Category Archives: Long-Term Philanthropy

Forces for Good Author Weighs In

August 6, 2009 – 7:27 am

Heather McLeod Grant, one of the authors of Forces for Good, has weighed in on the debate with a thoughtful comment that I present an abbreviated version of below. You can read the full comment here.

By Heather McLeod Grant

Sean,
Thanks for referencing our book, Forces for Good, as an example of both high-performing and high-impact nonprofits… First, a caveat – neither Leslie or I are “evaluation experts,” which is perhaps why we approached our methodology so pragmatically. We took both a “bottom-up” crowdsourcing approach (asking thousands of people in various fields to rate their peers and tell us who was high-impact), combined with a “top-down” approach, asking experts in these fields (including funders and academics) to help rank these organizations based on their deep knowledge of the field and various players. We also looked at whatever self-reported data we could find, and examined the evidence of “impact,” for each of the organizations we ended up writing about…

Whether or not they are “high-performing” is debatable, depending on how you define the term: they all have had impact, but not all are perfectly managed organizations… The six practices we discovered really have to do with paths to scaling impact and achieving greater results (broadly defined), more than internal operational management or performance. I do think the sector could do more to emulate these nonprofits’ approach illustrated in the practice of “Adaptation”: using data (often real-time-feedback, not long term control group studies) as a method for constantly improving performance (and therefore impact), rather than seeing it merely as a tool for reporting to funders.

As we went through [the] process, we learned just how challenging this question of defining impact in the social sector truly is, for numerous reasons:

- One: There is no single metric like “shareholder value” in our field which is an agreed-upon proxy for impact (bear in mind even in the for-profit sector there are many other ratios/ indicators that investors look at to assess organizational performance)…

- Two: There’s the challenge of comparing apples to oranges: what you’re measuring as outcomes/impact in education (closing the achievement gap, graduation rates, etc.) is quite different from what you’d measure in the environmental field (reduced carbon emissions, protected species, etc.)…

- Three: Not all types of “impact” lend themselves to quantification in the first place; some types of social impact are intrinsically qualitative; e.g. you can measure the number of people who attend a symphony (an output), and overall membership rates over time, but how can you value the contribution of the arts to society? The impact of hearing well-performed music on individuals’ lives?

- Four: The time-scale it takes to achieve social change is often not easily measured in quarters or years, but in decades; so funders seeking “quick wins” will often shut down a program too soon; we know from evidence that programs like Head Start make a meaningful difference in kids lives, but often the real benefits don’t show up until much later in life…

- Fifth: Causality is often difficult to assign in the social sector. We know from experience that nonprofits are often working on multi-variable problems (e.g. children in poverty), and that their intervention might only address only one piece of the problem… So, while you can measure outputs and possibly outcomes, very few of these programs are solving the entirety of the problem – and many other programs are also working with these kids. Who then gets credit if an impoverished child who participated in various programs goes on to Harvard?…

- Sixth and last: One of the biggest ah-has from our research was that the best nonprofits often don’t focus merely on direct-impact, or measurable outcomes, but rather, they focus on larger systemic change– what we call “indirect impact” at the Monitor Institute. Over time, the highest-impact nonprofits start trying to address larger systems failures, and get to root causes or more sustainable long-term solutions than the band-aids that many social service programs provide…

Most nonprofits exist in the first place because of failure by markets or by government. And therefore, to be truly successful, they often move from providing services to actually seeking to influence whole systems. In this case, the “impact” they are having cannot be measured directly by their program’s output (number of teachers trained and placed in Teach for America’s case), or even their organization’s performance (being well-managed and highly data-driven)…Rather, Teach for America’s largest impact is arguably in the alumni network it has built, and what those alumni are now doing with their lives to transform public education in America. …Yet none of this would lend itself to conventional evaluation methods, and that’s my point…

…I’m not saying we shouldn’t evaluate: we should. (And I’m not an expert who can elucidate the pros and cons of various methods.) But we should do so thoughtfully, and weighing all of the challenges and complexities I’ve outlined above – recognizing that a one-size-fits-all approach won’t possibly work for the diversity of the social sector, and that we need a fairly broad and somewhat flexible definition of impact. I do advocate for moving away from a system where we evaluate nonprofits on arcane internal metrics like their “overhead ratios” which do nothing to illustrate the return on a donor’s investment, or the long term outcomes. We should focus much more on “impact”—even more than on performance (if the latter is overly focused on organizational perfection, rather than social change)…

But we shouldn’t become prisoner to these tools and methods either, or let the perfect become the enemy of the good. There’s a danger in becoming too obsessed with the data and tools, as well-intentioned as we might be; or using the wrong tool in the wrong context, and missing the larger picture. Sometimes philanthropy requires a leap of faith; and smart investing requires being thoughtful and weighing multiple factors, and understanding the context in which these nonprofits operate, and exercising judgment. It’s this that will ultimately lead to higher-impact nonprofits, and to a higher-performing social sector.

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By Sean Stannard-Stockton | Also posted in Cross-Disciplinary Conversations, Effective Giving, Evaluation, Grantmaking, Impact Measurement, Philanthropy | Comments (0)

What Causes Systemic Change?

January 13, 2009 – 10:45 am

I got an email from a reader in regards to the posts I’ve been trading with Paul Brest. The reader suggested that some major funders believe that systemic change does not come from funding individual nonprofits and that it can only come through more comprehensive foundation programs. I’m sympathetic to this point, but I believe it is almost certainly wrong.

Over the last 20 years, hierarchical models have been collapsing and being replaced by flatter organizations and systems. I talked about this when I first described The Second Great Wave of Philanthropy in 2006. This shift is currently celebrated in the concept of The Wisdom of Crowds, but it also was evident in the collapse of the Soviet Union and the success of free markets. It is evident in the changing approach to organizational management and it is the theme of Thomas Friedman’s book The World is Flat.

In a flat heirarchy, it is most critical that the system itself is robust and has a self-reinforcing mechanism to allow the best and the brightest of the level playing field to exert the most influence. In a heirarchical system it is most important that those in charge make the correct decisions and that they are able to exert enough control over the heirarchy to execute their plans.

What I’m arguing for is a decentralization of social impact creation along with a prolonged investment into the nonprofit infrastructure so that the Wisdom of Crowds does not dissolve into The Madness of Crowds. While investing in any one nonprofit may not result in systemic change, a profound shift by major funders from contracting with nonprofits to execute the foundation’s theory of change (a hierarchical model) to investing growth capital into nonprofits that compete for grants/investments by showcasing their ability to execute high impact programs would result in radical systemic change.

I’m deeply indebted to George Overholser, of Nonprofit Finance Fund, for his paper Building is Not Buying and the many conversations he and I have had about the under-capitalization of nonprofits. What George so eloquently explained in Building is Not Buying is that there are two types of funders, those that want to buy program execution from nonprofits and those that want to invest in nonprofits in order to build them. The world of philanthropy today is dominated by two major types of funders, non-strategic Buyers who give money to nonprofits in the hope that the money will result in social good and Strategic Buyers who design their own theory of change and then contract with nonprofits to execute the various moving parts of the funder’s program. This has resulted in a nonprofit industry without access to the capital it needs to grow into self-sustaining, high impact organizations.

Organizations need both customers (buyers) and investors (builders) to grow and thrive. What they are missing today are investors. They need funders who will make long term investments in the healthy growth of their organization. Success comes when a funder like the Edna McConnell Clark Foundation invests in the growth of Nurse-Family Partnership or Doris and Don Fisher invest in the Knowledge is Power Program (KIPP) as Paul Brest profiled in his recent post.

Neither of these organizations will result in systemic change by themselves. But if funders would embrace the role of investor/builder instead of the role of a designer/architect, the social impact potential of nonprofits would explode and we would achieve the systemic change that so many funders seek.

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By Sean Stannard-Stockton | Also posted in Capital Market Philanthropy, Effective Giving, Foundations, Grantmaking, New Philanthropy, Philanthropic Equity, Philanthropy | Comments (4)

Philanthropy’s Response to the Financial Crisis

December 2, 2008 – 11:15 am

A few weeks ago, I asked how philanthropy can emerge from the financial crisis better positioned to face the future. It turns out that Alliance magazine, one of the best philanthropy focused periodicals, asked their editorial board the same question. So the editor of Alliance sent me her board’s answers to the question with permission for me to reprint them. She has also offered free access for the month of December to the Alliance magazine website for Tactical Philanthropy readers. Access is usually limited to subscribers, but for the rest of this month you can access the Alliance magazine website using the email: tactical@alliancemagazine.org and the password: philanthropy.

A selection of the editorial board’s responses to the financial crisis:

Lucy Bernholz Blueprint Research and Design, USA
Two areas of potential impact of the crisis concern me. First, will fear about the future make people turn away from community, look for ‘others’ to blame, and be divisive and destructive to civil society? Certainly history can provide plenty of examples of this type of civil withering. We can also find examples in which uncertainty brings out the best in people. Have we learned anything about fostering the latter and avoiding the former? Second, while individual philanthropic impulses always continue, what will happen to the ‘business of giving’ in view of the scale of current uncertainty? Assumptions about large-scale transfers of wealth have to be re-examined, as plans for retirement, medical care and family financial security are radically realigned. We also don’t know whether and how online giving marketplaces, social enterprise, social investing and other innovations born in good times will stand a downturn, short or prolonged, and how those changes will ripple across longer-standing practices.

David Bonbright Keystone, UK
What can we learn from this crisis to prevent recurrence? What is the role of philanthropy and civil society in curbing the excesses of our economic system? Looking backwards, can philanthropy ensure that we get an unbiased forensic analysis of what happened, and a ‘truth and reconciliation’-type process that will enable the victims to judge the executioners? Looking forward, can we imagine new models of regulatory oversight in which civil society plays a more robust role? Can philanthropy help to ensure that we have a more effective early warning system when investors go on their next binge, as history tells us that they surely will?

Andrew Kingman Micaia, Mozambique
We will no doubt have to watch carefully the ‘new’ funds and intermediaries that have relied on the hedge funds and other financial instruments that are now under such pressure to see if they are badly hit. However, these funds are dwarfed by foundation assets that will, one would assume, be reasonably well protected. I suspect that the most significant impact might well lie in the area of changing funding priorities for the major donors over the next few years.

If we consider the social and economic impact of the financial crisis on low-income communities in the US and Europe in particular, it may be hard for foundations to resist taking on new or expanded programmes to provide short and longer-term support. In turn this could affect funding for more ‘marginal’ issues – international giving, environmental justice, etc. Add to this scenario the likely downturn in individual and corporate giving, and a significant portion of civil society may face a severe funding crisis.

Barry Knight CENTRIS, UK
Philanthropy is the child of capitalism. Put yourself in the place of the child whose father has just had a major heart attack and can no longer work. What is she to do? She urges him to change his ways: to cut out excesses of diet, to take gentle walks in the woods, to enjoy the beauty of the planet, and above all to find a new sense of meaning. She supports him in this new life, helps him to find a new way, and scolds him if he tries to go back to the bad old ways.

Peter Laugharn Firelight Foundation, USA
In late September, while the global financial crisis was unfolding, I was visiting community-based organizations in Malawi funded by my foundation. You can picture it: a foundation from the North instructing painstakingly well-run shoestring village organizations in prudent financial management, while the people and institutions charged with managing and growing huge sums of money had been so breathtakingly reckless, with such disastrous consequences. If there was ever a moment to turn the tables in our discussions of accountability, and to require from the sources of our funding the same transparency, good faith, and reliable results that we require from our grantee partners, this was it.

For foundations themselves, I would remind them in the present crisis that the most useful foundation contribution is likely to be a combination of our two strengths: long-term vision and commitment, and short-term flexibility. Let’s use these two well, to complement government initiatives that are understandably focused on the very short term but may also take a while to roll out.

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By Sean Stannard-Stockton | Also posted in Cross-Disciplinary Conversations, Philanthrocapitalism, Philanthropy | Comments (3)

Philanthrocapitalism & Consilience in Philanthropy

October 10, 2008 – 9:48 am

As a follow up to my post yesterday regarding the World Economic Forum and my personal views on “business thinking” in philanthropy, I’m reposting something I wrote for OnPhilanthropy.com back in January:

Consilience in Philanthropy
Wednesday, January 16, 2008
By: Sean Stannard-Stockton

Have you ever heard someone say, “We need to get out of our silos and work together”? The silo effect is one of those over used metaphors of the business world, but the issue it raises is real. In short, silo thinking refers to a situation (common in most organizations) where people do not communicate across departments.

In large private foundations, there has long been a silo effect across program and investment staff. But recently, some foundations are trying to overcome this barrier and encourage the two departments to work together.

I believe the key to unlocking the potential of philanthropy is to break out of our silos and embrace consilience. Consilience means “unity of knowledge” (or more literally the “jumping together” of knowledge). The phrase was popularized by famed biologist Edward O. Wilson in his aptly named book Consilience: The Unity of Knowledge. What consilience recognizes is that every field of study captures only a snapshot of reality. While economists might believe that economics is the study of the production, distribution and consumption of goods and services, the fact is economic theory does not actually describe reality until you begin to take into account the biological, psychological, and sociological behaviors of humans. Even then, a broader systems approach is needed to understand how the market affects the environment and human culture, as well as the moral implications of market outcomes.

Today, philanthropy is faced with the coming together of traditional models of giving with market based social good production. While this systems based approach to philanthropy is promising, too often it seems that those schooled in for-profit business models assume that their knowledge can be directly applied to philanthropy. At the same time, many people who understand giving at a deep level fail to recognize the potential of market based approaches to social good creation. For philanthropy to realize the potential being presented in the 21st century, the trick will not just be to bring economists, sociologists, technologists, biologists, etc to the table, but to truly forge a consilience of knowledge across all domains. The whole is more than the sum of its parts. The first step to this goal must be simply to encourage people with varied knowledge to speak with one another. Not lecture at each other, but to truly create a conversation.

This idea of crafting a conversation across knowledge silos has been a core principle of my blog, Tactical Philanthropy. I myself straddle the for-profit and nonprofit sectors with my schooling in economics, training in the financial markets and application of this knowledge to help philanthropists through my firm, Ensemble Capital Management. In November of this year, I got a glimpse of what a consilience conversation might look like. Through a project called the One Post Challenge, readers of my blog were encouraged to submit their blog posts for publication with the goal of encouraging a cross-disciplinary conversation.

The conversation generated 36 reader essays and over 200 comments (excluding one post that generated 700 comments from around the world and inspired refugees to dance in Africa, but that’s another story). The authors included; foundation staff, nonprofit consultants, nonprofit employees, volunteers, social entrepreneurs, wealth advisors, web 2.0 gurus, authors, angel investors, tech entrepreneurs, magazine publishers, fundraisers, venture capitalists, activists, community foundation employees, academics, and public relations professionals. This was a group of people who would never find themselves in a room together. Yet to solve the complex problems facing humanity, all of their knowledge is needed. While each of them knows something important, it is not simply collecting this knowledge that is key, it is understanding how it all fits together. It is the “jumping together” of their wisdom that results in breakthroughs.

The One Post Challenge was an experiment in cross-disciplinary conversations. As wide as the group’s expertise was, it did not include experts in government, economics, sociology, or international relations.  The conversation must grow.

We often refer to our field as the Third Sector. But philanthropy and nonprofit activity do not exist apart from for-profit markets and government. We all operate within a single system. It is only in bringing together the many parts and encouraging them to interact that we will begin to understand the whole.

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By Sean Stannard-Stockton | Also posted in Cross-Disciplinary Conversations, Information Sharing, New Philanthropy, Philanthrocapitalism, Philanthropy | Comments (0)

Luis Ubinas in Alliance Magazine

September 11, 2008 – 8:59 am

In December, I’ll be speaking at the Yale School of Business philanthropy conference on the topic of Information Sharing in Philanthropy. I’ll be on a panel with the same subject matter at the Center for Effective Philanthropy conference in March of next year. So I was thrilled to see the interview with Ford Foundation president Luis Ubinas in the current issue of Alliance magazine. Ubinas’s views on information sharing mirror my own:

Alliance: Do you think more could be done in the foundation sector in the way of really sharing experiences of what’s working and what’s not, so that foundations could always start where everybody else has left off rather than having to reinvent the wheel, as too often seems to happen?

Ubinas: Well, many of the Ford Foundation’s greatest accomplishments have been collaborative efforts. The Green Revolution work with the Rockefeller Foundation was a hand-in-glove collaboration. With some of the work we did in the area of civil rights we were the leading organization, but other organizations joined very quickly. The work we did in the women’s movement, under Susan Berresford, attracted other grantmakers and other foundations. So there is a history of real collaboration here at Ford.

But I think you’ll find one of the hallmarks of my time here will be the sense that on almost everything we should have other foundations as partners, grantees as partners, NGOs as partners. This question of partnership is central to how I think, and central to the history of the Foundation and central to our future.

Alliance: Don’t you think it could be valuable for the sector as a whole to have a more systematic way of sharing information so that other foundations that Ford doesn’t work with directly could benefit from Ford’s experiences and vice versa?

Ubinas: I’m new enough to be cautious about making pronouncements across the foundation world. I have only been here six or seven months. That said, we have a philanthropic sector really dedicated to working on common issues of fairness and social justice, and to the extent to which we are working on those issues on a shared basis, it can only be helpful. So absolutely, we should be, as a sector, looking for more opportunities to learn from each other. I’ve had several other foundations come to me and share their message and their thinking with us, and to the extent to which we can encourage that dialogue, I think we bring a kind of value that private sector organizations can’t bring to each other.

One of the reasons that Ubinas is a notable foundation president is the fact that he came directly from the private sector where he worked at the for-profit consulting firm Mckinsey. The interviewer also asked Ubinas about his views on philanthrocapitalism and business-style measurement of social impact. On this subject too, my views dovetail with Ubinas:

Alliance: Since Matthew Bishop coined the word ‘philanthrocapitalism’, in an article in The Economist in February 2006, there is a lot of talk about bringing business practices into the philanthropy sector. Do you see that happening? Are there practices from Mckinsey that you could usefully bring to your work at Ford?

Ubinas: I think that learning across sectors is inherently valuable. I think that there are things that foundations do that would be very interesting to businesses – taking a long-term approach, taking a more holistic approach, attacking problems from multiple angles, learning about qualitative measurement.

At the same time, I think there are things from business that philanthropy can learn: thinking about grants as investments, thinking about the possibility of expecting returns, thinking about grantees as partners instead of grantees, people we work with on an ongoing basis, closely, in a shared, open dialogue.

I think the question isn’t what can philanthropy learn from business, it’s what can philanthropy learn from itself, from business, from government? Establishing a learning environment is what matters, who we learn from is secondary. You’ll find successful organizations in every sector are defined by their capacity to learn and the Ford Foundation has a history of that. So I think this is something the organization is very, very comfortable with.

Alliance: Do you think philanthropy could learn from the private sector in the area of setting specific goals and targets and measuring progress against them?

I think we need to be extremely careful how we think about measurement. When you move to narrow quantitative measures, you run the risk of moving to narrow quantitatively driven activities. Many of the issues the Ford Foundation works on, important social issues, are long developing, long simmering, long brewing. So we need to bring a very, very sophisticated view to measuring and understanding impact, and that has to take into account the long-term qualitative measures. That’s not to say that there’s no room for the quantitative, of course there is, but you need to be thoughtful; you need to have a deep understanding of the complexity of measurement and how measurement can drive behaviour. Which is why it’s so important for an organization like ours, which deals with long-term social change, to ensure that we take a long-term view that is both qualitative and, where necessary, quantitative.

You can read the full article here and you can request a free sample copy of Alliance, one of the best philanthropy periodicals, by clicking here.

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By Sean Stannard-Stockton | Also posted in Cross-Disciplinary Conversations, Effective Giving, Foundations, Information Sharing, New Philanthropy, Philanthrocapitalism, Philanthropy, Transparency | Comments (0)

Philanthropy: Spending Vs. Investing

August 19, 2008 – 9:26 am

One of the big shifts that is occurring in philanthropy is a change in the way donors perceive how charitable giving fits into their overall financial picture. The most fundamental aspect of this shift is a movement from seeing giving as a “spending category” to seeing it as an “investment category”. There are a number of implications:

  1. When donors view giving as an investment category, they view it as a positive aspect of their financial picture rather than a negative cost. For example, if the cost of your grocery shopping goes up, it negatively impacts your budget. But if the amount you are saving goes up, this is a positive change to your financial picture.
  2. Donors can begin thinking about giving as a percentage of their assets rather than a percentage of their income. Wealthy donors in particular have far more assets than income and so thinking about giving as a percentage of assets would dramatically increase giving. This is the argument put forth by investment manager and philanthropists Claude Rosenberg in Wealthy & Wise. The book demonstrates mathematically that donors can give far more to charity without jeopardizing their financial well being if they think about giving as a percentage of assets.
  3. Donors can begin thinking about nonprofits as organizations they want to support rather than “sellers” of “goods” whose costs they do not want to support. When you buy something from Target, you don’t care about their operating costs, you just want the lowest price. But when you invest in Target you recognize that quality organizations take money to run and you are supportive of well spent operational costs.
  4. The value that donors expect shifts from a short term perspective (such as “buying” the right to feel like you helped someone) to a long term perspective (such as “investing” in the continued success of a high impact nonprofit).
  5. Nonprofits stop seeing donors are “customers” who they must separate from their cash (or even fight a war over) and start seeing them as investors; literally stakeholders of the organization.
  6. Corporate donors also see a shift where “corporate social responsibility” moves from being a cost that they attempt to reduce to an investment in the community from which they derive their profits.
  7. More mission related investment opportunities open up as people become comfortable with blended investments that offer financial and social returns.
  8. The field of philanthropy becomes more focused on building a philanthropic market place as the importance of functioning financial markets becomes more clear.
  9. Wealth managers begin serving the philanthropic needs of their clients as they begin to recognize that giving is not a cost for their client (that should be minimized) but is instead an asset allocation question that is directly intertwined with their clients’ broader wealth management needs.

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By Sean Stannard-Stockton | Also posted in Mission Related Investing, New Philanthropy, Philanthropic Capital Markets, Philanthropy | Comments (2)

Robert Wood Johnson & the Long-run

April 8, 2008 – 9:04 am

Referencing my post on short-term vs long-term focus in philanthropy, the Robert Wood Johnson Foundation asks for ideas via their blog:

Last Friday, in his thoughtful blog, Tactical Philanthropy, Sean Stannard-Stockton, wrote about the often-missed opportunity philanthropies have to focus on the long run…

On the Pioneer Portfolio, we’re interested in understanding those long-term trends, because they are driven by forces and create conditions that make today’s radical ideas tomorrow’s successes.

Recently, we’ve been watching trends of patient empowerment, IT/communications technology, and data mining/rapid learning. What trends are you watching and what implications do you think they have—long term—for health and health care?

You can click here to leave a comment on their post.

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By Sean Stannard-Stockton | Also posted in Cross-Disciplinary Conversations, Effective Giving, Impact Measurement | Comments (0)