July 06, 2015

In Search of the Magic Formula for Philanthropy

Foundation staff and major donors may not hear much direct criticism of their foundations or giving, surrounded as they are by grantees and grant seekers. But it seems like everyone has a point of view on what philanthropists should be doing: You can’t flip through more than a few pages of The Chronicle of Philanthropy or Stanford Social Innovation Review — and recently The New York Times and Wall Street Journal — without finding an article with the words “foundations should” or “philanthropists should.”

Yes, I admit it. I have sometimes uttered — and written — those words. So have many inside and outside philanthropy — including Silicon Valley tycoons and consultants and foundation leaders seeking to influence the practices of their peers.

It’s become a long, long list of “shoulds” — some of which we could probably all agree on, some of which depend on the situation, and some of which are in direct conflict with each other.

Make big bets! Make little bets! Provide capacity-building support for nonprofits! Support grantee assessment efforts! Be responsive and approachable! Be transparent! Share lessons learned! Do impact investing! Assess your performance! Listen to the beneficiaries! Be place-based! Be global!

Oh, and be lean! Yeah, that’s right, on top of all of the above, be lean!

David Callahan, who wrote a recent New York Times opinion piece lamenting a lack of transparency and good performance assessment among foundations (and calling for stepped-up regulation of philanthropy), has also chastised foundations repeatedly for having too many employees.

“I've taken the position that a staff-intensive model that consumes lots of resources and revolves around program support is likely to produce less impact over all,” he writes on Inside Philanthropy, the blog he founded.

Sean Parker, of Napster and Facebook fame, makes a similar but more harshly worded argument in a didactic Wall Street Journal opinion piece explaining how philanthropy should be done — even though he hasn’t been doing it for very long.

“The executive directors of most major private foundations, endowments, and other nonprofit institutions are dedicated, first and foremost, to preserving the resources and reputations of the institutions they run,” he declares. “This is achieved by creating layers of bureaucracy to oversee the resources of the institution and prevent it from taking on too much risk.”

As a result, Mr. Parker goes on, “many large private foundations become slow, conservative, and saddled with layers of permanent bureaucracy, essentially taking on the worst characteristics of government.” Meanwhile, Mr. Parker urges foundations to “bet big” and “deploy capital quickly.”

“Do it all,” the foundation critics seem to be saying, and “do it with no staff!”

But at the risk of being seen as — gasp — coming to the defense of institutional philanthropy, that’s not possible. The reality is, doing certain things well requires staff. We know this.

For example, in a 2008 study of support that foundations provide in addition to grants, the Center for Effective Philanthropy — which I lead — found that the most effective forms of capacity building help were provided more frequently by staff with fewer active grants to manage. In other words, foundations need to have staff with the time to do this work well to be good at it.

We at the Center for Effective Philanthropy have seen first-hand grantees’ ire at foundations that are understaffed – given what they are seeking to do — when delivering results of Grantee Perception Reports, our comparative grantee feedback tool.

Overstretched program staff can cause grantee frustration and wasted time. Worse, it can lead to missed opportunities to make progress toward shared foundation and grantee goals. Obviously, foundations can be overstaffed, and, yes, we’ve seen that, too. I have sometimes felt frustrated by what feels like a lack of urgency at some foundations, and Mr. Parker is surely right that some people are more focused on their own career self-interest than real impact. But I don’t think they’re in the majority, by any means.

The fact is, being effective usually requires some staff. It also requires some level of focus: Foundations and major donors need to make choices about what to do and what not to do.

There are lots of approaches to making progress. Foundations can’t do them all well — they need to pick the right levers depending on their goals, what other grant makers are doing, what they believe they can do well, and what their grantees need. Not only will approaches vary by foundation, they may vary across programs in the same foundation. A grant maker’s national education-policy program area will require a different approach — and perhaps different staffing levels — than its community-organizing program.

But I worry that the kind of drum-beating for foundations to “do this” or “do that” ignores this reality. And it contributes to a problem all leaders have — the challenge of maintaining focus. The risk is a kind of leadership attention-deficit disorder.

That’s what we saw in the research we did on assistance beyond the grant — lots of foundations doing a little. In a study we did this year, we saw the same pattern in another area: impact investing. We found that more than 40 percent of the 64 large foundations that responded to our survey reported engaging in impact investing, but the dollars involved were quite small: just a median of 2 percent of endowment and a half percent of program budgets.

Now in fairness, maybe these foundations are being smart and starting in a kind of “pilot” way, testing the waters before making bigger investments. But then again, maybe they’re overstretched, dabbling with too many varied approaches in a way that dilutes effectiveness.

The risk I see is that the cacophony of proselytizers — and I am one of them at times — can contribute to foundations doing many things not very well rather than fewer things better. In a talk to foundation leaders at a Center for Effective Philanthropy conference six years ago, Jim Collins, who wrote Good to Great, implored the audience to stop focusing on their “to do” lists and start focusing on their “stop doing” lists.

But that’s not as much fun. Gabriel Kasper and Jess Ausinheiler from the Monitor Institute, which provides research and consulting services to nonprofits and foundations, recently wrote a piece in the Stanford Social Innovation Review arguing that foundations need to “challenge orthodoxies” by doing things like seeking impact through investments, rather than just grants, and seeking to influence policy (something Mr. Parker also urges). I find the Monitor Institute folks to be generally quite thoughtful, but I suggested in a comment that while I, too, agree that we should challenge orthodoxies, impact investing and policy work are neither rare nor new. (Large foundations have been focused on influencing policy in the United States for a century. See, for example, the Russell Sage Foundation’s work in the 1920s on metropolitan growth.)  

Yes, the Monitor folks are right that failing to reflect on our habits is a real risk. But so, too, is a herd mentality in which foundations chase one shiny “new” model and then another. Or, more aptly, perhaps, they try to hold them all in their arms at once, only to fumble them because there are simply too many.

Foundations are most effective when they match their approaches to their goals and to the contexts in which they are working, driven by a focused logic about what could lead to what. That’s the essence of strategy. It’s what the Gill Foundation and Haas Jr. Fund did in their work on marriage equality. It’s what the many other examples of foundations working effectively over history have done. And it’s what all foundations and major donors who hope to contribute to real progress should do.

Oh, no — I did it. I said, “Foundations and major donors should ...”

But, seriously, let’s stop looking for the one “new” (it almost never is really new) model or formula that works “best.” It all depends on the goals and context ; “Best” for one situation may not be “best” for another.

And let’s all of us — myself included — be a little less presumptuous and a little more humble about the challenge of effective philanthropy. Foundations and donors are, after all, often working to address the very toughest challenges, the ones that have defied government and market solutions. Progress will rarely come easily.

Phil Buchanan is president of the Center for Effective Philanthropy and a regular columnist for The Chronicle.