Impact Investing

The Rockefeller Foundation’s Hand in Hobby Lobby

The Supreme Court’s reasoning and decision in Hobby Lobby should make the foundation reflect on the relative wisdom of its initiative to blend the nonprofit and for-profit sectors.

Americans either have hailed the US Supreme Court’s decision on the Hobby Lobby case this summer as a victory for religious freedom, or criticized it as a regression in women’s health and reproductive rights. The court ruled that the Department of Health and Human Services regulations imposing the contraceptive mandate on for-profit, “closely held” corporations violated the Religious Freedom Restoration Act of 1993. The court reasoned that these for-profit corporations, like religious nonprofits, could exercise religion and refuse contraceptive coverage for their female employees in the process.

Moving beyond this general public conversation, as Robert T. Esposito and Shawn Pelsinger noted last month, the Hobby Lobby decision is also the first time that the Supreme Court has made mention of the emerging body of social enterprise law, particularly benefit corporations. As such, this case is also an important moment for the Rockefeller Foundation and its impact investing initiative. The Supreme Court’s reasoning and decision in Hobby Lobby should make the foundation reflect on the relative wisdom of its initiative to blend the nonprofit and for-profit sectors.

Former University of Pennsylvania President Judith Rodin assumed the presidency of the Rockefeller Foundation in 2005; and a year later, she brought on board Margot Brandenburg, who has been managing the organization’s impact investing initiative ever since. Earlier this year, the two co-authored a book arguing for the further expansion of the foundation’s work in this field, The Power of Impact Investing: Putting Markets to Work for Profit and Global Good.

Rodin and Brandenburg acknowledge that philanthropy is a powerful source for good but contend that we can address the world’s biggest problems only if “substantial portions of our global financial resources [are] devoted to making the world a better place.” While global philanthropy runs into the billions of US dollars, the world’s financial markets reach into the trillions, and it would be wasteful and shortsighted not to put these market funds to use in addressing social problems. Rather than working alone, they argue, individuals in the nonprofit realm can encourage individuals in the for-profit realm to work with them to solve problems such as water scarcity, lack of health care access, and education.

In an effort to help bring these two communities together, Rodin and Brandenburg provide these nonprofit and for-profit actors with a new, hybrid language. As impact investors, they will have the hearts of nonprofits and the brains of for-profits. They will expect their investments “to deliver both financial returns and social and environmental benefits.” Foundation managers, philanthropists, private bankers, and individual investors can simultaneously achieve profits and address social problems, for example, by investing in organizations with these dual goals in mind.

The Rockefeller Foundation has been so confident in the power of impact investing that, in The Power of Impact Investing, Rodin and Brandenburg announced that the organization had invested more than $40 million in building the field and more than $100 million in impact investments from its endowment. One of the very early grantees under this initiative was B Lab, and the foundation is still its dominant funder. Founded in 2006, B Lab is the nonprofit organization spearheading the movement to pass benefit corporation legislation across the United States. Its mission to establish a new corporate class that has the dual goal of profit-making and of making a material positive impact on society and the environment gives corporate form to the Rockefeller’s vision of blending the nonprofit and for-profit sectors. So far, B Lab has helped create this new corporate class in 27 states and, according to its website, it is “working on it” in 14 others.

When Justice Alito wrote the majority opinion for Hobby Lobby, he took note of the national trend of establishing benefit corporations, but he did not seem to know that the Rockefeller Foundation and its grantee, B Lab, were behind the shift. He wrote: “[R]ecognizing the inherent compatibility between establishing a for-profit corporation and pursuing nonprofit goals, States have increasingly adopted laws formally recognizing hybrid corporate forms. Over half of the States, for instance, now recognize the ‘benefit corporation,’ a dual-purpose entity that seeks to achieve both a benefit for the public and a profit for its owners.’” Against this national shift in modern corporate law—blurring the line between for-profit and nonprofit organizations—Alito deemed it reasonable to blur the line between nonprofit and for-profit jurisprudence. In this case, a for-profit organization could, like a religious nonprofit organization, exercise religion and subsequently limit its coverage of contraception for female employees.

In her dissent, Justice Ruth Bader Ginsburg expressed her dismay at the majority’s conflation between the nonprofit and for-profit realms: “Until this litigation, no decision of this Court recognized a for-profit corporation’s qualification for a religious exemption from a generally applicable law, whether under the Free Exercise Clause or [the Religious Freedom Restoration Act of 1993].” Up until Hobby Lobby, Ginsburg noted, the court had respected the distinction between for-profit and nonprofit organizations. She repeated the importance of this distinction: “To reiterate, ‘for-profit corporations are different from religious non-profits in that they use labor to make a profit, rather than to perpetuate [the] religious value[s] [shared by a community of believers].’” Unlike nonprofits, for-profit organizations had the singular goal of maximizing profits and could not argue religion as a means of abrogating the rights of its female employees.

Neither Ginsburg nor Alito made mention of the Rockefeller Foundation or B Lab in their dissenting and majority opinions, but the foundation and its grantee played their part in facilitating the majority’s reasoning. Sure, the foundation and B Lab’s vision for a blended nonprofit and for-profit sector is strictly secular, but this vision has helped create the nationwide legislative changes that the majority leaned on to justify its holding in Hobby Lobby. Against this backdrop, the foundation should take a serious look at its impact investment initiative and question its soundness.

In The Power of Impact Investing, Rodin and Brandenburg try to sell readers on the value of combining the nonprofit and for-profit sectors. Writing with the excitement of recent converts, they argue: “We live in a dynamic era of innovation, change, and new ways of thinking that could push our society in promising directions. As an investor, you can participate in this change; you have it in your power to contribute to a movement that is potentially transformative and overwhelmingly positive. This is the promise of impact investing.” This blending of the for-profit and nonprofit realms is not necessarily a path towards such a utopian future. With Hobby Lobby on the books, the foundation might consider taming its zealous fervor for fusing the two sectors.

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  • Michael Cobb's avatar

    BY Michael Cobb

    ON August 21, 2014 12:06 PM

    I completely disagree with the reasoning in this article. Because there is a increasing movement to do social good through for-profit vehicles and one Justice sites the emerging new ‘b corp’ legislation as an anecdote in a influential supreme court opinion then it follows that We (there are more people than Rockefeller foundation engaging in impact investing) should “take a serious look at [our] impact investing initiative(s) and question its soundness”.  ... I don’t get it?

    Impact investing has the potential to be an incredibly trans-formative force in the economy. Infusing ‘values’ and social impact into business and unleashing the power of investment dollars for positive change in the world is something that I can get behind with a ‘zealous fervor’, even if it means a few businesses fail to provide insured contraception.

    The scale of the positive impact of implications of impact investing as an emerging global movement vs. the negative ramifications of the ‘Hobby Lobby’ decision are just not even comparable in my opinion.

  • Chris Jochnick's avatar

    BY Chris Jochnick

    ON August 21, 2014 01:23 PM

    There is a kernel of an interesting question in this piece - ie. what are the unanticipated consequences of blurring the for-profit structures of corporations under law, as the B-Corp push has begun to do.  The Hobby Lobby case might then be viewed as a harbinger of one angle, among many.  This piece offers very little beyond that kernel, and instead does much to confuse.  For starters, the author conflates two very different fields—impact investing covers all kinds of investments around the world aimed at blending financial and social-environmental ends—a benefit corporation (as cited in Hobby Lobby) represents just one very small US-registered class of potential recipients of impact investing.  The idea that the B-corp movement —let alone the wider and now well established field of impact investing—is somehow suspect because of an off-handed cite in this single, controversial Supreme Court case, without any additional argument, is pure silliness and not worthy of SSIR.

  • BY David Rodbourne

    ON August 21, 2014 01:38 PM

    While the benefit corp movement certainly has value, we should not let traditional corporations off the hook by assuming that the only thing they are good for is ‘maximizing profit.’  Lynn Stout’s work (see The Shareholder Value Myth) drives home the absence of statutory and, in most cases, court rulings that require or restrict corporations to the singular goal of profit maximization.  The corporate responsibility, CSR, stakeholder management and sustainability movements as well as developments inside major corporations for over 200 years have demanded that corporations achieve social and environmental objectives as well as profits for shareholders. (See Corporate Responsibility: The American Experience). This is not and should not be “either or.”  We need to continue to focus corporate behavior on a triple bottom line - even if with some it is an uphill battle.

  • BY Catherine Lada

    ON August 21, 2014 04:38 PM

    I agree with Michael, Chris and David and would like to add my own perspective as someone studying social enterprise, innovation, and entrepreneurship at the doctoral level.

    “‘As an investor, you can participate in this change; you have it in your power to contribute to a movement that is potentially transformative and overwhelmingly positive. This is the promise of impact investing’..This blending of the for-profit and nonprofit realms is not necessarily a path towards such a utopian future. With Hobby Lobby on the books, the foundation might consider taming its zealous fervor for fusing the two sectors.”

    Ms. Morey, have you studied the field of social innovation? There is a large corpus of scholarly literature and popular (such as in the SSIR) that refutes your suggestion, which is truly off base, in my opinion. Have you read anything about HBS prof Michael Porter’s shared value initiative at all? “Companies must take the lead in bringing business and society back together. The solution lies in the principle of shared value, which involves creating economic value in a way that also creates value for society by addressing its needs and challenges. Businesses must reconnect company success with social progress. Shared value is not social responsibility, philanthropy, or even sustainability, but a new way to achieve economic success. It is not on the margin of what companies do but at the center.”

    Shared value is but one model, such as B Corps, pushing for changing the definition of capitalism. The point is there is a pretty wide-spread push by multiple groups to blur the lines between traditional capitalism and using business to achieve transformative social impact at large scale. B corps represent one very, very small subset of the types of hybrid organizations forming to achieve both financial and social bottom lines.

  • Maribel Morey's avatar

    BY Maribel Morey

    ON August 22, 2014 05:33 AM

    Dear Michael, Chris, David, and Catherine:

    I start by noting that I very much appreciate your engagement with the blog post.

    To be clear, I wrote the piece with the intent of providing a moment of reflection on the relative wisdom of philanthropic organizations such as the Rockefeller Foundation advocating impact investing. That is, in my analysis of the blending of the nonprofit and for-profit sectors, I approached the question from the nonprofit side. As much as it is interesting that the for-profit realm wants to model aspects of nonprofits, I care specifically about whether philanthropic organizations such as the Rockefeller Foundation should be in the business of helping to migrate aspects of the for-profit realm into the nonprofit one.

    I am cautious and hesitant about the Foundation’s advocacy of impact investing within the nonprofit sector precisely because it seems to compromise the Foundation’s (and more broadly, the sector’s) altruistic identity. If the Foundation (and more broadly, the nonprofit sector) leans towards the for-profit sector and increasingly models itself after it, then what realm in society is left to be altruistic? Earlier this summer, I wrote a piece for The Atlantic Online describing the White House’s appropriation of the modus operandi and language of the private sector’s top echelon. Do we really want to have a nonprofit realm and government that talks, walks, and acts like the for-profit realm? Is there not something unique and valuable to society about the nonprofit sector and government that is worth protecting from for-profit influences? Assuming we want to be thoughtful citizens, these are questions with which we should all be engaging.

    Today, there is still a distinction between the non-profit and for-profit sectors and the former is still supposed to be a realm of generosity with the general public’s welfare in mind. As such, philanthropies have a special obligation to think about the long-term consequences of their funding decisions on the public. From this perspective, the Rockefeller Foundation has a responsibility to reflect on the ways that its impact investing initiative, for example, is affecting American society. This is not to say that Hobby Lobby proves that the Foundation should abandon this initiative. Rather, the Supreme Court case should signal to the organization that it needs to contemplate the relative advisability of the initiative.

    In other words, the Rockefeller Foundation has a duty to analyze what the public is losing as well as what it is gaining with the organization’s efforts to blend the two sectors. Such critical engagement with its impact investing initiative would suggest to the public that the Foundation is—as it should be—more interested in living up to its general goal of improving the “well-being of humanity” rather than in proving and defending a particular, fashionable panacea.

    What I propose, then, is simply a “proud and thoughtful philanthropy”; a philanthropy that is so proud of (and awed by) its identity as stewards of the public that it stops idolizing the for-profit sector, and so thoughtful that it sees the ambiguity in its choices.   

    Very best,
    Maribel Morey

  • Stephanie's avatar

    BY Stephanie

    ON August 22, 2014 12:35 PM

    Hello Everyone!

    In the spirit of keeping a critical eye on the choices we are making in this era of for-profit/non-for-profit hybridization I have two questions that admittedly I do need to research further.  In any case they may lend some interesting insight into the trends this discussion has outlined.

    1) It may be a misconception on my part that major philanthropy occurs from big donors and massive institutions.  However, even if this is not a misconception, middle class giving and furthermore middle class experiences of altruistic work and engagement must be examined.  What has been the effect of the changing middle class on the “altruistic economies” of philanthropy and traditional nonprofit businesses?  In discerning and revealing this context, I believe the attractiveness and popularity of the newer models have a richer context in which to be better understood.  Could there be new participation where there was previously none, or it was low?  Or might this trend offer a less vulnerable position from which to keep alive and expand an endangered “altruistic economy & experience”?

    2) I’m surprised that no one has brought this up already.  However, doesn’t the following phrase strike anyone as disturbing?  “The court reasoned that these….corporations….could exercise religion.”  Again I need to dig in further into the language of the ruling to see if my reaction is truly warranted.  However, if it is, how is a corporate body now able to appropriate “religion,”  in a manner seemingly very different from the way faith-based organizations are defined and protected.  This looks like and feels like the convoluted confusion our society has created (legally, economically, and socially) between the recognition and treatment of a functional body (a corporate body) and the living bodies that form the former, in order to benefit groups of the latter (or even nature - i.e. animal bodies or the earth body).

    I hope these two questions offer more colors, textures, and shades, with which to sharpen the picture of “what the public is losing [and has lost] as well as what it is gaining [and has gained]” that we all may better discern and use our responsibility in terms of where do we go from here.

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