risk

Revealing Risk in Philanthropy – part 2

Last fall, I started researching the topic of risk in philanthropy for a conference session. I wrote a post soliciting feedback on the topic and cited a couple of the resources I’d found useful.

Some of the best thinking I’ve found comes from the team at the Open Road Alliance. Philanthropist and psychologist Laurie Michaels, Ph.D., founded Open Road to “fill a market demand for fast, flexible contingency funding in the philanthropic sector.”

In addition to its grant and recoverable grant programs, Open Road helps nonprofits and funders think about:

  • Risk mitigation – better forecasting, planning, and budgeting for risks that can be predicted and tamed. These would include strategy risks, implementation risks, and organizational culture risks.
  • Contingency planning – creating scenarios and contingency plans for external risks, the factors beyond an organization’s direct influence or control.

Open Road’s newest publication is Contingency Funding in Philanthropy. It describes the results of a survey which asked 200 nonprofits and 200 funders how they dealt with contingency funding – the need for additional money related to unforeseen disruptive events during the lifetime of a grant. Four highlights from the report include:

  1. About 1 in 5 nonprofit projects require contingency funding to help deliver their anticipated results on time and with the full impact desired. The disruptive events they faced didn’t include natural disasters, but did include such challenges as costly shifts in government regulations and a critical infrastructure failure.
  2. Funders think grantees can easily find contingency funding other places should the funders decline a request. However, most nonprofits end up having to use their savings, take on debt, and/or reduce the impact of a project.
  3. Only 35% of the funders had a policy for managing off-cycle requests for contingency funding, and it was often unclear to nonprofits that they could apply for contingency support. Even if nonprofits thought that contingency funding was available, they often did not feel comfortable asking for it.
  4. The surveys verified Open Road’s central premises – too few nonprofits and funders have policies and practices in place to deal with risk (especially external risk) and too few have honest, open conversations about risk.

The disconnect between nonprofit and funder expectations isn’t a surprise. Those honest, open conversations require a high degree of trust between the funders and nonprofits. However, not many foundations devote the time and human resources it takes to build real trust and make a dent in the power imbalance between funder and fund requester. And, I can’t help but wonder if the declining amount of trust between people and in institutions is also slowing damaging opportunities for conversations about risk.

Open Road has a couple of other reports useful to funders and nonprofits:  Risk in Philanthropy has practical guidance on risk mitigation and contingency planning, and Project Risk and Impact has a longer case study on risk assessment and mitigation in an international health nonprofit.

Tune in next time…

As a follow-up to the fall 2015 conference session, the National Center for Family Philanthropy invited me to write a longer Issue Brief on the different types of risk in family philanthropy. That publication will only be available to NCFP subscribers and Friends of the Family. But, in my next blog post, I’ll describe an overview graphic I created and a few other key ideas I ran across in my research.

 

A Profusion of Philanthropic Prognostication

The turn of the calendar to a new year inevitably brings a slew of predictions for what the new year will hold. The philanthropy and nonprofit sectors aren’t immune to the pull of the prognosticating pundit. In the past 30 days, I’ve read these pieces (in approximate chronological order):

So, were there any trends to the trends? Yes, a few that weren’t surprising:

  • The rise of alternate forms of doing social good – LLCs, B Corps, impact investments, and more
  • The increasing impact of mega-wealthy philanthropists and their willingness to be activist givers in number of issues
  • Opposite to mega-philanthropy, the broadened use of social media and online tools to engage large crowds of everyday people in giving and activism
  • Increasing attention to “effective altruism” and other philanthropy driven by metrics and impact analyses
  • The potential of increased scrutiny of the philanthropic and nonprofit sector, more likely by state regulators and the public than by the IRS and Congress
  • Public and political debates about tough issues carrying over to the nonprofit sector and philanthropy, including about racial equity, inequality, gun control, climate change, and campaign finance and voting reforms.

Of course, you could choose to ignore the predictions. Phil Buchanan, President of the Center for Effective Philanthropy, tweeted

 

Unfortunately, the sector lost one of most thoughtful (and occasionally aggravating) journalists and trend trackers, Rick Cohen. He was a long-time writer for Nonprofit Quarterly and former executive director of the National Committee for Responsive Philanthropy. His predictions for 2015 are still issues to watch in 2016.

Did I miss any predictions for the nonprofit and philanthropic sectors?

Colorado mountain skyline

Is the Value of Place Declining in Philanthropy?

All of us walk around with default lenses through which we view the world. The lenses are created through our experiences and relationships, the communities and cultures in which we’re raised, and more. When we’re at our best, we’re able to separate when those default lenses provide helpful perspectives and when they limit our thinking.

One of my primary default lenses is the importance of place. Until I went to college, my family and most of my cousins lived in the same county in Indiana. My parents, grandparents, aunts, and uncles were all active volunteers in local civic groups. The first 19 years of my professional career were focused on improving places, first through the State of Indiana’s community economic development department and then through the Central Indiana Community Foundation. The majority of the donors I worked with at the foundation focused on giving back to their hometown(s). And so far, most of my consulting clients have been focused on place.

The philanthropic sector is filled with associations focused on improving place – Grassroots Grantmakers, Neighborhood Funders Group, Aspen Institute Roundtable on Community Change, Project for Public Spaces’ Funders Forum, and many more. And associations focused on issues such as education, arts, and the environment talk about much of their work through the lens of local communities.

This philanthropic focus on place – and on hometown – is likely declining.

One window into this decline comes from the new 2015 Trends Study* by the National Center for Family Philanthropy and Urban Institute. This statistically valid survey showed that 66% of family foundations currently focus their grantmaking on geographic locations. Their mental lenses are more about place than issue. However, younger foundations are less focused on place than older ones. Only 40% of foundations formed since 2010 focus their grantmaking on place, compared to 78% of foundations formed before 1970. This difference is magnified by the fact that almost 70% of family foundations launched in the 1990s and 2000s.

Bar chart of family foundation focus areas

 

The survey didn’t ask the reason for focus on place versus issue. NCFP and the Urban Institute wrote in their report:

Possibly younger family philanthropists are less tied to place than are their older peers because they have grown up in a more interrelated and global economy. At least for now, issues seem to capture their attention and philanthropic support more than does a place-based approach.

And the authors posed two questions for ongoing consideration:

Is the move toward funding issues solely a result of newer foundation motivation and behavior? As families move beyond the first couple of generations, will family dispersion—combined with a need to find common ground—lead to even more issue-based giving among older foundations?

Earlier this year, Emmett Carson, CEO of the Silicon Valley Community Foundation posed a related challenge to the community foundation field in 21st-Century Community Foundations:

The shifting definition of what community means is creating a profound identity crisis for place-based institutions including community foundations.

He credits the shift in the meaning of community to two trends:  the increased mobility of Americans (more of us are living in more locations over our lifetimes), and the increased use of technology to maintain vibrant, non-geographic communities based on nationality, ethnicity, gender, and interests and issues.

The Monitor Institute issued a similar challenge in 2014 in its Shift Happens report for community foundations, a report that is equally useful to family and private foundations. In addition to the trends Carson cited, the Monitor Institute noted the potential impact on philanthropy of:

  • The new majority – by 2043, whites will no longer be the majority in the U.S. The philanthropic practices of immigrants and people of color are seen in the increased number of racial/ethnic identity-based funds and the growth of remittances sent back to home countries.
  • Millennials – the largest generation in U.S. history currently focuses its giving more on causes than organizations, and that giving often channels through crowdfunding platforms, instead of through nonprofit online donation pages, and to recipients that aren’t charitable organizations.

The three reports all provide evidence of decreased philanthropic focus on place over time. But I wonder if that shift is more about a decreased focus on a shared sense of hometown within a family or group.

Opinions ahead…

Even as I attempt to set aside my own default lens, my sense is that place is an important part of most people’s identities. People express a passion for place through efforts to “buy local” or support neighborhood businesses through crowdfunding campaigns. They participate in corporate volunteer days at a local park or community center or volunteer through their congregation at a local shelter or food bank. They advocate to their friends to join them in supporting the local music scene or local food movement. Place can be a compelling cause, even if it isn’t a primary driver of a family’s charitable giving.

And, younger generations might be delaying their philanthropic connection to place. Perhaps they’ll be more likely to give and grant in a community in which they’ve raised their kids, built their own business, or enjoyed an active retirement. When I worked for the Roy A. Hunt Foundation, its fourth generation of trustees were ages 21 through mid-30s. Only two members of that generation lived in the founder’s and foundation’s hometown of Pittsburgh and few had settled down for the long run in any community. Perhaps in another 10 or 20 years, their patterns of giving will combine issues and places.

I’m now living in my third metro area after leaving the county in which I was raised. (The picture at the top is the view from my current place in Colorado). Along the way, a portion of my own philanthropy has shifted to each new geography, driven by the importance of place in my own values. The NCFP and other reports give me the sense that I may be more of an outlier in my giving as time goes on.

How about you? Are you seeing trends in giving and grantmaking that are focusing less on place?

 

* Full disclosure:  I served on the advisory committee for the NCFP 2015 Trends Report.