Sir Ronald Cohen: Saving humanity in his autumn years

A peek into the life and times of Sir Ronald Cohen, author of bestselling book 'Impact'

At the tender age of 11, young Ronald Cohen appreciated loss better than most of his peers. As Egyptian President Gamal Abdel Nassar drove out its Jewish population in the aftermath of the Suez crisis in 1956, Cohen recalls vividly how he and his family lost everything. The visceral fear he felt as he watched his father crying on the plane, the stoicism with which his mother faced the changed circumstances and even his childlike fear at being parted from his precious stamp collection as his family braced itself to leave. In a flash, the Cohens found themselves bereft of all possessions, their nationality, their identity and a place to call home. 

 
When we connect over Zoom, Cohen is at his home in the South of France and I am in Altinho in Goa’s Panjim district. His new bestselling book Impact has been recently released, making waves around the globe, translated into 10 languages and judged one of the best books of the year in many countries. The post-pandemic timing of the book couldn’t have been better since the “idea of impact is being carried by the tide”, he points out.
 
To say that adversity builds character would be an understatement in reference to Cohen. Non-English speaking at the time, he found himself in a public school in England in 1957 and heard his father who’d arrived in the country with ten pounds in his pocket promise the headmaster that his son would work hard to top his class if he agreed to admit him. The words sank into him and despite the language hurdle he clearly faced, he ensured that he stood second within one year of his joining the school. 

 

Upon completing his schooling, a teacher who’d discerned that Cohen had a “rapier-like mind” encouraged him to read 200 books to clear the Oxford entrance, many far more complex than his peers were plowing through, helping him hone his critical thinking powers. This helped him sail through Oxford. When the philosophy tutor at his Exeter college interview asked him what he was currently reading, he replied “All and Everything”, to which the tutor said he meant a specific title. Cohen explained that he was specifically reading “All and Everything”, the trilogy by Gurdjieff, surprising the tutor as the tomes were far above his peer set. At Oxford, Cohen found himself drawn to debate and politics and soon went on to become the president of the Oxford union which gave him an opportunity to host lunches, talks and learn from the best world leaders. 

 
Our conversation takes place when America’s withdrawal from Afghanistan is hogging world attention so he narrates a conversation he had as a student at Oxford with the US President John Kennedy. The US was then still in Vietnam and considering withdrawal and the President asked Cohen what he would do if he was in his shoes. He said he would withdraw as “staying longer would worsen the situation”. The more things change, the more they stay the same, I think to myself.
 
Post Oxford, Cohen found himself at 22 at Harvard Business School (HBS) after he won the prestigious Henry fellowship. His first exposure to venture capital was when a French general visited and mentioned how his investment of $70,000 had multiplied into $100 million. Cohen, who was obligated by the fellowship to come back to the UK with something of value, picked venture capital, a relatively unknown animal in the UK in 1969. “When asked what his father does by the school’s headmaster, a rival’s young son said his father was an “adventure copulist”! That’s how little known venture capital was back then,” he laughs.

 
It was then that he came across Alan Patricof, a pioneer of venture capital in the US who helped him “persuade institutions in the UK that venture capital could work”. Maurice Schogel, who had risen from his position of messenger boy to lead Credit Lyonnais, the French bank, agreed to chair Cohen’s venture. Not only was Cohen responsible for bringing venture capital to the UK, he was the father of it, taking his company Apax partners from an average fund investment of 10 million pounds to an average fund of $13-14 billion forty years later. It now manages total assets of over $60 billion. Directly and indirectly, the funds created employment for many and didn’t invest in businesses he considered unworthy: gambling, liquor, weapons, guns – anything that ran contrary to his moral fibre and code of ethics. At 53, having earned more than he could spend in his lifetime, Cohen sold his shares in Apax to his partners and decided to free himself to focus on pressing social problems, including the Israel-Palestine crisis. 

 
In 2000, two years after he told his partners he was shifting gears, he got a fortuitous call from the British treasury saying that no matter how much money they threw at eradicating poverty, they were unable to dent it. I interrupt to ask what poverty meant at the time in the UK. For an Indian like me, poverty is “something else” and most in the UK would never have encountered it.
 
“Yes, poverty as you know it, doesn’t exist. But in the UK at the time the gap between the rich and the poor was widening and those who were left behind were stuck behind,” he explains. He chaired the committee and came to the conclusion that while the world had been very innovative in finding ways for those who want to multiply their wealth (venture capital, private equity, stocks), it had so far failed to find ways of funding for those who want to do good and make the world a better place. The report written two decades ago concluded that there must be ways to “connect those who want to improve lives to financial markets”, but the path was not yet clearly visible.

 
This is when the kernel of Impact was sown in his mind, although the soil perhaps wasn’t yet fully ripe for it. But as time went by, Cohen himself became increasingly convinced that innovation was the need of the hour. He set up Social Finance in 2007, a small outfit with 18 employees from diverse fields working together to do their bit to solve the world’s most pressing problems.
 
In 2010, two 30-year-olds walked into his office and said they had been trying to attract investment to fund initiatives that help reduce the number of people going back to jail once released. “What do you think if we link the reduction in those going back to jail to a financial return,” the duo asked. “It was as if a lightbulb went on in my brain,” says Cohen, visibly excited as he recalls the moment. The two youngsters had found the key to capital markets for social entrepreneurs to his mind. Till then, everyone had assumed you can’t measure anything in the area of impact but here was something that could be measured. 

 
That’s when the social impact bond came into being – The Peter Brook bond – and the UK government bought into it. Five million pounds was raised to fund charitable institutions working with the jails with the aim of reducing the numbers who found themselves back in jail post release over a five- to seven-year period. There was a 9.7 per cent reduction in the returnees and the investors got the 5 million pounds back with a 3.1 per cent annual return, proving that the impossible could be made possible if one thought out of the box.
 
How did the institutions manage this feat, I ask? What stopped them from doing it earlier? Once there were clearly defined targets, the approach was to tackle the menace holistically. Charitable institutions had been tackling one end of the problem or the other but not looking at the problem in its entirety. The team quickly realised that the whole is greater than the sum of its parts. Forty-two per cent of the prisoners had a drug habit, 38 per cent had broken families and nowhere to go and spend a night and on and on and on. “We brought all the tiny efforts under one umbrella,” he adds. I feel a sharp pricking of tears when he tells me there was for instance a higher probability of return for those who were not met at the gate upon release by kith and kin than for those who were met at the gate. The fact that someone cared was alone enough of a disincentive I find heart-rending.

 
With the Peter Brook bond, the social impact bond had proved its efficacy. Money had been raised to tackle a social problem and returns had been delivered to investors. “If need be, more money could be raised to solve this or other similar problems unlike with philanthropic funds which are limited by definition.” That’s when he was asked to set up National Advisory Boards in the G7 countries and Australia headed by people like himself who sympathise with such approaches. It was then they found that ESG investing was already very much prevalent in these economies as investors refused to invest in companies doing damage, the younger generation was making conscious choices and refusing products that were damaging the environment and refusing to work for companies that do harm. This impact investing sector grew from $10 trillion eight years ago to $40 trillion today. 

"Impact has brought in a second element that argues that “you can’t just make money but you also have to improve the world” and the future belongs to those who do this best."

 
This jolts us back to the present. The work done by the G7 task forces clearly established that the world is shifting in this direction where it values the full impact. In 2018, in Delhi, he launched a booklet: On Impact, a guide to the impact revolution that elaborated on the findings. Impact has brought in a second element that argues that “you can’t just make money but you also have to improve the world” and the future to his mind belongs to those who do this best. He cites the example of Tesla, which has acted as a disruptor and forced all car manufacturers to look for more sustainable ways of producing the same end product while creating a company the size of five of its rivals put together. The main thesis of his latest book besides capturing the fundamental shift in paradigm from risk and return to risk, return and impact is that technology today enables us to measure the impact of individual companies in a granular, monetary way. He is clear in his mind that we (the world) have to accelerate this trend if we want to deal with today’s social and climate problems. Adam Smith’s invisible hand has been failing to deliver optimal results and the damage climatically and socially is massive and it is incumbent upon the world to tackle and reverse the damage.

 
I interrupt to say that many argue that while impact investing may have started with noble intentions, today impact investors in many cases have emerged as wolves in sheepskin. More lip service than real good being done.
 
There are several different types of investors in the ESG space, he argues. There are investors who firmly believe in it but don’t have the right tools to make the right decisions. “Companies don’t measure their impact, so how can an investor know what he’s actually investing in?” Since impact has become a major force now with $40 trillion in investment, he mentions that his work with HBS shows that companies that pollute more are worth less. This has created a tendency of “greenwashing” on the part of companies. This is when companies make misleading claims about the good it's doing in the world. “They talk to you about some small thing that’s positive while hiding the massive things they are doing that may be negative,” he says. The same has happened with impact investing but to a lesser extent. One bad apple doesn’t spoil the barrel.

 
A defining piece of work
 
It is against this backdrop that he’s now embarked, at 76, on what he thinks “might be the most critical work of his life” in collaboration with his alma mater HBS, an effort he is chairing. The most pressing problem he sees. 

“If the microchip started the tech revolution and powered it, impact transparency is it’s equivalent in the impact revolution” 

 
Technology today allows us to measure the impact of individual companies from three lenses: environment, employment and product impact, in a granular, monetary way. By December, there will be published data on the environment, employment and product impact of thousands of companies. “If the microchip started the tech revolution and powered it, impact transparency is its equivalent in the impact revolution,” he avers. Based on these calculations, he hopes that companies will be forced to change their behaviour due to pressure from investors, talent and consumers. He reels off the data for the category where the data is already collated: food companies like Danone, Hershey’s, Nestle, Kraft and a few others. He asks me which of the players in this segment have the best environmental performance or the best impact on people’s health and nutrition. 

 
In response to my blank stare, he elaborates. Nestle creates $1.5 billion of damage a year, 7.5 per cent of its profit. The damage as a percentage of its profits is over 10 per cent for Danone, and 7.37% for General Mills. The biggest offender they have found is Associated British Foods, whose damage is equal to 76.5 per cent of its profits!  Similarly, the product impact of the companies based on sugar content and the impact of people’s health and nutrition shows that General Mills makes a positive contribution of $5.8 billion versus its rivals like Kraft, Hershey and Danone, all of which contribute negatively.

 
As all the implications of everything he’s telling me sinks into my brain, I have a flurry of questions in excitement. What about Amazon? From everything I know of the e-commerce giant, I expect the damage numbers to be jaw-dropping. The data is not yet ready, he tells me, although it will be by the year-end across many companies and categories. Total impacts of several thousands of companies will be published in dollar terms.
 

"Governments must step in and mandate that all companies report their impact transparently, on a comparable basis and these must be audited just like financial accounts are"

But for this effort to bear fruit as envisaged and to achieve the transparency required, governments must step in and mandate that all companies report their impact transparently, on a comparable basis and these must be audited just like financial accounts are. “We didn’t always have the same set of principles for all companies in financial accounting either till the Great Crash of 1933. It is similar for impact,” he explains.

 
I suggest he’s setting himself up for an avalanche of lawsuits and why, I ask, HBS, which in all likelihood receives a substantial portion of its funding from CEOs of companies that might be found to be causing more damage than good, would agree to do this. 
 
In his characteristically calm and composed manner, he tells me he welcomes the lawsuits. His alma mater and he are not talking through their hat; a truckload of data, hundreds of researchers, inputs from the best scientific minds back their claims. As far as my last question goes, he suggests I speak directly to Srikant Datar, the present dean of HBS and an Indian, as to why he’s spearheading this effort.

“The misperception of the climate movement has been that we have to get governments to do things to reverse the damage. But it’s not governments who are polluting. It is companies”

 
He doesn’t spell it out but I know the answer: humanity’s survival depends on this. Once you measure the impact of companies, you can change their behaviour. Pressure from investors, talent and consumers will ensure this. “The misperception of the climate movement has been that we have to get governments to do things to reverse the damage. But it’s not governments who are polluting. It is companies,” he adds. Governments have to be bold, and the pandemic to his mind creates the conditions for them to be bold. 

The magnitude of the challenges the world is going to face going forward - greater unemployment, more poverty, health crises and climatic disasters - at a time when most governments are hugely indebted - makes it necessary for governments to bring investors and businesses alongside to deliver solutions.

 
The magnitude of the challenges the world is going to face going forward – greater unemployment, more poverty, health crises and climatic disasters – at a time when governments are hugely indebted and don’t have budgets – makes it necessary to his mind for governments to bring investors and businesses alongside to deliver solutions. He says that the fact that this impact data is shifting the valuations of companies means that regulators will step in and mandate that companies provide shareholders audited impact numbers on a comparable basis. “I think it’s a much shorter fuse and we will see this happen in the next five to seven years,” he explains.

 
The full import of everything he’s just told me leaves me a little stunned, unnerved and a bit excited as I see a glimmer of hope for mankind, after two years of feeling utter hopelessness. Since I had read up a bit on him and at the start of our chat expressed a desire to learn more, he spends another few minutes telling me of his and Sir Harry Soloman’s (founder of Hillsdown Holdings) work in the Portland trust to address the economic dimension to resolve the Israeli-Palestinian conflict by creating employment opportunities and through impact investment. For 18 years through offices in Tel Aviv, London and Ramallah, they have worked to boost the Palestinian economy’s ability to provide jobs, acceptable levels of pay, and so on. He lists a few projects that they have done to improve livelihoods and lives, although just like impact so far, not everything they have achieved is measurable. He is hoping to see a resolution of this long-standing conflict at some stage, just as he recalls the Arabs and Jews coexisting harmoniously as a child growing up. “We need the kaleidoscope to turn a few times and perhaps leadership to change on both sides”, but a solution is not outside the realm of possibility to his mind.

 
This doesn’t surprise me as solutions are what Cohen seems best at finding. As we reach the end of our long chat – and his most comprehensive interview in a while he says – he leaves me quite awed at the breadth of his thoughts, what he’s achieved in his 76 years and even more blown away with what he’s still hoping to achieve in the autumn of his life. If the world could only find ways to clone Sir Ronald Cohen, we’d be home.