Tactical Philanthropy

Peter Frumkin is the author of Strategic Giving, an excellent book that I reviewed last year. Earlier this week, Peter wrote a post on the Philanthropy Central blog calling into question some of his own assumptions about what drivers are most important to successful philanthropy.

Peter wrote:

…I am increasingly troubled by a recurrent worry. It is a worry about what actually drives philanthropic success.

Let’s define two categories of philanthropic processes. The first is technocratic, rationalistic, and ordered: It includes program positioning and issue research, alignment and coordination across initiatives, logic model drafting, white paper or concept paper development, proposal reviewing, adapting and applying new information technologies, program evaluation design and implementation, and all the other day-to-day professional work that goes into modern philanthropy…

Now consider what might be called the more humanistic, interpretive, and adaptive work in philanthropy, which really comes down to judging the capacity, character, resilience, intelligence, and resourcefulness of the people who seek philanthropic funds. This is the kind of ill-defined and untheorized work that comes down to judgment and gut assessment by the donor of the person sitting across the desk from them. Call this Category Two work.

Now to my worry: What if Category One philanthropic work really only explained a small part of philanthropic effectiveness and social impact? What if Category Two work explained a vastly larger percent of outcomes? If this were a social science morel, we might ask what the r-square statistics of these two types of philanthropic work are if the dependent variable is effectiveness. The r-square statistic ranges between 0 and 1 and tells us how much variation in the dependent variable is attributable to changes in the independent variable (here, that would be Category One and Two philanthropic work).

My concern is that the growing philanthropic industrial complex—made up of consultants, researchers, trainers, and advisors—believes, earnestly believes, that the r-square statistic for Category One work is high, perhaps up to .75, and this justifies the substantial amounts of money invested in building up and supporting this work. But I have come to doubt this assumption over time and now think the r-square statistic might actually be very low for Category One work. I am more and more of the belief that Category Two work has the big r-square and explains a lot more of the achieved social impact than anyone wants to admit. The problem is that Category One work has an army of salespeople out and about selling tools and frameworks, while there is virtually no infrastructure to support Category Two work.

What I think the field really needs is a systematic guide to the difficult art of assessing the innate ability and capacity of grant seekers  to conceive wisely a vision and then actually carry out their plans. If donors cannot judge character and capacity correctly, all the tricks of the philanthropic trade will not help them achieve their goals. What such a guide would look like I do not know, but I doubt the current philanthropic industrial complex has the will to design and deliver it.

This is a dramatic declaration on Peter’s part. Peter is the kind of academic who talks about r-squared statistics in blog posts. For him to write that the “untheorized work that comes down to judgment and gut assessment… explains a lot more of the achieved social impact than anyone wants to admit,” is a shot across the bow of the philanthropy industry from someone who should more naturally side with the philanthropic process folks.

Personally, I think Peter is right. It isn’t comfortable to believe that the intangible art of judgment and gut assessment is the most important driver of philanthropic success. It would be far easier if we could all just learn specific, repeatable processes, that while complicated, insured that our giving was effective. But I think the evidence from other fields fully supports the importance of judgment over process.

In investing, Warren Buffett has a process, but it is his intangible gift for spotting value that makes him great. If the reverse was true, then anyone who read the vast literature covering the process that Buffett uses could fully expect to replicate his success.

In writing, novelists around the world study the writing styles of the greats. But The Elements of Style won’t make you Ernest Hemingway.

In economics, thousands of men and women run rigorous studies in an attempt to predict how the economy will behave. Yet we know that this process fails them time and again and fails to even adequately explain historical events.

This is not to suggest that process doesn’t matter. In the book Blink: The Power of Thinking Without Thinking, Malcolm Gladwell explains the incredibly important role of judgment and gut assessment in expert decision making. But he does not declare process and rigor is not important. In seems to me that systematic processes are necessary but not sufficient building blocks on which to develop effective philanthropy.

Unless we heed Peter’s warning that “judgment and gut assessment… explains a lot more of the achieved social impact than anyone wants to admit",” all the efforts to build a more effective philanthropy will do nothing more than create elegant mental models that sound great, but fail to make the world a better place.

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• VPP | Chairman's Corner: 'Social Outcomes': Missing the Forest for the Trees? After his essay last month in which he worried that many efforts to measure nonprofit results have gone far off course, Mario Marino of Venture Philanthropy Partners returns with an essay looking at the "whys" and "whats" to measure rather than the "hows". (tags: philanthropy)
• NYC Human Services Data Project New York City is beginning an effort to encourage city resources to be deployed in data-driven ways. The project includes a number of foundations and a member of the working group who is building it told me they are looking to the impact investing focused IRIS project as a model. New York City spend $4 billion a year on human service contracts. (tags: philanthropy)

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One of my favorite new (to me) blogs is the fantastically named Full Contact Philanthropy, authored by David Henderson, CEO of Idealistics Inc. and social enterprise consultant Dan Elitzer. In the wake my back and forth with Martin Brookes over the role of guilt in social investing, Dan left a comment that I want to share.

My objection to Martin feeling guilty about making a non-optimized charitable donation focused on the need for empathy in philanthropy to not be displaced by logic. But Dan took the argument a step further and argues that ignoring the empathic urge undermines philanthropic effectiveness.

Dan writes:

Rather than look at Martin’s gift as a betrayal of his social investment ideals, I think it is more productive to see it as a positive act of consumption and parenting. Instead of viewing his donation to the donkey sanctuary as replacing a more effective act of philanthropy, look at it as replacing the purchase of a toy or movie or other consumer product or service unconnected to charity. Certainly the joy he and his daughter received from his donation to the animal sanctuary was more “meaningful” than an equivalent amount of joy from some non-philanthropic activity.

I agree that the logical conclusion of Martin’s line of thinking would be that “we should all feel bad that we spend a penny on anything discretionary.” Inequality and injustice would cease to exist if we all felt compelled by the same moral compass that directs Martin. Unfortunately, we don’t all feel that way, and it is unproductive for people like Martin to spend too much time self-flagellating over such matters. Denying ourselves all “unnecessary” comforts does not lead to a mental state in which we are suited to effect good works on a larger scale. Granted, we all need to find the right balance for ourselves between absolute hedonism and strict abstention, but wasting too much time ruminating on the subject just prevents us from moving on with the important work we have to do.

To Sean’s larger questions about the role of guilt in the nonprofit sector and the obligation to right inefficiencies vs. giving with our emotions, I say we need to be aware of the role of guilt and other emotions (both rational and irrational) and better understand how they affect giving. Network for Good and Sea Change Strategies recently put out a fantastic (and free) ebook by Katya Andresen, Alia McKee, and Mark Rovner, which uses learnings from the discipline of behavioral economics to help explain why people so often make irrational decisions, especially when it comes to charity. The title is Homer Simpson for Nonprofits, and you can download it here. It offers actionable steps for nonprofits to better align their communications and fundraising strategies with the way people actually make decisions, not the way we think they SHOULD make decisions.

One of the principals discussed in the book is the relative strength of social norms over market norms. If we deny the role emotions play in philanthropy, we step away from effectiveness, not towards it. Rather than beat ourselves up when we give “inefficiently,” let’s strive to direct that energy to better understanding what led us to make that irrational choice and how we can better help our rationally preferred causes take advantage of the factors that drove us to give to our emotionally preferred cause.

Dan brings up the role of the emerging discipline of behavioral economics in helping us understand how people actually behave rather than how we think they should behave. Behavioral economics is a favorite topic of mine and one that I think can lead to great insights in philanthropy (I’ve just downloaded the eBook Dan points to).

As I work to craft the Tactical Philanthropy track at the Social Capital Markets conference, I want to follow up on the suggestion of Duke University’s Ed Skloot to include a session about what philanthropy can learn from behavioral economics. But I’m at a bit of a loss about how to structure such a panel and focus the conversation.

Do you have any thoughts about how to create a fantastic panel discuss about the intersection of behavioral economics and philanthropy? If so, leave a comment or shoot me an email!

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• The Social Sector’s Micro Problem – Full Contact Philanthropy David Henderson makes the case that the social sectors current interest in "micro" solutions is misplaced and won't lead to the big changes that we need. (tags: philanthropy)

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• Blog Reaction: Philanthropy and Guilt « High Impact Philanthropy The Center for High Impact Philanthropy at the University of Pennsylvania has weighed in on my debate with Martin Brookes about the role of guilt in social investing. (tags: philanthropy)
• FT.com / Comment / Opinion – How banks can help the world’s poor The CFO of the Gates Foundation stepped down last week and now has an op-ed in the Financial Times calling for foundations to become more financially sophisticated in their use of program and mission related investments. (tags: philanthropy)
• Warren Buffett Shares His Philanthropic Philosophy – Prospecting – The Chronicle of Philanthropy I've always thought it would have been intriguing if Warren Buffett had set up his own foundation because I'm convinced he would have had a very different approach than the one deployed by the Gates Foundation. Now Buffett is talking a bit about how he selects charities to support. (tags: philanthropy)
• Charitable Giving and Philanthropy – Home A number of well known UK based universities have come together to create the UK's first research Centre for Charitable Giving and Philanthropy. (tags: philanthropy)
• New Philanthropy Capital Blog – I admit it, I'm guilty of wasting charitable funds Lots of new comments on Martin Brooke's post about his feelings of guilt. (tags: philanthropy)
• The GiveWell Blog » Nothing wrong with selfish giving – just don’t call it philanthropy Holden Karnofsky offers a good take on the issue of social investor guilt and how we should think about donations that are "non-optimized". (tags: philanthropy)

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This is my newest column for the Chronicle of Philanthropy. You can find the archive of my past columns here.

A Philanthropic Network Passes On Recommendations of Worthy Charities
March 7, 2010 | Chronicle of Philanthropy

In all the talk about measuring results in philanthropy and how best to determine which nonprofit groups are effective, a simple fact is often overlooked. All across the country, foundation program officers, senior nonprofit staff members, and academic researchers know which nonprofit groups are doing great work.

Now a new group called Philanthropedia is working to capture this knowledge about top nonprofit groups and make it available to everyone.

This sort of information, personal recommendations from people in a good position to pass judgment, is a fundamental process that people use to make decisions.

Getting recommendations from experts can mean asking your friend who loves to eat out what she thinks about the new restaurant in town or consulting a book review in The New York Times before choosing your next novel. Recommendations from trusted experts are so valuable that we often pay large amounts of money to gain access to them before making critical investment, legal, or medical decisions.

Philanthropy itself is largely built on recommendations. Studies show that one of the main reasons donors give to certain groups is that a friend asked them to do so.

When those friends are fellow supporters of organizations and not professional fund raisers, they are in effect recommending a group that deserves support. But while those sorts of recommendations motivate action, they are not unbiased or delivered by an expert.

Philanthropedia is working to make expert recommendations of nonprofit groups as accessible as the expert recommendations that help shape our decision making about which movies to see, restaurants to patronize, or retirement strategies to deploy.

Working with a quickly expanding network of experts that includes grant makers, nonprofit staff members, scholars, and other experts, Philanthropedia is making available expert recommendations on topics that include organizations working to curb climate change, improve education, extend small loans to struggling entrepreneurs abroad, and reduce homelessness in the San Francisco Bay area.

Co-founded by Howard Bornstein, a former employee of the Bill & Melinda Gates Foundation, and Deyan Vitanov, an entrepreneur who had previously built an online community for computer programmers, Philanthropedia began operations last year with extensive support from the William and Flora Hewlett Foundation.

The Philanthropedia team uses a survey methodology similar to one developed by the RAND Corporation to use expert recommendations in situations involving a large degree of uncertainty.

Given the nonprofit world’s current inability to systematically measure the effectiveness of nonprofit programs or even agree on what attributes make for a well-run organization, Philanthropedia’s approach makes a lot of sense.

The big weakness in Philanthropedia’s model is that the recommendations it offers are only as valid as the expertise of the organization’s network.

Because so much of philanthropy is not based on evidence, it is quite possible that the nonprofit groups recommended by the organization’s experts are not truly the most effective ones. It could be that the people in the network have biases that produced flawed ideas about what makes a nonprofit group successful.

However, in a recent background paper, Philanthropedia showed that the nonprofit groups it recommends have little in common based on how much money they raise, how well known they are, and their age, number of employees, and accountability ratings from Charity Navigator.

This means that the experts are picking up on something else. Given that the experts are foundation employees whose job it is to analyze nonprofit groups, researchers who have spent years studying conservation, education, poverty, and other topics, and nonprofit senior staff members who see firsthand the activities of their peers, it seems likely that many of the groups Philanthropedia recommends are among the best.

In the wake of the Haitian earthquake, the Gates foundation, the Ford Foundation, the charity research group GiveWell, the University of Pennsylvania’s Center for High Impact Philanthropy, and the nonprofit Acumen Fund all made grants or offered recommendations of which organizations were in the best position to help.

Each of them listed Partners in Health as one of their choices. While this fact does not guarantee that Partners in Health is the most effective nonprofit organization working in Haiti, it does offer a useful piece of information for donors trying to decide what groups to support.

Philanthropedia offers the potential to gather this sort of information for different causes and to offer recommendations that are international, national, or local in scope.

What is fascinating about Philanthropedia is that its process is not only effective but it is also inexpensive to run and easy to expand.

Other organizations working to identify outstanding nonprofit groups by conducting original research may offer some advantages compared with Philanthropedia.

But Philanthropedia’s system allows it to analyze far more nonprofit groups by simply bringing to light what experts already know.

Philanthropedia could quickly become a great way for donors to learn from the people in the best position to know which organizations are the most effective.

Sean Stannard-Stockton is chief executive of Tactical Philanthropy Advisors in Burlingame, Calif., and author of the Tactical Philanthropy blog. He is a regular columnist for The Chronicle of Philanthropy.

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Once upon a time, people gave to charity to relieve their guilt. People felt guilty that they had more than other people and so they “gave back” to repay their debt to society.

Then social investors came along and decided to change all that. They insisted that their giving was not intended to discharge a moral obligation. Instead, they were making proactive “investments” meant to generate positive “social returns”. These social investors were operating higher up in Maslow’s hierarchy of needs as they sought self actualization rather than the more lowly need of being accepted by their community.

But then something strange happened. Social investors began to experience a new kind of guilt. And now, putting the sarcasm aside, we turn to Martin Brookes. Martin is the CEO of New Philanthropy Capital. I admire Martin and his firm very much. But recently, he posted an entry to the New Philanthropy Capital blog that typified the emerging guilt complex of the social investor.

Martin, who has long pointed to fact that donkey sanctuaries in the UK (where he’s based) have long received far more donations than charities that work to end domestic violence, wrote the following:

I admit it, I’m guilty of wasting charitable funds

By Martin Brookes

I need to confess to a misallocation of charitable funds, as well as a flouting of my own personal rules. In short, I gave some money to an animal charity.

Recently, I wrote a blog post about why I don’t give to animal charities. This argued, in essence, that giving money to (say) donkey sanctuaries rather than domestic violence charities represented a misallocation of charitable funds, and that this is wrong.

On holiday in Cyprus last week, my five year-old daughter Alice asked to go to the local donkey sanctuary. I couldn’t resist and she ended up having a fine time walking and grooming Popeye and Lorraine, (Alice and Popeye are pictured), two aged and well looked after donkeys. She then asked to adopt Lorraine, which we duly did, handed over more money by way of donation and bought several gifts.

This broke all my rules about charities. The only compensation is that it makes me feel like a better dad. But it was charitable giving to make me feel good, not charitable giving for public benefit.

To make matters worse for me, the donkey sanctuary in Cyprus is funded by The Donkey Sanctuary here in the UK, the very charity NPC used for the comparison with domestic violence charities. The most recent published figures show The Donkey Sanctuary had an annual expenditure of £19.6 million in the year to September 2008. Reserves were £37.1 million. That is, to put it mildly, rather a lot. After my visit, that reserves figure is now a tiny bit higher.

After my visit to the donkey sanctuary, I felt good as a parent, but bad as a donor. Alice feels marvelous and is inseparable from her picture of Lorraine, but that is not a sensible charitable objective…

I’m all for social investing. My take on effective philanthropy, what I call Tactical Philanthropy, makes no mention of making donations to donkey charities to make your child happy. But I think that guilt, whether the traditional guilt that comes from noticing inequity or the neo-guilt of the non-optimized social investor, is one of the worst emotions to drive charitable giving.

Here was my response to Martin:

Martin, with all due respect, your guilt around this is crazy. Under your logic, we should all feel guilty about all of our giving that does not go to the single best charity in the world. Under this logic we should all feel bad that we spend a penny on anything discretionary. Under this logic, we should all feel permanently anguished by the fact we don’t spend every waking moment focused on the needs of others.

You did a great thing for your daughter. She had a moment of feeling empathy for someone else. As a five-year-old, that’s a big developmental moment (I know, I have a four and six-year-old). And in that moment, when she felt the most fundamental emotion that drives all of philanthropy, her father stepped up, fought back the analytical monster in his mind who insisted that this was an illogical allocation of philanthropic resources and demonstrated that empathy (for your daughter) was more important to you then satisfying your own needs to feel logical in your giving.

You should be damn proud, Martin. Your actions exemplified the very best of the human urge to care for others. Without that urge, the work of New Philanthropy Capital would be pointless.

Yes, the way the situation mapped to the example you use to highlight the importance of analytical philanthropy is ironic. But it is this very irony and your awareness of it that makes your support for your daughter’s empathetic urge so tangible.

Be proud of yourself, Martin. You’re a great philanthropist.

Martin responded here with a thank you for my compliment to him, but an insistence that he was guilty as charged. What do you think? Was Martin’s support of the donkey sanctuary a betrayal of his social investing ideals or was it a heroic parental act? What role does and should guilt play in philanthropy? As we become more and more aware of the inefficiencies in the charitable sector, what obligation do we have to direct all of our giving towards righting those inefficiencies even if doing so draws us away from the emotions that drive our giving?

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Warren Buffett is known to warn investors away from companies who have fallen prey to the Institutional Imperative. The Institutional Imperative is the phrase Buffett uses to describe the way that many management teams, generally for reasons of greed, manage their company to the benefit of the institution rather than for shareholders.

The Institutional Imperative leads to companies making acquisitions of other companies which increase the size of the institution, but do not increase shareholder value. It leads to companies following what other companies are doing so that they do not risk looking bad instead of charting the course that would best lead to enhanced shareholder profits.

In short, the Institutional Imperative describes how many management teams manage their organization for the sake of the organization instead of recognizing that they should be managing their organization for the sake of shareholders.

I believe that many nonprofit organizations are in the grips of a variant of the Institutional Imperative.

The for-profit Institutional Imperative is driven by greed (management teams that want to run bigger organizations) and a desire to not look bad (management teams that follow the herd, even during periods of irrationality such as the dot-com boom and the period leading up to the financial crisis). The nonprofit Institutional Imperative is driven by fear, the fear created by running an organization which is constantly fighting for survival.

Nonprofits, even large ones, rarely have enough money. Even when their revenue is high, they frequently do not have the philanthropic equity on their balance sheet that would give them the ability to invest in the future. When an organization, or an organism, is in survival mode, it must shut down nonessential functions. It must operate so as to preserve itself. In the case of a nonprofit, this means focusing on fundraising and executing existing programs.

The nonprofit Institutional Imperative is responsible for the fact that so few nonprofit measure their performance, track the outcomes of their work or make the resources available to share information about what works (and what does not) with the field.

The nonprofit Institutional Imperative leads nonprofit management teams to run their organization for the sake of the organization rather than for the sake of stakeholders.

Warren Buffett believes that simple human nature is responsible for the Institutional Imperative. Observing that many for-profit and nonprofit organizations fall prey to the Institutional Imperative is not a criticism so much as a recognition that the normal human emotions of greed and fear lead management teams of both for-profits and nonprofits to run their organizations in ways that do not maximize benefits to shareholders and stakeholders.

But great organizations are led by teams who refuse to succumb to the Institutional Imperative. They recognize that the organization they lead is not itself an entity to preserve so much as a vehicle for delivering value to shareholders and stakeholders. The gifted executive is one who realizes that they have been entrusted with stewarding this value creating vehicle. They have been given the responsibility of maximizing the value that their organization creates, not simply tending to the care and feeding of the organization.

Before making every decision an executive team should be able to answer “Yes” to the question, “Does this action enhance value to our shareholders or stakeholders?” NOT “Does this action benefit our organization?”

By throwing off the shackles of the Institutional Imperative, you can align all of your resources towards your true goal. You can do more with less because you are putting every ounce of effort into creating value.

You can truly make a difference.

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My last post on the way that information has different characteristics in the social sphere compared to the for-profit sphere, generated a string of reader comments. The comments covered a lot of ground and I encourage you to check them out here. But one recurring theme pointed to the costs of sharing information being something that was difficult for nonprofit entities to cover.

Gabi Fitz of IssueLab:

When we forget the original intention behind knowledge production in the social sector (namely that it will contribute to social good and social change) we also forget to dedicate the necessary resources to sharing this knowledge more broadly…

Just like any other social need that is not satisfied by the market (or is maybe even the result of a market failure), the work of making meaning from information, providing effective filters, and brokering knowledge in the social sector is a social service that needs charitable support.

Dan Elitzer of Full Contact Philanthropy:

I agree that unlike in the for-profit sector, information sharing in the nonprofit sector does not have a negative impact on the information-creator’s ability to achieve their goals. However, there is still an opportunity cost for organizations to package their knowledge and transmit it in a form that will reach and be actionable for other actors. Foundations may have the resources to engage in information sharing if they think it will advance their mission, but for most nonprofits, investing the time and financial resources to share their data or knowledge requires making cutbacks in other areas.

If a nonprofit staff member is directed to evaluate a program and capture information on how it can be effectively replicated, the time spent on that task is time not spent on providing direct client services or fund-raising or training new staff, etc. If that staff member then has to find a way to distribute that information so that others in a position to act on it will find it, that’s more time not spent on other mission critical work. Yes, the time spent on capturing and disseminating information may ultimately do more to advance the organization’s mission than whatever other activity was superseded, but unless the organization is confident it can make that case to its supporters, that’s a hard call to make.

These are important points. I think the way to address these concerns is though the Googlization of Philanthropy and the way that technology is unbundling the process of creating information from its distribution. In a Chronicle of Philanthropy column last April I wrote:

The Googlization of philanthropy is about organizing knowledge to allow for smarter giving by more people. Most important, the Googlization of philanthropy means that organizing the information will not be done by the information creators, but by third parties and — excitingly — the people who want to consume that information.

The point here is that we are witnessing the rise of information processing organizations like Google, Yelp and Twitter (when it is used to create information filters) which do not themselves create information, but which pay for the infrastructure of information distribution. Something similar could clearly occur in the nonprofit sector (with current examples like IdeaEncore, PubHub and IssueLab).

The rise of these intermediaries both bring light to the information that is already available and creates incentives for more information sharing. The Foundation Center’s Glass Pockets project is a good example. The site, which shows how transparent and accountable large grantmakers are, both allow users direct click through access to an enormous amount of information about foundations and importantly it helps set expectations around information sharing. Certainly foundations which are currently not sharing information which Glass Pockets deems necessary will at least need to give some thought to changing their policy.

The takeaway from all of this is that it is critical that the social sector, both nonprofits and grantmakers, embrace a cultural ethic of information sharing. That as a sector, we realize that we don’t need to “own” our social impact. If we have valuable information that can help inform the activities of others, it is our duty and our biggest impact opportunity to share this information widely. Even the Bill & Melinda Gates Foundation, the largest grantmaker in the world, makes up only 1% of the amount given to charity each year. So to the extent that they are able to share what they know to help inform the other 99% of giving, they have an opportunity for the impact from what they know to dwarf the impact from the money they give.

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• Social Finance & Philanthropy – WSJ.com The European edition of the Wall Street Journal features a special report on social finance and philanthropy today. (tags: philanthropy)

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• Katrina @ Five: Partners in Philanthropy In the wake of the Haitian earthquake, this conference that will look back at lessons learned post-Katrina takes on added importance. (tags: philanthropy)
• Full Contact Philanthropy I must say that I love the name of this blog and I've started following the great, but infrequent updates. (tags: philanthropy)
• Civil society vs markets – a false dichotomy? « Alliance magazine On the heels of my debate with Michael Edwards on the role of social capital markets, Alliance Magazine launches a new online debate format and asks "Civil society vs markets – a false dichotomy?". Tris Lumley of New Philanthropy Capital and David Bonbright of Keystone try to find common ground. (tags: philanthropy)
• From Liberia—Post-Conflict Philanthropy | Philanthropy Central Jane Wales (Aspen Institute and Global Philanthropy Forum) is leading a group of philanthropists (many from GPF and the Philanthropy Workshop West) on a trip to Liberia. Liberia faces many problems, but has set up a "Philanthropy Secretariat" within the office of their president to coordinate partnerships with philanthropists. (tags: philanthropy)
• Secret Society for Creative Philanthropy Hot on the heels of the New York Times profile, the "Secret" Society for Creative Philanthropy gets profiled in the San Francisco Chronicle. They have plans for chapters in Maui, Krakow, Houston, Vancouver and Los Angeles. (tags: philanthropy)

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One of the issues I write about frequently is “information sharing in philanthropy.” My basic argument is that because the social sector is trying to create value that accrues to the public, individuals actors in the sector can enhance their total impact by sharing what they know with other actors.

However, my argument also has echoes of the popular concept among Internet devotees that “Information Wants to be Free.” This concept advances a value judgment that information (especially stuff online) should be free.

I think this concept is nonsense.

The phrase “information wants to be free” comes from a speech given by Stewart Brand (editor of the Whole Earth Catalog, and founder of The Well, Global Business Network and the Long Now Foundation) in 1984. But Brand didn’t simply say that information should be free. What he actually said was:

On the one hand information wants to be expensive, because it’s so valuable. The right information in the right place just changes your life. On the other hand, information wants to be free, because the cost of getting it out is getting lower and lower all the time. So you have these two fighting against each other.

Brand commented on his speech in a 1987 paper that this tension…

…leads to endless wrenching debate about price, copyright, ‘intellectual property’, the moral rightness of casual distribution, because each round of new devices makes the tension worse, not better.

Brands comments reveal a deep complexity that the simplistic insistence that “information wants to be free” ignores. I bring all this up, because I want to be sure that when I advance the idea that philanthropy should embrace rampant information sharing, it is clear that my argument is not based on what I believe is the simplistic moral arguments that information in general wants to be free.

Instead, I’m so excited about advancing information sharing in philanthropy because the tension that Brand points to is mostly a function of for-profit markets and largely absent from social good markets. The reason we have “endless wrenching debate about price, copyright, ‘intellectual property’, the moral rightness of casual distribution” is because most information generally becomes less valuable to its creator as it spreads.

Coca-Cola is highly secretive of the formula for Coke. If they decided to share the formula, two things would happen 1) Other people would copy Coke, flooding the market with product as good as Coca-Cola’s, drive the price down and make Coke much more widely available and 2) Coca-Cola would find that their business was suddenly far less profitable since they no longer controlled the valuable information that underpins their business.

But the social sector doesn’t face this dilemma. Let’s imagine that a nonprofit existed that ran a program which successfully raised life outcomes of inner city youth. If they decided to share their “formula” two things would happen 1) Other people would copy them, flooding the nation with programs as good as theirs, drive the cost down and make the program much more widely available and 2) Social value creation would skyrocket, the developers of the program would be national heroes and probably win the Nobel Peace Prize (as Muhammad Yunus did in 2006 for advancing the field of microfinance).

Social media and the rise of almost costless information transmission is tearing apart for-profit fields like journalism and the music industry. But philanthropy doesn’t face the tension that Brand describes.

Yet philanthropy is failing to capitalize on the biggest transformational dynamic to hit our field. Brand writes that “each round of new devices makes the tension worse, not better.” But in philanthropy each round of new devices makes the opportunity better and our failure to capitalize on the shift more dramatic.

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• The Power of Now: Institute for Philanthropy Should foundations consider spending down to maximize impact? Solid research looking at the trade offs of this strategy that is gaining acceptance. (tags: philanthropy)
• Social Innovation Article : The Power of Theories of Change By Paul Brest Paul Brest has authored an article in the Stanford Social Innovation Review that draws heavily on the blog debate that he and I had a year ago. Should foundations expend resources crafting theories of change or on building great nonprofit organizations? (tags: philanthropy)

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Last year I wrote about the Social Entrepreneurship API and how it could make it easier for donors to “follow the smart money”:

In financial markets there is “smart money” and “dumb money”. These rather crude phrases refer to the fact that certain types of investors tend to make good decisions and others tend to make bad decisions. The “smart money” usually goes against the crowd and makes investments in things that the “crowd” currently dislikes. “Dumb money” investors tend to be trend followers and pile into the hottest fade of the moment. When someone says “follow the smart money”, they are urging you to invest in the things that the “smart money” investors are currently buying.

Social Actions, in partnership with The Skoll Foundation, PopTech, ideablob, andCivic Ventures, announced a new resource that will let people interested in social entrepreneurs “follow the smart money.” The resource is called the Social Entrepreneur API:

From the Social Actions press release:

The Social Entrepreneur API (Application Programming Interface) will be the first open database of information about social entrepreneurs who have won fellowships and awards from social enterprise funders.

The tool will allow philanthropists, investors, press, and fellow entrepreneurs to find social entrepreneurs based on keyword, location, cause area, population served, and a variety of other factors.

Facing more than a million nonprofits and a vast field of social entrepreneurs, we need smart ways to create filters so that the great opportunities do not get lost in the fire hose of information.

Now, the Skoll Foundation is launching a Social Entrepreneur Search Widget:

embed("colorGreen", "narrowLayout", 0, "http://seapi.dk.exygy.com/");

The widget can be customized to include all or a selection of funders participating in the API. You can put the widget on your own website if you like by grabbing it here.

The main thing I like about the API and widget is that it surfaces a set of vetted social entrepreneurs. By creating a searchable set of social entrepreneurs that have gone through the due diligence process of well resourced funders, the API makes it easier for individual donors to piggyback on the research of others.

Let’s say that last year a donor read about the nonprofit OneWorld Health’s successful work with pharmaceutical giant Roche to develop a drug for a prevalent, but not profitable, disease. The story is compelling, but the donor wonders if the article is telling the whole story. A quick search of the Social Entrepreneurship API Widget would have revealed that the founder of OneWorld Health passed the due diligence of the Schwab Foundation for Social Entrepreneurs. The info from the Schwab Foundation even includes detailed information about The Innovation, The Strategy and The Entrepreneur (not all funders have added this info to the API). While this doesn’t guarantee a thing, it still puts the donor way ahead of the game in terms of evaluating whether OneWorld Health is worth supporting.

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This is a guest post from Steve Goldberg. Steve is a consultant to Charity Navigator and the author of Billions of Drops in Millions of Buckets:  Why Philanthropy Doesn’t Advance Social Progress.

By Steve Goldberg

I’m struck by the inherent futility of fundraising. Like Sisyphus endlessly rolling that rock up the mountain, a fundraiser’s job is never done. Every day they face the same implicit question: “What have you done for us lately?” Although some organizations have supplementary funding sources, for most nonprofits most of the time, it comes down to fundraising.

For the more than 90% of nonprofits that raise less than $1 million each year, fundraising is essential just to maintain baseline operations. And no matter how great the need or effective the nonprofit, program growth isn’t possible without increased fundraising. As we think about moving the needle of social change, it seems short-sighted to expect fundraising heroics to bear most of the burden.

An insightful article in the MIT journal, Innovations, by Matthew Bishop and Michael Green, authors of Philanthrocapitalism, offers “a fundamental rethinking” about “how to finance the growth of a good idea into a world-changing social innovation.” In “The Capital Curve for a Better World,” Bishop and Green make a persuasive case that “the next frontier in raising the efficiency of social innovation has to be the capital markets for good,” and that “a concerted effort is now needed to design an effective and efficient capital curve for social innovation.”

The authors envision “a productivity miracle in the social/citizen sector,” that could enable effective nonprofits to become more than “islands of excellence,” and break through the limits of “successful, but not successful enough, organizations”:

The non-profit/philanthropic sector has a decent record of funding innovative ideas in the early stages of putting them into practice. However, non-profits have tended to remain small and inefficient …. They often have little choice but to rely overwhelmingly on short-term funding, which tends to be extremely expensive to raise (especially when it is in small amounts from the general public). Large-scale philanthropy has the potential to provide the long-term, high-risk capital that social innovation often needs, but too often is risk-averse and uses short-term project financing rather than providing innovative start-ups with philanthropic equity.

The challenge is (1) “to figure out which forms of money—grants, debt, equity, government funds, for-profit funds, paying customer—are most effective at which stage along the journey from good idea to having massive social impact,” and then (2) “to … put in place [the systems] to ensure that the resources that exist are available to the most promising ventures at different critical junctures.”

This framework suggests an emerging discipline of “moving money” that holds out hope for reducing our over-reliance on fundraising. Fundraising relies on building relationships with prospective donors and telling engaging stories about the nonprofit’s work.  It represents the personal connection of philanthropy, one that’s inherently time-consuming and labor-intensive. Moving money is data-driven: it depends on creating new value from market intelligence.

Fundraising is useful for even small donations, but spending time and effort to move money around only makes sense for sizable, usually aggregated funding looking for investment opportunities that individual donors can’t find on their own. If nonprofit capital markets became more adept at moving money, it could reduce the need to repeatedly raise new money in small amounts.

Hewlett Foundation president Paul Brest advanced the idea in 2007 that “information about an organization’s performance can usefully guide investment decisions.” A 2008 Keystone Accountability study explored how online markets “can serve as not just a convenient way of donating money but also a means of encouraging effectiveness by directing money to the highest-achieving organizations.” But a 2009 Hewlett-funded analysis of 55 online platforms concludes that “the limited evaluative analysis that has been developed is not reaching, or failing to influence, a large proportion of donors.”

An ecosystem of money-movers is still evolving, comprising intermediaries (SeaChange Capital Partners, Global Philanthropy Network), analysts (New Philanthropy Capital, Root Cause), rating organizations (Charity Navigator, GreatNonprofits), sector leaders (Alliance for Effective Social Investing, Social Capital Markets), and advisors (Tactical Philanthropy), to name a few.

More than $300 billion in private philanthropy doesn’t raise itself every year, and fundraising doesn’t have unlimited capacity to increase the amount of money to fund nonprofits. As the social sector looks increasingly to “scaling what works,” the state-of-the-art of moving money must keep advancing, too.

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• SOCAP10 and Hub Bay Area Present: The Life Investment Social entrepreneur Kjerstin Erickson recently proposed selling a portion of her lifetime earnings in exchange for an upfront investment. On March 3 in San Francisco you can join Kjerstin, Nathaniel Whittemore, Kevin Jones Greg Steltenpehl as they debate the merits of the proposal. (tags: philanthropy)

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• Stanford Social Innovation Review : Patient Optimists Bill Gates has proclaimed himself an “impatient optimist”, but Tim Ogden argues that "patient optimism" is a better mindset because any significant transformation takes a great deal of time and effort. (tags: philanthropy)
• BBC World News – Alvin's Guide To Good Business A new prime time TV show launches in the UK. In "Alvin's Guide To Good Business" business guru Alvin Hall travels the world meeting ambitious and dynamic social entrepreneurs. (tags: philanthropy)

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For those of you who were unable to attend the Tactical Philanthropy Forum featuring Paul Shoemaker, Bill Somerville and Bill Schambra in January, we’re happy to now have video of the full event.

Above you’ll find Part I of the debate. You can find video of the full event via the links below:

• Part I
• Part II
• Part III
• Part IV
• Part V

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• Does culture of giving result in high well-being ranking for Michigan town? | The Daily Tell Why are the people of Holland, MI some of the happiest people in the country if unemployment there is 16%? Is it because they give so much to charity? (tags: philanthropy)
• The Collaboration Prize – Searchable Database The Lodestar Foundation's Collaboration Prize recognizes great examples of nonprofit collaborations (the winner last year was a merger between local chapters of the YMCA and Jewish Community Center that allowed them both to better pursue their missions). Now Lodestar has set up a searchable database of collaborations to give other nonprofits templates to work from. (tags: philanthropy)

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Key Points

• The final Social Innovation Fund guidelines recognize the limited availability of evidence in the social sector.
• The guidelines lower the minimum grant size to broaden the range of grantmakers who can apply.
• The Social Innovation Fund offers a chance for smart grantmakers to demonstrate effective philanthropy on a national stage and influence public perceptions about philanthropy.

Last month, the Social Innovation Fund released a draft of the guidelines they would be using to distribute grants and solicited public comments. They received over 200 comments and I hosted a number of those comments publicly here at Tactical Philanthropy.

To a large extent, the final guidelines have not changed dramatically. However, the Fund did make two key changes and attempted to clarify the level of evidence they expect from nonprofits receiving funds (the level of required evidence was at the heart of the comment I made on the draft guidelines).

This is what the Fund had to say about the level of evidence they expect:

Over 50 public comments were received on the use of evidence of effectiveness and impact in the SIF. Many of the comments encouraged the Corporation to be more inclusive about the types of evaluation that would produce strong evidence of impact. The Corporation has captured these insights in its Frequently Asked Questions (FAQ), a companion document to the NOFA. The FAQ clarifies that the Corporation expects subgrantees to demonstrate some level of impact in order to receive a grant, but does not expect that most initial subgrantees will have the strongest level of evidence.The SIF is designed to build the evidence-base of programs over time using rigorous evaluation tools that are appropriate for the intervention.The Corporation is committed to ongoing discussion about evidence moving forward through learning communities and other forums.

While the final guidelines still express an preference for nonprofits that have strong evidence that their programs work, the summary of the guidelines says that the Fund expects grantmaking intermediaries that it funds to:

Complete a competitive subgrant selection process within six months of award
that seeks subgrantees with either preliminary, moderate or strong evidence of
impact and effectiveness… [and] Have an intentional approach to improving measurable outcomes that relies on evidence in decision-making and leverages the strengths of distinct innovations.

In addition to the shift in language around evidence, the Fund is making two changes based on public comment:

• A lowering of the minimum grant award to $1 million from $5 million in the draft NOFA.
• The elimination of an explicit preference for intermediaries that have already selected their subgrantees at the time of application.

The lowering of the minimum was the subject of a number of the comments hosted here on Tactical Philanthropy, notably those authored by Adin Miller and Eileen Ellsworth.

My reading of the new releases and the public comments made by the people running the fund is that they get the tension that exists between requiring evidence and funding innovation and that they appreciate the fact that very few nonprofits exist today that have a rigorous base of evidence that prove their effectiveness.

I think that the Fund is off to a great start. I applaud the vast majority of the choices made in designing the fund. I hope very much that grantmakers who pride themselves on supporting and scaling innovative nonprofits will apply to be a Fund intermediary. Not just because they could use the additional funds, not just because it will help clarify the link between private philanthropy and public sector funding, but because the Social Innovation Fund offers an opportunity to showcase an effective approach to philanthropy on a national stage.

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