August 23, 2010

Lessons in Social Innovation: a Call to Action

Over the past few days, debate among nonprofit experts about transparency at the Social Innovation Fund has mushroomed into speculative second-guessing that risks undermining this critically important philanthropic experiment.

The fund, while making some early strategic mistakes in the degree to which it made public information about applicants, has moved quickly to rectify the situation and deserves full credit for delivering on its promise to supply growth capital to high-performing nonprofits.

At the heart of the Social Innovation Fund is an exploration of an underappreciated approach to philanthropy.

Rather than simply paying nonprofits to carry out their programs, as the government and most large foundations typically do, the fund focuses on expanding high-performing nonprofit organizations. This type of growth capital is largely absent from the philanthropic marketplace, a primary reason why proven approaches are so rarely able to reach their potential.

Some nonprofit commentators have criticized the Social Innovation Fund's budget as too meager, but it is important to note that the fund's budget—a combination of government and private dollars totaling $123-million—makes it a significant grant-making entity. Many foundations give more than that in a year, but most foundations earmark only a minority of their grants to spread good ideas and build the capacity of nonprofits.

If the Social Innovation Fund is in fact a revolutionary experiment in providing growth capital, why has there been so much consternation about the fund's transparency of its grant making?

I am a big believer in the idea that the fund should push the envelope on transparency in an effort to help the nonprofit world learn as much as possible from this audacious experiment.

While I have been a vocal supporter of the fund, I have advocated for it to make public all of the applications. My reasoning for this was not so much about ensuring that the fund played by the appropriate rules as it was about my belief that these applications represent a treasure trove of detailed information about the practices of grant makers providing growth capital. However, the fund decided early not to release the applicants' proposals.

Marta Urquilla, a senior adviser to the fund, told me that the decision came out of public comments received from nonprofits.

According to Ms. Urquilla, numerous potential applicants told the fund that a policy of publication of applications would reduce the likelihood that they would indeed apply. Therefore, in an effort to maximize the number of applications and ensure the highest possible talent pool from which to select grantees, the fund made a strategic decision to promise applicants that their applications would not be made public.

That was a mistake.

One of the primary goals of the Social Innovation Fund is to identify more effective approaches to solving critical social problems and broadly share this knowledge. The best way to accomplish this is to make public all of the applications detailing the existing approaches to solving critical social problems deployed by the applicants.

A secondary reason for publishing all applications is to preemptively discourage second-guessing and speculation as to which organizations applied, which ones did not receive a grant, and why. Unfortunately, it is this second category that risks curtailing the Social Innovation Fund experiment before it can even get started.

On Thursday, Paul Light, a prominent nonprofit scholar and an application reviewer for the Social Innovation Fund, wrote in a Washington Post column that his panel had issued the lowest possible rating to one of the Fund's 11 winning grantees.

Mr. Light wrote, "I have no idea how this applicant reached the winner's circle. … I can only surmise that this applicant was invited to revise and resubmit. … Given the applicant's impressive lobbying effort on behalf of SIF, its success raises inevitable questions about fairness, conflicts of interest, and undue pressure."

While Mr. Light's concerns are valid, and I share his interest in the fund publishing more information about the applicants, it appears his speculation of conflicts of interest and undue pressure is without merit.

According to the Social Innovation Fund, each application was reviewed by two groups of reviewers. Out of the 54 applications reviewed by two committees, only 12 received identical scores from each committee.

In nine instances the scoring differed significantly and in three of those cases one panel assigned the highest rating while the other assigned the lowest rating.

Mr. Light's post hit a nerve because it was widely assumed that his reference to an "impressive lobbying effort" referred to New Profit, a grantee at which Paul Carttar, director of the Social Innovation Fund, once worked.

While Mr. Light never named New Profit, an analysis of the distribution of ratings published by the fund after he published his column shows that New Profit was the only grantee to receive the lowest possible rating from one of the panels.

This does not, however, mean that conflicts of interest marred the process.

Paul Carttar has had a varied career at some of the country's most prestigious nonprofit organizations. When he was named director of the fund, he was issued a detailed four-page letter explaining the process for selecting grantees and identifying situations in which he would be required to recuse himself.

Most important, as director of the fund, Paul Carttar was not in charge of selecting grantees.

Paul Light was not the only person asking questions. The Nonprofit Quarterly, The New York Times, and others—including me—all published articles and blog posts questioning the fund's rationale for not making more information about the applicants public.

By Sunday night the fund had published explanatory matrixes laying out reviewer ratings from each phase of the process, finalist applications, and the comments of application reviewers.

The fund has now made public as much information as might possibly be asked about the winning applications.

While it is impossible to prove a negative and state definitively that no conflicts of interest or undue pressure marred the process, there is no evidence to suggest that the process was anything but fair.

As we put to rest the second-guessing and speculation about the process, let us not forget that the primary reason for the fund to make public information about all applications is because doing so can best help the fund achieve its goal of broadly sharing knowledge about effective approaches to solving social problems.

However, the fund did make oral statements of assurances to the applicants that their applications would not be made public. Therefore, the fund should announce immediately that next year's process will include an explicit notice to applicants that all applications considered for grants will be made public.

The Chronicle and I have started a public repository for all applications to get the conversation out in the open. We have urged all applicants to submit their proposals. Social Venture Partners, one of the organizations that did not win a grant, has already done so.

The repository is not meant in the least to shine negative light on any of the applicants. Fully 70 percent of the applications were rated "strong," the second highest rating, or better by at least one committee that did the first round of reviews.

Many of the proposals, winning or losing, reflect years of experience deploying growth capital in support of high-performing nonprofits and will help to advance the field of knowledge.

We are at a critical juncture.

The Social Innovation Fund is an extremely ambitious attempt to help create a philanthropic capital market for supplying growth capital to high performing nonprofits.

The effort was almost derailed over the past few days, but quick action by the Social Innovation Fund has got things back on the right track.

Now it is up to the unsuccessful applicants to keep things moving in the right direction. They were promised that their applications would not be made public. But voluntarily doing so now, with the encouragement of the fund, will cement the Social Innovation Fund's commitment to transparency and help it reach its goal of broadly sharing knowledge about what works.

To submit a Social Innovation Fund application to the repository, please e-mail it to editor@philanthropy.com. If you'd like to discuss your submission, please e-mail me at sean@tacticalphilanthropy.com.

Sean Stannard-Stockton is chief executive of Tactical Philanthropy Advisors, in Burlingame, Calif., and author of the Tactical Philanthropy blog. He is a regular columnist for The Chronicle of Philanthropy.