This article is being republished with the permission of the Chronicle of Philanthropy. You can find the original article here.
The Strengths and Weaknesses of ‘Philanthrocapitalism’
By Phil Buchanan
Sometimes, a book release conflicts with world events in such a dramatic way that you have to feel some sympathy for the authors, whose observations look dated before the printing press even finishes churning. Such is the case with significant portions of Philanthrocapitalism: How the Rich Can Save the World, by Matthew Bishop and Michael Green, which chronicles the “new philanthrocapitalists” who seek to “apply the secrets behind their money-making success to their giving.”
Those who wish to dismiss this book, pointing to the recent financial market collapse as evidence of the frailty of unfettered capitalism and business thinking, will have an easy time doing so.
Passages that note, for example, that “in investment banking, it is taken for granted that decisions about how to use capital are based on rigorous research into performance” are now ripe for ridicule.
“While some are skeptical about the invasion of the M.B.A.-enabled executives in suits into the Birkenstock world of charity,” the authors write, “many philanthrocapitalists believe that the world of giving could benefit at least as much as business from a bigger role for professional intermediaries and advisors, and from the sort of transparency and accountability that exists in financial markets.”
Where, the reader is left to wonder, are the guys from Lehman Brothers when you need them?
But this book, despite its weaknesses, is important and deserves to be read. Mr. Bishop, American business editor of The Economist, and Mr. Green, an economist, write in a compelling, breezy voice. Their impressive list of sources (which the authors say is in “no particular order”) begins with Bill Gates, Ted Turner, Bill Clinton, George Soros, and Bono.
Although the authors often seem star-struck, the (mostly) men they write about deserve much of the praise Mr. Bishop and Mr. Green heap on them for their dedication to creating lasting social impact, and their voices are powerful. One of the greatest virtues of the book is its potential, in bringing these voices to readers, to inspire others among the “superrich” to give more and dedicate themselves in the same way to results. This seems to be an explicit objective of the authors, and it’s a laudable one.
From the work of individuals like Mr. Gates, Mr. Turner, and Mr. Soros — and the foundations they established — to smaller-scale efforts like the Impetus Trust, in Britain, the authors extensively chronicle an array of innovative attempts to make more of a difference with philanthropic dollars. In so doing, they provide the most convincing evidence compiled in one place that philanthropy is going through a fundamental shift. They tell the story of a growing emphasis on results and an increasing embrace of goals, well-executed strategies, and rigorous performance indicators. The tide is changing.
While there is considerable truth in this, the authors oversimplify in an attempt to prove their point.
First, they give short shrift to both the degree to which the earliest foundations, like Carnegie and Rockefeller, were focused on assessing results and the successes of the philanthropy that preceded their book’s protagonists.
Second, they try to draw a distinction between the “philanthrocapitalists” and what they regard as the “ineffective philanthropy” of old, without acknowledging that some of the very efforts they hold out as exemplars — such as those of the Edna McConnell Clark Foundation — were led by staff members who spent their careers in the nonprofit world, have no M.B.A.’s to their names, and certainly are not among the “superrich.”
Third, their writing is often fawning: They are less critical of their subjects and less willing to acknowledge the shortcomings of these new approaches than are some of their subjects themselves.
Fourth, they retroactively categorize great thinkers, such as the management guru Peter Drucker, as philanthrocapitalists. When I read that they dubbed Mr. Drucker the “high priest” and “original guru” of philanthrocapitalism, I wondered what Mr. Drucker would say if he were alive today, or whether the authors ever read Mr. Drucker’s great 1989 Harvard Business Review article, “What Business Can Learn From Nonprofits” (and, no, I didn’t transpose the words in the title of that article).
The biggest mistake comes in equating all of this emphasis on “impact” and “strategic philanthropy” with “business” and “capitalism.” It’s as if these words are all synonyms to the authors.
Ironically, this is the same mistake made by the Ford Foundation’s Michael Edwards, who published in March a highly entertaining, much discussed — and blogged about — pre-emptive rebuttal to Mr. Bishop and Mr. Green titled Just Another Emperor? The Myths and Realities of Philanthrocapitalism. Mr. Edwards, director of governance and civil-society grant-making programs, asserts that terms such as “high-performance,” “results-based,” and “data-driven” are codes for “business thinking.”
But it is wrong to suggest that a focus on performance and results is somehow the sole province of business. Both Philanthrocapitalism and Mr. Edwards’s book approvingly quote Jim Collins’s Good to Great and the Social Sectors: Why Business Thinking Is Not the Answer to support their arguments.
But neither seems to have taken seriously the points Mr. Collins makes in his manuscript, which opens with this line: “We must reject the idea — well-intentioned, but dead wrong — that the primary path to greatness in the social sectors is to become ‘more like a business.’”
Mr. Collins goes on to point out that most businesses are somewhere between mediocre and good, asking, “Why would we want to import the practices of mediocrity into the social sectors?” (Disclosure: Mr. Bishop and Mr. Edwards are debating each other at a conference next spring for foundation executives that my organization is hosting, and Mr. Collins is also on the program for that event.)
Those of us who have worked in corporations and nonprofit groups, as I have, know all too well that Mr. Collins is right that there is greatness and mediocrity — and all shades in between — to be found in both business and philanthropy. We also understand how much more difficult it is to know what results you are achieving in the nonprofit world because of the nature of nonprofit organizations’ goals.
Nonprofit performance cannot be judged simply based on universal measures, like profit, found in financial statements. That doesn’t make performance assessment less important; indeed, it makes it more important — but a lot harder.
So we’re better off acknowledging the differences rather than creating a word — “philanthrocapitalism” — that is essentially an oxymoron. If businesses and government could successfully solve all our challenges, or meet all our needs for association and expression, we wouldn’t need nonprofit organizations. As Warren Buffett put it shortly after he made his gift to the Bill & Melinda Gates Foundation, “In business, you look for the easy things to do. In philanthropy, you take on important problems, and it is a tougher game.”
And, let’s be clear: At least some of the social problems philanthropy seeks to reduce are ones corporate interests helped create in the first place as they pursued profits for their shareholders. So, for all the talk within the halls of institutions like Harvard Business School about the positive effects of “blurring the boundaries,” for all the made-up vocabulary that seeks to marry business and philanthropy, I think we’re better off with some clarity on the distinction. Tension between nonprofit groups and corporations in the pursuit of different interests isn’t just healthy, it’s vital.
About 270 pages into a book that argues for employing the tactics of business in philanthropy, Mr. Bishop and Mr. Green try some semantic gymnastics as a way to deal with this critique. They say that critics of their worldview are “mistakenly confusing being businesslike with becoming more like a business.” I had to reread that sentence three times before giving up, concluding that, to the authors, “businesslike” is just a synonym for “effective.”
But it’s not, and it shouldn’t take the headlines of the last few weeks to make that clear. The challenge — worthy of all our attention — is to develop the right language of effectiveness for philanthropy, which can and must improve its performance. Yes, nonprofit groups can sometimes usefully look to business for approaches and frameworks. But they can also learn from other nonprofit organizations. And businesses can learn from nonprofit groups. It’s time to get beyond the “sector wars” and focus on results.
At the organization I lead, we have developed tools to allow foundations to get confidential, comparative feedback about their performance from grant recipients and others. People widely assumed we used customer-satisfaction surveys in the corporate world as our model, but we did not; our model, in fact, was the comparative reports based on student survey results put together for decades by a consortium of nonprofit colleges and universities.
The reality is, many (though by no means enough) nonprofit groups in this country are models of effectiveness — and they were not all founded in the last decade by the protagonists of Mr. Bishop and Mr. Green’s book.
Despite the book’s flaws, Mr. Bishop and Mr. Green deserve credit for expertly chronicling an important trend, even if they mislabeled it. The push for greater results and for better approaches to achieving them is vitally important. My hope is that nonprofit organizations respond to this book with a strong and clear voice — and do not cede ownership of crucial concepts like strategy and performance assessment to anyone.
Phil Buchanan is president of the Center for Effective Philanthropy, whose headquarters are in Cambridge, Mass.
in which I wrote:
by Matthew Bishop. Phil also wraps in commentary on 
, Michael Edwards rebuttal of the philanthrocapitalist concept. It is so easy for us to fall into the trap of always taking one side of an issue. Phil gets that these issues are complex and does an excellent job differentiating between the various threads of thought.
. Published this year, the book comments on events that were occurring in the financial market as recently as the spring of this year. Author Mohamed El-Erian is the former head of the Harvard endowment and current co-CEO of PIMCO, one of the largest investment managment companies in the world (he also spent 15 years at the International Monetary Fund). In the book, El-Erian says that when asked what career he would suggest a young women go into he replies “structured finance” without hesitation. His point is that while we are in a cyclical move away from structured finance due to excessive risk taking, the stuctured finance movement will continue to dominate financial markets over the long term.