In 2010, the New Yorker published an article titled The Truth Wears Off, that looked at the existence of the “Decline Effect”, the seemingly inevitable way that when scientific studies are repeated over and over, they tend to follow a path of diminishingly positive results.

In the article, Jonah Lehrer wrote:

“The test of replicability, as it’s known, is the foundation of modern research. Replicability is how the community enforces itself. It’s a safeguard for the creep of subjectivity. Most of the time, scientists know what results they want, and that can influence the results they get. The premise of replicability is that the scientific community can correct for these flaws.

But now all sorts of well-established, multiply confirmed findings have started to look increasingly uncertain. It’s as if our facts were losing their truth: claims that have been enshrined in textbooks are suddenly unprovable. This phenomenon doesn’t yet have an official name, but it’s occurring across a wide range of fields, from psychology to ecology.”

Lehrer’s article incited a flood of angry letters and emails claiming that he was undermining scientific research and drumming up a controversy that doesn’t exist. However, my reading of the article (and Lehrer’s responses to his critics) suggests a much more modest claim is at the heart of his article.

Human knowledge is an evolving concept.

For all the perceived precision of a large study “proving” that something is true, the fact remains that over time our understanding of facts and truths change.

Lehrer explains a number of reasons behind what is know as the “Decline Effect”. Taken together, much of the issue has to do with human cognitive biases and behavioral issues in the way we process information. For instance, Lehrer points to the way that scientific journals seem to greatly prefer to publish studies that prove something to be true, so scientists have a significant incentive for their studies to find these results.

But even if you peel away all of the messiness of the human practice of scientific study, you are still left with the idea that seeking truth is a process not an event.

Lehrer writes:

“The decline effect is actually a decline of illusion. While Karl Popper imagined falsification occurring with a single, definitive experiment—Galileo refuted Aristotelian mechanics in an afternoon—the process turns out to be much messier than that.

[The Decline Effect is so troubling] Not because it reveals the human fallibility of science, in which data are tweaked and beliefs shape perceptions. (Such shortcomings aren’t surprising, at least for scientists.) And not because it reveals that many of our most exciting theories are fleeting fads and will soon be rejected. (That idea has been around since Thomas Kuhn.) The decline effect is troubling because it reminds us how difficult it is to prove anything. We like to pretend that our experiments define the truth for us. But that’s often not the case. Just because an idea is true doesn’t mean it can be proved. And just because an idea can be proved doesn’t mean it’s true.”

Now the silly way to react to the decline effect is to turn our backs on science and decide that if it cannot present us with the unquestionable truth, then it doesn’t work (this is the message that some of Lehrer’s critics through he was pushing). The more useful way to react is simply to understand that the concepts of “truth” and “fact” are far less rigid and concise than we tend to treat them. The search for truth, for “proven programs” will not end some day when we finally, finally, finally discover the real truth.

As Ralph Waldo Emerson said, “Life is a journey, not a destination.”

What this means for nonprofits and funders who want to direct their resources towards programs that actually work is that doing so will always be a continuous process. There will never be a a final, definitive study that tells us the “truth” of the best way to eradicate poverty, to end obesity, to give every individual the opportunities they deserve.

But that doesn’t mean we should lower our ambitions nor reject the scientific process. Instead, I think that Ted Cadsby, writing in the Harvard Business Review had it right when he argued in favor of adopting a mindset of “provisional truth”:

“Provisional truth requires that we think of our explanations as hypotheses — always subject to replacement based on new information or alternative ways of structuring existing information. Provisional truth means challenging our interpretations with disconfirming evidence and alternative perspectives. Provisional truth does not preclude drawing conclusions or taking action; but it demands that we be skeptical about our first reasonable explanations in the realm of complex problems. It keeps us humble and mentally flexible, constantly asking ourselves if we’ve really got everything figured out and responding, "Probably not."

But of course the scientists among you will recognize that the skepticism embedded in the idea of “provisional truth” is in fact a core aspect of the scientific process. The Decline Effect doesn’t discredit the process of scientific inquiry. Instead it simply lays waste to the fetishism of the scientific process that deludes people into thinking that we can at last completely understand and control our world once we discover “the truth”.

Foundations have the gift of being essentially free from external accountability. Just as I think that each individual should have personal control over their own health, I think that each foundation should have control over their own actions. But that still leads open the possibility that foundations might choose to voluntarily subject themselves to external accountability as a tactic to achieve better results.

Deciding to post Grantee Perception Reports from the Center for Effective Philanthropy is one way that foundations are already doing this. It seems to me that another way they could utilize external accountability would be to announce at the beginning of a new program what their metrics for success are and then commit to a schedule of progress reports.

Some major foundations have already begun to share the results of their programs with the public. But generally these reports are released as a retrospective. It would be far more useful to helping the foundation achieve results if they released information at the beginning of a new program. In our workout analogy, simply telling people after you’ve been working out for awhile how you’re doing wouldn’t be very effective. The key is making a commitment to an external party in order to voluntarily put pressure on yourself to follow though.

In a recent post on the GiveWell Blog, Holden Karnofsky highlighted a nonprofit called GiveDirectly that intends to make cash transfer payments to very poor people in Kenya instead of providing social services. Holden highlighted the fact that GiveDirectly is subjecting their work to a randomized controlled study at the very beginning of their program and noted that they’ve “pre-announced” the design of the study.

Holden wrote:

“Our #1 suggestion for making social science research more credible is to “pre-register it,” i.e., announce in advance what data will be collected and how it is intended to be analyzed, so that the final result can be compared with the initial plan and a reader can form their view of whether the results are an artifact of publication bias. We made this case to GiveDirectly and it sent us (see below) a template for the full survey it will be using and a plan for analyzing the data. Now that we have seen these and posted them publicly, GiveDirectly won’t be able to cherry-pick results in the same way that we suspect many studies do. (Of course it will still be possible for the researchers to perform different analysis than they had originally planned; but they won’t be able to sweep any unfavorable conclusions of their analysis under the rug.)”

I think foundations should be free to run their programs in any way they like within the bounds of the law. But for foundations that strive to be effective in their giving, some sort of “pre-registration” of new programs could be very helpful in keeping them focused and motivated.

Self-discipline is critical for success in every domain of human endeavors. But self-discipline is hard. One savvy way to stay on track towards the results you seek is to voluntarily create systems that maintain pressure on you to perform. We all face moments when we’re tired and can’t keep up. Or moments of judgment when we need to grade ourselves but go too easy and choose not to face hard facts. Creating a system of external accountability can help us accomplish our goals, whether those goals are getting in shape or running effective philanthropic programs.

All Things Shining, a new best selling philosophy book (is that an oxymoron?), argues in part that the core human drive is to experience moments of “whooshing up”. Whether found in religion, sporting events or acts of philanthropy, the authors argue that these moments of feeling taken over and connected are the core experience of being human.

The book examines the shift from earlier periods of civilization when humans had no doubt about the meaning of their life, to today’s “disenchanted” period being characterized by a search for meaning.

The authors write:

The Greeks of Homer’s era lived intense and meaningful lives, constantly open to being overwhelmed by the shining presence of the Olympian gods. As happy polytheists, their world was the opposite of our contemporary nihilistic age. How did the West descend from Homer’s enchanted world, filled as it was with wonder and gratitude, to the disenchanted world we now inhabit?

To pose the question this way is to mock the traditional story of the West. At least since Hegel, in the early nineteenth century, the narrative of Western history has been one of progress. We have learned to think of the Enlightenment, or some more recent period, as the pinnacle of this steady advance. The self-sufficiency of freedom, the lucidity of reason, and the security of a world completely explained and controlled: all these indicate history’s advance.

There is, to be sure, a traditional counterstory as well, a story that sees our current disenchanted state as the result of accumulating decline and loss. Nostalgia pervades this counterview: it rejects the contemporary, disenchanted world in favor of an earlier, enchanted age. The burden of standing as one’s own free ground; the arid, ruthless path of reason’s march; the sad inertness of a world explained and controlled: all these indicate history’s decline.

But what if neither story is right? What if the idea that both stories share—that wonder and enchantment have been left behind—is instead a misunderstanding of the contemporary world? What if we haven’t lost the sacred, shining gods, but have simply lost touch with the meanings they offer?

Indeed, both smug celebration of our progress and nostalgic regret at our loss are misguided. The nihilistic burden of our secular age undermines the idea of progress, while the meaningful possibilities on the margins of our secular world cast doubt upon the idea of loss.

I believe that this story and counterstory are at work in philanthropy today. On the one hand we have the “effective philanthropists”, who believe in “the self-sufficiency of freedom, the lucidity of reason, and the security of a world completely explained and controlled.” On the other hand we have a wide range of people uncomfortable with this new narrative, who feel sadness at the prospect of “a world explained and controlled”.

I believe that neither of these narratives are correct. While I believe in the application of logic to solve social problems, I doubt the potential for humans to master the dynamic world in which we live through “theories of change”. On the other hand, while I believe that the ruthless application of logic to philanthropy risks destroying the empathetic urge that animates our field in the first place, I doubt the potential for good intentions to actually turn into good results simply because we wish they would.

I would like to believe that the effective philanthropy movement has not left behind the “wonder and enchantment” that drives humans to universally engage in philanthropy. In Gara LaMarche’s call for us to “re-invigorate our moral discourse” I see a call not for us to return to an earlier time of enchanted philanthropy, but instead to re-examine the meaning of the “sacred, shining gods” – love, empathy, passion, morality – that give rise to acts of philanthropy.

Effective philanthropy without these sacred, shining gods truly is an oxymoron. Philanthropy without love is a disenchanted act for a nihilistic world.

As we look to reconcile these narratives, we must heed the authors of All Things Shining when they warn us that both the “smug celebration of our progress and nostalgic regret at our loss are misguided”.

By Susan Wolf Ditkoff

Decisions in philanthropy are sometimes painted in terms of false dichotomies – either you’re thoughtful and strategic, or you’re whimsical and opportunistic. But in today’s rapidly-changing world, it’s hard to justify planning that is overly linear and time-consuming – spending years analyzing reams of data and writing lengthy planning reports, and then executing that plan for 3-5 years before asking whether it’s working.

For instance, last Monday the Chronicle of Philanthropy featured the Gordon & Betty Moore Foundation’s approval of a critically-important, time-sensitive, grant that will track radioactive material in the oceans around Japan’s Fukushima nuclear reactor. While unsurprising that an environmentally-focused foundation funded an environmentally-focused nonprofit to the tune of $3.7 million, the foundation’s speed and agility in this instance was remarkable.

Within a few short weeks, the benefactor (Gordon Moore), the CEO (Steve McCormick), and Chief Program Officer for Science (Vicki Chandler) all agreed to “pounce on an opportunity” identified by the Woods Hole Oceanographic Institution – before it was literally too late to take the necessary measurements. And they did so while in no way lowering their standards – the Chronicle reports that Moore “grilled the grantee” with questions, identified and mitigated risks along the way, and engaged in an internal debate before deciding to approve the funds. The grant stands out as an excellent example of philanthropy that will make an extraordinary and unique contribution – by being both highly strategic and highly adaptive at the same time.

The world we live in now demands a more adaptive approach to strategy. More rapid prototyping of ideas and their execution. More mistakes when they’re still quick and cheap. More calculated risks and contingencies. Less cumbersome cycle-times for decision-making. Less argument about “who holds the pen” when writing the strategy (the philanthropist or the nonprofit) and more real-time adaptation and collaboration by all parties. Less emphasis on correctly predicting the future, and more emphasis on clear assumptions and the agility to adapt in light of new information and opportunities.

The level of uncertainty is now such that strategies can feel stale as soon as the (virtual) ink is dry. Which means that tools like scenario analysis, collaborative models, and decision-trees become far more useful strategically than a thorough but static approach. At Bridgespan, we’re often asked to help philanthropists and nonprofits think strategically, and we’re finding such tools are more critical than ever.

In other words: if not much is knowable, don’t over plan.

I’m intrigued by the questions that adaptive philanthropists are asking. For example, an adaptive strategy requires clear but flexible definitions of what success looks like, for whom, and what is known or assumed about the problem – but not a rigid roadmap of how to solve it. An adaptive strategy articulates clear criteria and a screening process for what will and won’t get funded (guardrails if you will) that help philanthropists quickly assess and decide among emerging opportunities – without succumbing to random opportunism or mission drift.

In other words, philanthropists with adaptive strategies have clear goals and criteria, but don’t pretend to know all the answers. They are nimble decision-makers, and don’t treat others (co-funders, grantees, beneficiaries) like vendors whose role is to simply execute in a desired fashion. They are open to new ideas wherever they may come from. They save some gas in the tank (if one is still allowed that metaphor) for opportunities that arise outside their walls – and perhaps the more unknowable the context, the more gas you need to keep in reserve. They communicate clear desires for all stakeholders to bring new ideas into the conversation. And above all, they demonstrate a clear and passionate commitment to continuous improvement, and impose on themselves the discipline of adapting and getting better over time.

While some of these ideas aren’t new, it’s still striking how few philanthropists (especially institutions) are actually set up to respond with adaptive strategies. Perhaps the increased pressure for performance is leading to the misguided belief that everything can be knowable and known in advance – a sure recipe for disaster.

So I’m curious – what adaptive strategies have you seen? Or has fear of acting trumped taking a risk? It seems that one thing is definitely changing: the key question is not just whether your strategy is “right,” but is it also adaptive?

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.

Is Underperformance Philanthropy’s ‘Natural State’?
By Sean Stannard-Stockton | Chronicle of Philanthropy

The nonprofit world is full of technocratic conversations about how to measure and improve results. But two new books, Leap of Reason, by Mario Morino, and Give Smart, by Thomas J. Tierney and Joel Fleishman, make the argument that the key to progress is not a new technical solution but a new mind-set by both donors and nonprofits.

In Give Smart, Mr. Fleishman and Mr. Tierney—both longtime advisers to donors and nonprofits—make a startling (but accurate) claim that the “natural state” of philanthropy is one of underperformance.

In discussing the “terrible truths” that donors who seek to achieve results must face, the authors note that excellence must be self-imposed in philanthropy.

Unlike in corporate America, where weak performance will drive a company out of business, philanthropy “has no built-in systemic forces to motivate continuous improvement,” they write.

This presents an enormous barrier to success. Improving results requires making changes, and humans resist change at all costs unless there are forces that compel them to act. As the authors write, “Self-imposed accountability is not a natural act. It requires extraordinary determination and discipline to pursue outstanding results year after year when nothing in the surrounding environment requires you to do so.”

If underperformance is the natural state of philanthropy, then no clever measurement system is going to solve the problem. Instead, we must find ways to motivate donors, grant makers, and nonprofits to choose to be accountable to themselves for the results they achieve.

While everyone will happily support a call to focus on results, the message of Give Smart is that actually following through requires the determination and discipline to create self-imposed accountability. The solutions to this problem are more likely to be found in the study of psychology than the science of evaluation.

While Give Smart focuses on the need for donors to overcome their natural proclivity to underperform, Leap of Reason makes a similar case for nonprofits.

Mr. Morino, a prominent businessman who was one of the early founders of the venture-philanthropy movement, calls for nonprofits to run their organizations with the determination and discipline to produce results. Since nonprofits by and large do not get paid for producing results, the only solution is self-imposed accountability, an act as unnatural for nonprofits as it is for donors.

Leap of Reason makes clear that most nonprofits do not manage their organization to maximize results, but not due to lack of interest or passion. Instead, nonprofits face many challenges, and perhaps the most important one can be found in Give Smart: because most donors don’t make a deliberate effort to support groups based on their results.

Mr. Morino recognizes that measuring results is only a means to an end and urges readers never to confuse measurement with mission. He warns of the danger to nonprofits when outsiders foist measurement requirements on nonprofits. Far from helping nonprofits achieve results, these approaches distract them from achieving their mission.

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.

Leap of Reason is unusual among books about measuring results for nonprofits in that it is brief and practical. The main part of the book runs a mere 60 pages. Each of the short chapters ends with a section titled “Take-Homes in Tweets,” where the key points are distilled in 140 characters or fewer.

In addition to Mr. Morino’s advice, the book includes a stirring essay by Isaac Castillo, director of evaluation at the Latin America Youth Center, in Washington. Mr. Castillo discusses his organization’s determined tracking of results and how those efforts led it to make a big change in one of its programs. After the group added material on preventing domestic violence to its child-rearing classes, Mr. Castillo discovered to his horror that the lessons were increasing acceptance of domestic abuse among participants. But because the organization was regularly monitoring its results, it was able to quickly adjust the program and begin producing far more positive results.

It is a common refrain in philanthropy that giving money away is harder than making it. But Give Smart and Leap of Reason make clear that philanthropy is not just a more difficult problem than making money, it is a different kind of problem. Success in business brings with it the money needed to do more great things, but that doesn’t necessarily happen in the nonprofit world in which producing results does not automatically bring more resources.

But through our own determination and discipline, each of us—donors and nonprofits alike—can self-impose accountability. Only then will we begin to achieve great results.

By Phil Buchanan

One of the most perplexing aspects of discussions about philanthropy that I hear and read is the tendency to portray passion and emotion and data and analysis as in tension. As if it’s zero-sum.

Add passion and emotion, reduce data and analysis by the same amount.

Add data and analysis, reduce passion and emotion commensurately.

But I don’t buy it – not for a minute. I think the interactions are much more complicated than that. Indeed, I think a real focus on doing philanthropy in a strategic, analytical, data-driven way only occurs once you hit a threshold level of passionate, emotional commitment to a cause.

Of course, I am aware of the well-documented tendency of human beings to be influenced by emotional stories over data. Michael Mauboussin, an expert on decision-making, reflected at the CEP conference last month on studies in which decisions about medical treatments are found to be more powerfully influenced by anecdotes than data.

We’ve all been there, as Mauboussin noted. He described the experience of checking out a car’s reliability data, verifying that it does very well, being all set to buy it, and then hearing from a friend, “Oh yeah, I had a buddy who had one of those: he had all these problems with it.”

“Now all of a sudden … your colleague’s buddy is casting doubt on your decision,” he said. “The stories swamp the statistics.”

But, as Mauboussin notes, this isn’t a good thing. So we should not simply accept it as human nature. We fight all kinds of baser human instincts because we think they will send us down the wrong path, and this should be among them.

The fact that emotional stories can cause people to disregard overwhelming data that would lead them to a better decision isn’t something to be celebrated or exploited for the purposes of making our points or making our presentations more compelling: it’s something to be resisted. We should use stories responsibly, when they reinforce and illustrate what the data shows.

Good decision-making is hard in life. But in philanthropy, data-driven decision-making is even tougher still, because the challenges we’re working to address are deep-seated, complex, and interdependent – and because the data is often harder to come by and more open to alternate interpretations than in other domains. The work is also more emotionally intense than it often is in business or in the lab, making the lure of decision-making that is unmoored from the data all the stronger.

But, while passion and emotion are often the problem because they can lead us astray, they’re also the solution. For it is only a passionate commitment to really getting it right – to seeing results – that can provide the will and discipline necessary to do the hard work of data-gathering, strategy formulating, assessing, and analyzing.

Indeed, why would anyone do philanthropy in a strategic, data-driven way – given how much harder it is than the alternative – were it not for their passionate, emotional commitment to making a difference?

As Ed Pauly of the Wallace Foundation wrote on the CEP Blog last month, “The reason for the tools of better philanthropy is to get results that matter.  The tools are not about polishing up our processes. They are about getting the results we are most passionate about.”

Perhaps this is why we have seen, in our research on strategy at foundations, that foundation CEOs and program officers often aren’t born strategic, they become strategic. It is often their frustration at not seeing results that leads them to a different approach – one based on clear and specific goals, coherent strategies, sound implementation, and relevant indicators against which they can gauge progress.

When the conditions are right, passion and emotion combine with data and analysis in a way that is less like oil and water and more like gin and tonic – forming something better together than each ever could be alone.

• Observers, who watch,
• Fans, who participate,
• Evangelists, who recruit, and
• Ambassadors, who represent.

Now there are all sorts of models like this that can be used to think about a community. So I’m not suggesting that this set of actors is comprehensive. But I do think it is a useful framework to think about the philanthropy community.

The Second Great Wave of Philanthropy thesis that underlies the way I think about philanthropy is predicated on the idea that we are at the early stages of a time period in which philanthropy goes from something that is the domain of the very wealthy to a practice that is infused across American culture. While all of America has always be engaged in giving, the Second Great Wave idea argues that a shift is happening from transactional donations to more sophisticated forms of private actions for the public good that encompass traditional giving but also other blended value ways of thinking about social impact.

When I talk about the Tactical Philanthropy Community, I’m referring to the community of people around this blog who watch, participate, recruit and represent the movement towards more effective forms of philanthropy. My interest in Matt Britton’s categorizations is the way in which it can help us think about the effective philanthropy movement and the roles that need to be played to make it sustainable.

The Giving Pledge, for instance, appears to be an example of a number of philanthropy “fans” (major donors) stepping up to become “evangelists” who seek to recruit others to the philanthropy community. Members of the Pledge such as Gates, Buffett and Bloomberg are probably better understood as “ambassadors” who are coming to represent what philanthropy means today.

When I wrote recently about my belief that large private foundations should be participating as intermediaries in the Social Innovation Fund, I was essentially arguing that it is not enough for them to be “observers” or “fans”. While the roles of “observers”, “fans”, “evangelists” and “ambassadors” are all critical to a functioning community, I think that if the large private foundations are truly committed to effective philanthropy, that some of them should be stepping up to play the role of “ambassador” in the nascent government programs designed to focus money on effective programs.

What’s your role in the philanthropy community today? What role would you like to play in the future?

The US government frequently provides social services such as kindergarten readiness programs for disadvantaged children or employment services for welfare recipients by paying social service providers to deliver a program. The results of these types of programs are often not assessed and when they have been, their effectiveness has often been called into question.

Under the Pay For Success model, the government would contract with an intermediary for the delivery of specific results. The intermediary would then contract with one or more social service providers in a bid to create the results in question. If, and only if, the results were actually shown to have been achieved after rigorous evaluation by independent evaluators, the government would make payments to the intermediary.

While performance based contracts have existed for a while, Pay For Success adds another important layer – private or philanthropic capital that funds the intermediary during the time prior to them receiving success based payments from the government. Unlike a grant, in the Pay For Success model, the funders would have the potential to recapture their initial invested principal plus a rate of return. While it is expected that philanthropic funders will be the first entities willing to provide such funding, if the Pay For Success model is shown to work, impact investors or profit-seeking investors may become sources of capital as well.

The core innovation of this model is a transfer of the risk that a program will actually work from the government to the intermediary and its funders. Once the programs demonstrate their effectiveness, the government can reallocate its spending to now proven solutions.

While this model would be attractive to the government in a variety of cases, it is particularly compelling when program success will result in cost savings for the government, such as when employment training for welfare recipients reduces future welfare payments. Some government officials refer to Pay For Success as an opportunity to shift government spending towards preventative programs and thereby reduce the need for very expensive safety net services.

For funders, Pay For Success provides a new investment option, one where the financial return is directly dependent on social results. While many impact investment options exist that offer both a financial and social return, the two are rarely directly linked. Microfinance investors for instance earn a return based on the rate at which borrowers repay their loan. Microfinance may very well be a useful tool for creating social benefits, but the social and financial returns are two separate outcomes of the investment rather than the financial return being a result of the level of social benefits.

In other words, with most impact investments, the financial return can be realized even if the social return fails to materialize. Pay For Success funders on the other hand would receive financial returns that were directly dependent on the realization of social returns.

The Pay For Success model opens the doors to a wide range of capital – from market rate investment capital to philanthropic support – being used to finance innovative social programs that produce better results at lower cost to tax payers.

But at its heart, Pay For Success is not just a financing or cost savings program. Its success hinges on whether the intermediaries and nonprofits that participate in the program are able to deliver measureable results that are superior to current government programs. Pay For Success offers an opportunity for the social sector to showcase the potential of the current push towards results based philanthropy. If the program succeeds, the payoff will be a dramatic increase of funding for effective nonprofit programs.

The Pay For Success model will not be appropriate for all social services. For the model to work, the government and intermediary must be able to accurately track the results of the program. In areas like school readiness or employment services, the government is already tracking much of the data needed to determine the level of program success. But there are many areas in which program results are difficult to accurately track or the benefits are so long term in nature that it would not be feasible for the intermediary to finance the program since government payments for success would not be triggered until far into the future.

The Pay For Success proposal is a pilot program and we need to learn much more about the model before it can be determined whether the concept will work well in practice. In the early stages, Pay For Success programs should focus on areas where nonprofit programs have already undergone rigorous evaluation to prove their effectiveness and where positive program results would produce significant cost savings to the government.

The government is by far the largest funder of nonprofit services. Today, those funds are rarely dependent on the effectiveness of a given program. The Pay For Success model offers a promising approach to directing government funds so that they achieve better social results at lower cost to tax payers.

“I may occasionally put things too harshly, but it’s often because I’m one of the few people out there making noise. I’ve seen some extremely questionable donor advice out there and myths and misconceptions are commonly reinforced by the people that donors turn to to make smart funding decisions. And it’s very difficult to break through these continually reinforced myths and misinformation.

In general, I think there’s too much focus on making donors feel good. Donors aren’t stupid, but I think we often treat them like delicate children. I’ve had many readers contact me and thank me for either opening their eyes or confirming what they were beginning to believe from personal experience.

In the end, my concern isn’t about the donors. It’s about the people we’re trying to help. I focus on donor education because I discovered in the field that almost all bad aid practices could be traced back to trying to attract and please donors. So giving donors very real information is critical to me, and yes it does often show that they made bad funding mistakes in the past. But they did this because it was the best decision they could make given the information they had access to.”

Saundra is one of the people pushing the shift from Intentions to Results. I enjoy her blog and think she’s a great source on effective development practices. My point was not to argue that people like Saundra should not ring the alarm about situations where good intentions are not in fact creating good results. Instead, I just think that this line of argument isn’t enough.

When I wrote:

“The Good Results shift in philanthropy is not going to really take off until the effective philanthropy movement figures out how to appreciate people’s good intentions while simultaneously working to channel intentions that do not produce results into more productive efforts.”

I was trying to suggest that we can’t just point to what is wrong with philanthropy that focuses on intentions only. We must also find ways to make effective philanthropy just as satisfying as intentions focused giving.

Saundra says that she isn’t concerned about the donors, that she’s focused on the people we’re trying to help. But donors are the ones giving the money. Her argument might feel good to someone who is focused on results, but it is the equivalent to a business person saying they don’t care about customers because they’re only focused on their shareholders. Donors are philanthropy. There is no philanthropy without donors. So we must focus on donors and find ways to channel good intentions into good results.

As a field we need people like Saundra to alert donors that their good intentions are not enough. But a quick google search of TOMS Shoes will show you that they have engaged a huge number of people who, even if misguided, are passionately trying to do something they think will help. We need to find ways to rechannel that passion, not extinguish it.

I agree with Saundra that the social sector often treats donors like delicate children. It is important that we tell donors when their requests or efforts are misguided. But we need to find ways to lead donors to more effective approaches to philanthropy rather than just stopping them in their tracks.

Good intentions may not be enough. But good results can’t happen without the good intentions of donors.

You can see this dynamic working if you think about whether you would rather be given $100 today or be given it in one year. The difference in the value of the present and the future is called the “discount rate”. In all likelihood you would probably prefer to get $100 in one year rather than $10 today. But there is some point at which you become indifferent. If you are indifferent between receiving $90 today or $100 in a year, then you are using a 10% discount rate (approximately).

However, for some time I’ve been wondering about how this fundamental tool for financial decision making works when it comes to philanthropic decision making.

Which would you rather have, a crime free society and clean environment today or in the future? Clearly, sooner is better. But what if it is either/or? Anyone with a child is going to tell you they’d rather their children live in that better world than that they receive the benefit of it. This preference for the future is hardwired into our species as becomes evident any time a parent puts their children’s needs ahead of their own. It is so hardwired into our neurological makeup that adult humans will often choose to put themselves in physical danger if needed to protect the physical health of any child, let alone their own.

Why does this matter? Because positive discount rates erode the value of investments. If I offer you an investment which promises you a 10% return on your money, you’ll be indifferent if you have a discount rate of 10%. The lower your discount rate, the more attractive any given investment is. The higher the rate, the higher the prospective returns need to be to attract your attention.

But if humans have a preference for social good to occur in the future or to benefit our children rather than us, then it means we have a negative discount rate. It means, we’d rather $100 of social value occur in the future rather then $110 of social value occur today.

If this is true, it means that social returns on investment are radically higher than we might otherwise suppose because, unlike financial investments, we actual prefer that social impact accrue to our children and their children.

But this concept can’t be entirely correct. Many forms of social good are not discrete events, but rather conditions within which life occurs. Wiping out polio, as Bill Gates is urging the world to join him in focusing on, is not a discrete event. If it is wiped out now, more lives will be saved and less suffering will occur than if it is wiped out later.

This means that maximizing the value of philanthropy rests on three elements 1) we should seek to create long lasting positive conditions rather than just discrete, socially good events (which is one way to express a preference for correcting the root cause of a problem rather than treating the symptoms), because doing so will create social value that accrues to more people, 2) we should seek to achieve those conditions as quickly as possible because doing so will allow the benefits to accrue to the maximum number of people but, 3) when forced to make a trade off between activities that create benefits in the future vs. benefits today, we should prioritize the future given the hardwired negative discount rates that we use to value the future vs. the present when it comes to social impact.

There are probably a number of ways to reconcile these three elements. There certainly are some creative tensions between them and so different people may choose different approaches. But for me, they suggest that as a general rule, philanthropy should focus on creating impact that:

• Is lasting rather than fleeting (working on causes rather than symptoms), but;
• Is implemented as quickly as possible, but;
• Prioritizes the needs of the future over the present.

In other words, donors and foundations should: Act quickly to create lasting solutions that prioritize the needs of the future.

To my way of thinking, the best way to get that done is for donors to make rapid grantmaking decisions in support of nonprofit organizations that seek to tackle the underlying causes of social problems, using grants which build the long term sustainability of their grantees while recognizing that truly effective interventions take time to achieve success.

Lucy’s posts were great because out of the need to communicate nonprofit due diligence best practices to a 10-year-old, Lucy manage to distill everything down to three simple questions:

1. What does the organization do?
2. How do they do it?
3. How do they know if they are making a difference?

I’ve written up my own list of five simple questions to ask, but they are a good deal more technical. Sometimes I think the “smart giving” movement gets lost in our own nuanced debates and forgets how powerful it can be to reframe our discussions so they make sense to anyone (in this case, a motivated 10-year-old ended up being the perfect foil for Lucy).

Here’s why I think Lucy’s questions are so powerful and are the core of what more complex evaluation processes are trying to get at.

What does the organizations do?

This seems to be such an obvious question that it doesn’t need to be asked. But visit the Red Cross’s website and try to explain what they do. Or check out the American Cancer Society, which many people think does cancer research, and then realize that only 17% of their program expenses go to research.

Understanding what an organizations actually does should always be the first step to building conviction in a decision to support them. A good answer to this question can’t just discuss the organization’s goals or focus area, but should describe the programs or approaches taken by the nonprofit in pursuit of those goals.

How do they do it?

The question above might be answered above for a college access nonprofit that the organization provides assistance to under-privileged high school students in the process of applying for college. But lots of nonprofits do that sort of work, so how does the nonprofit in question provide the service? How does their service differ from similar organizations? How do they fund their activities?

How do they know if they are making a difference?

Any high performing nonprofit is going to have some process in place for trying to get a handle on whether they are having success in their programs. The answer to this question doesn’t need to come in the form of a spreadsheet. It might be completely qualitative. But regardless of how it is answered, a solid nonprofit should be able to speak convincingly about their own efforts to know if they are making a difference.

In some ways, that’s about all you need. If before you make a donation you are able to fully describe what an organization does, how they do it and how they know if they’re making a difference, you are well on your way to knowing that your money is actually going to make a difference.

I’m sure some people will argue that this is too simple of a process. My own advice on this matter requires that a nonprofit base their programs on evidence about what works or, if the program is experimental, make clear that the program is a research effort. But we can go on adding qualifications and additional due diligence forever.

In a world where most people do little to no research before donating, it seems to me that a big positive shift would occur if donors began to spend 15 minutes figuring out the answers to Lucy’s questions before making a donation.

The majority of charitable giving is done between Thanksgiving and New Year’s. From stats I’ve seen from online giving portals, it seems that a big rush of online giving occurs in the last few days of the year. Readers of this blog know that I recommend donors spend time planning their giving, creating a written philanthropy plan and donating to organizations in which they have a high level of conviction.

But what if it is the last day of the year, you want to make a gift to charity and you aren’t sure where to give? Here’s a strategy that takes 5-10 minutes and will result in your donations accomplishing more good than the vast majority of charitable gifts.

In 5-10 minutes you can’t possibly learn enough about a charity to determine if it is any good (imagine buying a stock with 5-10 minutes of research!). But you can piggyback on the research being done by professionals. For free.

Your first resource is GiveWell’s top rated charities. GiveWell is a research team that works to identify charities whose programs actually work. Read the short profile of these thoroughly researched charities and pick one that interests you. The organizations range from ones providing immunizations in Africa to ones working on improving teacher quality in the US.

Don’t even have time for that? Just donate to one of GiveWell’s top rated charities by clicking on the links below.

• Village Reach (Immunizations)
• Stop TB (Tuberculosis)
• Against Malaria Foundation (Malaria)
• PSI (Global Health)
• Small Enterprise Foundation (Microfinance)
• Village Enterprise Fund (Economic Empowerment)
• Chamroeun (Microfinance)

A new option this year is choosing to support one of the pre-selected grantees from Venture Philanthropy Partners’ winning application to the Social Innovation Fund. With this approach you know you are supporting a nonprofit that has passed Venture Philanthropy Partners due diligence and that VPP has pass the due diligence of the federal government’s Social Innovation Fund, which included multiple reviews by outside experts.

VPP named these four nonprofits as their intended grantees for the Social Innovation Fund grant:

• College Summit
• KIPP
• Latin American Youth Center
• Year Up

Another great resource is Philanthropedia. This group surveys nonprofit, foundation and academic experts to identify top charities. They currently rate nonprofits across 12 different issue areas. Don’t even have time for that? Philanthropedia has created charitable “mutual funds” where you can make a single gift to a cause area and they’ll split it up among the groups they recommend. Just click on the links below and select a top rate nonprofit or issue area “mutual fund” to support:

• Microfinance
• National Arts & Culture
• National Childhood Nutrition/Health
• National Climate Change
• National Education
• National Reproductive Health, Rights, & Justice
• National Workforce Development
• Bay Area Arts & Culture
• Bay Area Climate Change
• Bay Area Early Childhood Education
• Bay Area Homelessness
• Bay Area Middle-Secondary Education

A fourth option is New Profit, Inc. New Profit is a national venture philanthropy fund that supports rapidly growing social entrepreneurial organizations. They too won a grant from the Social Innovation Fund. While their site is not designed to process donations, they do offer profiles of their current portfolio of charities they support. Once you find one you like, head over to Network for Good to make an online donation to the group.

Don’t even have time for that? Just make a donation to New Profit, Inc and they’ll use 100% of your gift to support their full portfolio of charities.

If you use this process, you can feel confidence that the organizations you are supporting are the same ones that experts would pick if they were in your shoes. But if you use this process to complete your charitable giving in just 5-10 minutes, do me a favor and make a New Year’s resolution to start earlier next year so you can make a simple written plan and find organizations you personally believe are doing great work.

Happy New Year!

I should note that some people in the nonprofit sector are put off by this vision because of the direct analogies to financial markets. However, it should also be noted that in the world I envision, funders are focused on actually supporting nonprofit organizations rather than treating them as contractors who are paid to execute the funders’ vision.

The Donor Landscape in 2033 is Bright
Originally published March 1, 2008 in the Financial Times

Philanthropy is undergoing a transformational shift. While most donors continue to give in the same ways they have for 100 years, the vanguard of philanthropy is busily reforming the fabric of the charitable sector.

Often referred to as the “social capital markets” and characterized by a model of giving that mirrors the financial markets, this emerging model is still in its infancy. Since you can create only that which you imagine, I thought I would take a quick trip 25 years into the future to see what philanthropy might become…

For many donors, the year 2033 does not look a whole lot different from 2008. Many people simply write checks to charities and devote the bulk of their giving to non-profit organizations in their community.

But for some donors, the landscape is radically different. The “social stock exchanges” that became popular between 2011 and 2019 now include all but a few large non-profits and many small but ambitious start-ups.

These exchanges compete for non-profit listings. Exchanges include big national networks with some international organizations, down to small local exchanges.

The business of giving money away is particularly different for large private foundations and smaller “impact-oriented” foundations. Instead of expecting non-profits to solicit them for grants, these foundations’ “impact committees” and “program analysts” spend their days looking for and researching potential grantees. Given the considerable information disclosure required by the exchanges, much of the information required for grantee research is available online. Third-party evaluation firms provide regular reports on listed non-profits and these reports are a valuable input for the foundations.

While the cost to non-profits of conforming to the exchanges’ information disclosure requirements is steep, once listed they find grant dollars come looking for them rather than the other way round. Exchange-listed non-profits tend to have small fund-raising groups that focus on “donor relations”. They market the non-profit by attending “road shows” where they have the chance to make their case.

In the early days of the social stock exchanges, many funders and non-profits worried that the passion and joy of giving would be swept away, given the exchanges’ resemblance to financial markets. But the truth proved to be something else entirely. As funders became comfortable with the idea that sharing information with other donors provided greater social impact, a sense of community and camaraderie developed that set the social exchanges apart from the traditional financial markets.

Non-profit presentations at the regular “road shows” were frequently interrupted by spontaneous conversations in the audience as funders debated the potential of each non-profit and canvassed for other people to join them in sponsoring their favorites. Working together, funders often organized big public funds that they would then direct at specific social problems. The non-profit competition for these funds was fierce but even those not funded felt the competition had helped them to improve.

Now in 2033, more and more individuals of moderate incomes are becoming interested in the social markets. Most Americans now have a donor-advised fund, since all big banks offer a zero-minimum, no-fee account that can be linked to your checking account. A quick search on Google Finance gives individuals access to multiple third-party evaluations of exchange-listed non-profits. International giving is even coming into vogue for the small donor now, so many “donor funds” managed by the largest foundations offer low-cost access to a basket of top-rated non-profits within particular causes.

The early 2030s are a good time for funders and non-profits in the US. Funding innovations are featured in the financial press and for-profit firms are constantly working to develop products and services for the social capital markets. But recently there has been some consolidation among the exchanges and some local non-profits fear funding will dry up for organizations without national scope. The default on a $1bn bond issued by a non-profit offering vaccines in Africa has sent shockwaves through the markets, and other non-profits have seen the availability of credit dry up. There are challenges in 2033 but it is an exciting time to be a philanthropist.

GiveWell has asked people to submit suggestions for how Village Reach can better sell their work. My interest in the challenge is that I believe that too many people who care about effective nonprofit work seem to believe that running strong programs is the key to success. In fact, nonprofits need to be able to run good programs AND raise money so they can bring their programs to more people.

Fundraising is rarely discussed within the smart giving movement. Yet, focusing on proven programs while ignoring fundraising is like a for-profit company that builds great products but doesn’t put enough time and effort into sales and marketing.

I believe that donors actually want to support great nonprofits. I believe that while great programs won’t sell themselves, that great nonprofits should be able to market what they do well. I believe that they key is to reorient the focus of nonprofit marketing to put the nonprofit itself, rather than the programs and beneficiaries, at the center of the story.

As an advisor to donors, I sometimes feel conflicted about offering advice on fundraising. However, understanding the story of a nonprofit is key to my clients’ willingness to support them and yet the story of the nonprofit itself is often buried. If nonprofits would put their own story at the center of their fundraising efforts, it would make the process of philanthropy better for my clients.

It is amazing to me how rarely nonprofits focus on their own story. So much fundraising talks about what nonprofits do instead of who they are.

But in this video, the nonprofit Acumen Fund has figured out how to tell a compelling story about themselves. The video references beneficiaries of course, but at its core, it is a story about Acumen Fund.

(If you are viewing this in an email, click here to see the video)

My suggestion for Village Reach, and for any nonprofit struggling to raise money in support of effective programs, is to realize that donors want to become a part of your story. As consumers, people buy products which help them be the person they want to be. I believe that donors want to do the same thing. We donate as a way to “self-actualize", to most fully become the person we believe we are.

There is a huge opportunity for effective nonprofits to build brands that donors want to be a part of. To tell authentic stories, which donors want a role in. Interestingly, I find that nonprofit groups which invest in other groups tell their own stories best. Groups like Acumen Fund and New Profit have learned to tell their own story in a way that donors want to be affiliated with them. Maybe that’s because these groups know that when they support another organization, they themselves are looking for groups which are able to tell an authentic story about themselves.

If the smart giving movement wants a world full of robust nonprofits, we need to recognize that sales and marketing is just as critical of a business function as program development and delivery.