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There is Good News and there are Challenges

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It appears that the ESG market is gaining increasing traction. So why is it so hard to create an investing model for investors to invest in early stage social enterprises?

Last week there was extremely good news around the growth of the Sustainable Investing universe. According to The Forum for Sustainable and Responsible Investment (“USSIF”), the size of this market grew by an astonishing 76% over the past two years. It now stands at over $6trillion. This represents one in every six investable dollars in the US. The reasons for the increase are twofold. First, investment managers are responding to investor demand. Second, ESG assets in many cases offer superior returns AND risk diversification. This makes investing in ESG assets an obvious choice for many.

The biggest area of growth is in what USSIF calls ESG Integration. This simply means that asset managers are now looking at Environmental, Social, and Governance factors both as negative and positive screens. The latter is a change from the past. If you look a little deeper into where investment dollars are going or not going, climate change and gun safety are the two most impacted areas.

While this is certainly good news, most of this investing is focused on publicly traded companies and as such, it still belies a relatively slow trajectory for growth in early stage investment capital for what I would call non-environmental issues. These “Impact Investments” are in areas including education, workforce development, and food security to name a few. It is estimated that the amount of money available for impact investment is only between $40-60billion. Keep in mind that Bain Capital alone manages over $85billion and that charitable giving in America totals over $250billion per year.

The question is why Impact Investing been slow to develop? What are the barriers to a more robust impact investing market? While there are many ranging to investor education, building infrastructure, and types of social ventures that can support impact investing, there are other issues that while less transparent, have a major influence on the pace of growth of the Impact Investing market.

In my conversations with potential investors and investees, there are at least five impediments to raising early stage capital for impact investments.

The first is that in order for many of these investments to work some kind of catalytic capital is required. In the for profit space this capital would typically come from entrepreneurs, friends and family, or angel investors. In the social space this capital can come in a number of forms. It could be donations to a 501 © 3 entity. Or for community housing, it could come in the form of the Community Reinvestment Act, which requires banks to meet needs in low and moderate- income communities. Loan guarantees from government agencies can also act as catalytic capital. Regardless of the form, catalytic capital is risk reducing, making it easier for other investors to get involved.

The issue is that there is far too little of this type of capital, especially donations to be used for non-program purposes. Foundations typically give money for program and not for capacity building leaving this role to high net worth individuals and corporates. Additionally, mixing of donations and investments can be confusing especially to the investee.

The second barrier is size of transactions. This applies to both investors and investees. Outside of the environmental space, deal sizes are small. Many social ventures are service businesses, which require relatively small amounts of capital. These small transactions are not typically interesting to larger funds that might decide to allocate a portion of their fund to impact investments if they could source an investment large enough to pay for the diligence required. Therefore these investments typically go to dedicated impact investing funds which to date have struggled to raise significant amounts of capital.

Exacerbating this challenge is the third barrier to growth. The impact investment market reminds me of structured credit in the mid 1990’s before CLO’s, CDO’s, and ABS deals became commonplace. Every transaction not only has its own specific entity risk but also has its own idiosyncratic documentation. This increases the risk as well as the resources needed to make an investment decision. Increased liquidity and the larger capital flows that come with it are at least partially dependent on standardization of instruments. Highly bespoke instruments will work for a given transaction but may act as a hinderance to broad market growth.

Take the example of Social Impact Bonds (“SIB’s”). This highly touted instrument for social investment is simply not scalable or replicable in its present form. It is simply too complicated for most investors to understand and each bond will be materially different. This increases fees to bankers and lawyers helping to make SIB’s the world’s most expensive bridge loan. That is not to say that the technology behind SIB’s is not useful. Its just that in order for SIB’s to be widely adapted, investors and investees will need to reach a compromise that allows for standardization of documentation. This will include, tenor, events of default and compliance, and most importantly metrics. Simply put, the perfect is the enemy of the good. This must change so investors can focus on the specific entity risk of an investment.

This leads us to the fourth barrier. Many leaders of social enterprises are not accustomed to or comfortable with the concept of taking investments. They have traditionally sought donations or grants to fund their mission. Many of these leaders are reticent to engage with “investors” out of concern of losing focus on the mission. To be fair, many social missions cannot support investing, as they do not have cash flows that can generate a return. On the other hand, many social enterprises would be enhanced by taking money from impact investors to grow to scale.

Perhaps the biggest issue with social enterprises is the need to present their businesses in a fashion that more traditional investors are accustomed to. What I mean by this is having an early focus on capacity building that allows for strong accounting and finance, business planning, marketing/development, and understandable metrics. I believe that this is where impact investors may be most useful. Many potential investors not only seek to invest their financial capital but their intellectual capital as well. Creating networks of investors/mentors is an important step in the growth of early stage impact investing.

Ahhh, those investors. Over the past couple of years I have had many conversations with individuals who might be impact investors. These individuals in all cases participate in both philanthropy and investing. They should like the idea of investing for social as well as financial gain. But for the most part they are skeptical at best. To quote a hedge fund manager that I spoke with, “When I want to do good, I’ll make a donation and when I want to invest, I’ll invest in a company that I understand”. I have heard similar comments from many other high net worth individuals whom are likely to be a significant portion of the impact investing space.

As I heard this answer again and again, I began to think about why people feel this way. My conclusion is that wealthy individuals, particularly those who made their money rather than inheriting it placed philanthropy and investing in very different realms. Philanthropy is about doing good but in many cases there is less rigor around donating than around investing. To be certain, this is in part due to the lack of or fuzziness of metrics in the social sector.

Investing on the other hand has one clear goal and one clear measuring stick It also has a not insignificant ego element attached to it. For many investors being successful in investing is not just about making money, it’s about being right! So while its fine to make a donation that doesn’t go well, it’s more than a financial problem if an investment, impact or otherwise isn’t successful.

It is this fact that keeps many potential investors on the sideline. They correctly see that measuring success in impact investing is more layered and complex. At present the measure of success is unclear.

The solution is a combination of marketing and metrics. We must do a better job of making clear what Impact Investing is, where it matters, and for what kind of social issues it works for. We also need to make the case that impact investments are part of a portfolio and investing in addition to donating can stretch the impact of money further. We must teach social entrepreneurs how to tell their story in a way that is compelling, consistent, and clear. Just like for profit entrepreneurs do it.

A couple of months back I was a panelist at the Alliance for Business Leadership’s session on Sustainable Investing. A member of the audience took me to task for claiming that all impact investing was concessionary in some way. He stated that we need to stop giving up the high ground. He is 100% right! The point I wanted to make is that if the FINANCIAL returns were the same as a traditional investment then is it really an impact investment?

The reality is that many impact investments produce greater returns than their non-impact comparable once you factor in ALL of the returns; financial, environmental, and social. Now all we need to do is create metrics that are clear, simple to understand, and comparable. If we want to attract investing capital to the social arena then we must find a way to simplify and standardize our method of communicating across the sector. The Global Impact Investing Network (“GIIN”) has gone a long way to creating metrics and disseminating the information. But still there are just too many metrics with too much information for the average investor to fathom.

I understand that highly specialized and specific information is valuable, and it must be available. I also am aware of the concern that may mission driven organizations have with being categorized and being encouraged or even pushed to engage in mission drift. I have two answers to that concern. First, as stated above, the more detailed information must be available both for investors and for the organization so that it can constantly measure its effectiveness. Secondly, it is the hope of many investors that comparative metrics will better allow everyone to put capital with the organizations that are having impact. Investors need ways of easily identifying successful social enterprises, ones that will have impact. After all, isn’t this the point of impact investing?

I welcome any and all responses, questions, and thoughts on this topic. We must find a better way.

 

 

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Everything but the Pizza

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Those of you who spend time with me and are aware of my obsession with London may be interested to read this entry. You might call this is just a slightly belated love letter to Boston‘s recently departed and beloved Mayor, Tom Menino.

I have spent the past couple of years trying to find my place in my adopted home of Boston. Now, I’m not going to bitch about the weather, which is obvious (the weather just plain sucks here) or the restaurants, which are amazingly mediocre for such an affluent, educated, and diverse city.

It’s just that I missed the incredible intellectual, ethnic, cultural, and gastronomic diversity of my former home. It was in London that I realized that New York may be the financial capital of the world, but it is far from the world’s greatest city.

Today I am here to say that with each passing day Boston becomes more and more of a fantastic place to live, a world city. The diversity here across many parameters continues to surprise me in a positive way. I am beginning to feel like I did in London. Not a day passes in which I don’t have multiple interesting conversations on a world of topics with well-informed, thoughtful people. Most of these conversations involve people with ideas of how to make the world a better place. This desire is found in both the private and public sector and is something I usually found missing in New York where it is always about the money.

Every day with I meet people from different disciplines, different countries, different races and religions. Most are drawn here by the fact that unlike many other places in America, Boston welcomes different types of people and ideas. We have yet to fall into the myopic, nativist dialog that has gripped much of America.

This diversity and the fact that it’s welcome here has been highlighted to me twice in the past month or so. On the first occasion, I was looking at an apartment that was for sale in Brighton, a part of Boston. When I arrived the place was packed with twenty prospective buyers more than half of who were of Asian origin. Why were they there? Well it was to purchase a residence for their children who may attend one of Boston’s diverse colleges, or to move here for a career, or as an investment in a city with strong and stable real estate values, or perhaps, like London, Boston is one of the few global landing zones for people who’s homes are in places that may not always be so safe. This is increasingly the case for people from many places.

The why doesn’t really matter. All of these people add to our intellectual capital, they add to our diversity, and they make Boston a more interesting place to live. Oh yeah, they sure help real estate valuations. That apartment I was looking at sold for 15% above the asking price that day!

The second example of this diversity came this week. I had the pleasure of attending Tech Stars, which is an annual event in which 12 of the best new innovators get to pitch their ideas to an audience of investors, media, and other innovators. Boston is riddled with these events, from Tech Stars, to Mass Challenge (which now has international spinoffs), to Social Innovation Forum, run by Root Cause for innovations for with social benefit.

We got to hear twelve pitches, eight of which came from innovators born outside of the United States. The innovators came from five of the seven continents. It was great to see that all of these innovators came to Boston to pursue their dreams. Their ideas, hard work, and just their presence enrich Boston in many ways.

But why Boston? Well we have the greatest concentration of top universities in the world. We have access to capital both here and through New York a mere 200 miles away. We have a government led by people like Tom Menino, Deval Patrick, and our Senators Ed Market and Elizabeth Warren, who all understand that the nurturing of intellectual capital IS Boston’s and Massachusetts’s advantage and we don’t care where it comes from as long as it comes here and stays here. 10% of area college students are local products. 30% of all Boston area college graduates make their home in the area!

Perhaps most importantly Boston has a very large number of seasoned individuals from a diverse group of disciplines. An amazing number of them not only are willing to fund, consult, and mentor to people with ideas, we actively seek to do so. This passion for paying it forward is not only altruistic,  it keeps us fresh and involved, and it sets Boston apart as an area where we don’t care who you are or where you come from, what we care about is what you bring to our community.

So after two years, I get it. Boston is a small but very special place. Now if I could just get a decent slice of pizza…….

Using Campaign Dollars to Support Democracy

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Given the results of this weeks mid-term elections I am re-blogging a post from earlier this year

The battle to restrict big-ticket campaign contributions seems to have been lost. Perhaps there is a way to put some of this money towards supporting our democracy

I am waiting for the phone to ring. I’m a supporter of the Democrats and as of Friday my money is needed. The inevitable entry of Scott Brown to the New Hampshire Senatorial race will significantly up the cost of the election. In fact, the number whispered to me was $30 million. In 2008, the winner, Senator Shaheen polled just over 350,000 votes. Assuming that most of the electorate has already decided, that $30 million will be spent swaying 30,000 voters.

We should have the donors just write checks to the undecided and eliminate the need for a campaign.

Our American concept of representative democracy is under threat.

There are two primary threats to our democracy. First is the way we finance campaigns. America is the only major democracy that allows substantial contributions directly to candidates and indirectly to Political Action Committees. We are living in a pay-to-play system dominated by the super-rich, large corporations, and labor unions. Private equity pioneer Tom Perkins recently stated in an interview seen on CNN Money, “But what I really think is, it should be like a corporation. You pay a million dollars in taxes, you get a million votes. How’s that?”

The second threat is declining voter participation. Participation levels are as low as 55 percent in Presidential elections, with much lower turnout in off-year elections. For example, in 2013’s special election to fill John Kerry’s Senate seat in Massachusetts, for example, just 25 percent of eligible voters voted.

This combined with the way we finance campaigns leaves a small group defining and selecting who governs us. This is a significant challenge to the preservation of our democracy, and indeed to the greatness of our nation.

I propose that we use one threat to solve the other. Instead of restricting campaign contributions, which would take a constitutional convention, let’s tax them and use the revenue to create a dedicated fund to educate voters and drive up voter participation rates. This tax should be in the 30-50 percent range on all money spent by anyone on political speech, including self-funded candidates. There would be no exceptions. This would help ensure a level playing field.

Before screaming about more taxes or the fact that this will violate the right to free speech, just think about the possible impact.

First, a tax may give pause to some donors. Too much money invades our political process from a small group of people. If a tax slows the flow, then all the better.

Second, tax revenue spent on voter participation would have the most effect on voters having different views than those of the high-dollar donors. According to the US Census Bureau, voter turnout for individuals earning over $150,000 is almost 75 percent. For those with incomes under $30,000 it’s 45 percent. Using political donation taxes to fund voter participation and education programs will help restore balance to our political process without restricting political speech.

The money raised by taxing political contributions, which would amount to billions of dollars during a Presidential election year, could be used in at least three ways:

First, I would fund the teaching of civics in all public schools. Amazingly this isn’t part of the regular curriculum in most schools. People need to know how our system works for them to want to be involved. The good news is that there are groups that provide civics education. These organizations are small and dependent on private largess. Tax revenue would facilitate a broader rollout.

When I was in school perhaps most important was learning about our process of government: the three branches of government; the division between state and federal responsibilities; and the essential fact that Americans lived in a representative democracy. This was and remains central to our belief that we are the greatest nation in the history of mankind,

Next, we could use the funds for non-partisan voter registration and get-out-the-vote efforts. Instead of having campaigns roust their perspective voters, there should be a bipartisan effort to get everyone to vote. Thanks to studies by behavioral scientists, we have much more effective and less expensive ways to get people to vote. This includes helping people plan their voting (where will you vote, when will you vote) through commitment devices and making individuals voting habits public, which levers individuals’ sense of social responsibility.

Finally, the dedicated tax revenue should be used to provide tax credits to those who vote. Give every voting age American a tax credit. This idea also comes from the field of behavioral science. Give voters enough tax incentive to take action, but not enough to be too costly, say $50. If people vote, they keep the credit. If they don’t, they lose the credit. We know that people dislike losing money more than they enjoy gaining the same amount of money. This should provide a strong incentive to the potential electorate.

Our democracy is suffering. My proposal is not a panacea to what ails America. However, if we can increase voter participation by even just 10 percent, funded from some of the more egregious campaign finance abuses, it would serve to offset some of the imbalances that have grown significantly in the past 30 years.

I am certain of one thing: if corporations and labor unions don’t like this proposal, then I am certain that I am on the right track.

Channeling the Founding Fathers

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Someone doesn’t want YOU to vote. Don’t let them steal YOUR vote!! Don’t let them steal YOUR voice!!!

Another election season approaches and the forces of voter suppression are out in full force. While there was good news today from North Carolina where the US Court of Appeals struck down two key provisions of that state’s “Voter Suppression” law, the forces seeking to restrict the ability to vote for all but White Christians are hard at work making certain that only certain types of people find it easy to express their constitutional right to vote.

Perhaps it is true that the Founding Fathers never intended anyone other than White, Christian, landowners to participate in our democracy. Of course, there is some evidence that we had moved forward from that including Women’s Suffrage (1920) and the Voting Rights Act (1965).

The Supreme Court’s striking down some of the provisions of the 1965 act has led to a spate of new laws purportedly aimed at curbing voter fraud. This is a case of the cure being worse than the disease, especially if you are a minority voter. More than 30 US States have attempted to implement some form of restrictive voter regulations.

While much of this is common knowledge, there is a much more insidious effort to suppress voter turnout. This is a concerted campaign of misinformation targeted at minorities, the poor, and college students. Now, I can’t prove that one party is responsible for this but the groups targeted do tend to vote a certain way.

College students have become a favorite target of voter misinformation. They vote largely Democratic, are new voters, and may be able to choose where they vote; either in the domicile of their parents homes or in the domicile of their college.

Certain political forces have undertaken to spread the word that if a student registers to vote in the domicile of their college, the will be subject to loss of financial aid. This is a big LIE!! Voter registration has nothing to do with financial aid. No federal loans and grants are tied to the state you vote in.

It’s just an attempt to scare college students into forfeiting their vote.

Now here’s why they lie. Take New Hampshire as an example. There is a US Senatorial election this year in New Hampshire. In the last Senate election, in 2010, 439,000 New Hampshire residents took the time to vote. In 2008, which was a presidential election year, 672,000 people voted in New Hampshire. That year Jean Shaheen a Democrat won election by 42,000 votes. For a small state New Hampshire has a lot of college students. Approximately, 80,000 to be exact. If we assume that these students vote 70% for the Democrats, then fully suppressing college students’ votes could reduce the Democratic plurality by 32,000 votes (56,000 D vs. 24,000 R). That’s huge in a state where there will be a close election with a relatively small number of votes cast.

The votes of college students in a state such as New Hampshire are incredibly valuable.

By the way, this isn’t just about New Hampshire. Voter suppression through legal as well as through coercive means is happening in EVERY state in the US.

So how do you get the facts and exercise YOUR right?

There are a few sites that are set up to make it easy to learn the facts and exercise your rights.

First, try Claim Your Vote, there you will find people that you know giving you the straight facts.

Then try Fair Elections, all the facts about your rights on a state by state basis are here.

Finally, check out Turbovote, everything from information, to easy registration, to reminders about voting are at this amazing site.

Someone out there wants to deprive you of your legal rights. Are you going to let them?

Only In America

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I know that I have been absent from my blog for quite some time. The summer has a way of keeping me from doing anything that resembles work. As we spend our last week in Cape Cod before returning to the reality of Boston, we have been been blessed by the best weather imaginable and a dearth of houseguests, finally.

Into this bliss comes the intrusion of yet another “Only in America” moment. This latest moment is the accidental killing of a weapons instructor by a nine year old girl firing an Uzi for fun. All this in the presence of her doting parents who were so proud of their daughter that they videotaped the whole thing. That’s the good news. Aside from the killing the bad news is the scarring of a child. I suspect that this child may have already had issues given the outstanding level of parental supervision.

No, I am not about to go on a rant about gun laws and the ridiculousness of giving private citizens the right to own and use military weapons. I have already discussed my views on this matter at length. The reality is that from a legal perspective, everyone from the innocent child, to the instructor, to the owners of Bullets and Burgers acted in a completely legal manner. These individuals acted within their legal rights as defined by legislatures and courts throughout our nation. While some of us may wish to quip about people in Nevada, the reality is that the parents of the child are from the Blue State of New Jersey. Also, according to Trip Advisor, Bullets and Burgers is the number one tourist attraction in Las Vegas. Apparently many people like to play with Uzis and grenade launchers.

Some have blamed the instructor for carelessness. While that may be the case, The instructor didn’t bring the child 2,500 miles to play with weapons of war.

My question is, what exactly led a nine year old to be holding and firing a military weapon with automatic firing capability? As the parent of two daughters of similar ages I have spent much of the past two days trying to imagine the process through which parents brought a nine year old to Las Vegas to play with an Uzi.

Perhaps this girl begged her parents to bring her. “I hear that Las Vegas is beautiful in August. there’s so much for kids to do and even though I’m not tall enough to go on the roller coaster at New York, New York, we can at least play with an Uzi or two. Thats so much better than going to the beach!” Unlikely.

Or perhaps these parents were just a couple of over-worked, under-vacationed parents (typical Americans) who wanted to go on their annual holiday to a place that they could drink, gamble, and work out some of their frustrations at the range with a grenade or two. What to do with the child? What the heck, bring her along. Nothing like some adult fun! Maybe.

Of course this child could have been the off spring of a couple of individuals who find themselves living in a country with a Black President, in a state with many Blacks, Latinos, Asians, etc. This child may have been the child of people who see government as the enemy and a need to “be prepared to defend their liberties”. Perhaps these parents felt a need to teach their child to be ready to protect what’s “her’s”. Hopefully this isn’t what happened but if I was asked to place a bet, it would be on this scenario. Sadly we see that the number of people with these beliefs seem to be on the rise. After all why did legal gun sales spike in the years following the election of Obama?

So we have a person dead for absolutely no reason. We have a nine year old permanently scarred by her killing of another human being. Of course, its possible that she was already damaged goods.

I know that everyone operated legally.

Can anyone tell me where the common sense is?

Can anyone tell me where the parenting is?

How Not to Run a Restaurant

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Having worked many years in the service sector, I have learned at least one thing. Your customers have options and you need to try really hard to make your business THEIR option!

As the wrap up of the HKS mid career year continues deep into its second month, an intimate group of 45 or so descended upon the Living Room in Boston the other night.

I have spent much of this year organizing dinners with my classmates. Its been a great way to get to know as many of them as possible. It’s also been a great way to get to know some of the better restaurants of my newly adopted hometown.

These dinners have run the gamut from four people at the best Japanese restaurant I’ve ever been to, to 35 people having BBQ and booze in large quantities in a basement. It’s been a great experience all around and each dinner was fun and easy to organize. That is until the other night.

With so many of my classmates staying in town post graduation we decided to have one last dinner. As of a week ago we had 50 people wanting to join. I wondered where could I make a booking for 50 on short notice. After a bit of research, I came upon the Living Room.

When I called I was greeted by a friendly and accommodating person. After about a minute I was informed that they indeed could accommodate 50. I should have questioned what kind of place could accommodate so many on such short notice but I was happy to have a place.

Then things got more and more difficult:

The next day I was told that we must use a prix fixe menu. No big deal thats normal for a large group

The following day they told me we needed to preselect our appetizers and our desserts.

The day after that we were told that we all had to have the same dessert.

The day before the dinner I was told that I had to guarantee the maximum amount, that i couldn’t add anyone that I hadn’t already confirmed and I was liable for the maximum number.

It seems that the manager, John wanted to be totally riskless with a group that was going to fill his restaurant on a Tuesday night. I balked and we came to something of a compromise.

The dinner was actually quite a success. The company was as always excellent. Great conversation and laughs. The food was pretty good even if some of us didn’t get exactly what we PRE ordered. The venue was kind of cool. The best part about it is that it has its own ATM.

Why was that the best part? Well, John had a bit of an issue with us paying with multiple credit cards. The story was that the “system” couldn’t handle it. Now we’ve had groups in excess of 30 at least five times and this has never been an issue. It usually involves me managing the process but heck everyone has a skill. After about 20 minutes of trying, John looked at me and said, “If I had known that you were going to try to pay with more than one credit card I would have refused the reservation.” He said this to someone who just spent $3,000 in his restaurant on a night that otherwise would have been virtually dead. We than began the pride of HKS Alumni to the ATM.

I can only wonder what he would have done if a party of 20 had walked in without a reservation!

Its a shame that I felt compelled to write this negative review about what was essentially a good meal at a reasonable price.

Moral of the story is that the Living Room needs a new manager.

PS: Kudos to Amy who was pleasant and helpful regardless of what her boss did or said.

 

School’s Out

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About five years ago, I was chatting with a friend of mine who was and is a tenured New York City public schools teacher. I asked her,” Have you ever worked with anyone who just wasn’t a very good teacher?” To my astonishment she replied, “No!”  Expressing my surprise I then told her that, “It must be amazing to work in a profession in which EVERYONE is good at their jobs. Heck, I worked in finance for 20 years and even at Goldman Sachs and JP Morgan, every year some people get terminated due to poor performance.” I am still waiting for her response to that comment.

This week California Superior Court judge Rolf M. Treu gave my friend and many of her fellow teachers an answer. Judge Rolf ruled in Vergara v. California that California laws governing teacher tenure were unconstitutional. Furthermore, he stated that the results of these laws were unconscionable and perhaps most importantly he drew a bright red line that connects tenure rules to discrimination against low income and minority students stating that the rules create an environment in which the weakest teachers migrate to the poorest schools. While this case is likely to be appealed, it is more likely to serve as a template to overturn tenure rules across America.

Before I extol this ruling, I feel the need to make two things “Perfectly Clear”. First I am the product of a union household. I strongly believe that labor MUST be organized to offset the power of large employers. This is especially true for wage negotiations. Secondly, I have the utmost respect for teachers. For the most part, they do an excellent job educating our children in a country where the role of education has grown and evolved in the past generation. Teachers are not just expected to teach reading and writing but in many cases they have to teach social skills and manage children who get little or no guidance at home. For a good teacher this is anything but a 9 to 3 job.

While the need for unions remains high, the reasons for tenure are no longer very clear.  During the McCarthy era people across many professions lost their jobs due to their beliefs. Since that time not only have Americans (well most Americans) become more tolerant but there has been significant legislation that prevents discrimination on the grounds of race or gender. These additional protections in many cases overlap with tenure, mitigating the need for the latter.

A couple of years ago I realized that my own views on teachers unions and on tenure in particular were evolving. I was no longer dogmatic in my support of both. Now, keep in mind that in many ways I am a typical union supporter. From New York, a Democrat/Liberal, and Jewish, people like me have been supporters of unions for generations. But something was wrong in this case. As evidenced by my conversation with my friend, there was a complete lack of acceptance of any fallibility on the part of teachers and their union.

So now, the tide is shifting and quickly. Many former supporters of teacher unions are no longer so. Even more challenging is many of these “flippers” are highly educated, wealthy, urban individuals, who won’t hesitate to spend their money and influence to force a change in the rules. The California case was financed by an organization called Students Matter which was in large part funded by Silicon Valley entrepreneur David Welsh. Many of his fellow entrepreneurs as well as Hedge Fund managers, Private Equity managers, and other successful individuals want improvement in education and see teacher quality along with length of instruction time as the most important levers to achieve that. In short there is now a developing but significant counterbalance to teacher unions power and influence.

Now, I don’t believe that the correct answer is to eliminate teacher tenure or teacher unions. What I do believe is that all parties need a common sense, procedural justice based set of rules that govern teacher hiring, promotion, compensation, and ultimately retention. If were are to have the education system that we ALL want, then we must have all participants involved in creating a process in which we hire, evaluate, and retain the best teachers that we can get.

It will be very important to have a balanced evaluation process that considers not only standardized test scores, but also on other measures including following years student performance. content design skills, and classroom evaluations. This should support a well defined set of rules that will let everyone know how to get promoted or terminated.

Almost every teacher I know is passionate about educating children.  I would think that good teachers would want to be surrounded by other individuals who are as committed and passionate as they are.

It is time for teachers to move their unions to act for change. Although the California ruling weakens the negotiating stance of teacher unions, it is likely that the legal environment will become more rather than less difficult. Acting now, teachers can lead the move to a set of standards that work for ALL constituents in our education system. Or, they can let the justice system make them individual contractors who have few rights and little security.

I don’t want that for my children.

My Two Cents on the Donald Sterling Turnover

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So aside from my annoyance on the amount of time spent on an old man reverting to form, I have a couple of thoughts on how to resolve the Donald Sterling situation.

For those of you who are not-Americans or are Americans who don’t have cable, internet, or electricity, America has spent the past five days talking about an 80 year old former personal injury lawyer who in private conversations with his 31 year old African-American/Hispanic mistress made racists comments about blacks.

The issues in the above paragraph are too many to mention. Sterling, for example is not divorced from his wife. No one seems fussed by that fact. How did the private conversation become public? Sterling has done this before. Oops.

My point is that while his behavior is clearly reprehensible, perhaps we should not be surprised considering the source.

I would like to focus on two elements of the proposed punishments sanctions. (Note: The NBA has just this minute banned Sterling from the NBA for life).

This ban is fine assuming that there was any element of due process. My guess is that if it is similar to bans in MLB (remember George Steinbrenner), Sterling will be able to retain ownership in the team but not be involved in operations.

I think it would have been much better to do two things:

Force Sterling to attend all remaining Clippers games both home and away. Have him sit at center court and announce him along with the players so everyone in the crowd gets a chance to express their view. Might be a bit uncomfortable.

Ultimately, suspending Sterling without forcing him to sell means little. I am pretty sure that the quick ban is due to the other owners reticence in having a real investigation that leads to a forced sale. Why? Once the precedence is set then this could be used against them. I wonder what Marc Cuban is thinking.

So how does this get forced. IMHO there is only one way. That is a Players Strike. Imagine if the players went on strike during the playoffs. Remember that they have been paid all of their salaries for this season, and that the playoffs are the payoff for the owners. Ticket and TV revenue all come NOW.

Imagine the pressure that a strike by the players, 78% of who are African-American would bring on the owners. It may be the only way to force the 3/4 of them required to vote to force Sterling to sell the Clippers.

There is no other way. A proposed fan strike would just cost fans their hard earned money. Advertisers will be back as soon as people stop talking about this which is about five days from now.

If the players go at playoff time then it all goes out the window. Maybe thats why the new NBA commissioner did what he did. Its a response but not the right one.