In 1990, Peter Drucker’s Managing the Nonprofit Organization acknowledged the differences between what he called “the social sector” and business, arguing that nonprofits actually had much to teach business, such as the importance of paying attention to “customers.” But Drucker, an enormously influential business-management expert, also contended that for too long management had been “a very bad word in nonprofit organizations” because of its association with business. Most nonprofits, he wrote, “believed that they did not need anything that might be called ‘management.’ After all, they did not have a bottom line.”
In his book, Drucker tried to show how appropriate management “principles and practices” could make nonprofits more effective.
If nonprofits largely shunned “management” back then, it has now become all the rage in the nonprofit world. Countless books and articles have appeared on every conceivable aspect of it. Professional and academic programs, as well as consulting firms such as Bridgespan, have proliferated, often led by people with training in business or economics. New philanthropies, endowed by high-tech entrepreneurs, have sought to apply business practices to their giving, as have some venerable grant makers; in some cases, rather than establish foundations, donors have set up corporations to pursue their social concerns. Terms rarely used in connection with nonprofits in the past, such as “evidence-based programs” and “impact investing,” have become increasingly commonplace.
On the surface, Phil Buchanan looks like someone who would champion greater managerialism in philanthropy, and, in fact, he has. He holds a master’s degree from the Harvard Business School, one of the most fertile sources of management advice for nonprofit groups. He founded and has spent his career running the Center for Effective Philanthropy, a research and consulting organization that advises foundations on their grant making. He writes a column for professionals in the Chronicle of Philanthropy and speaks frequently at conferences of nonprofit leaders.
But his new book, Giving Done Right: Effective Philanthropy and Making Every Dollar Count, reveals he has more than a few reservations about businesslike thinking in philanthropy. Taking issue with ideas developed by some of his own teachers and others, Buchanan argues, as Drucker did, that improving management must start with understanding how the nonprofit world differs from the corporate one. Although that leads him to suggest a series of sensible steps givers could take to improve their efforts, Buchanan avoids addressing the fundamental question of what “effectiveness” really means in philanthropy.
At the heart of Buchanan’s misgivings about philanthropists trying to use business methods is his belief that the problems they want to address typically require collaboration among donors, nonprofit service providers, and perhaps government agencies more than the competition of the marketplace. By failing to recognize that, he argues, philanthropists wind up devoting too much effort to trying to identify their unique niches and innovations.
What’s more, they invest too little in building mutually productive relationships with their grantees, focus on “one-size-fits-all performance measures” of nonprofit activity that obscure important differences among the organizations they support, and seek too much credit for themselves, rather than for frontline service providers (whom they may also deride as inefficient and overpaid). Buchanan is particularly skeptical of popular proposals for philanthropists, such as taking lessons from venture capitalists, investing large portions of their endowments to have greater impact, or applying rigorous cost-benefit analysis to become “smarter” in giving.
Nuanced Views
None of these criticisms are new. As Drucker noted, the nonprofit world had long regarded “management” with suspicion, and critics of the latest efforts to apply business methods to philanthropy have been numerous and vocal. (“Metrics mania” is how a former foundation executive once referred to the idea of using outcome measurements to guide giving.) Buchanan also points out that some of those in the forefront of calling for more effective giving practices in the past — such as Mario Morino of Venture Philanthropy Partners and Paul Brest, former Hewlett Foundation president (The Hewlett Foundation is a financial supporter of the Chronicle of Philanthropy) — now express more nuanced views about what donors should do. Giving Done Right is Buchanan’s effort to do likewise.
Buchanan advises donors not to focus on and pursue relentlessly a single, personally meaningful goal but rather to look for causes they can share with other philanthropists, pay attention to what their prospective beneficiaries want, and rethink and revise their objectives regularly. Building on existing programs can be as productive, he argues, as looking for novel, potentially disruptive innovations.
Cultivating good working relationships with other organizations — particularly service providers — is “essential” for successful philanthropy. He also suggests it would create a degree of trust that might allow fewer restrictions, such as limits on administrative costs, to be placed on grants.
Unlike many other proponents of better management at nonprofits, Buchanan reports that “almost all nonprofits” his organization has surveyed are trying to assess their work and use what they find out to improve their programs. But they lack adequate support for doing so from grant makers, which do not always understand the difficulties of evaluating the impact of programs aimed at changing people’s lives.
Buchanan also thinks philanthropists often fail to use all the tools at their disposal, including supporting political advocacy, and to share their successes and failures with their peers and the public. He sees little value in debating the merits of “perpetuity” versus “limited lifetime” in grant making. Donors should choose the timeframe that best fits their objectives.
Philanthropic Mistakes
Along with interviews of nonprofit leaders he deems effective, Buchanan bases many of these recommendations on the findings of the Center for Effective Philanthropy’s “Grantee Perception Report,” which allows grant makers to receive confidential feedback from their grantees. More than 300 large, medium, and small foundations have used it to learn not only how those with whom they have worked regard their impact and operations but also how their scores compare with those of other grant makers that have commissioned reports.
However, since the majority of organizations using the perception survey have not released the results publicly, Buchanan cannot identify more than a few whose practices he admires or provide the kind of more inclusive (and evidence-based) account of why foundations actually succeed — or appear to — that is mostly missing from the public sphere, except for sometimes self-serving studies of particular grant makers or programs.
In fact, Giving Done Right pays little attention even to the few well-documented instances of what Martin Morse Wooster once termed “great philanthropic mistakes.” Buchanan recounts Mark Zuckerberg’s well-financed and well-publicized attempt to improve the Newark public schools, although without acknowledging that much of the Facebook founder’s money went to pay off salary obligations for teachers and administrators, not simply, as he claims, to “combat” them.
But an even larger, 10-year effort to reduce poverty by the Northwest Area Foundation gets no attention, even though it foundered partly because the donor and its community partners disagreed about what to do. As this and other instances of failure suggest, collaboration may be more important than competition in the social sector, but it may also be harder to build and more elusive.
What Will Make a Difference
Ending poverty and inequality, transforming education, preventing climate change, and the like require not only the coordinated efforts of countless public, private, and nonprofit organizations but also political, social, economic, cultural, personal, and other changes that money might not be able to buy. Moreover, on these sorts of issues, it likely won’t be clear which path to take, and even if it were, the will to take it might be absent.
Although giving could make improvements, philanthropists always need to remind themselves to ask what they are likely to accomplish if they succeed.
In Giving Done Right, Buchanan advises grant makers to exercise more humility in their giving. Coming amid grandiose claims that if only it were managed in more businesslike ways, philanthropy could do more (or exaggerated criticisms about the harms such approaches might cause), that is a welcome message, especially from a longtime proponent of effective philanthropy. However, what philanthropists try to do, not how they operate, is what ultimately will make the difference.
Leslie Lenkowsky is an Indiana University expert on philanthropy and public affairs and a regular Chronicle contributor.
