Investing to sustain innovation

Do we invest enough in creativity? The question may seem absurd in an era dominated by the “knowledge economy,” in which companies create value through ingenuity and expertise, while many of the most important emerging product lines enable the advancement and communication of knowledge.

But a casual review of the business press reveals that some companies that market themselves as innovators also suffer from toxic workplace cultures and dysfunctional corporate governance.

These problems suggest that it is not enough to invest in “knowledge” while neglecting the people who create this knowledge. A recent report offers impact investors a road map for investing directly in the individuals and communities that make creative enterprises possible.

Why have so many companies that are dependent on a motivated and engaged workforce become so toxic for employees? Finance may be part of the problem.

The pressure to focus solely on growing revenues, market share and company valuations can distract from critical, but less tangible, imperatives such as developing constructive corporate cultures in which creativity can thrive over time.

As numerous examples (e.g., Uber, SoFi, Weinstein Co.) demonstrate, the resulting tensions and resentments may undermine the company’s ability to continue to innovate. This is bad news not only for investors, but also for employees and a public that hopes for a continual flow of new products and services that improve lives.

An alternative is to invest directly in enabling and nurturing creativity itself. Each of the business models described in the report exists to develop the human capital embedded in every community, especially marginalized groups who struggle to compete because of a lack of resources or because the knowledge economy doesn’t sufficiently value their capabilities.

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The report highlights four “enabling technologies” that provide access to resources that are critical to the success of local, sustainable and replicable cultural production.

Access to affordable spaces: The concentration of U.S. economic activity in a relatively small number of urban centers has created an affordability crisis for many artists and creative professionals who live there.

Artspace and Continuum are now in the process of developing affordable living and working spaces that will nurture artistic communities and allow artists to continue serving their surrounding areas, network and collaborate with one another, and serve as a platform that amplifies their work.

Access to ownership and influence: Core to the philosophy of the creative economy is inclusive decision making and common ownership of resources. CultureBank and Meow Wolf are exploring ways to ensure that organizations serve the interests of their stakeholders.

Access to expertise: Local communities, such as indigenous communities or communities of color, are often rich in history, tradition and capability but may not possess the technical skills to bring their narratives to a wide audience. Creative-economy companies can connect this needed expertise with local cultural assets to reach a wider audience.

E-Line Media offers a compelling case study of the possibilities. What began as an idea of Alaska’s Cook Inlet Tribal Council — to use gaming as a way to connect Alaska Native individuals to their culture and to increase self-sufficiency — grew into a profitable partnership that is now extending to other creative initiatives. E-Line Media made this venture possible by connecting the community to experienced game designers who could make their vision a reality.

Access to capital: Often, creative enterprises lack access to financing, which flows more readily to technologies that scale. Fortunately, there are companies exploring ways to provide essential financing to distinctive cultural products that can sustainably serve niche markets and maintain market diversity, such as Local Initiatives Support Corporation (LISC) NYC and Investing For Good.

Our present era brings with it previously unimagined new products and services that enrich lives. It also brings exclusion and inequality.

By investing in creativity and the arts, investors can contribute to sustainable innovation that nurtures talent, empowers communities and brings diversity of thought to the market.

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John K.S. Wilson is the head of research and corporate governance at Cornerstone Capital Group.