Risk – A Very Personal Perspective
Ahead of our bridging philanthropy and development forum next week, Adrian Sargeant, Professor of Nonprofit Marketing at Bristol Business School, tells us why philanthropy needs to become more accepting of risk - and why trust is so important:
"One of the key conclusions from the last Bellagio Summit was the philanthropy needs to become more accepting of risk. Governments, it was argued, are ill placed to take risk because of the discipline imposed by elections and/or the impact that a failure might have on the careers of officials deemed to have ‘squandered’ public resources. Equally, while many new forms of social enterprise can and do take risk, they frequently can’t take the kind of risks necessary to achieve systemic change because of the need to secure some form of financial return. Philanthropy, by contrast, can assume a greater degree of risk, engaging in projects that offer the potential to transform an entire development ecosystem.
Unfortunately, they appear not to and the evidence that philanthropists are risk averse is not just anecdotal. A Bank of America study of philanthropy (2010) tells us that virtually no high value philanthropists want to take substantive risks with their philanthropic assets (a mere 3.8%). To compound the issue it seems that philanthropists are more risk averse with their philanthropic assets than they are with their personal financial assets. Some 26% are not willing to take any risks with their philanthropic assets, compared with only 10% who take a similar view of their other financial investments.
So why should this be? There are a multiplicity of possible motives for supporting philanthropic initiatives, but one notable motive in this context is what the economist Andreoni refers to as the ‘warm glow’ that derives from giving. Individuals, quite understandably, want to feel good about their philanthropy and thus select projects that will best deliver this feeling of self-worth. As human beings we are naturally drawn to short term certainty and rather than convince us otherwise, many in our nonprofit community have been beavering away, actively encouraging this perspective. Instead of being honest with people about the work we should be doing, we’ve focused instead on projects that offer our supporters the greatest prospect of feeling good, neglecting the real interests of the communities we serve. As a Professor of Fundraising I read many appeals, but I can’t recall the last one that opened with the glorious headline – we’d like you support this because it might just solve a long term problem, but the chances of it working are slim.
The desire to feel good may also play a role in the context of small business or family foundations, where the decision making unit is small and individual passions predominate. It offers less insight though into the behaviour of larger and multi-national foundations. These organisations too, can be risk averse. There are a variety of reasons why this might be the case ranging from the inadequate training or support of key personnel, to the continuation of a culture which fails to regard occasional failure as an essential precursor to successful innovation. From my personal perspective however, I am struck by the current fervour within the sector to adopt ever more of a commercial approach to grantmaking. Impact evaluation and assessments are now the order of the day, with a concomitant rise in the use of often meaningless metrics that are unaligned with genuine community need and/or the drivers of long term prosperity and wellbeing. We seem to have become obsessed with the imposition of ever greater management controls, many of which stifle innovation and deplete a critical force at the very core of our sector’s existence. In short we’ve forgotten trust; how to trust, the different kinds of trust, and why trust is so important."
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