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Big Philanthropy's Social Impact Depends on Its Social License

January 21, 2016

Approved_stampMark Zuckerberg and Priscilla Chan's recent pledge to donate 99 percent of their Facebook shares to the Chan Zuckerberg Initiative (CZI) quickly became the subject of criticism from some quarters of the not-for-profit sector.

Some of this criticism focused on how Zuckerberg and Chan decided to establish the CZI as a limited liability company (LLC), rather than as a traditional foundation.

There are some advantages to doing this — an LLC has much more flexibility to contribute to the common good by investing in for-profit companies as well as by donating to not-for-profits.

But because LLCs aren't subject to the same regulatory requirements as traditional foundations, they can, in theory, fund things that don't necessarily further charitable goals.

Criticism also has focused on how such a massive amount of money, combined with the use of a "less accountable" LLC, could lead to a further concentration of power in the hands of wealthy people such as Zuckerberg and Chan.

If nothing else, the debate has opened up an opportunity to have an important discussion about the relationship of philanthropy, particularly "big philanthropy," to the broader community — and what kinds of actions can enhance this relationship in order to maximize both philanthropy's social impact and the community's support for its work.

In this context, the concept of a "social license to operate," which has generated more attention in the private sector, particularly within the mining industry, than from the not-for-profit sector, is relevant — and reflects an increasingly common view that private companies can't just do what they want while ignoring the needs of local communities.

Defining the Social License to Operate

It's not a license in the formal sense — you don't apply for it and get it if you tick the right boxes. It's something a company earns through its actions; it's an intangible asset that a company earns and must work to maintain, in much the same way that it earns and must work to maintain its reputation.

In other words, a social license is a type of "soft" regulation, as opposed to "formal" or "hard" regulation, which is determined and enforced by government agencies and regulators.

Moreover, it revolves around a question of legitimacy — whether a company's actions are viewed as "right," not just by shareholders but by stakeholders more broadly — and has various levels, as illustrated below.[1]

Krystian Graphic

The concept is equally relevant to philanthropy, as legitimacy is critical to philanthropic action. If philanthropy is not seen to be contributing to the common good, or acts in a manner which is inconsistent with community expectations and norms, then it will lose its legitimacy. 

Philanthropy's Social License to Operate

That's why it is important for there to be conscious attention to what philanthropic organizations need to do in order to acquire and maintain a social license to operate.

Arguably, such a license is easier for smaller foundations to acquire and maintain, in that it simply comes down to adopting a conscientious approach to grantmaking that involves supportive engagement with grant recipients and being responsive to the needs of the local community as those needs change over time.

But it's particularly important for "big" or "mega" philanthropic organizations like CZI to have — and for these organizations the bar is higher.

That's because "big philanthropy" vests a large amount of power in philanthropists to decide which outcomes should be funded. Despite widespread apathy about government, government still derives a fair amount of legitimacy from the ballot box.  Big philanthropy, on the other hand, isn't subject to regular elections or term limits.

Indeed, because of its size, big philanthropy is closely watched and scrutinized by other organizations within the philanthropic sector, as well as by not-for-profits, the media, and the communities in which it operates. It follows, therefore, that without a social license, its actions can result in a loss of legitimacy.

Transparency

So what does acquiring and maintaining a social license to operate actually require of big philanthropy? There are no hard and fast rules, and each philanthropic organization should examine for itself what it needs to do. However, operating in a transparent manner and demonstrating a willingness to share power are likely to be particularly important in the case of CZI.

Transparency, in this context, means being open about how the organization is governed, what it funds, how it funds, and what outcomes it is looking for or has achieved. If the local communities in which it works don't know what CZI is doing, how will they be able to make an assessment of that work and its value in terms of furthering the common good? And if they can't do that, then what are the chances that CZI will be able to establish and maintain its legitimacy?

A culture of secrecy tends to breed skepticism. On the other hand, by being transparent and open, a philanthropic organization such as CZI can actively demonstrate its commitment to the common good and establish a relationship with the communities in which it works based on mutual trust and respect.

Sharing Power

A good first step, of course, would be for CZI to commit to meeting the full range of transparency measures set out as part of Foundation Center's Glasspockets initiative.

The next step would be to think about ways to share power, which means directly engaging with the communities in which it is (or will be) active. Engaging doesn't mean just listening — it means working in genuine partnership with stakeholders in those communities.

Again, there are no hard and fast rules — but at one end of the spectrum, such engagement would involve consulting stakeholders and using their feedback to inform strategy and key decisions. At the other end, it could involve more directly including stakeholders in the decision-making process, which is exactly what one small foundation in Indiana has done.

I expect that CZI will be trying to address some really complex and multi-faceted problems. To do that effectively, it will need to both be open about its work and willing to share power with subject-matter experts, community-based leaders, not-for-profits, and other philanthropic organizations.

Among other things, sharing power is an opportunity to leverage expertise, secure stakeholder buy-in, and share responsibility for outcomes.

Headshot_Krystian_SeibertUltimately, these are just examples of how philanthropy can establish and/or maintain a social license to operate, and the legitimacy of any philanthropic organization will depend on a variety of factors. However, it's something big philanthropy needs to focus on, perhaps now more than ever, and something that all philanthropic organizations need to pay attention to.

Krystian Seibert, policy and research manager at Philanthropy Australia, tweets at @KSeibertAu. This post originally appeared on Foundation Center's Transparency Talk blog.

[1] Adapted from: Ian Thomson, Robert G. Boutilier, "Modelling and Measuring the Social License to Operate: Fruits of a Dialogue Between Theory and Practice," 2011. For more on the topic, visit SocialLicense.com

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