By Jack Cumming
Not-for-profit operators have dominated senior living, but with time, even the best of them tend to become money-focused with service secondary. Perhaps that’s human nature. The corporation signs the paycheck, so employees, including those at the top, return the gift by being frugal with their employer’s money, which can lead to cutbacks in the little things, e.g., cookies, that build resident loyalty and a positive reputation. That’s not good business.
Scylla and Charybdis
These conflicting pulls between what’s good for society and what’s good for your employer are evident not only in the not-for-profit senior living world. If you haven’t yet read Karen Hao’s book, Empire of AI, it’s not just about artificial intelligence or about OpenAI, the business that grabbed the headlines, though those are nominal aims of the book.
The real value is the insight that Ms. Hao brings to human nature and how humans rationalize that what they do as “good” while in reality it may be “self-serving.” That, too, is common in senior living circles, though it’s controversial to admit it. Readers of Ms. Hao’s book, if they are open-minded, will penetrate the magical aura in which AI is couched and will find realities that apply as much to senior living as to the idealists of Silicon Valley.
Rush for Wealth
We’re now experiencing a rush for the gold in AI that is unlike anything we’ve experienced since the rush to unlock the riches of the internet during the late 1990s. Those who remember that bubble will recognize its repetition in reading Ms. Hao’s book. The principals all voice the same kind of confusing optimism about a world transformed, not to mention untold riches, that was so common back in those early days of the internet.
Senior living, and particularly its senior housing manifestation, lacks the tantalizing allure of untold new wealth that we find in discussions of AI. Still, we do hear and read of the bonanza that the demographic bulge of aging baby boomers presents. Intriguingly, despite their commitment to “prioritize mission over returns” [p. 84], the OpenAI collaborators moved more toward capital than toward altruism.
The Capital Challenge
Their problem was the same problem that perplexes senior housing. The OpenAI guys needed huge amounts of capital to subsidize their research, just as not-for-profit senior housing sponsors need capital to finance their property acquisition and construction projects.
The AI guys considered forming a for-profit public benefit corporation with capped returns. You may usually think of a “public benefit corporation” as a tax-exempt not-for-profit, but a for-profit entity can limit its purpose in its Articles of Incorporation and thereby gain credibility. It’s surprising that senior housing hasn’t moved in this direction. I call it “covenantal incorporation.” Click here for an example of such a corporation.
Lost Social Purpose
One of the powerful capital engines for the explosive economic growth of the Gilded Age was the emergence of mutual life insurance companies. For the most part, these enterprises were started by socially minded men (women weren’t yet the force in business that they are becoming now).
A good example is the formation of the New York Life Insurance Company in 1845. [Click here] A group of founders contributed capital to get a socially dedicated enterprise off the ground. That kind of social dedication is rare today, though anecdotally, many young people are seeking opportunities of public service instead of mere personal aggrandizement.
Today, we know that the limited liability privilege of the modern corporation has been one of the most successful capital deployment models in history. With a modern corporation, the most an investor can lose is the investment made in the business. That wasn’t always the case. For most of human history, it was thought that investors should be fully committed to the business, so that if the business fell short of meeting its obligations, the investor-owners would be liable for the shortfall.
Responsibility and Privilege
Limited liability is, thus, an extraordinary privilege granted by the government to allow businesses to take the risk needed to innovate and to find better ways to serve the public. The purpose of business in those early years of moral responsibility was to bring value to the public. The idea is relatively recent that the purpose of business is to enrich investors.
There’s much about human nature and modern business thinking to be gleaned from Karen Hao’s, Empire of AI, but the takeaway for a social purpose industry like that housing seniors in their latter years is that the industry should return to the moral principles of the past. That should begin by ending the legal practice of putting residents at the bottom of the financial heap to absorb the pain when a senior housing venture fails.
