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The Future of Philanthropy: Innovation, Networks, Thought Leaders and the Fringe
Alex Steffen, 4 Jun 07
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Last week, I had some great conversations, sitting in the sun on a hillside deck on Vancouver Island, talking about how we might better fund the changing of the world.

I was there to speak to the annual meeting of the Canadian Environmental Grantmakers' Network. They'd asked me to come share some thoughts about how we might better use philanthropy to fuel innovation for sustainability.

It's a subject that's been on my mind. In the last year, I've found myself speaking with more and more people who either work for large foundations or for wealthy individual philanthropists (or, even in a few cases, with those "extremely high net worth individuals" themselves). In part, to be blunt, this is because we've been trying to raise some money for Worldchanging (yes, we are a non-profit, and welcome your donations). That hasn't been an entirely successful effort, I'm afraid. But I've also been talking with a lot of people engaged in philanthropy because many program officers have great radar: they track all sorts of little-known people and projects for their jobs, and often have great tips for stories. Finally, the subject of philanthropy itself is something we cover here, and we have been trying to learn more about it so we can cover it in a more worldchanging way.

All this has lead me to hold some new views, and perhaps more importantly, some new questions, and I thought some of you might be interested in seeing some notes about my thinking. This is not a polished essay, but rather a slightly clean-up transcription of some ideas I jotted down at CEGN and, a couple weeks earlier, the Council on Foundations meeting. I hope it may offer some utility in any case.

Good philanthropy, it seems to me, funds innovation that would otherwise never emerge, and supports action where none would otherwise be taken.

Not all good works require philanthropic support. Some are the proper role of governments. Some can be provided through businesses, or social-benefit organizations run like businesses. Some can be produced through commons-based peer production. The majority require no organization or planning at all: they are simply the things good people do for other people in the course of daily life -- watching their kids, sharing food with them, listening to them when they are in distress, sharing an idea or a story with them. The vast majority of the work that keeps our societies together is not underwritten by philanthropists.

That said, there are certain key tasks which are extremely unlikely to turn a profit (so business won't support them), not amenable to peer-production, beyond the capacity of average people to do casually in daily life and are too risky or controversial for governments to effectively support. What's more, we know that as our need for innovation and innovation diffusion increases, these tasks grow more crucial. Indeed, much of the thinking, creativity and communication most needed to solve big planetary problems can only be funded through philanthropic effort, for it requires a combination of public-mindedness, vision and risk-taking found only in the work of great philanthropists (of whatever means).

But all is not well in the world of giving.

Philanthropic organizations have never had more money, sure, but there is a growing (if rarely spoken) consensus among the smart set in philanthropy that these organizations, and many major donors, don't really know how to react to either the new kinds of needs they're seeing, or the new opportunities with which they're presented.

I certainly don't have the answers, but here are the questions, as I see them:

1) Hunting the Fringes

How do you find and encourage innovation?

It is nearly a truism that innovation comes from the fringe of any field, out where strikingly new thinking is taking place -- as Thomas Kuhn put it in The Structure of Scientific Revolutions, ideas must be "sufficiently unprecedented to attract an enduring group of adherents away from competing modes" of thought, and those kinds of ideas don't emerge by tweaking slightly the established conventional wisdom.

This creates some difficulties for philanthropists who wish to support worthwhile innovation. Not least is the fact because the frontier of knowledge is advancing so quickly (in terms of sustainability and social change), most people who give away money are increasingly forced to rely upon the judgment of others when making their decisions, and those others, especially if long-established in a field, have a tendency to resist new ideas which might clash with their own and work (however unintentionally) to aid their proteges and colleagues, even to the detriment of more meritorious outsiders.

So, the first challenge is, can we find truly innovative thinkers without going through the established experts, or can we create a mechanism through which the conflicts of interest those experts have can be filtered out?

Stewart Brand, in his obscurely famous 1971 Destination-Crisis Paper for the POINT Board of Directors (you can buy it in old editions of this book) where he proposed that the answer to the question, "What is most worth doing now?" is probably only something that can be discovered by individuals who move between disciplines and across fields and among various factions and tribes -- people who we might call circuit riders.

I suspect there's something to this idea. If we want to learn what's on the fringes that might be worth bringing to the core, we need to go spend time out on the fringe -- better yet, we need colleagues who live there, who share the strange obsessions, hothouse fads and passionate convictions of those who spend all their time thinking about what's next and how to make it cooler. Most of us are not those people, but even so, there is an astonishing lack of fringe-dwellers in much of the philanthropic world.

In part, this is because innovation, though now widely seen as absolutely fundamental, is not native to the mindsets of advocacy and charity. As an oversimplification, both are much more interested in doing more than in doing better. There is a quality of certainty in the minds of both effective activists and do-gooders which motivates action by suspending debate about possibility: they want to feed the hungry or end animal testing now, not debate the future of the food system or medical research.

I won't speak poorly of people who are living out their convictions, as long as they respect the liberty of the rest of us to live out ours, but both activism and charity as currently practiced run up against a regretful reality: it is likely that no amount of doing what we're doing now will save the planet or ourselves. And, in reality, we have a quite limited ability to support good work, so the chances of planet-wide success doing what we are doing now is, well, nil.

We do not yet know how to build a sustainable society, eliminate poverty, bring democracy and human rights to all, or even how to feed everyone properly and well. We're learning, certainly, but not fast enough. Learning more quickly is an imperative, it seems to me, that outweighs almost all our other needs and causes.

That means, then, that philanthropic institutions need to ask themselves: how do we connect with the fringes? How do we find and fund ideas which are "sufficiently unprecedented?"

I don't know, but I expect it'll take some bold leaps on the part of institutions which have been better known for risk-aversion: willingness to hire people whose backgrounds are diverse, even eccentric; to gamble serious money on explorations which might return real but intangible gains in knowledge; to spend money on things which don't return a conveniently reportable deliverables, like citizen media, learning journeys, unconferences and network-building.


2) Feeding the Network

We live in an era where change is powered by networks, of course, but we don't yet live in an era where networks are funded by philanthropists.

There's a tendency on the part of funders to view networks as a sort of free good, something that just happens on its own and needs no help. That's too bad, because the best small networks I know are not financial epiphytes, growing without resources, but rather groups of people who do a lot with very few resources, or with means borrowed or stolen or subverted from other purposes. Almost all of them would benefit from more resources, more staff time, more ability to invest and pursue. It's not that they don't have roots, those roots are just hard to see, and they could always use a little more mulch.

That isn't to say that we really know how to fund networked action most effectively. Again, it would seem that we need a bunch of experimentation, a bunch of trial and error and evolutionary process to answer some complex questions, like "What is networked leadership, and how do we promote it?" "How do we support network-focused intellectual efforts?" "How do we promote member-centric models of activism?" Or even, "How do we make sure the tools groups in the network are using will work together?"

Then, too, there are the structural questions. How do we encourage existing groups to play the fringes where the audiences for specific groups and causes blur together? How do we break the zero-sum game where most NGOs assume (for some understandable reasons) than another group's feast means their famine, and thus all incentive for sharing real innovation is lost?

We are still far from good answers to most of these questions, and while some truly excellent folks are out there working on them, the sad trend has been for both foundations and large NGOs to treat networking (both in its technological and social senses) as a subset of conventional organizing and/or fundraising (rather than as a different model altogether), and thus to simply hire "professionals" in these fields who claim to be experts on the subject and pay them large amounts of money for the shallowest of thinking. Honestly, some of the stories I've heard of waste and cluelessness are mind-blowing.

For while I don't know that answer to these questions, I do know one thing: if your consultant returns with a proposal that recommends adding some geegaws -- a discussion board, an email newsletter, a Care2 page -- on to your current operations, fire them and spend the money on some 22 year-olds with some coding skills, crazy ideas, lots of friends and the caffeine shakes. Then do what they say.


3) Acknowledging The Elephant of Age

Youth in the environmental movement -- or rather the lack of it -- brings up another set of questions. Why have traditional activist NGO groups been aging so rapidly? In some cases, I've been told, the memberships of environmental NGOs are aging almost one year per year... a figure worth thinking about. Why are fewer and fewer younger people formally joining groups, giving official donations and participating in the rituals of civic life? Why do activist NGOs seem so lame to them?

Could it be because they are? We've written plenty before about the limitations of the current model of professional activism -- the tendency to reduce participation to writing checks and one-click actions, the reduction of complexity to promote attention-grabbing campaigns, the abusively low pay and bad working conditions, the lack of transparency, the ossification of their leadership, boards and donors... the list could go on and on, but it all adds up to a broken model, one which feels by today's cultural standards exploitative and opaque, not to mention boring and powerless to make real change.

And younger people are voting with their feet. Most of the people I know -- and we're talking folks with a deep, life-long commitment to social change and sustainability -- no longer send membership checks to activist groups, except (as in my case) a handful supported as much for sentimental reasons as anything else. Many of the smartest people I know are leaving the NGO world and academia to work in business, tech or socially-entrepreneurial start-ups. That's where the action seems to be.


4) Investing in Worldchanging People

Which would be fine, except, again, that certain kinds of innovation are unlikely to emerge from those fields. We need good, effective NGOs and public-benefit innovation. That means we need to think about how to bring in those incredibly bright people who have the skills and inspiration to create change but are not interested in "movement discipline," especially when that discipline seems mostly to serve the institutional aims of an organization (which only sometimes overlap with its public mission). I think funders increasingly see this, and want to figure out ways of addressing it.

I suspect that the answer is to be found in figuring out ways of supporting the work specific individuals outside of the context of standard non-profit employment, or inside skunkworks-like operations within existing non-profits, or supporting the creation of start-up incubators and epicenters. I suspect it means that funders start to see "capacity-building" as something which applies more to people than institutions. I suspect it means that funders and board members demand that NGO leaders let their younger employees have more room to run, more space to innovate.

I'll admit this is a data-free speculation, but I suspect that were the sustainability movement to pursue these kinds of approaches, we might find that our NGOs and networks become more enticing to younger people.

I think we're seeing this already on the web. Independent and entrepreneurial nonprofit and public benefit sites like Worldchanging, Grist, Real Climate, SciDevNet, Global Voices, Smart Mobs and other blogs, webmags and online communities are where the action is in the sustainability movement, in terms of energetic, youthful and engaged audiences. Yet the budgets for all of these efforts put together would be, as Denis Hayes said of our own meager finances, "a rounding error for most large nonprofits." Obviously, I'm biased, but I do think that these sorts of efforts can not only be cultivated and fed, but that similar efforts can be made in all manners of enterprise. On the web, the start-up costs are low, the model (at least now) fairly clear and the visibility high (millions of people have read Worldchanging), but with the right combination of funding and vision, I think the formula could be replicated, and I hear a lot of interest in doing just that.


5) Finding Our Allies

Ironically, one of the biggest complaints I've heard from the people I've been talking with about this stuff over the past year or so is that they don't have anywhere to go to talk about this stuff.

It seems strange to me, but a shockingly high percentage of the really smart people I've met in the funding world feel powerless to discuss innovation within their own organizations. People keep telling me that however welcome they may be to introduce new ideas within the existing frameworks, practices and expectations of their organizations, raising questions about innovating those frameworks, practices and innovations themselves is frequently unwelcome. Their bosses and board members profess a strong desire to find and support innovation, but then purse their lips when innovative methods for doing that are proposed. Not all, of course, and not universally, but enough that I have been surprised. (That, for instance, has been a very frequent response to the idea I raised of organizations reporting their philanthropic footprints: I'd love to, but my board would never go for it.)

I don't know the answer to that conundrum, either, but I expect, again, that it might take a willingness to experiment with some real money, while promoting the network and giving talented individuals more room to run. I wonder, for instance, what might happen if a group of large foundations got together, pooled a bunch of money and some energetic staff members, and consciously tried to give it away in the most innovative and challenging ways possible? Not the ways that would produce the most measurable deliverables, but simply in the ways that would let them learn the most?

Because learning, and learning quickly, should be what it's all about.

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Comments

Thanks for sharing this, and may you always feel allowed to speak your mind.


Posted by: Jonathan Pfeiffer on 4 Jun 07

I would add another imponderable -- how to price risk in philanthropy. In business, it's clear how to trade risk for return, something that underpins modern financial theory for the largest corporations as well as for the venture capitalist.

No such framework exists in philanthropy, although one can consider the debate of the Gates Foundation (find the cure) versus the "more nets please" crowd as a representation of different stakeholder's attitude to risk.

If we want more innovation, we need more risk. That is, we won't get more innovation we won't get it without changing the attitude to risk inherent in philanthropy. We need big ideas, big risks, lots of little budgets rather than a few big budgets, lots of failures, and a culture that celebrates the learnings from those failures to move forward.


Posted by: Tom Arnold on 4 Jun 07

That's a really good point, Tom.

Anyone got ideas for how risk/reward in philanthropy might be intelligently parsed?


Posted by: Alex Steffen on 4 Jun 07

Maybe only tangentially related, but it seems like the distinction between philanthropy and charity could be clarified for framing conversations and "branding" different organizations.

Admittedly, that's a subjective matter that wouldn't lend itself to complete convergence. But I suspect the discussion could untangle some concepts that are routinely conflated. I also wonder if both innovation and risk vary enough in different contexts that the semantic splitting of hairs would be constructive.

(If this has been settled or discussed thoroughly elsewhere, I'd be interested in any pointers!)


Posted by: David Noble on 5 Jun 07

Thanks Alex, very interesting. I will echo your observations that foundations are not generally excited to fund networks and other "connective tissue" that supports the non-profit/grassroots community. I pilot the Orion Grassroots Network, 1000+ groups that are various in their form and focus, I work to make their jobs easier while sharing ideas/tools with them both towards helping them innovate to aid their missions and also in understanding of how their work fits into the big picture of this massive movement we see afoot working for both people and planet. Foundations are often much more focused on finding the direct connection to a group which can achieve a measurable result on an issue, rather than funding movement capacity building. As you'd surmise, that's a missed opportunity, to my mind: supporting networks results in a greater good, and many more groups benefiting for a single donation.


Posted by: Erik Hoffner on 5 Jun 07

I couldn't agree with you more about the value of investing in innovation. For me a 'world-changing' idea is one that could fail!

Have recently been dreaming up a way to help philanthropists engage more explicitly with risk, and with networks (which act a risk mitigator).


Posted by: Menka Parekh on 7 Jun 07

Spot on but what next? How do we make philanthopists part of the networks? Can philanthropy become more of an engaging experience? Will philanthropists ask and seek more than just writing a cheque and feeling good? Perhaps when we all see ourselves as potential (micro) philanthropists rather than donors or part of fundraising rounds, whatever our income bracket it will open up the field to new ways of engaging wiht causes....from big Bill Gates downwards


Posted by: Owen Jarvis on 7 Jun 07

Here is an idea that captures innovation, networks, thought leaders and the fringe. It could empower all peoples to build a better world.

I call the idea a Democratic Charitable Trust. It is most easily understood as an online democracy where members vote on the dreams of others; a dream machine.

How it Works:

The idea is to create a web site that allows people to join a global online democracy. The fee to join the democracy is whatever amount you choose to donate; however, your donation represents your democratic voice. Each dollar donated into a trust account gives you a vote in that democracy. As we roll through time members express their fondest wishes and a review and voting process would percolate the best ideas to the top. There would be an annual or fixed time when the polls open and close on a set of ideas and the top ideas would then get funded.

The theme is ‘impeccable’. The institution operates at arms length from all the monetary transactions. A portal would be created to funnel donations directly to investment institutions; when a member donates money, they choose a mutual fund. The institution also operates at arms length from the projects it initiated. When a project is approved, it is put up for tender to the public and competing proposals are presented back to the members that sponsored it. An independent audit/actuarial function would operate across all charities to ensure the integrity of the individual charities and the projects within.

The ideal solution would provide a reusable framework for the implementation of “Democratic Charities”. In a sense it is open source, the charter would grant free licenses to any organization that agrees to abide by its rules. The architecture/main web site would provide a cohesive view of all the individual causes/institutions or ‘Democratic Charities’ that participate. Each democratic charity would operate as a standalone implementation, something as big as a global disaster relief site could operate in the same manner as a local high school football team

Because they are charitable trusts, it is the interest earned on donations that are used to realize people’s dreams. Setting it up as a series of trusts gives the institutions the potential to grow; the snowball effect as it rolls through time can produce an institution that is vast and powerful. It also establishes a permanent relationship with the donor, as they are granted lifetime votes for monies donated.

Finally, it is a democracy! People suggest projects, and vote on those suggestions. The framework approach provides the structure for the organization; each institution represents a specific cause, with potentially geographic or demographic characteristics.

Benefits:

A focal point to express, share and realize our united hopes and dreams for a better tomorrow.
In the sharing and realization of dreams, peoples come to realize that their welfare is contained in the wishes of others.
A global democratic organization can only help to showcase the value of freedom to developing nations.
It serves as a way to build bridges between peoples of different religions, cultures, and ethnicities.
It represents a tool that would empower all peoples to come together and make a difference in the world.
It gives people another opportunity to experience the blessings of charity.
It provides an opportunity for people to participate and connect in an arena that is inclusive.
It is a voice for the charitable of heart.

The vision remains the same today as when it was conceived, namely:

· act as a unifier by realizing those dreams that all people share;
· capture people’s enthusiasm;
· apply best of breed e-commerce technology to bring into existence the notion of a democratic charitable trust.
· lead a transformational change of public institutions from patriarchal to participative democracy.

Components of the application:
· Registration.
· Portal to investment institutions.
· Discussion Forum
· Voting System
· Documentation Repository
· Portal for RFP (request for proposals) and competing bids.


I thought a nice slogan would be “A Window onto a World of Dreamers and Dreams”. It is a democratic organization where people vote on the dreams of others. I thought a good name would be United Peoples


Posted by: Don Moore on 11 Jun 07

Great stuff Alex. A few days ago, I sat down to write a quick response to this post. When I hit 1500 words, I stopped writing and let it sit. What follows is a good bit shorter, but still too long. My apologies in advance, but I do not have the time to be brief.

For the last decade, I have directed project development and finance activities for a medium sized endowment. We make grants, issue debt, and can take equity positions in projects. The issues you raise are almost constantly on our minds as we do our work. Rather than try to cover the vast amount of ground that you have covered, I want to respond to two topics: “good” philanthropy, and the ideas of risk, return and reward. I’ll do my best to respond to some others (especially the fringe and the network) later.

Good philanthropy, it seems to me, funds innovation that would otherwise never emerge, and supports action where none would otherwise be taken. I really like this. My sense is that you've spotted a need to expand the impact of funders interested in supporting innovation. I could not agree more.

The only friendly amendment I would offer is that good philanthropy also funds innovation and action that would not have happened as soon or as rapidly without such intervention. The time dimension is at least as important as the might-have-happened/might-not-have-happened dimension.

While your definition of what is “good” tracks my biases (and practices) almost completely, I think that it falls short of a general definition of "good philanthropy." Good philanthropy does what the donor had in mind. Period. Some donors see value in supporting specific people, others in supporting specific institutions, others in supporting good works, and some in supporting innovation that achieves some (more or less) specific outcomes. Some value the giving of a gift; others value what the gift produces.

The philanthropic sector is as diverse as the "for profit" financial sector. Your version of "good philanthropy" will fit that portion of the sector that is focused on innovation, and disruptive innovation particularly. Just as all of the financial sector (which charges people to use your money) does not support disruptive innovation in the for profit world, all of the philanthropic sector (which allows people to use your money for their purpose) may not be comfortable supporting that kind of work in the social benefit world. Many of my colleagues are focused on supporting "execution"—focusing on simply doing what we all know needs done. There is nothing terribly innovative here, but there is much important work to be done. I’m not sure that we need less of this kind of philanthropy (not that you say we do.)

Those of us who are interested in innovation need to be aware of that context, and follow/create those opportunities that turn the rest of the sector into allies. Our exit strategies need to include appropriate roles for other philanthropic interests, the market, and governments, as the innovations we help launch become the routine way of doing things.

…ideas for how risk/reward in philanthropy might be intelligently parsed… Parsing, pricing, even managing risk is the easy part. Risk means that what you think will happen might not actually happen. This is precisely the same as financial risk. Risk can be measured as the (expected) variance of an (expected) return. You can treat the expected measures as random variables and the measured answers as fact. The devilishly difficult measure is the (expected) return. Before you can measure risk, you must be able to measure return.

The notion of return must derive from the purpose of philanthropy—which is as varied as the donors motives, not particularly fungible among those various motives, and generally not amenable to traditional financial analysis. Having said that, there must be some measures that can be used where the motive/intent is focused on the environment or other common issues.

For example, in our work we rely on a system of project-specific targets to describe the “return” we care about. To the greatest extent possible (some—especially our grantees—would argue more frequently than is possible or reasonable), each project has concrete objectives for outcomes and a growth pathway. (That’s both r and g for you closet financial analysts keeping score at home). In our evaluation process, we assess whether the project has its value target.

To minimize risk, we typically support portfolios of projects whose strategies are not dependent on the same drivers. In other words, we select a set of projects whose returns are not highly correlated. In this way, our risk (the variance of expected returns) is low and the expected returns stay high. We also have a system of minimizing value at risk by matching our outlays the cash flow needs of projects. These combine to give us a very good “reward” strategy: high returns per unit risk.

While I believe that our risk/return/reward strategy is sound, I know it is idiosyncratic and not likely to scale well. Each project has it’s own measures, and the estimates (particularly for growth) are guesses. While this is very much like the business world, it is almost impossible to meaningfully aggregate these endpoints. Unlike the business world, we have no liquidity event that imputes the growth of returns (positive impacts) into a “score” or other pay out on exit from a successful portfolio.

I, and some members of my Board, would love to create a compensation scheme based on this for our program staff. Our ad-hoc system isn’t ready for that yet. I value feedback on our approach, suggestions for improvement, and pointers to those who have gone further with this line of thinking.


Posted by: j david on 14 Jun 07



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