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Philanthropy’s Opportunity to Exit the Stage: Do Skills Block the Way?

By Tom Watson on October 24, 2007No Comment

Do Skills Block the Way? by Susan Raymond, Ph.D.

Part One of this series examined the potential for scale to provide the trigger point for philanthropy to step back from its seed financing of viable solutions on the societal commons and allow creative social and commercial finance to provide the capital for organizations to achieve broader reach [link].  The evolution of microfinance from small scale experiments to a real market and the scale achieved for vaccine purchase for the developing world through bond strategies provide two examples of the evolution of a philanthropic grant-based approach to a capital markets approach that enables the achievement of scale.

Why, then, with over a quarter of a billion dollars of philanthropy flowing annually, does one not see more such examples?  Surely it cannot be because there is a paucity of raw creativity in the nonprofit sector.  In its entirely, the sector represents 10% of the American workforce.  We are not all Einsteins to be sure, but certainly there are good ideas, even the evidence of replicable solutions and opportunities, to be had in many, many quarters.  Why do good ideas not grow into invest-able opportunities?

The problem,  at least in part, is skills, and the problem of skills may be partly a reflection of culture.

Nonprofits exist within a culture of service and a history of assuaging suffering.  The focus is need; the skill sets (if they are technical) are those capable of addressing the need: the physician, the educator, the social worker, the counselor.  The premium is on delivering the goods or services that meet the social need.  This is the strength and the soul of the nonprofit sector.  And it is that strength and soul that philanthropy has traditionally expected and funded.

When the demands of scale require facility with offering memoranda, financial modeling, and market valuation, however, a new set of skills are required.  A glance at the curricula of nonprofit and philanthropy training programs at the major universities, however, fails to find much that would lead to the development of such skills, nor, more importantly, attract professionals with such skills to the nonprofit/philanthropic sector.  Still, it is true that alterations to academic curricula take time.  Therefore, it is more puzzling still that such topics do not appear on the more malleable agendas of major nonprofit and philanthropic conferences. 

Earlier this year, for example, I spoke about change and scale at a major nonprofit professional conference on the East Coast, and no one in the audience had heard of many of the innovations that are the cutting edge of philanthropic finance today.  No one knew about the successful efforts of the United Nations World Food Programme to partner with insurance companies to insure the weather of Ethiopia and therefore produce more reliable farmer and food finance in the case of drought.  No one had put two-and-two together to understand the implications of the Goldman Sachs bond issue for vaccines for the developing world.  Not one had read the work of the former head of Capital One who had analyzed the nonprofit sector, calculated that philanthropy would never be able to capitalize it to scale, and developed an approach to its accounting methods that would open the door to capitalization.  Not one was aware of the analytic work of the Said School of Business at Oxford that had inventoried current approaches to alternative finance.  Not one.

If understanding of the requisites of getting to scale, and the skills required to do so, is not part of the professional discussion in the sector (leaving aside the issue of its academic preparation), then how will we ever capitalize on the opportunity for philanthropy to exit the finance stage in favor of larger and more robust sources of funding on the social commons?  Is the sector forever to be trapped in amber as financing creativity passes it by?

I would posit that there is, in fact, a silver lining in the human resources and skills cloud that blocks the way.  The lining is made up of two trends.  First, fortunately, we are aging.  But other industrial sectors are not.  A study by the United Way of New York City indicated that half the City’s nonprofit leaders will retire by 2010.  The combination of sector growth and retirement means that the number of new senior managers that will need to be hired in 2016 will be an estimated four times the number in 1996.  The average age of an executive in the computer services industry is 36.  There is plenty of new talent in the new sectors of the American economy whose creativity can replenish the sector not only with executive skills but with new approaches and ideas.

The second trend is churn.  Several studies document the high turnover of executives and managers in the nonprofit sector.  A recent study of the human resources structure of nonprofits in the San Francisco Bay Area/Silicon Valley area indicated that nearly a quarter of nonprofit vacancies were at the management level, over half were program staff,  and nearly 4 in 10 vacancies had been open for more than 2 months.  There would appear to be ample room for new perspectives and new skills to penetrate the nonprofit and philanthropic sector to bring to it new ways of thinking about scale and the complementary roles of nonprofit and commercial finance in reaching scale.

The problem in taking advantage of that opportunity, however, could be culture.  For new skills, new perspectives, new approaches to make their way into the nonprofit and philanthropic sector, they must be welcomed, whether in the academic curricula, at the conference podium, or in the executive suite.  This requires that the sector, especially its larger institutions, embrace change.  Most human beings shrink from change.  Most organizations are allergic to change.  Most large organizations have a cerebro-vascular incident at the very idea of change.

This is not simply a characteristic of the nonprofit and philanthropic sectors.  Size and inflexibility are organizational correlates in all manner of industries.

Where is the way forward to embrace change and to seek out and welcome new skills, new perspectives, new financial creativity into the sector?

Leadership.  It is time for the leadership of the sector’s professional and organizational associations to lead the way.  Invite Goldman Sachs to be your keynote speaker.  Create a panel on insurance options for social services financing.  Create a curriculum for market finance on the social commons and shop it to every nonprofit/philanthropic management program in the country.  Develop a series of co-sponsored conferences with the finance specialties of the nation’s business schools with agendas developed in full partnership  –  and invite into them the best not only of the nonprofit and philanthropic sector, but of the very best talent in the field of market analysis, financial management, and technological innovation.

We must stop talking to ourselves and reading our own writing.  We need to stop sitting in our own black box and orating on the size and shade of the walls around us.  If we hope to get to scale on the societal commons, we will not do so with philanthropic grants that average $25,000 or even $125,000.  Scale will require finance, and finance will require the kinds of skills and creativity that we must welcome with open arms and a thirst to learn and change.

Sources

  • J Peters et al.  Help Wanted: Turnover and Vacancy in Nonprofits.  CompassPoint, January 2002.
  • TJ Tierney. The Nonprofit Leadership Deficit. The Bridgespan Group, March 2006.
  • DS Birdsell and D Muzzio. The Next Leaders: UWNYC Grantee Leadership Development and Succession Management Needs. Baruch College of the City University of New York, October 23, 2003.
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