Category Archives: New Philanthropy

‘Blood money’ that became a force for good

August 12, 2008 – 10:11 am

My newest column from the Financial Times is out. For those that read the print edition, my column has been moved to the Tuesday edition. For those keeping score, this column marks the one year anniversary of my On Philanthropy column. You will find the full archive of my past columns here.

‘Blood money’ that became a force for good

By Sean Stannard-Stockton

Published: August 12, 2008 - Link to original Financial Times column

Like everyone who lost a loved one on 9/11 Steve and Liz Alderman were devastated when their 25-year-old son, Peter, was killed in the World Trade Center attack. Like many, they chose to honor their son’s memory by creating a foundation in his name.

Of the 303 non-profit organizations launched in response to 9/11, only 27 were still operating five years later, according to a study by the NonProfit Times. What has kept the Peter C. Alderman Foundation going is his parents’ focus on maximizing the impact of their foundation through rigorous analysis. In the words of Peter’s father, Steve: “We will abandon anything that doesn’t work.”

When the Aldermans received $1.4m from the September 11 Victim Compensation Fund, Liz thought of it as “blood money” and almost turned it down. She told me recently that she used to lie awake at night thinking about the people she wanted to kill to avenge Peter’s death. But, with Steve’s encouragement, they accepted the money and launched a private foundation to help victims of terrorism and mass violence round the world.

“Using the money for a good cause was the best revenge,” Steve told me. “The only way for us to counteract great evil was with great good.”

Today the Peter C. Alderman Foundation, in partnership with Harvard University, builds mental health clinics and provides local doctors with the tools they need to treat the emotional wounds of victims of terrorism and mass violence in places such as Cambodia, Uganda and Rwanda. Its work has attracted partners such as the US Department of Health and Human Services and the pharmaceutical company, Eli Lily.

When I spoke to the Aldermans about their foundation, I was struck by the fact they, unlike most philanthropists who talk about the grants they have made, talk about the effect they have had. With an annual operating budget of $500,000 they have set out to help people across the globe. Liz and Steve found that, to have the impact they were seeking, they had to identify outstanding partners and find ways to leverage their giving.

“Starting a foundation was like starting a small business,” Steve said. “Our daughter, Jane, even got her MBA when she realized that we didn’t know enough about business.” She is now the foundation’s executive director.

The Aldermans represent the vanguard of philanthropy - individuals who have recognized that philanthropy is not defined by the act of giving but by the achievement of impact. It is both an emotional act of love by the giver as well as a strategic investment in our social fabric. The Aldermans have discovered that the most emotionally satisfying philanthropy is a gift that has impact.

Unlike many relatively small foundations, the Peter C. Alderman Foundation has an in-depth strategic plan. Through its mental health clinics, the foundation has reached 65,000 people with traumatic depression. Many grantmakers simply measure themselves by the scope of their activities, but the Alderman foundation goes further and documents that it has seen 80 per cent of the people it has treated return to productive lives.

In Cambodia, where the legacy of the genocidal Pol Pot and the brutal Khmer Rouge still grips the populace, the Aldermans have proved they can treat traumatic depression. Demand has been so large that the foundation created a second clinic to eliminate the 14-month waiting list. Importantly, the Aldermans have shown they can achieve their mission cost effectively; the Cambodia clinic system provides services at a cost of $50 a head.

The Peter C. Alderman Foundation is not the first to have a strategic plan, strong partners and demonstrated impact. But it is part of an emerging group of relatively small family foundations that are demonstrating how to use effectively these tools.

The Aldermans have shown that the most effective way both to help people and soothe their own emotional wounds is through a focused strategy and measurement of impact.

I was struck by how the Aldermans talked like seasoned social action experts with impact data and leverage statistics dominating our conversation. But, in the end, the Aldermans are grieving parents trying their best to make sense of a devastating loss. “I’ve realized that you can’t cry when you’re working on the computer,” Liz said. “You get the keys all wet.”

The writer is a principal and director of tactical philanthropy at Ensemble Capital Management and author of the blog TacticalPhilanthropy.com.

By Sean Stannard-Stockton | Also posted in Financial Times Column, Foundations, Impact Measurement, Philanthropy | Comments (0)

Network for Good Charity Badge & Philanthropic “Markets”

August 11, 2008 – 11:20 am

A couple weeks ago my wife decided to raise money to save an art therapy program at a public school in a disadvantaged area of the San Francisco Bay Area where we live. She had spent the last year as a volunteer art therapist at the school during a program to complete her masters degree.

The situation of many of the students was seriously dire. When my wife completed the program, the only thing that made her feel OK about leaving the kids was that they’d have a new therapist next year. Then the California budget cuts kicked in and the program was cut.

The amazing thing is that this was a volunteer program. But they needed to pay a supervisor $1,000 per year (or about $1.25 per hour) to oversee the volunteer therapists.

So my wife took it upon herself to raise the money to save the program. We brainstormed about various ways to do it. We thought about putting on an art related event that people would buy tickets for. We wondered if people in the relatively affluent area where we live would want to support a program in a low income area a couple of towns away where they’d likely have no personal contacts. But she decided that she just had to get it done.

Two weeks ago she created a Network for Good fundraising widget and sent an email around to about 75 people with our offer to match whatever gift they made to the program. About a week later the program was fully funded with enough extra that they can either fund half of a second year or provide money so the volunteer therapists (all students) don’t have to pay for the kids art supplies.

What made this work was Network for Good has created a seamless transaction system that lets people very easily create a web link through which anyone can make a contribution and get a tax deductible receipt.

There’s always been people with big hearts and an important cause they want to support. Now it is easy (and cheap) to make the transaction really, really simple. This is the beauty of a functioning market. A market makes it easy and cost effective for people to engage in financial transactions. That’s the whole point of a market and the reason why I think the emergence of a philanthropic capital market is so important.

Today, if I hear about a book I’m interested in I type the title into the custom search bar in my browser and am taken directly to amazon.com. I can then order the book with one click (Amazon has my credit card and mailing address pre-stored). Because of this I’ve read a ton of interesting books this year that I never would have bought if I had to remember the title and trek to the local bookstore (or, in a pre-market environment, had to find the author and asked her to have a copy of the book created for me). I also have a stack of very interesting books I’ve never read on my bookcase, but that’s another story.

Markets help people find the products and services they want to find in an easy and cost effective way. The people that supported my wife’s fundraising clearly wanted to support the program. But if she had had to put on an event or walk door to door, she might never have decided to raise the money. If she had mailed out requests, some of the people who wanted to support the event would not have taken the time to find a checkbook and a stamp and mailed in their support.

Marketplaces also provide trust. You’ll buy something from a store you’ve never heard of if it is located in a mall you frequent. But you won’t buy the same thing at the same price from someone who approaches you in the parking lot. We live in a country where trust in nonprofits is quite low. A better marketplace can help fix that.

At the end of the day what matters is that the kids my wife worked with, who live incredibly hard lives, will have a stable adult who cares about them in their life. Everyone wants to make the world a better place, but a functioning marketplace where costs are low, convenience is high, fraud is low and trust is high can help people move from wanting the world to be better to making the world a better place.

By Sean Stannard-Stockton | Also posted in Effective Giving, Fundraising, Philanthropic Capital Markets, Philanthropy | Comments (4)

Jacob Harold Follow Up

August 5, 2008 – 9:39 am

Well, well. Is Jacob Harold an outstanding thinker or what? I think one of the best things about the way Jacob outlines his ideas is that he paints the possibility of a philanthropic capital/information market without invoking the idea that philanthropy needs more “business thinking”.

I’m back from vacation and while sitting in the sun I read an advance copy of Paul Brest’s (The CEO of the Hewlett Foundation, where Jacob works) forthcoming book Money Well Spent. I’m not going to comment on the book now, but I was struck by a study cited in the book that showed how powerful the framing of an issue can be. The study presented the classic game of The Prisoner’s Dilemma and watched how it was played depending on what it was called. The Prisoner’s Dilemma is a study in “game theory” in which two players can either behave in a cutthroat way or a collaborative way. They must make their choice without knowing what the other player has chosen. In the study cited in Brest’s book, the researchers found that if they told participants the game was called The Wall Street Game, players tended to select the cutthroat choice more frequently than if they told the players it was called The Collaboration Game. The game didn’t change, but the players significantly changed their behavior based only on what they believed the game was called.

This ties into earlier conversations we’ve had on this blog about renaming nonprofits (for-benefit organizations?). But it also shows how Jacob (as an employee at a foundation) is better able to discuss the topics he focused on than I am as the owner of a wealth management company. We’re both talking about them same things, but we present them with different frames.

All of this ties back to the debate around Philanthrocapitalism. I think that the area between disciplines yield the most interesting discoveries. I believe that “consilience” is the key to the advancements in philanthropy that are starting to kick into gear. But the next big thing is not to force philanthropy to be more “business-like”, nor is it to get capitalism to be “more good”. The next big thing is mining the knowledge of the two fields and creating something completely new.

I think Jacob is one of the people who is well ahead of most of us in understanding what that “something new” will look like.

By Sean Stannard-Stockton | Also posted in Cross-Disciplinary Conversations, Philanthropic Capital Markets, Philanthropy | Comments (0)

Jacob Harold: The Philanthropic Tool Box

July 25, 2008 – 11:34 am

(Sean Stannard-Stockton is on vacation. This is a guest post from Jacob Harold, a program officer at the William and Flora Hewlett Foundation.)

They say that if all you have is a hammer, the whole world looks like a nail. Let me add: if you have a toolbox, the whole world can look like an opportunity. The nonprofit sector—with its diversity of skills, relationships, and methods—is our collective toolbox for social change. And philanthropy is society’s attempt to pick the right tool at the right time: allocating precious resources to issues, organizations, and interventions.

But an individual donor trying to make a good philanthropic choice is like a carpenter reaching into a toolbox in the dark while wearing thick mittens. And at the bottom of the toolbox are well-crafted, well-made tools (nonprofits that are not just well-meaning, but also well-run) mixed in with tools ill-suited to the task.

So, to perhaps over-use the metaphor, the Hewlett Foundation’s Philanthropy Program is trying to do two things: first, get donors to take off their mittens and learn how to use their fingers to find the right nonprofit; second, shine a light into the toolbox and make it clear which organizations are the strongest.

As a guest blogger next week on Tactical Philanthropy I’ll share some about our thoughts and questions and questions about improving the practice of philanthropy. I’m looking forward to your feedback—and any clever mitten-removal and light-shining strategies you might have.

By Sean Stannard-Stockton | Also posted in Cross-Disciplinary Conversations, Effective Giving, Jacob Harold, Philanthropy | Comments (3)

Life = Risk

July 21, 2008 – 8:02 am

One of the core lessons of financial markets is that you can only increase returns by increasing risk (you can be more talented than other people at any given level of risk, but the level of risk is the primary determinate of long term returns). I’ve been talking for a long time about why the social sector needs to embrace the idea that only people that run the risk of failure (and therefore fail sometimes) can achieve greatness.

Here’s video proof:

By Sean Stannard-Stockton | Also posted in Effective Giving, Foundations, Grantmaking, Philanthropy, video | Comments (7)

Low Hanging Fruit

July 16, 2008 – 11:47 am

Recently, the GiveWell blog looked at how individuals are by far the biggest philanthropists in the United States. Total annual giving from foundations pales in comparison to donations by individuals. Depending on how you slice it, well over 80% of giving comes from individuals.

This fact was a driving force behind the creation of the philanthropic services platform at my firm Ensemble Capital Management. The way that the chart shown on the GiveWell site is designed, “individuals” and “bequests” become proxies for “non-institutions”. However, they are actually just “non-structured” giving. With donor advised funds, private foundations and charitable remainder trusts (a potential replacement vehicle for bequests) becoming available to smaller and smaller donors, I believe we’ll see a huge decrease in “individual” giving as defined by the statisticians. But we’ll actually being seeing a rapid increase in the use of sophisticated giving techniques by individual donors.

This doesn’t just matter to me (as an advisor to these donors) it matters to the whole field of philanthropy and by extension to the social sector because these “non-institutional” donors are our field’s “low hanging fruit.” Recently marketing guru Seth Godin commented on the magic of low hanging fruit:

Imagine that half the cars in the US get 10 miles per gallon. And half get 40 miles per gallon. Further stipulate that all cars are driven the same number of miles per year.

Now, you get one wish. You can give every low-mileage car a new set of spark plugs that will increase fuel efficiency by 5 mpg, up to 15. Or you can replace every 40 mpg car with a car that gets 75 mpg, an increase of 35 miles for every gallon driven.

Which is better?

It turns out that the 5 mpg increase is far better for overall mileage than the 35 mpg increase, even though it’s smaller both as a percentage and absolutely. That’s because the 10 mpg hogs use up so much gas. They’re the low-hanging fruit, not just easy to fix, but worth fixing.

As marketers, we’re tempted to tweak the already tweaked, to turn the 100 to 101, to optimize for the peak performances. That long tail is very long, though, and if there’s a way you can raise the floor (instead of just focusing on the ceiling) you may be surprised to discover that it can have a huge impact.

I love to try to “tweak the already tweaked, to turn the 100 to 101, to optimize for the peak performances.” But frankly I think that philanthropy is such a deeply inefficient market that we can make great headway as a field by simply working on the basics.

By Sean Stannard-Stockton | Also posted in Effective Giving, Philanthropy | Comments (4)

The Big Give

July 15, 2008 – 10:50 am

The Big Give (not to be confused with Oprah’s Big Give television show) is an interesting UK based website that allows donors to search for projects to fund. Much like a stock screening tool (which lets you look for stocks to buy that fit your criteria), The Big Give lets donors “screen” projects based on size of gift, charitable “sector”, geographic location and beneficiaries. The site is a good example of the type of tool that I think will become the leading way that donors of all size will find the nonprofits they support. See the column I wrote for the Financial Times that looked at philanthropy in the year 2033 for more details.

Tactical Philanthropy reader Jon Brooks is Managing Director of The Big Give. Rather than explain the site myself, I thought I’d let Jon take the floor. (FYI: Jon sent me a note about The Big Give after I suggested that most foundations should stop accepting most grant requests and instead proactively seek out grantees. At the time, I said that being deluged by grant requested “sounds like spam to me.” So one way to think of The Big Give is as anti-spam software for your foundation!)

In 2007 the UK-based Reed Foundation was struggling to find quality funding proposals for its £1m/year grants. Unsolicited requests were never appropriate and seemed a waste of valuable charity resources.

With no paid members of staff, processing requests also used valuable foundation resources. Promoting the foundation’s need for quality proposals (e.g. through a website/marketing) would have only led to more administration work for both charities and the foundation.

We felt the most suitable solution was an online database of charity projects, and so developed The Big Give. UK charities upload and categorize their own projects - remaining responsible for all content - which allows the Reed Foundation to filter by various factors. Once we have a short-list of projects, we can contact the charity to discuss their proposal in more detail.

The beauty of the web is that we can share The Big Give with other donors looking for new projects. The site is free, and users remain anonymous until they decide to contact the charity. With over 4,500 charities registered, we do not carry out in-depth due diligence. Instead, we provide links to third party websites - such as the Charity Commission - to make it easy for donors to research potential charities to a level that suits their needs.

An example:

In 2007, the Reed Foundation trustees wanted to consider a £100k donation to rainforests. Other websites provided limited information on the work each rainforest charity did, and the charities’ own websites concentrated on the £5/month donors. The only way to find out if a charity could provide us with an interesting project was to ask - and that led to face-to-face meetings, offers to tailor projects to our needs, and so on.

With The Big Give, we are able to search for rainforest projects at £100k and have a short-list of concrete proposals within seconds. Only when we have selected the best ideas and checked the accounts of the charity behind the project do we meet with the charity.

My personal story:

As happens at many small foundations, I worked on the Reed Foundation alongside a full-time job within the Reed recruitment company. As the idea for The Big Give developed, I spent more time on the project and went full-time with The Big Give in August 2007. The website launched to charities in October 2008, and we are now looking at how to make The Big Give relevant to all charity donors.

By Sean Stannard-Stockton | Also posted in Effective Giving, Foundations, Grantmaking, Philanthropy, Social Media, nptech | Comments (3)

Philanthropy & Capitalism

July 10, 2008 – 10:03 am

When debating a phrase like “philanthrocapitalism”, one requirement is that we understand the relationship between capitalism and philanthropy. I believe that capitalism is the best system that humans currently have to distribute goods and services. I believe philanthropy, while intertwined with economics, exists to do much more than simply distribute goods and services. Philanthropy is a higher calling that is driven my the human desire for self-actualization (which I discussed in a post for the Stanford Social Innovation Review).

One of the reasons why I think the philanthrocapitalism debate seems to be discombobulated at times, with the participants talking past each other, is because of a specific belief that many people who agree with Michael Edwards’ anti-philanthrocapitalism views hold. That view is articulated perfectly in a comment left yesterday by Tactical Philanthropy reader Nicole:

Why should nonprofits conform more to the corporate model, when corporations are the main source of the problems non profits were created to solve in the first place?

If you believe that capitalism is the source of the problems that philanthropy seeks to address, it is no wonder that you would reject the concept of philanthrocapitalism. There is no doubt that markets produce plenty of negative outcomes. Even hardcore free market economists agree that there are “externalities” (costs or benefits that accrue to non-market participants and therefore are not reflected by the market. A classic example is smoking where non-users accrue health related costs and so the market produces too many cigarettes). Capitalism is not perfect.

But I reject outright the idea that philanthropy’s main role is to correct the problems produced by our economic system.

To me, viewing philanthropy as primarily a correcting force on capitalism essentially sets philanthropy up as a kind of handmaid to capitalism. A clean up crew for financial markets. Philanthropy is so much more than that. Even in an economic utopia, humans would still have plenty of problems. Mental illness would still exist. Children would still lose their parents. Pain and fear and anger would still persist.

Philanthropy is about humans coming together out of an interest in each others well being. Capitalism is about people coming together to further their own self interest. It is OK to be self interested. With out self interest the human race would die out. Capitalism manages to harness self interest in a way that allows the pursuit of self interest to benefit the community. This tool set should be useful to philanthropy as a way to further our community interests.

To me, if you believe that philanthropy’s main role is to correct the problems of our economic system, than you are truly worshiping at the alter of capitalism. You are elevating the role of economics to the very center of human happiness.

To truly benefit from a positive form of philanthrocapitalism, we must be able to gather the accumulated wisdom of each discipline and integrate them into a more complete whole. This is the challenge and opportunity for philanthropy in the 21st century.

By Sean Stannard-Stockton | Also posted in Philanthrocapitalism, Philanthropy | Comments (5)

Philanthrocapitalism: Michael Edwards vs. Matthew Bishop

July 7, 2008 – 8:12 am

Matthew Bishop of The Economist coined the word Philanthrocapitalism in early 2006. Earlier this year, Michael Edwards of the Ford Foundation published Just Another Emperor: The myths and realities of philanthrocapitalism, which was highly critical of the concept.

Today, the Global Philanthropy Forum hosts an online debate between Bishop and Edwards with comments open to the public. Give the two sides a read and leave your thoughts. I think that the intellectual struggle over the idea of philanthrocapitalism is one of the most important debates going on today. How the world comes to define and understand the phrase (and especially the tools and knowledge frameworks of the concept), may very well define philanthropy in the 21st century.

You will find the debate here.

Update: the debate is churning along and regular readers will recognize a number of Tactical Philanthropy readers in the mix. Come join the conversation!

By Sean Stannard-Stockton | Also posted in Cross-Disciplinary Conversations, Philanthropic Capital Markets, Philanthropy | Comments (10)

Investing in Great Nonprofit Employees

July 3, 2008 – 8:50 am

My recent column in the Financial Times has sparked the biggest response of my year old career as a newspaper columnist. I’ve gotten a ton of email, comments and the Chronicle of Philanthropy featured the column in Philanthropy Today. The response (of people who have contacted me directly) has been overwhelmingly positive. But I hear through the grapevine of at least a couple prominent people who don’t like the column. I’d love to hear any negative feedback that’s floating around our there.

I would like to clarify something in the column that I think deserves further attention (I only get 800 words in the Financial Times, so I have to leave out some points). In the column I say that donors do not understand how social impact is created (they tend to think it is the money they give, so they want to eliminate nonprofit costs, instead of recognizing that it is what the nonprofit does with their money that creates impact). I then state that for-profit investors have a better understanding than donors do of how the input of money (an investment or a donation) is transformed into an output (profit or social impact).

Here’s the important point that I hope is implicit in my column, but that I want to make explicit: for-profit investors and donors are the same people! I’m not suggesting that “for-profit investors” are smarter than philanthropists. I’m saying that when most people put their donor hat on, they also put on some bizarre kind of glasses that make them see the nonprofit world in a completely dysfunctional way. Instead of seeing nonprofits as firms that create value, the way we see for-profit organizations, they see nonprofits as bureaucratic entities that destroy the value of our donation as it travels from us to the “cause” we hope to support. It is only through this Alice in Wonderland looking-glass approach to understanding the social sector that we could possibly justify underpaying nonprofit employees, demanding that nonprofits only spend our donations on their “program”, and worry intensely about “overhead expenses.”

But I am not in the least suggesting that “business people” or “investors” have a better approach. Business people and investors are donors too and they view the nonprofit sector just as bizarrely as other donors. My discussion of how investors understand that for-profits are organizations that produce value is meant as a template for understanding how donors should view nonprofits as organizations that produce value. My additional point is that many of the behaviors that for-profit firms exhibit in their pursuit of maximizing value production (Handsomely rewarding employees in order to attract the best, for instance) are viewed as scandalous in the nonprofit sector.

By Sean Stannard-Stockton | Also posted in Cross-Disciplinary Conversations, Effective Giving, Grantmaking, Philanthropy | Comments (4)

Invest in the Best to Make an Impact

June 30, 2008 – 7:36 am

This is my most recent column from the Financial Times.

Invest in the best to make an impact
By Sean Stannard-Stockton
Published: June 28, 2008 (link to original FT.com column)

Giving money to charity does not necessarily make the world a better place. Nevertheless, most donors believe that donating qualifies as “doing good”. In fact, the gift of money is only the first step in a chain of events that might achieve the elusive goal of creating social impact.

For-profit investors understand this issue. Making an investment does not guarantee a profit; this comes from what a business does with its capital. A result of the belief that the donation itself produces an impact is the idea that non-profit organizations should spend as little as possible on their infrastructure. We see this belief manifest itself when we hear people complain about charities “wasting money”, when press reports grumble about the high salary of an executive director, or when donors are encouraged to focus on a charity’s overhead expenses as a deciding factor on where to give.

Of course, we have a radically different way of thinking about for-profit entrepreneurs. We celebrate the idea of a few people in a garage, with limited resources, inventing the next big thing. We are enamored of the concept that in dorm rooms at Stanford and Harvard, the next Ebay or Facebook is being developed. Implicit in this ideal is the idea that business profits are a product of brilliant people with creative ideas, figuring out how to be successful.

In both business and non-profit work, the critical factors of success are people, ideas and passion. Everything else is secondary. As a nation of stock market investors, we understand this. We are attracted to investment opportunities because of the people leading the company, the ideas for new products or services, and the way the company seems to throw itself at opportunities and relish the chance to compete.

Google lets its engineers spend a day each week working on whatever project catches their interest, and feeds its employees gourmet food in free cafeterias. Google’s stock is up more than 500 per cent since going public less than four years ago. But can you imagine the outcry if a large non-profit let its employees spend 20 per cent of their time on interesting “side projects” or gave them fancy free meals? Never mind that non-profit employees are shamefully underpaid compared with their for-profit counterparts (certainly no stock options for these “do-gooders”). If a non-profit followed Google’s business practices, donors would flee, the media would write exposés and Congress might even investigate.

What a disgrace.

Americans give more than $300bn a year to charity. It is time we reframe what we expect from the non-profits we fund. Let us ask for more innovation, more creativity, more impact. But as a nation of philanthropists, we can not make this demand without holding up our end of the bargain. We need to expect non-profits to hire the best people, and support our donations being spent on competitive salaries. We need to encourage non-profits to take risks, and understand that risk-takers fail sometimes (even frequently). We need to believe that non-profit leaders know best how to achieve their mission, and just as investors do not tell companies how to spend their investment dollars, make the majority of our donations for general operating support.

Imagine the way we could remake our world if non-profit organizations were backed by investors who encouraged them to hire the best people, to poach employees from Silicon Valley and Wall Street, and to bump shoulders with Fortune 500 recruiters at Ivy League career fairs in the fight for the best talent. Imagine the good we could achieve if landing a job at the United Way or the celebrated Teach for America inspired the same joy that getting a high-tech or investment banking job provokes today.

But that will cost too much! We cannot afford it! How can we possibly pay non-profit employees the same rate as for-profit employees?

Here are the facts. According to the Urban Institute, public charities collected $1,600bn in revenue in 2005 and held $3,400bn in assets. These numbers do not include the more than 800,000 small non-profits that are exempt from reporting.

In reframing our understanding of the non-profit sector, we must recognize that we cannot afford not to hire the best people. Fortunately for us, the non-profit sector is teaming with passionate individuals who are innovative enough to figure out how to do their job in such a backward system. Imagine what could be achieved if we transformed our dysfunctional understanding of charity.

As we face the myriad challenges of the 21st century, we must focus our examination of the social sector on identifying the very best people and organizations. We must champion these leaders and invest heavily in their ability to achieve an impact. Just as businesses turn investment dollars into profit, non-profits turn philanthropic dollars into social impact. It is not enough to simply do good, it is time to start funding the best.

The writer is a principal and director of tactical philanthropy at Ensemble Capital Management and author of the blog TacticalPhilanthropy.com.

By Sean Stannard-Stockton | Also posted in Financial Times Column, Philanthropy | Comments (30)

Update on Edna McConnell Clark’s Growth Capital Fund

June 27, 2008 – 1:10 pm

In December of last year I wrote about the growth capital fund being raised by the Edna McConnell Clark Foundation. At the time excerpted a description from a Stephanie Strom article in the New York Times.

A New York foundation that focuses largely on opportunities for low-income youths is creating a fund to help charities become bigger and more efficient.

The institution, the Edna McConnell Clark Foundation, has committed $39 million to the fund and attracted $49 million more from other foundations and individuals, putting it well on its way to achieving its goal of raising $120 million by June…

Yesterday I received an update from Nancy Roob, the CEO of the EMCF (below). I think the key reasons I am excited about this deal is that EMCF believes 1) “we need to explore and test better ways of financing high-performing organizations”, 2) that they are getting co-investors to “fund the same business plan”, 3) that their choice of organizations to fund is based on impact, and 4) that they are committed to “sharing learning”. These are some of the critical themes I have been writing about and that need to be investigated for philanthropic capital markets to come of age.

Bravo to Edna McConnell Clark and their co-investors!

I am extremely pleased to report that, as of June 26, 2008, we and our grantees have succeeded in achieving our goal of raising $120 million for these three organizations.

The grantees and the individual goals they have met are:

1. Nurse-Family Partnership, which has administered for 30 years a scientifically validated home-visitation program that improves the health, development and, eventually, the economic self-sufficiency of children born to first-time, low-income families ($50 million).

2. Youth Villages, which conducts cost-effective, evidence-based interventions, such as multi-systemic therapy, that help youth involved in the juvenile justice and foster care systems stay in or return to their homes ($40 million).

3. Citizen Schools, which improves the academic performance and high-school readiness of low-income, middle-school-age youth by providing rigorous academic support, leadership development, and hands-on learning projects led by volunteer “citizen teachers” and trained staff during after school hours ($30 million).

Of the $120 million total, EMCF trustees committed $39 million. We have been joined by [19 other investors].

Although reaching this goal is significant, it does not represent an end in and of itself. All three organizations will need to continue to raise significant amounts of renewable, reliable private and public funding to execute their growth strategies and achieve long-term sustainability. It is our belief that this initial infusion of $120 million in up-front growth capital will lay the groundwork and pave the way for additional investment and support by others.

We at the Edna McConnell Clark Foundation are most excited about the unprecedented nature and structure of these coordinated co-investments. These are three separately syndicated deals and our partners have joined us in investments of their choosing. What all three agreements have in common is that, in addition to financial support, co-investors have made a commitment to the same set of practices and protocols:

• Funding the same business plan. Grantees developed multi-year business plans with clear performance metrics and a road map showing how an infusion of up-front growth capital from the private sector could lead to longer-term financial sustainability, including new and increased public funding.

• Agreeing to the same terms and conditions for investment. Every investor has agreed to sign a memorandum of understanding that aligns the terms and conditions for each investment. Co-investors will meet as a group quarterly with grantee leadership to review performance. A critical goal here is easing the habitual reporting burden for grantee organizations.

• Adopting a performance-based approach to payout. A common payout schedule is part of the terms of investment and requires that grantees achieve key performance milestones and develop longer-term financing mechanisms at the pace their business plans call for. This should ensure that growth capital is drawn down wisely.

• Ensuring an effective exit. Raising up-front growth capital and spending it down over several years while other reliable and renewable funding streams kick in should ensure that co-investors will be able to exit responsibly and effectively. Although some co-investors may choose at a later date to fund another phase of growth, for now these deals are structured so that all parties involved can exit at their conclusion. Most co-investors, including EMCF, view our commitments as one-time in nature.

• Sharing learning. All co-investors are committed to learning together and being transparent with each other and the public about the pluses and minuses of this syndication model.
The Edna McConnell Clark Foundation’s role in this effort is different from anything we have done before. Although we will not directly manage other funders’ money (all funds flow from individual investors to the grantee), we are responsible for coordinating investor activities, organizing quarterly reports and meetings, and ensuring transparency and information flow between investors and grantees. This role significantly raises the bar for the Foundation in terms of our accountability to our funding partners, our grantees and ourselves.

We launched this pilot initiative because we knew we could no longer “go it alone” if we wanted to finance more effectively over the long run our most promising grantees. We also believe that, on behalf of our philanthropic and other colleagues in the field of youth development who are striving to solve at sufficient scale some of our nation’s most intractable social problems, we need to explore and test better ways of financing high-performing organizations with the potential to change dramatically the life trajectories of greater numbers of economically disadvantaged youth.

By Sean Stannard-Stockton | Also posted in Effective Giving, Foundations, Grantmaking, Information Sharing, Philanthropic Capital Markets, Philanthropy | Comments (0)

Online Grant Applications

June 25, 2008 – 10:10 am

Flaw #9 from the Project Streamline report:

More than 80 percent of the grantmakers who responded to our survey reported that they have taken steps to make their information gathering practices “more efficient and streamlined for nonprofit applicants.”

…Many streamlining strategies have turned out to be useful to foundations and their grantees. Yet others, notably online applications and common grant applications, have produced mixed results, creating new issues for grantmakers and grantseekers alike.

…Common grantmaking forms for application and reporting (here, generically referred to as CGAs), which provide a single set of application and/or reporting questions that a substantial number of funders in a region (or funding area) will accept, have seemed like a logical time and resource saving tool for philanthropy. Yet our research found surprisingly little support for common grantmaking forms as a strategy for effective streamlining. CGAs are accepted (or, much less frequently, required) by 34 percent of foundations that responded to our survey.

Common grant applications is one of those ideas that make so much sense on the surface. But then I think about how any investment manager would reject the concept of having a standard template of information on which to base their decisions. Every person has at least slightly different criteria for making an investment or grantmaking decision.

But investors do have a very important infrastructure in place that philanthropy lacks. Investors in publicly traded markets know that every company will file their financials with the SEC. Unlike nonprofits’ 990s, SEC filings are not documents focused on compliance and IRS driven issues. SEC documents are designed to inform investors (the recent changes to the 990 did move them in this direction). In addition, companies host quarterly conference calls to discuss their business. While every investor has their own criteria for investing, they have a common set of information they can obtain about any company.

But here’s the critical difference. A common grant application means that there is a standard set of information that nonprofits can send to funders. In the stock market, the common set of information is available for investors to go get. This switch from passive receiving of information to proactively going out to find what you want is one of the core changes that the internet (and especially web 2.0) bring to the world. A common grant application misses the whole value of the internet. Instead of having nonprofits fill out and submit lots of grant applications, why don’t they just post a single set of common information for any funder to download? The 990 could serve this purpose, but why should funders let the IRS dictate what information is important? Why can’t the philanthropic community design their own “impact report” template that every nonprofit could complete and keep updated? (I asked Brian Gallagher, CEO of United Way of American, this question in a recent podcast.)

Personally I think that most funders should do away with even accepting most grant requests. I think it would be boring to be deluged with requests, most of which I wasn’t interested in. Sounds like spam to me. I’m much more interested in proactively identifying and researching the investments (for-profit or nonprofit) that I am interested in. It sure would help if I could pull up good information about nonprofits on Google Finance the same way I can pull up good information on stocks!

Update: I should be more clear when I say foundations should not accept grant applications. What I believe is that the system of philanthropy should switch from a system of where nonprofits ask for money to one where funders proactively seek out grantees. I layed this thesis out in a Financial Times column earlier this year. But within the current context, I realize there are ramifications if a single foundation stops accepting requests.

By Sean Stannard-Stockton | Also posted in Effective Giving, Foundations, Fundraising, Grantmaking, Information Sharing, Open Source Philanthropy, Philanthropic Technology, Philanthropy, Social Media, Tactical Philanthropy, nonprofits, nptech | Comments (5)

connec+ipedia

June 23, 2008 – 6:00 am

For some time now I’ve been talking about the need for large foundations to share their knowledge base with the general public. While some people have made this argument from the standpoint of obligations that foundations have to the public, I’ve thought that foundations will find that they are able to more effectively further their own mission by sharing their knowledge base. Since individuals give seven time more money each year than all the foundations in the country combined, it stands to reason that foundations who share their knowledge with the public might influence some of these vast flows of funding to support the mission of the foundations.

Recently the Meyer Memorial Trust, a $700 million+ foundation that has proven innovative in a number of ways, launched an attempt to share their knowledge base with anyone who is interested. The project is called connect+ipedia. Rather than explain the project myself, I asked Amy Sample Ward - Communications and Learning Associate at MMT and author of the foundation’s New Media Blog - to share her thoughts with Tactical Philanthropy.

By Amy Sample Ward

If you are looking for some introductory information about after school programs, for example, and you do a Google search for that term, you would get 40,200,000 results. But, if you use connec+ipedia, you get 111, all of which are cards on the topic or organizations involved in such work. So, what is connec+ipedia?

Let’s start at the beginning: A few years ago, Meyer Memorial Trust (a private, regional foundation based in Portland, OR) recognized the need to explore the world of knowledge management. A full program staff turn over in a short amount of time (with program officers retiring after decades of service) meant an irrevocable loss of institutional knowledge, and the adoption of a knowledge management tool could ensure that such loss did not happen again. Marie Deatherage, Director of Communications & Learning, was tasked with the investigation and discovered that foundations around the country were investing a lot of dollars (millions, even) to develop tools that only the organization could use and that often faced little-to-no staff buy-in.

MMT had shown a commitment to both supporting open source software and to supporting the broader philanthropic and nonprofit sector through grantmaking and other projects, so, when Marie met the two great minds behind Grass Commons who were working on an open source wiki tool that incorporated database functionality, the choice seemed clear. What was also clear to the Trust, was that this wouldn’t be a tool for internal use only, but would be completely open. Other foundations, nonprofit organizations and state agencies were often all working on the same kinds of programatic work, so it would make sense that they should be able to collaborate online, in a way that allowed for sharing of best practices, data, standards, and other information—that these parties should all have access to the same information when working to make informed decisions about work that effected the field.

Wagn is the free, open source software that connec+ipedia runs on, combining the editable functionality of a wiki (like Wikipedia) with ‘tagging’ or referencing functionality of a database. Anyone (with Intern access) can view, search, and read the site. Users (request an invitation!) can edit, create and contribute content, all organized through people, places and things, as well as the intersections between them. Back to the initial example: If you wanted to find out about after school programs, searching Google may be too much information. Searching on connec+ipedia, instead, could mean a more easily digestible avenue to tailored information. Users from across MMT’s service area and beyond, in foundations, nonprofits, state agencies, as well as corporations and public citizens are already making connec+ipedia a resource. The Oregonian has even gotten behind it!

By Sean Stannard-Stockton | Also posted in Foundations, Information Sharing, Open Source Philanthropy, Philanthropic Technology, Philanthropy, Social Media, Transparency, nptech | Comments (2)

Due-Diligence Redundancy

June 19, 2008 – 1:15 pm

Flaw #8 from the Project Streamline report:

Since it is difficult to determine exactly what is needed for due diligence (and since the list regularly changes), grantmakers tend to play it safe at the recommendation of their legal and financial advisors, requiring redundant and often unnecessary documentation from grantseekers. According to one foundation focus group participant, the foundation’s auditors give such confusing and contradictory advice that “we just make everyone go through the same process just in case, even though it seems like a waste of time for some of these grants.”

For example, the Tax Determination Letter—the original letter from the Internal Revenue Service (IRS), establishing an organization’s tax status—does not prove that the organization is still in good standing with the IRS. The only real way for grantmakers to verify an organization’s standing is to research the nonprofit before each payment to be sure that the letter has not been rescinded. The IRS suggests that granting organizations either access the Business Master File (a file that is updated monthly) from the IRS, or rely on a third-party (such as GuideStar’s Charity Check) to verify that the organization remains in good standing. However, most grantmakers, often at the insistence of their legal and/or financial counsel, continue to collect the Tax Determination Letter for each grant request.

“I know that we could stop asking for the IRS letter, and could use a system like GuideStar. However, our auditors ask for the tax letter to be in each file!”
—Grantmaker

I’m an advisor to foundations and other grantmaking entities. I want to help them be as efficient and effective as possible. But more than anything, I want to make sure they do not get into any trouble. Even though my firm is not directly charged with managing their compliance, I do everything I can to help my clients gain access to the tools and services they need to insure they never run afoul of the IRS. So I understand why this “flaw” exists.

It seems to me that one of the solutions to this sort of issue rests in the idea of nonprofit “stock exchanges”. I’m not convinced that there is a viable concept behind the idea of nonprofits “trading” on an exchange. But I do think that an “exchange” could emerge that would essentially make the promise to funders that listed nonprofits had passed a level of due diligence to qualify and were required to submit regular documentation of their ongoing compliance. It would not be the responsibility of the exchange to judge the impact of the nonprofit (that would be the funders job, just like the New York Stock Exchange does not suggest that every company is a good investment). But at least funders could dispatch with all the run of the mill due diligence and the IRS could extend a sort of safe harbor to funders who gave to listed nonprofits.

I wrote more about this idea in the Financial Times column titled The Donor Landscape of 2033 is Bright.

By Sean Stannard-Stockton | Also posted in Effective Giving, Foundations, Grantmaking, Information Sharing, Philanthropy, Transparency, nonprofits | Comments (1)