Impact Investing with John Hoffman

About John Hoffmire:

John’s achievements in both the academic and business worlds are extensive and – having participated in work, research and speaking tours in 99 countries – John is regarded as one of the leading experts in his field. His pioneering approach has led to achievements such as: leading the first sale of shares for a microfinance bank to an Employee Stock Ownership Plan at K-REP in Kenya.

John is chairman of Cadence Innova, a change management consulting firm based in London. Before joining Saïd Business School at University of Oxford and becoming the Director of the Centre on Business and Poverty at the University of Wisconsin-Madison, John had a twenty-year career in equity investing, venture capital, consulting and investment banking. His work has had a particular focus on Employee Stock Ownership Plans. As founder and CEO of his own investment-banking firm, he helped employees buy and manage approximately $2.2 billion worth of ESOP stock. He sold his firm to American Capital, which then went public. John left American Capital as Senior Investment Officer when the company reached $1 billion in assets. After leaving American Capital, John was Vice President at Ampersand Ventures, formerly Paine Webber’s private equity group. Earlier in his career, after he finished his Ph.D. at Stanford University, he was a consultant at Bain & Company.

BioSource: http://www.kellogg.ox.ac.uk

Alan

One of the areas that you’ve been involved with is impact investing, what is impact investing?

John

Well, impact investing can be defined as a number of different ways. I’m going to define it in the broadest possible way, where investments of almost all types make an impact. I’ll contrast that to a very narrow definition of impact investment, where there has to be a ton of measurement- people go in sometimes with an orientation to make very small returns. I’m really a capitalist, I believe that capitalism can be a very good thing and the more people that can be given credit for having an impact through business, I think the better the world is- better not only the people’s lives who are impacted, (who are usually in a low-income class) or the environment, but I think there’s an incredible amount done for the people who actually make those investments and helping them live a more satisfying life.

Alan

So John, when you look at the companies that have been financed, and there are those that succeed, and those that, don’t? Can you identify differences and the reasons why?

John

I think so although this is more difficult, I really believe that luck plays a big role in all of this. If there’s a second piece, it’s usually that people have a technological future, and don’t get replaced by something technological. And then if there’s a third element, it has to do with types of management. And I don’t think that there is one perfect form of management, but in general, especially these impact investment firms, and particularly when there’s some form of employee ownership built into the, to the equity structure, if there can be participant of management, I think that combination leads to the greatest success.

Alan

You did a dissertation and white paper detail on employee ownership. When you look at getting people involved who haven’t done businesses before, we talked about luck, but the fact that they’re an owner, does that help them a little bit more with having what I call “skin in the game”

John

There’s no doubt. The easiest example is just to show up in a neighborhood where it’s all renters, as compared to a neighborhood where everybody owns their home. People clearly take better care of a home that is owned by themselves. And the same thing is true with a business.

Alan

Now you’ve done quite a bit of work over in Africa, How is the country doing right now?

John

Well, Kenya is a fascinating place. It’s a land of entrepreneurs. It’s a land of corruption. It’s a land where tribal business, tribal government, tribal, everything plays a great role. So, I’m both realistic about the hopes for Kenya and the rest of Africa. But I have to say that there are challenges that are not going to be easy to overcome.

Alan

What about China?

John

This fascinating time to talk about China. So maybe I could set a little bit of context for our viewing audience. We’re in the middle of a time right now, where Xi Jinping is being challenged by President Trump. And it’s unclear whether or not the trade situation is going to work out in a way where the tariffs will completely hit and hit in big ways, or whether they’ll be compromises on both sides. So with that context, you know, I’m, again, very realistic and somewhat hopeful, because this game is so big, that if both sides play in a way that leads to a terrible trade war, that’s going to do very terrible things for the whole world, bad things for both countries, but terrible things for the whole world. Do I think that will actually happen? No, but what are the odds of something terrible happening? I’m afraid they may be as high as 20%. If I then look at the middle ground, where people figure out a way to make things work, I’m probably 50% there. And then the remaining 30%, I just don’t know. And, like here in the UK, with Brexit, it’s become so difficult to predict many of these big international situations, I’d like to leave some wiggle room.

Alan

In the world today we have a big transformation in demographics. And in the US, the baby boomers, with the aging population, and the numbers behind for replacing jobs are quite, quite less. But how does that affect the business world? Yeah, and I’m going to put a context in there. Robert Powell recently said that when dealing with monetary policy, they were going to look at the fundamentals of the demographics of society, more than anything else, and how does that apply back to the business world demographics?

John

Well, there’s clearly a very low unemployment rate in the United States, the unemployment rate is probably a little bit higher than we talked about, just because the number of people who’ve stopped looking for work or have stopped out for some period. So I don’t think we’ve reached a point where nobody else can be found to work. But it’s clear in certain industries, that there are real shortages of labor. And at some point that becomes a real difficulty for businesses. On the other hand, I believe that market systems self-correct and that at some point, the United States will have a recession again, and unemployment will go back up and I feel terrible for the people who lose their jobs, but there may be actually a healthier unemployment rate than what we have right now.

Edited For Concision and Clarity