Providing the Capital Organizations Need to Run — and Grow

By Sean Stannard-Stockton
October 1, 2009 | Link to Chronicle of Philanthropy

According to Paul Brest’s excellent book Money Well Spent, strategic philanthropists devise ways to solve problems and select grant recipients who can best carry out the approaches donors think will work best.

Another breed of donors is growing — people I refer to as tactical philanthropists.

While strategic philanthropists seek to solve social problems, tactical philanthropists are social investors.

Investors, in both the for-profit and the nonprofit contexts, provide capital to organizations that solve problems. Good investors take great interest in the solutions deployed by the organizations they finance, but they themselves are not problem solvers.

As many philanthropists have rushed to use the currently trendy vocabulary of financial investments when they talk about giving, the meaning of the word “investment” has become confused. A true investment is not defined by whether the investor earns a profit — whether and how much money is returned are just terms of the deal — but the intention of the transaction.

Tactical philanthropists view their grant-making activity as investing in nonprofit organizations because they are not simply paying organizations to carry out programs, they are providing the capital needed to operate and expand a great organization.

Venture philanthropists represent one approach to tactical philanthropy. They provide capital to support a portfolio of nonprofit groups the way a tactical philanthropist does, but a venture philanthropist generally gets very involved in how an organization works. Venture philanthropists may expect a seat on the board for large capital commitments or expect that the nonprofit organization be receptive to extensive nonmonetary support, such as management training.

Venture philanthropy done well and with nonprofit organizations that welcome a highly involved supporter can produce outstanding results.

But getting donors involved is not automatically a panacea. According to “More Than Money,” a report by the Center for Effective Philanthropy, most foundations that provide assistance beyond a grant provide only limited support.

“Providing just two or three types of assistance to grantees appears to be ineffective,” the report says. “It is only in the minority of cases when grantees receive either a comprehensive set of assistance activities or a set of mainly field-focused types of assistance that they have a substantially more positive experience with their foundation funders than grantees receiving no assistance.”

Tactical philanthropists can also be investors who do not focus on providing assistance beyond a grant. Warren Buffett, one of the greatest investors of all time, is known to ask many questions of the companies he is invested in, but does not dictate how they run their businesses. He invests only in organizations where he thinks management is competent and knows best what decisions to make. Mr. Buffett has said, “When you have able managers of high character running businesses about which they are passionate, you can have a dozen or more reporting to you and still have time for an afternoon nap.”

Both venture philanthropists and social investors who take a hands-off approach have something in common. They put their energy into choosing the organizations in which they invest rather than the problems they wish to solve. Tactical and strategic philanthropists both seek a better world in which the problems we face have been solved, but tactical philanthropists see their role as supporting organizations that can achieve social change rather than solving problems themselves.

As one tactical philanthropist told me recently, “I don’t know how to fix the problems in our city, but I know who knows how to fix those problems and it is our job to support them.”

There is no doubt that we need both strategic and tactical philanthropists. But in recent years, the phrase strategic philanthropy has begun to be used as shorthand for “effective” philanthropy.

We do not all need to be problem solvers. Many outstanding problem solvers are hard at work in nonprofit organizations around the world. In many cases, the best approach might be for philanthropists simply to invest in these organizations and provide them the capital they desperately need to carry out their solutions and grow.