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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.

Read more stories by John Brothers.

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COMMENTS

  • BY Quixote Foundation

    ON March 20, 2010 12:56 PM

    Great article. “Carrot and Sticks” unfortunately provides good reason for NPOs to fear genuine dialogue with their funders, and holding back sets everyone up to fail.  Any NPO may have to reveal some weakness or even chaos in order to describe what it genuinely needs.  If the risk is punishment, the NPO may gloss the real issues in order to get a grant.  As a result, the “$25k” treats the surface and not the depth; the grant is seen as unsuccessful when really it was just misplaced, and support declines accordingly.  Bad and too-familiar cycle.

  • BY John Brothers

    ON March 20, 2010 03:54 PM

    Quixote,

    I agree with you.  I think the unfortunate thing I also see is that the “gloss” you speak of was not created by the nonprofit organization but was created by funders.  In the “Carrot and Sticks” approach, the funder has created an obstacle course with a reward that is not really a reward, demeaning both in the process.

  • BY Brian Landi

    ON March 21, 2010 02:57 PM

    Thanks for the post.  In my experience, funders want to get to know the organization and when they feel comfortable will not hesitate to share reasons and methodology behind their gift giving.  If an organization feels that they are in the “carrot” stage it should be upfront with the potential donor.  Understanding the donor’s motivations and asking open ended leading questions as to what needs to happen for that gift to increase in size is vital.  Donors respect honesty and appreciate your willingness to work them on their terms.

  • Mark, Generated from Facebook.com's avatar

    BY Mark, Generated from Facebook.com

    ON March 21, 2010 06:13 PM

    The fact that a “parenting” relationship exists at all between foundations and non profits speaks volumes about why new civic visionaries are seeking social entrepreneurship as a business solution instead of dependency on grantors. The sector is trending irreversibly away from outside decision making that stifles innovation towards handling that at the point of service, and that includes the financing side.

  • John Brothers, Generated from Facebook.com's avatar

    BY John Brothers, Generated from Facebook.com

    ON March 21, 2010 06:14 PM

    Mark, you are so right. I am interested to see how the social entrepreneurship section plays out. I have seen some social entrepreneurs and once visionaries start to get embedded in the old philanthropic culture.

  • Mark, Generated from Facebook.com's avatar

    BY Mark, Generated from Facebook.com

    ON March 21, 2010 06:15 PM

    John…that is why I encourage anyone entering the field to focus on the model first, then the mission. If you launch a mission that’s not yet sustainable, or at least moving decidedly in that direction it becomes to easy to travel the familiar road of grant support. We should be building and testing models in the market before we do anything else.

  • Elizabeth, Generated from Facebook.com's avatar

    BY Elizabeth, Generated from Facebook.com

    ON March 21, 2010 06:16 PM

    Mark you are so right. It’s a corporate attitude. Why most people that have a vision leave corporations - and now non profits.

  • Elizabeth, Generated from Facebook.com's avatar

    BY Elizabeth, Generated from Facebook.com

    ON March 21, 2010 06:16 PM

    Also - neither non profits or traditional corporations are in any way built to or able to challenge more foundational aspects of the status quo.

  • Nick Hambridge's avatar

    BY Nick Hambridge

    ON April 10, 2010 06:47 AM

    I’m less convinced that troubled organizations will reactive positively to funders who try to help with creative non-financial strategies.  And even with innovative strategies using financial incentives, funders are still using incentives to influence the organizations they are funding.  Ultimately, all financial support has a “carrot and stick” component, whether funders and organizations want it or not.  I believe a better approach is recognize that “carrot and stick” philanthropy is here to stay and try to correct the underlying communication problems between organizations and their funders.  Pretending that “carrot and stick” philanthropy is being replaced by a new funding approach is not being truthful about the relationship between nonprofits and their funders and will ultimately lead to more resentment between the two groups.  “Carrot and stick” philanthropy is not ideal but we will need to change the entire nonprofit funding structure to get rid of it.

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