Best Case Scenario

Can Steve Case Build Hawaii Businesses that Do Well and Do Good?

January, 2005

When Stephen “Steve” Case spoke to a full house of local business leaders at Hawaii Business’ Top 250 luncheon last November about creating value for their businesses, he wasn’t talking about market or shareholder value. Rather, he meant intrinsic human and social values. “I’m talking about a new kind of business paradigm,” he said, “that would generate social benefits as well as financial returns, and not only make a profit, but make a difference.”

His paradigm has a name, social entrepreneurship, and a growing number of enthusiasts to boot. After all, what’s not to love about businesses creating value from values? Case, for one, is a big believer in what he calls the concept of “doing well and doing good,” and he’s applying this practice of solving large-scale social problems with entrepreneurial tactics to all of his current and future Hawaii investments.

“I saw investing this way as a smart business decision,” says Case, whose net worth last year was $825 million, according to Forbes magazine. “Because if businesses help move the needle on Hawaii’s quality of life, both the businesses and Hawaii as a whole will become more successful at attracting talent and resources.”

Having lived in Hawaii until graduating from Punahou School in 1976, Case has always had an affinity for the Islands, although proximity and other obligations (such as founding and running a little ol’ company called America Online) never afforded him the opportunity to spend much of his time or resources here. However, times have changed for Case, and, since stepping down as chairman of AOL Time Warner Inc. in 2003, he has increased his presence in the Islands – physically and financially. He has often been spotted island hopping, tending to and learning about his local investments (Case owns 42.9 percent of Maui Land & Pineapple Co. Inc. (MLP:AMEX) shares, making him the majority owner, and 100 percent of Grove Farm Co. Inc. on Kauai. Each of these companies has a half-million dollar stake in the Hawaii Superferry.) With each trip, he’s also on the lookout for opportunities with the potential for both financial and social gains.

“I don’t view the world as this bifurcated – where you have business activities where you make money, and philanthropic activities where you give money away. I view it in a more integrated way, which is, ‘How can you combine the two to make a difference?'” says Case. “Part of my interest in the things I’ve done in Hawaii is the sense that this is a great place to put some of these social entrepreneurship ideas into action, because it’s a small enough community that you can move the needle in terms of the impact you can have.”

MAKING A LIVING

Grove Farm and Maui Land & Pineapple are perhaps the most fitting examples of companies Case believes are capable of doing well and doing good. Both companies, by local standards, are big businesses: Grove Farm had $16 million in gross annual revenues in 2003, while Maui Land & Pine brought in more than 10 times that amount, $168.7 million. Both are sizeable landowners: Grove Farm’s 40,224 acres on Kauai and MLP’s 12,118 acres make both companies the second-largest private landowners on their respective islands. Combined, they make Case the 16th largest landowner in the state (Hawaii Business, November 2004) – a responsibility he doesn’t take lightly. On Maui and Kauai, Case is well aware that the lack of affordable housing has reached near-crisis levels, and he and his team know that how his companies develop their lands will have a tremendous impact on their respective communities.

“Instead of viewing development as simply selling land and buildings, [MLP and Grove Farm's] goal is to create whole communities that reflect our Island values,” Case said at the Top 250 luncheon. “They’re using the companies’ main asset – land – to cultivate a different kind of life … one where natural, social and economic capital can really work in harmony.”

Case says theory is being put into practice at Pulelehua, a 300-acre residential community in West Maui, where half of the units will be affordably priced. While housing in the pricey resort part of the area would probably sell briskly at market value, it’s a brilliant strategic play for MLP, which employs 1,488 people, mostly in Kapalua. “Housing for workers in West Maui is a big problem. Driving on that two-lane road from Kahului to Kapalua is a problem,” says analyst Randy Havre, who’s tracked MLP for 20 years. “So I can see how a project like that would benefit the community, and ultimately, the company.”

Case calls the investment in affordable housing, which provides those in the community the opportunity to save on commute time and spend more time with their families, a “multidimensional approach to community wealth,” which attaches value to things that aren’t traditionally measured or quantified. “People who work at Kapalua Resort (an MLP subsidiary) need an affordable place to raise their families, otherwise it’s hard to attract and keep the best employees, and therefore provide the best resort experience,” says Case. “It’s completely connected.”

On Kauai, Grove Farm has made similar investments with social benefits, including $40 million in infrastructure improvements in Puhi and Lihue, the renovation of the island’s sole shopping center and a partnership with the County to build a water treatment plant for use by the general public. Looking forward, Grove Farm President and CEO David Pratt says the company has a great responsibility to balance its development opportunities with the island’s increasing demand for affordable housing. He says the company is currently completing the upper- to mid-level-priced phase of its 600-acre, mixed-use project in Puhi and working on a 15-acre project with units in the mid-price range, but an affordable housing project is in the works for Hanamaulu as well.

“We intend to do a mixed use like we always have, and to continue to work on a variety of different price range opportunities,” says Pratt. “There’s a real demand for housing in Lihue right now, particularly in the affordable range, and Grove Farm’s future developments will continue to reflect our role in addressing those needs.”

Recently, Case also made a more personal commitment to combating the affordable housing issue, to the tune of a $10-million grant. The grant was awarded to the national Habitat for Humanity through Steve and his wife Jean’s charitable foundation, The Case Foundation. Half of the money was specifically earmarked for Hawaii. “It’s one of the best investments we can make, because [the lack of] affordable housing is a big threat to Hawaii’s future. We can’t attract Hawaii’s best and brightest back if we can’t provide them with affordable housing,” says Case.

THE DREAM TEAM

For all his talk of reversing the brain drain and luring back the best and the brightest, the fact is, Case himself hasn’t yet returned to the Islands, at least not on a full-time basis. When he was chairman of AOL, Case would visit the Islands once (occasionally twice) a year. He now visits five to six times a year, for about a week at a time, but is still a resident of northern Virginia, almost 5,000 miles from his nearest Hawaii investment. From Virginia, Case says he’s able to spend roughly 10 to 20 percent of his time dealing with “Hawaii matters.” That’s why, since acquiring shares in Grove Farm and MLP, he’s been drafting a first-rate team of like-minded business and community leaders to be his eyes, ears and shot callers in Hawaii.

At Maui Land & Pine, his ace in the hole is friend and former AOL executive, David Cole, who Case hired last year to turn around the asset-rich, cash-poor company. Cole brings to the table that rare – okay, relatively unheard of – blended background of information technology and organic farming. His impact so far has been vast: Since he arrived, the company has shifted its pineapple division from processed to fresh-fruit sales, invested in the Hawaii Superferry, purchased the Kapalua Bay Hotel and expanded its resort operations to include health-and-wellness centers – all pegged on Cole’s relentless mantra of sustainability.

“I think [Case] brought in the right guy for the job. A lot of time and investment needs to be put into those properties to make them worth something, and I think Cole definitely sees that. He sees that Kapalua has more value than they’re currently harvesting and he’s latching onto opportunities,” says Havre. Cole is also creating opportunities on Maui that are right in line with the concept of social entrepreneurship. He’s brought in graduates and scholars from the Earth University (a four-year agricultural entrepreneur program in Costa Rica) to help develop similar programs on Maui, and is in discussions with Maui Community College to establish an Institute for Sustainable Living, which will anchor the company’s new community in Haliimaile.

On Kauai, Case is just beginning the search for a new chief executive for Grove Farm, as Pratt heads into retirement for the second time (the longtime president came out of retirement to run the company for Case in 2001). Unfortunately, says Case, he doesn’t have another Cole waiting in the wings. But he has already assembled a cast of prominent business and community leaders to serve on the Grove Farm board of directors, including former and current Kaneohe Ranch presidents Randy Moore and Mitch D’Olier (respectively), Kauai native Ret. Army Chief of Staff Gen. Eric Shinseki and his nephew, former Verizon Hawaii President, Warren Haruki, and Hawaii Community Foundation President and CEO Kelvin Taketa – all of whom should easily relate to Case’s philosophy of a blended value return.

“When I made the investments in those companies four years ago, I had more than a full-time job with AOL, so it tended to be kind of relatively passive investments,” says Case. “In the last year and a half, I’ve been coming back more often, and I’m trying to spend more time here, and I’m starting to build a team here, and that really is my focus, so that, over the next few years, I can begin to look at other companies to invest in.”

COMMUNITY AFFAIRS

Case isn’t looking for just any company to invest in. He’s looking for “do good, do well” companies and social entrepreneurs. He tapped the newest addition to the Steve Case Dream Team, nonprofit doyen Kelvin Taketa, to assist him in his search. “Initially, Steve and Jean, through The Case Foundation, were looking for an increased level of philanthropic investment in Hawaii,” says Taketa, who met Case about a year ago through Cole, a longtime friend. “Steve laid out his vision of private investments in Hawaii doing things that are not just good in terms of a financial investment, but also because they provide certain social benefits, and obviously you can make philanthropic investments that compliment those things very easily, so it was a natural fit for Hawaii Community Foundation.”

The two foundations funded a variety of programs together for the social betterment of Hawaii, including two groups on Maui and Kauai that were developing long-term strategies for tackling community issues. They also partnered, along with the H.K. Castle Foundation in a program called the Family Investment Initiative (an effort to help people help themselves out of poverty) that will launch in the first quarter of 2005.

As the Hawaii Community Foundation began identifying more and more organizations and programs that fit Case’s model for social entrepreneurship, he tapped Taketa to help identify opportunities for his personal investments as well. “I’m helping him to locate those dual-dividend or double-bottom-line-type businesses that have an opportunity not only to return a reasonable profit for the investors, but also creates some better social conditions for Hawaii,” says Taketa.

Case isn’t yet ready to announce any investments he may be pondering, but he cites his $1-million investment in the Hawaii Superferry as an example of where he’s headed: “My focus is going to turn a little more to other investments, such as the Superferry, where you make essentially a venture-capital investment to help them grow.” Case says he’d also like to provide financial and intellectual help to social entrepreneurs who typically depend on grants and fund-raising for financial support. “The concept of social entrepreneurship is trying to figure out how to integrate business concepts into philanthropic organizations so they’re able to sustain themselves. It’s blurring the traditional lines between business and philanthropy, you know, do well and do good,” he repeats.

MAKING A DIFFERENCE

Nationally, social entrepreneurship has been making strides. More and more people are willing to invest time, energy and money to pursue businesses that have the opportunity for significant social impact. Colleges and universities are acknowledging their pursuits as well, broadening their nonprofit courses and degrees to include social entrepreneurship programs specifically. Within the nonprofit sector, funds and foundations are designating monies specifically for investments in social entrepreneurs. According to the philanthropic investment group Venture Philanthropy Partners, there are currently at least 40 such funds or foundations in the United States and that number is growing. In Hawaii, it’s become somewhat of a buzzword as well, as businesspeople and philanthropists spread the word through the coconut wireless.

Case is eager to ride on that momentum, but he also wants social entrepreneurship to be more than just a catchphrase, which is why he’s also making investments to attract, groom and retain local talent to sustain his model of doing good and doing well. “It’s a virtuous cycle of social entrepreneurship, where the better we do, the better we stand to do,” he says.

Taketa won’t talk specifics just yet, but both he and Ben Binswanger, senior vice president of The Case Foundation, mentioned leadership training as a possible investment area for Case. “It’s too premature to talk about it now,” says Taketa, “But we are beginning to develop programs that will support entrepreneurs in the nonprofit sector … programs to help develop leadership in the capacity of the organizations that the people are involved in.”

There’s also talk that Punahou will offer social entrepreneurship courses next year at the Case Middle School’s new center for entrepreneurship, but Case isn’t ready to discuss his involvement: “We’re not specifically doing anything around that just yet,” he says, slyly adding, “at least, not that we’re ready to talk about.”

When asked if there are any other potential investments he can talk about, Case responds, “I think given my interests and skill sets, I can best make a difference by building businesses that have the potential to impact change, and also by helping to build entrepreneurial organizations,” he says. “But when I wake up in the morning, I really don’t think about any particular company or any particular philanthropic initiative. I think about, ‘What can I do to make a difference?’ For me, that’s what it’s all about.”

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