Responding to my post from Monday, reader Aaron Stiner, program manager for Advancing Philanthropy at the Arizona State University Lodestar Center for Philanthropy & Nonprofit Innovation, writes:
It seems to me this conversation is looking at nonprofit organizations from a “we social investors know more than they do” kind of approach. This paradigm is very frustrating for nonprofit organizations.
…Applying all these methods of social investing is going to put more strain on nonprofit organizations to jump through hoops, leaving less time and resources to make change happen.
…Sean lists this in his philosophies, “We believe it is often the nonprofit management teams – those with decades of experience in their chosen fields – that are best positioned to figure out what works.” I guess I don’t see that value in the post above. What I see in the post above is “nonprofits can’t prove their work has impact and they need us social investors to come in and tell them how to do that.” I disagree.
The post has actually stimulated 16 comments, with readers Ingvild Bjornvold, Bridget Laird and myself trying to convince Aaron that he’s missing the point. But I want to address this issue in a full post, because I think Aaron raises a common and important critique of social investing.
Do social investors think they know better than nonprofits how to run nonprofit programs? If so, how does this reconcile with my stated view that nonprofit management teams are best positioned to figure out what works?
I believe that nonprofits are best positioned to design and run their programs and social investors are best positioned to determine where philanthropic capital should be allocated.
I don’t think this should apply “more strain on nonprofit organizations”. Social investors want to invest in organizations who are producing positive outcomes and any nonprofit which is tracking how well it is performing is already investing in the infrastructure needed to qualify for a social investment. If a nonprofit is not tracking their performance, than yes it will take more resources to invest in a good system. But this won’t leave “less time and resources to make change happen” because a nonprofit that doesn’t track their performance has no idea if the resources they are deploying are actual making any “change happen” in the first place. Suggesting otherwise is like suggesting a for-profit company is too busy making money to bother figuring out if it is profitable.
Aaron goes on to summarize the message of the David Hunter’s article (and by extension my support of the concepts) as “nonprofits can’t prove their work has impact and they need us social investors to come in and tell them how to do that.” While I understand Aaron’s worry, I think it is misplaced. Social investors should not feel that it is their job to fix nonprofits. Instead, social investors are simply discerning in where they place their philanthropic capital and only allocate it to organizations who can show they are producing outcomes (or are an early stage organization on an intentional path to this goal). Social investors don’t know better than nonprofits, they simply look for great nonprofits. This should be great news for high performing nonprofit organizations. I’ve talked to many nonprofit executives who run high performing organizations and they frequently complain that the fact they actually run programs that work does not help them raise more money!
The social investment movement is not designed to make nonprofits change, but to support high performing organizations. Since we don’t live in Lake Wobegon where everyone is above average, social investing must be selective and so low performing organizations will lose out. But that is the way that all of life works. Pretending everyone is above average is not a good thing and does not make you a nicer person. Instead it hurts the very groups that donors seek to help.
When I talk to people about Tactical Philanthropy Advisors, I frequently say that my hope is that over time nonprofits see our clients as fantastic supporters. If we are successful in cultivating a a group of clients who enthusiastically practice social investing, I believe that nonprofits will see us not as demanding funders who ask them to change (as so many non-social investor funders actually do), but instead as supporters who reward them for high performance, who encourage them to focus on what they are good at and who respect them as successful social entrepreneurs.
The funny thing is, as hardnosed as for-profit financial markets are, the description of social investing above is exactly how they work. Investors are so intent on finding great organizations, that they often compete with each other to provide funding. As a refresher, I encourage you to examine my write up of how Warren Buffett behaves as an investor and how it should inform the social investor mindset.