The traditional factor of success in publicly and privately invested companies is financial performance. Obviously, financial performance is important to you, but what other metrics of success do you look for in your work?
My partner and I have been certified in using some culture assessment tools. So introducing to the M&A process questions about an investor or buyer’s core values and impact metrics. What is their organizational purpose? How do they think about leadership style and people philosophy? Have you structured and documented around core values and purpose and metrics that aren’t financial? If so, what does that look like?
Some companies have a much easier time demonstrating their impact than others. Law firms, finance companies, and professional service providers face the difficulty of not always being able to directly point to their impact in the same way that a retailer can point to a sustainable supply chain, for example. How can businesses with these models create an impact and demonstrate the impact that they’re having?
The most obvious is the B Corp certification. Giving back to the community both with your time as well as with your dollar. Evaluate how you are treating your employees. Look at employee benefits, time off, parental leaves, and health care benefits. Or even just the B Corp assessment tool. If someone doesn’t want to go through the full certification process, they still have access to using the tool.
Another way is in using some culture assessment tools. There are lots of culture tools that gauge employee satisfaction, also referred to as entropy score. Are people engaged or disengaged? Do they feel included? Do they feel like they’re contributing? It’s a matter of listening to your employees and then taking action to address their concerns.
You’ve had a wide ranging career in investment banking, but you didn’t start your career in the impact domain. What are some big picture changes that you’ve seen since you began your career in IB?
I’ve been in both the private equity and investment banking world. In the early days especially, private equity funds were financial engineers. And then they brought on operating partners. And then they all brought in people who had actual operating experience, and they all got operating partners.
I’m seeing a shift towards returns not just being about financial engineering or operating. There’s now an awareness and consciousness around environmental, social, and cultural impact. You have to think about “What do you stand for?” Because the newer generations care. Companies are recognizing that you need to think about what you stand for and how you’re impacting things positively in order to attract talent and be competitive and agile.
The traditional finance community, whether it’s investment bankers, private equity funds, or banks, are shifting towards that framework for doing business. I think there will be a tipping point where they all jump in.
What are the challenges, if any, associated with impact investing becoming more mainstream?
The elephant in the room of impact investing is time horizon. If a company sells or brings on an impact investor, there’s still a three to five year horizon when that fund needs to exit. Then arises the question of: Okay, Impact Investor, I really like you and we’re aligned, but what happens after three to five years? It’s a systemic feature of the financial markets right now. Nevertheless, I think as the impact world grows, it will only be a good thing.
In your experience, what are some characteristics of investors and/or investment banks that a company would want to avoid?
For companies that care about their stakeholders, their legacy, and their impact, finding an investment banker (and/or buyer) where there are shared values is important. Partnering with somebody that aligns with your values, even if it’s a minority investor, impacts that room. It impacts the conversations that are had as well as the energy and priorities. Yes, money is important and values are important, but who you partner with is equally as important for the long term.
About Lynn Carpenter
Lynn Carpenter has over 20 years of investing, investment banking, and commercial banking experience and is certified in using Denison Consulting’s Organizational Culture Survey.
Lynn previously worked at South Franklin Street Partners, Morgenthaler Partners, and KeyBank.
A dog lover, college sports fan, and amateur cook. Lynn also loves being outdoors reading a book by Lake Erie.
About EPOCH Pi
EPOCH Pi is a for purpose investment bank that helps conscious companies survive and thrive beyond the transaction so they can continue to influence, inspire, and exemplify how the power of business can have a profound, positive impact on all: customers, employees, suppliers, communities, the environment, and shareholders.