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Strategic Nonprofit Resource Development Planning

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As I write this post I am sitting in the main session of a two-day ReVV2011 conference (here in Portland) dedicated to exploring the themes of social innovation, enterprise and impact. As I think about this conference in the context of two recent strategic plans that I completed, I am struck at the disconnect between nonprofits and potential funders around the language and ideas related to resource development. While there is this growing number of thinkers, funders, and policy makers using terms like social innovation, impact investing, and venture capital, the average nonprofit continues to think about resource development from the perspective of “seeking support for programs.”  While many nonprofit agencies can likely tell you what percentage of agency revenues come from grants versus donations, there are not enough nonprofit leaders who can discuss resource development as strategy.

graph of growth of philanthropy word useStepping back to a few posts ago, I used Google’s Ngram Viewer to illustrate the idea of nonprofit program accountability. I again wanted to again use the tool to create a visual of an idea. Inset is an graph showing the growth in the use of some philanthropy terms including: public-private partnerships, strategic philanthropy, venture philanthropy, and social return on investments. While I will disclaim that the graph is not scientific, it visually suggests that somewhere in the mid-nineties there was dramatic parallel increase in the use of all of these terms. The disconnect that emerges is that many nonprofits are still talking about “finding resources to support programs” while the world of philanthropy is increasingly talking about “philanthropy as investing.”

As I am coming back to typing this post, midday through the ReVV2011 conference, I am sitting in a conversation about nonprofit revenue streams and the contrast is startling. While the conversation is about thinking about revenue expansion, the discussion has degenerated into “Does anyone have any additional ideas for fundraising that are less intense than…?” Another comment, “I maintain small bank accounts with several local banks so I can hit each one of them up for $200-500 donation each year.” Disconnect. Asking for small random amounts of money from multiple sources is not investment thinking. So the question remains, how do we create a strategic shift in thinking at the nonprofit organizational level? I would like to suggest the following actions.

Informed thinking There are a number of contemporary philanthropic books and articles that should be on the library shelf of every nonprofit executive director. Three basic texts include the following (external links) Essence of Strategic Giving, Money Well Spent, and Driving Social Change. Coupled with these resources are a series of articles and monographs referenced below that will help in creating a deeper understanding of capital nd philanthropy.  Together, they are a critical starting place for reframing the conversation of nonprofit resource development.

Taking stock The next stage of shifting thinking is to create a basic profile of your organization’s current and historic revenue and cost model. Along with defining the cost structure of programs and services, a nonprofit also needs assess the variables of revenue reliability, autonomy and revenue concentration (see resources below). Taking stock is a strategic conversation that, depending on the size of the group, might involve such methods as scenario planning, assumption-based planning, or even open-space technology. The goal of the ‘taking stock exercise’ is to create a shared understanding of the organizational financial baseline, its strengths and weaknesses and how well the “load-bearing” fiscal assumptions might hold under a variety of scenarios.

Understand Your Capital Needs Related to the “taking stock exercise” is the next step, which is creating a clear understanding of your capital needs. Oversimplifying the discussion a bit, capital needs can be sorted into three buckets:

Operating Capital: Most nonprofit organizations focus on operating capital almost to the exclusion of any other forms of capital. Operating capital is the revenue required to support the organizations programs and services. Clearly this is the major focus of nonprofit organizations as it represents the capital required to keep the doors open.

Infrastructure Capital: Less common as strategy is an organization’s Infrastructure capital needs. When it does appear, it is most commonly related to bricks. When a nonprofit seeks to build or buy a building, the infamous capital campaign is launched and the entire focus of the organization is on soliciting financial resources to pay for building, construction or renovation. However, I would like to suggest that nonprofits need to think infrastructure capital beyond bricks. Beyond buildings, nonprofit agencies need to consider infrastructure from the standpoint of evaluation systems, databases, technology infrastructure as well as resources to enter into meaningful collaborative relationships with other nonprofit organizations (such as shared space or shared back-office functions). By identifying infrastructure as separate from operations, it creates opportunities to bundle capital needs differently. Infrastructure capital might be sought as major gifts, restricted capital grants or low (or no) interest loans.

Expansion Capital: The third bucket of capital is that used for growing programs and services. I intentionally placed infrastructure capital in between operating and expansion capital because there is space in between the two. Unfortunately in seeking operating capital, many nonprofits blur sustaining existing programs and services and developing new ones as a way to create stable revenues.  All programs are lumped together and funding is sought for a bundle of related programs and services, some established, some new and some sorta new. However, sustaining existing programs and expanding or creating new programs are distinct functions and imply different motivations and risks for the funder. Ideally operations and expansion should be viewed as separate functions.

When an organization goes through the exercise of exploring capital needs, the connection between capital and strategy becomes clear. Indeed, I would argue that without a clear strategy that the exploration of capital is challenging. Conversely, by connecting strategy with capital needs an organization not only can categorize capital needs but also begin to think about staging capital needs.

Assessing the Capital “Market:” The next step is to begin to assess you options for capital. It is critical for nonprofits to understand the capital sources available to them and the drivers for accessing capital. Most nonprofits have figured out the basics of where financial resources come from, primarily: a) grants and contracts, b) donations, and/or c) earned income. However, as an advanced understanding, nonprofits would do well to study the subspecies of philanthropy. While texts referenced above offer clear outlines as to different funding vehicles, as recently as last week, philanthropists and advisors (external link) were still discussing the taxonomy of philanthropic giving (as if there are still significant questions about the subject). While the difference between a heartfelt connector and a venture philanthropist may seem a bit esoteric in reading the back and forth of a blogger and respondents, an understanding of the different values and motivations attached to philanthropy will assist the savvy nonprofit in aligning their capital needs with the right markets.

Creating a Resource Development Plan: I would argue that it is only in the context of understanding your capital needs and the capital “market” that a truly useful resource development plan can be created. In other words, it is only as an agency strategically “buckets” and “stages” their capital needs can they begin to create an investment plan. From that strategic vantage point, a nonprofit can then intelligently have a conversation with potential investor/donors who have been matched by their motivation and strategic philanthropic intent.

I have worked with many organizations where the starting point for resource development planning is next year’s budget. However, a “seeking support for programs” approach to resource development is an increasingly less durable way to raise revenues that support programs and program growth and an abysmal way to consider infrastructure needs. As I have been arguing in my recent posts, strategy is increasingly important to nonprofit agencies. Strategic planning needs to include strategic resource development planning as well. By aligning nonprofit strategic planning with impact philanthropy planning, there is the potential to create more rational and sustainable funding models for nonprofit organizations.

As always, your comments are welcome.

Resources


Nonprofit Ratings, Accountability & Transparency

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Like many community-engaged citizens during the last few days of December, I thinking about end-of-year giving to nonprofit organizations (okay it is not all altruistic, I’m also thinking a little about taxes).  During the rest of the year, I work formally and informally with many nonprofits helping them think strategically about capacity, strategy and resource planning.  This post occurs at the intersection of my dual roles of engaged-citizen and nonprofit-consultant and is spurred by two articles that I read recently.  The first article was a simple list of Oregon’s 20 Worst Charities – 2010 operating in Oregon that was published by the Oregon Attorney General’s Office.  In the list of charities (none of which are Oregon-based), the ratio of program costs to administrative costs was the single measure used to determine effectiveness.  The article referenced the Better Business Bureau’s charity standard in support the idea that effective nonprofit budget must divide with no more (and preferably much less) than 35% administrative costs with the balance of 65% or more devoted to program costs. In follow up to the report, the Willamette Week used the “single ratio” concept and banged out an article titled Flabby Charities. In short, the article profiled ten local charities failed the ratio test and quoting someone from another nonprofit rating firm Charity Navigator implied, that the ten nonprofits are “underperforming according to industry standards.”   Is it really that black and white?  Now don’t get me wrong, a nonprofit that only devotes 3%, 6% or 10% of its revenues to programs and the rest to administrative costs is likely a predatory agency that is well deserving of the attribution of “worst.”  In all fairness to the Better Business Bureau and Charity Navigator, neither of their rating models are based on a single ratio as represented in the simplified writings of the articles.  Indeed, there is a growing chorus of voices that question the wisdom of basing an assessment of a nonprofit on narrow fiscal criterion.  Such an over simplistic view of nonprofit effectiveness borders on mythology that is disingenuous and does a disservice to both the public and nonprofit agencies.

The reality is that while finances are important evaluation criteria for nonprofit effectiveness, the impact of the agency on the social need and the organization’s strategy matters much more, when judging the relative worthiness of nonprofit agencies. Indeed, it is puzzling to me that the Charity Navigator expert quoted in the Willamette Week article would perpetuate the mythology of the “program to administrative cost ratio” when just this year, Charity Navigator began a revamping process to its rating system where the new rating weights include Effectiveness and Results as 50% of the score, Financial indicators as 33% of the score (overhead 10% and working capital 23%) and Accountability/ Transparency as the remaining 17% (source: external link).   Further, judging the relative merit of a nonprofit solely on quantifiable data, removes the “nonprofit narrative” from the assessment process.  The human story is part of organizational effectiveness. On this latter point, a relatively new organization, Great Nonprofits is building a rating system based on the narrative of crowds telling the story of nonprofits. Putting these pieces together, the point becomes clear.  It is a terrible oversimplification that says a “program to administrative cost ratio” determines the merit of a nonprofit.

So, the question that remains is if nonprofit worth is not about a single ratio then what contributes to building an unassailable reputation and rating?  I would like to suggest several components that nonprofits might pursue to pass the highest scrutiny of a due diligence process.

Build on the Existing tools: While the Better Business Bureau’s charity standards and Charity Navigator are still imperfect, their methodologies and vetting processes are worth understanding and, if feasible, even participating in.  In addition to these rating systems, I would also encourage nonprofits to participate in Great Nonprofits which presents a very intriguing community building potential as well as register their agencies with Guidestar.  Finally, I would learn about nonprofit rating system of newcomer GiveWell.

Build a Strategic Budget:  While nonprofits need to create annual operating budget within the constraints of projected revenues, it is also important that that a nonprofit also builds a strategic budget that recognizes the true cost of operations and capacity. I outlined the concept of strategic budgets in more detail in another post (here) so I will simply reiterate that a clear understanding of true operating and administrative costs is an essential strategy for resource development.

Build a Strategic Budget and Strategic Plan Context:  I assert that the cost of operations and capacity is only relevant in the context of strategy.  What many fail to understand is that some operating and administrative costs are relatively fixed.  For example, hiring an experienced executive director to grow a small nonprofit or hiring a development director to develop a comprehensive fundraising strategy come at market rate and there are limited degrees of freedom in salary range. A smaller nonprofit making such an expensive hire will see, in the short-term, their administrative and operating costs spike beyond 35% of total revenue.  But if the investment in such a hire can be placed in the context of a 3-5 year strategic plan that doubles the size of the agency then the high administrative and operating cost become understandable and proportionally will decrease over time.  In short, cost in context matters.

Build Fearless Transparency and Accountability:  When in doubt make it public.  I believe that nonprofits benefit when they put out as much data in the open as they can.  At minimum a nonprofit agency needs to be public about: its strategic plan; who is on its board of directors and advisory committees; its IRS Form 990s & IRS Letter of Determination (they are available online already); its audits or fiscal reviews; its annual report; and its program evaluation data. Other steps that can enhance transparency might include a monthly blog by an agency’s executive director; and periodic summaries of board activity and major board decision (maybe as part of blog posts).  In an age of increasing accountability a nonprofit’s transparency matters.

Build an Honest Profile of Program Impact: While arguably the hardest component to do well; having compelling data and story about your agency’s impact is perhaps your best defense to criticism that you spend too much money on administrative costs and overhead.  Many agencies track services delivered yet fail to communicate this data on a routine basis.  Far fewer are the agencies that communicate clear and demonstrative program outcome data.  At the end of the day, the worthiness of a nonprofit agency needs to be judged on outcome data supported by story.  Increasingly donors will ask that that nonprofits demonstrate that they are meeting its mission and, as a foundation representative I was talking to recently, succinctly stated it, “no data – no confidence.”

While I believe that the two articles I referenced at the opening of this post were simplified stories to a much larger and more complex reality, they serve as a wake-up call, not only to the agencies named in the stories, but to all nonprofits.  Are we documenting our story in a way that is open and transparent enough to endure scrutiny and oversimplified accusations?  Can we readily point media, donors and citizens to internal or external rating systems that help the public have confidence enough to invest in us?  Nonprofits that invest resources and work proactively to be on the leading edge of demonstrating effectiveness, transparency, and accountability will be able to answer yes to these questions.  For the rest, what are you waiting for?

 

Facilitating for Sustainability: Thinking Beyond Fundraising

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In my consulting business I get calls from people who say, “I found your name through a search for fundraising consultants. Could you tell me your experience with managing a special event, capital campaign, or ________ (fill in the blank).”  At which time I get to distinguish the concept of sustainability planning from the concept of fundraising planning.   With such potential clients, I try to cut to the chase, saying something like “If you are looking for someone to help you tactically pull off a silent auction or help you move 100 “prospects” up the ladder of engagement, let me refer you to one or two of my colleagues.  However, if you are looking for someone to help you think more deeply about organizational sustainability and resource development planning, then let’s talk a little more.”  While I have written a few other posts on this topic, specifically here, here, and arguably here, in this post I want to help nonprofits to think beyond fundraising and to consider sustainability planning as a potentially more powerful management tool.

As we get started, I want to be up front and provide my working definition of sustainability.  “Sustainability is the systemic and systematic development of program and agency capacity that produces measurable outcomes, successfully navigates change, and demonstrates rational growth over time.” Sustainability planning therefore is based on four cornerstone concepts:

Systemic and Systematic Development: Sustainability planning is inherently based on a systems view of the nonprofit agency and the local “ecosystem” in which the agency operates.  Most effective when intentional and thematic, sustainability planning must address the development of the whole organizational ecology. In other words, the external ecology (i.e., local economy, grant-maker funding patterns, the political landscape) and the internal ecology (i.e., employee compensation, technology infrastructure and marketing/communications) directly effect an agency’s ability to design strategies that ensure financial resources needed for program success.

Measurable Outcomes: A basic premise of sustainability is that the agency and its programs must produce outcomes that are documented, quantifiable, and worth continuing.  Social impact matters and impact alone is the basis for sustainability.  If an agency can’t measure and demonstrate the worth of its programs and services, then it is directly or indirectly violating the trust of these investing in your programs and services.

Navigating Change:  The pace of change in this new economic “normal” demands that nonprofit agencies’ have the agility to navigate change both in response to and in anticipation of the ongoing and rapid realignment of community resources.  “Demand is up and revenues are stretched taunt” will remain the dominate reality for some time to come. Flexibility and adaptation build on the foundation of strategy is a critical component of sustainability.  Rather than “locking down” a static revenue development strategy, an organization needs to strategically understand  its larger funding model and, within that model, invest in rapid cycle testing (external link) of new resource development strategies.

Demonstrating Rational Growth: Sustainability is only tenable when the pace of growth can be assimilated by the organization.  Growing too fast or conversely too slow can be detrimental to the health of a nonprofit.  Finding a growth pattern that can be managed in the context and culture of the organization is also important to sustainability.

In other words,  these four principles that define sustainability move an agency beyond mapping out fundraising activities for the coming year. Sustainability planning is the larger strategic conversation that considers not only revenue projections but also the underlying framework and strategy for maintaining and managing organizational growth.    Unfortunately many nonprofit organizations uncouple organizational strategic planning and fundraising planning –facilitating a separate process for each.  However, it is increasingly less tenable to think about revenues apart from strategy.  Nonprofit leaders must excel at systems thinking and integration.  This challenges the traditional thinking that there are three separate but related processes: strategic planning, operational planning and fundraising calendar development.  Strategic, operational and fundraising planning need to fuse into a single hybrid planning process.  This process sets a clear vision that is supported by integrated outcome driven strategies for program and service delivery; capacity development; and revenue development (fundraising).  Such a plan must be intentional about opportunity management and create the necessary degrees of freedom required for adapting to the changing economic and programmatic landscape.

In the context of sustainability planning, the facilitation and process leadership that is required is led by a strategy focus and is supported and complemented by tactical fundraising skills. Planning for events, building donor databases, and writing grants are important  fundraising strategies but fundraising strategies should not be confused with sustainability planning.  Rather than such formula-driven metrics as donor conversion or event “return on investment,” a facilitation process for sustainability planning is strategy driven and anchored to the longterm success of the agency. Forward thinking nonprofit agencies are increasingly investing their limited time and resources thinking beyond fundraising to models of sustainability.

Facilitating Strategic Budget Plans & Resource Development

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For many nonprofit organizations this is time of the year where the board and staff turn their attention to drafting a budget to guide business operations for the next fiscal year.  For many agencies, this annual ritual simply starts with taking last year’s budget and incrementally scaling the numbers up or down depending on the known and likely commitments of funding for the next year.  While this method is reliable when continuity between years is strong, an increasing number of nonprofits are still facing volatile economic environments.  For organizations confronting “revenue uncertainty” cutting and pasting from last year’s budget is likely inadequate preparation for the year, or years, ahead.  Organizations’ seeking not only to survive but thrive need to develop an intentional process to facilitate the development of a long-term budget strategy.  Having many years experience creating and managing budgets in career, consultant, and volunteer positions (across nonprofit agencies of all shapes and sizes) I would like to suggest five elements of a facilitation process that will strengthen a strategic budget planning process.

Define your Funding Model:  It likely comes as no surprise that the agency budget framework for many small to midsize nonprofit organizations is simply the amalgamation of the individual program budgets that have been built in response to specific grants and/or contracts received by organization.  Unfortunately, even some larger organizations fall prey to this “Lego Approach” to budget development.  As new grants, contracts or donations are obtained, the resources are snapped into place to fill budget holes or to expand programs as required by the funding restrictions tied to the new revenues.  Agencies that would raise their hands if asked if they use the “Lego Approach,” would do well to consider convening their board for a strategic conversation about developing an intentional framework to guide the budget process.

In recent years, there have been a number emerging perspectives in nonprofit fiscal management and philanthropy that, taken together, help nonprofits develop a strategic perspective for long-term revenue development.  Several articles and books are referenced at the end of this post, however, some of the key concepts that form the basis of the conversation should include: a) a review of Pratt’s funding archetypes and the ten funding models recently presented in an article in the Stanford Social Innovation Review; b) exploration of revenue autonomy, reliability and concentration, and c) operational overhead.  The goal of this conversation is to develop a working understanding of the concepts and prepare the board to apply these principles to creating a strategic framework for their organization.

Assess your Overhead Costs:  One unfortunate legacy that plagues nonprofit organizations is that efficiency is often measured by overhead cost. The assumption is that nonprofit overhead is a proxy measure of efficiency, in essence, suggesting that the lower the nonprofit overhead costs, the more efficient the nonprofit is assumed to be.  This perspective is reinforced by many funding agencies who cap operational overhead at an arbitrary number (like 8%, 10% or 15%) when awarding grants and contracts.  However, over the last few years several studies have begun to challenge this conventional thinking with a growing chorus of voices suggesting that the antiquated approach to efficiency actually sets up a nonprofit “starvation cycle.”  Creating a strategic approach to resource development and budgeting will require boards to develop an accurate administrative overhead budget. This exploration by the board will need to account for both current administrative costs and costs associated with capital investments that need to be made in such areas as human resource, technology, fiscal, that have been deferred expenses.  The resources listed below offer several good starting places for developing an accurate administrative overhead budget.  Having a realistic understanding the true agency overhead costs will help your organization develop realistic plans to align revenues with true costs.

Value your Staff:   A third component of a strategic budget process is to create a compensation system that values and rewards staff.  Much akin to the under-investing in agency overhead and infrastructure, under-investing in staff is another strategic hurdle that nonprofit agencies need to understand and overcome.  Again, conventional wisdom suggests that nonprofit employees work for intrinsic rather than extrinsic value, which translates into lower salaries and benefits.  Unfortunately, when a critical mass of nonprofit agencies operates under this assumption it creates a market that supports under-compensating staff.  On more than one occasion, I have heard a well-intentioned board member say, “Our employee pay and benefits are at the market rate.” Unfortunately the benchmark should not be “market rate” but should be oriented around the equity of a living wage and incentives that foster the recruitment and retention of high performing employees.  Again, the goal of building a compensation model is to create a resource development goal for an organization that can be supported by intentional objectives to be pursued in a priority sequence.  For example, I know of an agency that laid out a strategic agenda to sequentially develop a living wage structure, strengthen the insurance options, increase retirement contributions and add an employee assistance program and educational benefits.  The organization is supporting this strategy with a specific multi-year resource development plan focused on strengthening compensation.

Start from Zero:  For those organizations locked into program grants and contracts, many budget decisions were established when the grant or contract proposal was submitted. For those programs that have been funded over multiple funding cycles, the budgets (and ideally work scope) have expanded or contracted based on available funds. However, even if a program budget is set, it is a very productive exercise to start from zero and rebuild a program budget.  In other words, suspending the current program budget, if you were to create an ideal budget for the program services being delivered, what would that budget look like?  If staff compensation was fully loaded and the appropriate overhead was charged to the program, how much money would it really take to run the program?  Creating a zero-based budget allows you to compare where you should be (relative to the revenue and expenses) to where you actually are today.  The variances identified are the program budget gaps that are being absorbed or ignored at the peril of your agency’s fiscal health.  Creating zero budget comparisons across program areas would help bring into focus the gaps between revenues and expenses and would become the groundwork for a facilitated discussion about program priorities and where your agency is appropriately investing, over-investing and under-investing in programs that help the organization meet its social goals and objectives.

Think About Governance:  Another part of the process is to be intentional about governance.  At the most basic level, governance asks the big three questions is a) is it allowable, b) is it approved and c) is it something that will advance your mission?  In more detailed thinking about governance, your board needs to create a process to ensure that the budget process protects donor intent, appropriately allocates expenses and ensure the agency’s fiscal and legal advisors review the budget strategy for accuracy and legality.  Finally the governance component of budget planning requires attention to risk management and contingency planning, to minimize disruption of programs and services should budget projections not be met.

Taken together, these five facets of strategic budget planning suggest a staged process that includes:  a) coming to agreement on a funding model for your agency that serves as the organizer for strategy, b) being clear about the true cost of your services, c) recognizing your resource gaps, and d) creating a strategic resource development plan to address the resource gap.  It is important to recognize that re-engineering an agency’s approach to resource development will take time and the first iteration of a strategic budgeting process will likely yield two working documents.  The first document is the strategic resource development plan is a long-term (3-5 years) that defines how your agency will reshape its approach to growing revenue streams over time.  The second working document is the short-term “compromised” budget to address the coming programmatic year that juggles the anticipated expenses with your projected committed and likely revenues.  However, this initial mixed result of “the  pragmatic” and  “the strategic” will only be a temporary stage as the subsequent iterations of the strategic budget process will be oriented more and more toward the strategic goals and objectives of your plan.

What is becoming clear in the social service sector of today is that that nonprofit organizations can’t simply rely on the momentum of the past.  Strategic thinking and systems thinking need to be core competencies of the leadership and boards of nonprofit organizations.  Even as I write this blog, a new resource came through a “tweet” that made this statement, “Leaders who are determined to have their organizations thrive in these new and challenging times must reevaluate their potentially outdated ways of thinking, prioritizing, investing, and acting. (external link)”  For budget planning and the larger concept of strategic resource planning, I could not agree more.

As always your thoughts are welcome.

Resources:

Socially Responsible Growth & Strategy

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In the last 15-20 years the concept of Socially Responsible Investing (SRI) has grown from an abstract investment concept to a mainstream practice.  According to the Social Investment Forum’s 2007 report on SRI Trends, over $2.71 trillion in total assets are being managed using one or more of the three core SRI investing strategies. This represents one in nine invested dollars. Increasingly individual and institutional investors want to see their investments generate not only a positive financial return but a positive social return as well.  In this context, thinking strategically about how your organization demonstrates social responsibility is an important planning tool when considering growth.  How is it that your organization demonstrates social responsibility?  Before that question can be approached, it might be useful to briefly consider the core SRI strategies.  These include:

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Social Screening: SRI first and foremost considers screening of investments according to some pre-defined criteria.  Investments that fail to meet the criteria are screened out.  As examples, some common screening criteria may relate to a) the potential harm inherent in the product or service where defense contractors, alcohol, tobacco, and gaming industries might be excluded; b) negative environmental impacts where petroleum, nuclear, or chemical industries might be excluded, c) worker or human rights where industries negative diversity policies, geopolitical location or worker organizing practices might be considerations for exclusion.  Conversely, profitable companies that demonstrate exemplary practices related to product benefit, sustainable environmental practices or supportive worker practices are eagerly sought as  included investments.

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Shareholder Advocacy: Using shareholder proxy voting power and other vested powers (e.g., board representation) to push for positive policies or to advocate for change is a second dimension SRI.  In essence, shareholder advocacy asserts pressure to steer companies towards change that is consistent with the Social Screening framework.  Conversely, shareholder advocacy can reinforce companies’ commitments to both profitability and social responsibility.

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Community Investing: The third SRI strategy is community investing, While this is the least commonly used strategy  the concept behind community investing is to make capital accessible at the local level.  Examples of this strategy includes investing in regional banks and institutions that provide capital (i.e., loans) to smaller local businesses or investing in the development of affordable housing.

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Taken together these three strategies suggest that a growing number of investors are interested in the double (people and profit) or triple bottom line (people, profit and planet).  These investors are driven by specific causes, are interested in being actively involved and demand local impact.  So businesses increasingly need to think strategically about positioning their companies in the context of the double or triple bottom line. Nonprofit organizations also need to pay attention to SRI strategies because there is a parallel trend in philanthropy that combines cause with active involvement and a focus on local impact.  One only needs to look at social venture philanthropy and giving circles as examples of  SRI approaches to philanthropy.

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So, applying this concept back to strategic planning, it becomes clear that organizations need to position themselves as “model citizens.”  Again, while many organizations “zoom in” on the immediate context of growing or sustaining their ventures, it is equally important to “zoom out” and consider the larger systemic view of how capital is changing.  Strategic questions start with the three principles.  How are we meeting a positive social need?  How are we engaging our “investors” as they advocate for change?  How are we demonstrating a clear and definitive local return on investment?

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From the answers to these strategic questions come operational strategies, such as a) assuring that your marketing messages are clear and focused on social responsibility, b) creating opportunities for our “investors” to engage with with in social change and being willing to respond to their advocacy, c) ensuring that you are measuring performance in a way that demonstrates your local impact.
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We live in a new era that is described as post-industrial, networked, empowered and localized.  Engagement is on the rise and can be seen in such trends as the growth of SRI. Engaged Investors are here to stay and it is up to organizations to measure themselves against this new standard. Organizations strategically considering this new context will thrive by investing the time and energy to develop a socially responsible mission and operating framework.

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Further Reading

Socially responsible Investing Primer

Social Investment Forum’s 2007 Report on Socially Responsible Investing Trends

Social Venture Partners Portland

The Impact of Giving Together

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