What Is the Role of Funders in Social Impact Matters?

Often philanthropists are not familiar or experienced enough in local issues to be dictating how social impact is reported, writes Alan Kay, coordinator of the UK’s Social Audit Network.

“He who pays the piper calls the tune” – is an old British saying.

The explanation in Cambridge Dictionary: “The saying is said to emphasise that the person who is paying someone to do something can decide how it should be done…”

This saying is widely used and often in connection with funders and investors – those who provide funds to enable social economy organisations to get on and do things that have social or community benefit.

There is a fine dividing line between those that provide the financial resources and those organisations that carry out the work. How much right have funders in dictating what the work should be, who should do it, how it should be done and how should the benefits be reported back? It is not an easy and straightforward relationship, as often the funders are not always fully aware of the context, do not always understand the difficulties in the delivery of services, and, at times, can get overly involved in how the delivery organisation is managed and how it reports.

At times those who provide the money can overstep the mark. I used to work with overseas aid organisations and UK government departments that provided much of the funding in the 1980s and they used to dictate to the aid organisations which consultants they should use, what suppliers they should buy from and so on. In a benign way, this may have been meant to be helpful; but at worst it could be seen as interfering and dictatorial.

In the distant past when I worked for a community enterprise support organisation in Scotland we received a grant from the local council. Each year we were expected to report on how the money had been spent. They trusted us to deliver beneficial impacts arising from how the money had been used.

Over the past 10 years the situation has changed dramatically. Organisations in receipt of funding are now asked to provide proof of the positive differences that they have made – and, on top of this, the funders themselves are increasingly getting involved in how an organisation reports on its social and community impact.This may be very positive but I feel it is important to understand that there is now a shift in the relationship between funders and the recipients – and that this shift may not be entirely positive.

It comes down to who actually is guiding the social and community change. Should it be funders with often limited staff most of whom have distribution and monitoring roles? Or should it be the delivery organisations who know the social and community needs, the local situations and the way needs can be addressed?

As the UK currently appears to be turning its back on Europe and aping the culture and traditions of the United States, we are placing more emphasis on philanthropy as a substitute for state funding – especially in areas of social and community change. Personally, I feel this is a very worrying trend as economically successful individuals are now resorting to use the profit they have gained from neoliberal business practices in doing “good”. Often, they will want to give “something back” through redistribution to those less well-off. There is nothing intrinsically wrong with this, but the nature of the relationship between the philanthropic funder and the recipient requires more open understanding.

There are a number of factors that can be considered in understanding this relationship:

• Funders often want to fund organisations that are familiar to them in what they do, and how they practice.
• Funders are sometimes remote from the sharp end of delivery. What do they really know of juggling social and business objectives, of having to lay people off, of struggling to make ends meet?
• Funders will often talk of working in partnership. But is it really a partnership when one partner wields financial power over another?
• When it comes to reporting back on the difference made by the recipients of the funds are we really reporting on the “right” things and the real change that has happened or just on a bunch of targets.

So now turning to social impact. In the Social Audit Network we believe that the monitoring and evaluation process should be owned and controlled by the organisation. Without doubt, the recipient of funds should report back to a funder on what has been done with the money and what difference has occurred – but the control of the evaluation should be empowering the organisation and not undermining it by funders pushing for only their agenda to be addressed.

We argue that accounting for social and community change is an integral part of what a social economy organisation should be doing. And perhaps more controversially, we feel that funders are just one of a number of stakeholder groups that have to be reported to… they are often highly influential stakeholders but should not be dominant.

Another important element to reporting on social impact, is that mechanistic and highly structured impact reporting can miss the point.

I read an Australian article recently called The Politics of Social Impact: “Value for Money” Versus “Active Citizenship”. The author, Jenny Onyx, argues that we can get too bogged down in filling out output, outcome and impact boxes that we miss the point of how a community-based organisation can have a wider impact on local and active citizenship – with all the socialistic, caring, roles and responsibilities attached to that.

So, having said all this – what’s to be done? I met a representative from a large funding organisation in Scotland recently. They stressed listening, partnership, exchange, trust, openness – and I agreed with them.

But the relationship is often precarious – but here goes with some suggestions:

• Trust is often quoted glibly but it is crucially important as the basis between a funder and a recipient. The thing about trust is that it takes time and shared experience to build up and, unfortunately, can be broken easily and suddenly.

• Linked to trust is for both parties to adopt a more enlightened attitude to failure. If funders recognised and accepted failure, more risks can be taken, new things tried, and importantly learning can result from failed attempts.

• If possible, funders should be less prescriptive in how an organisation reports on the difference it is making. Of course, some parameters need to be set down and agreed but the contextual situation should be understood fully by both parties.

• There is also an issue over size and familiarity. Generally, those providing funds want to deal with larger organisations with recognisable “business” systems and procedures. This is often to the exclusion of smaller organisations. This tension around “size” will not go away especially when neoliberal economic systems measure success by how much entities have “grown”. There may be a way of getting round this – but I am not sure what it is.

Finally, and to go back to the quote at the beginning – arguably “he” in the saying should learn from social economy organisations how to play the pipes and learn the tune before putting his hand in the funding pocket…

About the author: Alan Kay is a founding board member of the UK’s Social Audit Network a not-for-profit organisation that facilitates the exchange of information and experience between practitioners of social accounting and audit in the social economy and voluntary sectors. Kay has more that 30 years of experience in community development and social enterprise support in the UK and overseas. He co-authored the 2005 Social Accounting and Audit Manuals and more recently wrote the New Guide to Social Accounting and Audit.