Inertia

A first predictor of an organization’s future behavior is its past behavior. Existing patterns—whether resource allocation, communication, or decision‐making—offer clues as to what to expect in the future.

Consider resource allocation. Intentionally or not, next year’s budget will almost always be based upon this year’s budget. It is possible to break the pattern. For example, in “zero‐based budgeting,” each department begins not with last year’s budget, but with zero. Each expense has to be justified, even if it has been in place for years. But such efforts require significant leadership and commitment. There is a weight to spending patterns.

“The most important thing to remember is this: to be ready at any moment to give up what you are for what you might become.”

Charles Du Bos⁷

Systems and processes also feed inertia. It’s simply easier for a LIttle League coach to just copy‐and‐paste the introductory email from last season. For example, if you are looking to influence a major corporation, its actions might be locked in by a multimillion‐dollar customer relationship management system. These patterns may be designed intentionally or develop spontaneously. Successful organizations pay attention to them and are intentional about which patterns they wish to defend.

Now, obviously institutions can and do change. Indeed, much of the work of social impact is about shifting institutional behavior. But it is usually fair to start your analysis with an assumption of inertia. Then you can decide if and how you might seek to disrupt it.

Finances

Most organizations use money. As we discussed in the Ethics and Markets chapters, money and power are deeply entwined. Money reflects the distribution of power within and around an organization.

Often, you can gauge how much power people have within an organization in part by how much money they control. In some cases, the connection is direct: foundation executives who oversee bigger grant budgets have more resources to work with. In other cases, the connection between money and power is more subtle: a city official who oversees a large administrative department might not wield as much power as the head of the Mayor’s small but influential communications office.

As noted, the ethical dimensions of finances are complicated and often problematic, but when seeking to understand organizations, following the money provides essential information and a way of thinking about strategic leverage points.

Consider, for example, advocacy efforts that use an understanding of financial vulnerabilities to change the behavior of corporations. The Markets chapter discusses how companies respond to financial incentives. Whether you are trying to influence an institution from the outside or guide it from the inside, one thing is for certain: money matters.

Culture

Culture is the set of norms that unconsciously guide actions within the organization. Is a company hard‐partying or family‐oriented? Do people tend to write down their ideas, or do they confront problems verbally? Is there a sense of deference to senior executives, or are they challenged by the rest of the staff? Is the budget seen as a loose guideline or a fixed plan?

These patterns are immensely important. They set the tone and standard for almost every interaction, decision, and action in an organization. And—to quote a saying that makes strategists groan—“Culture eats strategy for breakfast.”⁸

Despite the power of cultural patterns, they can change. “We are what we repeatedly do” is a maxim that holds true for both individuals and organizations.⁹ Just as repetition sets patterns, it can change them.

It is possible to shift organizational culture with conscious attention to what Rockefeller Foundation official Zia Khan refers to as “rules and rituals.” He explains, “Rules speak to the head, and rituals speak to the heart. Our behaviors are driven by both.”¹⁰ Rules might include compensation policies or frameworks used for planning. Rituals might include a company’s formal monthly “town hall meeting” or the accounting team’s weekly donut run.

Language, ritual, and stories form the fabric of organizational culture. Intentional leaders repeat over and over in the present what they wish to see again in the future.

Leadership

In physics, a system needs energy to shift from one equilibrium to another. In organizations, breaking out of one way of doing things requires a specific type of energy: leadership.

Leaders can offer a story—recall our definition of leadership, “an invitation to a shared story”—about how an organization might behave in a different way. They then can invite others into these new behaviors. That invitation is more likely to be accepted and successful if the nonhuman factors—systems, processes, and finances—are aligned with this new story.

“In order to resist one size fits all justice, we need to resist the idea that every process looks the same.”

Shira Hassan¹¹

That leader need not be the chief executive. Anyone can offer an invitation to a new, shared story. But it is far easier to make this invitation when it is aligned with the organization’s formal leadership.

Chief executives have an additional responsibility for institutional change because people both inside and outside an organization will naturally look to them for the organization’s story—and for clues as to how well the change is really going. Often, the chief executive—rightly or wrongly—becomes a living symbol of the organization.

A single vision imposed from above might work in a cult, but it is unlikely to lead to system‐level creativity and engagement. If employees do not have a sense of their own agency, the organization may indeed be like an organism—a dead one.

Organizational leadership is thus a constant struggle between centralization, which brings order and sometimes bureaucracy, and decentralization, which brings empowerment and sometimes chaos.

Social change is, in and of itself, an act of leadership. The ability to reshape institutional patterns of relationships can be magnified by the personal characteristics of good leadership. Those characteristics might or might not include charisma or vision, but they definitely include character, clarity, and compassion. Individual humans who can tell a story, organize an event, and inspire community are the motivative force behind much of social change.

In New Power, Jeremy Heimans and Henry Timms offer a contrast between what they call “old power” values and “new power” values. While their inclination towards “new power” is clear, Heimans and Timms go to great pains to emphasize that old power approaches remain relevant.

“It is a lot easier to find an unorthodox person than an unorthodox organization.”

Melissa Schilling¹³

Structure

Organizations naturally follow existing patterns, echoing those that came before. Big tech companies, city police departments, or community‐based nonprofits tend to look like others in their category.

For some critics, this commonality is a shame: it constrains creativity and forces people to fit their organizations into a single box. There is much to be said for this critique. Indeed, many of the greatest innovations have come from imagining new types of organizations that break out of the iron cage of old models.¹⁴ New structures such as L3C (“low‐profit limited liability company” and DAO (“distributed autonomous organization”) offer new ways to govern institutions with an eye toward broader purpose.

New strategies do not require new structures. Indeed, for an entrepreneur (whether socially oriented or not), it can be a relief to follow the templates that have come before. Each existing pattern invites questions: why is this organizational model common? Are there invisible forces that lead businesses to offer debt in the form of a bond, or teams to have coaches, or nonprofits to describe their work in terms of their mission statement? Asking questions like these helps you to be intentional about the template you choose and vigilant about whether it helps or hinders your work.

Where possible, focus attention on the content of the work, not on its container. If there is a good model available, use it and move on. New solutions do not necessarily require new organizations. At Candid. we often saw social change agents with a good idea who automatically defaulted to starting a new nonprofit—instead of building on the work of the 1.8 million U.S. nonprofit organizations that already exist.¹⁵

The size distribution of a group of organizations can have significant implications for the effectiveness of achieving social change. For example, the U.S. environmental movement includes a number of large nonprofit organizations but no single dominant one. This situation contrasts with the gun rights movement, which is dominated by the National Rifle Association (NRA). The environment movement requires a degree of coordination across key organizational players to wield its full power; the NRA doesn’t.

A more diffuse structure can bring advantages, too, including a division of labor among different organizations and closeness to diverse communities. But balancing the needs and styles of many organizations is never easy. See the Game Theory chapter for more information on successful collaboration and alignment.

Other structural questions can seriously affect how well institutions achieve their goals. One critical but often ignored dimension is time. Many companies are created with the full intention of later being acquired. In the world of institutional philanthropy, the default assumption has long been the opposite: foundations exist in perpetuity. But this tradition has been—rightly, in my view—challenged by those who argue that some challenges and opportunities in the present are too urgent to justify saving money for the future.¹⁶ (See the discussion of the social discount rate in the Mathematical Modeling chapter.)

Networks of local organizations can link together—across space—under a single brand as members, affiliates, franchises, or subsidiaries. The governance of these networks can take many forms, from strict centralization to full decentralization. Optimally, the model should reflect what is best to advance the mission. If consistent branding and alignment is critical to the strategy, centralization may be justified. If local context varies significantly, a more decentralized model will probably be more effective.

We humans have encoded centuries of learning into our institutions. At their best, they represent our collective understanding of what works. But any system can get stuck and structural inertia cn be dangerous in a rapidly changing world.

The COVID‐19 pandemic offered a powerful case study in how institutions can quickly become unstuck. In a matter of days, restaurants completely overhauled their operations. Health care providers finally overcame logistical and bureaucratic hurdles to offer remote visits. Countless organizations embraced remote work after years of resistance.

As we move forward into an uncertain future, we will have a chance to reimagine organizational structure across space, time, and scale.¹⁷ Indeed, new patterns of interaction (e.g., swarms¹⁸), formal structures (e.g., DAOs¹⁹), and techniques (e.g., quadratic voting²⁰) offer patterns of people that may well change the contours of our institutional future.

Information

If we think about organizations as organisms, we can imagine their resources as the nutrients they metabolize. Money, which we’ve already discussed, is one critical nutrient for organizational health. Information is another. Leaders can align what people do across an institution in part by creating a flow of information that constantly steers people back to organizational purpose and shared strategy.

Optimally, clear metrics track the progress of an organization. In general, the business world has an easier time measuring an organization’s worth. The sale of a product or service is clearly important for the financial health of a business as a whole. Sales data provide an essential proxy for the value created by a business. Quite simply, people would not buy the product or service if it were not useful to them. When you have a paying “customer,” revenue can provide information about both the scale of your work and its quality.

These dynamics are more complex in the work of social change. In donation‐funded nonprofit organizations, the “buyer” is often not the “user.”²¹ Leaders need to rely on multiple sources of information to ensure not just the health of the organization, but, more importantly, the efficacy of the work.

All actions are enveloped by flaws As fire is enveloped by smoke

Bhagavad Gita

Government agencies also need information systems to run their operations. Many public entities have the added burden—and opportunity—of providing information used by the community as a whole. Data released by the U.S. Department of Labor or the Federal Reserve can yield trillion‐dollar swings in the public markets.

In general, the best solution to this complex information puzzle is to select a small set of metrics. They can be presented as a “dashboard”—a regularly updated visual presentation on a single page that reflects different signals about an organization’s progress.

Articulating a hierarchy among these metrics presents a clearer picture of progress over time. For example, a group working to reduce carbon emissions in the cement industry should have a single ultimate metric: tons of carbon reduced. But that metric might lag by years. Other activities could serve as leading indicators: the development of new carbon‐reduction technologies, programs to share them with cement production facilities, or progress in the adoption of new regulations. These interim metrics give the organization a sense of its progress towards its distant goal.

For this information to be meaningful and reliable, however, monitoring cannot be an isolated function; it will be most effective if built into the cadence and processes of an organization. This monitoring can begin with internal meetings and be supplemented with external ones.

For example, at GuideStar we had quarterly “impact calls” that were modeled on for‐profit earnings calls. Every three months, we invited all of our stakeholders to hear our progress across a set of metrics in our dashboard. Over the years, thousands of people joined us. We had the luxury of emphasizing the long‐term nature of our work. We could frame the discussion to show where we were heading and how we planned to get there. Importantly, we integrated the same metrics into the regular operations of GuideStar itself. We intentionally carved out time at regular internal meetings to review progress and periodically paused to ensure that these were, in fact, the right metrics to use. This reinforced a symmetry of information between internal and external stakeholders.

External information can provide essential context. For example, a job‐training program can assess its programs in the context of the state of the broader labor market. A drop in placement rates might be explained by weak employer demand rather than poor program quality.

The successes and failures of other organizations can be an invaluable source of information. Particularly helpful are studies using formal research methodology of a particular problem‐solving approach—an “intervention.” Replicating a successful program isn’t always possible, because context matters. But evidence showing that an intervention that works in a particular context is a strong inducement to try it in another. (See the discussion of randomized controlled trials in the Mathematical Modeling chapter.)

Incentives

The title of a seminal article says it all: “On the Folly of Rewarding A, While Hoping for B.”²² People respond to rewards and punishments. There is a reason that sales commissions are based on closed sales, not simply on outreach.

But incentive alignment is not always so easy. People’s motivations are too complex to distill management down to a science of mechanical interactions. For example, research suggests that most employees are less motivated by the size of their paycheck and more focused on dignity, respect, or autonomy.

Thoughtfulness about incentive alignment is central to making institutions work. Ann Mei Chang, CEO of Candid, says, “Incentives are the substrate out of which culture emerges and takes hold over time.”²³ Accordingly, incentives should be reassessed periodically to make sure they are working.

We no choice but to account for the realities of human behavior. Complex organizations are particularly subject to incentive misalignment, because the person making the decision doesn’t always deal with the consequences. If you set up incentives incorrectly, you may find that one part of an institution is embittered about cleaning up the messes left by another. (See the “Incentive Alignment” section in the Behavioral Economics chapter.)

A particular kind of incentive misalignment can be seen in the “principal‐agent problem.” A company’s owners, for example, might have a set of interests that are different from the company’s management. Businesses often try to solve this problem through performance‐based compensation.

But the subprime mortgage collapse of the 2008–2009 financial crisis showed how this approach can provide perverse incentives for management to make decisions based on whatever measures will determine their compensation. Financial company executives, compensated on short‐term performance, invented lucrative but risky subprime mortgage investment vehicles—at the expense of their company’s long‐term reputation and, thus, financial future.

Social finance must deal with this dynamic. As environmental, social, and governance metrics are integrated into investment decisions, they will face Campbell’s Law: important metrics will be gamed.²⁴ As the head of the Global Reporting Initiative, Eelco van Enden, commented, “What gets measured gets managed. But what gets measured also gets manipulated.” Without attention to incentives, we may indeed hit the target but miss the point.

“Democracy is the worst form of government except all those other forms.”

Winston Churchill

Regulation and the role of government

Government is both a context for institutions and a collection of them. In the U.S., there is no monolithic “The Government.” The United States government, for example, is formed of at least 90,000 separate organizations operating at the national, state, and local levels.²⁶ Government policy produced by all those organizations sets a basic context in which other individual and organizational decisions are made.

Leaders—whether nonprofit or for‐profit—forget this reality if they say, “I just want to be left alone.” They fail to acknowledge the essential role government plays in making the market possible at all—whether through the physical infrastructure of roads, the maintenance of currency, or the rule of law. As economist Rebecca Henderson says, “markets require adult supervision.”²⁷ Belief that the market can thrive without government is, in my mind, a case of the illusion of independence that we discuss in the Behavioral Economics chapter.

Some readers of this book will be government leaders and policymakers. Your choices create the architecture in which others act. Regulation can be necessary to deal with market failure, but it imposes very real consequences on the regulated. Government activity can yield extraordinary benefits (public universities) and severe injustice (systems of mass incarceration). The Markets chapter discusses how much of the work of social change is cleaning up the messes markets leave behind. The same principle applies for the messes that government regulation can inflict on society. Thus, in the work of social change, regulation is both a tool and a target.

Sometimes nonprofits serve—in an unofficial sense—as regulators. At GuideStar and Candid, we found ourselves playing a quasi‐regulatory role; the very structure of our databases and the questions we asked set the context in which many millions of people understood the nonprofit sector. Similarly, we realized that our choices were—at least partially—determining what data was viewed through donation platforms. While our role was not a legal one, it was embedded in the system.

Organizations would be both morally and strategically wise to admit when they are playing any kind of “regulatory” role. Arts organizations regulate culture by choosing which artists to highlight.²⁸ A fair‐trade cooperative regulates farming processes.

More generally, social change is itself taking place in a new kind of regulatory environment. Major for‐profit technology platforms find themselves mediating human communication. Many advocacy efforts use technology platforms to pressure not just governments but companies and nonprofit organizations.

Thus, the work of social change is itself in part regulated by choices made by these technology platforms. We can and should debate whether it is appropriate in society for unelected leaders who own and run these platforms to have such power, but we also have to acknowledge the reality of the context in which we work.

Let me close this section with a brief defense of government. It is all too easy for politicians to criticize government ineptitude. Consider Ronald Reagan’s famous line, “the nine most terrifying words in the English language are ‘I’m from the government and I’m here to help.’” His joke is both funny and wrong. Consider some of the great enablers of the modern networked economy: the internet, the World Wide Web, portable computing, and GPS. Every single one was developed by a government entity.²⁹ Blanket critiques of government undermine society’s potential. As Mariana Mazucatto says, “the subtle and insidious effect of this widely held view is to constrain civil servants with an ideology that says they can as easily do harm as good and chip away at their confidence…Ethos and creativity are crushed. A government that lacks imagination will find it difficult to create value. In reality, value emerges from the interaction of the public and private sectors and civil society.”³⁰

Governance

All institutions need mechanisms to make decisions. They can take many forms, from purely hierarchical to entirely consensus‐driven. These structures can and should reflect the different purposes and strategies of each organization.

Individual corporations—whether nonprofit or for‐profit—tend to have a division between governance and management. Management is the day‐to‐day operation of the organization. That role is symbolically—and at times practically—manifested in the chief executive. Governance, ultimate responsibility for the organization, rests with a board.

Board members may represent different constituencies or viewpoints. U.S. for‐profit company boards legally represent the owners. But a corporation need not have a governance model built solely on ownership. In Germany, employees are given formal representation on the corporate board. In a nonprofit, the “owners” are, in a sense, society itself. While the corporate division of labor between management and governance has come to seem “normal,” it is worth pondering the arbitrariness of this arrangement. There are many other ways to allocate power.

Government entities, for example, are led by a mix of people who are elected, appointed, or hired—or, indeed, have taken power by force. The roles may be at will, for a fixed term, or lifetime appointments. Government actually offers a much greater variety of governing models than the business and nonprofit sectors. This variety reminds us that there are many possible models to govern our work—and the world.

Collective governance is one of humanity’s greatest inventions. But the mechanisms of the past may not work in the future. We must continue inventing new ways to make decisions, together.