Philanthropy
Designing New Foundations
How the grantmaking entity of the 21st century might be built.
It’s Giving Season – that special time of year that comes just after “stupid costumes for adults’ and dogs’ day” and coincides with Thanksgiving and the month-long secular tradition of over-eating and shopping. My own personal marker of the beginning of this season is the New York Times Giving Section, which ran this past Sunday. Seasons Greetings!
As I look ahead to the next two months of charitable giving, financial firm advertising, and philanthropic planning, I want to make a proposal. I propose that those of us who are fortunate enough to be considering our charitable choices take some time to completely re-imagine the structure of grantmaking organizations. Here are a few suggestions for how the grantmaking entity of the 21st century might be built, by first looking around at what we know about work, resources, and change.
1. Crowds make better decisions than individuals; diverse crowds make the best decisions yet. Ethnic, racial, gender, class and experiential diversity should be built into decision making teams that are seeking to understand a challenge, imagine new solutions, and seek out financial leverage. Imagine you sought to establish a grantmaking organization that centered on this principle of diverse groups – today’s typical foundation is not what would come to mind.
2. Foundations have investment staff that identify and find specific investment managers by certain types of expertise. They then “outsource” the managing of a certain chunk of endowment assets to that manager, review progress toward goals on at least a quarterly basis, and actively seek a mix of managers according to the foundation’s agreed upon portfolio strategy. Program decisions should be made the same way. Program staff should articulate strategy and set criteria for selection, then look for expert partners who would make the direct grants, manage partner relations, and report on metrics. One advantage of this approach – the expertise of these expert partners (read: investment manager) can be easily leveraged – lots of foundations can bet their “education” strategy on the same explicit set of metrics and goals. The cost of foundation work would go down, the aggregation of resources would go up, and the use of shared metrics and concrete goals would increase. The market would function to make sure there was both a range of partners, and that they succeeded as promised – those that wouldn’t, would go out of business. The range of entities that might play this outsourced program investment role is wide and diverse – nonprofits, consulting firms, commercial media outlets, public agencies – an attribute that should lead to competitive creation of identifiable niches, markers of success, and more standardized metrics.
Some steps in this direction are already visible. Warren Buffet effectively outsourced his program staff needs to his expert partner, the Gates Foundation. The Milken Institute is making big bets to cure prostate cancer, and actively seeking partners that can shape the downstream funding sources through its work with the Center for Accelerating Medical Solutions and FasterCures. Outsourced, leveraged, competitively chosen program experts – not your father’s foundation staff.
3. We are experiencing a “bubble” in philanthropic prizes. Mission related investing is also getting a lot of attention these days. These might both good things, if used as part of a more comprehensive “funding change” framework. For example, many of the new prizes are being made available to do what prizes do best – engage a variety of entrants, including many who would not otherwise be known to the funder; leverage the entrants financial resources and ego – contestants in prize competitions foot the majority of the bill; and attract media attention and a spirit of sport to issues that might otherwise seem drearily sociological, such as increasing exercise options for young children or finding new financial innovations in the health care system. Rather than letting this phenomenon run the usual media attention cycle (Wired, Tired, Expired), foundations ought to be thinking about how the fundamental economic incentives between prizes and grants work within the issues (and issue lifecycles) they care about; and develop funding strategies that align to their goals and are inclusive of these funding tools (investments, loans, grants, prizes, technical support). Then, the organization should be structured to best support either the type of funding or the mix of funding being applied.
4. Think about where the information you need to achieve philanthropic progress lives. Think about how you can best access, share, and deploy that information to achieve your goals – through closed-door analysis? Open source idea generation? By using copyleft principles – that anything you create can and must be made available to be re-mixed by others? Perhaps the most fruitful point of leverage on the issue you care about is wider access to ideas or knowledge? You might benefit from considering the way the Public Patent Foundation works or the Clinton Foundation’s efforts to “organize markets for social good.” Open, collaborative information and the deliberate valuing of shared re-use. That would be different.
5. Think about your resources in light of broader trends and capital sources for the changes you seek. Where are the resources fueling the work you care about coming from? Other philanthropists? Government contracts or fee for services (the two largest sources)? Double bottom line investors or socially oriented funds such as the Pandemic Fund managed by the venture capital firm, Kleiner Perkins? If you are a commercial medical research firm, nonprofit endowments might be the best source of growth capital for you, consider the role that the Cystic Fibrosis Foundation plays in funding breakthrough research in that arena. There’s a different way of valuing your assets.
6. Finally, what if success really mattered to grant making philanthropies? Perhaps a set of industry practices that motivates and rewards success might work. We have several systemic ways of changing behavior for industries – regulation, tax code changes, investigative journalism, or the introduction of new market types. The foundation field has developed several efforts that hint at this, from market feedback loops such as the CEP effectiveness survey, to ethics and standards of practice, to rapidly growing “giving marketplaces” such as globalgiving or kiva.org or donorschoose. Where’s the philanthropic structure that will do what eBay did to garage sales, craigslist did to classified ads, gasoline engines did to horse drawn buggies, or reality shows and YouTube are doing to television screenwriting?
As we begin another annual Giving Season, it would be wonderful if those who are about to make significant decisions about their charitable choices, as well as those who advise them, those who benefit from those choices, and those who already work in an organization that was created during just this kind of moment would consider things with an eye set fast on the future. The decisions that will be made should center on a donor or family’s values, their family goals and social purposes, as well as their concerns for tax benefits and financial returns. In the best cases, these considerations inform the choices around structuring charitable gifts, using some well-known structural choices like a foundation or a supporting organization. As today’s donors consider those same values, let them remain wide-eyed and imaginative in terms of current and future organizational possibilities
Remember, problems change, solutions change, and the type of resources that are useful change. The organizations that fund this work should change also. Foundations have several kinds of portfolios that need to be managed – investment portfolios, program portfolios, intellectual property portfolios, and portfolios of financial supports. The most efficient and effective structure to assess, implement, and reassess the development and management of these portfolios in 2007 is unlikely to be static, it’s unlikely to be closed, and its unlikely that it be limited to a form first created in 1913.
How cool would it be if years from now we were to point at November/December 2007 and say that was when the next great innovation in philanthropic giving was created? Pretty cool, I think.
Lucy Bernholz is the Founder and President of Blueprint Research & Design, Inc, a strategy consulting firm that helps philanthropic individuals and institutions achieve their missions. She is the publisher of Philanthropy2173, an award winning blog about the business of giving and serves as Executive Producer of The Giving Channel on Fora.tv.
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COMMENTS
BY Sean Stannard-Stockton
ON November 15, 2007 04:01 PM
Lucy, these are all great ideas. What do you think it takes for this shift to begin in earnest?
Is it a tipping point phenomenon in which the current exploration in these areas will build on each other and final tip over to mainstream acceptance? If so, are we heading towards the tipping point in a meaningful way right now?
Or does the framework in which we operate need to be changed before this shift can happen? Are there barriers in place that prevent the viral aspect of a tipping point mechanism from ever taking place?
BY Lucy Bernholz
ON November 15, 2007 05:44 PM
Sean
A couple of things come to mind (at least)
1 - we need to be more imaginative about what is possible. Foundations suffer from an enormous amount of institutional isomorphism
2 - the system needs incentives for change - there are no penalties for status quo. The system needs to provide incentives for foundations to actually accomplish something, other than meet the payout rate
3 - those creative leaders in the field - and there are many - should be helped in sharing their ideas. Many of them are focused on changing their own organization, not on changing the system. That boost may need to come from outside.
4 - Actually, limiting ourselves to thinking about foundations (as I, admittedly, did) doesn’t help. Philanthropy is now really a hybrid, diverse business of advisers, individuals, foundations, corporations, DAFs, political concerns, double bottom line businesses, social stock exchanges, investment options, and so on - and we need tools and advice that help people - who are the center of all of the above - to think about their entire portfolio of financial actions.
Can you think of others?
BY Joseph Ignat
ON November 15, 2007 07:56 PM
1. Crowds make better decisions than individuals.
Really, let’s see: Socrates and Jesus were both killed at the behest of the crowd. Thousands lost their fortunes in 1929. Bernard Baruch, an individual, sold out in time. So, perhaps not always are the crowds wiser. As for diverse crowds being the best of the best, you give no evidentiary support of that statement
2. Outsourcing.
Foundations outsource investments because a) foundations tend to be run by persons interested and educated in social policy. Except for very large foundations, in-house investment managers would be expensive and lonely. b) Investment objectives are clear (make money) and easy to measure even on a quarter by quarter basis. Social objectives are often unclear, nearly always hard to measure and impossible to measure on a quarterly or even yearly basis.
3. Bubble.
You make a declarative statement, we are experiencing a bubble in prizes… To support your declarative statement you offer the internet equivalent of a footnote, a jump to a source that presumably supports your position. The jump takes one to… you, making the same statement in some other venue. Perhaps we are experiencing another type of bubble.
4. Information.
I followed the link to Clinton Foundation under your rubric of “organize markets for social good.” The link took me to an opportunity to buy his book, and little else. As for the Public Patent Foundation, intellectual property rights stimulate the creation of… intellectual property. If you desire to limit patents and copyright, I suggest you might end up limiting innovation, and you should be very careful what you wish for.
5. Investing.
Investing in new ideas is difficult. One example cited is that of Kleiner Perkins, one of the most successful venture capitalists in the nation. A year ago, it established a fund to invest millions to prevent deaths from among other things, Bird Flu. It worked. Few have died from Bird Flu. The point is, that is hard to guess what is needed even by the best of the best. Perhaps most foundations should stick to more conventional investing.
6. What if success really mattered.
Success by whose measure? One foundation might view the establishment of a school voucher and/or charter school program as a great success. The foundation down the street might do its best to get rid of such a program. Who would decide? The government? Which government: national, state, or local? Maybe the local university. Which university? Stanford? Pepperdine? Grove City College? I suggest that each would have a different answer.
Much of the value of foundations comes from their independence and their ability to try ideas that are against the Zeitgeist.
BY Rick Rose
ON November 16, 2007 09:14 AM
In response to part of this discussion, especially about your first observation about crowd decision-making, you might want to research the process of informational cascades. Essentially, even presented with independent information, an individual will make a wrong decision, depending of the decisions of those in front of him. It’s the difference between a secret vote and knowing how others have voted before you; your decision will more likely be influenced by others’ decisions, regardless of the evidence you have.
This doesn’t negate your proposition about crowds, but there may be considerations you hadn’t thought about.
You might find this paper useful: http://welch.econ.brown.edu/academics/journalcopy/1992-jpe.pdf
BY Lucy Bernholz
ON November 16, 2007 07:19 PM
Sources and footnotes in response to the comment questioning them:
1. James Surowiecki’s book on the Wisdom of Crowds presents the thesis I am supporting here. He duly notes when crowds are limited and when they are better. http://www.randomhouse.com/features/wisdomofcrowds/ His b.ook, and other research, such as this, discuss the value of diversity - http://www.rashmisinha.com/archives/06_04/diversity-decision-making.html
2. Not clear which part of this statement refutes my proposal that outsourcing programmatic investing strategy would be a more efficient use of resources than the current, redundant, structure
3. Bubble in philanthropic prizes - problem here is I am the one raising attention to the issue, citing myself is best source here, sorry. If you want corroborating evidence, please see http://www.youtube.com/watch?v=YOjAdjWgtgY or http://philanthropy.com/giveandtake/article/307/prizes-versus-grants. Beyond that, you’ll have to do your own research
4. I am not shilling Clinton’s book - he has two whole chapters on this point. Talk to him about making it available for free to readers who won’t buy the book, take it out of library.
5. There is actually inconclusive research on the actual relationship between patent structures and innovation - though it is a connection that people like to assume is there and fully documented without actually looking at any research. Public Patent foundation is not overthrowing patent process. Look into it. Pandemic Fund at KPCB is one of the examples in the paragraph- but your point seems to suggest that their investment is why millions have not died. This is an odd point, IMHO.
6. Success need not be measured by the ultimate goal - the richness of philanthropy is its diversity. But articulating a goal, pursuiing it, and adjusting as needed would be a long way from where we are. See the new Center for Effective Philanthropy report, Beyond Rhetoric. Just because its hard and subjective, are you suggesting that success doesn’t matter, and shouldn’t?
The point of the post is to push people to imagine new ways of acting philanthropically so as to seek to improve the individual acts, institutions, and the whole sector. I guess it didn’t work for you.
BY Marianne Quarre Dean
ON November 17, 2007 05:05 AM
Thank you for this very insightful article Lucy. It is refreshing to have a person so in tune to the philanthropy world speak of innovation. I am looking to re-enter the field and am struck by the status quo thinking. Apparently as indicated above, thinking new thoughts is threatening to some.
I would greatly appreciate learning about who some of the innovators are in the field and if there are sites you like and organizations which are pushing the envelope.