I recently listened to a fascinating podcast by the Stanford Social Innovation Review, a magazine and website that covers cross-sector solutions to global problems, about “trust-based philanthropy” and “strategic giving.”
The discussion was on the tension and balance in philanthropy between power and control and trust and empowerment – how do philanthropists allocate resources in a way that honors and respects grantees and has the most leveraged and scalable impact?
Over the past decade, many philanthropists shifted from a charitable mindset to an investor mindset adopting a business-like approach to their social sector investments. This was a positive evolution grounded in a desire to focus capital and scale what’s working.
The problem is that as funders developed strategic frameworks to help them understand their investment objectives, they imposed these frameworks on the organizations they were funding. As they created evaluation and tracking mechanisms to better understand the depth and reach of impact and the overall value and return on investment, many required grantees to report on their progress to goal through their lens.
This shifted the grantees collective focus to educating and retaining the funders and aligning to their interests instead of innovating and accelerating the impact on the people they serve. This power dynamic had a crippling effect on many organizations as philanthropists were dictating and constraining their grantees from afar.
In trust-based philanthropy, you reimagine the funder and grantee relationship through a set of values that address this power imbalance through humility, curiosity, and collaboration. This is seen in practices such as multi-year unrestricted funding, radical transparency, streamlining paperwork, and respecting grantees time, knowledge, and feedback as a two-way street.
So how can philanthropy be both strategic and trust-based?
Bet on people.
Philanthropists should be strategic by doing deep work to understand their own values, principles, and change they want to create in the world. This helps them narrow their focus and leverage their resources towards the highest value opportunities.
But philanthropists need to look carefully at their practices to gauge if they are approaching grantees as partners and treating them as entrepreneurs, honoring the knowledge and expertise as the people closest to the problem.
Rather than bet on the current model and approach of a nonprofit, philanthropists should focus diligence on the capabilities of the leadership team and bet on people. If the leaders are capable entrepreneurs who are problem solvers, they will evolve, adapt, and react and respond to market opportunities to grow and scale effectively. During the due diligence process, funders should ask questions like:
Does the entrepreneur have a clear vision and strategic framework to guide their work?
Do they know what they are best at and have a grasp of the landscape and their competitive advantage in the market?
Do they understand how to measure impact and do those measures inform their business decisions?
Counting reach numbers or cost per outcome may give philanthropists a sense if the organization is reaching milestones but it doesn’t tell the whole story. If philanthropists constrain organizations to use their indicators to unlock funding and show progress to goal, we are limiting their potential to transform themselves and the people they serve.
Control can stifle innovation. And philanthropists aren’t the ones with the answers.
When you bet on local entrepreneurs and support them holistically you become shareholders in their success and can help them overcome the barriers that get in their way, while giving them flexibility and agility to pivot and grow.
Philanthropy should be strategic AND trust-based in order to unleash untapped potential in the social sector by shifting the balance of power from those who give to empowering and strengthening those who lead on the front lines.