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Helping Philanthropy Be More Realistic About The Risks Inherent In Its Mission

Many nonprofits shy away from discussing chances that things could go catastrophically wrong for them for fear of scaring donors. But The Commons wants to get those discussions out in the open.

Helping Philanthropy Be More Realistic About The Risks Inherent In Its Mission

Several years ago, Worldreader, a group that shares digital books through various apps to increase literacy in sub-Saharan Africa ran into a serious problem: The tech company hosting their largest cache of literature was shutting down.

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Around the same time, the Center for Mind-Body Medicine, which works with Native American reservations dealing with widespread psychological trauma and stress, had its own crisis: A rash of suicides in one location demanded lots of staff support, limiting their ability to help elsewhere.

Yet another group, Mano a Mano, was midway through building a road to connect several isolated communities in Bolivia with major cities when a flash flood struck, destroying their progress and equipment.

Traditionally, each of these groups should have failed: None had the necessary backup funding to weather such crunches. Instead, they were saved by Open Road Alliance, a philanthropic initiative that provides charitable or recoverable grants to groups who encounter the sort of “unexpected roadblocks” that would otherwise cripple their ability to make change. But the group wants to do more than just save insolvent projects. They’re hoping to turn what they’ve learned while saving them into a roadmap that can prevent many such troubles altogether.

Last year, the ORA helped launch The Commons, a philanthropic roundtable co-convened by ORA founder Laurie Michaels and Rockefeller President Judith Rodin. Membership includes 25 sector leaders from places like the Global Philanthropy Forum and the Bill & Melinda Gates Foundation, who’ve been tasked with figuring out why cause groups and funders don’t seem to share the same–not to mention at all adequate–understanding of what risks they might really encounter, or how to mitigate them.

In mid-January, the group released what they’re calling a toolkit for groups and funders to manage their own expectations and any concerns that might crop up along the way. It includes 10 ways to judge things like how much risk each party is comfortable with, how much risk they’re really taking, and what financial and management procedures might keep progress moving if circumstances change.

As The New York Times reports, this “covers broader areas like helping donors understand their own risk appetite with their grants, and putting together a risk policy statement similar to ones done for a portfolio of investments.” That’s an important and long overdue step: When cause groups fail, ultimately it’s the people they’re trying to help that suffer the most.

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THE REALITY OF RISK

Open Road Alliance, which was founded in 2012, initially arose to address charity’s special catch-22: While doing complex projects on tight budgets in remote or isolated places carries an obvious chance of failure, most grantors and recipients didn’t acknowledge that. Roughly three-quarters of funders don’t ask applicants to anticipate additional funding costs, a group survey shows, and only a select few factor contingency costs into their annual budgets. As a result, about one in five of all philanthropic projects require contingency funding. (A rather polite way of saying bailout money.)

To date, ORA has given out $7.6 million to over 50 groups, saving roughly seven times that in otherwise-lost investments. Before deciding to give aid, the initiative must assess whether the group falls into the “Oops” or “Oh My God” category of crisis. “’Oops’ are the things that are fundamentally internal to the project. That could be mismanagement or incompetence…,” says ORA Executive Director Maya Winkelstein (who is also the chair of The Commons). “‘Oh My God’ refers to externality. That could be an act of God or act of man,” including things like natural disasters destroying field work, an economic crisis affecting currency rates, some partner agency defrauding you, or major donors defaulting.

The group has learned that spotting what exactly created an “Oops” takes serious geographical and technical understanding. It can be difficult to calculate that fairly. On the other hand, “Oh My God” instances are fairly obvious. “For our investments, we only fund that ‘Oh My God’ moment,” Winkelstein says. But over time, they realized that many people weren’t hedging at all for either. “You don’t know what can go wrong, but you can bet that something will,” she adds.

AN EVEN LESS RISKY SOLUTION

Providing fail safe funding in perpetuity isn’t really a sustainable philanthropic model, even if some of that’s meant to be repaid over time. So rather than just provide emergency support, ORA has been working to keep more groups out of trouble.

The Commons especially hopes to change funders’ attitudes about risk because ultimately that’s where the imbalance of power tends to tip, says ORA Fund Director Michael Madnick, who helped run Commons meetings. Oftentimes nonprofits don’t disclose concerns that might affect their ability to complete their missions for fear of losing future funding. Besides, many large donors appear to want to play it safe—downgrading their own ambitions instead of risking failure. The result is an atmosphere that’s extremely transactional, instead of collaborative. “There’s an underlying degradation of trust. That slows progress,” Madnick says.

To that end, one of the less measurable goals of the new toolkit is simply to instigate more conversations between those writing checks and those cashing them. “This risk question is a bridge to the whole bigger issue of trust, and the reality is that money doesn’t solve that problem–people do,” Madnick says.

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In some cases, like if the funder doesn’t have ways to dole out emergency cash outside of their traditional grant-making cycle and hasn’t built in a contingency fund, the entire process should probably be overhauled. All of that starts with the sort of reality check Winkelstein hopes the toolkit can provide. “When funders don’t ask, grantees don’t tell. When grantees don’t tell, funders don’t know. When funders don’t know, they can’t help in roadblock situations.“

While ORA will continue to help those groups that it can, it hopes more and more won’t need them.

About the author

Ben Paynter is a senior writer at Fast Company covering social impact, the future of philanthropy, and innovative food companies. His work has appeared in Wired, Bloomberg Businessweek, and the New York Times, among other places.

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