Last week the world looked on as America’s war of high stakes brinkmanship threatened to plunge the world into economic crisis. This is an extreme example of a budgetary battle, but it serves to highlight the freedom that philanthropists enjoy in deciding how to spend their money. Unlike governments, corporates or charities, philanthropists rarely have to worry about appeasing taxpayers, customers and donors.
This independence offers the chance to be brave and bold. As big name philanthropists Rockefeller and Buffet have proclaimed, private foundations have the opportunity — a responsibility even — to take risks, to fund where others can’t or won’t.
So what does risk in philanthropy look like? Philanthropy is about social impact — the difference you make to the social problem that you are trying to solve. Risk comes into play when positive social outcomes are less likely to happen; when the level of uncertainty is greater. But this is often balanced by higher rewards if the gamble pays off.
Take campaigning, for example. Campaigning is difficult — it’s about trying to change often deeply entrenched attitudes and behaviours. But it can be an extremely powerful and cost effective way to bring about long-term change, as Sir Peter Lampl, founder of the Sutton Trust, discovered when he invested in a national campaign that succeeded in making it illegal to carry handguns in the wake of the Dunblane massacre.
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Taking a chance sometimes means trying something different: funding areas that are less appealing or too contentious for mainstream donors. The field of water and sanitation offers a good example. Corporates generally choose to support exciting new technologies; the public like to invest in tangible products (eg new wells and toilets); while governments often step in to scale up proven programmes.
But this leaves a big gap on the operational side of things — only 7 per cent of funding is spent on maintaining and replacing existing services, meaning that wells and toilets often have a very limited lifespan. Less exciting, less tangible and more challenging, yes, but establishing an operational model — one that’s proven, sustainable and ready to scale — is an absolutely crucial step.
It’s worth thinking about tackling social problems in a different way, bearing a few points in mind:
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> Fund what you believe in and makes sense. Funding a new organisation or project without a track record can be risky, but if you have faith in its vision, leadership, strategy, and the data and theory behind it, then that’s a promising start.
> Fund with others. As well as providing more funds to tackle a problem, co-funding with other donors can help spread the risk, and bring different skills, knowledge and networks.
> Fund different approaches to a problem. If you’re looking to tackle a stubborn social problem, you could try funding several different approaches to see what works best. Or for a balanced portfolio, fund a few high risk initiatives alongside some tried and tested projects.
> Think long term. Make the most of the freedom to invest in long-term solutions. When funding risky projects it’s also important to realise that timescales can often slip, so you may need to be patient — if you trust the organisation give them the flexibility and time to turn things around.
> Learn. Taking a risk is all about learning. If the risk pays off, you need to understand what worked and why, and how the outcomes be improved further. If things don’t go to plan, you want to know why and what can be done differently to increase chances of success next time.
Thankfully, the risky standoff in the US was resolved, with an agreement in the 11th-hour saving the country from defaulting. With the luxury of independence, philanthropists can better afford to take chances — but to leverage funds for maximum impact it should always be a calculated risk, not an impulsive gamble.
Dawn Plimmer is a consultant at NPC
