the term broadly to refer to all kinds of good, from support of cultural heritage and STEM education to hunger relief and environmental sustainability. The vehicle we devised to measure it is ProSocial Valuation (PSV). PSV is:
- Agnostic. From cultural heritage to homelessness, we value social capital of all types. This is in contrast to the current lens of corporate sustainability used by socially responsible investors—which centers on environmental, social, and governance themes—and fails to consider health or support of arts and culture or most other types of good.
- Transparent. We are explicit about what is valued, the value assigned and how we reach our conclusions.
- Data-driven. Each assignment of value is supported by primary research.
- Universal. PSV introduces a universally understood unit of impact for measuring social capital, enabling comparisons across categories and initiatives.
- Actionable. More than a tool for justification, PSV leads to improvements in effectiveness and efficiencies.
Equipped with these founding principles, we put together a team of thought leading researchers, marketers, social scientists, valuation experts, mathematicians, partnership specialists and designers.
METHODOLOGY: HOW WE CALCULATE SOCIAL CAPITAL
Step One, we define the inputs” the types of social capital created.
Step Two, we model the outputs, or values, for each type of social capital created.
Step Three, based on primary research, we assess and incorporate the outcomes achieved.
Step Four, we account for Velocity. Every city, country and region is valued using a weighted index that accounts for population, social media influence and soft power—the ability to persuade by attraction and persuasion rather than by coercion or force. This calculation is based on the market(s) in which the program is held.
But, not everything that counts can be counted, and not everything that can be counted counts. The inability to measure innovation, for example, tends to favor risk-averse initiatives, which are rarely the most effective route to solving big social problems. And so, by researching hundreds of programs in more than 40 countries, we identified the six intangibles that most influence value and have the power to advance substantial and sustainable progress and social capital. These are:
- Audacity. Envisioning big and bold solutions like tackling chronic problems over temporary ones, addressing underlying causes rather than merely treating symptoms.
- Connectivity. Deeply engaging with the communities being served and creating buy-in among the many constituencies who can affect the outcomes.
- Capacity. Using data to understand trends, predict behavior and improve.
- Ingenuity. Disrupting entrenched approaches with innovative solutions.
- Tenacity. Leveraging the time, relationships, sweat and resources required to persevere.
- Diversity. Generating revenue and support from multiple sources.
To establish ranges for the intangibles, we turn to financial markets, analyzing the average share of intangible assets on the balance sheets of publicly traded companies on the world’s major stock exchanges – NYC, London, Tokyo, Shanghai, Bombay, Euronext (Amsterdam), Deutsche Boerse (Frankfurt) and BM&F Bovespa (Sao Paulo). The companies on these exchanges cover over 50% of total global market capitalization.
We assess each intangible by its rank and weight relative to the other five, its individual score and its contribution to outcomes.
We add together the value of the outcomes, velocity and intangibles to arrive at the total social capital value created.
Step Five and finally, we divide this sum by the budget to arrive at a figure for social ROI.
CASE STUDY: THE HOMELESS WORLD CUP
Cofounded in 2001 by Mel Young as a revolutionary approach to alleviate the global problem of homelessness through sport, the Homeless World Cup uses direct empowerment to effect change in the lives of homeless men, women and children.
Homeless World Cup works year-round with programs in more than 450 locations through a network of National Partners in 74 countries.
Each National Partner has the exclusive right to represent its nation at the annual Homeless World Cup Tournament.
The Tournament experience is transformational for participants, giving a marginalized group of people the opportunity to travel and meet peers facing similar challenges and a platform to represent their country in front of a supportive audience.
Making certain of the calculations was of course complicated by the fact that every conceivable attribute one can measure for a particular social outcome reveals a vast variation in values, when compared to the same outcomes among other demographic populations or in other parts of the world.
To illustrate: in order to calculate a “global average” savings of one person off the street, we normalized the data
We valued per person per year savings from taking somebody off the streets at $17,747 - the savings realized from finding housing which, in turn, results in improved health outcomes and reduced incarcerations.
Variances among the 74 countries are huge, so rather than basing it on any region or country, we normalized the data to reflect the exact make up of countries participating in Homeless World Cup.
Take Housing: Countries provide widely varying housing subsidies for the homeless. Indeed, some HWC countries have no housing subsidies, for example Russia—which does not recognize homelessness.
Others, like Canada, the USA, Germany and India and have multiple programs.
We assumed zero savings on housing subsidy for those countries that do not provide support to the homeless.
And for those countries without explicit data, we extrapolated using countries for which data was available and in which price levels and political ideology (i.e. socialist vs capitalist) were similar.
We arrived at an annual average of $1,489 per person of government expenditure per person among the nations with Homeless World Cup programs.
In Western Europe, North America, Oceania and the Far East, government efforts typically involve running homeless shelters and providing rental subsidies for social housing. Even here, ranges were vast. For example, annual subsidies per person were $1,081 in England but 4.5x higher in Austria, where it totals $4,680.
In Eastern Europe, Asia, South America and Africa, government programs typically provide either subsidies to build huts/temporary houses or constructed apartments.
To determine annual savings on housing subsidies, the lifetime of the huts or the constructed apartments was factored into our calculations. We erred on the side of conservative assuming that temporary houses last 5 years and constructed apartments 20 years. Further, since apartments and huts are allocated to families, we factored in average family size in each of the countries to calculate per person savings.
Per person per year subsidies ranged between $1,010 in Costa Rica to $14 in Namibia.
Improved health outcomes
There are several studies linking homelessness to increased hospital admittance. Calculating averages across the different reports, we estimated that a homeless person is likely to spend 26 more nights in a hospital and 2 more out-patient hospital visits every year compared to a person who is not homeless.
Taxpayers bear the cost of increased hospitalizations since the homeless are unlikely to pay for healthcare.
Among nations with Homeless World Cup programs, we estimated average annual savings per participant who is no longer homeless to be $10,755.
To estimate healthcare costs, we turned to the World Health Organization database of nightly costs in different types of hospitals in every member country.
However, since the WHO database is not refreshed very often, we used the World Bank’s data on inflation to arrive at 2015 prices. Per night costs vary significantly between countries and range between $2.28 in Liberiato $2,146 in Luxembourg.
The average across all participating countries is $410.40 per night.
These are just two of the five outputs we had to calculate, each one normalized to reflect the vastly different approaches and costs in each of the 74 participating countries.
In addition to the social capital resulting from housing, improved health outcomes and reduced incarcerations, social capital is generated when
- Homeless World Cup participants find employment;
- Homeless World Cup volunteers are trained; and
- Homeless World Cup fans and spectators change their perceptions about homelessness.
Equipped with primary research on outcomes, we valued all this: average annual wage among participating nations comes to $10,783 (ranges between $61 in Uganda to $23,115 in Luxembourg).
We used a social listening survey of the 2016 Glasgow Homeless World Cup to measure a 52% shift in attitudes among 80,000 tournament fans and spectators.
Social media posts reflected how the tournament raised awareness and changed perceptions about homelessness and encouraged spectator support.
It also indicates how participation empowered and generated confidence amongst players.
To value these outcomes, we looked at multiple sources and applied the World Bank’s Purchasing Power Parity currency deflator to normalize the data across the Homeless World Cup countries.
While calculating the social capital created by the Homeless World Cup, we held ourselves to the following policy: whenever presented with such a choice, we picked the scenario where the scope of variation yielded a more modest result.
Our ProSocial Valuation, which covers the 2016 Foundation Program as well as the 2016 Homeless World Cup Tournament in Glasgow, tells a powerful story of the organization’s social impacts.
The Foundation generated $364 million in 2016. Some 80 percent of the 100,000 men, women and children who participate in the programs year-round get off the streets within two years.
The Homeless World Cup Tournament, the one week event in Glasgow, generated $13M in social capital. Because we have the budget for the Tournament we could do an additional calculation, Social Return on Investment.
For every $1 spent to stage the 2016 Homeless World Cup, $8.62 in social capital was created.
Plus, additional social capital is created by Homeless World Cup sponsors. For example, though its activation of its Homeless World Cup Tournament partnership, Tesco supermarkets created $662,00 in social capital. This was measured by the number of employees who volunteered to work with the Homeless World Cup participants while in Glasgow, how many are continuing in service as a volunteer in homeless shelters and food pantries. We also looked at store customers introduced to the issue of homelessness by Tesco and how their attitudes shifted.
Again, impressive and marvelous as these numbers appear, our design is set up to “err” on the side of understatement.
- We do not include indirect and longer-term effects, for instance, improved educational outcomes of participants and improved mental health of participant families.
- We do not include any outcome unless it has been verified by primary research.
A GOOD REVOLUTION
Professor Sinan Aral of the MIT Sloan School of Management has said, “Revolutions in science have often been preceded by revolutions in measurement.”
Now that we can quantify the relevance of social goods like health and wellness, cultural capital and STEM education in a way consumers, investors, employees, governments and all stakeholders understand, we can use market forces to engage companies and investors to create more investment in more good, creating even more social and economic value.
ProSocial Valuation responds to the increasing pressure from donors and investors for concrete measures of success and radical transparency.
It creates a new vocabulary for nonprofits, foundations, businesses and governments to engage with stakeholders around social good using economically valuable measures.
- Improves Outcomes. Learning from results enables clients to increase impact by funding what’s working and reallocating resources from programs that are falling short.
- Increases Staff, Volunteer & Influencer Recruitment. Demonstrating momentum towards achieving goals, creates trust and impact internally and externally.
- Accelerates Progress. PSV provides a common language and an opportunity for meaningful dialogue.
- Gives Credit where Credit Belongs. Supporters of social progress can now start getting credit for the good they are doing.
- Increases Funding for Good. The inability to provide decision-makers a holistic view of the good they are achieving has been the biggest obstacle to growing and scaling investments in this space. By mathematically translating a unit of social impact into a single universal currency, introducing transparency, predictability and accountability to the sector, removes risk and increases budgets for good.
- Links Support to Outcomes. Having a simple, comparable currency enables philanthropists, funders, sponsors, individual donors, governments and volunteers to deploy resources to the most effective initiatives, causes and movements rather than the bright and shiny objects.
By Lesa Ukman
FOR INFORMATION ON MEASURING THE SOCIAL CAPITAL CREATED BY YOUR PARTNERSHIPS, OR ON HOW TO CREATE PROGRAMS THAT BUILD SOCIAL CAPITAL, CONTACT LESA@LESAUKMAN.COM.