Subscriber Exclusive

It goes beyond valuing your donors and making sure they feel connected to your organisation. It’s about enhancing their wellbeing, explains Adrian Sargeant

One of the advantages that philanthropy conveys in a democratic society is its ability to absorb higher levels of risk. Adrian Sargeant explains what to do when philanthropists are risk averse.

 

Lord Dahrendorf famously referred to a key strength of the voluntary sector as the ‘creative chaos’ nonprofits can generate. In a democracy, people

passionate about bringing about societal change can come together and form voluntary associations focused on the subject of that passion. The creative energy that ensues often comes up with innovative new solutions to society’s ills. And when exciting new ideas do emerge, they can be quickly brought to scale by more powerful and often state actors. The voluntary sector thus plays an important role as it can accept risk others cannot tolerate.

Indeed, one of the advantages that philanthropy conveys in a democratic society is its ability to absorb higher levels of risk than, say, government or business. Governments can’t take substantive risks with public funds because of concerns that they might subsequently be held to account at the ballot box. Similarly, businesses can’t absorb higher levels of risk because of the need to deliver a return to shareholders. Even social enterprises that have wider social objectives must still be mindful of how they steward their capital. Sure they can innovate, but they often can’t take the kinds of risks necessary to bring about radical and systemic change.

So, if no-one else is taking risks to identify innovative solutions, are philanthropists stepping up and fulfilling this necessary function? Shouldn’t the competitive advantage of philanthropy be that it can absorb higher levels of risk?

Unfortunately, there is evidence that philanthropists are not willing to take the risks they could with their philanthropy. A Bank of America study of philanthropy conducted in 2010 tells us that virtually no high-value philanthropists want to take substantive risks with their philanthropic assets (a mere 3.8%). To compound the issue, it seems that philanthropists are more risk averse with their philanthropic assets than they are with their personal financial assets. Some 26% are not willing to take any risks with their philanthropic assets, compared with only 10% who take a similar view of their other financial investments.

So why might this be and what might we be able to do about it? From our recent research on risk we know that individuals develop anchors (ie numbers or perspectives) that they are comfortable with. They develop these, for example, in their business lives and, whether they realise it consciously or not, they inevitably bring these anchors to other domains such as their philanthropy. So one of the first things that we might do to encourage philanthropists to take greater risk is to make them aware of the existence of these anchors and the need  to develop (consciously) new ones for their philanthropic endeavours.

We might also adopt an approach that is respectful of where our higher value donors are. So someone coming from a career in investment banking, for example, may have a larger appetite for risk than someone making their money from a successful career in local government. In this way, projects involving differing levels of risk can be matched to the donors best suited to the particular endeavour. It is also possible to stretch this tolerance over time, so rather than suggesting a project with a high level of risk from the outset, the level of risk can be increased gradually over the duration of a relationship.

It also turns out that from the wider literature on risk, people value losses more than they do gains in their decision making. In other words, an objective gain or loss of equal magnitude is not treated equally; the loss receives a higher ‘weighting’ and has a proportionally greater impact on the outcome of the decision.

To encourage  successful  risk  assessment the first step that philanthropists should take is to explicitly articulate what will constitute gains and losses in terms of their resources. These resources may include financial, time, talent and/or network resources. An explicit consideration of these issues has the potential to greatly enhance decision making because philanthropists are typically very good at articulating potential losses, but they are rather less skilled at articulating all the potential gains.

In evaluating philanthropic impact, philanthropists need to consider both the impact on society and the impact on themselves. In our study, all but a couple of interviewees  consciously  considered  social and systemic impact as a gain since it is central to their philanthropic investment. Almost all interviewees were able to articulate it. They acknowledged that this articulation may not have been clear at the inception of a project, but it was nevertheless something that they had made a conscious effort to do.

What was less obvious to some interviewees was that personal impact (ie impact on the individual) or institutional impact (ie impact on the philanthropic institution itself, for example in learning that can be applied to future work) can also be a gain. Most participants felt that personal gain was not why they entered philanthropy and they stopped their reflection at that point without necessarily asking themselves, if that were true, why they chose to be in philanthropy at all and what keeps them there.

As selfish as this reflection might seem, we recommend that philanthropists undertake it and articulate all their personal gains. Will the experience allow them to find greater meaning or depth in their experience of philanthropy?

Will they enjoy the process of learning or the intellectual stimulation of trying to solve difficult or intractable problems? Will they enjoy the connection with others passionate about the same cause?

Faced with all these potential gains, the conception of risk changes and they may be more accepting of it as a consequence

 

 

Adrian Sargeant

Adrian Sargeant is Director of the Hartsook Centre for Sustainable Philanthropy at Plymouth University in the UK. He is also Adjunct Professor of Fundraising at Indiana University and a Visiting Professor of Fundraising at Avila University in Kansas City.

print
X
Subscribe to access this article.

Continue reading your article with an F&P subscription

Join with other top fundraisers to receive insight, analysis and inspiration to help you raise more funds.

subscribe now for $1

Cancel anytime.

Already a subscriber? LOGIN HERE