Author Archives: Miguel Guerrero

Visiting Bainbridge Graduate Institute

I hastily grabbed another cup of coffee and made my way in the direction of the meeting room. As an invited guest, I did not want to be late. When I got there a few minutes late, I was pleasantly surprised to discover that it was not what I expected from an early morning planning and administrative meeting.

The setting was 8 am on Saturday morning and it was an intensive weekend for the students of the Bainbridge Graduate Institute (BGI). All of the students were pursuing their MBAs in sustainable business. For almost 10 years now, BGI has run an alternative green MBA program out of the shared facilities at Islandwood on Bainbridge Island. The full program has both an online component and one weekend intensive a month. Because of this structure, it can draw residents from across North America to the tiny island campus across the sound from Seattle, Washington.

The meeting that I was rushing to was better known as “morning circle” and it is just one aspect of what makes BGI special. In a large open room, about 70 students, faculty, staff and guests gathered in a circle. The format was simple. Anyone with something to say took turns and shared in brief one to two minute contributions. Roughly speaking the contributions followed the order of introductions, announcements, appreciations, puzzles (or puzzles with solutions), and hopes and dreams, although great latitude was allowed in what was offered when.

It was the appreciations section that made the most lasting impression on me. Here was the time when individuals (mostly students but some staff and faculty) spoke up about someone who they wanted to thank. It could be a simple ‘thanks’ to another student for help on their quantitative analysis (“quant”) homework or it could be a much broader heart-felt sentiment of appreciation for the way the whole community has acted. Many of these appreciations were emotional and personal. The overriding effect was to create an atmosphere of mutual support and community. I had to remind myself that this was a business school and these were aspiring managers and business leaders. Further, it was 8 o’clock in the morning and most of the people in the room had been up very late the night before.

Beyond the morning circle, the other aspect of the BGI experience that surprised me the most was the quality of the contributions in the classroom. My point of comparison was my own recent experience in completing the MBA at Sauder. I sat in on a strategy class on Sunday morning. To give a little context, this class came after three, intensive, 14-hour days and just before many would make a mad dash to the ferry to Seattle. Yet given the obvious challenges and distractions, the students remained focused on the sometimes quite abstract material.

When the professor asked questions, the students shared with very little hesitation. They offered concise, relevant contributions that often built on what was said before. It showed that they were engaged and listening to their peers. In fairness, though, the participants were well aware that they had limited time together and that this format was infinitely better than participating in an online virtual classroom. Still, in my experience, this type of discipline is rare in a class full of overachievers who often are far from brief.

The quality of an education is often determined not by its content, but the learning environment in which that content is delivered. Nestled in the quiet forests of Bainbridge Island, Washington, the students of BGI are taking full advantage of that beautiful setting by creating an extraordinary learning community.

Slowing down money so we can savor it

I just finished Woody Tasch’s book Slow Money. While I was muddling through it, I kept thinking that I am not getting his main idea. What was he trying to say? Tasch’s style is to quote his favorite authors at length. Add to this his preference for poetic metaphors and analogies and I found myself getting lost. Was he trying to say that we should just agree to make a little less money (or ‘return’ from an investor’s perspective)?

Having just finished my MBA, I imagined myself trying to explain the book to my more traditional business classmates who see the world through the lens of economic incentives. They might say back to me, ‘Well, Miguel, that’s a nice idea, but why would anyone do it? Where’s the return?’ I actually tried this line of reasoning on a friend and classmate from my program and his response was as expected. So what was I missing or was Tasch just calling for charity in another form?

Tasch builds his movement on the rather successful social movement known as Slow Food. The Slow Food community may be about finding ways to enjoy good food, but on a deeper level, it’s more about community—coming together to enjoy a meal. Tasch feels that that’s where the connection can be made to alternative finance. Slow Money is also about community. It is about choosing to switch some of your money from a far away fund to a closer-to-home friend or friend of friend with a food business. Tasch roots his ideas in sustainable food and farming, which is another connection between the slow food and slow money movements.

Central to the idea of modern investing is the idea that you should be compensated for a risky investment with a higher rate of return. Similarly, lower risk investments offer lower rates. Think bonds versus stocks. So, perhaps the investments we make in community-based, sustainable food enterprises are not as risky as bankers and investors believe they are. If this is the case, these lower rates of return might be a better deal then they appear. But how could bankers and investors have so systemically overestimated the risk for this class of businesses? Isn’t that their job? To assess and properly price risk?

I struggled with that one for a while. I did not have an answer, just a hunch. Not a lot to go on, but the idea that a banker might miss something important is not unheard of in the wake of the financial crisis. Putting my observer hat on, I would guess that there is a relationship to the social-psychological factors that help underpin the success of the microfinance movement. Making loans within a geographically-bounded social network to startups whose business models are based on something we all understand—food—might actually lower risk. The network takes care of itself. Neighbors help neighbors in a system of mutual aid. Also, in these communities, I would argue that trust and credibility are established the hard way—through time—instead of through looking solely at financial statements and recovery rates.

Borrowing from one of the lessons from Freakonomics, incentives are everywhere and have many different forms. In other words, financial incentives are just one of several types. Another powerful set of incentives are social incentives. Peer pressure and social norms. I wondered whether this was the idea that Woody Tasch was trying to get across. Slow food is not just a good idea to preserve what little topsoil we have left, but also because it represents a fair return on a lower risk investment with great collateral benefits like beauty, community and resiliency.

Here’s a video from the folks at Slow Money Alliance.

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Get out of Sauder for your eco-MBA

The other night at the MBA Gala, I found myself talking to a first year about how I wanted to get more environmental courses during my MBA. Perhaps because I did not get out of Sauder to take courses before completing my MBA, I wanted to provide this somewhat incomplete guide to some of my ideas for getting more environmental rigor and knowledge into your MBA. If you are interested in getting a more sustainable education experience from your MBA, you might consider taking courses outside of the business school.

Here are three ways to start to explore options outside of Sauder:

  1. Contact Bill Rees and get his thoughts on how to make the most of your MBA experience at UBC. He is facility at SCARP—the school of community planning at UBC. He is a bit of a celebrity. He has a particularly challenging way of seeing the world. Just having a conversation with him and truly trying to understand what he is saying is a learning opportunity. But he might also have a suggestion or two for you on how to make your own degree while also fulfilling your MBA requirements.
  2. Perhaps the most relevant school at UBC for interdisciplinary environmental studies is the Institute for Resources, Environment, and Sustainability (IRES). Their graduate program is very well regarded. You should talk to some of the professors, like Kai Chan for example, and see whether there is an appropriate course or two. These will be more difficult classes than your MBA courses. They are a full semester instead of six weeks, so one course is the equivalent of two MBA modules. The MBA office recognizes this and will allow you up to 3 credits for one course instead of the usual 1.5 credits.
  3. Check out the UBC Organic Farm. This is not a course, but is a great way to get relief from some stress while you reconnect with nature. You can buy produce at the farm stand on Wednesdays at the bookstore during the summer and early fall. Also, you can always volunteer at the farm. I helped out with a friend who had a job picking up and cleaning the eggs from the hens once a week. There are dozens of other volunteer opportunities on the farm too.

Remember to check in with the appropriate person in the MBA Office and make sure to clear whatever requirements they have for courses taken outside of Sauder.

The Rise and Fall of PACE in the US

FHFA, aka the evil empire

At the recent Net Impact Conference in a session on financial innovations and energy efficiency, Joel Freehling (Senior VP, Urban Partnership Bank—formerly Shorebank) made an argument that four financing related issues are blocking energy efficiency projects in the US:

  1. Energy efficiency projects are generally not being financed by commercial lending banks
  2. Low, fixed rate, long-term loans do not exist to the extent necessary. (Governments have loan programs, but these are small. For example, Pennsylvania is the largest state program at 20m in loan-able funds.)
  3. Bad data is a big problem, especially when it comes to the determining the levels both before installation and after installation.
  4. Utility commissions are generally too conservative. Plus, the old incentive problems for utilities are also there still.

To address most of these interrelated issues—all except bad data—PACE Loans were seen as the great solution to get residential efficiency projects financed. PACE provides the type of long-term, fixed rate debt that it complements the cash flows that energy conservation generates. So, what is PACE? Or, perhaps, more sadly, what was PACE?

Property assessed clean energy (PACE) programs enable local governments to finance renewable energy and energy efficiency projects on private property, including residential, commercial, and industrial properties. The model eliminates the chief barrier to clean energy installations: the large upfront cost.  Renewable Funding, About PACE

It is critical to understand that PACE loans are attached to the property, not person who lives in the house or the company that occupies the building. Here is how it works:

States give the local authority permission to issue new bonds. Residents apply to get a loan using the money from the sale of the bonds. The money could be used to finance home efficiency projects or to install new clean energy generation. The new loan would be senior to the mortgage on the property in case of default. Repayment of the loans could be incorporated into the tax bill for the property.

Many states had passed their own version of PACE legislation to allow these funds to begin to flow. However, in July 2010, the Federal Housing Finance Agency (the agency that oversees Fannie Mae and Freddie Mac) issued a letter that said that PACE loans represent “systemic risk”—oh, the irony!—to the US mortgage markets. Therefore, FHFA will not guarantee these loans. Residential PACE markets are virtually frozen waiting for clarification or for Congress to act.

Freehling said that the FHFA action against PACE represents a potential misunderstanding because only a small fraction of the loans are senior to the mortgage—that amount which is due in the year that a default occurs. The rest of the principle and interest are assumed by the new owner of the property and continue to be repaid through the property tax bill. No word yet about whether Congress will act to save the movement. The results from Tuesday’s midterm elections would suggest that they won’t be in a hurry.

How to Succeed in Cross Sector Collaborations

Session 4: Cross-sector Collaboration

This was a back up session for me. I had wanted to go to a design thinking workshop put on by the folks at IDEO, but it filled up quickly and did not get a seat. I saw this one on the schedule and thought ‘I did not know anything about cross sector collaboration.’  I am glad I did because this turned out to one of the most engaging panels that I saw at the conference.

Cross sector collaborations are alliances between corporations, non-profits and governments. They can involve any two or more of the three types of organizations. According to Harvard, cross sector collaborations are increasingly becoming more long-term and strategic for both parties, moving away from pure philanthropy.

The three panelists in this session concentrated their comments on the softer side of managing cross sector collaborations. When asked what skills one would need to do well at cross sector collaborations, Nora Silver, professor at the Haas School of Business, offered that one “needs to be conversant in the language of all three sectors.” Then, she quickly elaborated: negotiation skills, ability to develop and maintain trust, listening, ability to work with different people, and manage change.

Paul Gerrand with Humana, Inc., an insurance company, agreed and added a few more skills of his own: humility, patience, thoughtfulness, and ability to hold yourself accountable for your actions. Maureen Sedonaen, executive director of the Youth Leadership Institute, followed Paul’s comments with her own list of must-haves for the aspiring leader in this area: ability to understand the motives or intents of others (empathy) and willingness to give genuine praise.  In addition, the manager of cross sector collaborations should value differences and seek small victories along the way. The theme was clear to me. To succeed at managing cross sector collaborations, you had to be high in emotional intelligence.

While we know that management education has never done a great job at training their graduates in the field of emotional intelligence, Silver suggested that business schools may undermine students’ so called ‘soft’ skills. In case studies, for example, your job is to solve the problem as soon as possible with little context or history. Such a pedagogical approach might actually teach students indirectly to be impatient because cases appear to contain all the information you need to solve them on the spot.

In the context of the discussion of the need for trust, Gerrand cited data from the Trust Barometer that showed how in the wake of the recent recession, public trust fell for all three sectors—government, corporate, and nonprofit. (Trust levels have since returned in the latest survey.) Cross sector collaborations were offered as a way to rebuild that trust, but must be done carefully.

Finally, in terms of building your sense of empathy, Gerrand recommended Conscious of a Conservative by Barry Goldwater. In Goldwater’s master work of political nonfiction, he sets out what is widely considered the best case for American conservatism. Liberals often dismiss the right as misguided, but Gerrand believes that such an attitude would undermine one’s ability to work with partners from different sectors.

Tales of Giant Kangaroo Rats and Wind Turbine Health Syndrome

Officially, this session at the recent Net Impact conference was called “Hurdles to Renewable Energy Development in the US,” but the moderator provided me with the much more exciting title you see above. Moderator Ian Black opened the session with his story of a failed renewable power project in California. To listen to his version of the story, one might think that the giant kangaroo rats single handedly stopped the project. Actually, his tongue in cheek complaint about the small fuzzy mammal arose from the fact the

Giant Kangaroo Rat

Climate enemy #1: the giant kangaroo rat in his natural habitat

rodent is on the endangered species list. When all attempts to work around the habitat failed and moving the population was not an option, Black decided to kill the carbon-lite power project before it had even broken ground. The story comically indicated his frustration with the regulatory permitting process in the US and implicitly suggested that more renewable power could have been installed by now if it were not for the Endangered Species Act and all of the similar environmental red tape.

Indeed, permitting timelines differ greatly by state, from Texas (under six months) to California (over two years). The lesson to learn for the aspiring MBA hoping to get into renewable energy development was be patient and maybe reconsider your career selection if you are not the patient type. Regulations define the process of citing and developing, say, a new wind farm from start to finish.

If that’s not bad enough, Chip Reading (Director of Development, North American Wind, Acciona) introduced something called ‘Wind Turbine Health Syndrome,’ an alleged disorder that he had hoped to disprove by bringing in medical experts to state that such a thing does not exist. Reading indicated the disorder was simply a tactic that communities use to oppose the development of a new project in their area. The overriding theme for session was that the developer must struggle against NIMBY and BANANA (build absolutely nothing anywhere near anything) communities. However, beyond these games of cat and mouse, I took away some gems of knowledge from this session about the state of renewable power in the US.

The currently low price of natural gas is making renewable power projects less profitable because they must compete with new natural gas fired turbines. But most renewable generation also uses natural gas as a source of backup power in the case of a shortage of the renewable. Thus, the two competing technologies appear to have a love/hate relationship.

Another extremely important topic was the pending decision in California about whether the state will lift the cap on out-of-state produced renewable power (to 50% from 25% currently) to meet their renewable energy targets. If the deal goes through, there will be many effects. Idle wind capacity in Oregon could be put to use. Of course, BC Hydro would like to market their cheap carbon-free electricity to California at premium clean power rates, but hydro power does not count under California’s 20% by 2010 standard.

However, for me, some of the most interesting ideas were in the area of storage. Wind turbine manufacturers are developing new ways to store and slowly release the stored energy to smooth out supply. One idea is to pump compressed air into on-turbine chambers, or into limestone caves, and feed it back at night or at low wind periods. Another storage technique: make hydrogen with the extra capacity at night.

The problem with plastic water bottles

Keynote: William McDonough, author of Cradle to Cradle & Kim Jeffery, CEO of Nestlé Water, North America

“It’s a design problem.”

That’s what William McDonough said as he patiently explained his work with Nestlé Water North America on rethinking their packaging. McDonough, along with Michael Braungart is the author of the book Cradle to Cradle, an inspiring call for industrial transformation to a world where the very concept of waste is eliminated.  McDonough shared the stage with Kim Jeffery, CEO of Nestlé Water North America as Friday morning’s keynote address at the recent North American Net Impact Conference.

Nestlé Water hired McDonough’s firm to help them design a system to increase the recycling of the ever present plastic bottle. The talk covered everything from why caps are not recyclable along with the bottle to the virtues of drinking water instead of pop. CEO Jeffery probably knew that this audience was not going to welcome his company with open arms. So, the talk started with Jeffery explaining how the market for bottled water has developed over the last 20 years and the fact that their sales have largely eaten into the sales of companies like Coke and Pepsi. While perhaps this group of savvy business students should have been more appreciative of the power of the market, no one was buying the line that Nestlé Water was our savior in a transparent plastic bottle.

Indeed, the bottle itself was on the stand and the charge was unacceptable levels of waste. To many in this Nalgen carrying crowd, the solution was simple: just refill your reusable water bottle from the tap or filtered water jug and don’t buy bottled water. When Jeffery was asked why not encourage the use of reusable bottles, the auditorium erupted in applause. Meanwhile, Jeffery became visible defensive in front of the crowd of 2000 as he repeated his description of his company’s reusable five gallon bottle commercial service from earlier in the talk and ignored the obvious intend of the question to probe at the retail level.

However, despite the emotion, I think that Jeffery had made an important commitment. One that went, perhaps, under recognized at the time. As CEO of a major bottled water manufacturer, he expressed his clear support for the sector taking financial responsibility for their product packaging. While this is not a revolutionary idea in Europe where some countries have laws to require manufacturers to take back their products at the end of their useable lives, I believe it is a significant position to take in North America and represents an important sign of how far the industry has come.

By the end of the talk, I came to have a much better appreciation for the difficulty of the challenge of increasing recycling. The states and sometimes municipalities have each taken their own approach to recycling creating a fragmented system that does not have a unified way of handling returned plastics. Meanwhile, the recycling rates have actually fallen in the US over the last 20 years. Just what it will take to change people’s behavior is not an easy question. And while bottle bills work, Jeffery feels that they are not scalable to cover all of bottles. Retailers are not set up to handle returns. Bills were written to deal with litter, not address the failure of residential recycling programs.

Still, though, I am hopeful that McDonough and his team can come up with something better and that Nestlé will retain their commitment to fixing recycling in America.

Hello, Ann Arbor

At the end of this month, some members of the UBC Chapter of Net Impact will travel to Ann Arbor for the Net Impact North American Conference. Fourteen MBAs from Sauder School of Business will make the trip. We will use this blog to share our experiences at the conference. Look for updates as the conference begins  on Oct 28.