9 Comments so far

1. Robin Keyte on April 26, 2007 5:50 pm

   I empathise with the views aired here. I would rather see effort put in to research ways social businesses can build to get to the stage of either:

   - listing on a market

   OR

   - forming a joint venture with a business already listed on a market, where the social aims are protected

   I have great concern about how fledgling social businesses / enterprises are funded, as grant funding is not sustainable and the due dilligence associated with financial promotions regulations make it very expensive to raise investment capital of under say £500,000.

   I would prefer to see a focus on developing mechanisms to help raise investment for smaller growing social businesses / enterprises.

2. Ruchika Singhal on April 27, 2007 6:32 pm

   Rod, I really enjoyed reading your comments. A few thoughts - as topic of evaluating intangibles and stock exchanges from my experience and I”d like to present some thoughts in response to your listed concerns on why stock exchanges is a bad idea.

   1) Additional Distinct Platform: Just as NYSE and NASDAQ co exist in the same location, they provide different focus and funneling based on the intent and expectation of the investor. A social Stock exchange will further focus and present a clear trading platform for investors interested in Social Enterprises.

   2) Listing requirements: Often the listing requirements in these stock exchanges are stringent and difficult for a social enterprises to meet. For instance :

   London Stock Exchange main market has requirements for a minimum market capitalization (£700,000), three years of audited financial statements, minimum public float (25 per cent) and sufficient working capital for at least 12 months from the date of listing.

   NASDAQ Stock Exchange which requires that a company must have issued at least 1.25 million shares of stock worth at least $70 million and must have earned more than $11 million over the last three years.

   A Social Stock Exchange will facilitate the capital flow and hence probably set them for success.

   3) Access to Individual investor: A stock exchange also provides a platform for small investors to gain access to the market. A socially inclined and conscious individual would be able to clearly allocate part of his portfolio if he/she can access the social stock exchange, rather than hunting around for a suitable company amongst the thousands listed on traditional stock exchanges.

   4) Lower marketing /PR costs: Finally, a social enterprise is evaluated on two levels (in my opinion) one is financial returns which makes it sustainable, and also social returns (otherwise why would it be called a social stock in the first place!) To compete for funds with other businesses would require higher marketing costs to explain the social” aspect and attract investors. A social stock exchange will overall help entrepreneurs use their skills to focus on growing their social enterprises rather than spending time effort and resources to compete in the harsh marketplace.

   Ruchika Singhal
   Oxford MBA 2006

3. Caroline Mason on April 30, 2007 11:32 am

   Different trading mechanisms exist for different markets and they tend to grow organically to suit the variations of that particular market.
   I think we would all agree that the social investment market is a fledging operation and what it needs is strong social organisations that give confidence to the investment community at large. These organisations, seeking growth and capital, should be the focus.
   But what these organisations also need is a transparent and cost effective way of getting themselves known to the sources of investment capital. What is needed to kick start this “exchange” of capital is an investment clearing house for investors that provides clear criteria (both financial and social) and investment support information.

4. Rod on May 1, 2007 7:29 pm

   Dear Robin,

   Thank you very much for your thoughts and feedback. I wholeheartedly agree that one of our main focuses should be to endeavour to get these businesses to the point where they can list on an already existing market. Such a listing itself would be quite an achievement and helpful in signalling that these companies therefore adhere to the high standards of the respective stock exchange on which they have listed. This does not say much about the social dimension of what they do, but should assist these businesses in securing the required financial resources.

   I am very intrigued by your suggestion that social businesses formed joint ventures with businesses that are already listed. My perception is that this is a relatively untried path, but one which could certainly offer substantial benefits for the listed as well as for the unlisted social business. In a sense, the social business offers something in exchange for the capital which the listed business is better-placed to secure. Some of this already takes place on a minimal level, with the funding that large companies give to selected social business, but this is but a trickle at present.

   Your well-placed concern regarding how “fledgling enterprises” are funded is not unique to the social business sector. Companies looking to secure funding below £1 million indeed have great difficulty. In fact, that threshold is probably more like £5 million. There are a variety of schemes to try to deal with this “equity gap”– but this is indeed a difficult problem for all early-stage enterprises in the UK. It is not even for lack of Government initiative that this problem remains. As you well know, the VCT scheme and others have been targeted at this sector– so far with meagre results. I think a lot of factors help to explain this, but this is really outside the scope of this social business blog. Perhaps you can phone me and we can discuss this off-line?

   Finally, I could not agree with you more regarding your preferred focus, which is on developing mechanisms to assist smaller growing social businesses in raising investment. While I appreciate the intellectual and poetic simplicity of a “social stock exchange”, I am afraid the best results will come from a lot of unsexy, difficult, smaller-scale initiatives. They will be less grandiose concepts which lead to the development of processes that aid socially oriented investors to “find their way” to social investment opportunities. Caroline Mason, who has written a comment below, is one of the founders a business which tries to do this, called Investing for Good.

   The other side of the equation is to make sure social businesses are well run and execute effectively, so that these social investors are not disappointed. As you may know, Robin, my colleague Jessica Shortall runs an affiliated business called Catalyst Strategy Advisors, which is dedicated to achieving this goal.

   Regards, Rod Schwartz

5. Rod on May 2, 2007 11:20 am

   Dear Ruchika

   I am very grateful for your comments and feedback on this posting, in particular for your information regarding the NYSE and NASDAQ listing requirements.

   Let me first make one point absolutely clear. I do not object to stock exchanges, merely to the investment required to create a separate social stock exchange.

   You suggest in your comment that a social stock exchange will “present a clear trading platform for investors”. I think that the reason this works well with traditional stock exchanges is that these specific requirements and qualifications for listing and for maintaining the listing are very clear: they are financial and quantitative. I believe that once we enter the realm of “social” criteria, these become subjective and personal– thus difficult to quantify and set.

   With respect to your third point, I am not sure that a social stock exchange is the best way to offer investors access to the market for shares in these underlying enterprises. There exist a range of organizations who are helping small, medium and large individual investors gain access to social investments. Thus investors will not need to wade through thousands of listed companies on an exchange, as you suggest. Furthermore, a growing band of SRI fund managers are offering these investors access to collective fund vehicles, which seemed to me a better and more diversified way into social investing. Particular firms such as Henderson Global Investors are increasingly creating funds which enable investment in “good” companies, as opposed to the more traditional type of SRI fund, which does negative screening.

   Lastly, I do not believe that a social stock exchange will lower marketing or PR costs for newly listing firms, even if they were able to list on a social stock exchange. They would still be required to explain specific social returns. One could argue the extent of that explanation would be reduced for social investors. But I think that difference would be marginal, in cost terms. Each firm in all cases upon listing has to, and will want to, explain the specific social returns they generate. Therefore I do not share your view that a social stock exchange will free up spending the time and effort necessary to compete for funds among investors. Nor should they, because the effort involved putting together and “selling your story” to investors is a useful one in which all maturing social entrepreneurs should engage.

   Regards,
   Rod Schwartz

6. Wouter Kersten on May 20, 2007 7:37 pm

   I basically agree 100% with the article. The idea of a separate social stock exchange also breathes something like a Paralympics idea, while it is exactly the opposite what is intended. Helping along fledgling social businesses is fine, but treating them this separately may have opposite effects of te actual intentions.
   Rather than feeling sorry, social (and environmenteal) enterprises that want to be traded should emphasise that being able to take into account social, environmental and financial creation at the same time, is a genuine indicator for management quality. And maybe then the real meaning of stock prices (i.e., trust in a company) will shine again.
   SBEs should not retreat, but get into the game with an attitude: any possible ’sub-par’ financial returns (which is not even a given), are complemented by what I call social and/or environmental ‘dividends’. The legion that is considering this a good deal is growing. That momentum must now be used, not marginalised.
   There is another point that seems more relevant, and this is how much decision making power, that usually is connected to stocks, social entrepreneurs want to give away.
   Please have a look at my log for various posts on these topics.

7. David Kam on March 28, 2008 11:43 pm

   We are setting up North America’s first social stock exchange connected to a green social network at: http://greensx.com, which will be launched in the Summer of 2008 to begin trading. It will trade shares in social businesses. A social business is a business that makes a profit, but benefits society as well. We have a triple bottom line (economic + social + environmental).

   I do not think this is a bad idea for a social stock exchange because:

   1) a social stock exchange makes it easier for green investors to find and support social entrepreneurs;

   2) Provides early stage investors, venture capitalists, and angel investors with a quicker exit strategy, in addition to more liquidity for their securities;

   3) Social businesses are wary of listing on a mainstream exchange for fear of having their social mission hijacked; green businesses have different philosophies than traditional businesses;

   4) Now, 99% of small businesses do not have access to public funds, yet small business has added 20 million new jobs over the last 15 years to the Us economy, using less than 1% of publicly traded equity capital. Therefore, it is obvious that if small businesses had more access to public money via a social stock exchange, they could propel the economy forward in a spectacular fashion.

   5) SustainAbility, a consultancy and think tank, says ” money remains the main headache for social businesses; 72% of the social businesses surveyed cited raising money as their main challenge”.

   6) Traditionally, a small social business that wants to raise $ 25 million or less via a IPO cannot find an underwriter, but now it is possible with the our social stock exchange;

   7) A social stock exchange creates more companies that support: environment, fair trade and social causes;

   A social stock exchange provides greater visibility for green businesses (social businesses).

   Since all the listed companies on the exchange are pre-screened, evaluated, and audited according to social and sustainable guidelines set by the exchange, it will make it much easier for green investors to find and support social businesses. The GREENSX provides opportunities for small green Issuers to access public equity capital efficiently, while providing early stage investors, angel investors, and venture capitalists with greater liquidity.

   We have been working on the Green Stock Exchange, even before Muhammad Yunus’s book came out. We have not made any press releases yet, so nobody knows about it yet. It is till in the beta stage testing. Check it out at: http://greensx.com.

8. Han Ji Oong on December 18, 2008 1:16 pm

   Hello,
   My name is Han Ji Oong.
   I’m a student of Pusan National University in Korea and I’m impressed by your opinion.
   I’m studying about the plan that not only Korean social enterprise achieve a sustainable growth but also the moral investor gain high return through establishing social stock market.
   In the flow of recent financial crisis, I think that the settlement of social stock market in Korea and the world is essential for the expansion of social benefit and redistribution of income to social weak.
   But social enterprises of Korea are so small that they can’t be listed in stock exchange. And the investors also are not familiar with the culture of donation.
   So I am wondering whether the social stock market that you plan to make can be founded and work effectively in Korean custom or not.
   Also if there is a possibility of successful social stock market, could you tell me the solution about listing of social enterprise and supposing the stock price index?

9. Han Ji Oong; Social Enterprise in Korea and Issues of Broader Relevance : Social Business Blog on December 18, 2008 4:25 pm

   [...] it raises issues which continue to be relevant. What follows is Han Ji Oong’s comment on an earlier post, and thereafter, our response, in [...]