There are really two questions to ask about when you think about an initiative like this. First, is social enterprise and the non-profit sector very important? And second, can Harvard Business School make a difference with respect to all of this? Let me just say a word or two about both of those questions from my perspective.
Numbers matter: $240 billion of annual philanthropy in the U.S. Six trillion dollars of estates that are likely to pass to the non-profit sector over the next quarter century. Seven percent of a country’s GNP, which is a lot more than the computer industry and a lot more than the automobile industry and the steel industry combined. It’s actually about 40 percent of the American manufacturing sector in scale. That’s one way of saying the non-profit sector is profoundly important.
Here’s another: we rely on the non-profit sector primarily to do a few things in our society. We rely on the non-profit sector to make sure that people stay healthy and to cure the sick. We rely primarily on the non-profit sector to take care of the aged. We rely on the non-profit sector for the most part to provide education and to provide the first experience outside the home for young children. We rely on the non-profit sector to make the discoveries that advance mankind’s understanding. And we rely on the non-profit sector to support and generate and restore and strengthen our faith. As a society, we place a lot of responsibility on the non-profit sector. So it’s hard to believe that if you can do anything to help the non-profit sector of our economy, you’re not doing something profoundly important for our country and for the world.
And so then there’s a second question. Does a business school, and the faculty of a business school, have anything to contribute to that task? There’s no question that our students are enormously motivated by the challenges that exist for the non-profit sector. And I guess the best way to answer the question of whether our faculty has anything to contribute to the non-profit sector is to look around the room and to ask yourself whether it’s important how organizations like Harvard University or the Red Cross or the Boy Scouts or the nursery schools my children attended are governed. And if you think that’s important, then you have to ask, where is there expertise in governance?
I don’t think you’re going to find more careful and more rigorous thinking about those questions, applying what we know in the for-profit sector to the non-profit sector, than you can find in Warren McFarlan’s work on that topic. If we’re going to succeed in the non-profit sector and if the non-profit sector is going to succeed, then one thing that it’s going to have to do, and one thing it’s doing increasingly, is doing what the for-profit sector does, which is have some metrics by which you can keep score and know whether you’re doing a good job or a bad job. And the best thinking that’s having enormous influence on how that can take place in the non-profit sector is some of the work that Professor Kaplan is doing on the balanced scorecard as an approach of keeping track of how we’re doing. This kind of accountability is something that is really, really important.
If you think about it, an enormous amount of human suffering is caused by people who make foolish choices, whether it’s with respect to the substances that they become addicted to, to the circumstances under which they drive their cars, to the ways in which they choose to live their lives. For what we spend to cure people in our health care system, – I don’t know what the right number is – some people’s estimate would be 3 percent of GNP, other people’s estimate would be 7 percent of GNP. And there is an enormous industry, it’s called the advertising industry, that is basically about persuading people to do things, to consume things differently then they otherwise would’ve done. And all of that learning and knowledge can make an enormous contribution to helping people live better, happier, healthier lives. And that’s what Kash Rangan’s work is all about.
I first heard about Kash long before I met him because the best student I had as an undergraduate, someone who later went on to work as my chief of staff at Treasury, had found that the most important experience she had in Business School was working with Kash on the topic of social markets. And that was an enormously important experience and it very much shaped how she led the rest of her life
If we’re going to succeed in this sphere, we need to be able to take risks while recognizing that some things are going to succeed and some things are going to fail, that if you have a couple of big wins, that’s enough to excuse and justify eight or 10 things that don’t work out, particularly if you have the wit to truncate the eight or 10 things that don’t work out because you see that they are not working out.
What’s the insight? You have to think about philanthropy in ways that are in many ways like the ways in which we think about venture capital. Our economy is far stronger because we have a venture capital industry that is unlike any other country’s venture capital industry. And I’m convinced that our capacity to address social problems is becoming that much stronger because we have what Allen Grossman has labeled venture philanthropy industry and those ideas are having increasing impact. I could give another half dozen examples of faculty here at the Business School who have been drawn into the tremendous challenges that the non-profit sector presents, but I think that these examples are sufficient to make the case that the non-profit sector and social enterprise are profoundly important.
There’s a great deal that Harvard University can do to help, and the Harvard Business School can be at the vanguard of those efforts. And so I am very, very grateful to all of those who have brought us to this point and I can confidently say that as great as the last 10 years have been, I am convinced that the greatest days of this program lie in the future.