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Book review: ‘Frontiers in Social Innovation’ edited by Neil Malhotra

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Published: 23 September 2022

This collection of essays by various Stanford leading lights and giants in the social impact investing field is a ‘must read’ for those in the impact investing space

‘Frontiers in Social Innovation’, edited by Neil Mahotra

In brief

  • There is much to learn about the three concepts that Mahotra sees as crucial to impact investing – theories of change, techniques of impact measurement and “design thinking”
  • “Paternalist entrepreneurs” get short shrift, but the role wealthy individuals can play nevertheless looms large

Neil Mahotra teaches at the Stanford Graduate School of Business focusing on social issues, impact measurement, and mission-driven business. 

In ‘Frontiers in Social Innovation’, he has collected essays by various Stanford leading lights and giants in the social impact investing field, a sector he believes has become “more disciplined centring on three core concepts”: theories of change, impact measurement and design thinking. 

Theories of change 

The first of these, as Gloria Lee expounds in ‘The Impact Triangle’ essay, is that “organizations that are highly effective tend to have a clear theory of change”. Indeed, some philanthropic foundations even “consider it a prerequisite for their funding”.  

Lee is not an academic but rather “a serial entrepreneur who has founded and led multiple mission-focused K–12 education organizations, including Educate78.”  At its simplest, she states “a theory of change articulates what societal benefit the organization aims to create and how it will occur”, and “helps all stakeholders—staff, volunteers, donors, and directors understand what they must believe and work toward”.  

Lee warns against some of the pitfalls. “In an attempt to capture some of the complexity and nuance of social change, many a theory of change author adds more words and components to the originally simple boxes-and-arrows chart…until they have an impenetrable wall of spaghetti.” She suggests “embracing hyperlinks”.  

Impact measurement 

“Social innovators have to bring data to the theoretical hypotheses embedded in the theory of change” writes Mahotra. “This is where the concept of impact measurement comes in.” 

In ‘Measuring Corporate Virtue and Vice’, Paul Brest and Colleen Honigsberg, both of Stanford Law School, begin exploring this with a wonderful quotation. “He knows if you’ve been bad or good, so be good for goodness’ sake.” Actually, from the 1934 song “Santa Claus is coming to town”. 

They note the present disharmony. “ESG factors are dissimilar, the techniques for measuring them are varied and complex, and many are not readily comparable…it is not surprising that the assessments of the various ESG ratings services are poorly correlated. 

They suggest a new comprehensive framework drawing on practices developed in financial reporting. “(1) a limited set of metrics… (2) a standard-setting body loosely modelled on the Financial Accounting Standards Board (FASB)… and (3) reporting infrastructures that enable companies to collect, report, and verify the relevant metrics accurately.” 

Disharmony in impact measurement is also evident in ‘Corporate Carbon Reduction Pledges’ by Stephen Comello, Julia Reichelstein and Stefan Reichelstein. The individual reduction goals are shown to “vary substantially in terms of specificity and scope, largely because of variations in the measurement of carbon footprints”.  

Issues of double counting become even more prevalent in connection with Scope 3 emissions. “While Excel, BP, or Unilever include multiple Scope 3 emission categories, companies such as Google only recognize employee travel and commuting,” they write. 

Design thinking 

Mahotra’s third “crucial concept” is ‘design thinking’. He notes there has been a pushback against “paternalistic entrepreneurs swooping into a disadvantaged population to ‘fix the problem’. Instead, design thinking shifts the approach to empathetic listening, designing for users… based on user feedback”.  

Sadly, Stuart Coulson’s ‘Design for Extreme Affordability’ seems a little too concerned with promoting the merits of Stanford’s own course, apparently an “iconic programme”.

More interesting is Stanford Professor William F Meehan’s consideration of how “the philanthropy of the super wealthy has become part of our broader public debate”. He responds to accusations from the “snarky if gimlet-eyed observer, Giridharadas” in his book ‘Winners Take All: The Elite Charade of Changing the World?‘. This suggested philanthropists “are doing no more than returning a small portion of their ill-gotten gains and doing so completely on their own terms”.  

Meehan argues for “four shifts” that billionaire philanthropists should make in their giving: giving while living, focusing on the immense social impact achievable through evidence-based interventions, adopting a team-based organisational model and moving away from the still dominant bureaucratic foundation models, and lastly adopting a “servant philanthropy” mindset, resisting the “inevitable ego-enlarging pressures that come from giving away large amounts of money”. All good advice.  

This is balanced by the contribution of Matt Bannick, the former managing partner of the Omidyar Network, a philanthropic venture capital firm and pioneering impact investor.  

He emphasises the critical role that ultra-high net worth individuals can play in “market creation”. Although he does warn that because “impact investing relies on capital owners’ personal motivations to choose impact over profit, it could disappear in the same way it appeared”. Let’s hope not. 

This collection of essays is an absolute must read for those in the impact investing space. 

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