We talk a lot on this site about the balance between doing good and doing well. We love when major corporations use their influence to help people. We commend charities for hiring former industry leaders to help improve efficiency. We all seem to agree that the continued blending of the for-profit and the nonprofit space is a positive thing. Except for when it’s not.

In India, a fight is raging that brings a clash of these two worlds to the forefront. SKS Microfinance, an organization designed to grant small loans to villagers, has just gone public, raising $350 million through its IPO. It’s an interesting move, considering that SKS was originally a nonprofit (they switched the model in 2005). Moreover, depending on the IPO’s success, it’s a move that could trigger other microfinance organizations to do the same.

Since March of 2009, SKS has added more than 50 branches in order to keep up with demand for microfinance loans, which typically amount to less than $200 (an amount too small for larger, traditional banks to consider). According to SKS, the stock sale will help fuel the company’s rapid growth, which will enable them to help more people in need. And there’s certainly no shortage of those. According to the Associated Press, demand for these loans in 2008 exceeded supply by more than $47 billion dollars. Billion! With that sort of need, clearly no one would object to SKS attempting to raise money in order to lessen the gap.

Yeah, right.

The response to SKS’s IPO has been nothing short of scathing. Grameen Bank's Muhammed Yunus drew a comparison to loan sharking. “By offering an IPO,” he told the AP, “you are sending a message to the people buying the IPO there is an exciting chance of making money off poor people.” But, really, what does he know about the microfinance industry? He’s just the guy who won the Nobel Peace Prize for basically coming up with idea.

Obviously, Yunus has a point. While the IPO successfully raised needed funds, it made SKS ultimately accountable to its shareholders, rather than to the people it’s attempting to help. These shareholders, of course, will be looking for significant returns from the company. Theoretically, this could lead to SKS raising interest rates on its loans, avoiding making riskier loans, or otherwise enacting policies that run contrary to the spirit of microfinance in order to guarantee results for investors. Basically, to keep its shareholders happy, SKS may someday need to act like the sort of large bank it was originally designed to counter.

It should be noted that Yunus’ company, Grameen Bank, is in the same business as SKS. They’re, at least in some way, competitors. And while Grameen’s 18.5 percent interest is well below SKS’ rate of roughly 28 percent, they’re both far less than the 36-72 percent charged by village moneylenders. One major difference between the companies, however, is that the borrowers themselves own well over 90 percent of Grameen’s equity, while the vast majority of SKS was, even before the IPO, held by private capital.

While that sounds a bit damning, it’s that infusion of private capital that has helped fuel SKS’ expansion and allowed the company to grow exponentially faster than Grameen—something that has, its supporters say, enabled them to make more loans and, in turn, help more people. It’s a pretty logical argument when you consider that SKS now serves more than 90,000 villages. Couple that with the fact that the company now employs more than 21,000 people at wages comparable to commercial banks and you can easily make the case that they’re also helping bolster the country’s economy through job creation.

According to Yunus, SKS is headed in the wrong direction. But it also seems like they’re doing a bunch of good. You can see where this gets confusing. Take into account the additional controversies surrounding the IPO and it’s hard to know just what to think. There are persuasive arguments for and against. It’s a fascinating debate that’s sure to help shape the future of the microfinance industry. You might say that SKS is merely making money off poor people. On the other hand, if everyone’s making money off of poor people, you might say that SKS is just doing it better.

 

It’s an intriguing question, the answer to which entirely depends on what you mean by “reinvented.” The easiest way to address the issue is nutritionally. If you’re reading this, you likely own at least one Michael Pollan book. You know who Dan Barber is. You probably saw Super Size Me or Food Inc, and you've hopefully read Fast Food Nation. Heck, you might have considered starting a rooftop garden or a farm like Jerri did. All this is to say, many people are now clearly taking an interest in where their food comes from. Ten years ago, I didn’t know a single vegan. Now, I can’t leave the apartment without tripping over a gluten-free locavore.

Of course, that might not have been what Jerri meant. Maybe she wanted to know about the people who are creating innovative dining experiences. Perhaps I should have referred her to Wylie Dufresne, or Graham Elliot, or Grant Achatz, or any of the other folks involved in fusing chemistry and culinary arts. However interesting as that all is, the more I thought about it, I became certain that the real issue that needs reinventing is the disparity between us—the people eating the food—and the people making it.

Despite the recent Top Chef-fueled romanticism surrounding cooking, the truth of the profession is, for many if not most, it's lousy pay for long hours (often with no insurance). By and large, you don’t make good money unless you’re a name brand chef, despite the fact that many of those individuals aren’t really doing any of the actual cooking. Granted, it’s a common model that spans a variety of industries. If you’re going to a premier law firm, chances are that an associate is working on your case rather than a partner. The difference between the industries, however, is that the law firm associate is still pulling down $160K.

While there have been some attempts to document what chefs make, the numbers tend to be a bit misleading. I’d contend that a $30K salary in the cooking trade isn’t really worth $30k, when you consider that most cooks are working significantly more than your standard 40-hour weeks.

At the end of the day, the person who cooked your meal is probably making less than your server, which, frankly, is insane. I waited tables for years and I’ll be the first to admit that, challenging as that profession may be, it’s got nothing on being a line cook. Nonetheless, the fact remains: If you’re eating in a half-decent restaurant, many of the people making your dinner could never afford to dine there themselves.

So, how do we fix it?

One of the chefs I mentioned, Grantz Achatz, might have a way, by virtue of a new, innovative reservations system. For his upcoming restaurant, Next, Achatz will sell tickets in advance, the price for which will include all food, drink, and service. As this New York Times article explains, by having the money up front and predetermined, Achatz will remove uncertainty from the equation, freeing him to divvy the money as he pleases. The Times posits that he “could pay cooks more than members of the wait staff, a reversal of the usual pecking order that could allow him to recruit shining kitchen talent.” And while I doubt that a chef of Achatz’ caliber has any trouble finding qualified applicants, the idea remains nonetheless intriguing.

Even if Achatz does decide to flip the pay hierarchy in his new restaurant, that’s clearly a special case. While he’ll basically be selling tickets to culinary events, most restaurants run like, well, restaurants, with tipping and menus and variable costs. So, I ask again, how do we fix this? Do you have a way to save the restaurant industry? Any ideas on how to make the lowliest cook not quite so low? Post your thoughts in the comments.

In the meanwhile, the next time you have a mind-blowing meal, instead of throwing an extra five percent onto your tip, buy the kitchen a round of drinks. God knows they deserve it.
 
Photo (cc) by Flickr user Neutronboy

Take a look at the top charitable donors from last year. One thing that stands out is the number of people who work in financial services. A hedge fund guy here, a private equity dude there—the list is littered with them, and they’re doing some serious donating. Here are a few random entries, with their corresponding ranks, professions, donation amounts, and causes:

Stanley F. and Fiona B. Druckenmiller – $705 million, ranked #1

He founded Duquesne Capital Management, she’s a former portfolio manager, and the two of them are looking to fuel major advances in neuroscience. We all have causes that are important to us. Not many of us can write a $100 million check to NYU to build an institute to study them. Oh, and for good measure, in 2006 they gave $25 million to the Harlem Children’s Zone.

George Soros – $150 million, ranked #6

Known as “The Man Who Broke the Bank of England,” Soros made $1 billion during the 1992 U.K. currency crisis. Now, he’s putting some of it to good use. Last year, he donated $100 million to establish the climate-change advocacy organization Fund for Policy Reform. In response to the financial crisis, he’s given $50 million to create the Institute for New Economic Thinking, declaring, “The entire edifice of global financial markets has been erected on the false premise that markets can be left to their own devices. We must find a new paradigm and rebuild from the ground up.” In case that wasn’t enough, the guy also played a major role in helping to shift Hungary from communism to capitalism.

Paul Allen – $85 million, ranked #11

You might know him as the guy who helped found Microsoft. What you might not have known is that he also founded Vulcan, an investment firm. Among his many causes are neuroscience and genomics research, arts and culture programs, social-service organizations, teacher-skills advancement, a food bank, a low-income credit union, and a literacy program in Native American tribal areas. In short, the guy’s spreading it around.

More than a third of the top 60 donors were in some way related to the finance industry, accounting for somewhere in the neighborhood of $2.5 billion worth of donations. I know it’s hard to like a banker, but are we supposed to pretend that that level of money doesn’t make a significant difference? You know that super-inspirational start-up you’re telling all your friends about? They’d kill to have one of these folks invest. We’re talking about real money for real change.

This is the modern day “captains of industry” vs. “robber barons” debate. It used to be Carnegie; now it’s Bloomberg. I’m not going to minimize the damage caused by the financial services industry. I just don’t want us to necessarily ignore the other side of things. Did you go to school on any kind of scholarship? Thank a rich person. Been to a nice museum lately? You’re welcome, says Uncle Pennybags. Hoping to eradicate some terrible disease? Chances are, so is someone you’ve never heard of whose fortune could fund the cure.

No, simply writing a check doesn’t make you a great philanthropist. Except, actually, I’m pretty sure it does. Most of the causes out there don’t need your petitions or your joie de vivre anywhere near as much as they need money. So as much as we need young, entrepreneurial visionaries to create social organizations, we need deep pockets to fund them. And these are the people with that kind of cash.

Yes, I know they’re often motivated by a tax break. And no, I don’t contend that a few good eggs redeem an entire industry. I’m just saying that maybe, just maybe, not every single person who sports penny loafers deserves to be burned at the stake (unless it’s just because they’re wearing penny loafers, in which case I’m all for it).

I’ve talked a lot about venture capitalists in this space, and it's no wonder why: They play an incredibly important role in helping entrepreneurs raise money. They take huge risks on nascent ideas in the hopes of transforming them into future-shaping realities (and capturing the returns from doing so). However, with a new tax proposal, the VC industry might be in store for a major shake up.

Many VCs make their money through a structure similar to that of hedge funds—what’s called “two and twenty.” They get a 2 percent management fee and 20 percent of the profit on investments (though the exact percentages vary by VC). This latter portion, sometimes called the "carry," is the subject of the current tax debate. 

As it stands, a VC’s carry is taxed as a capital gain. Many, however, think these funds should be taxed as ordinary income, which would shift the tax incurred by the VC from 15 percent to as high as 35 percent. Not surprisingly, there was a heavy lobbying effort against this change (largely from hedge funds and private equity firms, who would also be affected). As it stands, a plan has passed through the House that would tax two-thirds of the carry as regular income (see this New York Times article for more information).

While I expected most VCs to be up in arms about the prospect of losing a substantial chunk of their profits (and trust me, they are), I was surprised to see that Fred Wilson and Chris Dixon—two very respected venture capitalists—were on board with the idea.

Wilson brings up a number of interesting points. In his initial post, he explains that the carry should clearly be charged as ordinary income because it is gained through investing other people’s money. More recently, he’s gone on to contend that because fund managers would be taxed at a lower rate on their own investments, the new law might lead to VCs having more skin in the game, which he feels will drive better performance.

Interestingly, Wilson also makes a bit of a moral argument, stating, “If Congress is successful in taxing carried interest as ordinary income, it will massively increase the amount of taxes I pay. So be it. Someone has to pay the taxes to keep our troops equipped, our borders secured, our schools modernized, and our children healthy. It might as well be me and my wife.”

Dixon echoes this idea with his post on the subject, claiming that it “comes down to basic fairness.” He contends, “A fireman who runs into a burning buildings shouldn’t pay a higher tax rate than a financier sunbathing on a yacht eating $400 crabs.”

Knewton CEO Jose Ferreira takes the other side of the debate, positing, “It is intellectually dishonest to lump venture investors with hedge fund and buy-out investors.” The way Ferreira sees it, venture investors help develop start-ups, which fuel innovation and create jobs. In fact, he goes as far as to say that he’d “grant additional tax breaks and subsidies to the VC industry.” This, he states, would help spread innovation beyond the current VC hubs of Silicon Valley, New York, Washington, D.C., and Boston.

So, why should we care? Let’s face it: It’s easy for most of us to blindly support taxing a bunch of absurdly rich guys. But it’s not quite that simple. First, these aren’t the people who tanked the economy with deceptive trading practices. VCs are the folks who can most readily fuel the next world-changing idea (even, perhaps, your world-changing idea). This altered tax structure will have a tremendous effect on their business.

A quick scenario: If the new tax is enacted, the common logic is that VCs won’t eat the added cost; they’ll simply pass it along to their investors. Theoretically, this will cause fewer people to gamble on the VC game due to the increased cost, thereby leading to the shuttering of less-proven VC shops, which means that fewer ideas get funded. If you’re hoping to start a company, what sounds like an obscure issue suddenly hits home in a few quick steps.

So what’s your take? As Fred Wilson admits, VCs “are among the most highly compensated people in the world.” Do they have a moral responsibility to accept the higher tax load? Or will the increased hurdle only end up making it harder for good ideas to find the funding they need? Should VCs be granted an exception from the tax hike? It’s not a cut and dry question, to be sure. But as people who care about building the companies that define the future, it’s one about which we need to have an opinion.
 

In the last few years, doing good and helping others has become fashionable with companies clamoring to get on the do-gooding bandwagon. One of the more interesting efforts is the buy-one, give-one model, a concept most associated with TOMS shoes but which is quickly gaining additional corporate followers. And while it's certainly hard to criticize any of these companies’ efforts, I can’t help but wonder if we might be overcelebrating.

I really dig this pair of TOMS, and if I didn't have perfect eyesight, it wouldn't take much to talk me into any of these gorgeous Warby Parker frames. Not only would buying each of these products get me some snazzy new gear, I’d also be providing one of each to someone in need.

This all sounds great, but upon further examination, I’m honestly not so sure. It seems to me that $160 (the cost of the two items) spent another way could do far more good than some shoes and a pair of specs. For instance, other organizations dedicated to providing glasses to the developing world have managed to drop the cost as low as $19 a pair. The $95 you’d use to buy a pair from Warby Parker could send more than four pairs to the developing world. Which leads me to this question: In supporting brands like TOMS, are we really trying to do good? Or are we just buying stuff that comes with a case of the warm-and-fuzzies?

In talking to some friends about this, many expressed the viewpoint that doing good isn’t the primary motivation for buying from these companies; instead, it’s a bonus. They contend that the people who buy these products wouldn’t be inclined to simply donate the amount, so they need to be given something in return. I’m not sure I agree. The people who support brands like TOMS are, on the whole, the same people who read this site—socially conscious individuals who want to do their part to make the world a better place to live in. Aren’t these precisely the people who would be most likely to donate?

Of course, there are other, more complex layers to this debate. As Carolina Vallejo has asked with her Design for the First World project: Who the heck are we to decide what other people need most? I’m not saying that shoes or glasses aren’t of value to any particular group of people. But are they more valuable than a new school, or clean water, or livestock, or pharmaceuticals? The truth is, I don’t know. And while I think that TOMS's Blake Mycoskie and those like him are doing fantastic things, I worry that someone who buys a pair of TOMS will consider their job done. They’ll feel good about their $50 shoe purchase, knowing they’ve just given a pair to a child in need when a donation of half that amount could have possibly helped that child in substantially more impactful ways.

The questions don’t stop there with buy-one, give-one products, either. Are these products environmentally friendly? Are they biodegradable? What’s the footprint of the manufacturing process? Who makes them and under what conditions? Are we somehow doing harm in one area in order to do good somewhere else? In short: What’s the net-net of my fancy new glasses?

Please don’t get me wrong: I applaud the efforts of these companies in adding a humanitarian component to their business. I, myself, am the proud owner of a pair of TOMS. I’m just saying that as with most things, the buy-one, give-one phenomenon isn’t quite as simple as it seems on the surface.

The logical stance is that doing some good is better than doing nothing. I’m just wondering how much good we’re actually doing. I’m curious, for those of you who have bought any buy-one, give-one products: Was the company’s mission your motivation or simply an added bonus? Did you consider donating to a cause instead of—or in addition to—your purchase? What’s your take on these sorts of organizations? I’m not sure there’s a right answer here, but I think the questions are at least worth asking. It might be the only way to find out if we’re really doing good, or if we’re just trying to make ourselves feel like we are.
 

By now, we’ve heard just about everything there is to hear about the BP Deepwater Horizon oil spill. We’ve listened to corporate representatives, regulatory agencies, and Washington pass the buck. We’ve been bombarded with information, some true (it’s the most expensive oil spill in history) and some not (it is not the largest spill ever). We’ve seen the heartbreaking photos. However, out of all of this, what surprises me most isn’t the disaster itself, it’s BP’s amazingly poor public response.

From its plans to distribute dividends and its CEO's bizarre comments to its stilted attempts at apologies, BP's responses have disappointed many. Even now, its website boasts that its acts towards rehabilitating the region are "over and above BP's obligations under the Oil Pollution Act of 1990." Defensive much? Here's a tip: In times of crisis—and in the face of an environmental catastrophe—the last thing people want to hear is "we're already doing more than we have to." It's simply stunning to me that the company that once pulled off one of the best rebrandings in recent memory is now tripping over itself so hopelessly. So, I’m going to help. Here’s the press release they should have written: 

FOR IMMEDIATE RELEASE:
BP Response to the Deepwater Horizon Oil Spill
June 14, 2010

We screwed up. Tremendously. It was our rig, it was our operation, and now, in the face of this disaster, it is our fault and our responsibility to fix it. And while we cannot undo the damage that has already been done, we can devote ourselves to how we manage the crisis, and how we plan on restoring the Gulf Coast.

We would like to take a moment to respond to recent events, to attempt to clear up some misnomers, and to inform you about the efforts we’ll be undertaking moving forward.  

First, much has been made of CEO Tony Hayward’s recent remarks. His comments were insensitive, misguided, and for them we apologize. We cannot say strongly enough that these statements do not in any way reflect the opinions of BP. Yes, of course, we do “want our lives back.” But so do the good people of the Gulf and so, too, do the innumerable species of sea life who quite literally might be losing theirs.

The public response to the spill has been passionate, deafening, and deserved. In many of the affected regions, demonstrations against BP have occurred. There is a natural inclination to boycott BP stations. While we certainly understand this sentiment, we urge you to take a different course of action. The people these acts hurt most are the men and women who own and work at your BP stations. They deserve better. They played no part in this disaster and to make them suffer only further damages communities that are already feeling too much hardship as a result of the spill.

You may feel the need to do something, to put your anger to some good use. We suggest directing your energy towards writing or calling your congressperson and pushing for more adequate regulation for our industry. While we have failed you, so has our regulatory body, the Minerals Management Service (MMS).

The simple truth is this: In regards to drilling, there’s very little difference between oil companies. This could have just as easily happened to any of our competitors. We are all out there, racing to find new sources of oil. And in the absence of true regulation, it becomes far too easy for any of us to allow the spirit of discovery to usurp the prudent contemplation of “what if.”

It should be said that this is not an attempt to skirt accountability. Over the past weeks, you’ve no doubt witnessed the game of hot-potato between BP, the MMS, and countless politicians, each attempting to evade responsibility. That ends now. We cannot pass the blame any longer; we need to share it. It is all of our faults. We need stronger regulation, we need it now, and it will take all of our collective efforts to keep anything like this from happening again—with any oil company.

Unfortunately, accepting fault changes nothing. The disaster rages on. We are working tirelessly to both stop the leak and clean the spill. However, if we have learned anything, it is that despite the fact that BP has some of the world’s most highly trained engineers and technicians, we do not have all the answers. Therefore, we encourage anyone with innovative answers to the problems we now face to step forward. If you have something to say, we’re listening.

Finally, whatever it costs to clean the water, to replenish the sea life, to study the effects, and to revitalize the industry—we will pay it. If there is a solution worth trying, we will fund it. It is an answer that our shareholders might not like, but it is the right answer. We believe that the only way to truly do right by our investors is to restore the public trust. And the only way to do that is to spare no expense in restoring the Gulf Coast.

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