Carrot and Stick Philanthropy
Funders engaging in "carrot and stick" philanthropy only escalate the problems faced by struggling nonprofits.
I was recently talking with a colleague who is working with a group of private and corporate foundations to discuss strategy relating to several high-profile and struggling human and social service agencies. My colleague stated that much of the discussion surfaced around the right amount of financial support to provide to the troubled organizations while also showing some tough-love as a way to motivate the organizations to get their house in order. You can call it “carrot and stick” philanthropy and it is similar to a popular parenting and management tool that uses both punishment and reward as a motivator. I have come to realize that this is also a common tool used by philanthropic organizations and can be a major reason why a struggling organization’s challenges are escalated further.
This theory is also at the heart of a new book by Daniel Pink entitled Drive: The Surprising Truth about What Motivates Us. According to the Publishers Weekly’s review, Pink states that, “everything we think we know about what motivates us is wrong”. The article states that Pink “pits the latest scientific discoveries about the mind against the outmoded wisdom that claims people can only be motivated by the hope of gain and the fear of loss. Pink cites a dizzying number of studies revealing that "carrot and stick" can actually significantly reduce the ability to produce creative solutions to problems.” Pink’s view of “carrot and stick” closely aligns to the philanthropic strategy in motivating organizations.
In the opening example, the human service agency was given a $25K grant to engage in building its capacity. The support that the grantee could have used was a sharing of best practices, management assistance, and the support of real-time dialogue around the next steps for the organization. $25K may provide some support, but most likely will barely move the needle. Most importantly it creates a false sense of future support against a timeframe that becomes more crucial by the minute. This is similar to another example of a struggling organization I helped a merger a couple of years ago where the funder both engaged in the same type of philanthropy while also systematically tearing the organization down among fellow foundations.
Organizations in crisis live with a different sort of organizational psychology. Typically organizations that are having serious challenges are living each day with such issues as the fraying of leadership, an under or over-commitment board, blurred lines of responsibility, resistance to change, high staff turnover and feelings of burnout and isolation. In this phase in an organization’s life, a funder can be a key partner or can help put a lock on the doors. As two-thirds of the sector is currently experiencing financial distress and 31 percent don’t have enough operating cash in hand to cover more than one month of expenses, according to the Nonprofit Finance Fund, the relationship between funders and grantees becomes even more crucial. “Carrot and stick” philanthropy is part of the problem and is not remotely close to the solutions needed to help our most challenged nonprofits. Funders will need to creatively use their resources, financial and non-financial, to help their most troubled grantees move over the hump. Here’s hoping they do.
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