2. After 20 years of doing this work, my experiences tell me that foundations are relatively quick to “out” non-profits that arent playing ball but will never talk about ineffectiveness. If the non-profit is really really nice and kisses our ass, we are happy happy happy no matter how bad they are at what they do.

3. Non-profits take a lot more public hits than foundations ever do. You have never met a bunch of thinner skinned CEOs than at a southern foundation conference.

Big financial organizations became much more innovative from 1980-2000, but those 2 decades will always be characterized by the rise of the individual investor.

However, I don’t think it is a deal killer as you suggest. Let’s think about movie critics and Hollywood (I’ve discussed this in depth in the past. It is not a perfect analogy, but it is a good thought experiment).

So…

Movie makers do generally ignore negative reviews. While PR plays an important role in the success of a film, great films often receive significant viewers based on positive reviews, not just PR.

Movie makers can not prove that their movie is better than any other.

Have you ever had a friend recommend a little heard of movie that they just loved? If you like it do they say “Well the director did all the work” or do they revel in glee that they “discovered” Juno before anyone had even heard of it?

If a friend doesn’t like a movie, they let you know that too don’t they? Even if they can’t “prove it”.

The fact is very few things in life are quantifiable. Business and the stock market is far less quantifiable than most people believe. How about politics? Since no one can prove or even faintly quantify why one candidate is better than another, do we all just meekly decide that we should not express our opinions since we can’t back them up with proof?

“What’s Different This Time?

During the last 100+ years, much has changed in the world of philanthropy, but the dynamics of giving have been simply an extension of the First Wave. The First Wave followed a hierarchical structure of a few concentrated pools of wealth making grants to a large base of needy causes. Philanthropy was not the only discipline to follow this model. Corporate organization charts, information distribution systems and political systems all followed this model.

However, as we embark on the 21st century, the traditional hierarchical structures are collapsing. While the traditional top-down hierarchical system describes the way Rockefeller’s foundation distributed grants to charities, which then provided services for the public, a flat organizational system is the model of the Second Great Wave.

This shift acknowledges that no one person or entity has all the answers and instead leads to a virtuous cycle of information feedback. The philanthropists of the 21st century will be smaller in size, but much larger in numbers than the philanthropists of the last century.”

The individual has always been the big donor (in aggregate), but today we have the demographic tidal wave of the boomers entering prime “giving years” (25 years ago when they were in prime “saving years” they totally transformed the financial markets in a way that radically increased the importance of individual investors). We also have technology that is characterized by widespread distribution of information and aggregation of individual action into group action.

It is not that I believe that individual donors will become more important than the big foundations, but that at the margin, all of the power shift will be towards individuals.

But after the scandals of the dot-com bust, a system was put in place to try and correct this. For a time some people advocated the idea that you shouldn’t be allowed to talk positively about a stock if you owned it. But then people realized that if the expert didn’t own the stock, they must not really think it was a great buy (if they did, they should buy it). So now we have a system where speakers just have to reveal if they have any interest in the stock.

As long as everyone knows any bias the person might have, then we can all just tell the truth and judge the argument on its merits while recognizing the conflict that the speaker might have.

I think the risk you posit of a small group soaking up all the money, is actually a risk of there not being a robust public discussion. In today’s market, the organizations with the best PR win and when they win they can afford more PR and on and on.

Truth is good. Even when it hurts. It is only through truth telling that we can find the way forward. We might worry that the truth will hurt, but ignoring the truth hurts more.

How do I compare the success of my shelter for battered women with the success of your drug prevention program? If I’m a nonprofit doing advocacy work, at what point have I “broken even?” Etc.

So…

* “Why do public companies generally ignore all the talking heads who say negative things about them?

Because all they have to do to silence those negative talking heads is remain profitable. However, in a philanthropy marketplace, the talking heads would drive the market “because there is no commonly agreed upon way to quantify a nonprofit’s success or failure.” A public philanthropy marketplace would be the messiest thing ever, because the currency would be Public Relations.

* Why do nonprofits find bad publicity intolerable? Because they can’t prove that they’re more effective than the other effective nonprofit down the street.

* Why do philanthropic investors eschew taking credit? Because they can’t prove they’ve made a wise investment.

* Why do investors bad-mouth underperforming stocks? Because, hey, it’s just business–nothing personal.

* Why don’t philanthropists bad-mouth underperforming nonprofits? Because if you can’t boil success down to dollars and cents, you can never really say “Don’t take it personally–it’s just business.” In this business, for better or worse, it’s all personal.

Traditionally funders have valued a type of discourse that focuses on how to solve difficult issues and is undertaken in the most objective manner possible, with the focus on the issue and not the particular organization. But it could also be that this doesn’t happen more often because there doesn’t exist a natural forum that accounts for the self-interested nature of the recommendations and adjusts accordingly. For example, you don’t want to invest in somebody else’s grantee if the recommender is really looking for an exit strategy or has a sense that something might be about to implode and there’s comfort (and safety) in sharing the misery. If there were perfect information, that recommender would be held in low regard next time when trying to draw attention to a grantee.

There’s also the danger of creating a small circle of oft-recommended organizations soaking up foundation funding that’s hard for others to crack. That’s already the case with many small organizations. Of course, a counter-argument is that foundations particularly good at identifying such organizations could be looked to as good recommenders and draw more resources their way.

This is true, in the large scheme of things. But donors don’t think the charities that THEY give to waste donations, and it could be detrimental to an individual charity to have people thinking so.

It’s the same thing we see with politicians: In general people think politicians are doing a terrible job, but they tend to think their own representative (especially if it’s someone they voted for) is doing much better than average.

In short, it’s easy to criticize the sector, but it’s hard to criticize an individual charity.