Category Archives: Effective Giving

The Commodity Nonprofit

May 13, 2008 – 9:46 am

Yesterday I asked whether nonprofits delivered a commodity of a premium product/service. I want to reiterate that I did not use “commodity” to mean “inferior to a premium product.” I meant commodity to refer to homogeneous products that consumers general choose between based solely on price. Examples: milk, gasoline, printer paper, computer storage devices, generic pharmaceuticals. For-profit organizations can make a TON of money selling commodities (see oil & gas companies during the past few years), so I am not suggesting that selling premium products is somehow superior to selling a commodity.

Let’s think about the nonprofit space. If Organization A can deliver vaccines in Africa for $5 per shot and Organization B can deliver it for $10 a shot, a rational donor would likely fund Organization A. The assumption behind that decision rests on the idea that the product being delivered (a vaccination) is identical and so the most important thing to consider is cost. But what if we look at pre-school education? I don’t care how many teacher-hours are delivered per dollar. I care about the quality of the teaching (because the teaching is not an end to itself, it is the education of the child that we care about). In this environment, we have a premium product market where a rational donor will judge cost in relation to value. However cost still matters. A Lexus might be worth twice as much as a Ford, but even though it is a better car it would not be rational to pay 100 times the cost of a Ford.

When I think back on the discussions we’ve had about overhead expense ratios and the fallacy of quantitatively evaluating nonprofits, I realize that the commodity/premium product dichotomy can help us understand when to look at cost and when cost can be misleading.

There are a lot of nonprofits that deliver commodity-like products and that’s OK. Those organizations should be judged based on cost of delivery. But many, many nonprofits deliver a premium product that is better (or worse) than similar products offered by competing nonprofits (and for-profits). These organizations should be judged on the quality of their product and the cost of delivery in relation to the level of quality.

By Sean Stannard-Stockton | Also posted in Grantmaking, Impact Measurement, Philanthropy | Comments (1)

Global Philanthropy Forum

April 10, 2008 – 12:13 pm

I’m at the Global Philanthropy Forum conference today and tomorrow. 500 people talking about international issues. Not the same crowd you get at a lot of these events because the forum targets family foundations. But the kinds of families that draw the Archbishop Desmond Tutu and the Queen of Jordan as opening speakers. Larry Brilliant and Richard Rockefeller are here, but so are Sean Parker (developer of Facebook Causes) and Peter Gabriel (the muscian).

The Forum was started in 2001 with a recession looming as a way to engage donors on international issues that are often abstract. In a recession, donors often pull back from causes that do not offer the immediacy of local issues. What I find interesting about the Forum is that the stated goal is to get the attendees to work together. About half have been giving for 7 years or less, while the other half are mostly multi-generational donors.

To measure the impact of the conference, Forum CEO Jane Wales says that their greatest metric is tracking how influential the attendees become in each others’ future giving. 83% of attendees from last year’s Forum say that an attendee they met was instrumental in a giving decision they made after the conference.

There’s a lot that I believe is brand new in today’s philanthropy, but I agree 100% with Amanda Moniz’s statement from yesterday:

In order to grapple honestly with the strengths and weaknesses of beneficence, it is important to recognise that new and better practices are often old methods that have been revived…

I just happen to think that concept is being applied incorrectly to the debate we’ve been having. A famous phrase of wisdom in financial markets is the often ignored warning to never believe that “Its different this time”. I’m glad to see that at the Forum we have a venue for new philanthropists to learn from multi-generational donors and vice versa.

By Sean Stannard-Stockton | Also posted in Cross-Disciplinary Conversations, Foundations, New Philanthropy, Philanthropy, Social Entrepreneurship | Comments (1)

Donors Want Impact?

April 9, 2008 – 9:43 am

In response to my recent Financial Times column about new approaches to funding growing nonprofits, the following letter to the editor appeared in the April 5 edition of the FT.

Sir, Sean Stannard-Stockton (“Non-profits look to invest in themselves”, March 29) errs when he concludes his interesting column by saying that “while yesterday’s donors were content to give to a non-profit based on emotional appeal, today’s donors want to know their money is really going to have an impact”.Since the late Renaissance and the Reformation era when the conceptual and applied shift towards “modern philanthropy” with its pursuit of rationalised solutions to systemic problems occurred, donors have sought to optimise the outcome of their investments. Today’s “venture philanthropists” promise greater results and more accountability by borrowing from the practices of venture capital, just as “scientific philanthropists” of the late 19th century did by adopting the principles of the reigning intellectual framework of science.

In order to grapple honestly with the strengths and weaknesses of beneficence, it is important to recognise that new and better practices are often old methods that have been revived - because the problem of an unequal distribution of resources endures - and that perpetual frustration with the limits of philanthropy is a prime reason for the continual reworking of ideas.

Amanda B. Moniz,
Department of History,
University of Michigan

Michael Edwards of the Ford Foundation responded to the same sentence in my column saying, “[you] assume that impact considerations are new, when in fact they have been around for fifty years or more - just not expressed in the ways you
think are satisfactory.”

I agree that the concept of impact (attempting to give in ways that can do the most good for your dollar) is not new within institutional philanthropy. Because a lot of my readers work at institutional foundations, consult for these foundations, or work at nonprofits that receive grants from these foundations, I often address issues of institutional philanthropy. But I’m not an expert in institutional philanthropy. My firm, Ensemble Capital, serves individual philanthropists. When I talk about The Second Great Wave of Philanthropy, I’m talking about major shifts going on with individual donors. When I write for the mass audience of the Financial Times, I’m writing for individual donors. But given how my writing on this blog veers into issues of institutional philanthropy on a regular basis, I can see how it is my fault if people perceive that I’m declaring “impact” as a new concept to foundations. It is not.

Individual donors have always been aware of the idea that their donations could do more or less good depending on which nonprofits they funded. While they might not often use the word “impact”, the concept makes sense if it is explained to them. But I reject the idea put forth by Moniz and Edwards that “donors” (and that was the word I used, not “foundations”) have embraced impact considerations for half a century.

If in fact donors understood impact, which at its core assumes that some donations do more than others, than you would assume that these donors would strive to achieve higher levels of impact. Yet there are almost no mass market books that discuss this issue, almost no articles in print or online, almost no organizations that help donors achieve impact.

Now before you send me emails pointing to Inspired Philanthropy or Don’t Just Give It Away, before you point out that I’m writing a mass market column on these very issues at the Financial Times, before you tell me about excellent consultants like The Philanthropic Initiative, Arabella Philanthropic Investment Advisors, or my own firm Ensemble Capital, let me just say that all of that adds up to just a bit more than zero.

Individual donors have access to almost nothing compared to individual investors. Every bookstore in the country has a whole section devoted to personal finance (books on which generally ignore charitable giving while lavishing pages of copy on other obscure financial issues). Every daily newspaper devotes space to advising individual investors and we have many mass market publications targeted directly to the individual investor. Investors issue with investment advisors is not so much finding one (believe me, there are thousands of advisors trying to find you right now), but picking from amongst the many qualified professionals.

Most individual donors don’t even know the difference between a nonprofit and a foundation. Institutional philanthropy actual is making a effort to let people know what they do since most Americans cannot even name a single large foundation. Individual donors with a portfolio of appreciated assets still mostly write checks to charity instead of transfering assets or setting up a philanthropic account (this is similar to saving for retirement in a checking account because an investor had never heard of a 401k).

I could go on and on.

I actual have my own criticism of the sentence in my column that Edwards and Moniz call out. When I wrote “while yesterday’s donors were content to give to a non-profit based on
emotional appeal, today’s donors want to know their money is really
going to have an impact,” I actually overstated the case in the opposite direction of the way they saw it. Edwards and Moniz argued that the statement was false because they believe yesterday’s donors were focused on impact. I would say that my statement was flawed because in fact, not even “today’s donor” knows what impact is. “Tomorrow’s donor” will be the ones deeply concerned with impact. But at least today we have real movement in that direction.

By Sean Stannard-Stockton | Also posted in Cross-Disciplinary Conversations, Foundations, Grantmaking, Impact Measurement, Media, New Philanthropy, Philanthropy | Comments (12)

For-profits Asking Nonprofits for Money

April 8, 2008 – 9:16 am

In a fully functioning financial market, money flows to where it produces the highest return. My focus is on how to make the philanthropic marketplace more efficient, since the for-profit market is at least adequately efficient. But the two are not really separate. In the future, I expect them to be much more interrelated. Here’s an interesting example that turns things on its head a bit; the for-profit market is turning to nonprofits to supply cash.

From the Boston Globe, “Drug Makers Turning to Nonprofits for Cash”:

In addition to raising venture capital and launching stock offerings, Massachusetts biotech companies are increasingly turning to another source of funding to support early drug research: nonprofit foundations dedicated to fighting serious diseases.

For instance, the Cystic Fibrosis Foundation, said it has awarded more than $300 million to for-profit companies over the past decade to help develop cutting-edge therapies for the debilitating disease, including $192 million in the Boston area. Cystic fibrosis, which ravages the lungs and digestive system, affects roughly 30,000 people in the United States.

Epix Pharmaceuticals Inc. plans to say today that the foundation will give it as much as $37.7 million, in addition to about $12 million it has already received, to help the Lexington company discover new cystic fibrosis drugs. The money is contingent on Epix’s meeting certain goals.

Other foundations are following suit…

Click here to read the rest of the article.

By Sean Stannard-Stockton | Also posted in Foundations, Mission Related Investing, Philanthropic Capital Markets, Philanthropy | Comments (0)

Robert Wood Johnson & the Long-run

April 8, 2008 – 9:04 am

Referencing my post on short-term vs long-term focus in philanthropy, the Robert Wood Johnson Foundation asks for ideas via their blog:

Last Friday, in his thoughtful blog, Tactical Philanthropy, Sean Stannard-Stockton, wrote about the often-missed opportunity philanthropies have to focus on the long run…

On the Pioneer Portfolio, we’re interested in understanding those long-term trends, because they are driven by forces and create conditions that make today’s radical ideas tomorrow’s successes.

Recently, we’ve been watching trends of patient empowerment, IT/communications technology, and data mining/rapid learning. What trends are you watching and what implications do you think they have—long term—for health and health care?

You can click here to leave a comment on their post.

By Sean Stannard-Stockton | Also posted in Cross-Disciplinary Conversations, Impact Measurement, Long-Term Philanthropy | Comments (0)

George Overholser Responds: Sustainable Nonprofits

April 7, 2008 – 8:55 am

In response to my recent column in the Financial Times, Reader Jeremy Gregg has been asking what makes a nonprofit “sustainable”. George Overholser of the Nonprofit Finance Fund (profiled in the FT story), has sent an email my way that breaks down the distinctions between earned income, donations, and what makes a nonprofit sustainable. I think his line of thinking is a wonderful example of drawing on business thinking without committing the sins of “philanthrocapitalism”.

Although a nonprofit is driven by a mission to help others, it is inescapably in the business of turning funders’ money into program execution.

If I buy a tutoring session [from a nonprofit] for my own kid, that’s called “earned revenue”. If I make a donation that results in a tutoring session for someone else’s kid, that’s “unearned”. But in both cases, the nonprofit firm does the same thing: it turns someone’s money into a useful tutoring session. And it ought to be that good tutoring begets a sustainable flow of loyal paying customers, earned or unearned.

For this reason, I think it’s often best for philanthropists to avoid a “support the organization” mindset, in favor of a mindset that says “buy program execution from the organization”. That way, the earned vs unearned distinction stops being (incorrectly) mapped into the sustainable vs unsustainable distinction.

All this plays directly into the question of sustainability, because an organization that sells a product (superior program execution) is inherently more stable than one that asks for generic support (“we need your help… again!”). Likewise, funders that “purchase” program execution will come back for more (if they think they got a good deal) whereas funders that “support” an organization may begin to ask why the organization can’t seem to get past its difficulties.

All this to say, so-called “unearned” philanthropic revenues can be a fine source of sustainability.

[Not to be confusing, but all of the above excludes what I think of as Builder type funding relationships (as opposed to “Buyer”). Builders are the ones who provide one-time equity-like growth capital. Builders are decidedly not the source of an organization’s financial sustainability. Rather, they help pay the bills while an organization learns to attract Buyer types. Our SEGUE methodology is designed to attract Builder capital.]

When George writes about “Builders vs. Buyers”, he’s making a distinction between “investors” in the nonprofit and “customers” who buy from the nonprofit. This concept was discussed in the FT column and you can read George’s excellent paper on the concept titled “Building is not Buying”.

By Sean Stannard-Stockton | Also posted in Fundraising, New Philanthropy, Philanthropic Capital Markets, Philanthropy, nonprofits | Comments (6)

Short-term vs. Long-term Focus in Philanthropy

April 4, 2008 – 8:03 am

In the Summer 2007 edition of the Stanford Social Innovation Review, Charles Conn, a senior advisor to the Gordon and Betty Moore Foundation and a high tech executive, wrote about the short-term focus of most foundations in an article titled Robbing the Grandchildren:

If future generations could vote on how foundations invest their money today, would they choose the current allocation? Byron Swift, chair and executive director of the World Land Trust, suggested this thought experiment to me, and I am disturbed to find that my answer is no……U.S. charitable foundations are better positioned than companies, governments, and universities to address these long-term, potentially catastrophic problems. One of the few sources of long-term risk capital, they control more than $500 billion in assets, generating funding that with other charitable giving totals almost 2 percent of GDP. With Warren Buffett’s gift, the Gates Foundation alone will control more than $60 billion in assets and $3 billion to $5 billion in annual spending. Other foundations closely associated with the digital revolution (such as Dell, Ellison, Packard, Hewlett, Moore, Omidyar, Page and Brin, Yang) could account for at least $50 billion to $70 billion more.

Perversely, though, many of these new tech entrepreneurs are worsening foundations’ shortsightedness by implementing businesslike metrics and controls in a way that reinforces short-term thinking and behavior. Other questionable management practices, such as low payout rates and lack of coordination with other organizations, further aggravate foundations’ myopia…

…A recent movement, sometimes called philanthrocapitalism or venture philanthropy, seeks to avoid complacency and lack of focus in foundation management by introducing rigorous success metrics and accountability practices. Many of these new-style foundations limit their scope to a few problem areas and, like corporations, intensely monitor outcome metrics, often with tight windows for review. To those of us who came to foundation work after a career in business, this sounds eminently sensible; after all, the foundation world is littered with fragmented, unfocused, and failed programs…

This short-term, metric-focused approach likewise hampers grantees. Foundations take the passionate and committed people in these institutions and harness them to near-term indices of progress. Grantees, in turn, stop playing the long-term game in order to keep the money flowing. They aim lower, too.

I agree completely with Conn’s thesis, but I want to elaborate because Conn fuses “short-term”, “metric-focus” and “businesslike” as if they automatically go hand in hand.

In the stock market, most people have become more and more short-term oriented. In the 1950’s, investors held stocks for an average of 7 years. Today the average is 11 months. Investors have gained access to vast amounts of information they never use to see and yet in many cases have used this information to change their mind more frequently rather than to gain more conviction in their decisions.

Almost all great investors make financial decisions based on a long-term outlook, not a prediction of what will happen in the next three months. At my firm Ensemble Capital Management, we talk about “arbitraging other investors’ time horizons”. In other words, we try to identify situations where short-term bad news about a company causes other investors to sell the stock so that we can buy it at lower prices. We use short-term good news that causes a stock to move higher to sell stock in companies whose longer-term outlook we think is deteriorating. Warren Buffett or most any great investor will tell you that Wall Street’s obsession with quarterly earnings reports is misplaced. Some companies (such as Coca-Cola, a company Buffett has owned a long time) have stopped issuing guidance to investors regarding what their next quarterly earnings might be.

It is human nature to want results as quickly as possible. But to achieve success, we must match our investment decisions to our time horizon. If we want to fix a local school because our child will be attending starting next year, then it might make sense to focus on short-term solutions. But most donors fund issues because they want to have a sustained impact on a situation. The techniques that might reduce crime in a bad neighborhood the most over the next month are unlikely to be the techniques that will have the largest, permanent impact on reducing crime rates over the next couple of decades.

Financial market participants are often short-term focused. They often focus on metrics which describe short-term conditions, but do little to illuminate long-term trends. But great investors and great philanthropists must focus on the information that matters to the long-term success of their projects.

Disclosure: Nothing in this post should be considered investment advice.

By Sean Stannard-Stockton | Also posted in Evaluation, Grantmaking, Impact Measurement, Philanthropic Capital Markets | Comments (0)

Albert Ruesga on Metrics Mania

March 26, 2008 – 9:20 am

Albert Ruesga, who blogs at White Courtesy Telephone, was a panel member at the recent Metrics Mania debate at the Bradley Center for Philanthropy & Civic Renewal. Albert posted the text of his comments today and they are outstanding.

At a time when we are seeing a growing backlashing against “philanthrocapitalism”, it is interesting to look at what is being grouped under that term. For many people, “metrics” and the push for more “evaluation” of philanthropy is an unwelcome element of a “business-like” approach to giving. I believe that evaluating nonprofits and philanthropy in general is necessary for a the Third Sector to become a high-performing, high-impact driver of social good. But as I wrote last week, I think that much “evaluation” takes a scientific approach to measurement that is borrowed from the hard sciences, while the lessons of the liberal arts (under which investing and financial markets should be categorized) are more appropriate.

Albert, I think, would agree. He writes:

Measurement and evaluation, when done properly, are not just a bit of value-added for philanthropic or nonprofit work, they’re absolutely essential. Only a fool would disagree with that proposition.

But here I mean not just the kinds of formal evaluations described by Gary Walker in his essay, but informal evaluation as well: the kinds of course corrections we naturally make when we embark on a project, take a false step, and adjust what we do accordingly. Evaluation is not and should not be the sole province of the highly compensated consultant. We evaluate all the time; our own eyes and ears notice things the most astute consultant will never notice; and we’ll often be our own worst critics.

Now here’s where the metrics schmetrics comes in, perhaps: More nonsense has been spoken and written about evaluation than about any other subject in philanthropy. The number of people practicing evaluation without a license and without a proper scientific and philosophical grounding in the subject is, in my view, a scandal. Worries about evaluation, engendered in part by logic models the length of whale intestines, have become the math anxiety of the philanthropic world…

…I want to make clear that I’m not in the least anti-evaluation. As I’ve written elsewhere, I’m concerned that we tend to seek a kind of scientific or moral certainty from a formal evaluation where none exists. The questions that funders most often bring to an evaluator—Was this program worth our $25,000 investment? Should we continue funding it?—are questions only they, the funders, can answer. Say we measure a 25 percent drop in the truancy rate for a hundred kids in some program, and a 25 percent increase in their test scores. Is that worth $25,000 to you? Each donor needs to answer that question for him- or herself. As donors we will never be absolved of our responsibility to use our good judgment.

“Evaluation… the math anxiety of the philanthropic world.” What a great line. Evaluating nonprofits and social good in general is not about math. When I advocate for a financial markets-type approach to evaluation, I am not calling for number crunching. I wrote about this concept in January and will repost my comments from then rather than repeating myself:

Economics is often called the “dismal science”. I know that many people think that finance is boring. But the vision of financial markets as nothing but numbers and spreadsheets does not capture the reality. Do investors buy stock in Apple because they spent hours and hours processing spreadsheet calculations? No. While at the end of the day, buyers of Apple stock believe that the return on capital being generated by the company will make for a profitable investment, the information they use to determine that are not just numbers. The way in which Apple has captured the imagination of the consumer, (an intangible piece of data that cannot be added to a spreadsheet) is by far the most valuable asset that Apple has and it is a major reason why investors have flocked to the stock.

Have you ever watched CNBC, the news channel of the financial markets? It is far from some kind of spreadsheet crunching lecture. Every day, investors or all types come on the show and make passionate arguments for why certain companies are good investments. While numbers and calculations underlie much of their thinking, it is the story, the human story of the companies they discuss that take center stage.

Warren Buffet is widely considered the best for-profit investor of his generation. Does he sit in a corner office reading a spreadsheet the way that Phil suggests? The quote below is from noted investor Whitney Tilson (Tilson is a huge fan of Buffet and a fellow columnist of mine at the Financial Times):

If the future were predictable with any degree of precision, then valuation would be easy. But the future is inherently unpredictable, so valuation is hard — and it’s ambiguous. Good thinking about valuation is less about plugging numbers into a spreadsheet than weighing many competing factors and determining probabilities. It’s neither art nor science — it’s roughly equal amounts of both.

The lack of precision around valuation makes a lot of people uncomfortable. To deal with this discomfort, some people wrap themselves in the security blanket of complex discounted cash flow analyses. My view of these things is best summarized by this brief exchange at the 1996 Berkshire Hathaway annual meeting:

Charlie Munger (Berkshire Hathaway’s vice chairman) said, “Warren talks about these discounted cash flows. I’ve never seen him do one.”

“It’s true,” replied Buffett. “If (the value of a company) doesn’t just scream out at you, it’s too close.”

Taking liberties with Tilson’s quote, I would argue that donors should not “wrap themselves in the security blanket of metrics” because “the lack of precision around measuring the impact that nonprofits achieve makes them uncomfortable.”

World-class investors do not sit in their office crunching spreadsheets all day. Neither should world-class donors. But the underlying logic of both should be that of achieving the highest return on investment.

By Sean Stannard-Stockton | Also posted in Cross-Disciplinary Conversations, Evaluation, Impact Measurement | Comments (6)

The “Evaluation Revolution” & Problems with Measuring Nonprofits

March 19, 2008 – 9:26 am

In preparation for tomorrow’s Metrics Mania debate at the Hudson Institute, Gary Walker (former president of Public/Private Ventures) has written an essay titled “Reflections on the ‘Evaluation Revolution’”. As I write about the need for more evaluation of nonprofits and more funding for high performing nonprofits (and less for low performing nonprofits) I realize that many readers assume I am calling for more of the outcome and impact studies that have been used for some time. In fact, I believe that the kind of analysis needed is quite different.

The evaluations that Walker so eloquently discusses use a scientific framework. A framework that says we can quantitatively measure certain types of outcomes and that these results should be repeatable. This framework is borrowed from the hard sciences and I wonder how applicable they are in the social sciences. I believe that a better evaluation framework is that used in financial markets. Finance is not a hard science, it is a social science. One of my favorite books on investing is Investing: The Last Liberal Art by Robert Hagstrom in which the author lays out an approach to investing that draws on the lessons of literature, psychology, sociology and philosophy.

In financial markets much times is spent performing massive historical studies of what has or has not worked in the past. But every new investment decision must be made with the understanding that we’re not talking about physics here. Experiments are not repeatable. What worked last time, might not work this time. However, in the social sciences and in finance, we can study what has worked in the past and we can perform rational analysis about what might work in the future.

I’ve taken criticism in the past from people like Phil Cubeta who have suggested that I see philanthropy as a desk job where spreadsheets are run all day long. That is simply wrong and does not capture the kind of proactive philanthropic decision making within a social capital market framework that I think will lead to a nonprofit sector that performs at a much higher level.

I urge you to read Walker’s essay for a deconstruction of why traditional evaluation has not lived up to the promise.

By Sean Stannard-Stockton | Also posted in Impact Measurement, New Philanthropy, Philanthropic Capital Markets, Philanthropy | Comments (1)

Lessons for Philanthropists

March 19, 2008 – 8:03 am

This is the last in the series of “lessons for philanthropists” that Paul Shoemaker has been publishing on the Social Ventures Blog.

Statement #10 - I have a great idea for a new program - I’ll start my own nonprofit.

It’s the last time we’ll say it – just don’t! Or certainly make it your last option. There has been a proliferation of non-profits over the last 10-20 years, some of them quite valid and needed. This also means there are more and more small organizations struggling to get enough resources to reach some level of sustainability and organizational capacity.

In short, it is much easier to start a non-profit than a for-profit company, but it is much harder to effectively sustain a non-profit over the long-term. When you have a new idea, please be sure to look around to see if anyone is already doing the work you care about; or if there is someone to partner with or someone that might want to take on a new “line of business.”

By Sean Stannard-Stockton | Also posted in Philanthropy | Comments (1)

Use your heart and head when giving

March 17, 2008 – 10:22 am

My friend Perla Ni, founder and chief executive of GreatNonprofits.org, is the author of an article in the Financial Times today. I assume that many readers will think that my thinking on philanthropy and the vision that Perla presents are at odds. I do not. I think Perla is correct to a large degree. I think the confusion comes down to the assumption most people make that for-profit investors are driven by metrics. I think most great investors (both for-profit and social investors) must “use their heart and their head”.

Use your heart and head when giving

By Perla Ni

Published: March 15, 2008

There’s a trend in philanthropy to treat the act of giving as an “investment decision”. This is partly because non-profit management is taught increasingly in business schools, and partly because more wealthy donors with a business background are are becoming involved.

Donors are younger, more active and may have made their money in finance. They believe, as I did until a couple of years ago, that there is a holy grail of metrics, and if we just worked harder to find it, we could measure all non-profits, lay them side by side and figure out which ones were more effective in doing good in the world.

What gets lost in all of this focus on evaluation and numbers is the grace and joy of philanthropy. Philanthropy inspires. It tells stories. It reconnects us with others and reminds us of our shared humanity.

Two years ago, I visited a local homeless shelter located between the train tracks and the bus depot. It provided homeless people with free breakfast, a place to hang out and referrals.

I asked the director, a Unitarian minister, how he measured effectiveness. I had expected him to say something about the number of people he had helped find jobs, or the number of breakfast sandwiches it handed out, etc. Instead, he replied simply: “Last year one of our [homeless] regulars died. We paid for his coffin and his burial. And 10 people, who he’d gotten to know here, showed up for his funeral.” He paused. “Does that answer your question?”

That sobering encounter made me think hard. The fact that the non-profit provided a place where a homeless person made friends who cared enough to go to his funeral – something that would not fit into anyone’s investment metrics – speaks volumes about how this non-profit made an impact on this person’s quality of life. The organisation did something incredibly decent for this homeless person at his death. It pulled at my conscience and my heart.

I shouldn’t be so surprised by this story’s effect on me. After all, recent research on philanthropy points to the fact that it is a highly emotional and social behaviour. The work of Deborah Small, a professor of marketing at Wharton business school, shows that presenting potential donors with metrics suppresses donations because it lowers empathy. It is empathy, her research says, that triggers giving.

This rings true intuitively – we’ve all pulled out our cheque books at some point at the sight of the picture of the child in India with a cleft palate.

That’s not to say that effectiveness does not matter and we should look only to our hearts. It matters a great deal, but the human dimension is just as important. Many non-profits are trying to make a difference in people’s lives. And that’s hard to do. People are not products. We are complicated – changing our attitudes, ideas and behaviours can take years and it’s difficult to isolate which single factor contributed to any specific result.

And so, when people ask, “how do I know whether this is a good non-profit?”, I respond as follows: “Go and visit. See for yourself. Volunteer for a soup kitchen and sit down next to an ex-felon. Ask them about their lives. What got them into trouble? How are they coping out of jail? How is this soup kitchen helping?” You will be amazed by the stories. It’s eye-opening, vivid and inspirational.

The other advantage of this first-hand approach is that you’ll see that the work of the non-profits extends beyond tangible, immediate or predictable results. Many such organisations – even those that provide direct services – also work to educate, change attitudes and affect policy. These efforts towards systemic change – think about the various efforts by environmental non-profits in the past 30 years – have a long pay-off timeline and only years later do we see the results of their efforts.

Philanthropy is all the more powerful because of these poignant stories. Let’s not rob such giving of its human pulse by regarding it only as an investment decision.

Bono, of the rock group U2, was inspired to become a philanthropist after travelling to Africa. “I saw it. I heard it. I felt it,” he said.

This is the gift of philanthropy. It will awaken you to the joys, sorrows and above all, the hopes of life and our world.

The writer is founder and chief executive of GreatNonprofits.org, an organisation that provides donors and volunteers with reviews and stories of non-profits posted by non-profit clients, volunteers and donors. She is also founder and former publisher of Stanford Social Innovation Review and a co-founder of Grassroots.com.

By Sean Stannard-Stockton | Also posted in Philanthropy | Comments (2)

Lessons For Philanthropists

March 10, 2008 – 6:58 am

From Paul Shoemaker at Social Venture Partners:

Lesson #9 - “I want to be sure our family foundation is around for a long time to come so I need to be sure to spend only as much as I have to every year”

There is nothing wrong with that approach, but you might want to consider what more and more philanthropists and foundations are doing now ( i.e. giving away their full corpus within a stated time frame.) Bill and Melinda Gates said 50-100 years, Warren Buffet said 10 years! Whatever the amount, the decision is driven, in part, by the good ol’ time value of money–a dollar spent today often has more value than the same dollar spent in the future.  If that economic concept applies anywhere, it should really apply to the application of philanthropic funding to social needs and problems.

Some causes and non-profits  might deliver more positive good in the world if they had the same amount of money sooner vs. spreading it over a longer period of time.  Again, this certainly is not a “mandatory,” but it is worth your strong consideration if you are creating a family foundation or some kind of permanent corpus.

By Sean Stannard-Stockton | Also posted in Philanthropy | Comments (0)

Do Nonprofits Want Funders to Be Critical?

March 5, 2008 – 9:25 am

A comment from an anonymous “director of development” was posted today on my Donors vs Investors III post (check out the growing conversation in the comment section of this thread):

Just to bring another perspective to this line of questions, here’s a fundraiser’s take. I’m sure there are lots of forward thinking, transparent non-profits out there who can speak candidly with anyone about mistakes and areas to improve, but my sense is that the vast majority are like my employer: they would never let any  information that might even suggest something less than sparkling about them be publicly revealed.

We have one foundation funder who is openly critical of us, and funds us with a contract and a set of concrete tasks the organization accomplish. I would call this funder a proactive investor. They didn’t just evaluate us, they made their findings known, and better yet continued to offer us money if we made an effort to clean up our act. Many staff are grateful for this funder, and believe our organization has improved with its participation.

So I guess my point is, perhaps a non-profit is best served by funders who can own their criticism, stand by it and use it as a tool. The many many non-profits out there who are less interested in critically evaluating themselves can benefit from proactive investors like the one I have described. And at least when I am in the room with this funder, I am more or less confident that what they say about us at conferences is what they say to my face.

Wow. I might be advocating for a more public dialog, but I’m surprised as anyone to hear a nonprofit employee say their organization has benefited from a major funder being openly critical.

By Sean Stannard-Stockton | Also posted in Cross-Disciplinary Conversations, Evaluation, New Philanthropy, Philanthropic Capital Markets, Philanthropy, Transparency, nonprofits | Comments (7)

Lessons for Philanthropist #8

March 3, 2008 – 8:18 am

Lesson #8 from Paul Shoemaker of Social Venture Partners:

Lesson #8 - “I have a great idea for a new program that XXX could try for kids. I just want to run it by them”

Whoa! Slow Down! Or more accurately, be very cognizant of what you know and what you don’t know.

Be sure your suggestions are within your expertise, relevant experiences and interactions with nonprofits.  Given the range of pressures a non-profit faces from a myriad of funding sources, they have “big ears” and sometimes listen to and even act upon a lot of suggestions and “ideas.” Just be mindful of that.

By Sean Stannard-Stockton | Also posted in Philanthropy | Comments (0)

Investors vs Donors III

February 29, 2008 – 9:41 am

To recap, my questions from my earlier post were:

  1. Why do investors take credit for picking great investments (”look how smart I am, I bought XYZ stock!”), while philanthropists, especially foundations, claim that the credit goes to the nonprofits they fund (”the grantee did all the work”).

  2. Why is it acceptable for investors to talk about investments they think are bad (”Don’t buy ABC stock, their management is terrible!”), while philanthropists never badmouth nonprofits, even if they think they are ineffective?

  3. Related to #2: Why do public companies generally ignore all the talking heads who say negative things about them, while nonprofits find it intolerable to have a prominent person speak negatively about them in public?

The responses from readers can be found here.

The primary response to Question 2 was that funders/donors do say negative things about nonprofits behind closed doors and within private circles. But that they do not do the same publicly for fear of damaging their relationship with grantees. The point was made that funders (unlike investors in public companies), must maintain a healthy relationship with grantees to do their job well. Most readers seemed to appreciate the positive long term impact on the sector of public criticism and general truth telling, but worried that in the short term it would be a large negative.

I think this is an entirely solid argument. Philanthropy is currently much more like venture capital than investing in the stock market (it is no coincidence that venture philanthropy approaches have gained a lot of credence in recent years). Venture capitalists invest in private companies where funding comes primarily from a small set of large funders. They also have an active role and continuing relationship with the companies they fund. This is different from stock market investing where most investors are passive holders of stock and do not interact with the company at all.

Within the context of philanthropy as a private marketplace, I think the arguments for why public criticism does not work are valid.

I don’t think philanthropy is going to be a private marketplace for much longer.

Individuals already give seven times the amount that foundations give each year. Combining the Fidelity and Schwab donor advised funds (representing organized individual giving) gives you an annual grantmaker that rivals the Gates Foundation. Most high net worth individuals are only in the early stages of realizing that giving is something they can approach with a strategy that maximizes impact and tactics that make the most of what they have.

Public criticism of publicly traded companies is no big deal because the shareholder base is so broad. But a venture capitalist going on TV and knocking a private startup might cause it to go bankrupt as funding dried up.

Philanthropy is not yet a public market. The arguments presented against public criticism are all valid and correct today. We need to be preparing for tomorrow.

Venture Capitalists do talk about startups that they think are great. So do some foundations. Note the constant promotion of Nurse-Family Partnership by the venture philanthropy focused Edna McConnell Clark Foundation. You can read a great article about their approach here (note the reporter labels it as “controversial”). Maybe this positive commentary is a bridge to future criticism. Reader “young staffer” writes:

Foundations and donors actually don’t do enough to tout their successes and to make a strong, public case championing the relative effectiveness and strength of their best grantees. It’s not just that the grantees did all the work; it’s that we talk only about how our grantees do good things and yours do too. I think it would be way easier to get the ball rolling towards more criticism if it started from a place of making a case for the best social investments rather than highlighting the worst.

So why then don’t more “expert grantmakers” (mainly large foundations) publicly promote their knowledge? Reader Renata Rafferty writes:

Philanthropy in our society is frowned upon if it is considered self-serving. Therefore, to boast about one’s wise philanthropic investment “picks” would be, well, boastful and self-serving.

Look, if you have a billion dollar endowment and 30 employees working on a focused set of issues, it is not “boastful and self-serving” to talk about your “wise philanthropic investment picks”. If you are not making wise philanthropic investment picks there is something seriously wrong. I assume that large foundations are smart grantmakers. I’m not suggesting that they shout from the rooftops how great they are in an attempt to convince people. I just want there to be a public conversation about social investing the way we have a public conversation about the stock market.

Don’t forget that we’re talking about all of this within the context of a country where most people think nonprofits waste donations. It is hard to imagine that criticism could be all that damaging. You can’t fall very far once you’re already laying on the floor. Maybe Americans would have a better view of nonprofits if they heard experts talk negatively about some of them and positively about others. Realize that the underlying assumption that donors who want low “overhead expenses” from nonprofits is that the nonprofits are a value destroying entity that just gets in the way of the money going to the actual cause.

When a hedge fund manager goes on CNBC and talks about her favorite stocks, it is not “boastful and self-serving”. She is an acknowledged expert and the public appreciates (whether they agree or disagree with her picks) the opportunity to hear her thoughts.

By Sean Stannard-Stockton | Also posted in Cross-Disciplinary Conversations, Grantmaking, Media, New Philanthropy, Philanthropic Capital Markets, Philanthropy, Transparency | Comments (13)