Inside Philanthropy

A blog on philanthropy and nonprofit news and issues. A publication of Philanthropy Journal.

April 30, 2012

Philanthropy is about people

Nonprofits and philanthropic funders can get so caught up in their causes and strategies that they forget about the actual people they exist to serve, or simply treat them as “metrics” to help gauge their organizational impact.

But several recent reports suggest the demand and supply sides of the charitable marketplace both need to better understand and engage real people in the communities they serve.

Needle-Moving Community Collaboratives, a report by The Bridgespan Group, says fixing tough community problems will require new strategies for how to think and work together.

And The Value of Community Philanthropy, a report from the Aga Khan Foundation and the Charles Stewart Mott Foundation, says social and global progress depends on community giving and participation.

While the first report focuses on global community-building and the second looks at community-building in the U.S., both reports emphasize the fundamental importance of local involvement.

The global report says local participation in community projects can result in greater local ownership and accountability, for example, while the U.S. report says key operating principles for effective community partnerships include the engagement of community members as “substantive partners.”

The global report, in fact, says that “local people helping each other, by sharing resources for the common good” represents a new force in the charitable world that is “driven by ordinary people working form the bottom up of our societies, rather than wealthy people working from the top down.”

Key players in building the “capacity” of communities are nonprofits, which themselves face big challenges in building their own organizational capacity.

The lessons of the two reports on community-building apply to building organizations as well: A nonprofit needs to engage all its constituents in its efforts to work smarter and serve better.

Yet many donors and funders act as if the wealth they control qualifies them as smart charitable investors who know the best way to address tough social and global problems, regardless of the real needs of their clients.

In the emerging social economy, that has to change.

That point was reinforced in an article April 6 in The New York Times Magazine.

In the article, a coffee entrepreneur in Kampala, Uganda, had some sobering criticism of traditional philanthropy.

While he was talking specifically about global aid, his comments have implications for philanthropy in the U.S.

“Every society that has prospered has done it through trade and not aid,” said Andrew Rugasira. “Africa will be no different. Charity doesn’t incentivize. It stifles innovation. It causes chronic dependency.”

To succeed, nonprofits and social entrepreneurs need investments and incentives to develop sustainable business models.

So funders and donors need to find ways to shift their mindset from charity to strategic investment that helps nonprofits and communities build their own capacity to succeed.

And an essential strategy for building the capacity of nonprofits and communities is to engage their clients, partners and other constituents in understanding the social and global problems they face, and shaping strategies to address those problems.

All philanthropy, in short, is local, and its effectiveness is rooted in engaging the people and communities it serves.

April 23, 2012

Nonprofits need to get it together

A lot of nonprofits, boards and funders are in serious denial.

Many are in a deep financial hole, yet precious few can talk straight to their funders about their problems.

Compounding the communications gap, many boards do not understand their nonprofits’ expenses, and far too few use their connections to help their nonprofits raise money.

Those are some of the findings from a new survey by the Nonprofit Finance Fund that offers a grim view of the way nonprofits are faring in the stricken economy.

Among over 4,600 nonprofits surveyed, for example, 85 percent saw rising demand for services in 2011, 88 percent expect greater demand this year, and 57 percent have only enough cash on hand to last three months or less.

Among human-services organizations, which represent 38 percent of nonprofits surveyed, 58 percent could not meet demand in 2011, and 60 percent said they would not be able to meet demand in 2012.

The charitable marketplace is consumed with big talk about the need for transparency, yet many nonprofits, along with their boards and their funders, operate with their heads in the sand.

Nonprofits’ survival depends on their ability and willingness to communicate more honestly and openly with their funders, while educating their boards about their finances and enlisting them in the fundamental job of fundraising.

For their part, boards need to take their governance and fundraising responsibilities seriously.

Instead of sleeping through board meetings and rubber-stamping whatever the staff puts in front of them, boards need to ask tough questions about the financial health of the organization.

And they need to step up and do a lot more to use their connections to help raise money for their nonprofits.

Funders also need to do more, both in providing the operating and capacity-building support nonprofits need, and also in establishing the trust that is essential if they expect nonprofits to talk openly and candidly about their financial and operating problems.

If nonprofits, boards and funders do not wake up soon, nonprofits will continue to struggle, leaving as victims the clients who count on them to provide the programs and services they need more than ever in our shattered economy.

April 16, 2012

New investment strategies vital for nonprofits

By Todd Cohen

As economic turmoil continues to stress the charitable marketplace, new investment strategies are emerging to support the social sector.

Foundations for many years, for example, have built on their traditional grantmaking through “program-related investments,” or loans, to nonprofits.

And more recently, a small but growing number of foundations have become more active investors in the capital markets, tying their investments in the capital markets to companies that are aligned with the foundations’ mission.

Over the past 10 to 15 years, “venture philanthropy” also has become a staple of many communities, with donors applying the strategies of venture-capital investing to their philanthropic investments in nonprofits, contributing time and know-how as well as funding.

More recently, private “benefit” or “B” corporations have emerged, charged with investing their assets not only in increasing shareholder value but also in producing a social benefit.

Another recent innovation are “social-impact bonds” that raise private investment capital to fund prevention and early-intervention social programs.

The bonds are backed by government, which agrees to repay investors only if the programs improve social outcomes.

According to a recent white paper prepared by Social Finance Inc. and supported by the Rockefeller Foundation, social-impact bonds can help nonprofits expand programs that have proved effective.

Because such programs should be “evidence-based,” the paper says, the bonds could spur better metrics and data-tracking on the part of nonprofits and government, and encourage government agencies to work more closely with one another.

Fueled by funds from traditional philanthropy, the capital markets and government, the social economy is becoming a vast and complex marketplace that nonprofits need to understand and operate in if they expect to survive and make a difference.

Nonprofits and philanthropic funders alike need to pay attention to emerging investment strategies, and develop relationships and partnerships across sectors that will that will put social capital to productive use in addressing our most urgent social and global problems.

April 9, 2012

Nonprofits lagging on finance

By Todd Cohen

The economic turbulence of the past three-and-a-half years has whipsawed nonprofits.

Some have shut down, while others having frozen or cut staff, pay, benefits and programs.

Smart nonprofits have taken a hard look at their programs and operations, searching for ways to get back to their mission and to the basics of doing business, including keeping better track of their finances and economic indicators.

But as a new study shows, nonprofits have a lot to learn about finance.

While three in four of over 500 nonprofit financial-management professionals surveyed by The Center on Philanthropy at Indiana University believe they are knowledgeable about financial principles and concepts, only 6.9 percent see themselves as financial experts.

And most nonprofits are falling down on some critical financial functions.

Six in 10 nonprofits surveyed, for example, do not have an audit committee, and only one in four said their board was “very involved” in planning for possible financial scenarios, even though the nonprofit managers recognized the importance of being able to make forecasts based on external factors.

Nonprofits, the report says, need to “assess their financial monitoring mechanisms in light of the environment of analysis and accountability.”

In the face of a complex and uncertain economy, an intensely competitive charitable marketplace, and a funding community that increasingly wants to see impact and metrics, nonprofits that expect to survive and thrive need to become more financially literate, and they need to do it quickly.

April 2, 2012

Working together key to nonprofit survival

By Todd Cohen

The human impulse to lend a hand drives the charitable marketplace.

In the U.S., the culture of helping has fostered a social sector that generates over $290 billion in charitable giving a year, employs 10 percent of the workforce, receives over 8 billion volunteer hours a year from nearly 53 million adults, and accounts for five percent of gross domestic product.

But what prompts us to want to look out for one another and work together to find ways to fix the social and global problems we face?

And can understanding that motivation help nonprofits do a better job running their shops, engaging donors and volunteers, and partnering with other organizations?

An article in the March 5 edition of The New Yorker magazine may provide some insight into those issues.

The article, entitled Kin and Kind and written by author Jonah Lehrer, looks at the “genetics of altruism,” and at the debate among biologists about whether cooperation among individuals or groups makes them more fit to survive.

While the article looks at research into behavior among microbes, plants, insects, birds and mammals, it has important implications for charities, and how they operate and compete in what has become a brutally competitive marketplace.

The article, for example, compares cooperation among individuals with cooperation among organizations, and quotes a 2007 paper co-authored by evolutionary biologist E.O. Wilson of Harvard, who has spent much of his career studying ants.

“Selfishness beats altruism within groups,” the paper said. “Altruistic groups beat selfish groups.”

In other words, within an organization, individuals who look out for themselves are more likely to succeed than those who are team players, while organizations that partner with other organizations are more likely to succeed in the marketplace than those that pursue a strategy of slash and burn.

In explaining his theory of evolution, Charles Darwin used the concept of “natural selection,” or the “principle by which each slight variation [of a trait], if useful, is preserved.”

Lehrer, in turn, writes that “goodness might actually be an adaptive trait, allowing more cooperative groups to outcompete their conniving cousins.”

In a field “defined by the cruel logic of natural selection,” he writes, “group selection appears to be the rare hint of virtue, the one biological force pushing back against the obvious advantages of greed and deceit.”

But the choice of group collaboration or individual selfishness may not be so simple.

Lehrer quotes from an interview he conducted with Wilson:

“If our behavior was driven entirely by group selection, then we’d be robotic cooperators, like ants,” Wilson says. “But, if individual-level selection was the only thing that mattered, then we’d be entirely selfish. What makes us human is that our history has been shaped by both forces. We’re stuck in between.”

What does this mean for the charitable marketplace, one rooted in the idea of doing good?

Nonprofits that want to survive and thrive need to find ways both to attract, motivate, train and retain smart and caring employees, donors, volunteers and board members, while also finding partner organizations in the social economy that care more about addressing social and global problems than protecting and expanding their own turf.

Unlike businesses, which often thrive by pitting employees against one another, particularly in the area of sales, nonprofits thrive on employees working together to better serve clients.

That does not free nonprofits from the need to give individual employees incentives for working smarter and serving better.

Nonprofits should indeed find ways to motivate and reward individual performance, rather than taking employees for granted while pushing them to do more with less.

But nonprofits also need to create incentives for individuals to work together because functioning as a team can mean the difference between the success or failure of an organization.

Greater collaboration might seem at first glance to undermine part of the culture of big nonprofits, like universities, that reward fundraising professionals in different departments or programs for raising money for their own unit.

So nonprofits should help employees see that working together will benefit them as individuals while also strengthening the organization.

If they were to share information with one another about which donors seem like the best prospects for annual, major or bequest gifts, for example, the respective development staff could better focus on the donors most likely to make those kinds of gifts.

Like development professionals, many organizations can become preoccupied with controlling turf and donors in their respective communities and fields of interest.

Yet in the face of seemingly unsolvable social and global problems, severely strained resources, and donors and funding organizations anxious over the crippled economy, nonprofits working on similar problems or in the same regions need to find ways to team up.

The impulse to lend a hand, not the drive to beat competitors, represents the spirit of the charitable sector, and nonprofits should be looking for ways to inspire their employees and organizations to excel at advancing their mission through collaboration.