Impact Investing 2.0 and the Rise of Multilingual Teams: An Interview with Jed Emerson

By Marta Maretich, Chief Writer, Maximpact.com  

Maximpact: At SOCAP13 you took turns with Cathy Clark, ofCASE and Ben Thornley, of Pacific Community Ventures,  to introduce different findings of your joint Impact Investing 2.0 report. You presented the part about “multilingual teams”.Why are multilingual teams so important to impact investing funds and why are they so interesting to you?

Jed Emerson: This is a really critical issue, first because all organizations need leaders and I think that there have been profound changes to the concept of leadership in the last ten to 15 years. In someways the Impact Investing 2.0 research is one more step forward in that progression and in other ways it’s a new way to think about leading impact organizations.

Maximpact: In Impact Investing, your seminal book with Anthony Bugg-Levine, you write about the need for a move from charismatic to collaborative leadership. Do you see evidence in this report that an evolution is taking place in fund leadership?

Jed Emerson: I think it’s clearly taking place! It’s interesting, because in 2000, when I published my first working paper on blended value during a faculty appointment at Harvard Business School, I talked about “mutant managers”. At the time I said we need these oddly genetically modified people that could play both/and rather than either/or in social investing. 

The term “multilingual leaders” is probably a more accurate way to describe what these new kinds of leaders do—cutting across silos to draw connections between business and the social/development finance sectors.

For me this term holds special meaning because in some ways that’s the background I come out of. I started my career in social work and youth work and morphed from that into venture philanthropy, community development, sustainable private equity and then on into the areas I’m active in now, in impact investing. In an important sense, this is a very personal kind of observation for me.

Part of this insight was formed simply from watching the sector develop over time. I’ve spent the last 20 years observing both the field and its practitioners emerge into this “new” space. It’s been striking to see the finance-first people, who’ve come into the conversation with traditional banking and investment skills, needing to get up to speed with the social element of impact investing. Meanwhile, you see people coming out of the more traditional development backgrounds who are really sucking up the skill setsaround investing and finance while recognizing that if your ventures are not sustainable on financial terms they won’t be sustainable in impact terms.

Whether you’re giving your profit to shareholders and investors or using it to build community equity, if you don’t know how to play this type of dual game you won’t be effective.

As we were going through the two-year process of first identifying the 12 funds we wanted to profile and then beginning the deep dive analysis and case study work, we did multiple interviews with investors and managers making use of the various products and strategies these funds were bringing to market. It was really interesting to see our research team as a whole realizing this issue of leadership was central to the success of the funds we looked at.

I was surprised myself because I think the focus of a lot of the discussions around impact investing in the last five to ten years has been “we need to improve our skill set around financial structuring”, or “we need people who have done deals who know how to invest”. We’ve heard a lot of this kind of rhetoric.

However, what we found during the course of the research was, no, in fact what funds need are more people who can play in the muddy middle, first, without losing track of the financial discipline that one needs and, second, without losing the focus on impact, which is the reason we’re applying those financial skills to begin with.

The research process reminded us what a lot of us already knew: that funds need both financialand impact discipline to be successful. On the other hand our research has shed new light on the idea of multilingual leadership. For us, at the level of fund investment teams, this means a kind of leadership that includes various individuals that speak the language of various parts of the practice.  The funds that have performed most effectively are those that have teams and individuals who can really play across perspectives and silos rather than coming in as representatives of a particular, individual perspective or silo.

Maximpact: Can you say more about how it works? Who is on the multilingual management dream team?

Jed Emerson: We speak of it as themes rather than directives in the report because in each case the constellation and makeup of the teams is different. Yet, at the end of the day, all of them reflect this multilingual orientation.

For example, you may have a fund with a leader who has more expertise on one side or the other but who has the ability to understand all the perspectives and the language of all the different silos he or she is drawing upon. The leadership team might be made up of individuals who are each fully multilingual, or be comprised of folks who come into the conversation with a deeper expertise in one or the other silos. 

The important thing is that all team members have an understanding of the humility with which multilingual leadership comes forward. By that I mean an awareness of the fact that, though you may be really great in your area, you won’t be successful unless you’re able to take your expertise and marry it with that of the other experts in your team in an effective way. As individuals, it means seeing your own “blind spots” and working to establish a wider vision of where you yourself need to develop new skills and leadership language.

In the context of the funds we’re seeing, yes, there are individuals who are outstanding in terms of their work and expertise and skill set. But the success of the fund is a function of teamwork and integrated perspective and practice. It’s not the success of an individual, not the triumph of the charismatic leader. The charismatic leader may be able to hold the torch, but the light is shed by the team as a whole.

Maximpact: What are the core skills needed on a fund management team?

Jed Emerson: On the one hand, there are skills around being able to maintain financial discipline: analyzing deals, understanding the marketplace in which the deal will function, looking at various investors’ perspectives on value creation in a possible deal. It’s having the skills needed in order to be a successful financial investor.

At the same time the management team needs to understand the impact context in which the investment will play out. For example, if your impact goal is job creation but you’re creating lousy jobs, then that’s not a successful strategy.

That financial discipline has to be complemented fully by an understanding of context and social opportunity. If you have both those things, you can then translate that social opportunity into financial metrics. In this way the impact investment process looks more like a DNA strand than a double bottom line. From this we derived the schematic for the Mission First and Last section of the report.

Maximpact: Does multilingual leadership reflect the multi-stakeholder nature of impact investing?

Jed Emerson: Definitely! It speaks to the idea that when you’re investing for impact there are multiple beneficiaries—as well as multiple actors contributing to value creation. You have various levels of financial return that come to shareholders and stakeholders alike. Those financial returns are in fact part and parcel of the generation of social and environmental impacts that grow out of being able to work on a sustainable financial basis. The multilingual team reflects that range of interests and outcomes.

Maximpact: Can graduate schools create the kind of multilingual leaders you’re talking about?

Jed Emerson: Not only can graduate schools create multilingual leaders, but they have to! I read a comment in a McKenzie report the other day that said business schools can no longer be teaching business as usual and the incoming classes are increasingly demanding schools give them the skills and tools needed to execute within this new context of impact generation.

20 years ago none of the graduate schools were doing anything like this. Then slowly things began to change. Harvard Business School started the ball rolling with its social enterprise initiative in the90s. This was complemented by the work at Stanford Center for Social Innovation and Kellogg School of Management—I taught social entrepreneurship at Kellogg in 1999-2000.

We’ve seen this movement come forward over two decades; and now it’s been fully unleashed. I see the evidence everywhere. For example, I wasn’t able to attend the NetImpact conference this week but I was tracking the twitter feeds. Boy, could you feel the passion and enthusiasm coming through those posts and tweets! More than that, you could feel the sense of urgency and focused direction from the participants. To me, this is the driving force behind the need to train our future leaders in this multilingual way.

Maximpact: Are any grad schools doing it now?

Jed Emerson: A good example of a school taking up the challenge is the James Lee Sorenson Centerfor Impact Investing in Utah. Lewis Hower is their fund director. The interesting thing for me is that they’re using students to engage in the due diligence around impact investing opportunities.

When I first heard about this, honestly my reaction was, “Man, that’s got to be a recipe for disaster!” Because you’ve got these folks who are learning skills while they’re doing the analysis, so you might think maybe that analysis is going to have to be improved over time. Yet the work these students are doing with Center staff is evidently really strong. It’s very good analysis.

My other observation is that the students who are coming to learn at the Sorenson Center are not just business or economics students. They’re coming out of the humanities and much more traditional liberal arts backgrounds as well. Now, that is the future of impact leadership!

In my view, the Sorenson Center and others are creating an environment with the potential to produce the multilingual leaders of the future. No CEO can aspire to lead a global organization these days and not be aware of all the things beyond the balance sheet that will determine whether that organization is successful. As a matter of course, the leadership of these organizations will be looking to hire managers and team members who can come to the table ready to play on that basis. Business schools and graduate programs will have to provide their students with the education and the tools and the learning they need to be successful in this new market. 

Maximpact: How can impact funds go about building these multilingual teams?

Jed Emerson: I work with a small set of family offices, one of which is currently recruiting folks to run a new impact fund. I wasn’t sure when we started recruiting what kind of candidates we would see. Truthfully, I expected a lot of candidates with very traditional private equity and venture capital backgrounds who had decided they were done making money and wanted to go “do good.” And I’m not such a big fan of the “do gooder” approach, so was kind of bracing myself…

But I was pleasantly surprised to see the number of folks that clearly fit our research team’s description of multilingual leaders. Yet the thing that really surprised and pleased me was the high caliber and solid quality of these individuals. The experience has validated my feeling we’re on the right track and the change is happening.

I’d like to point out that the Impact Investing 2.0 report doesn’t say, “This is what needs to happen”. It’s not prescriptive in that sense. What the report says is, “This is what is already happening in the most successful funds”. It describes what is currently the practice of the better organizations.  As new fund mangers and new investors come up through these processes, I think we will begin to see the practices we identify in this report as the default operating process of the field. This will simply be the way we do business.

Maximpact: What happens to those poor charismatic leaders once the multilingual team takes over?

Jed Emerson: (Laughs) I think that the role of the charismatic leader will always be with us yet we’ll move beyond them being the focus. We need those individuals for movement building and for creating so many aspects of organizations. That said, you can’t build a successful organization on the back of an individual!

The most successful charismatic leaders will recognize this multilingual future. As opposed to the classic “founder-syndrome” individual who clutches on to power until the organization withers and dies, successful charismatic leaders will take on a new role helping position their teams for success.

The rise of multilingual leadership provides charismatic leaders with the option of an out, an opportunity to go back to developing new ideas, to be innovative, to be visionary—yet they will have to step aside.  They’ll be able to pursue new avenues because they can be confident the teams they nurtured are shepherding their original vision—but taking it to new places and new levels of success.

I see “Leadership of the Whole” rather than leadership of individuals as the future of this sector. It’s a movement in many ways, but it’s also simply how you build effective sustainable organizations that are creating value over the long term—over multiple lifetimes and not individual careers. For me, this topic of leadership is really the crux of how we will all and each be successful over the long haul!

About Jed Emerson

Jed is widely recognized as an international thought leader on impact investing, performance metrics and sustainable finance. Originator of the term blended value, he has spent over two decades exploring how capital investment strategies may be executed to create multiple returns.

Jed has held appointments at Harvard, Stanford and Oxford business schools and has written extensively on impact investing, social return on investment, and related areas. He is co-author with Anthony Bugg-Levine of Impact Investing: Transforming How We Make Money While Making A Difference.

Jed is Chief Impact Strategist for ImpactAssets and chair of the ImpactAssets 50, a field-building strategy that promotes leading impact investing firms. He is a founding director of both Larkin Street Services and the Roberts Enterprise Development Fund (REDF), a founding board member of Pacific Community Ventures, and the first senior fellow at Generation Investment Management, among numerous other appointments.

Jed is currently a senior fellow with the Center for SocialI nvestment (Heidelberg University) and senior advisor to The Sterling Group (Hong Kong).

You can follow Jed Emerson on Twitter via: @blendedvalue

Read the full Impact Investing 2.0 report.

[Image credit: Courtesy of Jed Emerson]

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