Podcast: Open Road Alliance Helps Nonprofits Address What Can Go Wrong

This week’s Business of Giving features Maya Winkelstein, executive director of Open Road Alliance, which aims to bring conversations about risk to the forefront in philanthropy. Seventy-six percent of grant makers the organization interviewed said they do not ask charities at any time during their application process what could go wrong with the projects they’re seeking funds for. The organization makes grants and loans to nonprofits facing risk or unanticipated shortfalls that threaten a project’s impact.

Listen to the podcast, which is hosted by Denver Frederick, or read the transcript below.

Denver: In the philanthropic world, certain words have gained favor over the past decade or so – impact, transparency, leverage – to name just a few. But one that hasn’t caught on quite so much is risk: the risk around a program succeeding, or the risk of a philanthropic investment. But one organization that is shedding new light on this all- important topic, and who has helped many worthy organizations where risk has been realized, is Open Road Alliance. And it’s a pleasure to have with us tonight their executive director, Maya Winkelstein.

Good evening, Maya, and welcome to The Business of Giving!

Maya: Good evening! Thank you so much for having me.

Denver: Open Road Alliance has carved out a very distinctive and vital niche in the world of philanthropy. Tell us of your mission and how this idea for doing what you do got started.

Maya: So, our overall mission at this point is to make the conversation about risk and the practice of risk management as commonplace in philanthropy as monitoring and evaluation. We do that in two ways: Short term – we provide grants and loans to projects that are actively facing risk, which is threatening impact; and longer term – we do research and collect data and really conduct advocacy amongst our funder peers to try and get these practices adopted.

The idea is really simple where it came from. It simply came from our founder, Laurie Michaels, who is also the donor behind the initiative. She, like many folks, wanted to start something, but she didn’t want to pick a place. She didn’t want to pick a thing. She had heard these stories from her friends in philanthropy and in nonprofits, and they are things that any of us who have spent time working in this industry have heard. And the story goes something like this: “Oh my goodness! You’ll never believe it, Laurie. I spent six months negotiating for a half million dollars’ worth of medical equipment for our new clinic in Kenya, and I just found out from our program officer that it’s been sitting on a loading dock in Atlanta, Georgia for three months because no one will pay $25,000 for the shipping container.”

That’s actually the story that generated Open Road. And when Laurie heard that story, she simply said, “That’s crazy. Someone should do that.” To which her friend responded, “Well, you’re looking for a project. Why don’t you do it?”

Denver: There you go! That’s how these things begin.

It does seem that discussing risk in philanthropic circles is somewhat akin to a person talking about their own mortality. We just prefer not to discuss it, so we ignore it. But do speak to us about risk and the conceptual framework around it.

Maya: So we say that sometimes risk is a four-letter word in philanthropy. And yet, at the same time, if you stop any person on the street and say, “Is the world certain or uncertain?” They’re all going to say it’s uncertain. And that’s the fundamental concept of risk. It’s that uncertainty and unpredictability are a permanent part of the world we live in. But even though we all individually and internally, and frankly, in every other part of our life, whether it’s your home insurance, your auto insurance, certainly how for-profit businesses conduct their work, it’s just a given – it’s somehow missing in philanthropy. And there are really two sides to it: We don’t ask what could go wrong, and we also don’t ask what our risk tolerance is.

Denver: Dig a bit deeper here for us. What are the different types of risk that we’re talking about?

Maya: So one of the interesting things about the word “risk” is it’s kind of today like the word “impact” was for our sector 10 years ago.

Denver: I would say that’s very fair.

Maya: So 10 years ago, we all said, “We claim impact, we’re striving for impact,” but no one was measuring it.

Denver: No. It was a story or two, and that was it.

Maya: Exactly! And there certainly even wasn’t an agreement on the difference or common understanding about the difference between outcome, output and impact, which now we all recognize as being a very important distinction. Risk is at the same place. And the most important conceptual distinction for risk is that it has two sides: a subjective side and an objective side to it.

So that subjective side is that whole conversation when you use the word “risk” in sentences like “risk taking” or “risk averse.” And whether or not you want to take risk, where you are on the risk-taking scale, a one or a five, that’s a completely subjective choice. And there’s actually nothing that makes one better than the other, and both exist. It is purely subjective.

Compare that now to the objective side of risk, which is that the reality that stuff happens, and no matter whether you’re risk taking or risk averse, there is still uncertainty in the world, and things that could go wrong that you need to plan for.

Denver: Yes. And I think a lot of it has to do with the nature of philanthropy. There is a terror on the part of a lot of nonprofit organizations that if they don’t spend the money in a way that’s going to be successful and live up to the expectations of the donor, they will be penalized. So they just tend to cover it up.

Maya: Absolutely! So one of the first pieces of research that we actually did in 2015 was we surveyed 200 funders and 200 nonprofits and asked them about risk – about their perspectives, about their practices, and about the real-life occurrence in their everyday work. And the most red flag number that we got from that study is that 76% of funders that we interviewed self-reported that they do not ask at any point during their application process, in written or verbal form: ” What could go wrong?”. So this concept that something could go wrong, that risk is an inherent part of our work, is completely absent. And it, perhaps to your point, is not surprising that when funders don’t ask, grantees don’t tell.

Denver: Oh, no. I don’t think a nonprofit is going to step up and offer that information, although it probably could put them in good stead if they did because it would show the fact that they were competent and thought through things. But we’re not geared that way. We’re just going to cover that up.

Now, probably one of the most common phrases I have on this show is that they talk about philanthropy as being the “risk capital” of society. We get chatter about it all the time. We need to take more risk and greater risk. Do philanthropists take a lot of risk; or maybe more to the point, do they even know?

Maya: No. They don’t. And here I think, going back to impact as an analogy is great. Ten years ago, you could claim impact up to the wazoo, but we weren’t measuring it, so we didn’t actually know. You can claim to be risk-taking as much as you want, but unless you’ve actually gone through a process where you’ve identified what your risk tolerance is, you’ve put it down on paper, you’ve made it clear to your staff, and you’re making decisions aligned with that risk policy statement– not to mention then measuring objective risk, tracking it, seeing what actually is happening isn’t happening– again, if you’re not measuring it, you can claim you’re taking it all day long. But nobody knows what their risk tolerance is.

Denver: Yes. And I think to your point: that is where it is really a lot like impact of a decade or two ago, because people were having impact, and they would communicate that impact with a story. Now they’re communicating risk with a story – one story, but it doesn’t really speak to their portfolio in terms of what they’re really doing.

Maya: Right. And that’s something that we hear especially from the grantee side. And the frustration with that statement is foundations like to tout that they are risk taking, and then you’ll typically hear a scoff from the grantee in the back corner who says, “Well, gosh. If you’re so risk-taking, then why did you require the 26 check-ins and 39 itemized budget rechecks?”

Denver: Yes, not a river boat gambler.

Maya: Right.

Denver: Well, one way to sort of check to see whether foundations are taking risk, because if they do or they are, they’ll set aside a contingency fund to address that risk. How many of them do that?

Maya: So in our research, we have found that only 17% of foundations allocate budget for contingencies, which is basically saying allocating for risk. And here, to put that in context, think about this as the normal for-profit business sector. If only 17% of businesses had budgets for a plan B, had a plan B, investors having a plan B – can you imagine Wall Street saying, “Sorry. We’ve allocated all of our money for the year. Too bad that this thing happened in Q3. We’re out of money”? You can’t have a functioning market like that, and yet that is some of the constraints that we put on the nonprofit market, specifically in this area of not accounting for risk in our practice.

Denver: Yes. And on the other side of the ledger, and I think I already know the answer to this: Do nonprofits have any kind of risk management policy?

Maya: Not many. Some do, and they tend to be very focused and very specific. So, for example, nonprofits that do their work primarily in conflict zones or in zones with heavy amounts of violence, they will have security protocols, and they will have a very high index on security risks. But they’re not necessarily looking at other risks that could affect their impact. And, again, to the point of the conversation, they’re not necessarily sharing those assessments with their funders; nor are their funders asking on how those or other risks could affect the impact of their funding.

Denver: Maya, let me ask you this: When a nonprofit runs into one of these roadblocks or one of these problems, and we’ll get to what they are in just a moment or two, but let’s say they need additional funding. Do they as a rule go back to the original funder and say, “Hey. This is what happened. This is the situation,” and request that funding from them?

Maya: No. They don’t. We have found that, again, in our survey research, that if you ask nonprofits just how comfortable they are even talking to funders about things that could potentially go wrong, let alone something actually going wrong, only about 60% of them say they’re even comfortable having conversation during the process. What’s very interesting is when you ask the same question after you get the check – how comfortable are you having that conversation? – the comfort level actually drops 14 percentage points because now they have something to lose.

Denver: It is interesting.

Maya: And the Number one thing we hear from nonprofits in our experience, in our portfolio, is they come to us with a problem, they’re asking for help. We say, “Have you gone and talked to your original funder?” The answer is no. We question why. The answer is, 100% almost always, “We’re afraid.” We’re afraid that even though this had nothing to do with us — this was a government change; this was a weather event; this was something completely outside of our ability to control — it’s still going to be seen as a failure and therefore jeopardize future funding. And it’s simply not worth it to me to get the extra $15,000 to make sure that this grant actually works when I have a $200,000 renewal pending for next year.

Denver: Yes. You may not have data on this, but let me ask you the question anyway: Do you think that that fear on the part of nonprofits is justified? Or do you think it’s more in their imagination?

Maya: I do think it’s partly justified. And the data that comes from that is really— just read some psychology papers on implicit bias around failure with us as human beings. When something does poorly, we tend to overestimate that that will happen again. Interestingly enough, at the same time, there is a theory that a behavioral economist might tell you about called the “just-world theory,” which is the basic human frame that good things happen to good people; bad things happen to bad people, and if I’m trying to do something good, I will categorically underestimate the likelihood of something bad happening.

Our entire sector is built on good intentions and people trying to be good. So even just as human beings, we are already primed in our sector to be underestimating the likelihood of negative risk.

Denver: Yes. And I sometimes think we forget that foundations have to do annual reports as well, so they’d like them to look really nice and have a good story.

Maya: Absolutely. That fear that nonprofits have going back to their program officer, particularly in large foundations, we’ve actually had conversations with program officers where they expressed the exact same thing. They’re afraid to go to their boss, to their investment committee, because it will make them look bad. And they’re equally afraid of losing budget to a competing portfolio in next year’s budget internally.

Denver: Yes. So, speaking about projects and programs that get derailed some way or another, how many of them encounter these unexpected obstacles?

Maya: Our research suggests that one in five is the baseline number. So if you’re a funder, think about it as 20% of your portfolio is at risk. Think about that in terms of what impact that represents. Or just think about that in terms of the dollars that represents. It’s not an insignificant amount.

Denver: Well, there are a number of things that can derail a project, and you set out, like you do on so many other things, to find out exactly what they were, and you shared those findings in a roadblock analysis report. And the most common roadblock is the one that I think most listeners would think is the least common. What was it?

Maya: So the three categories were—and just the top line of the data set—so 26% of the problems were what we called organization misfortune: equipment breaking down, somebody getting sick, things like that; another 26-, 27% are acts of God, whether fire, flood, economics; 46% were funder-created problems.

Denver: My goodness!

Maya: These are things like change in strategy, delay in disbursement, policy inflexibility…. The things that funders do which nonprofits have no control over, and actually are the very things that threaten the success of those projects they have already supported.

Denver: What advice would you have for a nonprofit, knowing that information that the problem is probably going to be the funder? That is a difficult conversation to have.

Maya: It is. It’s really difficult. But the good news here…there’s good news here in two ways. One, when I look at that data set, and I see that the most common external problem for a nonprofit are their funders, I see that as good news because that’s something we actually can change.

Denver: Yes. We control it.

Maya: Exactly. If the most common thing was acts of God, then it would be, “Oh, well. That’s just the world we live in, and we have to deal with it.” We actually can change this. So that’s the first piece of good news.

The second piece of good news is that when you look at these stories under the data of change in strategy, on policy inflexibility, on delay in disbursement, it’s not actually often that the fact that the check was two months late that is the threat to the project. The reason it’s a threat is because the communications and the expectation setting had been wrong up until that point. It’s not that the funder changed strategy. It’s fine if funders want to decide that they want to pivot and go in a different direction. That’s often not the challenge for nonprofits.

The challenge is that they hear the same story for nine months saying, “Oh, we have a new president. We’re going to be reevaluating, but you’ll be fine…but don’t you worry… but you have a three-year grant, and so that is committed.” And then when the moment comes, the board meets, the form e-mail comes through, “I’m so sorry. We’ve decided to change strategy.” So it’s really again back to that communication and that expectation-setting rather than the things that happen and the actual movements at the end of the day.

Denver: Yes. That lack of communication seems to be at the heart of so much of this.

So, if one in five programs or projects hit a roadblock during implementation, there is certainly no shortage of nonprofits that could use a helping hand from Open Road Alliance. What are your criteria? And how do you determine which ones to help?

Maya: It’s a great question, and as our name gets out there, our pipeline has been steadily growing…

Denver: The good news and the bad news.

Maya: It is good news and bad news. So our criteria, we focus on four core eligibility criteria. The first is that the project has to be mid-implementation. For us, that means: otherwise fully funded. And we really rely on that because since we are geographic- and issue-area agnostic, we don’t have technical experts on our team. So it’s really important to our ability to make good choices that we can rely on the due diligence of other funders who are experts in their space. So that’s the first criteria.

The second is that the obstacle has to be unexpected. We really are looking for unexpected in the exogenous sense, the external sense, as opposed to the “oops” moment of unexpected, which we acknowledge happens, too. So one of the things certainly that is important about our portfolio, in the roadblock analysis for example, is that excluded from that data set are any examples where the fault is on the nonprofit, if you will, where there was mismanagement or incompetence. And of course, we know those things happen, but that’s not what we’re speaking to. We’re speaking to the things outside of their control.

Denver: Well, you have over 100 examples in your portfolio. Give us a case study or two.

Maya: So one example, just from this past year, and this was not the only nonprofit to be affected by this roadblock, is an organization that focuses on cross-cultural experiences between primarily American high school and college students, and Muslim and Arab high school and college students across the world in the Middle East and North Africa. And they had been receiving significant funding from Al Waheed Philanthropies, one of the Saudi Arabian prince’s philanthropic efforts.

And earlier this year, when the crackdown occurred and – I don’t know if they labeled it as a coup retroactively – but the donor was imprisoned, and all of his assets were frozen, and the foundation stopped making all grant payments. So that’s an example of something outside of their control.

Another great one that I like to reference, an e-recycling company in Los Angeles, California was going through their annual business registration as they have to do. And as they were going through that process, a municipal clerk ticked the wrong box and classified them as being in the junk business instead of the recycling business. And what that did is it automatically tripled their insurance bill overnight. So they either had to shut down or pay three times as much while they sorted out this clerical error– which being government-issued– took six months to sort out.

Denver: Yes. Two good examples.

Earlier this year, you launched something called Open Road Ventures to complement and expand your existing work. Tell us about this fund.

Maya: So Open Road Ventures is a loan fund. We make charitable grants and loans to solve these unexpected roadblocks. And the reason that we created this loan fund is that after the first few years of doing charitable grants, and in direct consultation with our grantees, we realized that sometimes when things go wrong, you just need more money. But a lot of the times when things go wrong, the money is coming, like in the situation of a delayed disbursement, but you need money now.

Denver: Yes. Like a bridge loan or something.

Maya: Like a bridge loan, exactly. And nonprofits and social enterprises, they just don’t have access to the regular working capital that their for-profit counterparts have. So that’s essentially what Open Road Ventures does. It’s the same criteria, unexpected roadblocks, but if the issue is a cash flow, then we’ll solve that with a loan, and it’s a win for us because we get to recycle the same capital for more impact many times over.

Denver: You know, returning to this broad concept of risk, usually the way these things become mainstream is through leadership. And it would seem to me that the leadership in this case would have to be coming from the funder, more so than the nonprofit, because of the power dynamic that exists. A funder who really begins to make this an issue can have a tremendous impact on the sector. Is there anyone stepping up to assume that leadership role?

Maya: We have been really fortunate actually in having a number of champions from institutional philanthropy, new money philanthropy really be a part of our work. So in 2016, we convened a group that we called The Commons, which was a couple of dozen representatives from across the philanthropic space to start coming up with solutions to this problem, sort of a toolkit – What would these risk management practices actually look like in real life? And we were very fortunate that the co-convener of that group was Judith Rodin, who was at that time still president of the Rockefeller Foundation. So we do have a number of people that I think are really supporting the work.

And I think the other thing that’s positive here is that this isn’t something that needs to stand alone and apart and separate. Really in an ideal world, it’s integrated into monitoring and evaluation. It’s integrated into due diligence. It’s integrated into all of the existing best grant-making practices that others are and have been promoting. So it doesn’t have to be an add-on. It really is sort of just changing the way you look at it a little bit.

Denver: Yes. You don’t want it to be an add-on, you want it to be embedded and just common practice and common sense.

Speaking of the organization, how would you describe the corporate culture at Open Road Alliance? Are there one or two things that you think that make it a very, very special workplace?

Maya: Yes. Well, we are all special snowflakes in philanthropy. Each one of us is unique, or we like to think so, but I do, of course, believe that about Open Road.

There are two things that I think makes us noticeably different from our peers. Aside from our criteria and our niche of funding, the first is that from Day one, we have been designed to be what we call a 21st century work environment. We have a remote-based team. We have a virtual working environment, and it really is sort of following some of the larger trends just in business that for the nature of the work that we do, we want the best talent possible. And talent is distributed across this country and across this world, and we will come to them rather than have them come to us.

Denver: What makes those virtual workplaces work so well?

Maya: Technology. We couldn’t have done this 50 years ago. We couldn’t have this workplace 50 years ago. But in a job where – and this is not true for all organizations, but it is true for ours – every day is reading, writing, talking, and listening. With technology, you can do those in a variety of ways. And because we are also, just in terms of our partnerships, we are global and national and geographically dispersed, even if we had a headquarters in one city or one state, we would probably still have to get on an airplane the same amount of time in order to go visit the other places where our partners are based around the country and the globe.

Denver: Let me close with this, Maya. Open Road has looked at this issue from a variety of perspectives – foundations, nonprofits – through the lens of your own portfolio and analyzing that. Taking all that data together, what conclusions have you come to?

Maya: I think the conclusions that we come to are pretty straightforward. The world is unpredictable. Our sector is not prepared, and that lack of preparation is a detriment to impact and our reason that we exist. We’ve learned that you can’t claim to have impact if you don’t measure it. And what I would add on to that is: we can’t claim to maximize impact if we don’t account for risk.

Denver: Well, Maya Winkelstein, the Executive Director of Open Road Alliance, I want to thank you so much for being here this evening. Tell us about your website and some of the tools that you have on it.

Maya: So our website is www.openroadalliance.org. On there, we have a tab called risk management, and that’s where you can find both the reports around the research and data that we spoke about today, if you want to dig into that, as well as tools for risk management. So we do have a tool kit available. It’s on our homepage, or you can find specific tools through that dropdown. And it’s designed to help funders start taking those baby steps towards making this common place. So everything from: How do you determine your risk appetite? How do you write a risk policy statement? All the way to: How do I set up a contingency budget? How do I incorporate risk into my RFP process, into my monitoring and evaluation process… and, again, start thinking about this as an integrated piece of our practice to invest for maximum impact?

Denver: Well, a wonderful service for the sector. Thanks, Maya. It was a real pleasure to have you on the show.

Maya: Thank you!