“Soft Power” in Philanthropy

This is my most recent column for the Chronicle of Philanthropy. You can find a complete archive of my columns here.

Philanthropists’ ‘Soft Power’ May Trump the Hard Pull of Purse Strings
April 18, 2010 | Chronicle of Philanthropy

In 1990 Joseph Nye Jr. of Harvard University coined the term “soft power” to describe an approach one country can take to influence the behaviors of another. The term describes the way that a nation’s values, culture, policies, and institutions can change the behavior of others in a way that is far different but potentially more effective than the “hard power” approach of coercing a specific action or offering incentives for good behavior.

The importance of soft power is now widely accepted in the analysis of international affairs. And it is becoming increasingly important in the world of philanthropy. Over time, soft power may very well eclipse the hard power of grants and other financial transactions.

Historically, foundations have been primarily focused on making grants. Awarding money to nonprofit institutions is the primary way that foundations exercise power. Yet the attempt to shape events by providing or withdrawing grants is a form of hard power that leans heavily on the idea that influence is best achieved through offers of incentives or threats of penalties.

Mr. Nye defines soft power as “the ability to obtain the outcomes one wants through attraction rather than using the carrots and sticks of payment or coercion.”

Foundations can achieve soft power by demonstrating in their own behavior how they hope others will act.

Soft power exists whether or not a foundation or other big donor intentionally deploys it as a resource or is even aware it exists.

In 2006, when Bill Gates announced that he would leave Microsoft to join the Bill & Melinda Gates Foundation full time and Warren Buffett announced his intention to give 85 percent of his wealth to the Gates foundation, a great deal of attention was paid to the enormous hard-power potential that the Gates foundation held as the largest grant-making foundation in the world.

However, what was more important was the soft power that came from Bill Gates, announcing at age 48, that philanthropy was more important to him than running Microsoft and Warren Buffett announcing that instead of leaving all his money in a bequest, as he had long pledged, he wanted to give his fortune away while he was alive.

Since the announcements from Mr. Gates and Mr. Buffett, their actions have been cited by many other wealthy individuals who have launched their own philanthropic efforts.

The new Social Innovation Fund run by the federal government is another example of exerting soft power. While the fund’s $50-million a year budget has been criticized by many as too limited to make a real difference, its focus on supporting groups that have proved their effectiveness rather than financing specific projects is encouraging foundations and philanthropists to pay greater attention to the merits of those approaches.

Hard power in philanthropy depends on control of monetary resources. But charitable giving represents only 20 percent of the financial resources available to nonprofit groups, and even the Gates foundation, the largest in the world, accounts for only 1 percent of the nation’s total charitable giving.

Soft power, on the other hand, depends largely on maintaining the goodwill of the people a donor hopes to influence. In the context of all charitable giving to Haiti, which now totals $1-billion, the $1-million in grants from the Gates and Ford foundations to the group Partners in Health was negligible.

But the selection of this particular group out of the field of so many organizations trying to help in Haiti sent a powerful signal to other donors. The amounts each foundation gave were relatively small, but their reputations for selecting effective grantees is a form of soft power that has the potential to persuade others to give to the organizations they support. By effectively deploying their soft power, smart foundations had the potential to influence the hundreds of millions of dollars donated to Haiti.

The Gates and Ford foundations, and most other large philanthropies, have far more soft power at their disposal then the hard power represented by their grant-making budgets.

In a recent essay for the Stanford Social Innovation Review, John Brothers, principal of Cuidiu Consulting, described the “carrot and sticks” philanthropy of foundations that provide and withdraw financial resources as a system of reward and punishment to motivate the nonprofit groups they support.

Mr. Brothers writes that “carrot and sticks philanthropy is part of the problem and is not remotely close to the solutions needed to help our most challenged nonprofits.”

Where, then, should we look for more effective practices? Soft power seems to offer the ideal way for more foundations to wield influence, especially at a time when their money is stretched as the nation seeks to rebound from its financial crisis.