Darren Walker | Greentech Capital Advisors

Darren Walker


Sustainable Heroes II

Empowering the one

We spoke with Darren Walker, President of the Ford Foundation, whose relentless drive to stay relevant pioneered a way that successfully incorporates both social and financial returns.

How do you see the role of corporations and decision-makers in driving change?

The question of how we get companies to be forthcoming about material issues that impact the climate, the environment, is hard. We need a lot of external pressure. I see it from the corporate board perspective; unless real pressure is put on companies, about recycling for example, change does not happen.

Making companies accountable on these issues is really critical, and this accountability will not be generated internally. It’s not because we are bad guys, it’s because the incentives work against us. The question is, how do we standardize SASB-like reporting requirements so that everyone will be accountable through the same lens? And then, how do we culturally value those companies that are doing the right thing – the torch bearers for corporate responsibility?

The real challenge is that market incentives work against CEOs. “Short-termism” is one of those. Making that a commitment is important for a more peaceful and prosperous world. Otherwise, everything will be at risk if we don’t change. The consequences of inaction may not be felt in the near term, but they will absolutely be felt in the future. That is an incontrovertible fact. As leaders, are we able to rise to the occasion for something we know to be a fact? Whether you are the head of a foundation or the CEO of a public company, it can be very difficult to be courageous, because the incentives often discourage courage.

Depending on the sector you’re in, you can be really vulnerable by taking that courageous path. You are disincentivized by activist investors who think you are destroying value in some way in the near term, although we know that in the long term you are increasing value. To do what you want as a CEO is going to take really courageous leadership.

To do what you want as a CEO is going to take really courageous leadership.
You’ve taken an interesting career path, from lawyer to investment banker to philanthropist. What inspires your work?

Having a mission-centered life is very important to me. That mission, quite candidly, has evolved over time. When you grow up the way I did, one of the things you have as a mission is to never be poor. When I was in college, my mission was to be able to do the things that I would like to do. And so for me, when going to Wall Street, I had a mission to attain some level of financial security that would allow me to have the freedom to do what I wanted in the long term.

I always knew that my passion was not law – and my passion was definitely not collateralized mortgage obligations and securitizing credit card receivables. But, there are really positive externalities of being able to do those kinds of financings, in addition to the personal resources you are able to accumulate as a result. I knew that ultimately I wanted to do something that would have, as its highest objective, a social mission. When I was able to leave Wall Street after 10 years, I took a year off to figure out what I wanted to do in the social sector.

I had always been attracted to Harlem, in part because I read the Harlem Renaissance writers – Langston Hughes, Zora Neale Hurston and Countee Cullen. All of these writers in the 1910s, 1920s, 1930s would write about Harlem, and I was mesmerized by the idea of this place being the cultural capital for African Americans. But, of course, when I moved to New York in 1985, Harlem was not exactly an alluring place to live. In fact, most people saw it as a place you wanted to avoid, which is hard to believe in 2018, given the price of real estate today and how much the community has changed. But in the early- to mid-1990s, Harlem was a really tough place. When I got there I ran a community development organization, the Abyssinian Development Corporation. At the time Harlem had literally hundreds of buildings that were burnt out and abandoned, which the city owned through tax foreclosure. The organization was founded by Calvin Butts, a prominent African American minister, and I became COO and really his right hand.

What I loved about going to Harlem was that I was able to take my skills from Wall Street and apply them to a purely social objective. I understood project finance, I just had never financed low-income housing. I understood, I just had never developed a balance sheet for a supermarket on 125th street that would serve a primarily low-income population. It was great to be able to use my skills and whatever technical knowledge I had developed about the markets and finance to really build out this strategy for the redevelopment of Central Harlem, which we did.

Over eight years, we financed over 1,000 units of housing, and initiated the first big commercial retail project on 125th Street. Sometimes I worry that we were too successful. We didn’t know what happens when you make early investments that are socially focused, particularly around helping low-income people and the marginalized. We then saw the snowball effect and the aggregation of momentum, and all-of-a sudden 10 years later you have people from all over the world moving in, buying brownstones and turning Harlem into a chic and fabulous neighborhood.

What has changed at the Ford Foundation from when you started, leading to last year’s announcement of $1bn for mission-related investments?

I started at the Ford Foundation in 2010 as Vice President, and was promoted in 2013. I took over a prominent and esteemed legacy institution that had been around for eight decades with a record of impact on significant social issues, whether poverty or women’s rights or human rights or micro finance.

Although the foundation is identified with an arc of social progress in the 20th century, as with other legacy institutions, you are challenged to think about how you can have an impact and how you remain relevant in the future. Just because you were an industry leader over the last 80 years, even in a sector like philanthropy, it does not mean that your relevance will remain – certainly not, because there are so many newly minted billionaires who are starting their own foundations and who aspire to be a Ford or Rockefeller or Carnegie.

We had to really interrogate the DNA of the foundation, and find our way as we looked into the future. We determined that the biggest threat to our mission of a more peaceful world, a world where there is more opportunity and mobility, is the issue of growing inequality.

We decided we could have the most impact by focusing on inequality in all its forms: political, economic, and social inequalities. We looked at all of our assets and asked ourselves, how are we using them to address and reduce inequality? The singular focus to generate alpha is not defensible. As a $13bn endowment and a social justice foundation, we have to deploy our capital towards a social objective. We need to go further and ask whether the portfolio performs against a set of social objectives as well as financial objectives.

That’s why last year we made the commitment of $1bn for mission-related investments. I think the trustees believed in my view of the future. If you’re going to invest in affordable housing, for example, you need to look at preservation of affordable housing, at the profiles of the kinds of people who are in those places, and strategically target particular cities, and even particular neighborhoods, to mitigate gentrification. So we are now looking at deploying capital to demonstrate the efficacy of the idea.

How else will you measure your impact?

For the financial assets, we have a set of very clear objectives around alpha that we expect to deliver on. We have a great CIO, we outperform the benchmarks, and we’re very proud and pleased about that.

We have a big footprint, so for example, right now we are renovating one of the great modern landmarks in New York City, the Ford Building, that Henry Ford II commissioned in the early 1960s. It’s a marvel of a building, but it’s not very energy-efficient. We have reimagined the building and are seeking to make it far more efficient and environmentally sustainable. We are thinking about our footprint at all 10 of our offices around the world in this same way. In Mexico City, for example, we’re moving from an old energy-inefficient building to a new green building. With our portfolio of physical assets, we’re putting in place a set of objectives as leases expire and moving to buildings that are absolutely environmentally sustainable and take us on different path.

You’ve talked about the need to bridge the gap between philanthropic impact and investments. How do we do that and what role do endowments have?

I hope other endowments see that strategies incorporating both social and financial returns are the way forward. We’ll do the pioneering work to demonstrate the efficacy of that idea, because I think there are some in the market who simply refuse to believe that it is possible or that we should even try. There was a large foundation that had a strategy of seeking alpha (and a lot of the big foundations do), and they found they were providing grants to improve the public health of people on a river in Africa, and at the same time investing in one of the biggest polluters of that river.

I believe that we cannot have a rhetoric of improving the climate and reducing inequality and poverty, and then have our investment behavior actually contribute to a poorer climate, more inequality, more poverty.

There can be a stark difference between our rhetoric and what we actually do – our actual behavior. I believe that we cannot have a rhetoric of improving the climate and reducing inequality and poverty, and then have our investment behavior actually contribute to a poorer climate, more inequality, more poverty. We cannot reconcile that. And I think it is especially problematic for a foundation.

The incentives for public entities are driving in the right direction with ESG standards. For privates, I think it’s a lot harder. That is why I have encouraged, for example, TPG Rise and firms like KKR to think about how we can all network around learning platforms. I am encouraging all of us in the private space to involve senior people in developing a shared set of metrics, language and standards.

In an era of “digitization,” what technology do you think will have the biggest impact on society in the coming years?

What is happening with AI and machine learning is both exciting and frightening, depending on where you sit. For those of us in places like Greentech and Ford and TPG, technology offers a tremendous opportunity for more knowledge, to develop ideas that we never thought were possible, to help us imagine a future where the world is more connected. But it also is very problematic if you think about issues like data security, privacy, the degree to which a few large companies monopolize most of the infrastructure of the web, and the implications of that. For a capitalist like me, I like a lot of competition; so I do worry about the lack of competition and the degree to which markets are completely captured by one or two companies.

As a social justice foundation, we’re going to leverage technology by investing in technology for social good: Organizations building a public-interest technology infrastructure, for instance, or ensuring that more low-income students have a chance to go to engineering schools, and learn how to code and prepare themselves for a digital world.

The future of work will look different. But as a foundation with our mission, we’re more concerned about ensuring that there is work. Work is essential for human dignity. We are not seeking huge transformational technology interventions – we are more focused on what’s going on out there, and how it impacts the lives of poor people and poor communities. Are we increasing inequality, and making these communities more vulnerable? How do we make them less vulnerable, more resilient in the face of what clearly is going to be transformational change?

What will we see next from you and the Ford Foundation?

We realize that none of the things we would like to achieve in this world can be achieved by working alone. So we see working with the private sector as an essential part of our success. That is a metric I am holding for myself, and that my board is holding me accountable for. Not just because we want to, but because we believe solutions will be generated through partnership with the private sector at a more accelerated rate than our working by ourselves. That way you will see some bold and creative partnerships with the private sector. We can help set tables of unusual stakeholders, from private and public and government, from the Kochs to George Soros and everyone in between.

There of course has to be some degree of inequality in the world. We should have differentiated compensation for different categories of employment; we should have incentives that encourage people to take risk and therefore be rewarded for risk-taking; we need systems that support innovation. As a capitalist, I am all-in on the idea that markets have to work, but they have to work for more people. They have to deliver shared prosperity, or we as Americans will become more cynical about our economy, about our institutions, and ultimately about our society. So for me, this notion of the markets is not just a matter of finance, the issue of inequality is not just a matter of economics, it really is foundational to who we are as a people and what kind of society we want to live in.

I believe that people like me – those of us who had modest beginnings, but were provided with the opportunity to get on that mobility escalator, and with commitment, hard work, drive, and ambition, to ride it and ride it very far – that narrative, which is a uniquely American narrative, has to be sustained in the future. Because if that mobility escalator slows down or stops, I really question whether our democracy has a future. I am an optimistic capitalist, and it is our job at the Ford Foundation to demonstrate that we can reduce inequality in the world and have prosperity and strengthen our democracy in the process.

Opportunity correlates with inequality; the more inequality there is, the less opportunity there will be. We believe that education is important, and yet we make education more expensive. The same piece of legislation gives some of us, including me, a huge tax break, while at the same time it reduces grants and privatizes the student loan program, which we know empirically it makes a big difference; not for our own kids, because our kids don’t need those programs, but for the kids we used to be.

So if we care about those kids we used to be, with the hopes and dreams we used to have of ending up in the place we have ended up now, then into the future, we have to have policies that speak to them. If that narrative atrophies, the implications for our country are really grave.

Who is your sustainable hero and why?

My sustainable hero is Berta Caceres for the devotion and courage she exhibited in advocating for environmental justice in her community.

 

Darren Walker

About Sustainable Heroes

Join us on a journey into the hearts and minds of some of today’s greatest heroes, who have dedicated themselves to positively impact tomorrow’s world. We invite you to explore with us what makes these heroes tick, what drives them to overcome arduous trials and immense challenges, known and unknown.

In this issue, we pay homage to a corporate leader, an Arctic explorer, a highly admired policy builder, an innovative investor and an entrepreneurial foundation president – all of whom share the goal of creating a sustainable world that is more resilient as well as financially stable.

We encourage you on your own quest for ways to innovate, embrace sustainability and do the right thing. Become a heroine or hero to others and help us together solve the problems threatening our very survival. To each of you heroes and heroines, there is a brighter, more sustainable future that we can build together for future generations.

We welcome nominations for people you’d like to see featured in future editions. Please send your nominations and other comments to anikolausson@ greentechcapital.com

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