Social Enterprise

As CEO of Goodwill in central Indiana, I frequently described our overall objective in general terms as “maximizing mission-related impact while maintaining a financial position that’s good for the organization’s long term viability.”

Taking this approach has required us to define “impact” as well as possible. This has always been a work-in-progress, with improvements in definition and performance over time. Placing substantial importance on mission-related as well as financial metrics is a key feature of a social enterprise. And while “social enterprise” is a relatively recent term, Goodwill has always been one.

From its inception, Goodwill has used a commercial means (selling used goods in a competitive marketplace) to accomplish a social mission. The scope of that mission, originally to provide work for people with limited options, has broadened and now often encompasses other ways of enabling individuals and families to increase their economic self-sufficiency. Still, since its founding, Goodwill has earned and continues to earn the vast majority of its revenue from the sale of products and services. This is unusual for a community-based not-for-profit, and I have always viewed the way and the extent to which the organization blends business and mission as one of Goodwill’s most unique characteristics.

Until recently, it was often difficult for for-profit corporations to include social goals as primary objectives – especially if there was a desire to emphasize the social goals much as the financial goals. Now, however, new corporate options such as the benefit corporation make it possible to do so. Benefit corporations must balance financial and non-financial objectives when making decisions – much as Goodwill always has. Companies that want to go a step further can apply to become Certified B Corps, thus adding more rigor to measuring their social and environmental performance, as well as to monitoring their adherence to high standards in several other areas as well.

Along with the rise in benefit corporations is the notion of “impact investing.” Impact investors make investments in companies that are designed not only to make a profit, but also to achieve a well-defined, measurable social good. Some, though not all, impact investors are willing to take less than a market rate of return in order to help accomplish what they view as important social goals.

These and other innovations are attractive to a lot of millennials who, while interested in having successful careers, are also interested in helping make the world a better place. I’ve met quite a number of them on college campuses where, increasingly, students can take courses – often taught in business schools – on social entrepreneurship. I’ve also served as a judge in a major social venture competition and seen some of the ideas of some very bright young social entrepreneurs. They give me hope!

Benefit corporations, Certified B Corps, impact investing – all of these are new tools for addressing social problems. None represents the solution anymore than does the not-for-profit sector as presently constituted. But in the U.S., the inability of the not-for-profit and public sectors to substantially reduce a lot of major social problems in recent decades makes the addition of some new tools particularly welcome. Perhaps we can all learn from each other and, who knows, even leverage our respective assets and capabilities and come up with some new approaches that will be more effective in improving lives and strengthening communities.

Our Corporate Social Responsibility as an Employer

The organization I lead now has over 3,200 employees, two-thirds of whom have limited options because of a disability, criminal history, low education level, or other significant barrier. And while there are a lot of part time employees among those 3,200, nearly half of them are the primary source of income in their households. That places an enormous responsibility on those of us in leadership positions to run the organization really well so we can continue to provide a livelihood for all those people who are counting on us. And we don’t take that responsibility lightly.

What we do matters. If we’re not paying attention to what’s going on around us and we allow ourselves to be blindsided, it matters. If we become myopic, complacent, or arrogant; if we fail to take care of our customers; if we fail to recognize what our competition is doing or fail to see new competitors or new forms of competition that are emerging, it matters. If we don’t successfully adapt to changes in our environment – changes in technology, demographics, the legal or regulatory landscape, or the larger economy, it matters. Even worse, if we cut corners, act unethically or illegally, take actions that might benefit us in the short run, but that will eventually result in long term damage, it matters tremendously. How we go about our work matters just as much as the work itself. And all of these things matter to a lot of people who are likely to lose their jobs if those of us running the organization aren’t doing our jobs as well as we possibly can. And if we let that happen, we should and probably will lose our jobs, too.

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On the other hand, if we are paying attention to what’s going on around us; if we’re recognizing opportunities, trying new ways to grow our businesses and accomplish our mission; if we are operating according to high ethical standards; if we’re continuing to learn and adapt; if we’re being good stewards of our resources; and if we’re treating everyone with respect and providing the kind of workplace and culture that enables our people to grow, we’re likely to see our organization grow, evolve, and employ more people. Fortunately, that’s been our recent experience, as we’ve added over 1,000 jobs in central Indiana and increased our revenue by 55% in the last five years.

Of course, our experiences haven’t always been that positive, and no employer can guarantee that any job will last forever. Changes in our external environment are occurring at an incredible rate and require near constant adaptation. Along the way, some jobs disappear while others are created. Some people learn and adapt to changing circumstances and requirements, others don’t.

Our approach is to do the best job we can to grow the organization in a financially responsible manner while simultaneously increasing our mission-related impact. In addition, while recognizing that each of us is primarily responsible for continuing to learn all our lives, as an employer, we are often in a position to help our people learn and grow, improve their education, and earn credentials that enhance their future employment prospects. Then, if circumstances beyond the control of an individual result in the loss of a job, at least the person affected is likely to be better prepared for his/her next step than might have been the case otherwise.

In my opinion, when a company is operating in a manner that enhances the prospects it will be able to continue providing a livelihood for its employees, and when that company is doing all it can to help its employees learn and grow, it is exercising what might be considered its most important corporate social responsibility.

Coming full circle

January 19, 2015 was the 152nd anniversary of the birth of Edgar Helms, the founder of Goodwill. At the beginning of the 20th Century, he came up with an idea that included asking people to donate clothing and household items they no longer wanted. Helms wasn’t the first person to do that. But instead of just giving those goods to poor people, he put unemployed people to work collecting and repairing some of the goods, selling them to the public, and using the money to pay wages to the workers. He created jobs – a way for unemployed people to earn money, and the collection and sale of used goods was the means to that end. That basic idea still works over 100 years later and represents the financial backbone of our entire organization as well as a source of a lot of jobs – over 2,000 in central Indiana alone – for people who in many cases don’t have a lot of options.
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Helms believed that every human being has value, and he believed in giving people opportunities – a chance rather than charity – a hand up rather than a hand out. And those basic values are still just as important in Goodwill as they were over a hundred years ago.

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We do things differently today, to be sure. Over the course of our history, we’ve continued to learn and to adapt to the incredible changes that have taken place in the economy, demographics, technology, laws and regulations, competition, and American culture. I believe Helms would be amazed at how large Goodwill has become across this country. And I believe he would be particularly pleased to see how Goodwill in central Indiana has evolved – especially over the past decade – because of the way we are emphasizing whole person, often whole family approaches. Such approaches haven’t been all that common among Goodwills over the past half century. But that’s the approach Helms took in the early decades of Goodwill’s history. That first Goodwill, located in Boston, included a day nursery, a kindergarten, a fresh air camp and farm for city kids, a music school, and a night school that taught trades. Of course, they also offered employment services and jobs.

The other early Goodwills followed that lead and included a similar emphasis on helping families. For example, in the late 1930s, the small Goodwill organization in Indianapolis, working with other organizations in the community, offered a kindergarten, a prenatal clinic, a dental clinic for school children, a home-based health care program, a variety of classes for female heads of households, and a library with books mothers could borrow to read to their children.

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From my reading of the organization’s history, that approach began to change in the early 1940s as providing jobs became the primary or exclusive focus. For the next forty years, our principle role in the community could be paraphrased as helping people with various employment barriers prepare for, find, and keep jobs.

During the last decade, though, in response to some significant changes in our society and the inability of other approaches to solve a number of major social problems, we’re now moving back toward a much more whole person, often whole family approach much like that exhibited by Goodwills in the early part of the 20th Century. In a sense, we’re coming full circle.

Today, though, with current information and technology, along with other resources, we have the potential for much greater scale and lasting impact in the lives of people and the larger community.

From a personal standpoint, what we’re engaged in today is the most significant and exciting work in my 45-year career with Goodwill.

Optimizing

I describe Goodwill’s overall objective in general terms as “Maximizing mission-related impact while maintaining a financial position that enhances long term viability.” Of course, such a definition requires that we be able to define mission-related impact. And, despite the use of the word maximizing, the overall challenge is really one of optimizing.

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Many of our management challenges involve finding optimal solutions. For example, how much of our revenue should we spend on General and Administrative expenses (In the not-for-profit world, this is typically referred to as “overhead.”)? Some people believe not-for-profits should minimize G&A. In the long run, that is a recipe for ensuring less than optimal performance, as it results in inadequate value-added support of the high mission impact parts of the organization. Spend too much, though, and there could be legitimate questions about whether the organization is being a good steward of its resources. In this, as is in so many situations, one size does not fit all. Two very important factors in arriving at an optimal percentage are the size and complexity of the organization. In our large, very complex organization, somewhere around 10% of revenue seems to be close to optimal. While to some it might seem counterintuitive, a well-run smaller organization would likely have to spend a larger percentage of its revenue on G&A, as those expenses should not increase at the same rate as revenue.

Another example: One of Goodwill’s historic roles is to provide work for people whose options are limited by disability, criminal history, low education level, or other significant barrier. This is a very important part of our mission and one way we can add unique value in a community. Obviously, then, we want to provide as many jobs as possible for individuals who don’t have many options. However, because retail is the financial backbone of our entire organization, we must have a sufficient number of people with skills that enable us to be competitive and efficient. If we do not have enough people with barriers who have the necessary skills, we must hire others who can fill the gap. In recent years, filling approximately 2/3 of the jobs in donated goods/retail operations with people who have employment barriers has generally seemed to result in an optimal mix.

There’s another optimizing challenge embedded in that example, though, and that is the mix of full-time vs. part-time employees. We have quite a number of employees who for any of a variety of reasons are not able to work full time. However, if we have too few full-time employees, productivity can drop, and that will affect financial performance.

External factors can also have a powerful influence on optimization challenges. For example, the Affordable Care Act has resulted in a large increase in the number of employees who have signed up for coverage under our health plan. While we’re glad more of our employees now have health insurance, this has greatly increased our operating expenses – so much so that we might find it necessary to reprioritize and determine a new optimal mix of operations and services and/or full-time vs. part-time employees that will enable us to continue maximizing mission-related impact while maintaining a financial position that’s good for long term viability.

Nothing is static. Conditions are constantly changing, and we must constantly adapt or suffer the consequences. Optimization issues are always before us, and we’re always striving to find the best balance point – at least until something else changes.

On Character Development

In my September 2, 2014 post to this blog, I described how, over the past 20 or more years, my colleagues at Goodwill and I have been working to build a strong, dynamic, serving institution. Such institutions are vitally important to the development and ongoing improvement of a decent, stable society.

But, as emphasized by Richard Reeves in a wonderful essay, “The New Politics of Character,” in National Affairs, that’s not enough. Reeves states that “if we want a better, freer, fairer society, we will have to complement the 20th-century focus on strong institutions with a new (if also ancient) concern for strong individuals. The quality of our policies is a vital concern. But so is the quality of our people.”

According to Reeves, “The development of character is perhaps the central task of any civilized society and every individual within it…..Gaps in character development correlate to gaps in income, family functioning, education, and employment. The character gap fuels the opportunity gap, and vice versa.”

Lest we think there are simple solutions, though, Reeves provides a dose of reality. For example, he points out that, while rates of teen parenthood have declined, rates have proved stubbornly high among the least-educated, lowest-income groups. It may appear that poor teenagers who become parents are irrationally discounting the future and so failing to demonstrate the virtue of prudence. But there’s an important factor in the equation that we might not realize: “Teen pregnancy appears to have a limited impact on life chances for this group (poor teenagers) because their life chances were so truncated in the first place. Broadly speaking, they are not sacrificing opportunities for wealth and security in the long term for short-term pleasures; their opportunities for future pleasures are few, so as a matter of calculation it makes more sense to pursue the short-term pleasures than it would for a teen from a wealthier family.”

Reeves suggested approach? “The key insight for policymakers is that the task is not simply to teach prudence, but to improve the future prospects of these young adults so they have brighter possible futures to measure the present against…The opportunity agenda is a character agenda, and vice versa.”

Of course, without good role models, it is harder for a child to learn to defer gratification. There is also a growing body of evidence from neuroscientists showing “that growing up in a poor, stressful environment slows the development of the pre-frontal cortex, the part of the brain responsible for self-regulation.”

Reeves emphasizes, though, that “The most important influence on character development is not poverty – it is parenting. Good parenting – close, attentive, nurturing – can often compensate for material poverty.”

This is reassuring for those of us at Goodwill in central Indiana. We’ve now been implementing Nurse-Family Partnership for nearly three years, and well over 600 babies have been born to the moms who have enrolled. All of those moms want to do what’s best for their babies. But when our nurses first meet them, few know how to be good parents or to provide the kind of environment in the home that is conducive to the proper health and development of their children. That’s a lot of what our nurses emphasize during their 2-1/2 year relationship with these families. And that’s a big part of why NFP nationally has shown such remarkably strong results reducing the incidence of a lot of negative social indicators among children whose parents participated in NFP.

Of course, NFP is only part of a long term solution to a lot of major social problems. But thirty years of solid evidence illustrates why it should be scaled as much as possible. We intend to do our part.