To recap, my questions from my earlier post were:
- Why do investors take credit for picking great investments (”look how smart I am, I bought XYZ stock!”), while philanthropists, especially foundations, claim that the credit goes to the nonprofits they fund (”the grantee did all the work”).
- Why is it acceptable for investors to talk about investments they think are bad (”Don’t buy ABC stock, their management is terrible!”), while philanthropists never badmouth nonprofits, even if they think they are ineffective?
- Related to #2: Why do public companies generally ignore all the talking heads who say negative things about them, while nonprofits find it intolerable to have a prominent person speak negatively about them in public?
The responses from readers can be found here.
The primary response to Question 2 was that funders/donors do say negative things about nonprofits behind closed doors and within private circles. But that they do not do the same publicly for fear of damaging their relationship with grantees. The point was made that funders (unlike investors in public companies), must maintain a healthy relationship with grantees to do their job well. Most readers seemed to appreciate the positive long term impact on the sector of public criticism and general truth telling, but worried that in the short term it would be a large negative.
I think this is an entirely solid argument. Philanthropy is currently much more like venture capital than investing in the stock market (it is no coincidence that venture philanthropy approaches have gained a lot of credence in recent years). Venture capitalists invest in private companies where funding comes primarily from a small set of large funders. They also have an active role and continuing relationship with the companies they fund. This is different from stock market investing where most investors are passive holders of stock and do not interact with the company at all.
Within the context of philanthropy as a private marketplace, I think the arguments for why public criticism does not work are valid.
I don’t think philanthropy is going to be a private marketplace for much longer.
Individuals already give seven times the amount that foundations give each year. Combining the Fidelity and Schwab donor advised funds (representing organized individual giving) gives you an annual grantmaker that rivals the Gates Foundation. Most high net worth individuals are only in the early stages of realizing that giving is something they can approach with a strategy that maximizes impact and tactics that make the most of what they have.
Public criticism of publicly traded companies is no big deal because the shareholder base is so broad. But a venture capitalist going on TV and knocking a private startup might cause it to go bankrupt as funding dried up.
Philanthropy is not yet a public market. The arguments presented against public criticism are all valid and correct today. We need to be preparing for tomorrow.
Venture Capitalists do talk about startups that they think are great. So do some foundations. Note the constant promotion of Nurse-Family Partnership by the venture philanthropy focused Edna McConnell Clark Foundation. You can read a great article about their approach here (note the reporter labels it as “controversial”). Maybe this positive commentary is a bridge to future criticism. Reader “young staffer” writes:
Foundations and donors actually don’t do enough to tout their successes and to make a strong, public case championing the relative effectiveness and strength of their best grantees. It’s not just that the grantees did all the work; it’s that we talk only about how our grantees do good things and yours do too. I think it would be way easier to get the ball rolling towards more criticism if it started from a place of making a case for the best social investments rather than highlighting the worst.
So why then don’t more “expert grantmakers” (mainly large foundations) publicly promote their knowledge? Reader Renata Rafferty writes:
Philanthropy in our society is frowned upon if it is considered self-serving. Therefore, to boast about one’s wise philanthropic investment “picks” would be, well, boastful and self-serving.
Look, if you have a billion dollar endowment and 30 employees working on a focused set of issues, it is not “boastful and self-serving” to talk about your “wise philanthropic investment picks”. If you are not making wise philanthropic investment picks there is something seriously wrong. I assume that large foundations are smart grantmakers. I’m not suggesting that they shout from the rooftops how great they are in an attempt to convince people. I just want there to be a public conversation about social investing the way we have a public conversation about the stock market.
Don’t forget that we’re talking about all of this within the context of a country where most people think nonprofits waste donations. It is hard to imagine that criticism could be all that damaging. You can’t fall very far once you’re already laying on the floor. Maybe Americans would have a better view of nonprofits if they heard experts talk negatively about some of them and positively about others. Realize that the underlying assumption that donors who want low “overhead expenses” from nonprofits is that the nonprofits are a value destroying entity that just gets in the way of the money going to the actual cause.
When a hedge fund manager goes on CNBC and talks about her favorite stocks, it is not “boastful and self-serving”. She is an acknowledged expert and the public appreciates (whether they agree or disagree with her picks) the opportunity to hear her thoughts.
“most people think nonprofits waste donations”
This is true, in the large scheme of things. But donors don’t think the charities that THEY give to waste donations, and it could be detrimental to an individual charity to have people thinking so.
It’s the same thing we see with politicians: In general people think politicians are doing a terrible job, but they tend to think their own representative (especially if it’s someone they voted for) is doing much better than average.
In short, it’s easy to criticize the sector, but it’s hard to criticize an individual charity.
Rather than characterize promotion of your grantees as “boastful and self-serving,” I would say it is “self-interested.” And being self-interested, to the outside observer, colors your recommendation, since the implicit assumption is that you will indirectly benefit by having others invest too.
Traditionally funders have valued a type of discourse that focuses on how to solve difficult issues and is undertaken in the most objective manner possible, with the focus on the issue and not the particular organization. But it could also be that this doesn’t happen more often because there doesn’t exist a natural forum that accounts for the self-interested nature of the recommendations and adjusts accordingly. For example, you don’t want to invest in somebody else’s grantee if the recommender is really looking for an exit strategy or has a sense that something might be about to implode and there’s comfort (and safety) in sharing the misery. If there were perfect information, that recommender would be held in low regard next time when trying to draw attention to a grantee.
There’s also the danger of creating a small circle of oft-recommended organizations soaking up foundation funding that’s hard for others to crack. That’s already the case with many small organizations. Of course, a counter-argument is that foundations particularly good at identifying such organizations could be looked to as good recommenders and draw more resources their way.
Great discussion, thanks for promoting it, Sean. One observation re: your comment, “I don?t think philanthropy is going to be a private marketplace for much longer.
Individuals already give seven times the amount that foundations give each year.” This is not new; private foundations have existed just fine as a private market despite the scale of their donations being dwarfed by those of individuals for some time now. A further increase in this imbalance won’t necessarily impel philanthropy toward becoming a public market.
I think the answer to all three of your questions is the same: “Because there is no commonly agreed upon way to quantify one nonprofit’s success or failure.” That’s pretty much it. And I don’t see how there ever could be.
How do I compare the success of my shelter for battered women with the success of your drug prevention program? If I’m a nonprofit doing advocacy work, at what point have I “broken even?” Etc.
* “Why do public companies generally ignore all the talking heads who say negative things about them?
Because all they have to do to silence those negative talking heads is remain profitable. However, in a philanthropy marketplace, the talking heads would drive the market “because there is no commonly agreed upon way to quantify a nonprofit’s success or failure.” A public philanthropy marketplace would be the messiest thing ever, because the currency would be Public Relations.
* Why do nonprofits find bad publicity intolerable? Because they can’t prove that they’re more effective than the other effective nonprofit down the street.
* Why do philanthropic investors eschew taking credit? Because they can’t prove they’ve made a wise investment.
* Why do investors bad-mouth underperforming stocks? Because, hey, it’s just business–nothing personal.
* Why don’t philanthropists bad-mouth underperforming nonprofits? Because if you can’t boil success down to dollars and cents, you can never really say “Don’t take it personally–it’s just business.” In this business, for better or worse, it’s all personal.
Sharon, you make a very good point regarding how donors view charities in general vs how they view the ones they fund. However, while I’m sure the no nonprofit would appreciate having anyone speak negatively about them, I doubt their world would come to and end. And if public negative opinions were expressed, the public would taken positive commentary much more seriously.
Truth is good. Even when it hurts. It is only through truth telling that we can find the way forward. We might worry that the truth will hurt, but ignoring the truth hurts more.
Up until after the Nasdaq crashed, it was common for “experts” to appear on the business news shows and tout their favorite stocks. Whether they owned the stock or not was rarely clearly revealed. This was bad. Obviously.
But after the scandals of the dot-com bust, a system was put in place to try and correct this. For a time some people advocated the idea that you shouldn’t be allowed to talk positively about a stock if you owned it. But then people realized that if the expert didn’t own the stock, they must not really think it was a great buy (if they did, they should buy it). So now we have a system where speakers just have to reveal if they have any interest in the stock.
As long as everyone knows any bias the person might have, then we can all just tell the truth and judge the argument on its merits while recognizing the conflict that the speaker might have.
I think the risk you posit of a small group soaking up all the money, is actually a risk of there not being a robust public discussion. In today’s market, the organizations with the best PR win and when they win they can afford more PR and on and on.
From About This Blog:
“What’s Different This Time?
During the last 100+ years, much has changed in the world of philanthropy, but the dynamics of giving have been simply an extension of the First Wave. The First Wave followed a hierarchical structure of a few concentrated pools of wealth making grants to a large base of needy causes. Philanthropy was not the only discipline to follow this model. Corporate organization charts, information distribution systems and political systems all followed this model.
However, as we embark on the 21st century, the traditional hierarchical structures are collapsing. While the traditional top-down hierarchical system describes the way Rockefeller’s foundation distributed grants to charities, which then provided services for the public, a flat organizational system is the model of the Second Great Wave.
This shift acknowledges that no one person or entity has all the answers and instead leads to a virtuous cycle of information feedback. The philanthropists of the 21st century will be smaller in size, but much larger in numbers than the philanthropists of the last century.”
The individual has always been the big donor (in aggregate), but today we have the demographic tidal wave of the boomers entering prime “giving years” (25 years ago when they were in prime “saving years” they totally transformed the financial markets in a way that radically increased the importance of individual investors). We also have technology that is characterized by widespread distribution of information and aggregation of individual action into group action.
It is not that I believe that individual donors will become more important than the big foundations, but that at the margin, all of the power shift will be towards individuals.
Nick, I think the issue you bring up, the lack of standardized evaluation metrics or approaches, is a major issue in the way you point out.
However, I don’t think it is a deal killer as you suggest. Let’s think about movie critics and Hollywood (I’ve discussed this in depth in the past. It is not a perfect analogy, but it is a good thought experiment).
Movie makers do generally ignore negative reviews. While PR plays an important role in the success of a film, great films often receive significant viewers based on positive reviews, not just PR.
Movie makers can not prove that their movie is better than any other.
Have you ever had a friend recommend a little heard of movie that they just loved? If you like it do they say “Well the director did all the work” or do they revel in glee that they “discovered” Juno before anyone had even heard of it?
If a friend doesn’t like a movie, they let you know that too don’t they? Even if they can’t “prove it”.
The fact is very few things in life are quantifiable. Business and the stock market is far less quantifiable than most people believe. How about politics? Since no one can prove or even faintly quantify why one candidate is better than another, do we all just meekly decide that we should not express our opinions since we can’t back them up with proof?
Just to bring another perspective to this line of questions, here’s a fundraiser’s take. I’m sure there are lots of forward thinking, transparent non-profits out there who can speak candidly with anyone about mistakes and areas to improve, but my sense is that the vast majority are like my employer: they would never let any information that might even suggest something less than sparkling about them be publicly revealed.
We have one foundation funder who is openly critical of us, and funds us with a contract and a set of concrete tasks the organization accomplish. I would call this funder a proactive investor. They didn’t just evaluate us, they made their findings known, and better yet continued to offer us money if we made an effort to clean up our act. Many staff are grateful for this funder, and believe our organization has improved with its participation.
So I guess my point is, perhaps a non-profit is best served by funders who can own their criticism, stand by it and use it as a tool. The many many non-profits out there who are less interested in critically evaluating themselves can benefit from proactive investors like the one I have described. And at least when I am in the room with this funder, I am more or less confident that what they say about us at conferences is what they say to my face.
Sean, I’m not sure I agree about where the power shift will be at the margin. Gates and Google.org have gotten a lot of press in the past couple of years over their approaches to giving, and I wouldn’t be surprised if those stances aren’t influencing the giving strategies of a lot of individuals. And I’m very curious to see how the Ford Foundation will change under the new president who started in January. I think we’re in for a good amount of institutional innovation, and most unpredecently, proactive communication about that innovation, coming from the big foundations in the next several years – as you document so well on this blog.
I can see your point of view Chris. But I think Gates and Google are examples of foundations moving from being engaged, but not very proactive or innovative to being more proactive and innovative. Meanwhile, individuals are going from zero strategy, giving haphazardly with no plan and no financial strategy to something much better.
Big financial organizations became much more innovative from 1980-2000, but those 2 decades will always be characterized by the rise of the individual investor.
1. I believe strongly that the tide is changing quickly. The number of foundations that constantly promote their good works is absolutely on the rise. I used to work for a large regional foundation where 50% of the professional staff were engaged in communications- which there translated into the constant self-promotion of ourselves. For example, we used to employ a full-time person to ensure that every press release; every newspaper story and every public meeting that involved a grantee mentioned us and that we had provided prior approval. The program function was actually taken over by the communications staff — the communications director supervised the program staff. Because the demands on foundations are so limited, the constancy of the communications effort really did sway public opinion; made them believe that we were changemakers when we were, at best, an island in a sea of opportunity.
2. After 20 years of doing this work, my experiences tell me that foundations are relatively quick to “out” non-profits that arent playing ball but will never talk about ineffectiveness. If the non-profit is really really nice and kisses our ass, we are happy happy happy no matter how bad they are at what they do.
3. Non-profits take a lot more public hits than foundations ever do. You have never met a bunch of thinner skinned CEOs than at a southern foundation conference.
Been There, do you think that communications can be reframed as a tool for foundations to both inform others and change public opinion on important issues? Or is foundation communications nothing more than self-promotion by nature?