Looking Back, Looking Forward Part 1: Business Knows Best … or Not

Phil Buchanan

This is the first in a series of four blog posts reflecting on philanthropy’s first two decades in the 21st Century and hopes for the next one. The first post discusses the public conversation about philanthropy during 2000-2010; the second focuses on 2010-2019; the third focuses on the practice of philanthropy during the first two decades of the century (as opposed to the discussions about it); and the fourth shares some hopes for the new decade underway.

The past two decades have seen a shift in the conversation about philanthropy. We entered the 2000s being told that what philanthropy needed was a “business” or “investor” mindset, with less clarity of course about what exactly that even meant. The first decade of the 2000s was the “Business-Knows-Best Decade.”

But, as it turns out, business didn’t know best, of course.

And while there is at least a bit more recognition of this now than then, the business-knows-best mindset remains widespread, so it’s useful to trace it back a bit. I’m no historian, but I have been working in Philanthrolandia since 2001. When I think about the last 19 years, I have at least one take on how the conversation about effective philanthropy has evolved over the past two decades — as well as some hopes for the decade to come.

To understand the first decade of the 21st century in philanthropy, it’s useful to go back to the late 1990s — and especially to a pair of influential but wildly misguided articles in Harvard Business Review. One, by Christine Letts of Harvard University’s John F. Kennedy School of Government, Allen Grossman of Harvard Business School (HBS), and another co-author, posited that what was needed in philanthropy was a venture capitalist mindset. Another, by a different HBS professor, Michael Porter, and co-author Mark Kramer, promoted a conception of strategy taken straight out of a competitive business environment in which “unique positioning” was paramount.

“The underlying logic of strategy is … the same” in business and philanthropy, they argued.

For the first decade of the century, this was the prevailing view — especially among some of the largest foundations, which turned to consultants (including Kramer and Porter’s firm, FSG) promoting this approach to help clients devise their strategies. The results were typically not pretty because — as at least some of us had pointed out, usually in vain, at the time — strategy in philanthropy is not at all the same as strategy in business!

Strategy in philanthropy is about collaborative dynamics, not competitive ones, and therefore must be shared across organizational boundaries, rather than guarded closely as “unique” to a particular funder. As we at CEP observed in a 2009 report on foundation strategy, “Philanthropic funders are seeking to maximize their positive social impact — not to beat the competition in a defined market. In fact, for philanthropists and private foundations, it may sometimes be that replicating the activities of others, or collaborating with them, is the very best way to maximize impact on particular organizations, communities, or fields.”

Moreover, the power dynamics between the funder and the funded (which are very different than the dynamics between either a business and a customer or an investor and a company they invest in) heightened the risk of funders devising strategies that were out of touch with the realities of those closest to the problems being addressed. Those whose knowledge and expertise were often insufficiently considered included nonprofits and, of course, the people themselves who the funding was intended to help. In education philanthropy, especially, the story played out repeatedly, with different donors and foundations making the same, predictable mistakes.

Yet the notion was ubiquitous that whatever worked to make someone rich would translate into making them great at philanthropy — as if being great at soccer would guarantee success in basketball. Everything was about “entrepreneurship,” and Silicon Valley was portrayed as the center of disruptive goodness, to be admired and emulated by donors and nonprofits whenever possible. Nowhere was the idea that “business thinking” was needed in philanthropy more breathlessly celebrated than in Matthew Bishop and Michael Greene’s 2008 book Philanthrocapitalism: How the Rich Can Save the World.

“While some are skeptical about the invasion of the M.B.A.-enabled executives in suits into the Birkenstock world of charity,” they wrote, “many philanthrocapitalists believe that the world of giving could benefit at least as much as business from a bigger role for professional intermediaries and advisors, and from the sort of transparency and accountability that exists in financial markets.”

In a stroke of bad timing that, as I noted in this review in The Chronicle of Philanthropy at the time, almost made you feel badly for the authors, the book was released in the fall of 2008 as financial markets began their collapse. “Where, the reader is left to wonder, are the guys from Lehman Brothers when you need them?,” I asked. (Yes, I am quoting myself, but it’s one of my better lines so forgive me, please.)

Yet, notwithstanding the oddity of looking to a collapsing economy as the bellwether for philanthropy, there was little pushback — and what pushback there was felt like a distinctly minority view. Michael Edwards, a former executive at the Ford Foundation, was perhaps the most notable — and powerful — voice opposing Bishop and Greene. He argued forcefully against the rise of philanthrocapitalism and the deification of business:

The philanthrocapitalists are drinking from a heady and seductive cocktail, one part ‘irrational exuberance’ that is characteristic of market thinking, two parts believing that success in business equips them to make a similar impact on social change, a dash or two of the excitement that accompanies any new solution, and an extra degree of fizz from the oxygen of publicity that has been created by the Gates-Buffet marriage and the initiatives of ex-President Clinton.

And, although we at CEP were repeatedly miscategorized by Bishop, Greene, and others as examples of the business-knows-best school, we rejected the label from the moment staff were hired, noting the unique dynamics of philanthropy and the nonprofit sector. Yes, we were focused on helping foundations assess their performance — but this is not a “business” concept and, of course, plays out very differently in a context in which the ultimate metrics are not captured in financial statements.

My frustration boiled over in 2009, which I expressed in a series of blog posts on the Duke University Center for Strategic Philanthropy and Civil Society website (last time I quote myself, I promise). “There is real danger that an appreciation of the nonprofit sector’s distinctive identity and purpose will be lost,” I worried, as donors and nonprofit leaders “look simplistically and misguidedly to the markets and ‘business practice’ as the answers.”

By 2011 — after a decade of celebrating unique positioning of separate, individual institutions and a notion of strategy that was rooted in competitive dynamics — at least a few of the fiercest early proponents of the notion that strategy should be focused on uniqueness finally (and likely coincidentally) began promoting a very different idea, emphasizing “collective” action. A few years later, they were waving the flag for the concept of “emergent strategy” that had been pushed by none other than Porter’s intellectual adversary Henry Mintzberg of McGill University and others — notably, in the world of philanthropy, consultant Patti Patrizi — for years.

Things were changing, if slowly.

There was evidence of a welcome, albeit belated and insufficiently acknowledged, evolution among the business-knows-best evangelists. Still, the importation of business concepts — from “disruption” to “user-centered design” — remained prevalent and typically were treated without enough respect for the ways in which the dynamics differ in philanthropy.

But as we moved into the next decade, critiques of the markets-as-analog-for-everything perspective would intensify — as would a new wave of critiques of philanthropy that were rooted in concerns about capitalism itself.

More on that in my next post.

Phil Buchanan is president of CEP and author of Giving Done Right: Effective Philanthropy and Making Every Dollar Count, published by PublicAffairs last year. Follow him on Twitter at @philxbuchanan.

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