Diagnosing Problems in Philanthropy

Last year, I debated Paul Brest at the Grantmakers for Effective Organizations conference on whether philanthropists need to have a theory of change. You could have heard a pin drop when I said that I didn’t think donors who were seeking to invest growth capital into nonprofits needed to have a theory of change. Even at a conference of people who care passionately about how to build and support effective nonprofit organizations, it was considered a radical (and probably wrong) idea to suggest that effective philanthropists didn’t need a theory of change.

I argued that an effective philanthropic approach (what I’ve been calling Philanthropic Investing in my recent posts) could be for a donor to provide growth capital to nonprofits that had strong theories of change and were executing well. Paul failed to see the difference between a funder having their own theory of change and my approach because he argued that the funding approach I suggested would require the funder to validate the nonprofit’s theory of change and thought there was no fundamental difference.

My last post, which featured the Center for Effectively Philanthropy’s definition of “effectiveness” and how I think the definition conflates effectiveness with Strategic Philanthropy, sparked some good discussion between me and the leaders of CEP. President Phil Buchanan, pushed back on my statement that CEP’s definition required effective philanthropists to have “funder-owned” theories of change writing,

“Nothing in what we have said or written about strategy suggests the kind of top-down dynamic you seem to ascribe to strategy when you use phrases like “funder-owned.” The best strategies are not “funder-owned” – they are embraced by a variety of different actors.”

Yet to have a theory of change has become a cultural prerequisite of any large funder claiming to be effective.

Today I came across an article in the Financial Times by Sarah Murray, who is an excellent philanthropy reporter. Sarah’s article is about “how to make your philanthropy count”. The article, as is the dominate theme in organized philanthropy, makes what I view as a mistake in conflating effectiveness with the Strategic Philanthropy approach.

The article talks about how a growing number of donors are trying to make sure that their money actually makes a difference. She then goes on to write:

“First, donors need to make a diagnosis, and this means engaging in intensive research and education. They need to become familiar with whatever problem they want to help solve, including learning about what changes in underlying social and economic conditions might shape any possible solutions, and what other organisations are already engaged in addressing the problem.”

Sarah has articulated the Strategic Philanthropy approach far better than I. The key word is “diagnose”. As Paul Brest has rightly argued, all donors who wish to be effective must focus on the problems they wish to solve. My argument is that Strategic Philanthropists seek to solve those problems by diagnosis the problem and formulating a solution. As Phil Buchanan rightly points out, effective Strategic Philanthropists may very well use input from people outside the foundation or build on others’ work when doing their diagnosis. So I’m wrong to use the phrase “funder owned”. But my point is that the responsibility to making a diagnosis of the problem and formulate a solution lays with the Strategic Philanthropist.

As Sarah writes, “First, donors need to make a diagnosis.”

My argument is that making a diagnosis is not a requirement for effective philanthropy. Nonprofit enterprises are in the business themselves of diagnosis problems and formulating solutions. This is why they, like Strategic Philanthropists, have a theory of change. Because nonprofits do this work, an alternative to Strategic Philanthropy is to act as a Philanthropic Investor and provide capital so that these nonprofits can grow and improve or act as a Charitable Giver and pay these nonprofits to execute their programs.

Now Philanthropic Investors and Charitable Givers are not agnostic to theories of change. They do bear some degree of responsibility to make sure that they are working with organizations that are implementing effective theories of change. But at the end of the day, the responsibility to diagnosis the problem and formulate the solution lies with the nonprofit.

One analogy might be the way smart individuals work with doctors and other professionals who work in areas where the individual does not have expertise. They first seek out capable individuals (“high performing organizations”, to connect the analogy to the funder-grantee relationship) and then they constantly seek to be an educated consumer who asks questions about the diagnosis and solution suggested and seeks external validation of whatever is proposed. But they do not try to make a diagnosis themselves. If they had that expertise, they would have become a doctor themselves.

Smart Philanthropic Investors and Charitable Givers do not blindly agree with whatever a nonprofit says about their diagnosis of the problem and their suggested solution. But they also do not themselves attempt to establish the expertise to make a diagnosis and recommend a solution themselves.

When viewed this way, it becomes clear that to be successful, nonprofits and Strategic Philanthropists must establish the expertise needed to diagnosis social problems and formulate solutions.

Philanthropic Investors must have the expertise to evaluate nonprofit organizations and to assess as best they can the likelihood that a nonprofit’s theory of change is valid.

Charitable Givers do not need to make a diagnosis nor evaluate organizational performance (beyond the short term ability to execute the program as intended). Instead they need to evaluate, as best they can, which nonprofits can provide the programmatic execution they seek in the most cost effective manner (on a quality adjusted basis).

The idea that effective donors need to make a diagnosis conflates effectiveness with Strategic Philanthropy. In addition, in eliminates any but the largest donors from from ever being deemed effective because it is the height of arrogance to believe that smaller donors, without sufficient resources or background expertise, could ever be well placed to effectively diagnose the world’s social problems. Especially considering that nonprofit organizations around the globe utilize tremendous resources and deep expertise in their work to diagnosis these same problems.