Summary: The rapidly changing technological landscape is just one element of a much deeper set of societal changes. The institutional roles and relationships that make up the nonprofit sector will need to change dramatically before it can thrive in the next century.
In the middle of the 20th century, scientists and economists seriously pondered the question of whether uranium metal could replace gold as the standard for international currency and exchange (Scientific American, 1947, 1997). They surmised that energy — the capacity to do work — was a much more solid foundation on which to build economic value than an arbitrary malleable metal.
Although there is a certain elegance to this argument, looking back from where we are today, it seems ludicrous. But what actually happened was even more outlandish.
Who could have imagined that at the beginning of the 21st century, the most powerful “currency” on the planet would be small pieces of plastic called “credit cards.” Acceptable in almost every country, they are not backed by gold, or uranium, or even any central government. Instead, they are backed by a collective agreement among an enormous number of banks to guarantee the transactions, and to pass them seamlessly between the merchant’s bank and the cardholder’s bank. Money is no longer paper or coinage. Money is now nothing more than electrons and photons flying around world at the speed of light.
No one could have imagined such a dramatic change fifty years ago. Fifty years from now, we will be saying the same thing about fundraising and philanthropy.
We are on the verge of massive societal change. We have lived through a lot, but much more is on its way. The institutions on which we depend to guard our most cherished community values — those embodied by the nonprofit sector and philanthropy and, to some degree, government — are ill-equipped to play their role in the face of these changes. We must radically shift our strategies and practices, or risk failing to be worthy of the trust that our communities have placed in us.
I don’t mean to sound like a doom-sayer. On the contrary, I am very optimistic, because I believe that we will transform the way we work together to achieve our common goals. I believe that the best instincts of humankind will lead us through the unsettling times ahead. As the keepers of those values, I believe that the nonprofit sector has a strategic role in bringing about those changes.
I hope that the nonprofit sector will lead the way. But that remains to be seen.
INFORMATION THEORY AND PHILANTHROPY
Both the risks and the potential of our moment in history arise from the revolutionary advances we have made in information. I am not referring to the lifeless definition of information as data, but rather in a very special capacity, that is, the capacity to receive, utilize, store, transform and transmit information. In the history of the universe, anytime there is a big jump in this capacity, there is a corresponding explosion in diversity and complexity. Scientists tell us that this is true in the interaction of subatomic particles, in chemistry, in biology, and animal social orders. It is also true, of course, in human society.
The invention of language, the invention of writing, and the invention of the printing press, for example, each increased the mobility of information 1000 to 10,000-fold, and utterly transformed the societies that gave rise to them. The lives and institutions of people incorporating these changes were unimaginable to the people living just one or two generations before.
In the last hundred and fifty years, electronic communication has increased the speed of information transmission from the speed of a sailing ship or a fast horse to the speed of light. It increased the breadth of spreading that information from those who had access to a copy of a book to those with a radio, a television, or now a computer. It increased the processing of information, first through more rapid statistical analysis, and next to the whole host of applications and algorithms now available. In total, the mobility of information may have increased as much as 50 million to 500 million-fold, most of that the last 25 years, and it has not yet peaked.
Our social institutions will not be able to simply “absorb” changes of this magnitude. Over the next fifty years, perhaps far sooner, they either will be transformed or replaced.
When the potential magnitude of the coming changes first began to sink in, I was deeply troubled. Even the best nonprofits I knew, each exceptionally innovative in their respective fields, seemed to be struggling to keep up with the changes mounting around them. The average nonprofit seemed to feel as if it was being swept along in a raging current, just hoping to stay alive.
I began to worry that if we did not soon develop the institutional capacity to manage this explosion of information and technology, that it might tear us completely apart. There was evidence that that had already begun.
Our institutions concentrate decision-making in the hands of relatively few people. Every institution I looked at had a “boss,” and a board with ultimate authority and responsibility over all of the actions within that organization. The explosion of information chokes these decision-making systems, often leading them to be slow to respond, or stumble when new situations arise. Despite all of the technological change:
We are trying to live 21st century lives through 17th century organizations.
When I looked at the Internet, on the other hand, I saw no such top-down control systems. It seemed to be healthy and vibrant in the face of this information explosion. When I looked at nature, especially in its most wild and diverse states, I saw no such top-down control systems. Yet in both cases, there was no absence of form or structure or controls. They simply seemed to be of a different nature: self-governing at multiple scales, adaptive, enabling rather than controlling.
They are beautifully complex yet elegantly simple. Now, if our institutions could be more like that, I concluded, we would have the chance to weather any turmoil with our ability to respond to social needs intact.
DEE HOCK AND VISA
Ironically, the organization that helped unseat gold (and that upstart uranium!) as the dominant global currency also may provide a clue about how our social institutions will transform themselves in the years ahead.
At a time when the credit card industry was struggling under massive losses, Dee Hock orchestrated an agreement to form a corporation with an ingenious legal and governance structure. While most people were watching youth go to Woodstock or astronauts go to the moon, Hock spent two years crafting an organizational concept that would transform banking.
On the one hand, the ideas that gave rise to Visa were very old, embodying principles of governance that would be recognized by America’s founding fathers, if not Aristotle. Most intriguing however, it seemed to share a great deal with the Internet and nature, as well.
While it carried some of the most important human ideas and values from our past, this institution clearly was a creature of the future:
- Visa is a for-profit membership corporation, owned fully by its members. But it issues no stock so it is virtually impossible to be taken over from the outside. Still, membership is exquisitely easy to obtain, and virtually everyone that can be a member is a member.
- Every member maintains a maximum degree of freedom, no member is allowed to develop or maintain a sustained, intrinsic advantage over other members within the organization, although they are furiously competitive in the marketplace selling the organization’s products.
- Governance is so organized that no member or group of members can dominate decisions or discussions. No member can be locked out of a decision or discussion in which it has a valid stake, so decisions can only be made at the most appropriate levels.
- The only decisions or functions that are done centrally are those that can’t reasonable be done by a member acting individually or at a more local part of the organization. Power and function gravitates to the smallest possible scale. This leaves the center to be the guardian of the basic membership rights and to be enabling rather than controlling. But even speaking of a “center” is a bit of a misnomer. It really has many centers, and no single piece can exercise control over all the rest.
- Any group of members can construct a new piece of the system, as long as they agree to abide by the same core principles. The system can therefore adapt itself to an infinite number of local circumstances without losing its wholeness, or losing the ability of any member to communicate with any other member. It can grow rapidly, without centralized control, like a biological organism.
- When I initially heard the story of Visa, I took a deep breath. This was the first time I had heard of a conscious, intentional effort to design an institution that would not only survive an explosion of information, but would feed off it.
This was a 21st century organization. It was a crude one, surely, but a powerful one, nonetheless.
I have to admit that I also was impressed that it had succeeded on such a massive scale, releasing tens of billions of dollars worth of profits into the banking industry every year.
I started to think, if bankers could do it, why not the nonprofit sector? Why not philanthropy?
I started to imagine what philanthropy might be like if we stripped it of its present institutional form, leaving only the essence of its critical social function – to move money to where it can do the most good – applying the best of present and future technological innovation, and using the organizing principles of the Internet, Dee Hock’s Visa, or nature to give it its institutional form.
Why is there such a big distinction between fundraisers and grantmakers, for example? Both try to present a logical case for why specific programs or organizations should receive resources rather than others. Both are asked to be accountable for the results of those investments. Why can’t a system be developed that allows fundraisers to develop portfolios of worthy projects across multiple organizations, just the way that program officers do, and seek funding for them as a group?
Why can’t a system be developed where donors — both institutional and individual — have more direct access to information on the results of their funding? Why does a new major donor have to go through the expense of setting up a whole new Foundation when perhaps the best talent for identifying the projects matching his or her values are already employed by other Foundations or nonprofit organizations? Why can’t that new donor invest their resources into portfolios designed by those professionals? Isn’t that the way that the mutual fund market works?
Once asked, it is clear that all of these things are technically possible! There is more than enough technology to create an efficient marketplace for donors to meet their charitable goals. There is also no lack of trying. The recent launch of the Benton Foundation/America Online portal is only one of a dozen or more efforts to change the way philanthropy is done in this country.
No, as is the case elsewhere in society, what is still missing is a true breakthrough in institutional form. No amount of computer technology can overcome this flaw. We need an institution that is worthy of the trust we all would have to place in it. It would need to embody our deepest beliefs and values accurately. And, like the Internet, it would need to allow the freedom for brilliant breakthroughs and vivid failures without risking the integrity of the whole.
No corporation in which a small number of people can call the shots is going to engender the necessary trust, nor will it embrace the diversity of goals and interests that make up the field. We need something as different as Visa was to the staid banking bureaucracies of the 1960s.
We need something as different as the Internet was to mainframe technocrats. We need something as different as the American constitution was to the European monarchies. We need something as different as mammals were to the dinosaurs. Otherwise, whatever we do may languish, or be swept along, dominated by forces whose values may be neither public nor charitable.
Creating a new institution that does not fall into the same old traps is not a trivial matter. Five years of watching Dee Hock and the Chaordic Alliance work with groups trying to apply his approach to critical social needs — ranging from ending religious violence to managing the harvesting of a marine ecosystem successfully and sustainably — has left no question in my mind. This is devilishly hard and risky work. In fact, I can say with confidence that the system we need probably has not even been imagined yet — not by me, not by anyone.
Still, imagination and human ingenuity are our most powerful tools. So, at the risk of merely suggesting the philanthropic version of “uranium quarters,” let me offer a hypothetical scenario I hinted at in the questions above in order to stimulate the creative juices. What would happen if:
…A small but well-resourced group of donors decides to become the test bed for a new approach. This group is diverse in terms of interests, values, institutional nature, and history. They include a large mutual fund company with the new charitable gifts program; a new private foundation of a software billionaire; a national religious funder of community efforts; a new major programmatic initiative of a well-respected, mainstream foundation; a privately held company whose owner decides to invest most of its profits back into the community; and a handful of individual donors of both large and modest means. Despite its diversity, this group shares a common desire to build a common and public infrastructure to move money to where it can do the most good. And they are willing to put their money where their mouths are.
…This group knows that money alone does not guarantee impact. They expand themselves by inviting a few of the most innovative philanthropic advisors, program officers, fundraisers, financial advisors, technologists and nonprofits — becoming a group that reflects the wide range of skills and wisdom needed to create a system worth investing in. They develop portfolios of investments — from grants to index funds — to meet the various charitable and financial goals of the donors. No one is required to take part in any portfolio, but those that do share the cost of developing and maintaining it. Some worry that each will continue to do their own thing and no costs will be saved, but rapidly standards and syntheses emerge. Some approaches gain wide spread participation, while some donors continue to pursue unique niches that they feel others are overlooking.
…Next, they invite a diverse set of evaluators to offer strategies to measure impact, ranging from complex academic analyses to financial formulas and testimonials. Some of the nonprofits feed their own analyses into the system or help the donors identify local people “in the know” to gauge competence, people far more likely to know if an after-school program is really making a difference in children’s lives. Studies don’t sit on shelves. They are immediately available system-wide to anyone willing to share in their cost – before or after completion. The same is true for any information, portfolio, tool, or technology created as part of the system.
…Adopting a lesson from Visa, at the heart they create a governance system that none of them can dominate — not donors, advisors, nonprofits nor evaluators — and which doesn’t create an internal advantage to any particular approach or viewpoint, but honors all value systems equally. The governance automatically distributes its power, right down to the most local level if possible, still without dominance, and most certainly without the dominance of the center. Both large and small group begin to self-organize and self-govern; all the while creating knowledge, tools, and great programs that others can take advantage of.
…Surprising innovation erupts spontaneously, as when some of the nonprofits involved start developing portfolios of their own, promoting colleagues who have most steadily provided practical innovation and leadership to their fields. “Practitioner Choice” portfolio’s quickly become a big hit among donors.
…After a few short years, the system is recognized as the premier philanthropic resource in the country. But satisfying their own particular needs was never the real goal of the organizers.
…Once they were confident that they have the governance principles right, they let the system grow. Slowly at first, but then rapidly, new donors and advisors flock to the system. At the end of its first decade of operation, thirty percent of all institutional giving goes through the system at a cost of less than two percent.
Common yet diverse goals. Common yet diverse infrastructure.
Common yet diverse tools. Common yet diverse outcomes.
How big might such a system become? Who would not want to work within it? It would require no one to change what they are currently doing, yet it could provide pathways for infinite growth, adaptation and innovation.
- Distributed power.
- Shared resources and product development, and resulting cost efficiencies.
- Not one-size-fits-all — but an evolutionary path leading simultaneously to greater complexity and greater simplicity.
I know that such a system of institutions is possible. Properly designed, I’m confident that it would be preferable to the current arrangement for everyone involved. Without such a system, I worry about what this field might become.
A DIFFERENCE THAT MAKES A DIFFERENCE
I don’t know about you, but I hate change. I fear it. I prefer my carefully honed habits of mind, my carefully honed habits of practice, and the predictability of the habits of my peers and colleagues. I especially like being a boss.
But I have realized that there is no future in fighting change. Monumental change is coming whether I like it or not. More importantly, I realized that if I want to ensure that the values that I most deeply cherish have a place in the future, I must set aside my current preconceptions, my current habits, and my current fears. I must join with others who are setting out to create the future rather than just adapt to it.
I was reminded of Gregory Bateson’s definition of information as “a difference that makes a difference.” A difference that doesn’t make a difference is just noise. I like this definition, since for me it has a double meaning. I’ve always wanted to make a positive difference in the world. That’s why I entered this field. Secondly, I have a growing sense of just how different the field of philanthropy and fundraising has to be in the future to succeed in its purpose. We need to be dramatically different so that we can make a dramatic difference.
Nothing stands in our way except will and imagination. There is more than enough technology to move forward in a new direction. There is a steadily increasing body of knowledge and experience — including Visa and the Internet — to provide clues about creating a system that embodies our core values and will flourish in the 21st Century. There are ample resources.
So, I remain an optimist. The nonprofit sector is nothing if it is not willful, and imagination is the most plentiful resource on the planet. We will be a difference that makes a difference.
The only question that remains, as Dee Hock ends many of his speeches, is, “If not now, when? If not us, who?”
Speech given at:
Indiana University, Center on Philanthropy
12th Annual Symposium, August 27, 1999