A blog on the Unitus controversy you won't want to miss

The SKS IPO is a microfinance milestone: the first IPO of an Indian microlender – an event big enough to be covered by the international media.  When the first IPO happened in Mexico in 2008, Banco Compartamos was attacked for its high interest rates and (arguably) excessive profit rates, with Muhammad Yunus leading the charge.

This time, there's controversy of a different sort: the focus is on the investors rather than the microlender, namely Unitus.  This is Jonathan Lewis, founder of Opportunity Collaboration, pinning down the questions swirling around Unitus, a key SKS supporter which has, at best, massively botched its PR strategy:

With its announcement, Unitus unleashed a series of web and media commentaries. A July 29, 2010, New York Times article reported, “The other nonprofit ensnared in controversy is a Seattle-based group called Unitus, which holds a stake in SKS that will be worth millions after the I.P.O. The group’s board shocked the nonprofit community this month by saying that all of the organization’s 40-person staff would be laid off and that Unitus would no longer be involved in microfinance activities. That stunned donors of Unitus, which was set up a decade ago specifically to support microfinance….In charity circles, people wondered about the motives of the Unitus board members, at least four of whom had invested in SKS Microfinance themselves and thus would reap profits from the I.P.O.” With press coverage like that, no wonder the microfinance community is shaken.

The Unitus decision raises pivotal policy and operational challenges:

One, who are the true stakeholders of a nonprofit? Unitus Board chair Joseph Grenny in his July 16, 2010, public letter references the “legal, financial and moral obligations to our partners and employees,” without mentioning any similar obligations to either donors or the poor. Perhaps, nonprofits don’t have “legal, financial or moral” obligations beyond their by-laws and contracts, but – given Unitus proud track record – I personally would welcome a pragmatic airing of the ethical and public interest considerations which must have been part of the board’s internal debate. We could all learn so much from understanding this tough balancing act.

Two, the question of mission fidelity, a theme more radical than merely mission drift, is highlighted by the Unitus decision. An organization whose social mission is innovation in poverty alleviation might sensibly conclude, as did Unitus, that its work was done when its particular model of social change was achieved, demonstrated or proved. This mission or purpose almost demands an exit strategy or, in the parlance of the social (9) investor, a liquidity event. In contrast, an organization whose social mission is poverty alleviation might conclude, and rightfully so, that the pursuit of economic justice never ends.

Three, a July 16, 2010, Puget Sound Business Journal article catalogues the donor and foundation community’s dismayed response, lack of advance notice and sense of confusion. Is the Unitus closure of its microfinance operations a breach of faith with the myriad of donors, small and large, who backed its important work and believed in it?

The whole piece by Lewis is worth reading.