Monday’s Wall Street Journal included a special section on philanthropy with several pieces well worth the attention of those interested in the nonprofit sector. The front page of this special section features two responses to the question of whether philanthropies should operate like businesses. Answering in the affirmative are Charles Bronfman and Jeffrey Solomon, chairman and president respectively of the Andrea and Charles Bronfman Philanthropies and authors of The Art of Giving: Where the Soul Meets a Business Plan; answering in the negative is Michael Edwards, distinguished senior fellow at Demos and author of Small Change: Why Business Won’t Save the World.
There are really two parts to the question of whether philanthropies should operate like businesses treated by Misters Bronfman and Solomon and Mr. Edwards: should a philanthropist considering a donation make judgments like an investor considering whether to buy shares in a company? And, should nonprofit leaders act like business leaders in the day-to-day operations of their organizations?
Reading Misters Bronfman and Solomon’s and Mr. Edward’s essays together raised several questions for me, including some about the suggestion that philanthropists should judge on metrics as investors judge on profitability.
A trouble with relying on metrics to guide philanthropic investments is that metrics published by nonprofit organizations require a kind of interpretive translation that profits do not.
If a company posts fourth-quarter profits of a certain number of dollars, everyone knows that revenues exceeded costs by that amount. On the other hand, metrics published by nonprofits are not so easily interpreted. There is a time-consuming, and therefore costly, process of translation between potential donors who explain what they want their gift to accomplish and nonprofit leaders who explain their mission and how they measure success.
As someone who has worked both at a grantmaking foundation and read reports from grant recipients and as someone who has worked with non-profits to produce reports for donors, I know well that there’s a significant fudge factor involved in making these translations. Nonprofits may rightly judge that their successes cannot be captured in an easy-to-measure metric, and they are under pressure to measure the outcomes the donor values, which may not be identical with the outcomes that the nonprofit is actually pursuing. Too often, nonprofits devote an enormous amount of staff time to devising metrics that are not really indicative of their core mission in order to satisfy donors. They may then devote more staff time to crafting reports that flatter donors more than report fully and frankly on the nonprofit’s successes and setbacks. As someone who has written reports for nonprofit organizations on the use of a grant, I’ve always strived to describe honestly the work of the nonprofit and to show how it advances the mission of the donor. But I’m aware of the fact that I’m crafting a narrative that could be easily told in a different way and reporting metrics that could be replaced with other metrics to show different successes.
This makes me skeptical that the use of metrics to guide philanthropists can be reliably analogized to the use of profit to guide investors. If one company is more profitable than another, I can reasonably suppose that it is better to invest in the more profitable one because I’m comparing apples to apples -- profitability measured in dollars at two different companies. But if one nonprofit performs better on its metrics than another, I still must wonder if its mission is simply more readily captured in an easy-to-measure way, or perhaps if its staff is better at crafting a compelling annual report. I cannot be sure that I’m comparing apples to apples. The aspiration to measure the value of a nonprofit’s work by metrics should be tempered by humility about what can be measured and about placing demands on nonprofit staff time to produce another report of uncertain value.
There must be some middle path -- nonprofits should be like businesses in some ways and unlike them in others. The Wall Street Journal essays by Misters Bronfman and Solomon and Mr. Edwards begin a dialogue that address important issues for non-profit leaders and philanthropists as they consider to what degree the analogy between philanthropy and business holds.