The Stock Market Goes Social

Jessica Lee

Jessica Lee volunteers in her free time with Wokai’s San Francisco Bay Area Chapter as Business Strategy Associate. She recently graduated from Stanford University and now works for a startup company in Mountain View. She likes to think that she is a budding social entrepreneur! Write to her at [email protected].

In just ten minutes, I lost $400,000 dollars, and it hurt. No, I wasn’t on the NASDAQ – I was trading on the Social Stock Exchange, bidding and asking prices for the stocks of social businesses. This one guy managed to walk away with $4 million dollars. I was impressed! But to his dismay and my delight, we were not real social investors yet, and a social stock market was only a figment of our imaginations, thanks to the simulation game we were both players in. I know…phew, right?

The Wharton Social Stock Exchange is a simulation game that was designed for this year’s Net Impact Conference, which took place in November at the Wharton School of the University of Pennsylvania. (The three-day conference drew a diverse group of participants – business school students and professionals from both the private and public sectors – to discuss how to leverage business for good.) The 20 or so players in my session were all placed in front of computers and given stock profiles (including company description and stock ticker), dividend charts, and an initial allocation of stocks and cash. Using an interactive real-time trading platform, investments were valued and trades were made based on a company’s social (not just financial) performance. As popup windows brought social news updates (e.g., ethical sourcing, environmental practices) to us players, the room filled with pauses and then clicks, interrupted with the occasional sighs of frustration and relief. People were getting competitive.

The goal of the simulation exercise is to allow players to test out for themselves Muhammad Yunus’s proposed social stock market theory. In his book Creating a World Without Poverty, Yunus talks about how, as social businesses become more prevalent, financial institutions will open up and adapt to meet their financing needs. We will see more social venture capital funds, social mutual funds…all culminating in the rise of a separate stock market for social businesses only. Definitely hard to believe, given the current state of international markets, but going on a slight tangent now…

(start of tangent)

…What is a social business anyway? A social business is like a profit-maximizing business (PMB) in the sense that it is financially sustainable through the products and/or services that it offers. However, unlike PMBs, a social business’s ultimate goal is to achieve social impact – measured for instance by the lives it touches. Any profits turned are reinvested into the business, as opposed to being passed along to investors (no dividends). Thus, a social business operates on a non-loss and non-dividend basis. Why should social businesses exist? I like Yunus’s explanation and the logic that it represents: free markets are good --> then why have they failed the poor? --> because they are based on a single-track concept of capitalism that assumes that the pursuit of profit maximization leads to happiness --> but this is wrong, humans are multi-dimensional --> not all businesses need to serve profit alone…

(end of tangent)

Back to social stock markets, and why they are so important to the growth and development of social businesses. I’m a firm believer in incentives. As with PMBs, the budding entrepreneurs and CEOs of social businesses will catch onto bigger problems and come up with better solutions only when the financial and investor communities are ready to become more involved. Other benefits Yunus highlights include:

1.      Increased liquidity for shareholders to choose their social investments

2.      Heightened public scrutiny to avoid potential deception and fraud

3.      Greater exposure to social businesses to attract more capital into the new market

Shifting more to Wokai, my reaction to the Wharton Social Stock Exchange simulation game and Yunus’ social stark market idea in terms of Wokai is threefold:

Wokai is not a social business yet. As an early stage nonprofit, Wokai is not yet at the point where it can be called a social business, mainly because it is not making money from the services it is offering. Will this change in the future? I don’t know. Perhaps Wokai may decide to charge a reasonable partnership fee to local microfinance institutions (MFIs) – not a bad idea, since studies show that people value things more when they pay for them. Another potential source of revenue may come from ads. As a web-based solution, Wokai will at some point face the decision of whether or not to monetize its page. There are trade-offs here, and I trust that Wokai will be sensitive to the needs of its users whatever it decides. Then again, maybe Wokai will choose to remain a nonprofit. Every organization has a different role to play. Right now it looks as if Wokai’s is to enable other social businesses (MFIs and microenterprises) as a nonprofit.

Social impact is hard to measure. Seriously, how do you go about putting a number on the impact that a small loan has on a Wokai borrower’s life? One of my borrowers, her name is Wu Ren. She borrowed $450 to purchase 30,000 bushels of animal feed for her cattle and sheep business. In her own words, her goal is to lift herself and her family out of poverty. How do you quantify the return on investment of that loan? Yes, there’s the financial return that can be easily identified, but measuring health improvements, educational opportunities, and human dignity is another story.  If and when the social stock market takes off, social businesses must be ready (numbers and all!) to be evaluated by their social returns.

Games are fun. They just are. For example, people can hunt mice for hours. It’s the escape that they bring, catapulting you into another sphere of experience. The Wharton simulation game inspired me to begin thinking of ways that Wokai can create its own simulation game to educate people on what the heck microfinance is. I know whenever I tell my friends and family about Wokai and microfinance, I get bombarded with questions. And rightly so! In microfinance, there are so many players involved in the value chain, including the government as is the case with China. Why not create a game where players can interact with each other as contributors and borrowers, as well as with MFIs and governments? The game could also introduce a virtual credit system as the trading currency. These are just thoughts, but based on the Wharton game, I’ve come to realize that games can be fun and intellectually enlightening.

          

So, as Yunus predicts, heads up that you might start seeing The Social Wall Street Journal reporting that so and so social business did such and such, increasing its share price from 10.00 to 12.50. Or that two complementary social businesses merged, increasing their share values in the eyes of social investors. And don’t be surprised if you see the Social Dow Jones Index alongside the other indexes. I’m telling you, it may seem like a far-fetched vision, but it’s only a matter of time. I think I’ll change my Facebook status to, Jessica is waiting for the stock market to go social. 

Comments

[Stock Market]

nice blog. thanks for sharing this. gives other people especially normal people a shot in stock marketing.