Stanford Social Innovation Review

The Four Fundamental Questions of Philanthropy

ALBERT RUESGA on how to decide what to do with $600,000,000.

The Ford Foundation, the second largest foundation on the planet, with assets of $12 billion, is about to hire a new CEO.  What will the new CEO do with all that money?  How, among all the possibilities available to her, will she decide to focus the foundation’s grantmaking?

The new CEO will want to honor the foundation’s previous commitments.  She won’t want to make any sudden moves.  But having exercised the necessary prudence, and having consulted her board, toward what star will she steer her course?

Granted, if you took all the giving in one year of all the foundations in the United States—approximately $34 billion—the sum would barely equal three percent of all nonprofit operating expenses.  In fact, it wouldn’t even cover the expenses of the 70 largest nonprofit hospitals (and there are 3,000 nonprofit hospitals in the United States).* Nevertheless, with an annual grantmaking budget of $600,000,000, the new Ford Foundation CEO will be able to move the needle significantly on any number of issues.

Imagine that it fell to you, dear reader, to invest $600,000,000 each year in charitable work.  How would you do it?

I can’t imagine anybody doing this successfully without first attempting to answer the Four Fundamental Questions of Philanthropy:

1.  What are we living for? What does human flourishing look like?  What is my vision of the Good?  Is it the greatest happiness for the greatest number?  When does the Categorical Imperative trump the Greatest Happiness Principle?  Is life little more than moving things from one place to another until we die?  Is it simply a long series of credit card purchases marked by some poignant, half-remembered moments with friends and family?

2.  How do I understand (social) justice? What’s our responsibility to one another in a complex, industrial society?  How much suffering at “the bottom” should be tolerated if the overall statistics look pretty good?  Is the notion of a social contract at all coherent?  If so, who gets to shape it and how?

3.  What is the role of a foundation in society? What is the appropriate role for private (viz., foundation) capital in addressing social needs?  What’s the proper mix of public and private funding for social goods like the arts, job training programs, health care, or education?  Should foundations take up the slack when, under pressure to reduce taxes, governments cut funding for social programs?  What should be the relation between a foundation and other institutions? Between a foundation and individual citizens? 

4.  Apart from my board, the legal authorities, and God Herself (not necessarily in that order), to whom should I be accountable and in what ways? Are things getting better or worse, for whom, and how quickly?  When should a current need trump a possible future need?  How did we get into the current mess in the first place?  If “systemic” issues are involved, how far can or should we go in attempting to change the system?  Is it my foundation’s responsibility to keep the issue—whatever it is—from becoming an issue again?  To what extent should I risk great failure in an attempt to obtain a great social good?  What’s the received wisdom** I need to question?  Do I know the history of my own field well enough to say what counts as failure and what counts as success?  Do I understand what contributed to these failures and successes? 


* According to nonprofithealthcare.org.

** E.g., ‘The primary purpose of education is to prepare young people for the work force,’ ‘A nation’s health is measured by the growth of its GDP.’

Posted by Albert Ruesga

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Restricted Funding Misses the Point

PAUL SHOEMAKER questions standard practice.

One issue has been sticking in my craw for several weeks now. I’ve recently participated in a handful of conversations, listservs, and conferences that discussed project-specific support vs. general operating support. I admit to my relative inexperience in the field (nine years), but I just don’t get it.

How and why did this project-specific, restricted, limits-on-overhead approach get so entrenched and widespread in the first place? It has been standard practice now for decades. I know that in part, funders are looking for accountability and results from grantees. Accountability (in both directions) is a valid principle in a grantor-grantee relationship. But this seems like a classic case of the right question with the wrong answer.

For starters, I challenge anyone to consistently and accurately define what precisely constitutes “operating expenses” or “overhead” or “administration” or whatever you call it. There are no FASB or IRS standards. The way various nonprofits define and report them is widely disparate. If you can’t define or measure it, how can you base your whole funding strategy on it?

Funding is a significant influence on the behavior and priorities of nonprofits. By putting such a priority on overhead as a criterion for success, we are telling grantees to focus on the means, not the ends. If we told them that social outcomes were the priority, they would focus more on that.

There has to be accountability, but to what? By using overhead expense to measure effectiveness, we are not connecting funding to social goals or impact! Program spending is trackable (in theory), but it tells us little about impact.

No one, including Social Venture Partners, can claim piety regarding funding practices. The points above don’t even address the positives of unrestricted funding for nonprofits–more flexibility, improved responsiveness to changing community conditions, less accounting work, more priority on outcomes and impact, etc.... In our need to have an answer to the question of accountability, funders are focusing on the wrong things and in turn, focusing our grantees on the wrong things.

Do you agree? What am I missing?

Posted by SSIR Editor

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Foundation Boards Should Demand Failure, Expert Claims

Joel Orosz, founder of the The Grantmaking School,* the first university-based training program for grantmaking professionals, has come out with an extraordinary new book titled ”Effective Foundation Management: 14 Challenges of Philanthropic Leadership—And How to Outfox Them.” What makes it extraordinary is Dr. Orosz’s willingness to speak with candor about the challenges, both ethical and practical, of working in a profession that “lacks a salutary external discipline.” Even those who don’t work in philanthropy will benefit from his honest portrayals of foundation CEOs and program officers struggling against flattery and other forces to do good and meaningful work.

I found what Dr. Orosz wrote on the subject of foundation risk-taking especially revealing.  If foundations have the freedom to try pretty much anything to address society’s problems, he asserts, “if they are indeed boldly exercising [their freedom] to correct the failures of the market, the government, and the fundraisers, it would be virtually impossible to open a newspaper without reading of a groundbreaking social experiment fueled by their funding.” Unfortunately, the newspapers are more likely to be filled with stories of foundation scandals than of foundations successes.

It’s true that a good scandal sells newspapers, and foundations as a class are not very good at communicating their good work.  But according to Dr. Orosz, there’s a hidden, perhaps more important, reason for the inability of many foundations to move the needle on some of our most pressing social problems.  That reason is embarrassment.  According to Orosz:

Since foundations are undisciplined by the market, electorate, or funders, their only impetus for improvement comes from their (generally) self-perpetuating board of trustees. If you are a foundation leader, your imperative thus is a simple one: keep the board happy, and you will keep your job. So, what makes a board happy? The answer is easy: pride-inducing success. What makes a board unhappy? The answer is equally easy: embarrassing failure. What does this mean for the CEO? As a practical matter, the answer to this question is also very simple: since any kind of success is preferable to any kind of failure, since embarrassing the board members is to be avoided at all costs, it is critically important that every project be a success. What is the best way to ensure that every project will be a success? The key to perpetual success is to keep every project uncomplicated and modest in its ambition. Thus, inexorably, in order to keep their boards happy, in order to assure that embarrassment never darkens the trustees’ doorsteps, CEOs tend to seek the cautious and incremental success. Paradoxically, the societal organization given the most freedom to act hobbles itself; it is as if a superb French chef, capable of creating any gastronomic delight, insisted on making nothing except the blandest of oatmeal.

It was Longfellow who said that “[m]ost people would succeed in small things if they were not troubled with great ambitions.” Dr. Orosz appears to claim that our ambitions in philanthropy are almost criminally modest.  If the responsibility for this faintness of heart ultimately rests with a foundation’s leadership, i.e., its board of directors, how should it modify its practices?  Should boards, for example, demand failure?  Yes, answers Dr. Orosz:

Not sloppy failure, of course, for no one wants that. Boards, however, must demand a certain level of experimental failure, for that is the price of doing business in the nonprofit sector, the cost of true innovation, the payment for clearing the kudzu of modest, incremental, “so what?” success. By demanding occasional experimental failure, boards free foundation leaders from their self-imposed play-it-safe shackles. If not every meal has to be perfect, the French chefs can abandon oatmeal and experiment with exotic new dishes.

Compare Dr. Orosz’s call for “experimental failure” with the tried and true of supporting direct services.  Where should foundations place their bets?

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* Pause for disclosure: I will become a member of The Grantmaking School faculty starting this fall.  Apart from a small honorarium, I will receive no compensation for my services.  Nobody at The Grantmaking School has in any way censored what I write on this blog, nor have they suggested topics for my consideration.

Image source: magnamags.com

Posted by Albert Ruesga

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