October 10, 2008
Book Review: The Strengths and Weaknesses of "Philanthrocapitalism"
By Phil Buchanan
Sometimes, a book release conflicts with world events in such a dramatic way that you have to feel some sympathy for the authors, whose observations look dated before the printing press even finishes churning. Such is the case with significant portions of Philanthrocapitalism: How the Rich Can Save the World, by Matthew Bishop and Michael Green, which chronicles the “new philanthrocapitalists” who seek to “apply the secrets behind their money-making success to their giving.”
Those who wish to dismiss this book, pointing to the recent financial–market collapse as evidence of the frailty of unfettered capitalism and business thinking, will have an easy time doing so.
Passages that note, for example, that “in investment banking, it is taken for granted that decisions about how to use capital are based on rigorous research into performance” are now ripe for ridicule.
“While some are skeptical about the invasion of the M.B.A.-enabled executives in suits into the Birkenstock world of charity,” the authors write, “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.”
Where, the reader is left to wonder, are the guys from Lehman Brothers when you need them?
But this book, despite its weaknesses, is important and deserves to be read. Mr. Bishop, American business editor of The Economist, and Mr. Green, an economist, write in a compelling, breezy voice. Their impressive list of sources (which the authors say is in “no particular order”) begins with Bill Gates, Ted Turner, Bill Clinton, George Soros, and Bono.
Although the authors often seem star-struck, the (mostly) men they write about deserve much of the praise Mr. Bishop and Mr. Green heap on them for their dedication to creating lasting social impact, and their voices are powerful. One of the greatest virtues of the book is its potential, in bringing these voices to readers, to inspire others among the “superrich” to give more and dedicate themselves in the same way to results. This seems to be an explicit objective of the authors, and it’s a laudable one. (Read a Chronicle interview with the authors.)
From the work of individuals like Mr. Gates, Mr. Turner, and Mr. Soros—and the foundations they established—to smaller-scale efforts like the Impetus Trust, in Britain, the authors extensively chronicle an array of innovative attempts to make more of a difference with philanthropic dollars. In so doing, they provide the most convincing evidence compiled in one place that philanthropy is going through a fundamental shift. They tell the story of a growing emphasis on results and an increasing embrace of goals, well-executed strategies, and rigorous performance indicators. The tide is changing.
While there is considerable truth in this, the authors oversimplify in an attempt to prove their point.
First, they give short shrift to both the degree to which the earliest foundations, like Carnegie and Rockefeller, were focused on assessing results and the successes of the philanthropy that preceded their book’s protagonists.
Second, they try to draw a distinction between the “philanthrocapitalists” and what they regard as the “ineffective philanthropy” of old, without acknowledging that some of the very efforts they hold out as exemplars—such as those of the Edna McConnell Clark Foundation—were led by staff members who spent their careers in the nonprofit world, have no M.B.A.’s to their names, and certainly are not among the “superrich.”
Third, their writing is often fawning: They are less critical of their subjects and less willing to acknowledge the shortcomings of these new approaches than are some of their subjects themselves.
Fourth, they retroactively categorize great thinkers, such as the management guru Peter Drucker, as philanthrocapitalists. When I read that they dubbed Mr. Drucker the “high priest” and “original guru” of philanthrocapitalism, I wondered what Mr. Drucker would say if he were alive today, or whether the authors ever read Mr. Drucker’s great 1989 Harvard Business Review article, “What Business Can Learn From Nonprofits” (and, no, I didn’t transpose the words in the title of that article).
The biggest mistake comes in equating all of this emphasis on “impact” and “strategic philanthropy” with “business” and “capitalism.” It’s as if these words are all synonyms to the authors.
Ironically, this is the same mistake made by the Ford Foundation’s Michael Edwards, who published in March a highly entertaining, much discussed—and blogged about—pre-emptive rebuttal to Mr. Bishop and Mr. Green titled Just Another Emperor? The Myths and Realities of Philanthrocapitalism. Mr. Edwards, director of governance and civil-society grant-making programs, asserts that terms such as “high-performance,” “results-based,” and “data-driven” are codes for “business thinking.” (Read a Chronicle opinion article by Mr. Edwards, based on his book.)
But it is wrong to suggest that a focus on performance and results is somehow the sole province of business. Both Philanthrocapitalism and Mr. Edwards’s book approvingly quote Jim Collins’s Good to Great and the Social Sectors: Why Business Thinking Is Not the Answer to support their arguments.
But neither seems to have taken seriously the points Mr. Collins makes in his manuscript, which opens with this line: “We must reject the idea—well-intentioned, but dead wrong—that the primary path to greatness in the social sectors is to become ‘more like a business.’”
Mr. Collins goes on to point out that most businesses are somewhere between mediocre and good, asking, “Why would we want to import the practices of mediocrity into the social sectors?” (Disclosure: Mr. Bishop and Mr. Edwards are debating each other at a conference next spring for foundation executives that my organization is hosting, and Mr. Collins is also on the program for that event.)
Those of us who have worked in corporations and nonprofit groups, as I have, know all too well that Mr. Collins is right that there is greatness and mediocrity—and all shades in between—to be found in both business and philanthropy. We also understand how much more difficult it is to know what results you are achieving in the nonprofit world because of the nature of nonprofit organizations’ goals.
Nonprofit performance cannot be judged simply based on universal measures, like profit, found in financial statements. That doesn’t make performance assessment less important; indeed, it makes it more important—but a lot harder.
So we’re better off acknowledging the differences rather than creating a word—“philanthrocapitalism”—that is essentially an oxymoron. If businesses and government could successfully solve all our challenges, or meet all our needs for association and expression, we wouldn’t need nonprofit organizations. As Warren Buffett put it shortly after he made his gift to the Bill & Melinda Gates Foundation, “In business, you look for the easy things to do. In philanthropy, you take on important problems, and it is a tougher game.”
And, let’s be clear: At least some of the social problems philanthropy seeks to reduce are ones corporate interests helped create in the first place as they pursued profits for their shareholders. So, for all the talk within the halls of institutions like Harvard Business School about the positive effects of “blurring the boundaries,” for all the made-up vocabulary that seeks to marry business and philanthropy, I think we’re better off with some clarity on the distinction. Tension between nonprofit groups and corporations in the pursuit of different interests isn’t just healthy, it’s vital.
About 270 pages into a book that argues for employing the tactics of business in philanthropy, Mr. Bishop and Mr. Green try some semantic gymnastics as a way to deal with this critique. They say that critics of their worldview are “mistakenly confusing being businesslike with becoming more like a business.” I had to reread that sentence three times before giving up, concluding that, to the authors, “businesslike” is just a synonym for “effective.”
But it’s not, and it shouldn’t take the headlines of the last few weeks to make that clear. The challenge—worthy of all our attention—is to develop the right language of effectiveness for philanthropy, which can and must improve its performance. Yes, nonprofit groups can sometimes usefully look to business for approaches and frameworks. But they can also learn from other nonprofit organizations. And businesses can learn from nonprofit groups. It’s time to get beyond the “sector wars” and focus on results.
At the organization I lead, we have developed tools to allow foundations to get confidential, comparative feedback about their performance from grant recipients and others. People widely assumed we used customer-satisfaction surveys in the corporate world as our model, but we did not; our model, in fact, was the comparative reports based on student survey results put together for decades by a consortium of nonprofit colleges and universities.
The reality is, many (though by no means enough) nonprofit groups in this country are models of effectiveness—and they were not all founded in the last decade by the protagonists of Mr. Bishop and Mr. Green’s book.
Despite the book’s flaws, Mr. Bishop and Mr. Green deserve credit for expertly chronicling an important trend, even if they mislabeled it. The push for greater results and for better approaches to achieving them is vitally important. My hope is that nonprofit organizations respond to this book with a strong and clear voice—and do not cede ownership of crucial concepts like strategy and performance assessment to anyone.
Phil Buchanan is president of the Center for Effective Philanthropy, whose headquarters are in Cambridge, Mass.
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Thank you. I am exhausted with this debate as if to say one sector is better stronger more worthy than the other. You are correct that part of our struggle is finding a common lexicon to describe efficiency and effectiveness and to get comfortable with the challenges of outcome measurement being a precise science.Measurement in the social sector will always be half science half art.
— Maggie Osborn Oct 10, 02:07 PM #
A good business story goes like this: “so-and-so started out in his unlit garage using a refrigerator box for a desk and built a trillion-dollar micro-widget empire.” These articles are usually accompanied by a low-angle shot of CEO So-and-so leaning on a big wooden desk or shiny black car.
A good non-profit story goes like this: “so-and-so saw something he could try to make better, and starting with only a refrigerator box for a desk in his unlit garage went on to improve the lives of a decent number of people in his community.” If a picture went with this, it would be Director So-and-so standing in his unlit garage near the refrigerator box he still uses as a desk ten years later.
There is and always will be some soft science to doing good and the guys that peddle the notion that the for-profit model has all the answers are always going to sound patronizing to me.
— Chris Casquilho Oct 10, 02:54 PM #
Phil, a superb and thoughtful analysis. In having prepared and placed hundreds of business executives for positions on global, national, and regional nonprofit boards, I have observed that often, the challenge for people in “making the translation” is that the nonprofit sector does not have the measurement indicators that are customary in business to gauge success and failure. Measuring and tracking results can often be more complex for nonprofits, especially for organizations seeking to accomplish a longer-term impact. Additionally, nonprofits are often not financially sustainable in the sense that their clients (“customers”) cannot pay for the services. If a homeless shelter could be profitable, it would be a hotel! If a hunger shelter could be profitable, it would be a restaurant! The point is that sometimes, nonprofit programs that lose money do in fact need to be funded for the long term by government or philanthropic sources; their being reliant on funding does not make them ineffective. See more on my blog with Fast Company
— Alice Korngold Oct 10, 10:30 PM #
Dear Phil,
Congratulations on a well written piece – I have not yet had the opportunity to read the book but comments you make are highly relevant to philanthrocapitalism and some “new philanthropy” in general. Although a promoter of getting more people involved in philanthropy and for “new philanthropy” I agree with you that it is wrong to suggest that a focus on performance and results is somehow the sole province of business. I have also worked in and for charity, as a senior strategy consultant for IBM, in international government institutions and in international aid. It is a mistake to think that all charities and international aid are ineffective, non-strategic and never measure result. The notion of “result-based” measuring was I think initially coined by the world bank and the “logical framework analysis” is a complex measuring tool used by many development agencies, etc. I have personally spent many a “mission” in far away places coming up with measurements that would fairly represent both financial and social benefits (or Financial ROI versus Economic ROI) to the donor and this was long before philanthrocapitalism entered the stage. Meanwhile, my time at IBM also thought me some useful strategic methodologies that I now use to “mix and match” with international development methodologies. Philanthrocapitalism is as you say an important movement in that it continues to push philanthropy to become more result-oriented and hopefully it will continue to channel more money into the social issues. Both sectors can learn from each other – especially right now.
— Bettina Gronblom Oct 13, 06:39 AM #