FYI Blog

Ethical Risk-Taking in Nonprofits: Is It Possible? These Two Concepts Will Guide You

Avalon president Allison Porter recently explored best practices for trying new channels, creative, and investments in her DMAW Advents article: “The Next Hot, New Fundraising Idea – It’s Risky Business.” In it, she wisely counsels fundraising professionals to understand, mitigate, and be transparent about the risk of trying new things in nonprofit fundraising. She explores what it might look like to create space for risk-taking, while acknowledging what we all know from experience: the typical nonprofit has minimal room for financial error.

But, wait.  Doesn’t Dan Pallotta have a point when he calls the nonprofit sector into grander ambition and braver investments – for the sake of, eventually, a more stable infrastructure and deeper impact? Well, yes. He does. Pallotta is smart to question the assumptions of the sector, he is asking good questions about how to scale change, and he is right to reboot “the way we think about charity,” as he famously did in his 2013 TED talk. That being said,

not all risk is worthy, especially in the nonprofit sector. It is critical that nonprofit leaders know how to assess their organization’s unique risk tolerance – both as a general guideline that offers some consistency over time and as an agile concept that will require fresh discernment at every turn.

(It’s a tall order, I know.)

As you navigate this in your department, and then up the ladder to your ED/CEO and Board, there are two ethical concepts that will help: organizational stewardship and stakeholder analysis.

Organizational Stewardship

Organizational stewardship means managing your nonprofit’s resources responsibly, in order to ensure that ongoing work is possible. The big idea behind stewardship is that today’s leaders don’t “own” the organization, so they have a responsibility to utilize its resources with a long-term mission in mind. In crude application, some leaders take this to signify simple cost-management, but that is much too narrow. Rather, stewardship entails establishing a baseline for whatever the organization will need to be healthy into the future. Stewardship certainly does speak to financial resources, and some folks appropriately use the term to talk about the specific requirements of endowed funds. However, good stewardship also considers a wide range of resources, including not only money, but also expertise, creativity, technology, real estate, natural resources, and good will, among others.

Bottom line: know what resources are mission-critical for your organization, decide what constitutes a baseline, and be prepared to hold the line.

Stakeholder Analysis

Stakeholder analysis is an assessment of your organization’s responsibilities to various interested parties, or stakeholders. Different groups have unique stakes in your organization, and they rightly expect certain things from leadership. The typical stakeholder groups for a nonprofits include donors, employees, board members, vendors, the local community, the environment, and, of course, the people they serve.

A stakeholder analysis considers

  • Which groups are relevant for your organization,
  • Your responsibilities to each group, and
  • How the groups’ interests are aligned or in conflict.

This work prepares your organization for agile decision-making in a wide range of situations, and it is particularly useful when a decision is not an obvious win for all groups. For example, a VIP impact funder of a homeless shelter may desire leaders to pursue more risk for more reward, but leaders also have an obligation to mitigate risk for the people they serve, who could lose access to essential services. Acceptable risk looks different across stakeholder groups, and that fact can stall decisions. Stakeholder analysis helps decision-makers navigate that complexity for specific cases.

Long-term Impact

Fundraisers need to know that their ED/CEO and Board are managing all of this, and that they can support good decision-making by recommending investments that address both of these ethical frames. To do so, fundraisers should become fluent in both the risk and the ROI of their programs, communicate transparently, and be accountable to the metrics they lay out. Not only does this support the internal stability of the fundraising program, but it makes fundraisers worthy decision-making partners at the most senior levels of their nonprofits.

And that will impact the entire sector for the long-term.

Jennifer Phillips is founder and principal at JLP Strategy, a strategy and ethics consultancy. She holds a Ph.D. in ethics from the University of Virginia, where she has also taught courses on the ethics of capitalism and business ethics in healthcare. Prior to founding JLP Strategy, she served as Avalon’s Chief Strategy Officer.