Revealing Risk in Philanthropy – part 1

Inviting Your Feedback!

Hey there – The National Center for Family Philanthropy and I are asking for your thoughts on risk in philanthropy.

  • For donors and grantmakers: What type of risk most concerns your board and staff? When does philanthropy feel most risky to you?
  • For nonprofits: What types of risk seem to most concern your funders and donors?

By October 11, I encourage you to add your response to the comments below, or via the social hashtag #NCFP15Risk on Twitter, Facebook, or LinkedIn.


Philanthropy is often described as society’s risk capital. However, grantmaking and giving are highly influenced by the risk tolerances of the people involved. Those personal risk tolerances and personal assumptions about risk usually remain obscure during grantmaking conversations.

Our views on risk are partly hidden because all of us are lousy at understanding the mental shortcuts and hidden biases influencing our decisions. Many books and articles have been published in the past few years on this subject. Two recent publications related to philanthropy include Understanding Risk Tolerance in Grantmaking and How Shortcuts Cut Us Short.

Our views on risk are also hidden because grantmakers and philanthropic families rarely take the time to fully discuss risk in a strategy or in individual grants and investments. Those groups lack a common internal understanding of the individual members’ views on risk and how those views add up to a collective picture.

One challenge to creating a common understanding of risk is terminology. Philanthropy doesn’t have a shared framework for discussing and assessing risk. Some terms and ideas are borrowed from corporate culture, others from strategic planning, and others from specific issue areas such as the environment. Many overlap. A few definitions of types of risk I’ve found in grantmaker publications include:

  • Evidence – the ability to measure results, let alone attribute them very directly to an organization
  • Idea – the idea’s track record and the logic connecting the activities to the desired result
  • Implementation – some board members may perceive this as performance risk – “Will the organization do what it said?”
  • Industry – the likely stability and trajectory of a market segment
  • Investment – the likelihood that a funder will lose some or all of the intended social impact of their investment as a result of disruptive events
  • Project – the likelihood of disruptive events occurring which interfere with the successful conduct of a project or program (businesses would call this assessing externalities)
  • Operational – risk of not having the right operational approach to support sustainable impact
  • Strategic – risk of not having an accurate strategic perspective on the social problems
  • Reputation – the perceived potential damage to the reputation of a board or staff member, or to the organization, because of a decision

I’m facilitating a session on risk in family philanthropy at the 2015 National Forum on Family Philanthropy. John Bare, VP of The Arthur M. Blank Family Foundation, wrote a terrific article as a preview of the session. Laurie Michaels, founder of the Open Road Alliance, and June Wilson, Executive Director of the Quixote Foundation are participating in the session. Members of all three foundations have been terrific resources in shaping the session.

We’re hoping to use the session and your feedback to begin shaping a common framework, or at least a good set of revealing questions to ask internally. I’ll keep you posted on our progress after the session!

Chart of philanthropic actions and recipients

Signals From the Future (part 3): Tools and Strategies

When I’m asked to speak, I describe myself in three roles – philanthropist, philanthropoid, and philanthropy geek. The more practice I have in living out each of those roles, the more I find myself returning to three core beliefs:

  1. Philanthropy – voluntary action for the public good – is a big tent concept. It is too often devalued to only mean tax-deductible gifts to charitable organizations.
  2. A wide variety of values and purposes, often unvoiced, drive the voluntary philanthropy of individuals, businesses, and grantmakers. Too many messages from nonprofit staffers, advocates, program officers, and consultants demean the welcome diversity of values and purposes.
  3. There is no one right tool for philanthropic action. Philanthropists can choose from many legal structures (or lack thereof) and strategies and each structure and strategy has its own advantages. There are too many articles and conference sessions claiming one tool is wrong or one strategy is the most correct.

I’ve struggled to incorporate those beliefs into an easy graphic or two. My latest iterations came when preparing for a “Navigating 21st Century Giving Trends” workshop for the Bayer Center of Nonprofit Management and the “Strategic Grantmaking Deep Dive Day” for the Indiana Philanthropy Alliance.

The first graphic mapped three types of philanthropic action – investing, buying, and giving (cash, time and other resources) – and three recipients of that action – nonprofits (and government agencies), businesses of all types, and individuals. During the “Navigating 21st Century Giving Trends” workshop, we discussed trends in philanthropy and filled in the chart. It resulted in this:

Chart of philanthropic actions and recipients

The second graphic was for the “Deep Dive Day” and attempted to group the tools available to philanthropists and grantmakers into three headline strategies – impact, influence, and leverage. Credit goes to the Annie E. Casey Foundation’s Making Connections Initiative for the three headlines, and to many other funders for the tools in use.

Graphic of funder tools for impact, influence, and leverage

Some of the ideas in the graphics are long-standing practices. Some are newer, evolving signals from the future of philanthropy. My sense is that an increasing number of donors, grantmakers, social innovators, and everyday people are purposely using multiple tools. They may have different terms for the tools and strategies, but they’re sharing in a belief that they can deploy their resources for social good in multiple ways. America’s largest two demographic groups are driving the trends:

  • Baby Boomers currently provide 43% of the money donated to charities and are the largest demographic in Congress and state legislatures, in nonprofit executive director roles, and on the Forbes 400. As they transition into retirement years, will have even more time to use their resources and talents to accomplish social and public policy goals.
  • Millennials will make up at least half of the workforce by 2020. They actively commit their time, money, and networks for causes and don’t mind if those causes aren’t managed by charitable organizations. They expect companies to be involved with causes and proactively seek options to buy from and invest in businesses that have positive social and environmental results.

Your Thoughts?

Both graphics pack in too many complex ideas to stand well on their own. And, both are works in progress. I’m offering them up for your feedback and comments. Do the frameworks make sense? Am I missing key tools and ideas? I welcome your thoughts!

Philanthropy in all of its Humanness

The only bond worth anything between human beings is their humanness. – Jesse Owens

The April 2015 issue of the Chronicle of Philanthropy provided an interesting study in contrasting approaches to giving and fundraising.

The Chronicle covered the release of ethicist Peter Singer’s new book The Most Good You Can Do: How Effective Altruism is Changing Ideas About Living Ethically. Many other news outlets covered the book release, so Singer and the effective altruism movement have been popping up in philanthropy and nonprofit social media frequently this month.

Effective altruism proponents ask us as donors or grantmakers to set passion and self-interest aside and instead rely on data and reason in making your charitable decisions. They want us to continually ask a critical question, “Of all the possible ways to make a difference, how can I make the greatest difference?” They raise tough challenges, such as the morality of using $1,000 to help a local art museum instead of providing lifesaving medicine to many third world residents. And, they urge us to give higher amounts of our income and net worth away, especially to people and countries in the most need. Their challenges are thought-provoking and can seem reasonable, though they ask us to follow their framework for “the greatest difference” rather than our own.

Peter Singer, Eric Friedman, and other effective altruism advocates are adding to more than a century of advocacy for scientific philanthropy and strategic philanthropy – giving based in the head rather than the heart. Nonprofits have experienced the result of that advocacy through increased requests for logic models, theories of change, evaluation plans, and evidence-based practices.

But, we humans make very few decisions purely based on logic and reason.

Impure altruism

The Chronicle’s April issue also featured the long story, Scientists to Charities: You’re Doing It All Wrong, and related content. The articles highlighted 20+ years of research into how people make decisions and what motivates our charitable impulse, with a hub of newer research centered at the Science of Philanthropy Initiative. A mix of behavioral economics, neuroscience, psychology, and other sciences has proven that the effective altruists will win few long-term converts.

We are all deeply motivated by impure altruism. We give primarily because it makes us feel good, because we want to feel important, and because we want to appear generous to others. Despite what the strategic philanthropy experts and effective altruists might tell you, these motivations aren’t wrong and it is extremely difficult, maybe unnatural, to set them aside. They are essential parts of our humanness and our need to emotionally connect with and trust others.

At least 87% of philanthropy is driven by individual giving, sometimes through donor-advised funds or family trusts. It is driven first by impure altruism, human values and emotions, fallible thinking, and interpersonal trust. (And trust is already in short supply).

The Chronicle articles provide sound advice for how fundraisers can use the research to improve their communications with donors. They add to the research-based fundraising and communications advice offered by the Network of Good a few years ago in Lisa Simpson for Nonprofits and Homer Simpson for Nonprofits. And they connect with the growing number of popular books on behavioral economics and cognitive biases by Dan Ariely, Richard Thaler, Malcolm Gladwell, Daniel Pink, and many others.

Hey, this applies to you too, foundation staffers

Hold on there, philanthropoids. Philanthropy at foundations and companies is also driven by human beings, with only the occasional robot overlord in charge. It is too easy to dismiss the impact of this research and believe that our academic, management, and grantmaking credentials help us override our humanness. (In fact, research shows the more expertise we have, the more likely we are to fall into some cognitive traps).

We’d be wise to study up on the research cited in the Chronicle and other sources. How could that research improve a foundation’s communications with nonprofits? How could it improve advocacy and public interest campaigns? How could it improve a capacity building effort for key grantees? And, how could it improve internal communications and dialogue between and among staff, board members, and donor family members?

Understanding the drivers of generosity and human irrationality helps us improve our grantmaking and other philanthropic strategies. Our collective humanness informs our organization’s internal culture and the culture of its interactions with customers and partners. And, as management guru Peter Drucker noted, culture eats strategy for breakfast.

Most importantly, how can each of us learn about and fully admit to our own humanness and fallibility? For guidance, we can thank the Center for Evaluation Innovation for How Shortcuts Cut Us Short: Cognitive Traps in Philanthropic Decision Making. This should be a “must read” for foundation staffers and members of grantmaking committees. It helped me uncover and challenge my own faults and watch for them during discussions in grantmaking committees.

We shouldn’t have to give up our humanness to be effective donors or philanthropoids. But, we can definitely use this research, and even the effective altruists’ challenging questions, to grow and evolve as generous people.