Student experience: The last Development Management Workshop invited Stephan Chambers, inaugural director of the Marshall Institute and Professor in Practice at the Department of Management at LSE, to speak about the challenges faced in philanthropy and social entrepreneurship. 

Stephan Chambers talking at the Development Management Workshop

For the term’s final workshop Mr. Stephan Chambers came to discuss philanthropy and social entrepreneurship, issues are of crucial importance at a time in which worldwide philanthropic capital amounts to US$1tn, and in which philanthropic organisations such as the Bill and Melinda Gates Foundation or the Open Society Foundations are some of the most influential actors in the field of international development.

Mr. Chambers heads the LSE’s Marshall Institute’s whose activities rest on the two key pillars of research and teaching. The former being concentrated primarily in behavioural economics and relying on research methods such as randomised controlled trials (RCTs), while the latter is more focused on providing an “antidote to the MBA”, i.e. challenging some of the orthodoxies that currently dominate in business schools. Our guest speaker in particular criticised the idea of “shareholder primacy” or “shareholder value” (students interested in a critical discussion of the concept’s history and effects may also be interested in this article by Lynn Stout, Professor of Corporate and Business Law at Cornell Law School). Emphasising that businesses do harm that is not captured in the price of their share nor of their product, Mr. Chambers advocated the building of a broad movement committed to notions of equity and social justice that changes our way of thinking about how businesses should operate and how to deal with negative externalities generated by economic activity.

Before addressing some of the pressing issues in philanthropy and social entrepreneurship, Stephan Chambers first sought to establish conceptual clarity. Along the lines of Howard Stevenson, he defined entrepreneurship as “the relentless pursuit of opportunity without regard for the assets under your control”, meaning the drive to transform an immaterial idea into reality without the means to do so. Social entrepreneurship operates along similar lines, except that opportunity is not defined as profit but as correcting market failures or addressing other unjust equilibria. Finally, philanthropy was defined simply as the giving of money or time for public benefit.

Mr. Chambers pointed out a number of problematic issues in contemporary philanthropy beginning with its controversial tax status. Calling it a “tax-sheltered” way of giving money, he questioned the fundamental assumption that underlies the tax breaks governments give to taxpayers in exchange for their donations: that the money going into philanthropy does the same amount of good (or more) than the state would have done with it. Foundations, defined as aggregations of capital that is invested and the return of which is spent for public benefit, are often extremely opaque in their structure and way of operating. They also face quite lax requirements with respect to minimum spending on mission activities (in the US only 5% of their returns must be spent on the goals of the foundation).

Equally controversial is the absolute separation between invested capital and the foundation’s mission, which allows for capital to be invested however the foundation pleases, even if it is in direct contradiction to its mission. Foundations can therefore fund projects with returns from investments in companies accused of contributing to the ill the foundation tries to address in the first place (before divesting from fossil fuels, the Bill and Melinda Gates Foundation for instance had long spent money on health and other development projects in the heavily oil-polluted Niger delta all the while being a major shareholder of petroleum companies). However, the shift to “mission-aligned investing” is slowly happening.

Foundations have also been increasingly preoccupied with challenges to the legitimacy and impact of their charitable work. Despite laudable efforts to make philanthropy more evidence-based and rigorous, Mr. Chambers found that some in the sector still expected to be excused for inefficient execution due to their noble motivations. Furthermore, the people for whom the money is being spent typically still lack a voice in the process. Our speaker was therefore concerned with what he considered to be the negative consequences of a “solutionist” Silicon Valley investor mentality in contemporary philanthropy, sometimes also called “venture philanthropy”. Above all he believed it to fuel the illusion that even the biggest problems can be fixed simply through some new devices, and that actors in rich countries always know what works best for people in developing countries.

Mr. Chambers used the case of the “PlayPump” as an example of the consequences of such an approach. The idea of a water pump powered by a roundabout for children was considered to be “genius” by numerous actors in developed countries. But in practice it turned out that the effort required to operate the pumps was very high, that this then blurred the line between children playing and working, that older women could not operate it, or that it did not recognise the fact that local water problems may not be caused by insufficient pumping capacity (more on this case here and here).

In the discussion with students the question of the potential role corporate social responsibility (CSR) could play in bringing about positive change arose. Mr. Chambers adopted a strongly sceptical stance calling CSR at best a “banal fig leaf”, and at worst a “deeply cynical way of distracting from the negative externalities” generated by firms. He argued that if CSR activities were to be anonymised, most would cease immediately and therefore called for a dismantling of CSR.

But students wondered how then human, social and environmental impact of businesses could be directly integrated into the core business activities. Acknowledging that this was a crucial but extremely complex issue, Mr. Chambers thought that correct pricing, if necessary through regulation and taxation, was perhaps the most promising approach. If regulations and taxation priorities were organised in such a manner that the price of products consumer purchase would reflect their real impact, then this could alter existing incentives. Implementing such measures requires concerted efforts, above all from governments, but  Mr. Chambers also explicitly stated his support for projects such as the “B Corporations”, which aims to certify companies based on their social and environmental performance.

This article was written by a student who wishes to remain anonymous.

The views expressed in this post are those of the author and in no way reflect those of the International Development LSE blog or the London School of Economics and Political Science.