The Alliance for Effective Social Investing

November 13, 2008 – 1:07 pm

Over the last couple of years we’ve spent a lot of time on this blog discussing how to measure the impact of charitable work. For many people, figuring out how to assess “social return on investment” or the amount of “social good” achieved per dollar donated, is viewed as the key to unlocking the social capital markets.

On the other hand, as a “tactical philanthropist”, I’ve spent more time writing and thinking about how social enterprises (nonprofit or for-profit organizations) can achieve impact. In other words, I’m more focused on how an organization executes instead of how a program is implemented. This isn’t too say that program design isn’t important, just that my expertise is more focused on organization evaluation and the financial framework within which it exists.

So I was rather excited to learn recently about the Alliance for Effective Social Investing and to be invited to join the small group of Alliance Members listed below:

The project is the brain child of Steve Butz of Social Solutions. The mission of the new group is to “change how funds are distributed in the social services sector – from giving based solely on anecdotes to informed social investing.” To that end the group is working on a tool to evaluate nonprofits that focuses on an examination of the organization and its ability to create social value. Given the list of participants and their cross-disciplinary backgrounds, I’m excited that something really good will come out of this effort.

Today, the Chronicle of Philanthropy wrote up a nice profile of the tool and the group:

Mr. Butz, 39, argues that existing ratings such as those done by the watchdog group Charity Navigator, which examines nonprofit groups based on financial information they provide to the Internal Revenue Service, tell donors nothing about whether their dollars are used to achieve results.

“Right now, you can find information about which organizations are doing the best job of raising money,” he says. “But you can learn little about which groups are doing the best job for the people they serve.”

Mr. Butz hopes his investment tool can become the “industry standard” for donors who want to ensure that their dollars are making a difference, leading them to approach their giving with the same care a venture capitalist uses to support start-up companies. The tool is based on 26 questions that measure charities according to how effectively they provide services and improve people’s lives…

…Ideally, Mr. Butz would like to see GuideStar, the Web site that publishes financial information about charities, make the tool and its ratings available free to donors. Bob Ottenhoff, GuideStar’s president and a participant in this month’s meeting, says he is “very interested” in the idea…

…Sean Stannard-Stockton, principal of Tactical Philanthropy, which advises wealthy donors, and an adviser for Mr. Butz’s effort, says he thinks it is important to ask all charities, no matter how small, to collect data on their programs’ performance.

“I manage a small business myself and I’m acutely aware that a small organization simply doesn’t have the data collection or analysis ability that a Goldman Sachs or a Morgan Stanley does,” he says. “Yet even small for-profit or nonprofit organizations should and can do data collection on a scale that’s appropriate to them.”

He also says that past efforts to evaluate charities’ effectiveness have faltered because they have tried to measure the value of a dollar spent on different types of groups, pitting soup kitchens against foster-care centers.

“One of the problems we’ve had in the past is trying to compare nonprofits in different program areas, and this bypasses that by saying, Let’s look at the organization itself,” he says.

You can read the full article here.

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2 Comments

  1. Carrie Crystal says:
    November 13, 2008 at 10:37 pm

    It will be very interesting to see what kind of innovative solutions arise from this group to solve the age-old struggle to measure impact.

    I feel that the real question is not whether “youth development program A is doing a better job than youth development program B”, but rather whether or not saving a life is worth more than a dance performance. If you follow the dollars, clearly our answer as donors is “no”. If we were to follow the Peter Singer utilitarian point of view- we would never let a five year old boy without access to clean drinking water die of thirst right before us in the corner market ….and rather than buying the boy a bottle of water to save his life instead turn to the teacher standing next to the boy and hand money to her to implement an after-school reading program for three of her students. We all know that anti-malarials cost $2 per day for 7 days and they will save a child’s life. Without them, a child will die. Without clean water, a child will die. Without food, a child will die. Why spend time and money determining which nonprofit is better at teaching kids how to appreciate diversity or learn science or ice skate? Instead, shouldn’t we spend time and energy to research why we, as donors, aren’t focused on saving a life above anything else?

  2. Sean Stannard-Stockton says:
    November 14, 2008 at 8:54 am

    Singer makes a very compelling moral case for your point of view. However, I don’t think that the either/or choice you set up is valid. Why must everyone focus on “why we, as donors, aren’t focused on saving a life above anything else”? Doesn’t it make more sense for everyone to focus on the issue that is compelling to them personally?

    Personally I believe that if donors had more conviction in which nonprofits were doing a great job, that their donations would be reallocated in ways that would benefit society. That’s why I’m passionate about this issue.