What Is “Risk” in Philanthropy, and Are We Still Giving Funders Too Much Credit for It?

It’s one of the great ironies of contemporary philanthropy that even as they’re characterized as society’s “risk capital,” philanthropic funders tend to be allergic to risk. Frequent talk of innovation and “changemaking” aside, the sector remains, on the whole, slow-moving and hesitant to go all-in. Whether we’re talking about endowed legacy foundations or even the biggest living megadonors, philanthropy just can’t seem to shake the risk aversion bug.

In her recent two-part series on disruption and uncertainty in K-12 philanthropy, IP’s Connie Matthiessen outlined how two megadonor funding vehicles, the Gates Foundation and the Chan Zuckerberg Initiative, have narrowed the scope of their U.S. ed giving, focusing in respectively on math and “CZI-shaped problems.” In both cases, the turn away from a more expansive strategy toward career-aligned STEM topics mirrors the path other such funders have taken away from what were once larger, riskier ambitions to strategically remake U.S. education.

At the same time, other funders that embraced the risks of “big bet” giving in the last decade, during the heyday of strategic philanthropy, seem poised to chart alternative courses. The MacArthur Foundation is an operative example. In a deep dive last month, Mike Scutari took a long, hard look at the end of the foundation’s much-talked-about Big Bets program — targeted, time-limited efforts to achieve transformational change in specific issue areas.

There’s plenty to criticize in past philanthropic attempts to reshape American education, and in the “big bet” framework of giving, for that matter. But for better or worse, they were bigger swings than we usually see in the sector. If living donors and legacy foundations alike are turning away from this brand of risky, top-down betting, it raises the question: What’s next, and do funders have an appetite to take on different kinds of risk? What would it look like for the sector to truly stick out its neck?

One way to answer that question would be to say, yes, funders are absolutely taking on new kinds of risk by engaging in trust-based, unrestricted forms of giving and widening the aperture to include less traditional grantees. To critics of metrics-heavy, project-oriented strategic philanthropy, the risks funders take when they embrace this increasingly popular brand of giving — when they cede control — are worth it.

But let’s step back for a moment. What exactly is “risk” from a grantmaker’s perspective? Typically, and in the examples above, philanthropic risk is conceptualized as taking the chance that dollars spent won’t result in looked-for impact.

For instance, an ed funder like Gates or CZI seeking whole-cloth improvements to K-12 learning risks its investments having no appreciable effect on a juggernaut like U.S. public education. A big bets grantmaker like MacArthur risks pumping millions into a topic like nuclear security, only to find itself confronting an era of heightened great power tension and increased potential for catastrophic conflict. A trust-oriented funder like MacKenzie Scott risks having her unrestricted gifts squandered due to poor management and implementation by recipients.

While those may all be useful ways to conceptualize philanthropic risk, are they really “risky” in the sense of posing an actual threat to the funder? Not really. Compared to, say, elected officials, who can be voted out and lose their power, or private businesses, which can lose their customers and go bankrupt — not to mention nonprofits that can lose their funding — philanthropies don’t really have much to lose by taking on these sorts of risk.

When it comes to actual existential risks — that is, to their endowments — grantmakers tend to be very risk-averse indeed. At plenty of foundations, CIOs are extremely well compensated (often more than CEOs and certainly more than grantmaking staff) to properly steward endowments and keep them whole. Lawyers and accountants, likewise. Meanwhile, philanthropy sector groups regularly close ranks to fend off what they see as another existential threat: heightened federal regulation and payout requirements.

On the individual donor level, meanwhile, billionaires actually walking the talk on their Giving Pledges and other kinds of grandiose spend-down rhetoric are in a tiny minority. Far more typical is the ultra-rich donor whose hearty appetite for risk in acquiring a fortune suddenly vanishes when it comes to giving it away.

With all that in mind, it’s worth asking whether funders are justified in walking away from specific strategies and issue areas just because they’re hard, and because they’re not getting immediate return on investment. But it’s also worth asking whether funders engaging in trust-based practices aren’t, in a sense, washing their own hands of risk — and responsibility for oversight — by embracing the idea that they are nothing more than a money conduit to those on the ground who know better.

It isn’t really all that risky for grantmakers to spend 5% of their assets a year sticking with hard problems and granting out unrestricted support. If risk is what philanthropy should aim for (and perhaps it doesn’t have to be), a better yardstick might be funders’ willingness to go all-in on investments for impact, to actually spend their assets down, and to get behind rule changes calling for increased payout and transparency across the sector as a whole.

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