The Ford Foundation’s Roy Swan begins his new book with a compelling anecdote. Carrying the ball as a high school tailback, he leaped into the end zone for a touchdown, only to catch his foot and land smack on the crown of his head. Doctors told his family his smashed vertebrae meant he might be paralyzed for life.
“It was the best thing that ever happened to me,” Swan says on the latest Agents of Impact podcast.
Experimental techniques and an innovative surgeon allowed him to make a full recovery, and even to run track six months later. And the injury steered him away from football and ultimately to a career in finance, including as co-head of global sustainable finance at Morgan Stanley and now as head of mission investing at Ford Foundation, where he oversees a $1.3 billion carveout from Ford’s endowment for mission-related investments.
“It changed my whole life, put me on a different path, opened up a whole new world,” he says.
Swan uses the incident to make a broader point that conventional wisdom is often wrong. “We are operating under collective illusions,” he says.
The main target for his myth-busting in “Positive Sum: How Zero Sum Thinking Broke Capitalism—and How We Can Fix It,” out today, is the deeply ingrained belief that every gain requires someone else’s loss.
Impact investors have long argued – and in many cases proven – that financial returns and positive social impact can reinforce one another. Swan wants to share the good news more widely.
“A lot of people are afraid, particularly investors,” says Swan on the latest Agents of Impact podcast. “They think that if you’re going to have social impact, you’re going to lose something. That’s just not true.”
Swan’s mission investing team invests in affordable housing, financial inclusion, responsible technology, healthcare and quality jobs, while targeting returns sufficient to preserve its endowment and distribute its required yearly grants (full disclosure: through a program-related investment, Ford Foundation is an investor in ImpactAlpha).
“We have to generate a pretty high long-term financial return,” Swan says. “So far, so good for us. We’ve exceeded our expected return and our financial hurdle rate.”
Unconventional wisdom
Swan argues that two of capitalism’s most influential thinkers, Adam Smith and Milton Friedman, have long been misunderstood. Both, he says, emphasized moral and social responsibility far more than most modern interpretations appreciate. He is one of the few investors who has read not only Smith’s “Wealth of Nations,” but his earlier, “The Theory of Moral Sentiments.”
“If you understand the whole story,” Swan says, “you then understand that Adam Smith saw a form of capitalism that required morals and ethics in order to have a healthy economic system.”
Likewise, Swan argues, Friedman’s famous 1970 essay in The New York Times asserting that the social responsibility of business is to increase profits has been stripped of critical context. Friedman also insisted businesses operate within the “rules of the game,” —including paying taxes, following regulations and maintaining healthy relationships with workers and communities.
For Swan, these historical reinterpretations reinforce his broader point: capitalism functions best when value creation is shared rather than extractive.
Swan is careful to craft an argument that rests on economics, not moral suasion.
For example, he points to Gallup research estimating trillions of dollars in lost global productivity from disengaged employees, along with MIT professor Zeynep Ton’s work demonstrating that companies investing in better jobs consistently outperform peers across market cycles. Ford is an anchor investor in Nine Dean, a holding company built around the thesis that high-quality jobs are a driver of value-creation.
Swan also highlights KKR’s employee ownership initiatives under Pete Stavros (who co-wrote the book’s introduction with Darren Walker, who recently completed his stint as the foundation’s president) as evidence that broad-based ownership and stronger workplace cultures can drive competitive advantage.
“What better way to advance human welfare than to advance the quality of life of every working person?” he says.
The Great Illumination
In the book, Swan argues that the growing ability to measure corporate externalities—the costs and benefits businesses create beyond their financial statements is ushering in what he calls The Great Illumination. Advances in data, sensors, artificial intelligence and new analytical tools are making those impacts increasingly visible and actionable.
Accounting for externalities would wipe out more than half of all corporate earnings, according to some estimates. Many firms would operate at a loss.
“One of the great things about quantifying externalities in currency terms is you can no longer hide the actual cost that all of us are paying,” he explains.
Swan advocates for more rigorous measurement of both positive and negative externalities that investors can incorporate into traditional financial analysis. Better information means markets can price risks and opportunities more accurately.
Ford, for example, has invested in Richmond Global Sciences, co-founded by Harvard Business School professor George Serafeim, along with Sakis Kotsantonis and Peter Kellner, which quantifies the externalities in currency terms (see, “Weighting accounts for impact”).
“Now you can apply the probability ratings of social media companies being more highly regulated or having to internalize some of the costs of the damage they’re creating or being taxed,” he says. “We like to focus on as much as you can quantify with a health healthy dose of common sense.”sen
Challenge for philanthropy
Swan reserves some of his sharpest criticism for philanthropy itself. When he was leaving Morgan Stanley to join the foundation, a colleague pointed out that he was going to an institution where the investment office was completely separate from the program team.
“I still find it shocking to some extent,” he says. Walker did manage, in 2017, to carve out $1 billion from Ford’s then-$12 billion (now $17.5 billion) endowment for mission-related investments, and asked Swan to lead the effort.
Despite the evidence that mission-related investments can generate competitive returns, relatively few foundations have followed Ford’s lead in aligning more of their endowments with their charitable missions. Swan attributes much of that hesitation to institutional inertia rather than investment fundamentals.
“There are a lot of incentives in place that discourage people from trying something new,” Swan says. “It’s better to fail conventionally than to take the chance of succeeding unconventionally.”
The book weaves Swan’s own journey with enjoyable lessons on economics and illuminating reporting, for example, on the late Supreme Court Justice Lewis Powell’s 1971 memorandum that mobilized corporate America to defend free enterprise through legal and political action. He tells the story of the commission, on which he served, that established the Church of England’s £100 million “Fund for Healing, Repair and Justice,” to address the church’s historic ties to the South Sea Company and the trans-Atlantic slave trade.
Swan hopes “Positive Sum” broadens the conversation beyond impact investing. All proceeds from the book will go to the Ford Foundation to support its charitable mission.
“The goal is to have fun with history, to have fun with psychology and economics,” Swan says. “And hopefully to convince folks that you actually can do well and do good.”
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