Philanthropy’s Odd Relationship with Risk
posted on: Tuesday, September 04, 2012
By Kevin Laskowski
Image: FreeDigitalPhotos.net
Philanthropy has an odd relationship with risk.
First, we encourage each other to take more risks. Derrick Feldman, CEO of Achieve, contended earlier this month that “risk is an unloved word in philanthropy" and called for “a philanthropic marketplace where risk is celebrated, not avoided, and serves to bring us closer to solving some of the biggest challenges we face.”
So we get up the gumption to take some risks, but we’re smart about the risks we take. Although we have some resources at our disposal, we shouldn’t waste them. Ruth Levine, Linda Frey and Paul Brest discuss “The Value of Calculated Risk” in the June 2012 issue of Alliance magazine (subscription only), saying:
“The William and Flora Hewlett Foundation’s Guiding Principles state that the foundation ‘focuses on the most serious problems facing society where risk capital, responsibly invested, may make a difference over time’.
For example, more than a quarter of our annual grants budget supports advocacy for policies to reduce global warming – a strategy where all philanthropy combined has a relatively low likelihood of success, but one that we believe will prevent catastrophic harm if it succeeds.”
There’s a difference between courage and recklessness. For the modern philanthropist, that difference is strategy.
But, then, there’s something funny about a calculated risk: at some point, it’s not much of a risk, is it? In his Bad Words for Good: How Foundations Garble Their Message and Lose Their Audience, Tony Proscio appropriately needles philanthropy’s use of the word “venture” as “an armchair safari for the risk-averse.”
“Today, this pilfered vocabulary might actually be more relevant, and certainly more interesting, if it could regain some of its lost connotations of peril. The fact is that many of the most urgent callings of modern philanthropy entail risks that would make an ordinary business start-up look like a license to print money. The odds of achieving, say, a lasting recovery for a cocaine addict, or steady employment for a person with no experience and few basic skills, or a safe and healthy upbringing for kids in dangerous neighborhoods—now those are ventures, in the chanciest old meaning of the word. In the tired vocabulary of “venture” and “return” and “investment” and the like, it is the genteel, leather-armchair quality that offends. At its best, philanthropy is an adventure, with its first syllable fully intact and all its hazards out in the open. Foundations can accept the risks or avoid them, as they see fit, but hiding them behind a suite of oak paneling gains nothing—except to take some of the fun, and much of the virtue, out of their work.”
Indeed, there’s something funny about a foundation talking about risks, even calculated ones. What hazards do philanthropy executives actually encounter sitting on top of a likely well-managed, diversified endowment and granted wide discretion by the law? The contemporary foundation is largely insulated from the ups-and-downs of the marketplace and politics in a way that many other nonprofits are not. That’s why foundations pay their investment managers more than their CEOs; they face more risks.
Presumed decent or wholly unknown to the public, philanthropy executives are accountable solely to their own distant board members and are not often fired. They leave for another nonprofit or foundation position or retire. Barring something extraordinary, the foundation and its executive will be here tomorrow, just as they were yesterday. If foundations are not at risk, then to what extent can they be said to take them?
After all, even when foundations allegedly pursue the riskiest of ventures, it is likely someone else who bears the costs of failure.
For instance, it seems that at least some philanthropists are too zealous in their pursuit of the new and the untried. Christian Seelos and Johanna Mair, visiting scholars at the Stanford Center on Philanthropy and Civil Society, warn, “Innovation is Not the Holy Grail:”
“First, we found that both long-term evidence from studies of social sector organizations and recent empirical evidence challenge the mantra that more innovation is better. Second, we found that many of the assumptions about innovations in the social sector may be misleading. And third, we discovered that pushing innovation can stifle progress just as much as it can enable it.”
It simply isn’t sexy enough to provide patient, flexible capital over the long-term to well-managed organizations making incremental progress on the truly risky ventures Proscio mentions – battling addiction, unemployment and violence – or to combat climate change or injustice. Never mind that this would actually be taking a risk. Never mind that enough of those little changes would be revolutionary.
No, a venturesome foundation must turn a school district, a university or some other institution upside down and inside out. Why fund change when you can catalyze it? And when the effort falls apart or you simply lose interest, you can move on to the next world-historical venture, leaving others to pick up the pieces while you boast of your willingness to transparently communicate failure from the executive suite you still occupy. If that’s failure, what’s success?
Risk is not "an unloved word" in philanthropy; it is an unloved act. Philanthropy does not confront risks; it shifts them. It does not take risks; it manages them.
That’s not only odd. It’s a shame.
Kevin Laskowski is research and policy associate at the National Committee for Responsive Philanthropy (NCRP). He frequently blogs about trends, accountability and effective practices in philanthropy. He’s a Capricorn.Labels: failure, Kevin Laskowski, philanthropy, risk, strategy
Philanthropy has an odd relationship with risk.
First, we encourage each other to take more risks. Derrick Feldman, CEO of Achieve, contended earlier this month that “risk is an unloved word in philanthropy" and called for “a philanthropic marketplace where risk is celebrated, not avoided, and serves to bring us closer to solving some of the biggest challenges we face.”
So we get up the gumption to take some risks, but we’re smart about the risks we take. Although we have some resources at our disposal, we shouldn’t waste them. Ruth Levine, Linda Frey and Paul Brest discuss “The Value of Calculated Risk” in the June 2012 issue of Alliance magazine (subscription only), saying:
“The William and Flora Hewlett Foundation’s Guiding Principles state that the foundation ‘focuses on the most serious problems facing society where risk capital, responsibly invested, may make a difference over time’.
For example, more than a quarter of our annual grants budget supports advocacy for policies to reduce global warming – a strategy where all philanthropy combined has a relatively low likelihood of success, but one that we believe will prevent catastrophic harm if it succeeds.”
There’s a difference between courage and recklessness. For the modern philanthropist, that difference is strategy.
But, then, there’s something funny about a calculated risk: at some point, it’s not much of a risk, is it? In his Bad Words for Good: How Foundations Garble Their Message and Lose Their Audience, Tony Proscio appropriately needles philanthropy’s use of the word “venture” as “an armchair safari for the risk-averse.”
“Today, this pilfered vocabulary might actually be more relevant, and certainly more interesting, if it could regain some of its lost connotations of peril. The fact is that many of the most urgent callings of modern philanthropy entail risks that would make an ordinary business start-up look like a license to print money. The odds of achieving, say, a lasting recovery for a cocaine addict, or steady employment for a person with no experience and few basic skills, or a safe and healthy upbringing for kids in dangerous neighborhoods—now those are ventures, in the chanciest old meaning of the word. In the tired vocabulary of “venture” and “return” and “investment” and the like, it is the genteel, leather-armchair quality that offends. At its best, philanthropy is an adventure, with its first syllable fully intact and all its hazards out in the open. Foundations can accept the risks or avoid them, as they see fit, but hiding them behind a suite of oak paneling gains nothing—except to take some of the fun, and much of the virtue, out of their work.”
Indeed, there’s something funny about a foundation talking about risks, even calculated ones. What hazards do philanthropy executives actually encounter sitting on top of a likely well-managed, diversified endowment and granted wide discretion by the law? The contemporary foundation is largely insulated from the ups-and-downs of the marketplace and politics in a way that many other nonprofits are not. That’s why foundations pay their investment managers more than their CEOs; they face more risks.
Presumed decent or wholly unknown to the public, philanthropy executives are accountable solely to their own distant board members and are not often fired. They leave for another nonprofit or foundation position or retire. Barring something extraordinary, the foundation and its executive will be here tomorrow, just as they were yesterday. If foundations are not at risk, then to what extent can they be said to take them?
After all, even when foundations allegedly pursue the riskiest of ventures, it is likely someone else who bears the costs of failure.
For instance, it seems that at least some philanthropists are too zealous in their pursuit of the new and the untried. Christian Seelos and Johanna Mair, visiting scholars at the Stanford Center on Philanthropy and Civil Society, warn, “Innovation is Not the Holy Grail:”
“First, we found that both long-term evidence from studies of social sector organizations and recent empirical evidence challenge the mantra that more innovation is better. Second, we found that many of the assumptions about innovations in the social sector may be misleading. And third, we discovered that pushing innovation can stifle progress just as much as it can enable it.”
It simply isn’t sexy enough to provide patient, flexible capital over the long-term to well-managed organizations making incremental progress on the truly risky ventures Proscio mentions – battling addiction, unemployment and violence – or to combat climate change or injustice. Never mind that this would actually be taking a risk. Never mind that enough of those little changes would be revolutionary.
No, a venturesome foundation must turn a school district, a university or some other institution upside down and inside out. Why fund change when you can catalyze it? And when the effort falls apart or you simply lose interest, you can move on to the next world-historical venture, leaving others to pick up the pieces while you boast of your willingness to transparently communicate failure from the executive suite you still occupy. If that’s failure, what’s success?
Risk is not "an unloved word" in philanthropy; it is an unloved act. Philanthropy does not confront risks; it shifts them. It does not take risks; it manages them.
That’s not only odd. It’s a shame.
Kevin Laskowski is research and policy associate at the National Committee for Responsive Philanthropy (NCRP). He frequently blogs about trends, accountability and effective practices in philanthropy. He’s a Capricorn.
Labels: failure, Kevin Laskowski, philanthropy, risk, strategy
posted by Kevin Laskowski at
3:00 AM
2 Comments:
Thanks, Kevin! There's no real risk financially--there's still a billion bucks in the bank, and if anyone suffers, it's the next applicant who won't get a grant. Presumably, however, there's a risk to reputation--that the foundation looks unwise if a big grant fails. But even that is primarily true for community foundations, who have to go back out and ask for more money. For those of us in private foundations, there is no real risk of embarrassment--even when whole strategies tank. When is the last time you saw an article decrying the misguided new strategic direction of a funder? Even if it seems the whole community knows better? This should be terrifically liberating--we can try to fly without fear of gravity!--but instead we cast even the most interesting failures as successes afterall.
By
PO Confidential, at 1:25 PM
Thanks for commenting. A program officer blogging anonymously! Terrific. I'll be reading.
The discretion should feel "liberating," but something seems to hold foundations back. I don't know what it is, but I think it's important for foundations to deal with it. I think people expect - and we should expect ourselves - to, as you say, "fly without fear of gravity." If we don't, people will wonder what the wings are for.
In a follow-up post, I wrote today, "Philanthropy’s privileges are rightly tied to its willingness to accept and confront risk. Philanthropy must renew its courage or risk its independence."
By
Kevin Laskowski, at 10:10 AM
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