More on Philanthropy’s Natural State of Underperformance

Reaction to my column reviewing the books Leap of Reason and Give Smart generated a range of responses. I appreciated the positive comments I received, but want to focus on addressing some of the concerns that were raised.

Phil Buchanan of the Center for Effective Philanthropy via Twitter argued that I should not be singling out philanthropy’s “natural state of underperformance” as being unique from business and government. Yet then argued that in fact philanthropy is harder than business or government. [Update: Phil thinks I made too much of his tweets and clarified his view here].

Since my column was a review of two books on top of which I layered my own point of view, I want to be clear that the phrase “natural state of underperformance” is from the book Give Smart. Since I don’t want to put words in the authors’ mouths, please take my writing on the topic here as my own point of view.

I agree with Phil that philanthropy is harder than business or government. My take on the idea that philanthropy’s state of underperformance is unique is based on the idea that business and government both have functional feedback loops that force some level of achievement. Politicians can be voted out of office and customers can stop buying from a business. Philanthropy faces no such external accountability, which gives it both highly valuable freedom but also makes self-discipline and self-accountability critical to success.

But this doesn’t suggest that business and government exist in some sort of “natural state of excellence”. Bill Schambra of the Hudson Institute captured the distinction well in an email to me when he wrote:

“…, the modern market place, politics, and philanthropy are indeed, as Phil Buchanan suggests, all shaped and governed not by rigorous standards of excellence… the point is that modern politics and markets do not have a mechanism to insure excellence but they do have a mechanism to insure moderate achievement.

…The unique feature of philanthropy, I think Tierney is saying, is that not only are there no forces therein that push toward excellence, but there isn’t even a force that pushes toward adequacy.  As he puts it, foundations are living on the Galapagos Islands, with no natural predators.  Predators don’t insure excellence, but they do insure a certain level of adequate performance.  You may not be the fastest critter in the flock, but you’re fast enough to outrun the bear.  There is no bear in philanthropy.

There is no level of performance (speaking of programs, not investments, of course) beneath which a foundation can sink and find itself imperiled.”

My column is not a criticism of philanthropy, but a recognition that philanthropy operates without the force of competition that eliminates poor performers in business and government. As Bill memorably puts it, “there is no bear in philanthropy”. This fact gives great benefits to philanthropy, but with this freedom comes the necessity to draw on deep self-discipline and self-accountability to strive towards excellency.

Another critique came from one of my most generous and kind readers Christine Egger, whose comments on my blog are almost always supportive. But Christine took issue with my recent post writing:

“My first, second, and third response upon reading this post was an uncharacteristic, “Meh.” And sadness. I’m not really fully sure where the sadness came from, but I think it has to do with the way this sentence ends:

“The only path to results, for both donors and nonprofits, is to dig deep into the wellspring of passion that drives their giving and their work to find the determination and discipline they need to be accountable to themselves.”

It would read so very differently if the last word, “themselves”, was replaced with “those they serve.”

And if “determination and discipline” were replaced with “courage and humility.””

I agree that courage and humility are needed to engage in effective philanthropy. Many attributes are needed. In this column I sought simply to tease out some of the arguments made in Give Smart and Leap of Reason and highlight the especially important roles of self-discipline and self-accountability in a field that lacks a “natural predator”.

I think Christine second point, about being accountable to “those we serve” instead of “ourselves” is more problematic. I wrote a column a year ago on the idea that grantmakers’ fiduciary duties should be to their beneficiaries rather than to the preservation of their foundations. So I agree with Christine that philanthropists’ goal should be to best support “those they serve”. But unlike voters or customers, beneficiaries of philanthropic efforts have no mechanism by which to hold philanthropists accountable.

Philanthropists goal should be benefit those they serve, but they must hold themselves accountable to achieving those results because no one else can do it for them.

15 Comments

  1. Sean, I think you have made a bit too much of a 140 characters (not even)!

    You had tweeted that “underperformance is philanthropy’s natural state” and I replied:

    “I’d suggest underperformance is the natural state of philanthropy, business, and government — in short, everything.”

    I wasn’t actually commenting on the substance of the argument you were making in your post, and wasn’t even disagreeing with your statement!

    I just think it’s useful to remember that underperformance is a problem across sectors because of the tendency of many to hold “business” up, in aggregate, as some kind of paragon to be emulated. But, in fact, as Jim Collins has noted (and as any of us who think about the businesses we have interacted with in the last 24 hours can attest!), most businesses are mediocre. As Collins notes, most of everything in life is mediocre (sadly).

    One of the things I really appreciated about Tom and Joel’s book, which I reviewed (quite positively) for the Chronicle, is that they steered clear of making simplistic and silly analogies to business and instead really acknowledged – and explained – the complexity of this work.

    http://www.effectivephilanthropy.org/blog/2011/03/a-new-must-read-book-offers-advice-to-donors-and-foundation-officials/

    I agree, of course, that the lack of external forces is one of the (many) things that make philanthropy distinctively challenging. I’d also argue this freedom provides opportunities to take on the tough issues other actors (who have to worry about reelection or returns to shareholders) can’t or won’t. The best examples of foundation impact I know are just these kinds of situations: RWJF on tobacco; Wilburforce on natural habitat preservation; Stuart on foster kids. And the best foundations of course create all kinds of feedback loops to keep them honest, informed, and on track.

    Still, I would certainly agree that many philanthropic foundations are woefully underperforming (while many others are performing well).

    So I don’t see the contradiction that you seem to see in noting that underperformance is the natural state of just about everything while also acknowledging that it’s harder to really get results in philanthropy than it is in other domains. Philanthropy, after all, is frequently working to address the very problems that have defied market or government solutions! As Warren Buffet put it, ““In business, you look for the easy things to do. In philanthropy, you take on important problems, and it is a tougher game.”

    I think you made too much of a tweet, my friend.

    • Sorry I read too much into your tweet. I added an update to the post noting your comment. One of the reason I may have read too much into your tweet is I got feedback from a number of other people that somehow my post was critical of philanthropy and highlighting the superior value of for-profit systems. Nothing in my post suggests that. I’m simply commenting on the structural differences between philanthropy, business and government that lead to the need for philanthropists to draw on self-discipline and self-accountability to achieve effective results.

  2. Got it — Sean. All good. Fun exchange. And I completely agree with this: “the need for philanthropists to draw on self-discipline and self-accountability to achieve effective results.”

  3. Brigid says:

    As I recall, in “Give Smart” they literally described harm to beneficiaries as a “secondary” problem.

    Yikes.

    Might reframing philanthropic success in terms of beneficiaries prompt changes for the better? I wrote a post that focusing on beneficiaries could inspire more philanthropic partnerships, the rise of better measurement systems, or at least better motivation. Possibly this is wishful thinking.

    Finally: in agreement that Christine is “most generous and kind”.

    • Does Give Smart really say that? Would you provide a page number? I think success in philanthropy should be defined almost exclusively in terms of outcomes/impact on intended beneficiaries.

      • Brigid says:

        It’s actually “secondary risk” on pg 109-110 and feels not so appalling on the second read as I remembered it:

        “Unlike the strategic risk of wasting your resources, secondary risks are borne entirely by others and can therefore be quite easy to undervalue. Your philanthropy may “succeed,” but if it does so at a significant cost to others, your net benefit to society may actually be negative.”

        Still, I would call this the PRIMARY risk of philanthropy.

  4. Clark McCain says:

    After almost five years in philanthropy, I think we need a bear. Perhaps not one that would chase us down and maul us to death but one that compels us to start running until we’re somewhat more fit. You should think, Sean, about a column or post dedicated to devising that kind of bear.

    • Clark, I very much appreciate the idea, but I’m not sure I agree. I think that philanthropy is private action for the public good. It is voluntary action. While I think that the IRS should have full latitude to define what sort of nonprofit activity qualifies as charitable in nature, I am not in favor of implementing any sort of test that would impose external accountability on a foundations grantmaking (assuming that their grants are going to nonprofits that have qualified for 501c3 status).

      That being said, I do think that there are mechanism that could encourage grantmakers to strive for effectiveness. It takes a lot of self-accountability and self-discipline to lose weight and get in shape. Many people have create systems to help build accountability and discipline (having a work out buddy, posting your weight on Twitter, joining a gym that charges more the less you use it), but these are all voluntary mechanism.

      The lack of external accountability is both a gift and a liability.

      • Clark McCain says:

        I agree that the IRS would make a lousy bear. But, it’s somewhat more obvious that one is overweight than that one has fallen into an embrace of satisfactory underperformance in one’s grantmaking. Perhaps we just need more people calling us “Fatso” before we’re inclined to go look for that workout buddy. I do think anything that compels serious introspection would be helpful.

  5. I agree with wholeheartedly Phil Buchanan. The amount of waste and sheer idiocy we often find in the private sector and in government ascends to stunning levels. Moreover, no one can quantify the long-term impact of acts of generosity and genuine care, not even the technocrats that are accelerating the excessive industrialization of philanthropy.

    • Just to be clear, there is nothing in my post that argues the private sector is superior to philanthropy. The argument is that the private sector has an easier time eliminating low performers. That’s a structural difference that effects the skills needed to perform in philanthropy, but says nothing about which sector is “better”.

  6. I so appreciate the chance to learn here. Thank you, Sean, for creating this space for conversation.

    Ah, getting closer to figuring out the source of sadness I felt when reading your first post, as we circle around this question of why efforts to take care of one another so frequently fall short of their mark (and whether certain kinds of performance management might bring us closer).

    There’s a paradox at work here, I think. Not a problem that can be solved, or even something problematic, but a paradox that requires a shift in the very way we’re thinking about this.

    Two possible key sources:

    • Holding beneficiaries at any distance from the very center of a nonprofit’s efforts creates the very conditions through which being accountable to them and building mechanisms for that accountability become negotiable (like a goal).

    • The term “philanthropy” is used to refer to both a kind of effort (the demonstration of goodwill) and a kind of organization or organizational sector (the activity of 501c3’s and their sources of support). The term “philanthropic” is used even when an organization’s goodwill is not directed first and foremost at those they serve.

    The need to distinguish between being “accountable to oneself” and “accountable to another” dissolves when they’re one and the same: when the other’s well-being is at the very heart of our own. (This is perhaps the very essence of the distinction between “helping” and “being accountable to.”)

    How do we gauge whether another’s well-being is at the very heart of our own? or whether another’s well-being is at the heart of a nonprofit’s efforts?

    In other words:

    What would nonprofit evaluation look like if its purpose were to assess whether beneficiaries were held at the center of a nonprofit’s activity and accountability, and whether its goodwill was being directed first and foremost to those they served?

    Wouldn’t this change the very questions we’re asking of nonprofits, as well as what we think about what we find?

    The original post that started this thread triggered such sadness, I think, because it set all of those questions aside, or seemed to as it focused on the relationship between the donor/nonprofit/foundation and their own passion or motivation.

    What if we were to focus our efforts at understanding the very nature of the relationship between an organization and those it exists to serve, and at identifying the conditions and characteristics that we believe support the very closest relationship possible?

    Sean, I can see you perhaps nodding and saying, “OK, say this is all well and good. My point is, who’s going to drive that shift in focus? If we’re agreed that we don’t want this to be regulated in some way, we’re talking about a cultural or societal shift, and there aren’t any mechanisms in place to accelerate or reinforce that at all.”

    To which I would say, “True. I’m talking about a cultural shift for the sector, and I don’t understand the forces at play here to make tactical recommendations at this point. But I’m inspired to dig into that more deeply, and feel much more clear about what we might like to see shift and why. Thank you for that. And so looking forward to additional explorations…”

    🙂

  7. “… beneficiaries of philanthropic efforts have no mechanism by which to hold philanthropists accountable.”

    I’ve been thinking a lot about asymmetric information flows between grantor and grantee. You’re talking about a feedback loop missing in philanthropy that exists, to differing degrees, in markets, politics and evolutionary systems. Non-profit grantees are understandably fearful of criticizing their benefactors, “biting the hand that feeds them.”

    It’s really too bad. As intermediaries between grantors and beneficiaries, they have deep knowledge of both sides of that equation. I think it would be exciting to “unleash the bear” a bit by uncovering incentives for foundations to get unfettered criticism from their grantees.

    I’ve been looking at the Center for Effective Philanthropy’s Grantee Perception Report as one such mechanism. Perhaps you’re written about it before, but I’d love to hear your thoughts on that service (or other similar ones) in the context of this dialogue.

    • I think Grantee Perception Reports are excellent tools for grantmakers that want to perform as well as possible. They don’t have any mechanism that forces a reaction to them, so they are a good voluntary tool for grantmakers. I guess what I’m writing about in these posts is that is takes a lot of discipline for a funder to take all the voluntary steps to achieve high performance. Using Grantee Perception Reports is certainly an excellent tool for those funders who want to take a disciplined approach to funding.