socially marketing

The social capital driving socialmarkets and similar agencies is only as real as you make it. It is not hard to sell the idea of value in educating our youth, housing our homeless or cleaning up our environment, but it is not easy to translate that value into concrete terms.

The concepts and even the vocabulary we use to describe social capital is largely borrowed from “real” capital markets, which makes the translation easier. This suggests an accounting system that mirrors, but is separate from the ledgers that define the bottom line at all but the most avant-garde organizations.

I don’t know if we will ever see (or even need to see) this separation disappear entirely, but I do know that less of it is more better - and that the winds of change are blowing in that direction. Carla Dearing (disclosure note: she is CEO of our fiscal sponsor GivingNet) talks about this on PhilanthroMedia.org, which in turn references this recent Fortune article on how the carbon trading market is helping farmers literally turn manure into money.

Carbon trading is perhaps my favourite example of the ‘new accounting’, where the scope of the bottom line is growing. Not long ago it would have been downright silly to include greenhouse gas emissions in your business plan, let alone on your balance sheet. Now, an increasingly viable carbon trading market has turned silly into savvy, and is drawing in participants from the public, private and nonprofit sectors.

This leap from social to “real” capital is just the tip of the iceberg, and arguably an arbitrary tip at that. Increasing alarm about global warming combined with an increasingly desperate search for new energy sources and myriad other factors to make carbon trading a reality.

But every social ill and issue has its own unique DNA, and is potentially just waiting for the perfect storm of political, social and economic trends to take them off the back burner. I can’t wait to see what market response is induced from a perceived crisis of illiteracy, homelessness or similarly sticky social problem.

I know that social capital markets are not for everyone. I’ve listened to and spoken with many of its detractors in both real and virtual space, and usually find such conversations constructive. But once in a while I’m bumfuzzled by arguments from seemingly reasonable people that slide right off the rational rails.

Yesterday I was directed to this recent review of social capital markets (SCM) on the Gift Hub blog. I found it far more instructive than constructive, at least as an example of the anti-SCM sentiment that borders on the zealous.

In a quite short post, Gift Hub finds space to liken social capital markets to alchemy, and conjures up both William Blake and Jesus to fuel the fire. I find this and similar discounts of SCM both heavy-handed and surprising. SCM’s approach to philanthropy is new and different, but it’s not evil, and can play nicely with others - which begs the question: why can’t we all just get along?

Decisions of charitable giving are as complex as the humans behind them, and as unlikely to be black or white. There are countless considerations behind these decisions, and social capital is one potentially valuable piece of that puzzle.

Even stepping out of the gray, I acknowledge someone could use social capital as the only basis for their selection of charity, just as they might follow only their heart, minister or Ouija board. Giving to charity, which is for now and the foreseeable future a voluntary enterprise, has room for all the above.

Social capital markets is not alchemy or voodoo, but rather a thoughtful model for incorporating some market science into the art of giving. It raises the visibility of social benefits that are often difficult to see, and presents those benefits in familiar, easily understood terms. It is a supplement to, not a substitute for, the grand carnival that is charitable giving.

The social sector above all others is a place where intolerance should not be tolerated. I dunno about Blake, but I believe Jesus would second that emotion.

A recent post thread at Tactical Philanthropy on the topic of measuring nonprofit effectiveness caught my attention. It discusses the issues related to recent (and possibly over-enthusiastic) efforts to apply scientific measurement techniques to help evaluate the work of nonprofits. I could not resisting throwing in my $0.02, which is reproduced below (and can also be found in the originating post here):

It seems to me a recurring theme of the ‘metrics mania’ debate is that it involves both art and science. If the ‘art’ position is that non-profit value defies objective analysis, and the ’science’ is that non-profit worth can be reduced to equations of input and output, I expect I’m somewhere in the middle.

This is surprising, since in the interest of full disclosure, I should say that I am co-founder of socialmarkets.org, where donors “invest” in nonprofit projects based on their SROI (Social Return On Investment.) This sounds like pretty hard science, but there is actually quite a lot of room for art to soften the edges.

The stock market analogy already seen in this thread is spot on. Apple’s stock price is influenced rather than defined by the financial science that slices and dices its cash flows. The beauty of a market is the marvelous job it does boiling down a large, complex set of valuation inputs into a single output called “price”. This number is useful on both an absolute scale and relative to other offerings in the market.

In a testament to the wisdom (or lunacy) of crowds, Apple’s stock price reflects the collective opinion of financial analysts, status-conscious teens and everyone in between. The potential to harness the same power to “price” The Red Cross or your local community foundation seems both possible and useful to me.

There are plenty of donors looking for a “best-bang-for-the-buck” (i.e. maximum SROI) approach to non-profit investment, and right now there is not much useful data out there for them. The success of sites like Charity Navigator are a testament to the need for metrics, but they only tell potential donors about what nonprofits spend, rather than what they accomplish. Surely we can do better than that.

Those with a less scientific approach may not find metrics like SROI as compelling, but still potentially useful. Consider Albert Ruesga’s story of the high-risk, low-return homelessness project that he presents as an argument against metrics. This is where the difference between the sectors becomes significant.

For starters, unlike the for-profit model, there are often donors willing to invest in hard-luck nonprofit cases - as they ultimately did in Mr. Ruesga’s example. More importantly, since nonprofit metrics is still a new field, we can - and should - redefine the notion of return to more accurately capture the total social value being added. That seems to be the most constructive cross-product of art and science in this space: a more artistic approach to the science of metrics.

One of the basic ideas behind socialmarkets is that there are some features of the for-profit sector that translate well to the non-profit. We’ve looked at financial markets, with an eye towards separating out those features we should flatter with imitation from those we should not.

This is sometimes easy: Do we want donors to see the potential return on their investment in any particular non-profit? Absolutely.

This is sometimes hard: Do we want a non-profit that shows poor returns on investment to be starved of resources? Hmmm… probably not, and certainly not as indifferently as financial markets do.

This is sometimes really hard: Do we want to hold non-profits and their officers to the same ethical standards as their for-profit counterparts? Um, well… let’s think about this.

There are several potential points of ethical contention within socialmarkets. The easiest starting point is at the root of all evil – money. The most concrete output of socialmarkets is the dollars flowing from donors to non-profits. The primary force behind those cash flows is information that comes from the non-profits themselves, including a range of historical and projected metrics of both budget and performance.

The better those numbers look, the more likely it is that the associated non-profit will get the funding it is looking for. The temptation to make those numbers look good is clear, and giving in to that temptation introduces an ethical slippery slope: from optimistic performance projections; to creaming only the most attractive candidates from a general pool of clients; to simply lying about how much a program costs.

Add to these temptations the lack of regulation and consequence that pervades both for-profit reporting, and non-profit reporting to other agencies (most notably the U.S. Treasury) and you see how as unpleasant a topic as it is, ethics needs be part of the socialmarkets conversation.

One key question we need to ask is: who are we trying to protect? The idea that we need to protect trusting donors from manipulative non-profits make us squirm for several reasons. For starters, it is an accidentally hilarious misrepresentation of the true balance of power between most non-profits and their sponsors. More personally, it is a misrepresentation of our general position as advocates for non-profits as well as donors, from where we argue that non-profits can generally be trusted to do the right thing.

This latter reason makes the idea of protecting non-profits from themselves equally uncomfortable: inserting safeguards to remove the means, motive or opportunity to game socialmarkets makes sound business sense objectively, but the related assumption of ethical criminals - on either the donor or non-profit side - does not sit well with us subjectively. Fortunately, I think we’ve come up with a practical ethical platform from which we can deal with the reality of socialmarket’s exposure to abuse without compromising our own integrity: we really just need to protect ourselves.

Self-preservation is the key to navigating these dangerous ethical waters. Socialmarkets will not survive if donors feel they cannot trust our participating non-profits, or if non-profits feel like we are strong-arming them into proving they are worthy of that trust. We need to have safeguards in place for everybody’s good, but most notably our own.

It only takes one bad apple to ruin the fun for everyone in the socialmarkets space, particularly when the publicity that bad apples typically attract comes into play. Just one non-profit discovered to be misusing funds and/or providing false data could be enormously damaging to us. Certainly, we can’t be responsible for the behavior of all our participating non-profits; we don’t have the resources to attempt that even if we wanted to (and we do not…) But at the very least we have to be able to show that we take reasonable precautions, so it comes down to how we interpret the term reasonable.

For now, with just a handful of non-profits who we have been working with for months and know very well, we are starting with a pretty loose interpretation. As the number of participants grow, we may have to tighten the reigns; but we will err on the side of trust (i.e. innocent till proven guilty) wherever practical, and let experience be our guide.

To see this interpretation in action, let’s go back to the money. Donations to a project listed on socialmarkets can be passed on to the relevant non-profit in one of two ways: restricted or unrestricted funds. Initially it seemed obvious that the correct manner was restricted, i.e. earmarked for the specific project the donor funded. It turns out it’s not that simple.

Non-profits are often forced into an accounting shell game because of the restricted vs. unrestricted issue. In the most extreme cases, they find themselves struggling to keep the lights on despite having tons of money on their balance sheet, because all of that money is restricted to purposes which do not include paying the utility bill. This is an enormous structural problem that the entire sector is wrestling with, and while socialmarkets can’t offer a solution, we can at least not exacerbate the problem.

We can do this by sending unrestricted funds to our participating non-profits. This means we are trusting them to manage their internal finances in such a manner that the projects they list with us get funded and the utility bills get paid. This is actually quite in keeping with the socialmarkets model, since there is clearly a positive social return associated with both raising the visibility of non-profits’ burden, and making it just a little bit lighter.