The Importance Of Recognizing And Embracing The Risks Of Philanthropy
This post originally appeared in Forbes.
Open Road Alliance founder Laurie Michaels sat down for a talk with Ashoka’s Michael Zakaras about her approach to philanthropy, what risks philanthropists need to be willing to take, and her vision for Open Road.
Laurie Michaels is an individual philanthropist based in Aspen, CO. In 2012, she founded Open Road Alliance to provide critical funding to help nonprofits overcome unforeseen roadblocks, or to leverage unanticipated opportunities for impact. She has served on the board of the Aspen Community Foundation for twelve years, as board chair for the last four years, overseeing a collective impact initiative in the greater Roaring Fork valley. Until recently, she maintained a psychology practice in Aspen.
I sat down with Laurie this winter to talk about her approach to philanthropy and why she’s pushing for more transparency, speed and flexibility in donor-grantee relationships.
Ashoka: One might describe your giving philosophy as quite pragmatic. What are the origins of this approach to philanthropy?
Laurie Michaels: I wasn’t wedded to one particular field or geography, and I’d learned from many of my friends in the nonprofit sector about how easily worthy projects can get derailed for the simplest reasons—a currency fluctuation for example, or a new government regulation. The problems were immediate and needed quick responses. The funding establishment, with rigid funding cycles, is not set up to cope with such roadblocks. In many cases the original donor may be contributing to the problem by not providing 100% of the anticipated funding. Precious staff time is wasted dealing with these critical yet minor capital needs, and often the project suffers real damage because the money can’t be found. This was a gap I could fill, and it was a way that relatively small amounts of funding—often 10% or less of the original investment—could make an immediate difference.
Ashoka: But you’ve set out to do more than fill a gap. What is your larger purpose with Open Road?
Michaels: In a sense it’s to highlight some fundamental problems in the relationships between NGOs and philanthropists. Each side is playing a role—the ultra-lean NGO that somehow is changing the world on pennies, and the benevolent philanthropist who always bets on the right horse. And on both sides there’s this delusion that “nothing will go wrong.” Of course everyone knows things go wrong all the time but nobody is willing to talk about it in the open, and therefore there are rarely plans in place for when the unexpected occurs.
So really I want to challenge both sides to have more honest conversations about risk at the very beginning: what are the various problems we might anticipate? Who should we talk to when something does go wrong? And for situations we could never anticipate, what is the contingency plan?
Ashoka: Given how many philanthropists are business entrepreneurs intimately familiar with investment risk, why is there so much discomfort with risk in their philanthropy?
Michaels: I’ve been asking myself that question a lot lately. I think part of the problem is that we’re still in “charitable giving” mode and gift giving can be quite conservative actually. Perhaps the more we shift to language about “investing” in social change, rather than “donating” to a cause, the more comfortable people will be with risk.
There’s so much unpredictability in the world of development: what if the monsoons come early? Or the rebels come back? Or the equipment gets stolen? Or a virus destroys the crops? NGOs are operating in a difficult environment—working with limited or zero infrastructures, across borders and languages and between currencies and cultural differences. Very few people in the finance industry predicted the economic collapse in 2008, and yet we ask NGOs to submit a plan that will be stable for several years, which is an impossibility in the best of circumstance. I know Ashoka is interested in the concept of empathy; a strong case could be made that there is a lack of empathy from funders about the obstacles NGOs must constantly navigate.
Ashoka: So what can other funders do differently, starting today?
Michaels: First, ask and acknowledge what might go wrong up front. This helps shift the power dynamic a bit and establishes the relationship as an alliance, which is what it should be. Maybe build in a line item for risk in each grant proposal. Second, set aside some funds for the unexpected and structure them in a way that they can be released quickly—so projects don’t get stuck in the grant cycle and lose momentum. Third, Executive Directors of foundations should speak to their boards about the kinds of risks they are willing to take. They could pose specific scenarios so that the board is accustomed to responding to changed circumstances.
Ashoka: When do you know whether you’ll have been successful?
Michaels: We don’t expect the world to become more predictable over time, so there will always be a need for midstream, contingency funding. Given this reality, success would be seeing the philanthropic industry begin to treat this as part of business—rather than an anomaly. A couple decade years ago, the term “M & E” wasn’t well known or common practice, but now M&E is part of best practices for even the newest or smallest NGOs and donors. People realize that setting metrics and measuring them is just good philanthropy. My hope would be to see a similar shift occur around risk mitigation and flexible funding.