Quanta Corporate Citizenship The Philanthropic Corporate Mindset
by Gus Romano
| Quanta Corporate Citizenship |
When investing in philanthropy, especially when deciding who to partner with partner, an organisation needs to be clear about the amount of risk it wants to take. Innovation and demonstrable impact are two diametrically opposed concepts that companies identify when they decide how to invest internally, for example, whether to fund R&D or replicate existing plant manufacturing of an established product). These concepts, however, are often completely forgotten about by a company when deciding how to allocate their philanthropic funds. Game changing innovations, by definition, are generated from and by unproved methods, organisations or processes. In the same way that investors do not expect “proven impact” from startups they are considering for investment, or concepts being developed by their R&D departments (at least not before they invest and give them the proper time to develop their ideas, techniques and processes), they should not expect organisations devoted to social or environmental innovation to prove their impact.
As in the corporate sector, if proven impact/return is essential for the investor, they would certainly be better off partnering with established organisations delivering established products or services. There are significant tradeoffs to be made, and the investing organisation needs to be aware of them. Unfortunately, many companies are unaware and expect both proven impact upfront and game changing innovations at the same time. That will not happen.
As in the corporate sector, if proven impact/return is essential for the investor, they would certainly be better off partnering with established organisations delivering established products or services. There are significant tradeoffs to be made, and the investing organisation needs to be aware of them. Unfortunately, many companies are unaware and expect both proven impact upfront and game changing innovations at the same time. That will not happen.
The fact that an organisation cannot produce evidence of impact upfront does not mean that it will not be able to do so later on. As with any other organisation, a charitable organisation will need to manage itself and show the results produced at some point. As Nancy Rob, from Duke University, stated, “not every promising program needs to be or can be evaluated independently from the very outset. Yet, our experience suggests that the earlier an organization embraces performance measurement and evaluation, the sooner it will be prepared and likely to grow”[1].
Decide whether your organisation is a venture-capital investor or a blue chip investor, or what is the best balance between these two ends of the spectrum.
Select organisations working in fields that have a strategic fit with your organisation in terms of thematic areas, relevant footprint, brand exposure,risk, financial requirements and return schedule.
Perform relevant legal, financial, brand and leadership due diligences. By relevant I mean get the right information to make sure you are making the right decision and make sure you get all the information, but avoid the temptation to overdo it. Investors routinely ask for much more information than needed – often more information than they would be able to produce themselves. Also, pre-establish how you want to receive this information: think about the structure, templates that can be used, languages that may need translating etc. Keep in mind that every time an investor asks for a different format or a new set of data, the reporting organisation will have to divert resources and attention to produce such information, instead of simply focusing on delivering the projects it is supposed to be delivering. Things such as translation might take a much greater effort if it is done by the reporting organisation. They will often have to hire an expensive external consultant to translate, whilst the donor, could have someone already responsible for professional translation within its structure.
Also, any potential donor should establish upfront when it wants this information and when it will communicate its decisions to the receiving organisation. Many receiving organisations operate on their “own time” (and to be fair to charities and social enterprises, it takes longer not because they are less efficient, but because they generally operate in more challenging environments and have significantly pool of human and financial resources, if compared to for-profit organizations). Things generally take longer to get done than in the corporate sector. Donors should be aware of these limitations, understand what level of reporting they can work with, and make their peace with that upfront. If the potential recipient of funds or knowledge operates on a timescale that is incompatible with yours, it is important to consider working with an organisation that can better meet your needs as a donor. In the medium term, without significant investment, it is unlikely that they will be able to dramatically change their procedures. By then, the partnership might have already deteriorate if there is no clarity about the mutual constrains upfront. Realism is the key word here. Charities and social enterprises regularly operate in different cultures, or in difficult environments. They often do not have adequate systems and processes in place (many which would be unrealistically expensive to develop), or are unable to attract staff, with the same level of expertise or training as the corporate sector, because of local circumstances or low wages or, often, all of these factors combined. Regardless, make sure you understand their circumstances and accept them before committing.
Even if the donor decide to cover the reporting expenses, if there were no reporting the money could be used to deliver the project itself. On the other hand, no reporting at all is signing a blank check that might not only be seriously misused, but might cost the donor’s reputation by association.
When it comes to international operations, trying to separate good charities from bad ones is very tricky. What is called a charity in the US or Europe is not the same as what is called a charity in different developing countries. Organisations with catchy names, well spoken representatives, and glossy reports with big-eyed children on the cover might not be what they appear to be, whilst organisations delivering truly life-changing projects might have unpronounceable names, representatives that wouldn’t make it through your front door, and might not even have a camera to take a photo of what they are doing. In the same way that companies do not want to be associated with promiscuous athletes, they don’t want to have their brands associated with charities involved in financing terrorism or involved in child sexual exploitation.
The importance of getting the reporting requirements right upfront cannot be overemphasised. As Tris Lumley, from New Philanthropy Capital, points out, because of poorly developed reporting requirements, charities regularly end up “(a) focusing on metrics that don't give a true measure of a charity's overall impact, but reduce their work to a few measurable but overly simplistic indicators; (b) neglecting the stuff that's harder to measure but more closely tied to an organisation’s real mission - measuring 'hard' but less relevant outcomes at the expense of 'soft' but more important changes in people's lives, communities and society; (c) being driven by funders, trying to measure outcomes to satisfy funders' requirements, rather than capturing data that's truly useful to the charity itself”[1]
Independent specialised external audit is important, and becomes more important the greater your exposure is to the receiving organisation. But again, it is essential to audit what is really relevant. The greater the time the organisation dedicates to help auditors, the less it will be delivering their projects. Striking the perfect balance is crucial.
As mentioned before, the timing of these reports is also important. A few years ago, the organisation I was working with in Angola received a grant from a Southeast Asian government on a Wednesday. By Friday morning there was a request for a report. Well, the only report the receiving organisation could produce was to say that the money had finally reached their bank account. Both the receiving organisation and the donor should always be clear what is the purpose of a report. If it is simply to check a bureaucratic box, should it really be done?
Even details such as IT systems need to be taken into account. Countries in Africa are generally a couple of version behind on their software and if reports need to be produced using certain templates developed by the donor, the later should make sure that the receiving organisation will be able to use it without having to spend a significant amount (for it) to upgrade its software or be forced to violate a dozen IP rights procuring the local high street version of that software. It may sound comic, but in my professional life I’ve seen endless cases of charities were ‘driven’ to break IP laws to comply with donors requirements. Other times, the problem is local internet capability, especially bandwidth. Operational issues acquire a strategic relevance when the organisation you are partnering with cannot establish a stable relationship with you because of systems, processes, communication or culture.
But once the donor decides to partner with a specific organisation, it should do so full heartedly. Making a commitment and sending mixed signals, or having second thoughts, only serves to destabilise the receiving organisation. This includes trying to change the rules of the relationship after the commitment has been made. Asking the receiving organizsation to comply with or develop new metrics, gather new kinds of data or develop new reports, or comply with new auditing requirements, is just counterproductive. Constantly distracting the receiving organisation hinders its ability to deliver. Besides, the essence of a strategic alliance is trust, and such trust cannot be built if the relationship platform is an unstable one.
Donors should always make sure that they are collecting relevant information and not just a compendium of glossy pictures, and that the programme outcomes are not just a collation of anecdotal evidence.
Donors should use the information they are receiving to build and feed meaningful databases that allow them to track the performance of their donation. This database should be consistent and looked after. This data is useful in a myriad of ways. For instance, donors should try to compare the outcomes across different projects and organisations to realistically assess the cost-benefit of their commitments. But even if such comparisons are not practical or possible (and they are often neither possible nor meaningful, but in fact dangerous), donors can start building historic trends for future comparisons. Furthermore, they can be used in subsequent commitment cycles to set new targets for the donor and for the receiving organization.
For companies that make this kind of commitment, the database can also play the fundamental role of providing essential information to other donors, researchers, charities and governments if its data is made available beyond its walls.
What I am calling here a database is not only a repository for quantitative data – which is very relevant – but also good qualitative data, such as well structured best practices, case studies and qualitative field reports. But, once again, the donor should always strive to strike the delicate balance between gathering relevant information from simply getting in the way of the receiving organization. It needs to keep in mind that reports are a valuable byproduct of its relationship with the receiving organisation, not its objective. Without a clear mandate and framework from its leaders defining its objectives and limits, the middle management bureaucracy will tend to collect data for the sake of, ‘just in case’.
Decide whether your organisation is a venture-capital investor or a blue chip investor, or what is the best balance between these two ends of the spectrum.
Select organisations working in fields that have a strategic fit with your organisation in terms of thematic areas, relevant footprint, brand exposure,risk, financial requirements and return schedule.
Perform relevant legal, financial, brand and leadership due diligences. By relevant I mean get the right information to make sure you are making the right decision and make sure you get all the information, but avoid the temptation to overdo it. Investors routinely ask for much more information than needed – often more information than they would be able to produce themselves. Also, pre-establish how you want to receive this information: think about the structure, templates that can be used, languages that may need translating etc. Keep in mind that every time an investor asks for a different format or a new set of data, the reporting organisation will have to divert resources and attention to produce such information, instead of simply focusing on delivering the projects it is supposed to be delivering. Things such as translation might take a much greater effort if it is done by the reporting organisation. They will often have to hire an expensive external consultant to translate, whilst the donor, could have someone already responsible for professional translation within its structure.
Also, any potential donor should establish upfront when it wants this information and when it will communicate its decisions to the receiving organisation. Many receiving organisations operate on their “own time” (and to be fair to charities and social enterprises, it takes longer not because they are less efficient, but because they generally operate in more challenging environments and have significantly pool of human and financial resources, if compared to for-profit organizations). Things generally take longer to get done than in the corporate sector. Donors should be aware of these limitations, understand what level of reporting they can work with, and make their peace with that upfront. If the potential recipient of funds or knowledge operates on a timescale that is incompatible with yours, it is important to consider working with an organisation that can better meet your needs as a donor. In the medium term, without significant investment, it is unlikely that they will be able to dramatically change their procedures. By then, the partnership might have already deteriorate if there is no clarity about the mutual constrains upfront. Realism is the key word here. Charities and social enterprises regularly operate in different cultures, or in difficult environments. They often do not have adequate systems and processes in place (many which would be unrealistically expensive to develop), or are unable to attract staff, with the same level of expertise or training as the corporate sector, because of local circumstances or low wages or, often, all of these factors combined. Regardless, make sure you understand their circumstances and accept them before committing.
Even if the donor decide to cover the reporting expenses, if there were no reporting the money could be used to deliver the project itself. On the other hand, no reporting at all is signing a blank check that might not only be seriously misused, but might cost the donor’s reputation by association.
When it comes to international operations, trying to separate good charities from bad ones is very tricky. What is called a charity in the US or Europe is not the same as what is called a charity in different developing countries. Organisations with catchy names, well spoken representatives, and glossy reports with big-eyed children on the cover might not be what they appear to be, whilst organisations delivering truly life-changing projects might have unpronounceable names, representatives that wouldn’t make it through your front door, and might not even have a camera to take a photo of what they are doing. In the same way that companies do not want to be associated with promiscuous athletes, they don’t want to have their brands associated with charities involved in financing terrorism or involved in child sexual exploitation.
The importance of getting the reporting requirements right upfront cannot be overemphasised. As Tris Lumley, from New Philanthropy Capital, points out, because of poorly developed reporting requirements, charities regularly end up “(a) focusing on metrics that don't give a true measure of a charity's overall impact, but reduce their work to a few measurable but overly simplistic indicators; (b) neglecting the stuff that's harder to measure but more closely tied to an organisation’s real mission - measuring 'hard' but less relevant outcomes at the expense of 'soft' but more important changes in people's lives, communities and society; (c) being driven by funders, trying to measure outcomes to satisfy funders' requirements, rather than capturing data that's truly useful to the charity itself”[1]
Independent specialised external audit is important, and becomes more important the greater your exposure is to the receiving organisation. But again, it is essential to audit what is really relevant. The greater the time the organisation dedicates to help auditors, the less it will be delivering their projects. Striking the perfect balance is crucial.
As mentioned before, the timing of these reports is also important. A few years ago, the organisation I was working with in Angola received a grant from a Southeast Asian government on a Wednesday. By Friday morning there was a request for a report. Well, the only report the receiving organisation could produce was to say that the money had finally reached their bank account. Both the receiving organisation and the donor should always be clear what is the purpose of a report. If it is simply to check a bureaucratic box, should it really be done?
Even details such as IT systems need to be taken into account. Countries in Africa are generally a couple of version behind on their software and if reports need to be produced using certain templates developed by the donor, the later should make sure that the receiving organisation will be able to use it without having to spend a significant amount (for it) to upgrade its software or be forced to violate a dozen IP rights procuring the local high street version of that software. It may sound comic, but in my professional life I’ve seen endless cases of charities were ‘driven’ to break IP laws to comply with donors requirements. Other times, the problem is local internet capability, especially bandwidth. Operational issues acquire a strategic relevance when the organisation you are partnering with cannot establish a stable relationship with you because of systems, processes, communication or culture.
But once the donor decides to partner with a specific organisation, it should do so full heartedly. Making a commitment and sending mixed signals, or having second thoughts, only serves to destabilise the receiving organisation. This includes trying to change the rules of the relationship after the commitment has been made. Asking the receiving organizsation to comply with or develop new metrics, gather new kinds of data or develop new reports, or comply with new auditing requirements, is just counterproductive. Constantly distracting the receiving organisation hinders its ability to deliver. Besides, the essence of a strategic alliance is trust, and such trust cannot be built if the relationship platform is an unstable one.
Donors should always make sure that they are collecting relevant information and not just a compendium of glossy pictures, and that the programme outcomes are not just a collation of anecdotal evidence.
Donors should use the information they are receiving to build and feed meaningful databases that allow them to track the performance of their donation. This database should be consistent and looked after. This data is useful in a myriad of ways. For instance, donors should try to compare the outcomes across different projects and organisations to realistically assess the cost-benefit of their commitments. But even if such comparisons are not practical or possible (and they are often neither possible nor meaningful, but in fact dangerous), donors can start building historic trends for future comparisons. Furthermore, they can be used in subsequent commitment cycles to set new targets for the donor and for the receiving organization.
For companies that make this kind of commitment, the database can also play the fundamental role of providing essential information to other donors, researchers, charities and governments if its data is made available beyond its walls.
What I am calling here a database is not only a repository for quantitative data – which is very relevant – but also good qualitative data, such as well structured best practices, case studies and qualitative field reports. But, once again, the donor should always strive to strike the delicate balance between gathering relevant information from simply getting in the way of the receiving organization. It needs to keep in mind that reports are a valuable byproduct of its relationship with the receiving organisation, not its objective. Without a clear mandate and framework from its leaders defining its objectives and limits, the middle management bureaucracy will tend to collect data for the sake of, ‘just in case’.
The author, Gus Romano, is a partner and co-founder of Quanta Corporate Citizenship
