Posted on June 3, 2008

'Philanthrocapitalism' Stirs Debate

Wealthy donors increasingly are applying business principles to their charitable donations — and thinking of them as "investments" — but some experts caution that a strict bottom-line approach to philanthropy can create its own problems, the Sioux Falls Argus Leader reports.

While the basic concept of "philanthrocapitalism" has been around since the days of John D. Rockefeller, the idea of seeking a quantifiable return on one's philanthropic investments has been embraced by a new generation of wealthy donors, many of whom made their fortunes in finance and technology. For example, when South Dakota businessman T. Denny Sanford donated $400 million in February 2007 to what became known as Sanford Health, he laid out specific goals for the healthcare system to meet, including building five revenue-generating pediatric clinics and identifying one disease to focus on and find a cure for within his lifetime (Sanford is seventy-two).

While there is nothing inherently wrong with taking a business approach to philanthropy, says William Schambra, director of the Hudson Institute's Bradley Center for Philanthropy and Civic Renewal, donors should be careful not to insist on measuring things that, by their nature, cannot be measured. "It's a good thing when [donors] push for effectiveness and results," said Schambra, "but it can be harmful if they say everything has to be measured. There is something about human affairs that resists that kind of measurement."

Other experts, including Michael Edwards, director of governance and civil society at the Ford Foundation, are even more critical of the trend, arguing that there is little evidence to support claims that business methods are superior in achieving social goals. In his recently published book Just Another Emperor? The Myths and Realities of Philanthrocapitalism, Edwards advises donors to "believe in the people you give money to, and let them get on with the work because they're closest to the problems."

Still, many entrepreneurs-turned-philanthropists, including In2Books founder Nina Zolt, are confident that tried-and true business practices can be translated successfully to the work of bettering society. "Having come from a business background, I'm all about impact," said Zolt. "As a businesswoman, my view [is] that there is no problem that's not solvable."