With the trend towards trust-based philanthropy gaining momentum globally, the architect of ‘strategic philanthropy’ as a concept has declared it dead. In this article, Cathy Duff unpacks the arguments for why it has failed and reconfirms Trialogue’s commitment to strategic corporate social investment (CSI).
In 2002, Michael Porter and Mark Kramer published the seminal article ‘The Competitive Advantage of Corporate Philanthropy’ in the Harvard Business Review (HBR). The article argued that corporate philanthropy could be aligned with business interests to create a competitive advantage. Rather than reactive giving, the authors recommended aligning philanthropy with business strategy and leveraging company resources and capabilities for social good to create a synergy between corporate success and societal improvement.
The pair went on to author the 2011 HBR article ‘Creating Shared Value’, which argued that companies should move beyond corporate social responsibility (CSR) and gain a competitive edge by simultaneously improving their economic value and addressing societal needs. They explained that companies can create shared value in three ways: reconceiving products and services to address social needs, redefining productivity in the value chain in ways that benefit society, and strengthening the local business environment by investing in infrastructure, education and technology that benefit both the company and the community. The shared value-approach speaks to shifts in a company’s business model – its products and services and how it operates – rather than just its philanthropy or social investment.
Also in 2011, Kramer and co-author John Kania introduced the concept of ‘Collective Impact’ in an eponymous article in the Stanford Social Innovation Review (SSIR), arguing that large-scale social change requires broad cross-sector coordination, rather than isolated interventions by individual organisations. And such collaboration requires a common agenda, shared measurement systems, mutually reinforcing activities, continuous communication and, importantly, a backbone support organisation to manage the initiative.
Where strategic philanthropy went wrong
Fast forward to 2024 and Kramer – the thought leader that mainstreamed the concepts of strategic philanthropy, shared value and collective impact – together with Steve Phillips published the article ‘Where Strategic Philanthropy Went Wrong’ in the SSIR’s summer edition titled ‘Strategic Philanthropy Has Failed: What’s Next?’ In the article, Kramer and Phillips define strategic philanthropy as ‘philanthropic initiatives intended to create lasting solutions to societal problems’ and argue that because we have not seen significant improvements in any social indicators and social issues are in fact deteriorating, this type of philanthropy has failed. They purport this is largely because funding nonprofits does not significantly shift the system and can never reach the scale required to move the needle on social indicators.
They go on to propose a more effective form of philanthropy, which they call ‘empowerment philanthropy’. This approach involves empowering people and communities more directly through direct cash transfers, universal basic incomes or peer support programmes.
They also argue that only governments can effect social change and, as such, philanthropy should consider influencing the political system. One recommendation is to support voter education and activation to get people to register and vote so that politicians are more representative of what people want and held more accountable. As evidence to support this, they cite the fact that countries with progressive governments have the highest ‘social progress’ rankings. They also mention that another way of influencing a government is through lobbying but note that in the US, charitable foundations are barred from doing this.
… and where it went right
There have been numerous responses to the SSIR article, many of them disputing its conclusions. Phil Buchanan at the Centre for Effective Philanthropy (CEP) argues there is no single approach to philanthropy, and different approaches make sense in different circumstances and for different types of donors. He also notes that funding communities directly or supporting voter engagement is part of a strategy, so would still be considered strategic philanthropy and in no way undermines the concept of strategic philanthropy.
Rhodri Davies, a philanthropy commentator, also raises the point that there are multiple approaches to philanthropy. In particular, he highlights that trust-based philanthropy – where funders provide unrestricted, flexible funding and reduce administrative burdens on grantees – can be highly effective. High-profile philanthropists MacKenzie Scott and Melinda French Gates have taken just such a trust-based approach and are inspiring others to adopt more equitable approaches too. Davies stresses that the success or failure of philanthropic initiatives often depends on the specific context in which they are implemented and provides examples of philanthropic initiatives that have successfully shifted systems.
Similarly, in their rebuke article in the SSIR ‘Strategic Philanthropy is Alive and Well’, Jodi Nelson and Fay Twersky provide examples of where philanthropy has shifted systems. They cite the Bridgespan Group’s HBR article ‘Audacious Philanthropy’ which provides case studies of 15 social movements that achieved life-changing results such as virtually eradicating polio globally, ending apartheid in South Africa and establishing the universal 911 service in the United States, most of which were supported by some form of philanthropy.
Nelson and Twersky’s summary reply to authors Kramer and Phillips is, “You have sounded the death knell of strategic philanthropy prematurely and without compelling evidence.”
Strategic CSI is very much alive
The key assumption made by Kramer and Phillips is that strategic philanthropy sets out to have an overarching positive societal impact. Does it and is this realistic in the first instance? We know that poor government policy and action have a much vaster influence on social conditions than philanthropy can ever have. It is obvious, based not only on the relative amounts spent, but also because philanthropic programmes operate out of the system without any direct social mandate. So showing that social conditions do not respond to philanthropic spend is not surprising to us, or indeed any foundation or company. It certainly does not mean that philanthropy is ineffective.
We agree with the authors that solely funding nonprofit projects is not going to change things at scale and, to the extent possible, CSI (or philanthropy) should try to influence government systems and leverage government funds. However, we propose that this can be done not only through advocacy and voter education but also by innovating and testing solutions, doing research and then using the knowledge to influence policy and practice more broadly. Another approach could be directly supporting research and policy work, or indeed working in/with the system on collective impact approaches.
As many other respondents to the article have argued, there are plenty of examples of where philanthropy has shifted the system – either through one of the means proposed by the authors (direct transfers, voter education) or by supporting advocacy, mass movements or innovation.
We would argue that strategic CSI is a fundamentally different proposition from what is defined as strategic philanthropy in the article. Whereas they see the history of philanthropy as a ‘placebo’ – or diversion from the ills of the system that enable excessive profits in the first instance – we are seeing evidence that strategic CSI is integral to the business and a means of reinforcing the organisation’s overall social impact.
For CSI to be strategic, it has to be aligned with and create value for the company – value that goes further than mere reputation benefits, either through enhanced stakeholder relationships with key business stakeholders (suppliers, customers, consumers or employees) or through mechanisms that lead to competitive advantage (lower costs, access to scarce skills or new markets).
Alignment allows the business to leverage internal resources and relationships to increase developmental impact, often at a fraction of the cost that would otherwise apply. For example, a telecommunications company could use its networks to connect beneficiaries or allow free messaging on social issues, a healthcare company could leverage its resources to support indigent patients, or a logistics company could use its networks to distribute social products. And they could all do this at a much lower cost than a funder without the internal assets and competencies.
Ultimately, CSI which is strategic is more sustainable as it will not be the first thing to be cut when profits are down, as there is company value dependent on it.
From the time of the 2002 HBR article, which resonated strongly with the work that Trialogue was doing, Trialogue has advocated for strategic CSI. We used our research and experience supporting companies with their CSI strategies to develop the CSI Positioning Matrix, which enables companies to determine which of the four approaches to CSI their projects fit (charitable, developmental, commercial or strategic) and what shifts are required to make their work more strategic.
We also launched the Strategic CSI Award in 2014 to celebrate a single project each year that effectively demonstrates the principles of strategic CSI. Each of the award-winning projects since shows how valuable they are, not only to society but also to the company – even if they do not result in systemic change (see page 80 for the 2024 winner of the Trialogue CSI Award). On the back of our advisory work and the project case studies from the awards, we offer a strategic CSI masterclass.
The future of CSI is leveraged
As with philanthropy, there are different approaches to CSI and no one size fits all. Trialogue positions CSI programmes broadly across three categories, namely charitable CSI (CSI 1.0), strategic CSI (CSI 2.0) and leveraged CSI (CSI 3.0). There is space for all three types of CSI within a company’s portfolio, and the combination will depend on the company’s business strategy, stakeholders and context, appetite for risk and approach to development, among other elements.
We have witnessed and encouraged a broad shift from more reactive giving in CSI 1.0 to more strategic giving, with many companies now allocating a significant portion of their budgets to strategic programmes. Leveraged CSI builds on a strategic approach by seeking to influence a broader developmental landscape or system. This can be achieved by funding research, advocacy or through collaborative and collective impact investments within a chosen developmental field.
The approach requires a shift from a symptomatic project-focused mindset to investing in structures and processes that aim to solve longer-term systemic or structural deficiencies. It is likely to be effective in instances where companies have acquired a deep understanding of a developmental context and have relationships with influential stakeholders. It requires investment in collaboration itself, which may not always show immediate or obvious outcomes as well as a consideration of longer-term and more flexible styles of giving.
Initial interest in this approach is coming from companies with larger budgets that have ambitions for more substantive change. The downside is that this approach is complex and takes a long time, with positive outcomes for beneficiaries not immediately visible. This means it will not be a preferred approach for some companies, many of whom have shorter funding cycles and pressure to demonstrate immediate results.
In conclusion, Trialogue believes strategic philanthropy is very much alive. Our view is that companies need to be strategic with their giving, by aligning their CSI strategy to the business. The government holds the primary mandate for development. With CSI funding amounting to only a fraction of government developmental budgets, CSI cannot realistically be expected to transform the developmental landscape. However, by leveraging corporate capacity, knowledge, and relationships through innovative and aligned initiatives, CSI can deliver a far greater impact relative to its budget size than one might expect.
Sources and further reading:
- ‘The Competitive Advantage of Corporate Philanthropy’. Harvard Business Review 2002.
- ‘Audacious Philanthropy’. Harvard Business Review 2017.
- ‘Where Strategic Philanthropy Went Wrong’. Stanford Social Innovation Review 2024.
- ‘Strategic Philanthropy Is Alive and Well’. Stanford Social Innovation Review 2024.
- Centre for Effective Philanthropy. Blog.
- Rhodri Davies. Blog.
- ‘CSI 3.0: The evolution of corporate social investment’. Trialogue Knowledge Hub.
Image: A featured artwork of Colours of Africa, a Design Indaba and Google Arts & Culture project.
Source: The original version of this article was published in the Trialogue Business in Society Handbook 2024 (27th edition).