Do Social Investors Look Down on Nonprofits?

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.


  1. Aaron Stiner says:

    Sean, thanks for responding to my comments!

    I appreciate your clarifications, and the clarifications of others. If your purpose as a social investor is to work collaboratively and equally with a nonprofit organization to either help them implement – and fund – performance management systems to track and manage how they are working towards impact, or to perform deep due diligence to find and fund high performing nonprofit organizations, then I am all for that!

    However, I believe that the words one uses to frame a particular issue are incredibly important and I stand by my original assertion that the excerpts from David in your original post could be perceived as demeaning to nonprofit organizations. I object to a deficit based approach and would much rather have conversations focused on strengthening existing nonprofit assets. In other words, as a social investor I think your focus and framing should be, “what are the strengths of nonprofit organizations and how can we work with them to enhance what they are doing well,” not, “there is virtually no credible evidence that most nonprofit organizations actually produce any social value.” The latter paradigm is not helpful in moving forward positive change. Perhaps David was being controversial to make a point, or perhaps some social investors/philanthropists see nonprofits as full of deficits and not full of strengths – that worries me.

    If implemented carefully, and from a strengths-based approach, I see incredible value in what you present. I appreciate your comments and clarifications on this issue, but I still have some concerns that the model you are presenting runs the risk of continuing the power imbalance funders hold over nonprofit organizations. This power imbalance is a mutual issue for both nonprofit organizations and funders – and I object to the implication in David’s comments that funders should continue to perpetuate that imbalance. I think nonprofit organizations need to do a better job of representing the voice and needs of their recipients to funders and I think funders need to do a better job of listening.

    I use the words “deep due diligence” above because it takes a lot of time and commitment to know a nonprofit organization, its strengths, weaknesses and whether or not it is delivering “high impact”. While I agree wholeheartedly that nonprofit organizations can find ways to better deliver services and achieve impact – and we should reward nonprofits that do – it must be done through long term, deep relationships in the context that nonprofit organizations are equal partners in the work.

    It is so important now, in times of economic turmoil, that philanthropists and nonprofits engage in conversations about mutual goals, mutual challenges and together create a new way forward. That cannot be done with pre-subscribed solutions and notions that all nonprofit organizations are broken and need fixing.

    As in many things in life, we need to work through these conversations to find the common ground. I appreciate you listening and sharing. Thank you!

  2. Emily Gerth says:

    “The social investment movement is not designed to make nonprofits change, but to support high performing organizations. ”

    I think that’s the key statement here. Social investors hope to change the sector by supporting high performing organizations (and, by default, not supporting other nonprofits). Rather than remaking nonprofits or telling them what to do, they want to focus on what’s working well now.

    So I strongly disagree with Aaron that what David suggests perpetuates the power imbalance. I think it has the potential to rectify the imbalance a great deal. Of course, capital will flow to some organizations and not to others. That gives donors no small amount of power, but I don’t think that’s what causes the imbalance of power that can be so detrimental to nonprofits. The power imbalance is caused when foundations and other donors decide that they know what works well and they impose agreements/requirements/conditions on nonprofits. Social investors simply withdraw funding when the organization isn’t performing, which is a strong signal for the nonprofit to change, but doesn’t come with the assumption that the investor “knows” how to change the organization.

    Maybe I can state it more simply: The investor asks, “Can show you me that this works? If yes, I will give you funds to do it.” The more traditional donor/grantor says, “I know what works. Is that what you do? Because I will only give you funds to do that.” As a nonprofit, it seems obvious to me that first question invests you with great deal more control and authority.

  3. Beautifully stated, Emily.

  4. Jeff Mowatt says:


    “The social investment movement is not designed to make nonprofits change, but to support high performing organizations. ”

    Your perception maybe, but I don’t know what you regard as the social investment movement.

    My perception is a business model which invests profit into social purpose, applied 10 years ago to leverage economic development. overseas.

    Now to answer your question let me point to a wealthy philanthropist, who tells us that there’s a problem in wealth accumulating in the hands of too few people.

    Consider the enormity of that statement. It happens to be what we also wrote some years earlier. He’s saying that his wealth is due to a flaw in capitalism and that business should focus more on social problems. I tuned in because this is the Ukrainian lunch at Davos and my social enterprise focuses on poverty in that country.

    Imagine that there wasn’t a flaw in capitalism. It wouldn’t have been necessary for us to conceive the business model investing in social purpose, which you apply yourself and there would be no need to steer wealthy social investors toward high performing nonprofits.

    Never has there been a better illustration of ‘having more money than you know what to do with’.

    Now I don’t think social investors are looking down on me, because as I’ve pointed out in a previous response, our approach, for example – investment in getting children out of institutions into family homes, is being put forward by social investors as an illustration for a social impact bond. Imitation is flattery, as we know.

    There may be some ‘looking down’ in the context of not wishing to engage on the subject.


  5. I agree with Aaron that David’s first “truth” sets social investors up in a battle with nonprofits. That’s why my post pushed back hard on David’s assertion that the social sector doesn’t produce value.

    But I strongly agree with Emily that social investing should not set up a power imbalance with nonprofits and that in fact the opposite is true. I’m going to try to address this in a post next week.

    Thanks for all the strong engagement on this issue!