Risk Revisited: Some Real-Life Examples to Fine Tune our Philanthropy

Every day we all make decisions, typically small and incidental ones, which involve risk. Should we cross the street, pass that truck, try that dish, answer that call? Some are not so trivial:?should we take that job? Invest in that fund? Move in with that person?

There is nothing that we do that doesn’t have some risk.?The reason is that we are making a decision about the future, and nothing about the future is absolutely guaranteed.?No matter how much evidence we have, no matter what our past experience may be, by definition the future can be anticipated but it cannot be fully known.

Funders sometimes forget this truth. Some want evidence-based assurances, proven concepts, guarantees that our philanthropic investments will yield the results, the changes, the impact we hope for. Sorry, dear colleagues. There can be no such assurances or guarantees. The best we can hope for, if that is what you want, is to reduce the risk. Moreover, as we shall see in a couple of the anecdotes below, to effectuate those changes may require a higher risk tolerance.

The question, though, is what is risk? A few anecdotes:

1.?????Empowerment:?I spent the first 14 years of my career working with and teaching university students.?By definition, at least ? of that population changed every year, and after 4 years it was safe to assume that the student population had changed almost 100%. Every year, students would come to campus bursting with enthusiasm and ideas how to bring about changes, programs, communities. You won’t be surprised to know that many of those ideas were not new and had been tried before. ?As the professional who had seen it all, I had a good sense which of those ideas wouldn’t work and which ones would.

However, I quickly learned that, from a student perspective, if they never saw it, it never happened. So as an advisor, I had to make a decision about risk. Was it better to go ahead with a given student initiative knowing that it would probably fail, or was it better to empower those students to learn for themselves??In other words, it was a balancing of risk: is learning from experience more or less important than success or failure??There were risks to both approaches, and the challenge for me as the advisor to make a determination about which risks are worth taking, and which ones are too “risky”????[I erred on the side of student empowerment and learning most of the time, but not always.]?

This example illustrates that in every decision one is balancing competing risks and weighing the tradeoffs.

However, there is another part of the story. As described above, the choice was probable programmatic failure vs. successful learning. However, I wasn’t always right.?Sometimes a programmatic idea hit at exactly the right time or with exactly the right leaders or with exactly the right tweaks. What a shame it would have been if I had squelched that student initiative. You just never know.?

2.?????Risk Aversion:?A foundation on whose board I sat for about a decade had an explicit commitment to support start-ups or early-stage non-profits. By definition, of course, that is a high-risk proposition. One could hardly expect them all to make it, although a respectable number did make it at least into the next stages, and some much further. However, a funny thing happened. As time went on, the selection committees became more and more risk averse. It became harder and harder for new programs and projects to make it into the incubator stage.

Now, of course, it was legitimate for the foundation to fine tune its criteria and to learn from its years of incubating. What was intriguing was a gradual, then palpable, attitudinal transition:?at the beginning there was an excitement of the new – people, creators, innovators – all wanting to make changes. Sure, they weren’t all going to make it, and sure many shouldn’t.?But if a foundation committed to innovation found that the risk assessment was more informed by risk aversion than enthusiasm, it should hardly surprise us if we hear of more mainstream foundations finding it difficult to take innovation risks.

3.?????The Safe Choice:?For many years, in a workshop I offered called “the view from the other side,” the participants were asked to choose what to fund among a limited number of choices. At the beginning of the discussions, some were in favor of the most innovative but least proven, and some were more inclined to choose a well-established institution. By the end of the group decision making, the most innovative never made the cut. The safest, least risky, choice always emerged as the consensus one. Those who started out committed to the innovative one were always persuaded that the fictional foundation would be better served by funding the one with the least risk.

Of course, this case study exercise was only for educational purposes. Interestingly, though this same result happened when the staff of a real foundation known for its very public commitment to support for innovation and tolerance for failure did this very case study during an educational program I did for them. Even there, their decision process led to their support for the safest choice. Much to their own surprise, I should add.

4.?????An Alternative Definition of Risk:?Some years ago, a community foundation contracted with me to visit them to work with a DAF holder family. They said that the family had the DAF for a long while and were never persuaded to fund any proposal presented to them even though the community foundation was presenting proposals in keeping with their stated mission. Upon meeting with the family, they agreed that the proposals were in keeping with their mission but not in keeping with what they wanted to accomplish. They said that the community foundation kept giving them proposals from the established nonprofits to do variations of or support for what they were already doing. The family argued: “what could be riskier than to continue to fund programs that are demonstrably not bringing about the scope of changes they claim to want.”???When the organizations began to think a bit out of the box, to present ideas that were on their drawing boards but had never been willing to try, the family chose to fund some of them. Some were successful, some not, but without funders such as these they would never have known.

This is a lesson that many legacy organizations have had to learn as funders now prioritize impact over loyalty. For some of those organizations, it has been liberating; for others…

5.?????The Discomfort with Risk: ?DEI [and its variations] has certainly been on the agenda of many foundations over the last few years. After a presentation about DEI to a group of foundation principals and executives I attended, one of the principals articulated their problem. They did believe in racial and ethnic diversity on their board. Until now, their approach to selecting new board members was to choose people whom they know and with whom they know they will be comfortable. If they don’t know people from different racial and ethnic backgrounds well enough to know that they will be comfortable, how should they achieve their diversity goals???[This is more widespread than many will admit; credit to this person for being willing to articulate it.]??The answer, though, is that, if they are serious about their board composition, they cannot wait until the social and business ethos creates the critical mass of comfort for them; they will have to accept some level of discomfort now. And deal with it.

Incidentally, any board where no one asks the hard, and sometimes uncomfortable, questions is not a fully responsible board. Hard questioning is not, in and of itself, a sign of dysfunction; never being willing to ask the hard questions is. Having sat on over 60 boards of all sorts over the years, I can attest to the effectiveness of those where the ethos is acceptance of diverse opinions and energetic discussions. Comfort in social settings is not the same as proper governance behavior.

6.?????Risk is a Moving Target: Those who know us will not be surprised to know that we are investors in solar power – Solar fields in Africa, Community solar in the USA. From most perspectives, in 2022 these are considered legitimate and viable impact investments that should provide both financial returns in the future and social/environmental returns immediately. 20 years ago, those would have been more typically seen as philanthropic grants rather than investments, perhaps good PRIs for foundations.??As solar is more mainstream and adopted throughout the world, the risk of direct investment is significantly reduced.

7.?????Evidence can be misleading:?All the evidence in the world can be meaningless if it has answered the wrong question, or an insufficient one. To take one example [which I am radically simplifying here]:?The Gates Foundation has an admirable commitment to eradicating malaria. Their initial approach was to fund the netting at sufficient scale to accomplish this. It was a tremendous macro commitment to make a real measurable difference. However, initially, they gave very little attention to how to implement the use of the netting.?They had paid little attention to the social, cultural, economic, and power issues on the ground. All the anti-malarial netting in the world will count for nothing if not used where and by whom it is intended. To their tremendous credit, the Gates Foundation adjusted its approach to make sure that organizations and communities on the ground were far more likely to benefit from this largesse.

If one asked the evidence question only regarding money and scale, their initial approach would have shown itself to be extraordinary. If the evidence question was, as indeed it became, is it effectively used, the initial evidence showed a program not accomplishing its goals. Theories of change and evaluation can be crucial in helping us make sure that our questions, and our funding, accomplish what we intend.

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This list of examples is not comprehensive but is intended to share some very common areas where we as funders need to understand what we mean by and weigh risk.?Accepting the universality of risk, variously defined and applied, will help inform all of our decisions of what we fund, and why.

Also posted as #444 on the blog of the Institute for Wise Philanthropy