Is Risk Right for Small-Staff Philanthropy?

By Elaine Gast Fawcett on behalf of ASF

Risk

Some say ASF members and other donors must embrace risk. Do you agree?

The word risk can have a bad rap in philanthropy.

If you’re like a lot of donors, you may find it tough to think of a grant you could call risky. In fact, most funders have grown accustomed to making grants they know (or at least suspect) will succeed. No one likes to fail. And failure—in philanthropy—means losing money that could have gone to another organization.

Yet, these days, some are saying risk is a value that small-staff philanthropy must embrace.

For example, The Case Foundation has dedicated an entire campaign to encouraging a fearless approach to finding or funding social problems. The idea is that old models move too slowly. To tackle today’s complex challenges, we have to “take risks, be bold, and fail forward.”

That’s inspiring. But what does it look like for small-staff philanthropy to take that kind of risk? One thing is clear: Risk means different things to different people.

Most define risk in investment terms—as in the tolerance for losing money. Others define it in terms of being willing to not get the results they expected. For some, risk means changing their grantmaking from a reactive to a proactive approach. Still others define it in terms of family culture, such as adding a younger generation member to the board.

Often, donors and staff think of risk as making a big splash. That’s not the case, said ASF member Jennifer Astone of the Swift Foundation at ASF’s 2012 National Conference. There’s a lot of innovative work being done quietly. The Swift Foundation funds First Nations and grassroots organizations in British Columbia, for example, and bases the success of its program not on publicity, but on building relationships of trust with those partners.

Astone finds that one way to understand risk-taking is that the donor gives the organization time and support to create meaningful programs and relationships in response to community needs and feedback instead of outside agendas. “I’ve found that often the most creative grantmaking comes from taking risk, which is another way of trusting local decision making. It’s the more intuitive side, the heart side [of grantmaking]. When you are willing to trust leadership, you create the space for listening to what communities really need,” she said.

In spite of the different definitions of risk, there also seems to be some agreement: The more risk there is, the more potential there is for meaningful change to happen. And small-staff philanthropy, because of its modest size and ability to act fast, has a nimbleness that accommodates risk.

And, if it doesn’t work, said Astone, “as a private foundation, you can fail—or you can make mistakes and learn.”

What role does risk play in your grantmaking?

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Elaine GastElaine Gast Fawcett helps foundations tell their story, educate their stakeholders, and move their mission forward. For 12 years, she has worked nationally to strengthen the philanthropic and nonprofit sectors as a communications and grantmaking consultant. Originally from the Maryland/DC area, Elaine now lives in the San Francisco Bay Area with her husband Ted and toddler Scarlett. Reach Elaine at elaine@fourwindswriting.com or on Twitter @4WindsWriting.

6 thoughts on “Is Risk Right for Small-Staff Philanthropy?

  1. True risk would be something along the lines of a foundation repeatedly approaching 10% or higher payouts to solve a problem today, rather than adhering to the bare legal minimum and embracing the perpetuity mindset. That’s risk. Giving out a grant that is 10% less likely to succeed but has a 50% larger upside is not risky. That’s prudent investment.
    And risk would be the Case Foundation actually giving out substantial grants, rather than telling everyone how they should be fearless. By and large organizations are afraid of running out of money, not failure. Addressing the money side of the equation will get us much further as a sector than scolding nonprofits for being afraid or for having insufficiently collaborative instincts. If you look at the Case Foundation 990, they explain their rationale for not giving out substantial grants. And under the law, that’s their right. But it isn’t a risky strategy, that’s for sure.

  2. Thank you for reading and commenting. Risk can certainly be a messy business and as often happens the word itself can mean different things to different people and foundations. For some, spending down or sun setting could be a bold and risky strategy, while others may be torn over striking a balance between funding current needs or preserving their assets for the unknown future. Looking over our nearly 2500 member foundations there is a wide range of answers to these and other questions and I have no doubt each one feels they are acting prudently. One of the true beauties of our system is that each funder: you, the Case Foundation and every single one of our members, can set their own strategies and make their own decisions (within the legal requirements) as to how they fund and what they fund. Our goal at ASF is to help them do so effectively and with maximum impact. For some that involves direct grants e.g., preserving specific wetlands while others choose to promote change through advocacy e.g., supporting environmental groups.

    • True, and there will always be a tension between the freedom given to the tax-exempt sector and the desire on the part of interested parties to see those tax-advantaged assets used in their preferred manner. That freedom has done much good, but also comes with responsibility.

      But, to say that their are different meanings of risk is to come close to saying that all definitions of risk are equally valid. And to help grantmakers become more effective and increase impact inherently involves making a judgement regarding certain practices. If it doesn’t, or it avoids making anyone uncomfortable, it just becomes an exercise in supporting the status quo (which, in some cases, may be perfectly fine- but that should be a conscious choice).

      The broader point is that there needs to be a mix of holding up truly effective philanthropy and pointing out less effective philanthropy.

      But I would pose a question regarding your hypothetical. If a foundation’s own stated goal is to preserve wetlands, and if a $100K direct grant preserves 100 acres of wetlands, while a $100K grant to an environmental group preserves 1,000 acres, isn’t the latter grant, by the foundation’s own definition, of greater effectiveness and impact? And wouldn’t pointing this out be the role of an organization that wants to help increase effectiveness and impact? Yes, then the foundation can and should have the freedom to ignore that advice- but they shouldn’t be able to pretend, and act, as if they are pursuing their goal in the most effective fashion.

      I think, and hope, that we’re in a time of incredible research and data inquiry in the nonprofit sector. That work is beginning to reveal what methods and practices are, in fact, the most effective and create the most impact (see CEP, GEO). As that becomes clearer I think it is incumbent upon those of us who care about the philanthropic sector to hold up those best practices, and note where we- and others- fall short.

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