Social Velocity » Center for Effective Philanthropy

Charting a Better Future for the Nonprofit Sector: An Interview with Phil Buchanan

Nell Edgington — Mon, 07 Jan 2013 14:58:22 +0000

In this month’s Social Velocity blog interview, I’m talking with Phil Buchanan. Phil is president of The Center for Effective Philanthropy (CEP) and was the first chief executive of the organization. Under his leadership, the organization has grown into the leading provider of comparative performance data to large foundations and other grantmaking institutions. Phil also serves on the board of Great Nonprofits and is a columnist for The Chronicle of Philanthropy.

You can read past interviews in our Social Innovation Interview Series here.

Nell: At the Center for Effective Philanthropy you work to make philanthropists more effective at creating social change, but a large part of philanthropy is driven by emotion and passion as opposed to results and data. How do you reconcile a push towards more reasoned philanthropy with the emotional aspect that will always be present?

Phil: I understand that some people feel this tension, but to me, it’s hard to understand because I think emotion and passion and results and data can – and should – cohabitate very happily. The passionate, emotional desire to make change is what inspires the commitment to get results. If you believe deeply in helping people in need, but do it in a way that doesn’t help, what kind of emotional satisfaction do you get from that?

Fay Twersky of the Hewlett Foundation articulated this very well in an essay in Alliance Magazine. She says impact should be pursued with “a warm heart and a hard head.” I like this way of thinking about it.

Nell: One of the the things you promote at CEP is a move from evaluating nonprofits based on overhead spending to evaluating them based on achievement of results. But sadly most funders haven’t yet embraced this distinction. What will it take for funders and the general public to recognize that overhead percentages are meaningless and destructive to the nonprofit sector?

Phil: I think the adoption of better nonprofit performance assessment practices is part of the answer. The more data nonprofits can point to that can show what they achieved with their total budgets, the less relevant how that budget was divided will feel to donors.

Look, I think people tend to gravitate toward that which is available, quantifiable, and comparative. Overhead percentages are all of those things, so they become the default performance measure even those they don’t tell you anything about performance. Caroline Fiennes of the U.K. has a great new book called It Ain’t What You Give, It’s the Way You Give It, and one of the best parts is that she really slays the argument for looking at administrative costs, while also providing guidance on how to approach performance measurement.

The rub is that the only way we’ll get better overall nonprofit performance assessment practices is if funders support that work. In our research, we have seen that, contrary to the stereotypes, nonprofits care about assessment and are working on it. But they want and need much more support – financial and non-financial – from their funders. I hope that funders embrace this and support better assessment practices in service of better outcomes.

I think Mario Morino has been a powerful voice on this topic and I recommend his book, Leap of Reason, to everyone I can. I hope people are listening to Mario because measuring effectiveness isn’t some academic issue. People who work at nonprofits deeply want to be effective. Foundations want to be effective. The people we help desperately need us to be effective. So we should – and we must – figure it out and get beyond empty measures. And many have. There are some fantastic exemplars when it comes to nonprofit performance assessment. But there are not enough.

Nell: In addition to leading CEP, you also serve on the board of GreatNonprofits, which allows individuals (clients, donors, volunteers) to review nonprofits. How does the idea of individual consumer reviews of nonprofits fit into the larger movement to evaluate nonprofits based on outcomes when the average person doesn’t yet understand or embrace the idea of nonprofit performance measurement?

Phil: In some ways I think it’s very easy for anyone to grasp. You’re trying to help someone; shouldn’t you ask whether they feel they have been helped? GreatNonprofits can provide that read on whether individuals served by a nonprofit feel they’ve been helped. I think GreatNonprofits, which Perla Ni founded and leads, is really important and I also think we need other kinds of efforts to collect and analyze beneficiary perception data. We need both the kind of open, web-based opportunity GreatNonprofits offers as well as rigorous, survey-based efforts such as the Center for Effective Philanthropy’s YouthTruth initiative, which helps schools, districts, and funders hear from middle school and high school students. We’re debating school reform in this country yet many of those with power and resources don’t understand the students’ experiences. We know that those experiences correlate to outcomes, so this kind of perceptual data could be a vitally important “leading indicator” of progress.

Nell: Philanthropy tends to be fairly risk averse and focused on program funding, as opposed to the organization-building capital investments (money to build organizations rather than buy services) the nonprofit sector so desperately needs. What do you think it will take to get more philanthropists to make riskier, longer-term, organization-building investments?

Phil: I think there needs to be a greater recognition that we count on organizations to get the work done. Sounds obvious, I know, but I think funders sometimes forget.

It is stunning, and sobering, that despite the valiant advocacy of Paul Brest, Paul Shoemaker, GEO, NCRP, and others, there has been no increase in the provision of general operating support over recent years. But we also need to be careful not to pretend operating support alone is the answer. Our research demonstrates that what really matters to grantees is operating support that is multi-year and a decent chunk of change – six figures or up in annual support, ideally. So the problem isn’t just one of grant type, it’s also one of grant size.

This comes back to assessment, too, in my view. If, as a funder, you know what you’re going after, and there is an organization that is focused on the same goal and can show that it’s delivering results, why would you not provide significant, long-term, unrestricted support? And, if you can’t find organizations delivering results toward your shared goal, why wouldn’t you fund in a way that would allow them to build that capacity?

Nell: You recently wrote a fairly scathing critique of Dan Pallotta’s new book, Charity Case because you thought his approach to advocating for the nonprofit sector was misguided. Yet the nonprofit sector is largely underfunded, undervalued, and dismissed in the broader regulatory and political environment. What do you think it will take to change that reality?

Phil: Pallotta’s book doesn’t advocate for the nonprofit sector that I know – or for one that I would ever hope to see. He wants the sector to become something entirely different, something a lot more like business, something that ultimately might not be discernible at all as a distinct sector. His take on the sector is both ahistorical (he demonstrates almost no understanding of the sector’s past contributions) and ideological (he has written that “the free market is a self-correcting system” that supports our “natural desire to help each other” and “only stops working when it is interfered with”). He is infatuated with free market analogies, believes financial incentives are the key to motivating people despite research demonstrating that they are not, insists that public trust in charities is lower than in other sectors when all credible research shows the opposite, and does not seem to understand that many nonprofits work to address the problems that exist as a result of market failures. His book is a disservice to the nonprofit sector.

So, then, what do we need to do to increase the appreciation of public and government officials for the nonprofit sector?

We need to start by standing up and asserting our value as a sector separate and distinct from business and government. We need to stop buying into the fiction that being effective means being “like a business,” whatever that even means. We need to stop praising the “blurring of the boundaries” and start articulating why we need organizations that pursue mission alone rather than profit for their shareholders. We need to explain why the sector is good for our society, good for business, good for government, good for citizens: we all need the nonprofit sector to be its best for us to be our best. And we need to re-learn our history – Olivier Zunz’s recent book on U.S. philanthropy would be a good place to start.

Yes, of course there is much work to do to improve the sector, but that doesn’t mean we need to tear it down. I wrote a series of blog posts for Duke University’s Center for Strategic Philanthropy and Civil Society a few years ago and argued that just as it is possible to walk and chew gum at the same time, it is possible to believe both that the nonprofit sector is and has been a defining strength of this country and that it must dramatically improve its effectiveness. It is possible to both celebrate the diversity of the sector and its various organizations and push for greater clarity of organizational goals, strategies, and performance indicators. It is possible both to applaud initiatives fostering “social innovation” and the government’s embrace of this push and also recognize what has worked in the past.

We need not tear down the sector to improve it. We need not disparage all that has come before in order to chart a better future.

About the Author: Nell Edgington is President of Social Velocity (www.socialvelocity.net), a management consulting firm leading nonprofits to greater social impact and financial sustainability. Social Velocity helps nonprofits grow their programs, bring more money in the door, and use resources more effectively. For more information, check out Social Velocity consulting services and clients.

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Can the Nonprofit Sector Stand Up for Itself?

Nell Edgington — Thu, 11 Oct 2012 15:05:07 +0000

There is something really interesting going on in the world of nonprofit advocacy. And I don’t mean advocacy for a specific cause. Rather, I’m talking about advocating for the nonprofit sector as a whole. Three new efforts underway in recent months are vying to be the voice of the nonprofit sector. And the firestorm brewing is interesting to watch.

Robert Egger kicked it off a year ago when he formed CForward an advocacy organization that champions the economic role of the nonprofit sector and supports political candidates who include the nonprofit sector in their plans to rebuild the economy. You can read my interview with Robert about why he launched CForward here. Robert’s video about the need to advocate for the nonprofit sector is below (or here if you are reading this in an email):

And then in the last couple of months there have been two similar movements to better advocate for the nonprofit sector. Dan Pallotta released a new book last month called Charity Case: How the Nonprofit Community Can Stand Up for Itself and Change the World where he announces the creation of his new entity, the Charity Defense Council, which is also aimed at advocating for the nonprofit sector, via five efforts:

An “anti-defamation league” to respond to and rectify inaccurate reports about the sector in the media
Big public advertising campaigns for the sector
A “legal defense fund” to challenge unproductive laws against the sector
Work to create a “National Civil Rights Act for Charity and Social Enterprise” to support the sector
Grassroots organizing of the sector as a whole, including a national database of every nonprofit in the country

And then the third grand effort to advocate for the nonprofit sector comes from Independent Sector, the organization formed in 1980 to “advance the common good by leading, strengthening, and mobilizing the nonprofit and philanthropic community.” Their new report “Beyond the Cause,” which interviewed 100 nonprofit organizations, recommends the creation of a national organization (probably run by Independent Sector) to push a nonprofit agenda, costing $20 million over 4 years. For Independent Sector the key issues that such an entity would address are:

Changes that could limit the organizations eligible for charity status
Threats to charitable tax deductions for donors
A need to clarify advocacy and lobbying rules for charities and private foundations
Changes to Internal Revenue Service disclosure forms that could hamper nonprofit operations
Burdensome paperwork and red tape involving government contracts with nonprofits
Lack of government-financed research on the nonprofit world

While CForward seems to be largely supported in their work, both Pallotta’s and Independent Sector’s efforts are drawing fire. Phil Buchanan, president of the Center for Effective Philanthropy, writes a scathing review of Pallotta’s new book and advocacy effort and concludes that “Mr. Pallotta is selling is himself—as both the nonprofit world’s messiah and its advertising agency,” and suggests that people support CForward and Independent Sector instead of Pallotta’s Charity Defense Council.

Similarly, Pablo Eisenberg, senior fellow at the Georgetown Public Policy Institute, dislikes Independent Sector’s effort to coalesce the nonprofit sector arguing that “nonprofits will never share a broad consensus about which issues are most important. The best that nonprofits can accomplish is to strengthen their individual advocacy and lobbying activities and join with other organizations in coalitions that fight for specific policy changes.”

It is really a fascinating and multi-layered debate. I strongly agree that the nonprofit sector is often dismissed in the policies of the day. But if organizations like Independent Sector have been working to create a common voice for the sector for more than 30 years with little improvement, I’m not sure what will change. Especially if 3 separate entities are all singing different verses of the same tune. They will be competing for dollars, mind-share, and the ears of policy makers. But I am a huge advocate for fixing a broken sector, so let’s see how this all plays out.

What do you think? How do we get policy makers to recognize the importance and value of the nonprofit sector?

10 Great Social Innovation Reads: January 2012

Nell Edgington — Fri, 03 Feb 2012 16:21:31 +0000

I can’t believe that January is already over, it was a complete blur. Nonetheless there was lots to read and ponder in the past month in the world of social innovation. Below are my ten picks of the best reads, but as always, please add what I missed in the comments. And if you want to see other things that caught my eye, follow me on Twitter, Facebook, LinkedIn or Pinterest (I’m starting to really love this new one!).

Socialbrite has created a mega calendar of 2012 nonprofit & social good conferences. Perfect for planning your year ahead.

In their Fast Company article, It’s Time To Start Judging Nonprofits Like For-Profits, Alexa Clay and Jon Camfield tell donors “Do not be turned off by high overheads. They’re healthy. They mean the organization has a longer-term view on its role in making change.” Amen to that!

Crowd-sourcing meets behavioral economics meets iPhone apps. A new approach to getting people to eat better. Love it.

FastCompany profiles the business pioneers who really understand and embrace the new chaos in which we all now operate. This should be required reading for any leader (for-profit or nonprofit).

I love it when we can use history to understand current trends. Phil Buchanan, CEO of the Center for Effective Philanthropy, reviews historian Oliver Zunz’s new book, Philanthropy in America. In so doing, Buchanan describes 7 “new” philanthropic concepts that really aren’t so new.

Jason Cohen from A Smart Bear always has a way of finding hope in the entrepreneurial process. Although this post is focused on “traditional” entrepreneurs, I think it holds for social entrepreneurs as well: Entrepreneurship is a torturous chaos, until it isn’t.

I have always said that in order to be a truly effective social change leader, you must be able to fully wield the financial sword. Kate Barr from the Nonprofit Assistance Fund in Minnesota breaks it down in the Executive Director’s Guide to Financial Leadership

January saw a pretty impressive mobilization of people via social media to protest against SOPA (the Stop Online Piracy Act) and PIPA (Protect Intellectual Property Act). Dowser helps us understand what it means for online protest more broadly.

In an increasingly competitive and resource-strapped environment it is even more critical that nonprofits be able to demonstrate the impact of their work. Here is a great example of how a Michigan arts collaboration demonstrates the economic impact of the arts in their community.

Hull House, one of the oldest and most impressive American nonprofit organizations closed its doors in January. The Bridgespan Group explains the implications.

Photo Credit: ilovememphis

10 Great Social Innovation Reads: July

Nell Edgington — Thu, 18 Aug 2011 16:55:44 +0000

I’ve been out exploring the Western states of the country (which I HIGHLY recommend) for the last few weeks, so my blog posts have been sparse, and my 10 Great Reads for July a bit delinquent, so please forgive me.

Below are the 10 things that got me thinking last month. You can also read past months’ 10 Great Reads here. As always, please let me know what I’ve missed in the comments below.

In the Stanford Social Innovation Review, Paul Connolly argues that foundation support of fundraising capacity has limited returns. Although I completely agree that you cannot build fundraising capacity without building the capacity of other aspects of the organization, I think he takes this a bit too far. It is critical that more donors, not less, support the organizational capacity, as opposed to just the programs, of nonprofits.

Talk about innovative, arts groups try the airline company pricing approach to ticket sales.

From the Harvard Business Review blog comes a great idea: A Gap Year for Grown-ups. Far beyond the author’s argument about the benefits to the individual, something like this could dramatically increase the ranks of national service programs.

An MBA myself, I love the fact that more MBA students are turning to social enterprise.

The Nonprofit Tech 2.0 blog gives us 11 examples of innovative nonprofit websites that are designed for the social web.

Khan Academy, an education website, is being used to teach kids in new, interesting, and controversial ways.

From one of my favorite blogs, Full Contact Philanthropy, comes an argument about how even simple evaluation can help create more effective programs.

Extending Mario Marino’s argument in Leap of Reason, Phil Buchanan from the Center for Effective Philanthropy argues that foundations need to provide support to nonprofits working on performance measurement.

And echoing Leap of Reason’s core argument, Paul Light argues in a Washington Post OpEd that “nonprofit leaders have to get better at measuring the value they produce.”

Guest blogging on the Tactical Philanthropy blog, Tony Wang argues that philanthropy needs to be more critical of itself.

Photo Credit: Infrogmation

Data and the Future of Philanthropy: An Interview with Lucy Bernholz

Nell Edgington — Tue, 03 Aug 2010 18:20:26 +0000

In the August installment of our Social Velocity interview series, we are talking with Lucy Bernholz, founder and President of Blueprint Research & Design, Inc. a strategy consulting firm for philanthropic institutions and individuals. She is also the author of many seminal books (including the prescient Creating Philanthropic Capital Markets), reports (like Disrupting Philanthropy) and her famous Philanthropy 2173 blog. Lucy is considered a visionary in the philanthropic world and is doing tremendous work to move philanthropy forward.

Our interview with Lucy is below, but you can also read our past interviews with Kevin Jones, Clara Miller, and Paul Tarini.

Nell: You have become increasingly interested in data sharing and crowd-sourcing for change. What are the risks in these new forms of social problem solving?

Lucy: Data are not objective – quantitative data is subjectively collected, categorized, sourced, and analyzed and its “reputation” as neutral is unearned. Using data well requires skills that most of us don’t have – statistical analysis, methods, etc.

That said, when I talk about data I mean “anything that can be digitized.” Stories. Video. Anecdotes. Numbers. We may not all have all the skills to make sense of every type of data, that is partly why crowds are important. For decades, only experts and the wealthy had access to data – so their subjective analyses dominated the discussion. Now, many of us – crowds – can have access, make sense of, add nuance, ask questions. That changes the “subjectivity” and changes the dynamic. Data are disruptive when access to them is broad, cheap, and easy.

We still need to be skeptical, ask questions, and think deeply about the biases behind both data collection and presentation. But, as computer programmers say, “many eyes make for shallow bugs.” Crowds and data are two sides of the same coin when it comes to disrupting the social sector.

Nell: In Disrupting Philanthropy you examine the long tails of donors (foundation and individual contributors of money for social change) and doers (nonprofits, social entrepreneurs receiving that money) and how information technology is connecting the two. But as a future teller, how and when do you see more conservative/fearful nonprofits and philanthropists embracing these new technologies? What is the tipping point?

Lucy: There are few pressures on endowed foundations to change their behavior. It is hard to force this change from the outside.

The drivers of change in this day and age include new expectations about information at a societal level, the government 2.0 movement, the skills of two to three generations of employees and managers in using online tools and finding information when they want it. These are the soft, cultural, and ultimately most meaningful drivers of change. Regulations that require more disclosure, new expectations of transparency, efforts such as The Foundation Centers Glasspockets.org, the Center for Effective Philanthropy’s assessments are other possible influencers of the timeline.

That said, don’t discount the inevitable backlash against transparency, which is coming. Recent online “revelations” that have been fueled by political agendas and resulted in “flash decision making” highlight the need for all of us to be careful about the pace of information, believing everything we read, and the need for thoughtful, investigative, well-referenced and fact checked information. As Craig Newmark says, the news business is the “immune system of democracy.” As the news business is caught in this wildly transformative moment, we must all consider where we get our information, how we use it, who provided it to us, and what its credibility is. There is no straight line to widespread adoption of new tools – it is episodic and includes strange diversions.

Nell: Where does government fit into the connection between donors and doers? What can/should government do to encourage use of data sharing, crowd-sourcing, etc.?

Lucy: The government 2.0 movement is way ahead of nonprofits and foundations in the open sharing of data. That said, most of this is a “supply side” effort at this point – cities, states, and federal agencies shoveling data over the wall into the public domain with little knowledge of what information communities want or need and even less support for communities to use the information well. Firehousing data into the public domain is one thing, but it is not enough (It can also work to distract – “You want data? Here have it all”)

As for nonprofits and foundations, the data disclosure requirements of the new 990 are small steps in the right direction. Most of what will happen as far as nonprofits and foundations sharing their data is likely to be voluntary, led by innovators, and taken up by others over time as communities and constituents learn to ask for what they want. The expanding ecosystem of nonprofit ratings/raters – from GiveWell to Greater Nonprofits to Philanthropedia to National Councils of Nonprofit Analysts, etc. will also spur this.

The proposed legislation, HR 5533, which calls for a national council on nonprofits and a central system for tracking nonprofits as funded by federal agencies is the wildcard here – if it passes, the data game on nonprofits and philanthropy will change. How so, and whether for the better, I can’t say at this time because I just don’t know enough (yet) about what is being proposed, how it is supposed to work, and how it will really work (if enacted).

Nell: As you mention in Disrupting Philanthropy, 10 years ago socially responsible investment was a small niche, but now it makes up 10% of professionally managed investment funds. How much bigger will it grow? How much can mission and money be blended in our economy?

Lucy: Socially responsible screened assets have been growing for more than a decade. This is a multi-decade trend that is growing mostly outside of the realm of the charitable and philanthropic sector and within the realm, incentives, and returns of the mutual fund business. Philanthropic efforts to connect to these assets and to promote Mission Related, Program Related spending are only now getting real traction and advocacy from within philanthropy.

Nell: Your focus is largely on philanthropy, but what do you think nonprofits should be doing to tap into these trends and take advantage of the long tails of donors and doers?

Lucy: Nonprofits are experimenting with every tool to reach the long tail that they can – from “donate now” buttons to text giving. For the most part, the process has been focused on marketing and fundraising. The exciting changes are happening where we see people developing solutions that take the digital connectivity and data as the starting point for the work they are trying to do – think about Ushahidi or CrisisCommons – their entire programs/projects/initiatives/governance models/organizations are built on deep understanding of the power of disbursed long tails. That is powerful.

Nell: Because you are such a proponent of data and measurement, what do you make of the emotional part of giving? Do you think we can ever get to a place where it’s all about the data? And should we want to?

Lucy: I have always said that philanthropy is a business of passion – it is largely emotional. The use of data, as Hope Neighbor’s recent report shows, is a small part of the process of philanthropic decision making. And it will always happen within the personal interests of donors. And please remember, when I say data, I don’t mean just numbers.