But I strongly agree with Emily that social investing should not set up a power imbalance with nonprofits and that in fact the opposite is true. I’m going to try to address this in a post next week.

Thanks for all the strong engagement on this issue!

“The social investment movement is not designed to make nonprofits change, but to support high performing organizations. ”

Your perception maybe, but I don’t know what you regard as the social investment movement.

My perception is a business model which invests profit into social purpose, applied 10 years ago to leverage economic development. overseas.

Now to answer your question let me point to a wealthy philanthropist, who tells us that there’s a problem in wealth accumulating in the hands of too few people.

http://pinchukfund.org/en/news/archive/2009/01/29/986.html

Consider the enormity of that statement. It happens to be what we also wrote some years earlier. He’s saying that his wealth is due to a flaw in capitalism and that business should focus more on social problems. I tuned in because this is the Ukrainian lunch at Davos and my social enterprise focuses on poverty in that country.

Imagine that there wasn’t a flaw in capitalism. It wouldn’t have been necessary for us to conceive the business model investing in social purpose, which you apply yourself and there would be no need to steer wealthy social investors toward high performing nonprofits.

Never has there been a better illustration of ‘having more money than you know what to do with’.

Now I don’t think social investors are looking down on me, because as I’ve pointed out in a previous response, our approach, for example – investment in getting children out of institutions into family homes, is being put forward by social investors as an illustration for a social impact bond. Imitation is flattery, as we know.

There may be some ‘looking down’ in the context of not wishing to engage on the subject.

Jeff

I think that’s the key statement here. Social investors hope to change the sector by supporting high performing organizations (and, by default, not supporting other nonprofits). Rather than remaking nonprofits or telling them what to do, they want to focus on what’s working well now.

So I strongly disagree with Aaron that what David suggests perpetuates the power imbalance. I think it has the potential to rectify the imbalance a great deal. Of course, capital will flow to some organizations and not to others. That gives donors no small amount of power, but I don’t think that’s what causes the imbalance of power that can be so detrimental to nonprofits. The power imbalance is caused when foundations and other donors decide that they know what works well and they impose agreements/requirements/conditions on nonprofits. Social investors simply withdraw funding when the organization isn’t performing, which is a strong signal for the nonprofit to change, but doesn’t come with the assumption that the investor “knows” how to change the organization.

Maybe I can state it more simply: The investor asks, “Can show you me that this works? If yes, I will give you funds to do it.” The more traditional donor/grantor says, “I know what works. Is that what you do? Because I will only give you funds to do that.” As a nonprofit, it seems obvious to me that first question invests you with great deal more control and authority.

I appreciate your clarifications, and the clarifications of others. If your purpose as a social investor is to work collaboratively and equally with a nonprofit organization to either help them implement – and fund – performance management systems to track and manage how they are working towards impact, or to perform deep due diligence to find and fund high performing nonprofit organizations, then I am all for that!

However, I believe that the words one uses to frame a particular issue are incredibly important and I stand by my original assertion that the excerpts from David in your original post could be perceived as demeaning to nonprofit organizations. I object to a deficit based approach and would much rather have conversations focused on strengthening existing nonprofit assets. In other words, as a social investor I think your focus and framing should be, “what are the strengths of nonprofit organizations and how can we work with them to enhance what they are doing well,” not, “there is virtually no credible evidence that most nonprofit organizations actually produce any social value.” The latter paradigm is not helpful in moving forward positive change. Perhaps David was being controversial to make a point, or perhaps some social investors/philanthropists see nonprofits as full of deficits and not full of strengths – that worries me.

If implemented carefully, and from a strengths-based approach, I see incredible value in what you present. I appreciate your comments and clarifications on this issue, but I still have some concerns that the model you are presenting runs the risk of continuing the power imbalance funders hold over nonprofit organizations. This power imbalance is a mutual issue for both nonprofit organizations and funders – and I object to the implication in David’s comments that funders should continue to perpetuate that imbalance. I think nonprofit organizations need to do a better job of representing the voice and needs of their recipients to funders and I think funders need to do a better job of listening.

I use the words “deep due diligence” above because it takes a lot of time and commitment to know a nonprofit organization, its strengths, weaknesses and whether or not it is delivering “high impact”. While I agree wholeheartedly that nonprofit organizations can find ways to better deliver services and achieve impact – and we should reward nonprofits that do – it must be done through long term, deep relationships in the context that nonprofit organizations are equal partners in the work.

It is so important now, in times of economic turmoil, that philanthropists and nonprofits engage in conversations about mutual goals, mutual challenges and together create a new way forward. That cannot be done with pre-subscribed solutions and notions that all nonprofit organizations are broken and need fixing.

As in many things in life, we need to work through these conversations to find the common ground. I appreciate you listening and sharing. Thank you!