The Strategy of Philanthropy

The world of philanthropy is largely quiet, secure, and comforting. Unlike almost any other enterprise, it is possible to be applauded and embraced regardless of merit or performance.

While no one is in a position to ask tough questions about philanthropic choices, some donors and grant makers — particularly those who run the nation’s larger foundations — have in recent years begun to worry quietly about their work. They have struggled, sometimes publicly, to improve the quality of their philanthropy.

One of the most common ways in which the striving for self-improvement manifests itself is in the ritual recitation of two issues that are thought to be absolutely central to philanthropy’s future: effectiveness and accountability. The problem is that both of these concepts are routinely misconstrued, and they actually obscure the far more important concept of legitimacy and the question of whether philanthropic power is being exercised justly.

Let’s start with effectiveness. In its most commonly understood form, the effectiveness of a donor has come to be associated with the performance of the vast array of grant recipients that receive his or her largess.

Thus, in the search to take seriously the charge of improving grant making, foundations and donors have spent large amounts of money and energy evaluating nonprofit programs.

To breathe life into the concept of effectiveness, donors seek to apply metrics of all sorts to reach a conclusion about the effectiveness of their grantees. The problem with that approach is that it overlooks a more important dimension of effectiveness in philanthropy, one that demands an inward-looking perspective.

The main challenge for donors is not to track their many recipients, but to focus instead on the relative fulfillment of their own missions. The real question that donors should obsess over is whether their own philanthropic missions are being achieved, which is very different from tracking individual grants and hoping that in some way they aggregate to something larger than the sum of the parts.

In reality, dealing meaningfully with the effectiveness question requires a steady and daunting introspective gaze about the quality of decision making by both institutional grant makers and wealthy philanthropists.

Donors need to ask about how effective they are in achieving their objectives and in fulfilling their missions. This is very different from assuming that the concept of effectiveness resides somewhere across the diffuse and distant world of foundation grantees.

If the confusion about effectiveness were not enough, philanthropy is even more muddled when it comes to the meaning of accountability.

When foundations talk about accountability, they almost always end up focusing on openness and the need to provide documents and information to the world. Thus, in the service of greater accountability, many foundations have gone to great lengths to make their grant-making procedures clearer, to publish annual reports, and to meet regularly with nonprofit groups to explain their work.

Donors often seem to believe that if only they could build a good Web site and promulgate clear guidelines, their accountability work would be done.

The problem is that accountability is not an empty vessel into which “information” about procedures can be dumped. Real philanthropic accountability demands substantive content in the form of data on the actual performance of the donor.

That means that instead of sending out materials that clarify the grant-making process, donors need to actually share with the world information on whether important philanthropic objectives are really being met.

Accountability, to be meaningful, must have high stakes and be grounded in disclosures about things that truly matter, namely whether philanthropic missions are being fulfilled. In this sense, it is impossible to be accountable without disclosing information about the donor’s effectiveness.

Lurking beneath all the confusion over accountability and effectiveness is the bigger question of philanthropic legitimacy, an issue that rarely gets explored and debated.

Legitimacy is a touchy issue in philanthropy. Fueled by private wealth but directed at producing public benefits, philanthropy has a built-in tension.

On the one hand, it is tempting to ask who has the right to say anything about how individuals and institutions carry out their philanthropic work. After all, these are private funds that supplement public programs, and they should simply be welcomed as voluntary contributions to improve society.

On the other hand, some people wonder who exactly these wealthy actors are to take it unto themselves to interpret public needs and to act as miniature and undemocratic regimes.

There is a part of philanthropy, the speaking for others without their consent or consultation, that seems to require a fair amount of hubris and is off-putting to some. It is this second line of thought that leads directly to the question of what makes philanthropy legitimate.

Legitimacy has two essential meanings. The first is straightforward: Philanthropy is legitimate when it is conducted in observance of all relevant laws and rules.

Donors can claim to be legitimate when they lawfully exercise their philanthropic duties. That means avoiding some of the scandals and investigations that have recently plagued the foundation world, as made evident in the articles about self-dealing and financial mismanagement that have been uncovered by the news media.

The second meaning of legitimacy is much more complex. Philanthropic legitimacy can be defined as the just and fair exercise of philanthropic power. By this I mean donors can claim to have met the test of legitimacy when the full range of people that have a stake in philanthropy believe they act in a way that is just and wise. That sets the bar considerably higher than the legal definition of legitimacy does.

Rather than spending more time on tired evaluations of grantees and claiming some residual effectiveness as a result of this documentation, and rather than focusing on openness as an easy solution to the call for greater accountability, donors should begin with the question of their own legitimacy, concentrating both on whether they are following the law and on acting justly.

They will find that it is impossible to be legitimate without being substantively accountable for their work. They will also soon discover that it is impossible to be substantively accountable without being able to demonstrate their effectiveness at achieving their own objectives and missions.

In this way, a focus on legitimacy would both elevate the quality of debate within philanthropy and expose the poverty of today’s overemphasis on the effectiveness of grantees and the accountability of philanthropic procedures.

What would also emerge rather quickly is the centrality of sound strategy. Robust and well-conceived strategy is essential to effective philanthropy, which in turn is critical to creating the basis for real substantive accountability — and that is ultimately needed if philanthropy is to achieve broad public acceptance and confidence.

Philanthropic strategy comes down to making a set of complex choices about a donor’s mission and coupling it carefully with an appropriate way to accomplish that mission, setting a time frame for giving that matches the mission, choosing a philanthropic style that satisfies both the donor and recipients, and working through a giving approach or institution that enhances the entire process.

Real effectiveness, meaningful accountability, and legitimacy all are related and built on the same strategic foundation. Compared with business and government, however, the amount of time and attention philanthropy devotes to developing sound strategy is surprisingly small. Nevertheless, sound strategy is where the road to greater legitimacy begins.

It won’t be easy to turn philanthropy’s attention in a new direction. But donors of all sizes and shapes would benefit from the challenge of pondering the sources of their own legitimacy and clarifying for themselves what strategic giving ultimately means.

Peter Frumkin is a professor of public affairs and director of the RGK Center for Philanthropy and Community Service, both at the University of Texas at Austin. His new book is Strategic Giving: The Art and Science of Philanthropy (University of Chicago Press), from which this article is adapted.