Transparency Talk

Category: "Credibility" (26 posts)

Warren Buffett Has Some Excellent Advice for Foundations That They Probably Won't Take
March 16, 2017

(Marc Gunther writes about nonprofits, foundations, business and sustainability. He also writes for NonprofitChronicles.com. This post also appears in Nonprofit Chronicles.)

This post is part of a new Transparency Talk series devoted to putting the spotlight on the importance of the 990PF, the informational tax form that foundations must annually file.  The series will explore the implications of the open 990; how journalists and researchers use the 990PF to understand philanthropy; and its role, limitations, and potential as a communications tool. 

Marc GuntherWith a collective $800 billion in assets under management, America’s big foundations spend vast sums of money to buy investment advice. They’re getting little, if anything, of value in return.

Their own investment offices, and the Wall Street banks, hedge funds, private equity firms and consultants they hire, when taken together, deliver investment returns that lag behind market indexes, all evidence indicates.

These foundations would do better to call an 800 number at Vanguard or Schwab and buy a diversified set of low-cost index funds.

So, at least, argues Warren Buffett, one of the great investors of our time. In his latest letter to investors in Berkshire Hathaway, Buffett writes:

When trillions of dollars are managed by Wall Streeters charging high fees, it will usually be the managers who reap outsized profits, not the clients. Both large and small investors should stick with low-cost index funds.

The limited data available about foundation endowments bears him out.

It’s not possible to prove that Buffett’s advice would enable foundations to improve their returns–and thus have more money to devote to their grant-making. Most foundations don’t disclose the financial performance of their endowments.

Of the 10 largest grant-making foundations in the US, only two — the MacArthur Foundation and the W.K. Kellogg Foundation — publish investment returns on their websites. MacArthur’s disclosure is exemplary. (So is its performance, perhaps not coincidentally.) I emailed all ten and got nowhere with the rest.

The best evidence about how foundations are managing their endowments comes from an annual study published by the Council on Foundations and Commonfund, a nonprofit asset management fund that serves foundations, colleges and nonprofits. Their most recent survey, which covers the 10-year period from 2006 through 2015, found that returns averaged 5.5 percent per year for 130 private foundations and 5.2 percent per year for 98 community foundations.

Further insight can be gleaned from Cambridge Associates, an investment firm whose clients include foundations, universities and wealthy families. Cambridge tracked the performance of 445 of its endowment and foundation clients and found they generated average annualized returns of 4.97 percent for the 10-year period ending June 30, 2016. (These returns should not be considered Cambridge’s performance track record, a spokesman told me.)

High pay for money managers does not necessarily translate into superior returns for foundations.

By contrast, Vanguard’s model portfolio for institutional investors, a mix of passively invested index funds, with 70 percent invested in stocks and the rest in fixed income securities, delivered 5.81 percent over the 10-year-period through 2015, and 6.1 percent for the 10-year period ending on June 30, 2016, according to Chris Philips, head of institutional advisory services at Vanguard. (All figures for investment returns are net of fees, meaning fees are taken into account.)

That may appear to be a small edge for Vanguard. But when institutions are investing hundreds of millions, or billions of dollars, small gains compounded over time add up to big money. Money, again, that could be better spent on programs.

Actually, it’s worse, because the figures reported by the Council on Foundations and CommonFund do not include the salaries that foundations pay to their in-house investment offices. The chief investment officers are often the highest-paid executives at foundations, and their deputies do well, too.

Why, then, do foundations continue to pay high salaries and high fees in the pursuit of market-beating returns, when so many fail?

They should know better. It’s no secret that passive approaches to investing outperform most active money managers, once fees and trading costs are taking into account. In 2005, Buffett wrote that “active investment management by professionals – in aggregate – would over a period of years underperform the returns achieved by rank amateurs who simply sat still.”

Taking aim at hedge funds, with their high expenses, Buffett then offered to bet $500,000 that no investment professional “could select a set of at least five hedge funds – wildly-popular and high-fee investing vehicles – that would over an extended period match the performance of an unmanaged S&P-500 index fund charging only token fees.”

Only one — one! — investment pro took the bet. Not surprisingly, Buffett will win the bet, by a very comfortable margin. And yet foundations and those who advise them are pouring more, not less, money into hedge funds.

Everyone Wants to Be Special

Buffett has a theory about why those in charge of foundations entrust their endowments to active money managers and hedge funds:

The wealthy are accustomed to feeling that it is their lot in life to get the best food, schooling, entertainment, housing, plastic surgery, sports ticket, you name it. Their money, they feel, should buy them something superior compared to what the masses receive.

In many aspects of life, indeed, wealth does command top-grade products or services. For that reason, the financial “elites” – wealthy individuals, pension funds, college endowments and the like – have great trouble meekly signing up for a financial product or service that is available as well to people investing only a few thousand dollars.

Vanguard’s Chris Philips has a similar theory:

There is this perception that by going index you are ceding that you do not have any skill and you are going to be average in the marketplace. That doesn’t feel good. As humans, we want to be good. We don’t want to be average.

Foundation executives may be especially prone to believe that they deserve better than “average” investment advice. By dint of their position, they are often told that they are wiser, funnier and better-looking than average.

Jeffrey Hooke, a senior lecturer at the Johns Hopkins Carey Business School and a former investment banker, says the trustees of foundations who serve on their investment committees are likely to favor active asset management.

The people on the boards tend to be in the business. They’re private equity executives, they’re stockbrokers or they’re in hedge funds. They’re totally biased in favor of active managing because that’s how they’ve made their living.

Hooke has researched public pension funds and found that they, too, underperform the markets by choosing active managers. Investment officers don’t want to talk themselves out of a job, he says:

They are never going to walk into the boardroom and say, ‘Hey, it just isn’t working.’ They’ve got wives, they’ve got mortgages they’ve got kids.

These investment officers aspire to be the rare bird who can consistently outperform the market, like David Swensen, the storied portfolio manager at Yale. (I profiled Swensen in 2005 for the Yale Alumni Magazine.) But Swensen, like Buffett, says that identifying the best asset managers is exceedingly difficult. In a 2009 interview, Swensen told me that investors who rely on “low-cost, passively managed index funds” and rebalance regularly will “end up beating the overwhelming majority of participants in the financial markets.” Buffett has said that in the course of his lifetime he has identified only about 10 investment professionals who can beat the markets over time; there are about 87,000 foundations in the US.

Pay for Performance?

In fairness, the foundation trustees and investment officers labor under a peculiar burden. They are obligated by law to give away five percent of their assets every year. So if they want to exist in perpetuity, they must earn in excess of five percent on their investments, which is a tall order. Of course, no foundation is entitled to live forever. If some spend down their assets, well, new foundations come along all the time.

Most foundations, though, aim to survive in perpetuity, and chase superior returns, at a cost. Consider, for example, the Ford Foundation, which, with assets of $12.2 billion (as of 12-31-2015), is the second-biggest foundation in the US, behind the behemoth Bill & Melinda Gates Foundation.

In 2015, the Ford Foundation’s highest-paid employee was vice president and chief investment officer Eric Doppstadt, who was paid $2.1 million. He was followed by  director of public investment Michael Walden at $1,017,061, director of private equity Sherif Nahas at $972,362 and director of hedge funds William Artemenko at $955,479. All were paid more than Darren Walker, Ford’s president, whose compensation was $788,542, according to Ford’s Form 990-PF filing,

Then there were Ford’s outside asset managers. In 2015, they included Silchester International Equity Management which was paid $2.2 million, Wellington Energy Investment Advisor, which collected just under $2 million and Eagle Capital Management, which got $1 million.

How did they perform? “Sharing the investment returns is outside of our policy,” says Joshua Cinelli, Ford’s chief of media relations, by e-mail.

In this, Ford is typical. At the David and Lucille Packard Foundation, chief investment officer John Moehling was paid $2.3 million, and three other investment professionals earned more than $1 million. All were better paid than Packard’s chief executive, Carol Larson. Packard, too, will not disclose its returns.

The Robert Wood Johnson Foundation, William and Flora Hewlett Foundation, Gordon and Betty Moore Foundation and MacArthur Foundation all pay their chief investment officer more than their top executives. The argument for doing so, presumably, is that these investment professionals could make as much money or more in the private sector.

But, again, with the exception of MacArthur and Kellogg, the foundations won’t say whether their investment officers and their outside asset managers are delivering market-beating performance.

What we do know is that high pay for money managers does not necessarily translate into superior returns. Interestingly, when pension-fund critic Jeff Hooke analyzed data from 33 state pension systems, he found that the 10 states with the highest fee ratios achieved lower return rates than those that spent the least.

Transparency and Accountability

Foundation endowment returns could probably be calculated by going through years of IRS filings. Unfortunately, the Form 990-PF tax form for foundations is “seriously flawed,” “unwieldy” and “unintelligible to the many lay readers, including trustees and journalists,” according to longtime foundation executive John Craig.

In a 2011 blog post for the Foundation Center, Craig lamented the fact that investment performance is not solicited on the Form 990:

Since their endowments are the only source of income for most foundations and effective endowment management is a challenge for many foundations, this is an egregious omission—equivalent to not requiring for-profit corporations to report their earnings on tax returns and financial statements.

I asked Brad Smith, president of the Foundation Center, which promotes transparency through its laudable Glasspockets initiative, why foundations won’t disclose their investment returns. “They don’t report it because it’s not required,” he said, “to state the obvious.”

Smith went on to say that foundations may be “worried about perverse incentives that could be created by a ranking.” If foundations compete to generate the best investment returns, he explained, they could feel pressured to take on risky investments. During the Great Recession, some foundations that pursued aggressive investment strategies had to sell highly-leveraged, illiquid investments at a loss. 

Still, I wonder if there’s a simpler explanation for the lack of disclosure: Foundation staff and trustees don’t want to be held accountable for mediocre results.

If MacArthur and Kellogg are exemplary in their disclosure — Kellogg kindly arranged a phone interview with Joel Wittenberg, its chief investment officer —  the Gates and Bloomberg foundations are unusually opaque. Gates Foundation money is housed in a separate trust and is reportedly managed by Cascade Investments, which also manages Gates’ personal fortune. (Buffett is a trustee of the Gates Foundation, and presumably keeps an eye on the endowment.) Bloomberg’s philanthropic and personal wealth are reported to be managed by Willett Advisors. Cascade and Willett have access to some of the world’s top money managers, and may have a shot at outperforming the averages.

This isn’t a new issue. Testifying before Congress in 1952, Russell Leffingwell, the chairman of the board of the Carnegie Foundation, famously said:

We publish our investments. We have to be very careful about our investments because we know that others, some others, take investment advice from our list of investments. Well, that is all right. We think the foundation should have glass pockets.

The bottom line: America’s foundations, as a group, are taking money that could be devoted to their programs – to alleviate global poverty, to improve education, to support medical research or promote the arts — and transferring it to wealthy asset managers. They should know better, and they do.

--Marc Gunther

Glasspockets Find – Can the Silicon Valley Giving Code Be Cracked?
December 21, 2016

The fast and furious pace of Silicon Valley’s tech innovation culture has also given rise to burgeoning new wealth, and yes, new philanthropy.  From 2008 to 2013, total Silicon Valley-based individual giving increased 150%, from $1.9 billion to $4.8 billion, according to a new report. But how do established nonprofit groups make contact with the new philanthropic powerhouses in the neighborhood?

“Just blocks away from the region’s booming tech companies but (local nonprofits) aren’t sure how to attract Silicon Valley’s philanthropy to their causes.”

This question is at the heart of the new report, “The Giving Code: Silicon Valley Nonprofits and Philanthropy,” documenting the rising challenge local Silicon Valley nonprofits face in attracting funding from some of the world’s most generous funders – right in their own backyard.  Despite this wealth of local resources, about 30% of the community-based organizations focused on providing local safety net support – such as homelessness, poverty, troubled public schools – reported higher deficits than the national average.

The authors noted the region is developing an “emerging giving code – an implicit set of strategies and approaches shared by Silicon Valley’s individual, corporate, and institutional philanthropists alike.”  This approach to giving is “widely shared among the region’s new philanthropists” and heavily influenced by technology and business. 

Giving Code Report CoverWith support from The David and Lucile Packard Foundation, Open Impact gathered data from more than 300 Silicon Valley stakeholders, such as wealthy residents and their advisors, nonprofit executives, corporate and private foundation giving officers, and thought partners across all sectors. 

A key issue raised in the report: Although Silicon Valley philanthropists give funds to local issues and causes, most but most are earmarked for private schools, universities and hospitals rather than for community-based organizations. 

The report stated, “These nonprofits are struggling to keep pace with exponential increases in demand for their services, lack the capacity and the funding to gain real traction, or are themselves in financial distress.  Some have offices just blocks away from the region’s booming tech companies—but they aren’t sure how to attract Silicon Valley’s philanthropy to their causes.  The support they need to have more systemic impact is often right next door, but it is not a door they know how to open.”

Silicon Valley Demographics

Although the Silicon Valley boasts a growing number of millionaires and billionaires, many of its 2.6 million residents are facing financial distress due to the high cost of living. About 29.5% or 800,000 people rely on public or private assistance.  The median sale price of a home in 2015 was $830,361, and in some neighborhoods, homes are two or three times that price.  Since 2011, rents have increased 27%, which is 227% higher than the national average.

Many of Silicon Valley’s community-based organizations operate on a small scale and are doing their best to meet the needs of a growing displaced and vulnerable population.  These organizations have little time, capacity or resources to advocate for systemic change – which appeals to many philanthropists seeking strategic impact.

Barriers to Local Giving

The report identified barriers to local giving:

  • The small size of community-based nonprofits, which have minimal capacity to partner with foundations, corporations and individual donors in the ways philanthropists expect or meet requirements that come with large grants.
  • The cultural divide between the new Silicon Valley donor and traditional nonprofits. Many Silicon Valley donors have business backgrounds and prefer a “return on investment”; they believe they will have more impact in a developing country, where costs and barriers are often low.
  • Knowledge and information gaps – local nonprofits do not know how to make contact with the new donors on the philanthropic scene; and new philanthropists lack awareness of local nonprofits and local needs.
  • Social network and experience gap – community-based nonprofit leaders and new philanthropists “don’t move in the same social circles.”
  • Mindsets and language gap – nonprofit leaders speak a kind of “moral language that emphasizes social responsibility, social justice, equity and the common good” and they use jargon like “empower,” “transformation,” and “theory of change.” Meanwhile, new philanthropists and donors speak in the language of “business, efficiency, and bottom-line profits… they talk about the ‘biggest bang for the buck’ not just in business but in their philanthropy.”

The authors noted that the combination of these gaps – knowledge and information gap, social network and experience – contribute to and reinforce an empathy gap that is felt by both sides.  Therefore, wealthy tech entrepreneurs don’t understand nonprofit leaders, and vice versa, which may lead to judgment and ultimately make it more difficult to “recognize how their work, their passions, their skills, and insights might align for the betterment of their shared local community.”

This report also captures hope amidst struggle.  This hope may be best manifested by the funder of the report, the David and Lucile Packard Foundation, which was one of the very first Silicon Valley philanthropies to emerge in the region.  The foundation was established in 1964 following the birth of the Hewlett-Packard Company, which was ahead of the curve, i.e. the now familiar trajectory of moving from garage shop tinkering to tech powerhouse. Today, despite being a large, global foundation, the Packard Foundation maintains an active grantmaking program that supports local communities.

The report concluded that potential opportunities to develop a more effective and collaborative Giving Code will “spark the creation of an even more powerful Silicon Valley giving code: one that works on behalf of all the region’s residents.”

--Melissa Moy

The Foundation Transparency Challenge
November 2, 2016

Janet CamarenaI often get asked which foundations are the most transparent, closely followed by the more skeptical line of questioning about whether the field of philanthropy is actually becoming more transparent, or just talking more about it.  When Glasspockets launched six years ago, a little less than 7 percent of foundations had a web presence; today that has grown to a still underwhelming 10 percent.  So, the reality is that transparency remains a challenge for the majority of foundations, but some are making it a priority to open up their work. 

Our new Foundation Transparency Challenge infographic is designed to help foundations tackle the transparency challenge. It provides an at-a-glance overview of how and why foundations are prioritizing transparency, inventories common strengths and pain points across the field, and highlights good examples that can serve as inspiration for others in areas that represent particular challenges to the field. 

Trans challenge_twitter1-01

Using data gathered from the 81 foundations that have taken and shared the “Who Has Glass Pockets?” transparency assessment, we identified transparency trends and then displayed these trends by the benefits to philanthropy, demonstrating the field's strengths and weaknesses when it comes to working more openly.

Transparency Comfort Zone

Despite the uniqueness of each philanthropic institution, looking at the data this way does seem to reveal that the majority of foundations consider a few elements as natural starting points in their journey to transparency.  As we look across the infographic, this foundation transparency comfort zone could be identified by those elements that are shared by almost all participating foundations:

  • Contact Information
  • Mission Statement
  • Grantmaking Priorities
  • Grantmaking Process
  • Key Staff List

Transparency Pain Points

On the flip side, the infographic also reveals the toughest transparency challenges for philanthropy, those elements that are shared by the fewest participating funders:

  • Assessments of Overall Foundation Performance
  • Diversity Data
  • Executive Compensation Process
  • Grantee Feedback
  • Open Licensing Policies
  • Strategic Plans

What’s In It for Me?

Community of Shared LearningOnce we start talking about the pain points, we often get questions about why foundations should share certain elements, so the infographic identifies the primary benefit for each transparency element.  Some elements could fit in multiple categories, but for each element, we tried to identify the primary benefit as a way to assess where there is currently the most attention, and where there is room for improvement. When viewed this way, there are areas of great strength or at least balance between strengths and weaknesses in participating foundations when it comes to opening up elements that build credibility and public trust, and those that serve to strengthen grantee relationship-building.  And the infographic also illustrates that philanthropic transparency is at its weakest when it comes to opening up its knowledge to build a community of shared learning.  For a field like philanthropy that is built not just on good deeds but on the experimentation of good ideas, prioritizing knowledge sharing may well be the area in which philanthropy has the most to gain by improving openness. 

“The reality is that transparency remains a challenge of foundations, but some are making it a priority to open up their work.”

And speaking of shared learning, there is much to be learned from the foundation examples that exist by virtue of participating in the “Who Has Glass Pockets?” assessment process. Our transparency team often receives requests for good examples of how other foundations are sharing information regarding diversity, codes of conduct, or knowledge sharing just to name a few, so based on the most frequently requested samples, the infographic links to actual foundation web pages that can serve as a model to others.

Don’t know what a good Code of Conduct looks like?  No problem, check out the samples we link to from The Commonwealth Fund and the Alfred P. Sloan Foundation. Don’t know how to tackle sharing your foundation’s diversity data?  Don’t reinvent the wheel, check out the good examples we flagged from The California Endowment, The Rockefeller Foundation, and Rockefeller Brothers Fund. A total of 19 peer examples, across seven challenging transparency indicators are offered up to help your foundation address common transparency pain points.

Why did we pick these particular examples, you might ask?  Watch this space for a follow-up blog that dives into what makes these good examples in each category.

#GlasspocketsChallenge

And more importantly, do you have good examples to share from your foundation’s transparency efforts? Add your content to our growing Glasspockets community by completing our transparency self-assessment form or by sharing your ideas with us on Twitter @glasspockets with #GlasspocketsChallenge and you might be among those featured next time!

--Janet Camarena

 

The Annual Report is Dead. Long Live the Annual Report!
October 13, 2016

(Neal Myrick is Director of Social Impact at Tableau Software and Director of Tableau Foundation, which encourages the use of facts and analytical reasoning to solve the world’s problems. Neal has served in both private and nonprofit senior leadership positions at intersection of information technology and social change.)

Neal Myrick photoMaybe it is the headlines from the campaign trail, but I’ve spent a lot of time lately thinking about philanthropy, impact, and accountability.

As the head of Tableau Foundation, I’m responsible for ensuring that we embody the values our employees have entrusted us to uphold. My team and I are accountable to the thousands of people who make up Tableau, and to the tens of thousands of Tableau customers and partners who are passionate about using data to drive change.

The question I’ve been wrestling with is not if we should tell our story, but how. How can we share what’s been accomplished in a way that is both timely and true without taking credit for someone else’s work? Moreover, how can we do all of this while still being a good steward of the company’s resources?

Annual_Report_Open_ThumbnailThat’s why I’m pleased to share the Tableau Foundation’s brand new Living Annual Report. We’ve ditched the traditional, glossy printed annual report for a live report so anyone can get near real-time information on what we’re doing around the globe.

The Living Annual Report gives our stakeholders better, more timely information while reducing the investments of staff time and resources of a traditional printed report. It pulls information from the same data sources we use every day. The report updates weekly, and most pages have interactive capabilities that allow anyone to explore the data.

The Report doesn’t just take look back at what we’ve done, either. It is also helping us chart the course ahead.

Earlier this year we adopted the UN’s Sustainable Development Goals (SDG) as a framework for setting our priorities and measuring progress. While the 17 Goals themselves are expansive, the 230 underlying indicators help us organize our activities and approach partnerships with a clear sense of what we’re trying to achieve.

SDG breakdown

Page 3 of the report shows the latest breakdown of Tableau Foundation grants by goal.

We recognize that we’re capacity builders, and that the issues we’re trying to effect require much larger collaborative efforts. After all, the problems we’re trying to solve are multidimensional, so why should the solutions be different?

Almost immediately, real-time transparency around priorities led to more relevant and constructive conversations with potential partners.  We are finding more opportunities to deploy our two most valuable resources - our products and our people – to help people around the globe use facts and data to solve some of the world’s toughest challenges.  

And somewhere in putting the report together, it became about something bigger. We started to see the Report as a model that shows foundations and nonprofits that they don’t have to spend substantial resources printing reports that are outdated the moment they are printed.

The purpose of a foundation or nonprofit’s annual report is to persuade decision-makers – funders, board members, partners, lawmakers – to take action. But if the information in the report is outdated, how can those people make choices that lead to real impact?

“We’ve ditched the traditional, glossy printed annual report for a live report with near real-time information on what we’re doing around the globe.”

This is not to say we should sacrifice storytelling. On the contrary, interactive charts and graphs sitting seamlessly alongside photos, videos, testimonials, and one-click calls-to-action can create a holistic engagement experience far beyond what a static printout might do. 

My real hope is that our report will inspire others to ditch the glossy paper and to get on board with the real purpose of the report – sharing actionable, up-to-date information with those in a position to take action. Some already have. Heron Foundation has been reporting on their portfolio through data visualizations for several years now. The Foundation Center’s Glasspockets transparency assessment tools and Foundation Maps are bringing sector-wide insights to grantmaking. And after seeing our Living Annual Report, others tell me they’re not far behind.

Imagine talking to a Development Director, for example, and being able to explore an interactive, near-real-time annual report to help you understand how your investment in the organization is having impact?  Not “as-of last May” when a traditional annual report would have been printed, but as-of last week? As a funder, we can and should lead by example.

Which brings me back around to the idea of impact and accountability. To do our work well, we have to share timely information. This means sharing what we are doing, showing how our resources are being spent, and being responsible for the progress… or possibly lack thereof.

This level of accountability can be uncomfortable sometimes, but is necessary to establish more constructive partnerships based on trust, set ourselves up to learn from the data, and ultimately do more impactful work.

As the work grows and changes, this report will change with it. And we’re continually making improvements and all suggestions are welcome – feel free to email us anytime at foundation@tableau.com with any feedback.   

--Neal Myrick

Flooding the Locks: Philanthropy’s Knowledge Conduits
August 3, 2016

 Panama Canal Authority Photo 3

(Adriana Jimenez is grants manager at the Surdna Foundation and also serves on the board of directors of the Grants Managers Network.  She is a regular Transparency Talk contributor and discusses issues pertaining to transparency, data, and grants management.)

Adriana ImageThe Panama Canal expansion project opened last June following several delays and controversies. It was a risky bet with promising outcomes.

While the expansion aimed to improve global trade by doubling the canal’s capacity, it now runs the risk of failure from faulty design. The project was wrought with conflicts of interest, imprecise data, and dubious processes; its stakeholders consider critiques of the canal “unpatriotic,” reluctant to learn from mistakes.

Uniquely positioned to embrace risk, foundations should tread outside their comfort zone to achieve large-scale, systemic change; but they should also learn from the Panama Canal’s massive gamble. When making big bets, transparency, data-informed decisions, accountability, and clarity of process lead to better outcomes. “Success” means having honest conversations about what’s working and what’s not, rather than aiming for perfection.

As foundations move to take on more risk — including increased knowledge-sharing and openness, advocacy funding, financial risk, and impact investing — they will need to operate with greater transparency and accountability. Their staffing functions will evolve to support them in this process. The field of grants management is already shifting in this direction. At many organizations, grants managers are pushing for increased innovation, transparency, collaboration, and improved systems that will lead to more impact.

“Uniquely positioned to embrace risk, foundations should tread outside their comfort zone to achieve large-scale, systemic change.”

From Data Processing to Knowledge Management

Grants management is changing from a process and compliance role to one that focuses on data analysis, information sharing, and knowledge management. According to the 2016 Grants Managers Network Salary & Jobs Survey, grants managers now spend approximately 25% of their time on functions of information/knowledge, evaluation, and strategy (with an additional 14% on data management), and only 10% on compliance and 11% on administrative support.

This evolution has occurred naturally as grants managers work with larger amounts of data, fueled by increasingly powerful technological platforms and processing power. Within this change, we are moving up the ladder on the Data, Information, Knowledge and Wisdom Pyramid from merely processing data, to helping foundations analyze it and convert it into valuable, meaningful information and knowledge. As grants managers, we now play a key role in strategy by facilitating smarter, data-informed grantmaking.

GMNsalarysurveycover-768x994Like the locks of a canal, grants managers ensure that the right data flows out of our organizations at the right time. We are on the frontlines of providing data and information for external surveys; 990 tax returns; mapping tools; annual reports; foundation websites and searchable public databases; etc. We may also participate in collaborative efforts such as the Foundation Center’s e-Reporting and hGrant, or help implement the principles of IssueLab’s Open Knowlege (for example, by appropriately coding and tagging data, and linking our grants management systems with open repositories for knowledge-sharing, analysis and learning; or by adding open-licensing requirements to our grant contracts). The data and information we deliver allows foundations to deepen impact through collaboration with the field.

Supporting Instinct: Data-Driven Grantmaking Policies

Grants managers can also help foundations set internal policies and procedures that are driven by data, not just habit or inertia. For example, statistics showing a low percentage of grants to new organizations might trigger a change in a funder’s letter of inquiry process to promote more openness through Requests for Proposals (RFPs). Other data might be used to assuage fear of change or generate internal buy-in at the board and/or staff levels. In many cases such data supports — not contradicts — staff and boards’ instinct for change, and leads to increased openness and trust by demonstrating that policy decisions are not arbitrary.

“‘Success’ means having honest conversations about what’s working and what’s not, rather than aiming for perfection.”

At the Surdna Foundation, three years of grantmaking data were used to show that transitioning a portion of the grants approval process from quarterly board approvals to monthly delegated grant approvals would streamline operations, liberate time for “bigger-picture” learning, and benefit grantees by eliminating five weeks from the proposal review process.

In 2014, The William and Flora Hewlett Foundation internally reviewed ten years of grantmaking data and discovered a drop in the average duration of its overall grants. To offset this trend, the Foundation’s grants management team used this data point to advocate with their board for the creation of a “Duration Fund” that would renew Hewlett’s commitment to multi-year support, reduce grantee uncertainty, and lessen administrative burdens. Likewise, statistics showing a lower-than-expected percentage of general operating support grants triggered a conversation around increasing unrestricted support --- when used appropriately to advance strategy --- in accordance with the Foundation’s values. Since embarking on its initial ten-year review, Hewlett’s grants management team has been spearheading the assessment of its grantmaking data each year to identify areas for foundation-wide policy improvements.

Tracking Diversity Data

Grants managers are playing a key role in the movement to increase transparency around diversity in philanthropy. By collecting demographic data (including race, ethnicity and gender) about the staff and board composition of their grantees, foundations can hold themselves accountable to values of diversity, equity and inclusion in their grantmaking portfolios, and make progress towards mission and goals.

Trends tweetC 1024x512Many grants managers are leading the process of collecting, structuring, and sharing this aggregate data (often based on D5 Coalition principles) with organizations such as GuideStar and Foundation Center, bringing greater transparency and understanding of diversity in foundation giving. Diversity data can also help funders track how organizations and fields evolve over time, and contribute to the broader body of public information about trends among nonprofits.   

Glasspockets includes Diversity Policies and Diversity Data indicators in its Transparency Trends tool. According to these indicators, 46% of participating foundations make their diversity policies publically available, and 7% share information on the demographics of their own staff and boards (The James Irvine Foundation, for instance, includes this information as an infographic on its annual report).

Legal and Financial Compliance: Pushing the Boundaries of Risk

Transitioning to a more strategic, knowledge management-based role has helped grants managers keep sight of the end goal of their compliance functions, i.e., to create greater impact. Contrary to the perception of compliance as a “risk-averse” function, many grants managers are using the due diligence process to maximize their foundations’ boldest efforts, pushing for greater risk-taking and transparency. In this context, our role is to assess, communicate, and document risk --- not avoid it --- to help foundations make informed decisions about potential rewards and trade-offs.  This shift has occurred as grants managers are increasingly included in strategic conversations “upstream” with program staff and senior leadership.

Advocacy funding is one example. Due to common fears and misconceptions around 501(c)3 lobbying limitations (and certain funders’ hesitation to support these expenses), grantseekers sometimes conceal activities linked to the dreaded “L” word in their proposals.  Foundations should encourage the opposite. With a nuanced understanding of the rules of nonprofit lobbying and advocacy funding, grants managers can foster honesty and openness with applicants about their proposed activities, clarify legal limitations, and encourage lobbying where appropriate as a critical tool towards achieving positive systemic change.

Throughout the due diligence process, grants managers can also advise grantees and program staff on financial issues, and lead constructive discussions with grantseekers to build trust and set expectations from the onset.

Rather than reducing organizations to a set of ratios or denying funding based on numbers, we can advise on alternate ways to structure a grant to provide greater impact (such as providing a capacity-building grant or using a fiscal sponsor). Many of these scenarios require creativity and flexibility to make the grant viable despite all obstacles; some funding may also be riskier in nature (such as exercising expenditure responsibility in countries opposed to civil society, or supporting new entities with no financial track record), but nonetheless more effective.

CEP-Investing-and-Social-ImpactImpact Investments: The Riskiest Bet

The move toward impact investments has arguably been one of philanthropy’s biggest bets as foundations struggle to maintain the balance between purpose and perpetuity (or timely spend-down). According to the Center for Effective Philanthropy’s 2015 Investing and Social Impact report, 41% of foundations now engage in impact investing (including Mission-Related Investments and Program-Related Investments), and another 6% plan to do so in the future. This shift has substantial implications for the staffing of foundations, and some are tapping into the skills of grants management to fill the gaps.

In particular, grants managers are playing a key role in the due diligence process for Program-Related Investments (PRIs), transferring our knowledge and skills from the financial compliance processes. We are also building out systems to track and monitor loan repayments and reporting. Through these functions we act as a bridge between finance and programs, contributing towards organizational learning and mission.

As a leader in the impact investment space, the Kresge Foundation was the first to develop a PRI module in Fluxx (now available to all Fluxx users) to better capture the nuances and complexities of PRIs.  The build out was led by the Foundation’s Program Operations and Information Management department (formerly known as its grants management department, but recently renamed to reflect the totality of its strategic functions).

Transferring PRIs into Kresge’s grants management system has made the Foundation’s processes more transparent, says Marcus McGrew, Director of Program Operations and Information Management: “All of the Foundation’s work that lived in people’s heads has now been consolidated into one data management platform.”

Transparency of PRIs and other impact investments will become increasingly critical as 990 tax returns are now available as machine-readable, open data, and as the line between endowment and program strategies continues to blur.

Like the philanthropic sector, success of the Panama Canal will depend on leaders’ humility and willingness to learn from failure. This will require implementing best practices to ensure the locks flow as intended. If transparency and accountability matter for the world’s greatest engineering feat, they matter for philanthropy.

--Adriana Jimenez

What's Your Story?: Q&A with Kenneth Rainin Foundation's Amanda Flores-Witte
July 21, 2016

(The Kenneth Rainin Foundation, which recently joined the Glasspockets transparency movement, shares how innovation, technology and creativity played a role in telling its story in its annual report. Janet Camerena is director of transparency initiatives at Foundation Center. Amanda Flores-Witte is senior communications officer at Kenneth Rainin Foundation.)

Janet Camarena: Increasingly, foundations are wondering whether there is still a need for the time and expense of issuing an Annual Report. The thinking goes that with the advent of informative foundation websites, that perhaps the annual report is an antiquated ritual. The Kenneth Rainin Foundation recently updated this ritual by issuing its Turning Points 2015 Year in Review as an entirely online resource, creatively using video and the Medium platform to tell the story of the road you traveled last year. Can you begin by telling us why your foundation determined the annual report exercise, whatever the format, was still a worthwhile one?

Amanda Flores-WitteAmanda Flores-Witte: When we set out to work on any project, our aim is never to do something solely because it is expected or because we did it that way last time. We get curious and ask questions, while revisiting our goals and keeping transparency in mind. This is exactly the approach we took when thinking about our year in review. We challenged ourselves to think creatively about how we could best share our story while highlighting the work of our grantees and partners.

Fortunately, technology has breathed new life into annual reports by offering a variety of tools, platforms, and formats, and more innovative ways to share information and engage readers. We felt that a summary that highlighted the year's activities-or captured the turning points in each program area-would be a valuable tool for people to get to know the Kenneth Rainin Foundation and learn about our progress. We thought an online report would allow us the flexibility to present our story in an interactive format using text, photos, audio and video, and make the report more interactive. We know that people engage with content in different ways and use a variety of devices to access it, so it was important for us to also have the ability to leverage our assets and promote the report on social media, our website and our newsletter.

JC: The Kenneth Rainin Foundation emphasizes innovation, and the word "cutting edge" comes up a lot throughout the organization, including in the mission. I imagine this must set the bar pretty high - that your own communications be cutting edge? Beyond the Annual Report, are there other ways that you try to live up to that "cutting edge" aspiration when it comes to telling the story of the foundation?

AFW: We strive to be authentic and shine a bright light on the terrific work our grantees are doing, as well as build our presence online, which is where people tend to spend a great deal of time. Being innovative means that we are continually revisiting how we communicate our work-is there a better, more effective or more inspiring way to accomplish our goals? We are always curious about what other organizations are doing and enjoy exploring. In addition, our board of directors and staff are not shy about sharing their ideas and challenging us to think bigger or look at projects through a different lens. There is nothing more exciting to us than brainstorming an idea and then diving in to research how to best execute it. Kenneth Rainin FoundationWe value flexibility and being open minded as our projects evolve. We also realize there are risks involved when we embrace new or unconventional ideas. In our organization, staff members have the freedom to experiment. This way of thinking is at the heart of all our programs. We realize that some things might be less successful than we wanted, and there will be successes we didn't anticipate. Either way, we always learn valuable lessons that we can apply to the next big idea.

JC: Next, let's talk about the formats, beginning with the Medium platform. What is Medium, and why did you decide this was the right platform for the Rainin Foundation to tell its story? And what kinds of criteria should foundations use to determine whether Medium might be right for them?

AFW: We worked with a consultant who understood our requirements and helped us explore different avenues and tools that could help us accomplish our goals. Ultimately, we decided that Medium would be the ideal platform for creating a media-rich presentation while also giving us the opportunity to amplify our voice and access an expanded audience.

Medium is an online publishing platform that was founded in 2012 and has evolved into a community of 30 million monthly users, according to a January 2016 CNN story. It has become such a popular publishing platform that even the White House, Bono and the Gates Foundation use it.

Criteria for whether to use Medium will vary depending on what an organization wants to accomplish. For us, it was important to have a platform that was easy to use and incorporated performance metrics. We didn't want to get bogged down trying to master a new technology. Medium is user-friendly and intuitive, and the visual design closely aligns with the Foundation's desired aesthetics-a clean presentation with plenty of white space. Medium also exposes us to a broader audience, which is hard to get elsewhere, and the platform makes the post shareable. The trade-off is that Medium's standard features, which make it very simple to use, can feel limiting. If you are looking for more customization or want flexibility with typefaces, color and layout, Medium may not be the best choice.

JC: The videos that you produced as part of the Turning Points 2015 progress report were particularly effective in humanizing the foundation. More often we see grantee videos on a foundation site, but you deliberately chose to put your own team on camera. However, being in front of a camera can be intimidating. Can you share with us how you prepared your team for it, and whether you have any advice for foundations around who tells the story, and how to prepare them? And please share any other general advice you have for foundations about how to prepare and use video to share the progress of their work.

AFW: We think it's important to share experiences and stories authentically, and video can be an effective tool to accomplish this objective.

Before we embark on a new project, we develop a creative brief to think about our audience and what we want them to feel or take away from an experience. This brief ensures that stakeholders are all on the same page, which gives the project a strong start and basis for ongoing evaluation.

For our CEO and staff videos, we hired a talented video team who helped everyone feel at ease and made the process fun-this was really important to us. A few days before the shoot, we provided our staff with a couple of questions to answer about a stand-out moment they had in 2015, and then checked in with them before filming to ensure they had an idea of what they wanted to get across. We didn't rehearse with them, nor did we do a lot of takes during filming.

We loved capturing the personalities of our program staff in a more informal way and allowing viewers to hear the story directly from the staff person who experienced it. By being willing to improvise a bit, we were able to capture memorable moments. Of course, our approach to video production changes according to our project goals. Some projects are impromptu, while others may require much more planning.

JC: Are there other foundations or nonprofit organizations that inspire you when it comes to opening up their work in interesting or new ways? Share some examples.

AFW: We're fortunate to work in a field where so many people do fantastic work, take risks and share it with the world. There are numerous resources, and we count the Communications Network as one of the best places to access tools and expertise. We are continually inspired by the work of other foundations and organizations. Some of our favorite sources for inspiration include the James Irvine Foundation; the Bill and Melinda Gates Foundation; the Evelyn and Walter Haas, Jr. Fund; The San Francisco Foundation; the Robin Hood Foundation; and many, many others. We often reach out to foundations for referrals and learn about their approach to a project, the challenges they encountered, and their overall experience. We want to especially thank Daniel Silverman at the James Irvine Foundation. He's been so gracious with his time and advice, no matter how many times we contact him.

JC: You spoke about performance metrics earlier. What has your audience response been like for both the video and Medium? And how are you measuring their impact?

AFW: The response has been positive. We have surpassed 5,000 video views, which is a strong showing relative to our target audience. Last year for the Medium post, our goal was to engage 12% of our email list. We surpassed this number, quadrupling our goal. This year, we're hitting our targets for views and interaction, and anticipate that the numbers will continue to increase throughout the year, as they did in 2015. It's interesting to note, however, that the videos are garnering more attention than the Medium post, which is something we'll take into account in our planning for the next end-of-year report.

We're always looking to strengthen how we measure impact. For this project, we analyze how people engage with the information on our website, third party websites (Vimeo and Medium) and social media. We look at responses and comments, viewing and reading times, and shares. One big takeaway for us has been the need to continually promote the report and videos in the foundation's communications, staff email signatures, and by leveraging and repurposing the content in creative ways.

JC: Will this be the framework you use for your 2016 Year in Review, or do you have something new and "cutting edge" you're considering?

AFW: We're not locked into a specific framework. Like all of our projects, we will reflect and ask ourselves, "Is this still working? What can we do better? What did we learn?"...so stay tuned.

IRS Releases 990 Forms as Machine-Readable Data
June 16, 2016

Editor's Note: Last month, Transparency Talk featured a blog post by Foundation Center president, Brad Smith on the coming of open 990 data and its implications for philanthropy. Read here for additional perspective on the news story below that the IRS has now formally started its release of 990 Forms, including 990-PFs, as machine-readable, open data.

Irs-logo-250 Amazon Web Services has announced that the Internal Revenue Service has made more than a million electronic 990 tax forms available as machine-readable data through its Amazon Simple Storage Service.

Released Wednesday, the public data set includes certain Forms 990 filed by nonprofit organizations with the IRS since 2011, Forms 990-EZ filed by smaller nonprofits, and Forms 990-PF filed by private foundations. The data from each 990 is provided in an XML file that includes the main 990 form, other filed forms and schedules, and any information detailing how the document was filed; some non-disclosable information is excluded.

The release of 990 filings as machine-readable data by the IRS, which plans to add new 990 data on a monthly basis, will make it easier for anyone to search the forms digitally for information about an organization's finances, trustees, lobbying activities, and salaries. Even when nonprofits or foundations filed them electronically, the IRS previously had stripped the forms of confidential information, converted them to TIFF (image) files, and released them as PDF documents. But in response to a lawsuit filed by open-records activist Carl Malamud in 2015, a federal judge ordered the IRS to release machine-readable Forms 990 from nine nonprofits. The IRS's Advisory Committee on Tax Exempt and Government Entities subsequently called for the agency to require nonprofits to file their financial data electronically, and the agency announced that it would begin releasing electronic versions of the forms this year.

This post originally appeared on Philanthropy News Digest.

Foundation Transparency: Game Over?
May 23, 2016

(Brad Smith is president of Foundation Center).

BradfordKSmithThe tranquil world of America's foundations is about to be shaken, but if you read the Center for Effective Philanthropy's (CEP) new study -- Sharing What Matters, Foundation Transparency -- you would never know it.

Don't get me wrong. That study, like everything CEP produces, is carefully researched, insightful and thoroughly professional. But it misses the single biggest change in foundation transparency in decades: the imminent release by the Internal Revenue Service of foundation 990-PF (and 990) tax returns as machine-readable open data.

Clara Miller, President of the Heron Foundation, writes eloquently in her manifesto, Building a Foundation for the 21St Century: "…the private foundation model was designed to be protective and separate, much like a terrarium."

Terrarium photo 2Terrariums, of course, are highly "curated" environments over which their creators have complete control. The CEP study, proves that point, to the extent that much of the study consists of interviews with foundation leaders and reviews of their websites as if transparency were a kind of optional endeavor in which foundations may choose to participate, if at all, and to what degree.

To be fair, CEP also interviewed the grantees of various foundations (sometimes referred to as "partners"), which helps convey the reality that foundations have stakeholders beyond their four walls. However, the terrarium metaphor is about to become far more relevant as the release of 990 tax returns as open data will literally make it possible for anyone to look right through those glass walls to the curated foundation world within.

What Is Open Data?

It is safe to say that most foundation leaders and a fair majority of their staff do not understand what open data really is. Open data is free, yes, but more importantly it is digital and machine-readable. This means it can be consumed in enormous volumes at lightning speed, directly by computers.

"The release of 990 tax returns as open data will literally make it possible for anyone to look right through those glass walls to the curated foundation world within."

Once consumed, open data can be tagged, sorted, indexed and searched using statistical methods to make obvious comparisons while discovering previously undetected correlations. Anyone with a computer, some coding skills and a hard drive or cloud storage can access open data. In today's world, a lot of people meet those requirements, and they are free to do whatever they please with your information once it is, as open data enthusiasts like to say, "in the wild."

Today, much government data is completely open. Go to data.gov or its equivalent in many countries around the world and see for yourself.

The theory behind open data, increasingly born out in practice, is that making information available leads to significant innovation for the public good while the demand for and use of such data also improves its accuracy and quality over time. And some open data is just fun: one of my personal favorites is the White House visitors list!

What is the Internal Revenue Service Releasing?

Irs-logo-250Thanks to the Aspen Institute's leadership of a joint effort - funded by foundations and including Foundation Center, GuideStar, the National Center for Charitable Statistics, the Johns Hopkins Center for Civil Society Studies, and others - the IRS has started to make some 1,000,000 Form 990s and 40,000 Form 990PF available as machine-readable open data.

Previously, all Form 990s had been released as image (TIFF) files, essentially a picture, making it both time-consuming and expensive to extract useful data from them. Credit where credit is due; a kick in the butt in the form of a lawsuit from open data crusader Carl Malamud helped speed the process along.

The current test phase includes only those tax returns that were digitally filed by nonprofits and community foundations (990s) and private foundations (990PFs). Over time, the IRS will phase in a mandatory digital filing requirement for all Form 990s, and the intent is to release them all as open data. In other words, that which is born digital will be opened up to the public in digital form. Because of variations in the 990 forms, getting the information from them into a database will still require some technical expertise, but will be far more feasible and faster than ever before.

"Over time, the IRS will phase in a mandatory digital filing requirement for all Form 990s, and the intent is to release them all as open data."

The Good

The work of organizations like Foundation Center-- who have built expensive infrastructure in order to turn years of 990 tax returns into information that can be used by nonprofits looking for funding, researchers trying to understand the role of foundations and foundations, themselves, seeking to benchmark themselves against peers—will be transformed.

Work will shift away from the mechanics of capturing and processing the data to higher level analysis and visualization to stimulate the generation and sharing of new insights and knowledge. This will fuel greater collaboration between peer organizations, innovation, the merging of previous disparate bodies of data, better philanthropy, and a stronger social sector.

The (Potentially) Bad

The world of foundations and nonprofits is highly segmented, idiosyncratic and difficult to understand and interpret. GuideStar and Foundation Center know this.

But many of the new entrants who are attracted by the advent of open 990 data will not. They will most likely come in two forms: start-ups claiming their new tools will revolutionize the business of giving, and established, private sector companies, seeking new market opportunities. Neither of these is intrinsically bad and could lead to some degree of positive disruption and true innovation.

The negative potential could be two-fold. Funders will inevitably be intrigued by the start-ups, their genius and their newness and divert funding towards them. Foundations are free to take risks and that is one of their virtues. But while needs grow, funding for the data and information infrastructure of philanthropy is limited, technology literacy among foundations relatively low, and many of these start-ups will prove to be shooting stars (anybody remember Jumo?).

"Once the 990 data is 'in the wild,' conclusions may be drawn that foundations find uncomfortable if not unfair."

The second category of new entrants is far more complex and will come in the form of for-profit data analytics companies. Some of these have business models and immensely sophisticated black box technologies that rely heavily on government contracts for defense and national security. They will be lured by the promise of lucrative contracts from big foundations and mega-nonprofits and the opportunity to demonstrate social responsibility by doing good in the world.

But these for-profit analytics companies will quickly discover that there is only one Gates Foundation among the 87,000 private foundations and only a handful of richly-resourced nonprofits among the 1.3 million on the IRS registers. And those who choose to contract the services of "Big Analytics" will need to consider the potential reputational consequences of aligning their "brands" with the companies behind them.

Sound defensive? Not at all: Foundation Center welcomes the competition, has been building for it since 2010, and knows the challenge can only make us and the social sector better.

The Ugly

Once the 990 data is "in the wild," it is possible if not probable, conclusions will be drawn that foundations find uncomfortable if not unfair. Those who are new to the field and relatively uninformed (or uninterested) in its complexity, may make claims about executive compensation based on comparisons of foundations of wildly disparate size and scope.

The same could be done with overhead rates, payout, or any other figure or calculation that can be made based on information found in the 990-PF. Some foundations already chafe when responsible sector advocates like the National Committee for Responsive Philanthropy (NCRP) use Foundation Center data to rank foundations according to their Criteria for Philanthropy at Its Best. Imagine claims coming over the transom from individuals and organizations whose core values do not include a belief in the practice of philanthropy and a normative vision for how it could be better.

"Another potential consequence lies at the intersection of the open 990 data and the growth of impact investing."

Another potential consequence lies at the intersection of the open 990 data and the growth of impact investing. This was the spirit in which Clara Miller introduced her terrarium analogy to highlight what she sees as the artificial disconnect between the controlled, strategic, and curated world constructed by the grants side of foundations and the sometimes contradictory forces at work in the larger economy in which their assets are invested.

Foundations like Heron are striving to put 100% of their assets toward mission, while others like Rockefeller Brothers Fund are divesting their investment portfolios from fossil fuels and re-investing those assets in ways that further the goals of their climate change grantmaking, rather than exacerbate the problem.

A recent (and as of yet unpublished) Foundation Center survey found that 60% of foundations were not engaged in impact investing and had no plans to do so. That is their choice, but open 990 data may well put them in a position of having to publicly explain it.

For example, using Foundation Center databases, I searched across several hundred thousand foundation 990-PF tax returns and found 37 foundations that held Corrections Corporation of America stock in their investment portfolios. These foundations may well believe, as the majority of foundations insist, that the purpose of the investment arm of the foundation is to generate the highest sustainable return possible in order to fund the mission through grants. But if a foundation holding that stock is striving to work on juvenile justice or improve the lives of black men and boys, an investigative reporter or activist might well ask why they are investing in a corporation that runs private, for-profit prisons

It's 10:00pm, Do You Know Where Your 990 Is?

With the game over for foundation transparency, the big takeaway is to know your 990-PF (or 990 for community foundations). Suddenly, it will be transformed from a bureaucratic compliance document into one of your foundation's key communications vehicles.

"Regardless of how each of us may feel about the greater transparency required of foundations, it is increasingly inevitable."

Right about now, you may be thinking: "What about the website re-design we spent all that money on, with our new logo, carefully crafted initiative names, and compelling photos??" It's still important, and you can follow the lead of those foundations guided by the online transparency criteria found on Foundation Center's Glasspockets website.

But for the sector as a whole, while fewer than 10% of all foundations have websites, they all file 990 tax returns. As the IRS open data release unfolds and mandatory digital filing kicks in, the 990-PF will become one of the primary sources of information by which your individual foundation will be known and compared to others.

I recently asked a group of foundation CEOs whether they ever had an in-depth discussion about their 990-PFs among their board members and was met with blank stares. In a world of digital transparency, this will have to change. As 990s become a data source and communications vehicle, the information on them will need to be clear, accurate and above all, a faithful representation of how each individual foundation makes use of the precious tax exemption it has been granted to serve the public good.

A few simple tips for starters:

  • Take advantage of Section 15 (block 2) to talk about your priorities, grant process, limitations, and restrictions.
  • In Section 15 (block 3) write the correct, legal name for each grantee organization and add its EIN or BRIDGE ID
  • In the same section, write clear and compelling descriptions for the purpose of each grant (more than you might think, people look at foundations by what they fund).
  • Make sure all numbers on the form add up correctly (you'd be surprised!).

Regardless of how each of us may feel about the greater transparency required of foundations, it is increasingly inevitable. Philanthropy is essential to American society and a positive source for good in a challenging world.

As the terrarium walls insulating individual foundations fall, we will surely face a few moments of anxiety and discomfort. But greater transparency, fueled by open IRS data, can only make us more conscientious stewards of our resources, more effective decision-makers, and better collaborators on our way to achieving greater and greater impact in the world.

Game over? It's just beginning!

-- Brad Smith

The Next Generation of Nonprofit Data Standards
May 2, 2016

(Jacob Harold is president and CEO of GuideStar and Brad Smith is president of Foundation Center. Join Harold and Smith for their webinar, How Data Standards Can Help Save the World, on May 12 at 2:00 pm EDT. In the webinar, Harold and Smith will discuss the ways data standards are already improving the grantmaking process for both funders and grantees. They'll also address how foundations can participate in these initiatives and promote a better information system for the sector. See you there! This post first ran in PhilanTopic.)

Our current moment in the human story is often called the age of information. And indeed, we are too-often overwhelmed by the torrent of data coursing through our lives. As a society, we have developed many tools to organize the information we rely on every day. The Dewey Decimal System helps libraries organize books. UPC codes help stores organize their products. Nutrition labels help to present information about food ingredients and nutritional value (or lack thereof) in a way that's consistent and predictable.

Data Standards Image-600wi
The nonprofit sector has also relied on data standards: we use the government's Employer Identification Number (EIN) to identify individual organizations. The National Taxonomy of Exempt Entities (NTEE) is used by many — including GuideStar, Foundation Center, and others — to help reveal the diversity of the nonprofit community, guide funding decisions, and foster collaboration.

But just as other information systems have continued to evolve so must ours. When the Dewey Decimal System was developed in 1876, Melvil Dewey could not have imagined Amazon.com, e-readers, or Goodreads.com. Similarly, the EIN/NTEE framework is simply not enough to explain, organize, and share the complex story of nonprofits.

So we are glad to share the news that a new generation of social sector data standards is emerging. These can help us all do our work better, making smarter decisions while saving time to focus on that work.

There a several standards that are important, but we'd like to direct your attention to four:

Standard

Description

History

BRIDGE

A unique identifier for every nonprofit organization in the world.

A joint project among GlobalGiving, Foundation Center, GuideStar, and TechSoup Global.

Philanthropy Classification System

A taxonomy that describes the work of foundations, recipient organizations, and the philanthropic transactions between them.

Led by Foundation Center, with significant input from hundreds of stakeholders.

GuideStar Profile Standard

A standardized framework for nonprofits to tell their own stories. Used by more than 100,000 nonprofits.

Includes the five Charting Impact questions (developed in partnership with Independent Sector and the BBB Wise Giving Alliance). GSPS feeds the GuideStar for Grants system that was developed as part of the Simplify Initiative in partnership with the Technology Affinity Group.

eGrant/hGrant

An easy way for foundations to share the grants they make in near-real time.

Over 1,200 foundations use eGrant to report their grants data to Foundation Center and 19 foundations publish their data in open format through the Reporting Commitment.

This list is by no means comprehensive — other standards are also important, including but not limited to IATI and PerformWell. Others, such as XBRL or LEI, could become important for the field. But for now, we urge the nonprofit sector to understand these four standards and, where possible, to adopt them for your own use.

-----

It is worth noting that we in the nonprofit sector use the word "standards" in two distinct ways. First, there are "practice standards" that work to define excellence. The BBB Wise Giving Alliance Standards for Charity Accountability or Independent Sector's Principles for Good Governance and Effective Practice fit this definition. Practice standards are a powerful way to help define and promote good practices.

But here we're pointing to "data standards" that are simply a way of organizing information in a consistent format to make it more useful. Both practice standards and data standards exist to help us do our work better. Neither guarantee excellence, but in different ways they help us drive toward excellence.

-----

As a field, we need to absolutely minimize the amount of time we spend managing data — and maximize the time we spend solving problems. Think of these standards as enablers to help us do just that, and do it at scale.

--Jacob Harold and Brad Smith

Size Doesn't Matter
March 28, 2016

(Molly Talbot-Metz is vice president of programs at the Mary Black Foundation.)

Molly Talbot-MetzWhat does the Mary Black Foundation, a small private foundation in Spartanburg, SC, have in common with some of the country's biggest and most well-known foundations like the Bill and Melinda Gates Foundation, the Robert Wood Johnson Foundation, the Ford Foundation, and W.K. Kellogg Foundation?

The Mary Black Foundation is pleased to announce that we have joined 19 other U.S. foundations that have each joined the "Reporting Commitment," an initiative managed by Foundation Center. The Reporting Commitment is intended to shed light on the flow of philanthropic dollars. Housed at Foundation Center's Glasspockets, the Reporting Commitment calls for foundations to make grant information available to each other and the public at least quarterly in a common reporting format that shares the kinds of grants we fund, including the amount, duration, and purpose.

Mary Black FoundationOur decision to participate in the Reporting Commitment is a reflection of our desire to be a transparent community partner. According to Merriam-Webster, to be transparent is to be "easy to notice or understand; honest and open; and not secretive." Having been in philanthropy for almost 15 years, I know that transparency is not a word many use to describe foundations. For most people, the work of philanthropy is a mystery. There is often confusion and uncertainty about how foundations work and what they fund. They are often disconnected and isolated from the communities they serve. Slowly, this may be changing.

The Mary Black Foundation strives to be transparent in all that we do, and our participation in the Reporting Commitment was a logical addition to our existing efforts to be open and transparent with our community partners, the nonprofit sector, other foundations, and the general public. Since its inception, the Mary Black Foundation has published its grants in an annual report in print or on our website. In 2014, we redesigned our website to more clearly communicate our grantmaking process and guidelines.

"Openness requires a culture of transparency."

Now, in addition to our annual report and listing of funded organizations, you will also find on the Foundation's website its bylaws, code of ethics, financial statements for the past five years, listing of staff and board members, strategic plan, and funding logic model. It is important to the Foundation's board and staff that we go above and beyond the required IRS disclosure of funded grants. This kind of openness is not difficult for foundations of any size, but it does require a culture of transparency. 

Our commitment to transparency goes beyond openly reporting our policies and procedures and the grants we fund. The Foundation strives to be actively involved in the community and to be equal partners in community initiatives. Our public commitment to partnership is one of the reasons we were selected to lead Spartanburg's involvement in a national competition to improve health outcomes in our community. We will ensure that lessons learned and changes in health outcomes are tracked and reported. In that way, our successes and challenges both can help others as they embark on similar efforts.

We hope other foundations - big and small - will see the importance of being more transparent and engaged in the communities they serve and make the Reporting Commitment pledge. By collectively being transparent about our work, we strengthen our credibility and increase public trust, improve grantee and community relationships, facilitate collaboration among each other and reduce duplication of efforts, and build a shared community of learning.

-- Molly Talbot-Metz

About Transparency Talk

  • Transparency Talk, the Glasspockets blog, is a platform for candid and constructive conversation about foundation transparency and accountability. In this space, Foundation Center highlights strategies, findings, and best practices on the web and in foundations–illuminating the importance of having "glass pockets."

    The views expressed in this blog do not necessarily reflect the views of the Foundation Center.

    Questions and comments may be
    directed to:

    Janet Camarena
    Director, Transparency Initiatives
    Foundation Center

    If you are interested in being a
    guest contributor, contact:
    glasspockets@foundationcenter.org

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