Let me start with a small clarification. You read out our organization as CDC Investment Works. It's actually just CDC. “Investment Works” is the tag line of the organization. We're the U.K.'s development finance institution. CDC have been investing across emerging and difficult countries since 1948. That's the background.
The background for me is that I was hired in November 2011 to undertake a pretty large transformation of CDC, which is, I would say, half done. It's a work in progress, but my testimony will be very much based on my experience over the last six years.
In many ways I feel a great affinity with an institution starting this journey, because in 2011, there was so much new that we wanted to do that was different.
I'm going to divide my comments into six themes that cut across questions one, four, five, and six. I'm not going to answer things that are particularly relevant for the Canadian context. You will have many witnesses who do that much better than I do.
Theme one is my advice to the committee that you shouldn't be too prescriptive at this stage about your strategy until you have your CEO and maybe even some of your key senior executive positions filled.
Relating it to my case, I accepted some of the direction I was given, but a lot of the pre-thinking I was given wasn't right and needed a fairly significant reboot. My view is that the ultimate success of the institution is as much down to the calibre of the people you are able to attract as to the precise strategy and mandate they are given. My advice is to leave some flexibility for them to set the strategy they think they can execute. I obviously understand the need for strategic clarity now, but I suggest it might be false precision. That's theme one.
Theme two is—and I'm sure I'm talking to the converted here—that a dual mandate is inherently hard. When you have the objective of both achieving financial return and impact, that creates a state of what we call at CDC perpetual paranoia, of oversteering one way or the other. You only have to look at the history of CDC to see that there were times in CDC's history when it achieved impact at the expense of financial return and was criticized, or it achieved financial return at the expense of impact and was criticized. Trying to steer in the middle of the road is really hard.
How do you do it? I think there are a couple of elements that are incredibly important.
The first thing is to make sure that you have commercial DNA at the heart of the skills of your organization. We're really lucky, because we sit in the city of London, and therefore there are a lot of people we can hire from. I would also say that a Canadian DFI has an inherent advantage because you have such great commercial investing institutions that you can draw people from: CPPIB, the Ontario teachers, the Caisse de dépôt. These are really high-quality investment organizations.
My feeling is that you shouldn't compromise here. Your aim at its core is to build a high-quality investment organization, with everything that is implicated in that statement. If you do that, you actually will achieve impact.
Then, on the impact side you need to be clear about what you're trying to achieve. Impact, as I'm sure my good friends at ODI will tell you, is a very broad church and can be turned, if you're not careful, into a long shopping list of things you might want to achieve. Unless you have a strategic focus, your team will be able to justify any investment, because any investment in a hard place achieves some impact. You need to be clear about what you're going to say yes to and what you're going to say no to, and of course what you're going to measure.
Also within this, recognizing that this is a hard mandate, you shouldn't make that mandate too hard. Yes, there aren't enough start-ups run by women in rural Africa, but it's not an executable strategy. Remembering that unless businesses are successful, no impact happens is incredibly important. Pushing into white unoccupied spaces sounds great in principle because they're white, but they're also white because other people think they're too hard. That's theme two.
Theme three, going back to people, is pay really matters. Pay your team too much and it becomes toxic. Pay your team too little and you won't hire the commercial skills you need. That is a very delicate balancing act. You need to see who can manage that balancing act and attract the right people. They need to attract people who are extremely high calibre. They need to be top-notch commercial ambassadors because, frankly, this is the hardest kind of investing you can do. They have to have commercial judgment, but they also need to be happy to discount themselves relative to what they can earn in the market because of the inspiration and interest of the mission. These people do exist—we think we've proven this—but they don't exist in great numbers. You have to find them and then set a culture where these people will stay. A revolving door will undermine your mission. That's theme three.
Theme four is be realistic with your minimum return hurdle. You're going to need to set for the team what financial hurdle you need to meet. Commercial global returns—and you'll hear this from all your pension funds—are really low, as we all know, at the moment. Obviously, a DFI needs to be below that. And look long term. We take a 10-year rolling measure because there's so much volatility short term. You will want to be holding your investments, because patient capital is at the core of a DFI for many years.
Theme five is the same theme, be really patient. We think in decades, not in years, and therefore stakeholders of the DFI need to have the expectation that results, both in terms of financial return and impact, are going to take a long time to come through. To lose patience halfway through, say after five years, would be disastrous.
The last theme is linked to that, which is the governance structure you put in place must give political cover. Nothing undermines the achievement of the mission more than lurches in policy. Look at sovereign wealth funds. They embed this into their governance to stop, frankly, politicians with a short-term agenda changing the long-term policy of their sovereign wealth fund. There needs to be a framework for consistency over the long term. That doesn't mean to say there doesn't need to be immense scrutiny, of course, but also scrutiny from people who understand high-quality investment organizations.
I'll stop there.