On February 12, 2012, I had the good fortune to be hosting a panel on good governance for impact investment at the Latin American Impact Investment Forum organized by New Ventures Mexico (http://inversiondeimpacto.org/en.html) . End of last week, the organizers came back to me to ask if I could provide bullet point highlights of our panel – a somewhat challenging assignment given a “talk show” type format and the fact that no one was taking notes.
My distinguished fellow panelists included the always thoughtful Todd Farrington of Symbiotics and one of the market savvy founders of PMD Capital, Ryan Klinghoffer. Todd and Ryan have offices in Mexico City, not far from each other and share, among many things, an understanding that enterprise risk and governance are related, so I figured we would have a frank and open dialogue.
If you’d like to hear what we had to say about how Boards can add value, or how they’ve influenced governance at Compartamos Banco, Mibanco, BancoSol, Banco Banex and others– or indeed hear any of the interesting LAIIF panelists – the conference videos are available on-line at LAIIF II Conference Videos. Michael Chu on Ignia Fund and Impact Investing, for example, is worth a listen! Todd, Ryan and I can be found on the first channel (“Canal 1”), ten down from the top, panel gets going about 2:30 into the clip (and we sound better than we look – feel free to listen while multi-tasking :-).
For those of you who’d prefer not to mess around with video, here are the short highlights I sent off to the conference organizers:
Entrepreneur’s Perspective: Provides additional brainpower and specialized knowledge; broadens network of opportunities and acts in counter to potential “yes, sir” behavior on the part of employees vs charismatic founder.
Investor’s Perspective: Provides regular information on company development and the opportunity to identify and help address issues before problems arise; Opens the possibility of synergies across investment portfolios; Enables constructive engagement around fiduciary responsibilities which can help mitigate risks.
Panel Conversation Highlights:
* Many impact investments are early stage ventures or projects, this means that the challenges of good governance are different than the US corporate governance issues that dominate press coverage. Executive pay is rarely the key issue. How to provide good governance effectively and efficiently is more important.
* For entrepreneurs: “good governance” starts with something like an Advisory Board, that lets you tap high-level skills & experience needed to grow the company without increasing payroll or sacrificing control;
* For investors: “good governance” should focus more on how you can add value to the company, fostering responsible and rewarding growth. Worry later about how you’re going to extract value.
* “Bad governance” practices – ranging from: hiring someone’s relative, no questions asked, to buy a “name” on the Board; to failing to disclose material information to investors; to creating a sham Board to please investors that looks good but has no role or authority; to insisting on a Board seat without a reasonable plan for managing Board responsibilities – absolutely can derail investment transactions and shareholder relations.
* “Good governance” – inclusive, informed and equitable, can attract the right types of shareholders and enhance performance.
* Values matter – what you are trying to achieve is relevant to how you try to reach your goals. Good governance occurs when Boards make strategic decisions that reflect careful analysis of how to achieve desired types of impact and performance.