• Flawed Philanthropy: Seven Common Pitfalls and How to Avoid Them

When Philanthropy Falls Short 

Several years ago, I served as a member of the allocations staff for our local United Way. One of our more seasoned and cynical team members used to quip that our volunteer-led allocations process might be just as well served using cardboard cutouts as community members. His harsh commentary was directed not so much at their engagement in the process, but at their penchant for deviating from their own funding protocol and criteria to make "heartstrings" allocations decisions, or ignoring staff recommendations in favor of rewarding organizational longevity or board influence. 

If the road to hell is paved with good intentions, surely the path to philanthropy gone awry is paved with well-intentioned donors and foundations that lack a clear roadmap for investing for impact. Admittedly, giving away money effectively is hard. But over the years, I have observed seven practices in small- and large-scale giving that are particularly counterproductive to funding for results.  

Investing in a cause, not a solution. We have all heard polished, effective fundraising pitches that clearly and compellingly describe the plight of the intended beneficiaries. The need is most often real; the solution-driven, evidence-based strategies are not always as well articulated. The fact is that there is a very small percentage of funders--Gates, Buffett, Broad, etc.--that can afford to specialize in funding experimental approaches, as opposed to proven solutions. For these, and for smaller funders that are willing and able to support innovation, it is equally important to invest in evaluation.

  1. Failure to fund performance accountability. Outcomes, impact, metrics, In principle, just about all funders are on board with holding service providers accountable for making a measurable difference with clients. In practice, few invest in training service providers to successfully conduct program evaluation, and fewer still routinely fund evaluation as a line item in grant awards.
  2. "Hit and run" philanthropy (or "ADD investing"). Both start-up and time-limited, phased-out philanthropic investments can provide a lifeline to nonprofits, or conversely, they can pull the rug out at the most critical time in the life of organizations. Foundations that can't or won't invest for the long haul may be doing more harm than good to their grantees.
  3. Micro-foundations. The community in which I reside boasts two professional sports teams and an additional major sports enterprise, and whether motivated by a genuine desire to give back, the need to build a positive public image, or both, there are too many professional athletes who launch individual foundations for narrowly focused pet projects. The assets of most of these personal foundations are too limited to generate grants sizeable enough to move the needle on areas of persistent need.
  4. Rewarding duplication, not collaboration. Having multiple, undifferentiated players in the same service space may result in missed opportunities to realize operating efficiencies and greater program effectiveness. It also creates donor confusion. Yet, major funders seem reluctant to adopt common funding philosophies and flex their collective muscle to encourage strategic restructuring.
  5. Funding direct services, not operations. Every funder and donor, no matter how large or small, wants to be assured that his or her dollars will make the greatest possible difference. However, funding restrictions that prohibit operating costs merely hamstrings nonprofit organizations. Operating costs are the lifeblood of programs and services.
  6. Quid pro quo givingThis is a corollary to my first observation. We know that giving is relationship-driven. We give because our friends ask us to, and they feel obligated to donate to our causes in return. I have witnessed many an ineffective nonprofit kept on life support long after it ceased to have vital signs simply because of a well-connected benefactor.

A More Strategic Alternative 

As an antidote to flawed philanthropy, I recommend a three-pronged strategy. 

First, commit to community-wide, collaborative planning to fund for long-term impact. This should include educating and engaging individual donors as much as corporate and community foundations. 

Second, be courageous in questioning the status quo in funding strategies. With declining public sector funding, awarding funding "because we always have" is a luxury that the social sector can no longer afford. 

Finally, establish rigorous standards of performance accountability and invest in building capacity for organizations to track and measure their effectiveness over time. There is no more objective--or rewarding--way to determine what is fund-worthy, and to figure out what works and should be taken to scale.   We'd like to hear from you! Was this post useful? Let us know what you'd like to read more about by leaving us comments here or on Facebook or Twitter. We're listening.

Tags: collaboration, nonprofit consulting, philanthropy


Wednesday, February 26, 2014 5:55 AM
Perhaps 25 years in the np sector (both sides of the phtianlhropic dance), followed by a new incarnation as corporate business strategist, explains my cynicism about the possibilities of significant change in the deadly dance between the funder and the funded, to which you referred in your original blog of 10/04. As you indicated, the rhythm of the dance in the np sector is largely determined by the focus of funding from third parties, rather than by the shifting needs of the market (those whose lives the np sector intends to serve). The introduction of new technology service providers to nonprofits isn't about a new source of funding, but rather a new source of efficiency and innovation, the two issues that lie at the heart of the sector's structural woes. Efficiency and innovation are the two primary drivers in the commercial sector. Not so for nonprofits. The competitive necessity to be efficient, to increase profit margins, is distorted in the np sector by funding not tied to production, or to the marketplace directly. Similarly, innovation (which any technology offering would aim to encourage and on which its future is dependent) is inhibited by the dance with funders who reward adherence to their intellectual priorities and who discourage risk, punish failure, and oppose deviations from recognized practice (all of which lie at the heart of innovation). Perhaps the most notable difference between the nonprofit and the commercial sector is that in the np sector, ideas follow money. In the commercial sector, money follows ideas. The question I'd ask of any new entrants like Kintera and Collaborative Standards is whether they really understand the dynamic of the dance they've entered, whether they understand that their new clients (nonprofits) are not free to dance to a new beat, no matter how exciting or promising. My bet? These new service providers will share the market with the old for a time, then dominate .and then they'll have the unenviable position previously occupied by MicroEdge ..a head full of arguments about the enormous potential but a belly full of irrational obstacles that are nonetheless real.

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