(And it is all gentlemen, isn’t it? If I’m not the only girl person involved in these discussions, I’m one of the few; and it might be interesting some time to try to figure out why that is–though not right now.)

The discussion of transparency seems to me fundamentally beside the point. The only secret I really want to learn about any given foundation is its rationale for existence in perpetuity, or to put it another way its excuse for not spending more money. The primary purpose of foundations, lest we forget, is to give grants to agencies that serve people, and the philanthropies’ tax-favored status is based on the notion that giving money to a foundation is simply a deferred way of giving it to charity. But that wasn’t supposed to be deferred as in “What happens to a dream deferred?”–i.e., delayed indefinitely.

Actually, I lied: the other thing I’d like foundations to be transparent about is their reason(s) for having Boards of Directors less diverse not only than the communities they serve but than their corporate counterparts. The very minute a foundation tried trotting out that old chestnut “But we just can’t find any qualified minorities or women . . .,” the public ridicule that ensued would do more than a thousand diversity initiatives to cure the problem.

I’m all for the transfer of lessons learned, but it’s not clear that this transfer takes place best through the medium of foundations. Wouldn’t it be better for philanthropies to concentrate on setting up systems of communication between operating nonprofits so they could find out, e.g., whether bednets are more cost-effective than malaria pills, or transitional housing more effective than counseling in curing domestic violence or homelessness? That’s a “convening role” worth performing.

Over the past six years, I’ve worked with Community Foundations of America and leading community foundations on two major ideas for advancing accountability. Both were driven by the desire to make impact data available to donors (a motivation that private foundations don’t share, and which makes this hard work even harder.)

Impact Data — About six years ago, CFA began an effort to capture performance data about grants that could be made available to the high-net worth donors they serve. We created a truncated version of the United Way’s Logic Model. It was built on the idea that inputs are a good starting point, and that you can’t have accountability if you don’t count. We taught this process to program officers and grantees at ten community foundations around the country with varying degrees of success. We also identified two sets of metrics (beginner and advanced, if you will) that community foundations which want to demonstrate their accountability should consider gathering and make available on their grantees. About three years ago, data elements driving this process were refined by a group of community foundation leader. White papers describing this process and the resulting metrics can be found here: http://www.givingnet.net/page7207.cfm

This work also led to the effort, undertaken by the Urban Institute and the Center for What Works, to develop a taxonomy of performance metrics that can be both a resource to nonprofits. (Info here: ttp://www.urban.org/center/cnp/projects/outcomeindicators.cfm)

Impact Database – In tandem with the data effort, we worked with a now-defunct technology company, called B2P Commerce Corporation, to build a web-based system for both capturing and making this data available. I worked with 12 community foundations who implemented the system, called ImpactMgr, to varying degrees of success. The Kansas City Community Foundation was part of the beta phase for ImpactMgr but then spun off to create DonorEdge. I won’t go into the post-mortem now about why ImpactMgr didn’t fly but will attribute much of it to first mover disadvantage. We were at least five years too early. The technology was Web 1.0, meaning too unwieldy and too expensive. The process was also unwieldy for both nonprofits and foundations. And because this data was a ‘nice to have’ for donors, neither foundation program staff nor grantees could afford to put the requisite time into building these metrics. I do believe the imperative for accountability continues to grow and that efforts like this will increasingly gain traction.

The summer weekend beckons so I’ll be back next week with a summary of ideas I’ve blogged about but haven’t tried that foundations could use to advance accountability.

(a) harming grantees by publicizing their failures/shortcomings

This is a good thing. Nonprofits that suck at what they do should go out of business. There’s currently no mechanism for that to happen. Let’s create one. “But they might not suck at what they do, they might just have made one mistake, and people will get the wrong impression,” says the Straw Man. I’ll get to this below.

(b) damaging the foundation’s reputation by revealing how resources were not well-used

WHO CARES

(c) discouraging others from engaging in important fields of work that might be viewed as risky or with little chance of success

(d) providing fodder to those who question the contributions of philanthropy.

The basic line of reasoning here (and in the Straw Man response above) is “If we’re honest that mistakes were made, people will mistakenly interpret that as evidence that we’re totally incompetent.” This presumes that people are currently the least bit fooled into associating the lack of disclosure with a lack of weakness. It also presumes that they don’t recognize the basic truth that nobody’s perfect.

Both of these presumptions are wrong - particularly of any person who would bother to read your disclosures of weakness. I outlined this argument more fully here.

In the end, sharing the good and the bad is the best approach with any set of people whose goals you share. To do otherwise is to assume that you know so much more about what’s right than they do that you’re not even going to give them the ability to make their own judgments, that it’s better to “dupe them into the truth.” Well, that’s wrong. This argument has been had and basically settled regarding government transparency, business transparency (as Sean points out), within-organization relations (teammates, coaches, coworkers), etc. Now let’s settle it for charity.

This is why I make the distinction between “public accountability” transparency and “philanthropic effectiveness” transparency. I’m interested in the second type.

However, the funder/nonprofit relationship is also not the same as an investor/company relationship because at the end of the day, you have no control over the investee. But let’s look at for-profit investing (my professional background) for lessons about transparency and power imbalances.

In the US today, the top performing, successful companies enjoy a power imbalance over investors. Start up companies clearly are on the weak end of the relationship and have to depend on investors for their success. Historically there has not been a lot of transparency in for-profit companies. But that is changing, investors are demanding that companies act in their best interest (they own the company after all) and are demanding transparency from the company so they can judge for themselves. There is a massive amount of factual and opinionated information about which companies are good investments.

I think that most observers think transparency, even (or especially) when it reveals negative info, is a huge positive for investors, the economy and even the companies themselves.

That being said, investors in startups (where the investors needs the company to get other investors in the future) might very well find that the cost of letting other people know about problems with the start up is not worth the benefit of transparency.

I think what it comes down to is that under conditions of perfect information, the benefit of transparency hugely outweighs the costs. However, when limited information exists, the release of negative data can hurt a “good” nonprofit because information about their positive points is not freely available. (this is reflected in the foundation employee’s comment that I reference in the interview.

So in my view, transparency is very good, but getting there is tough. This is a classic network effect, the most transparency there is, the better it is. But if only some foundations/nonprofits are transparent, they might well find that the cost outweighs the benefit.

I believe we can make it over the hump.

1. In my earlier post I committed to addressing Holden’s programmatic questions, which I will do here. His questions are essentially about the design of CORAL and the research that informed that design. He rightly notes that we didn’t cover these issues in the Midcourse Corrections report, and indeed it’s important to remind everyone that the Midcourse Corrections report is NOT an evaluation report of the initiative; it is a report that details changes we made midway to an initiative that was off track, a very important distinction. In any event, with respect to evaluation results, we have published separate reports that specifically address these technical issues. In December 2005, we published an interim report based on data collected in the first year of the evaluation of the CORAL program called Launching Literacy in After-school Programs: Early Lessons from the CORAL Initiative. That report also describes the early thinking behind the initiative and subsequent research findings. You can read or download the report here: http://irvine.org/publications/by_topic/evaluation.shtml#ev4. Over the next six months, we will be publishing a final report on CORAL as well as two research briefs and a tool kit for practitioners in the field. Together, these resources will address the questions Holden posed in terms of the context for CORAL, including key findings from existing research on large-scale, after-school program initiatives and the major barriers to realizing impact on student academic development and achievement.

2. Holden also asks about the literature on perpetuity vs. spend-down, and I’d invite others to weigh in on what is out there. I believe that the National Center on Family Philanthropy probably has resources available as might the Council on Foundations. There are certainly high profile examples of articulate and passionate spokespeople on the spend-down side of the argument from Julius Rosenwald in early part of the 20th Century to Richard Goldman today.

3. Finally, on the more recent debate in the postings yesterday about how far to take transparency, I’d like to build on a concept introduced in Tim Ogden’s post where he writes: “We do need to acknowledge that there are costs as well as benefits to transparency.” Taking a cost-benefit approach to the question of how transparent to be as a foundation strikes me as a useful one. So, for example, one might cite as “costs”: (a) harming grantees by publicizing their failures/shortcomings; (b) damaging the foundation’s reputation by revealing how resources were not well-used; (c) discouraging others from engaging in important fields of work that might be viewed as risky or with little chance of success; (d) providing fodder to those who question the contributions of philanthropy. On the “benefits” side: (a) sharing valuable knowledge that might inform the work of others and improve their prospects for success; (b) ensuring that mistakes are not repeated; (c) underscoring the importance of key principles for good grantmaking, such as clarity about outcomes, etc; (d) improving your own work as a funder through careful self-reflection and a commitment to learning and applying that learning (I’m sure most funders ascribe to that, but when you commit to sharing lessons publicly, it certainly guarantees follow-through on the commitment!) This is an incomplete analysis, to be sure, but I do think we should carefully weigh the costs and benefits. In our case at Irvine, as one of the earlier postings rightly observes, this report is not about grantees who failed; it is about flaws in program design and execution on our part, and that’s probably an easier report to put out there.

A parting thought: there is yet another thread on here about our obligations to share knowledge so that other funders don’t “waste their money”. Unlike the examples offered by Sean about the neighborhood restaurant or book reviews on Amazon, the relationship between funder/grantee is much more complex and nuanced. Indeed, I just don’t buy the parallel: as a funder, I don’t see us “buying a service” that lends itself to simple assessment of whether we were satisfied as a “customer”. I see us as investing in organizations who share our priorities about how to improve California. Indeed, while I fully acknowledge the power imbalance inherent in the funder/grantee relationship, I hope we work hard to build the kinds of relationships with our partners that minimize that imbalance. And I’m not sure that viewing our grantees in ways we view consumer products helps to lessen the power imbalance in any way. In fact, I’d argue it increases it.

Jim Canales

I’m just saying to foundations: if you have the strength of conviction and character to share what you find and listen to criticism open-mindedly (rather than shutting yourself off to it, or letting yourself get pushed around), do it. If you don’t, please give your money to someone who does. I still haven’t heard good reasons this request is off base, though I’ve heard reasons it shouldn’t be imposed by force.

However, as Albert noted, I also think we have to acknowledge some of the good reasons for privacy.

1) There is a already a great deal of conformity in philanthropy. While expanding the number of people critiquing foundation efforts could lead to new perspectives, it is just as likely to lead to more conformity and an unwillingness to take on unpopular issues or to try new approaches.

2) While the open source movement has proven that high quality innovation can come from transparency, it is equally true that sometimes high quality innovation requires more of a “skunk works” approach that allows for more risk-taking. Additionally, while there aren’t financial incentives for foundations to be innovative, there are reputational incentives and we eliminate those at our peril. While it’s true, as Holden notes, that foundations shouldn’t have a goal of protecting their image, this presumes we’re talking about large institutional foundations with funding in perpetuity. If we remove the “image” incentive that does quell a large reason why many foundations are started in the first place. While we may cast stones all we like about mixed motives, the reality is that money given with mixed motives does a lot of good in the world.

3) Straying into the “public accountability” issue, there are good reasons why we generally do not allow the elected government to decide what constitutes “speech” and is protected by the First Amendment. In the same way, I think we always need to be concerned about the slippery slope that ends in an official definition of what is “good”.

None of these arguments are meant to suggest that transparency is not useful or should not increase from its present state. We do need to acknowledge that there are costs as well as benefits to transparency.

Ultimately I believe that foundations should be transparent about the goals they are pursuing, the ways in which they pursue those goals and the results they are achieving. There should also be room for keeping some of this information “classified” for a limited amount of time (say 3 to 5 years).

To fulfill this part of its mission, it’s often giving $50,000 grants to local museums, galleries, and historical societies for specific exhibits.

What I tried to convey in my earlier post was that if they want to publish a review which says, “we’ve found that our goals are not being achieved and instead we will redirect our strategy to funding elementary and high school arts programs” - I think that is a good idea.

However, I’m not sure it always makes sense to use a midcourse correction report if the objective would have been to point fingers and blame specific museums that failed to deliver on it’s attendance goals.

To me, that’s where the differences between the goals of “improving the field of philanthropy” and “public accountability” begin to appear.

Private foundations (and I specify “private foundations” because they are the ones I know best, not because other types of foundations can’t do these things) are uniquely situated to play other roles as well—for example, we can convene parties with shared interests, build new relationships that will advance mutual goals, complement grants with other offers of assistance, say in communications, evaluation, or organizational development, or distill knowledge gained from the work it does (with others) and to share that openly with targeted audiences. Each foundation has the right to decide how or whether it wishes to take these various approaches. Our view at Irvine historically has been that we enhance our contribution as a foundation by employing these various tools at various times, hopefully in a thoughtful and strategic manner.

So, as a result, targeted opportunities to learn from what we do, to capture that knowledge in ways accessible to others, and to share those understandings broadly are not only consistent with our mission and an extension of it, but frankly one of the ways we demonstrate our recognition of the privilege of philanthropic work. Yes, it’s more work, and at least for now, no one is demanding us to do this, but as foundations are more broadly on the radar screen (which is a good thing), we should be certain we are taking full advantage of all of the resources at our disposal to create social benefit. That’s how I see it, but again, I’m eager to hear what others think.

Jim Canales

If there was a restaurant in your neighborhood that you went to and had a bad experience, would you keep it to yourself and watch friend after friend go and find out for themselves? Or would you share your experience with people?

Does anyone think that the fact that Amazon.com features user reviews is a bad idea? Is sharing factual data and your personal opinions a way to help everyone?

I’ll tell you this. If a client of mine had a bad experience with my firm, I may not want them to say bad things about us to their circle of influence, but I would certainly expect it! Of course the reverse is true too. In fact, most excellent organization rely on the fact that people share their experiences with other people. Only poor performing organizations should want their “customers” to not share their experiences.

I think I agree with Sean that this discussion about “transparency” is NOT about public accountability issue, it is a technique for being a more effective foundation (by improving the field of philanthropy and being able to leverage the grant making of other foundations that learn from you). The report’s forward states the purpose “to glean what specific lessons might be applicable to others.”

There are many other topics we could be discussing related to transparency of foundations… but that wasn’t the point of the Midcourse Correction – and that isn’t the point of this debate.

With that distinction behind us, I would move on to my core disagreement with Stephanie Strom’s article in the NYT (those who read my Don’t Tell the Donor blog know how much I love Strom).

I think it may not always be beneficial or helpful for foundations to make these kinds of reports publicly available. As I read the Irving Foundation’s report, it is clear that it is NOT “intended to question the commitment, competence, or sincerity of foundation or grantee personnel.” Rather they focus on strategic direction and approach.

…but what if the report had come to the conclusion that the grantee was incompetent and the logistical implementation was flawed? What if the foundation had picked a local group to be the intermediary organization – and that group failed and therefore the foundation pulled the plug.

Should foundations be making grantee failures public in order to warn other foundations?

In my first question during the podcast, I asked you “What led to the release of the report, and how did Midcourse Corrections further the mission of the Irvine Foundation?”. I’d like to know more about how releasing this report to the public furthers your mission. I believe “transparency” is NOT a public accountability issue, it is a technique for being a more effective foundation (by improving the field of philanthropy and being able to leverage the grant making of other foundations that learn from you). What benefits do you see of releasing the report and why should other foundations follow your lead?

Regarding what I think can be done by foundations; I think it all boils down to engaging in public conversations about how philanthropic dollars can best be spent. My professional background is in the investment management industry. Although Wall Street is about as cutthroat competitive as any industry, there is a culture of sharing and discussing ideas. We have a 24 hours news station, every investment professional is constantly sharing their ideas with colleagues (even those at other firms), there are blogs, articles, books, etc that share ideas about how to invest (and much of it is communicated publicly).

The huge hurdle of course is that investors want to move first and capitalize on their information. Philanthropy doesn’t have this issue! Getting everybody to direct their money in the best way is GOOD and does not hurt each foundation’s ability to accomplish their mission (it only enhances it).

So my advice would be for philanthropic entities (and large foundations in particular) to actively engage the public at large in a grand conversation about how philanthropy can best utilize its considerable power to make the world a better place.

Luckily, information sharing tools are plentiful and dirt cheap. Blogs, podcasts and regularly updated websites are not expensive. But the trick is to not just pump out information, but to engage in a conversation. To actively seek out other people’s opinions and to comment on their ideas.

As Holden has regularly written, the only downside to transparency is that you might look bad sometimes.

Who cares. Information is power and the more valuable information you can gather the better.

So how do you get started on all of this, when most foundation employees won’t even leave a comment on a blog let alone write their own? I have a very specific recommendation. Hire Beth Kanter to teach you about social media tools. She has been helping nonprofits harness their power for years and has worked with Robert Wood Johnson.

Thanks for the steps you have taken so far.

• We maintain a blog. Not only that, but the blog is explicitly not primarily a PR tool - it is a journal of everything that goes on at The Clear Fund. As I research causes, I post what I find as I go. When I realize that I have a particular personal bias or value in grantmaking, I write a post about it.
• We publicly post all materials relating to our grant process, including our timeline and criteria as well as the applications themselves. (This is handy for applicants too.)
• We inform all applicants that their application materials are public unless otherwise specified. We then post these materials online.
• When we finish our Round One selection process, we will post the application of each charity reviewed, along with a brief explanation of why we passed it on or dropped it.
• When we finish our Round Two selection process, we will write up thorough reviews of the top few organizations in each cause, with our honest opinions of their strengths and weaknesses, footnoting as many claims as possible to the actual application materials. We will explain why we chose to fund - or not fund - each.
• We publicly post all records of the Board of Directors online, including minutes and audio recordings for all meetings as well as our organizational budget.

Is this extra work? Yes, although I don’t think it just pays off in transparency. I know that every single thing I do has to be written down and documented. That forces me into certain habits, and it’s good for the interaction between me and our Board of Directors, even if we had no interest in more general outreach. I believe that forcing as much as possible (about your values, priorities, research, decisions) into writing will improve the quality of those values, priorities, research, and decisions … and once it’s in writing, may as well stick it on the web.

Thoughts?