I’ve been engaged in a lively online discussion with John MacIntosh of SeaChange Capital Partners and Sean Stannard-Stockton of Tactical Philanthropy on the intriguing subject of “Burning Bridges to Make Venture Philanthropy Work.” John recently responded to my suggestion that perhaps nonprofits and their funders could become more accountable and disciplined through purposeful collaboration:
My thought exercise was about the merits of “unilateral bridge burning” as a strategy to tackle problems of commitment and self-control in the absence of market forces. But you make a good point: entering into a “collective” could be equally effective (e.g. AA) and more psychologically plausible than going it alone. However to be effective such a “collective” needs be long-term and difficult to exit, must require that each participant give up some rights by ceding important decisions to “the group”, and must serve as a shared space of trust where people (or institutions) can candidly debate, discuss and declare their “public reasons” for a particular course of action (think Rawls or Habermas). My suspicion is that most funder “collaboratives” have none of these characteristics (let alone all three) and those that do were created through external pressure (like the SIF?). I hope I’m wrong.
I don’t think John is wrong about traditional ingredients for effective collectives, including long-term commitments, at least partial relinquishment of independence, and high levels of trust. However, I do think that other approaches are possible, and might be more conducive to productive collaborations among independent organizations seeking to work together without any kind of compulsion.
As many of you know, Ken Berger has been leading a heroic effort at Charity Navigator to reform CN’s outdated rating methodology, which has been the subject of heated and often justified criticism long before Ken’s arrival in 2008. On July 1, 2010, CN took the first big step forward by launching its “accountability & transparency” rating, which, as the site explains, focuses “on how the charity reports publicly – both on the IRS 990 and on its web site. We consider in our methodology whether the charity is making easily available, information regarding its governance practices, ethical practices and financial information.” Although it will take about a year to run through all 5,500 charities that CN rates before the accountability and transparency dimension can be factored into CN’s star-rating system, CN’s small but hard-working staff has published information on how 393 nonprofits did on the new methodology. This is a great development (in which I was involved as Advisory Panel member and CN consultant.)
CN hopes to revise and expand the financial dimensions of its ratings systems by the end of the year, and, in 2011 or 2012, incorporate the holy grail of “effectiveness and results” into its methodology that will weigh independent evidence of performance, not just self-reporting. When CN completes this work, it will have a three-dimensional rating system -- financial strength; transparency and accountability; and effectiveness and results -- that will finally enable CN to become the simple and complete “guide to intelligent giving” that donors and nonprofits alike so desperately need.
At the same time, fixing CN’s rating system will not, by itself, transform the nonprofit capital marketplace into a mechanism for guiding more money to the most effective charitable organizations. As I show in my book, there is almost no connection between funding and nonprofit performance: good nonprofits don’t raise more money and weak nonprofits don’t raise less, because fundraising is based on building relationships and telling engaging stories about what nonprofits are trying to do, not what they accomplish. (New Philanthropy Capital has just released an outstanding paper on this subject, “Talking About Results.”)
There are many reasons for the disconnection between funding and performance, none of which include laziness or ineptitude by nonprofits. Collecting and reporting meaningful and useful information about nonprofit accomplishments is difficult, time-consuming and expensive, and funders typically won’t pay for such efforts or the expertise required. When I began writing my book in 2005, the idea that charitable funding should recognize and reward strong performance was a foreign concept to all but a few forward-thinkers such as Clara Miller and George Overholser at Nonprofit Finance Fund, Paul Brest at the Hewlett Foundation, Martin Brookes at New Philanthropy Capital, Lucy Bernholz at Blueprint Research, Mario Marino at Venture Philanthropy Partners, Bill Shore at Community Wealth Ventures, Andrew Wolk at Root Cause, and Katherine Fulton and Andrew Blau at Monitor Group. (Apologies to anyone I omitted from the honor roll.)
There is now a growing consensus that social progress will be held back until nonprofits can attract greater and more sustainable funding by the simple act of accomplishing their objectives. As I put it in my book (with no small amount of jargon that I explain in plain English in the book), “We need a financing system that helps highly-engaged social impact investors to direct third-stage growth capital to the best mid-cap nonprofits, instead of one that forces those nonprofits to spend all their time looking for more drops to fill more buckets.”
Charity Navigator’s expanding rating methodology will become an essential part of this emerging performance-based nonprofit capital market, but it will not be the case that (unlike the movie, Field of Dreams) “if you build it, they will come.” As Hope Consulting’s recent study shows, almost no donors conduct comparative research to inform their giving decisions. Although CN’s three-dimensional rating will make it immeasurably easier for donors who want to maximize the impact of their donations to do so, performance-based philanthropy represents a massive change in social behavior akin to civil rights and public health campaigns. Merely providing new tools will not change long-held habits overnight.
I believe that collaboration will be a critical ingredient of shifting the paradigm and it is something that the social sector is much better at talking about than actually doing. Katherine Fulton and Andrew Blau have presciently observed that “philanthropy itself is not a system”:
“Individual institutions and givers in philanthropy are not in any sense reliant on one another; they exist independently and can act without much reference to what others do. Thus, there is no system where actors must respond to one another, adapt to one another, or learn from one another. This is not to say that donors and foundations don’t relate or learn from one another at all. They do, but only to the extent that they choose to. And they also compete with one another — for ideas, reputation, and credit, which can discourage the free exchange of ideas and lead to fragmentation of effort and isolation.”
It would be an understatement to say that these are not the ideal circumstances for successful collaborations. But they are a reality that must be accommodated in any serious efforts to accomplish what groups of organizations can do working together rather than on their own.
In the case of Charity Navigator, Ken and I realized that CN’s new methodology was necessary but not sufficient for a more performance-driven kind of philanthropy, and that CN did not have the horsepower to move the needle of donor behavior by itself. Thinking about what it would take to shift donor thinking toward supporting nonprofits that could demonstrate their effectiveness, we started talking to a number of respected colleagues who were addressing similar challenges and had developed approaches and assets that we thought could help the cause.
The response was tremendous, leading to the formation of something we call “CN 2.0,” a planned collaborative online platform for intelligent giving “dedicated to the proposition that if donors become well-informed, good nonprofits will get more money.” CN enlisted six “best-of-breed” partners: Keystone Accountability, Philanthropedia, New Philanthropy Capital, GreatNonprofits, Growth Philanthropy Network, and GiveWell. The Hewlett Foundation (via Paul Brest and Jacob Harold) and the Fidelity Charitable Gift Fund (via Cynthia Strauss) have provided both generous financial support and encouragement.
In order to get this thing off the ground (which remains in the planning and seed funding stage), we needed to actively engage the partner organizations, all of which had very full plates before CN 2.0 came along. Without any initial funding by which to purchase their affections, we needed to find a way of enticing these busy organizations to spend uncompensated time with us to develop the concept and build the platform.
To make an already too long story a little shorter, we basically took the opposite approach from the one that John MacIntosh offered above, at least regarding the need for the partnership to “be long-term and difficult to exit, ... [and] require that each participant give up some rights by ceding important decisions to ‘the group’.” On the other hand, we did fully embrace John’s thinking that the alliance “must serve as a shared space of trust where people (or institutions) can candidly debate, discuss and declare their ‘public reasons’ for a particular course of action.”
Ken and I circulated a “letter of intent” which all of the parties were happy to sign (copies of which are available upon request), which set forth “what we hope to accomplish and how we propose to go about it”:
1. We all agreed on a shared purpose to “advance social progress by helping more effective nonprofits grow” by helping “individual donors, who provide roughly three-fourths of all private charitable donations, to find and fund nonprofit organizations that will make the most productive use of their philanthropy.” We stated our belief that “our collective efforts to promote and even universalize informed social investing can guide sizeable amounts of funding to more effective nonprofits and ‘move the needle’ of social progress to an extent that isn’t currently possible in today’s highly fragmented nonprofit capital market.”
2. So that everyone would clearly understand the scope of the undertaking, we summarized the basic parameters of the project in a detailed attachment entitled, “A Growth and Collaboration Plan for Guiding Individual Donations to More Effective Nonprofits.” In brief, we proposed combining “(1) the best available data about the finances, accountability & transparency and effectiveness & performance of charitable organizations with (2) cost-effective and timely analysis of that data, and (3) distribution of that data and analysis as widely as possible.”
3. We also made clear that this was a risky and uncertain venture: “we acknowledge that the pathway to success is far from clear, and that experimentation and trial and error will be the order of the day. We believe that our partnership can develop affordable and practicable approaches that will not allow the perfect to become the enemy of the good, and provide a unique environment in which many of the most promising ideas for expanding social innovation can flourish.”
4. We considered it imperative that the group be governed by operating principles of mutual benefit and open decisionmaking: “CN 2.0 is designed to be a collaborative and consensus-driven alliance of equals, all of whom recognize the complementary value and expertise that the other partners bring to this effort. Charity Navigator is committed to advancing the brands and market positions of the partners in the course of this project.”
5. At the same, we wanted to make real progress, so we created a collaborative governing structure consistent with the operating principles: “CN will take the lead on coordinating the efforts of the collaboration, and Steve Goldberg will serve as CN’s Project Lead (as an independent consultant) to keep our efforts productive and on track. Decisions will be made through consensus to the greatest extent possible, with the objective of enhancing the value of the collaboration to all partners. At this point, all CN 2.0 business models are ‘TBD’.”
6. We did not want anyone to worry about whether the agreement would create potential legal risks, so the letter was drafted as an expressly non-binding “expression of our collective interest in collaborating on CN 2.0 and making it a strategic priority for our respective organizations.” We made clear that any participant was free to leave at any time, that our partnership would be “a voluntary alliance of separate and independent entities that doesn’t confer any rights or impose any obligations of any kind,” and that “nothing precludes any partner from engaging in any work on its own or with others, and we acknowledge that all of us are currently involved in related and potentially overlapping collaborations.” There was additional verbiage (I used to be a lawyer in a former life ...) about intellectual property rights, investment risks, “non-recourse” (i.e., no lawsuits), and a commitment that “We will work out any disagreements as professionals” with “appropriate professional courtesies of prior consultation with the others.” We acknowledged that, at some point, “it might make sense to negotiate a formal legal agreement that would create contractual rights and responsibilities, but we agree that would be premature at this time.”
We’re a long, long way from being able to say that CN 2.0 has accomplished anything worthwhile, but we do think this collaborative model has significant potential across the social sector for organizations looking for ways to work together without becoming distracted by side issues.
Steve,
ReplyDeleteThis is a very comprehensive post indeed on the future of nonprofit financing and collaboration. It's my hope that as you develop this, efficiencies will be further imbibed in the daily processes of nonprofit organizations.