Transparency Talk

Category: "Grants Management" (31 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

Innovation at the Speed of Change: Exploring Knight’s Tech Innovation Portfolio
March 1, 2017

SAVE THE DATE: April 13, 1:30-3:00 p.m. EST.  Like this blog series?  Attend our Inside Innovation Funding event in person in San Francisco, or virtually via livestream in San Francisco.

(John Bracken is vice president for technology innovation at Knight Foundation.)

This post is part of the Funding Innovation series, produced by Foundation Center's Glasspockets and GrantCraft, and underwritten by the Vodafone Foundation.  The series explores funding practices and trends at the intersection of problem-solving, technology, and design. Please contribute your comments on each post and share the series using #fundinginnovation. View more posts in the series

John Bracken - Knight PhotoIt’s become a truism to say that the world is changing, and that the pace and scale of change is ever accelerating. “It’s not just technology that’s moving at an exponential pace, but change itself;” write Joi Ito and Jeff Howe in Whiplash.

Even the world of grantmaking, often criticized for its slow pace, is adapting to these rhythms. For example, last month, we at Knight Foundation helped launch a fund on ethics and artificial intelligence. The fund itself came together quickly over the course of a few weeks, and we plan to announce our first grants in the coming weeks, but more on that later. As I talk to people involved with the creation of the tools, a single note keeps coming up: the technology is developing faster than we had anticipated even a year ago.

The recent news of Libratus, an artificial intelligence created at Carnegie Mellon that defeated four champion humans in Texas Hold ‘Em poker, demonstrated that “the best AI’s ability to do strategic reasoning with imperfect information has now surpassed that of the best humans,” said Libratus’s co-creator Tuomas Sandholm. This feat of reasoning, coming on the heels of Google Deep Mind’s victory over the world’s preeminent Go player last year, came much earlier than most in the field had anticipated.

These developments are happening at a rate that outpaces our ability to process them, and yet it’s becoming the new normal. Millions of us are now living with smart personal assistants like Amazon Echo and Google Home in our living rooms and Internet-connected televisions and thermostats. As a society, we’re still not sure just how to handle these devices, as the debate over how to use audio evidence collected by Amazon Echo during a 2015 murder and the hacking of unsecure home appliances to take down much of the Internet last fall demonstrated.

Knight Foundation Logo
Our inability to appreciate the depth of the change even as we experience it reminds me of how the French military struggled to adjust to modern warfare at the outset of World War I. As described by Barbara W. Tuchman in her classic The Guns of August, French generals prepared for German tanks and aerial bombings by sharpening their swords and donning their traditional brightly colored uniforms adorned with plumage. Even after the battle was joined, and a decade after the emergence of modern warfare in the Russo-Japanese War, the French leaders stuck to their old tactics. Tuchman wrote, “The impetus of existing plans is always stronger than the impulse to change.”

Part of our mission at Knight Foundations is to ensure that the civic institutions upon which our democracy depends-- libraries, museums, news organizations, cities-- do not follow in the footsteps of those 1914 French commanders. How do new and old civic enterprises sustain themselves as traditional fundraising approaches like mass mailings hold less appeal for new donors? How do organizations adjust their cultures to attract and retain talent and audiences who bring with them different expectations and needs from their predecessors?

Given this new world of accelerating technological advancement, and the expectation that all of our work at Knight will be impacted by future advancements, our grantmaking will focus on the ways in which digital technologies could impact our fields. Knight has always been interested in technology’s potential for strengthening the ways in which Americans learn about and participate in community. In the ’80s, the Knight brothers’ company, Knight Ridder, invested in and experimented with early interactive tools such as Viewtron and Dialog Information Services. A decade ago, we built on this interest by creating the Knight News Challenge in an attempt to better understand the potential of the Internet for transforming journalism. This year, we’re focused on two topics:

  • We are co-founders of a fund on the ethical aspects of artificial intelligence. AI has shifted from a future prospect to a present reality, and has the potential to impact every aspect of society. That’s why we’ve helped to craft the Ethics and Governance of Artificial Intelligence Fund to take an applied, multidisciplinary approach to AI, exploring its potential benefits and ill effects.
  • As part of the NetGain Partnership, a collaboration between five foundations to explore public interest issues around new technologies, we are exploring how connected devices (the Internet of Things) might impact cities. In the coming months, we’ll be making some grants designed to strengthen cities through technology.

The change we have been living through is only going to increase-- adjusting our work incrementally isn’t going to cut it. To thrive, we as individuals and institutions need to develop our comfort with insecurity, with failing, with risk, and be ready to pursue routes we may not anticipate.

Soulful Innovation: Increasing Diverse Tech Entrepreneurship
February 22, 2017

SAVE THE DATE: April 13, 1:30-3:00 p.m. EST.  Like this blog series?  Attend our Look Inside Innovation Funding event in person or via livestream in San Francisco.  More details and registration info coming in March.

C-Brown-Photo(Cedric Brown has been a leader in philanthropy and the civil society sector for nearly two decades. He is currently the Chief of Community Engagement at the Kapor Center for Social Impact, in Oakland, California. The Kapor Center won the 2017 Crunchies Social Impact Award.)

This post is part of the Funding Innovation series, produced by Foundation Center's Glasspockets and GrantCraft, and underwritten by the Vodafone Americas Foundation. The series explores funding practices and trends at the intersection of problem-solving, technology, and design. Please contribute your comments on each post and share the series using #fundinginnovation. View more posts in the series

Frankly, I get tired of talking about innovation. Sometimes discussions about innovation come across as Sisyphean pursuits, where style is greater than substance, and preening is greater than practice. I’m looking for conversations about innovation with soul. With gravitas. With a conscience. Ones that advance uplifting solutions that make this Earth more habitable or help more people meet their hierarchy of needs (or as of late, that strengthen the fast-unraveling social contract necessary for humankind to co-exist).

Three years ago at the behest of our benefactors, the then-Kapor Foundation began to explore how to move away from our traditional responsive grantmaking. The benefactors had begun to invest in seed-staged tech startups that aim to address and mitigate equality gaps. They witnessed the power of designing solutions for markets - "communities" - that operate at scale. They saw how different and disruptive ways of approaching problem solving can create a culture shift. They came to us, the foundation staff, and requested that we start thinking about this intersection of tech-for-good and our grantmaking work.

“Are we overlooking the resourcefulness that resides in the 'hood, favela, sticks, and bush?”

In the ensuing years, we experimented with different approaches, borrowing from our new knowledge of Lean Startup principles. Through a clunky, iterative learning process - which in hindsight I would like to label as our R&D - we decided to lead the way by doing our part to expand access to the tech sector and innovation economy.

Van Jones has shared that his dear friend Prince said we need to create a "Black Zuckerberg." While I take issue with that particular mold (pattern recognition and Ivy league degree-as-entry-barrier are part of tech's diversity problem), I get The Purple One's point, echoed by Mitch Kapor: "Genius is evenly distributed across zip codes, but opportunity is not." Working with a variety of partners in this ecosystem, we seek to plug leaks in the tech talent pipeline while sharpening the skills and talents that reside in all of our diverse communities.

To this point, I’ve judged a number of youth hackathons and design sessions, mostly attended by low-income, “low opportunity,” or similarly-labeled young people. These youth are participating in these activities as an initial exposure to tech skill-building and careers, and I am consistently impressed by how these young teams create apps that address information and resource gaps: student loan payment platforms; mentoring matching; anonymous bully identification; and safe passage routing among them.  

Our premise is that as the high-tech industry becomes more inclusive, companies and teams will become better at problem solving, will create better products and solutions that serve a wider market, and will utilize tech-driven platforms to solve pressing problems that are informed by their lived experiences. Our backup? Heavy hitters like  McKinsey, Catalyst, Kellogg and Stanford have found this to be true.

How are we benefiting from the terrific brainpower, scrappiness, and necessity - as the mother of invention - that resides in nonprofit leaders, in low-income communities, with people who are "making a way out of no way" as my church folks used to say?  Are we overlooking the resourcefulness that resides in the 'hood, favela, sticks, bush?

Kapor_logo_dark_rgb

You've heard these questions before, I'm sure. So what are we doing about it?

We're catalyzing and strengthening tech innovation, in line with the theme of this blog, by introducing and preparing more people to lead its creation. Tech shouldn't be an insular economy; now more than ever, we need thinkers, tinkerers, designers, and dreamers who are motivated by the pursuit of a significantly positive impact rather than a sinfully profitable buyout.

In 2017, the Kapor Center - including our sibling organizations, Kapor Capital and Level Playing Field Institute - are committed to increasing diverse tech entrepreneurship, access to capital, access to tech and STEM education, and building strong community institutions to promote a more diverse tech ecosystem in the Bay Area, with a special focus on Oakland, our home.

We’re employing a range of old tools for new outcomes - convening key partners to coordinate around systems-level goals (kind of collective impact-ish), providing financial support to select roundtables to support this coordination work, and utilizing the visibility of our benefactors and brand to raise awareness about the issues at hand and to channel resources to efforts aligned with our work, helping to create a larger, stronger network of collaborators. And we’re using our brand-spankin’ new building on Oakland’s Broadway corridor to host events that welcome, validate, leverage, and enrich diverse talent - namely people of color and women - as they pursue their entrepreneurship, technical, and impact goals. We see this work as a powerful overlay between the ubiquity of tech, the possibility of entrepreneurship, the integrity of fairness, and the necessity of economic mobility and empowerment for a just society.

But back to the issue at hand - innovation. I think that soulful, meaningful, conscientious innovation is rooted in a nagging question: “What can we do to be more effective?” It’s organic; a quest to find the bull’s eye of effectiveness en route to real impact. It requires experimentation, evolution, and even a bit of envy - as a competitive motivator to be top of class, of course. And while so many of these variables are present in innovation economy practitioners, I’d like to see them more firmly rooted in addressing real world issues informed by and for real people.

--Cedric Brown

Tips from the Tech Sector on How Philanthropy Can Scale Impact
February 15, 2017

(Shannon Farley is the Co-Founder and Executive Director of Fast Forward, the accelerator for tech nonprofits. Prior to Fast Forward, she was the founding Executive Director of Spark, the world's largest network of Millennial philanthropists. Earlier in her career, Shannon co-founded The W. Haywood Burns Institute, a MacArthur Award-winning juvenile justice reform organization. Reach her on Twitter: @Shannon_Farley.)

This post is part of the Funding Innovation series, produced by Foundation Center's Glasspockets and GrantCraft, and underwritten by the Vodafone Americas Foundation. The series explores funding practices and trends at the intersection of problem-solving, technology, and design. Please contribute your comments on each post and share the series using #fundinginnovation. View more posts in the series. 

Shannon Farley - Fast ForwardThree years ago, my co-founder Kevin Barenblat asked me why there weren’t more Khan Academies and Wikipedias. He wanted to know why more nonprofits weren’t building software to create social change at scale. At the time, my answer was that the nonprofit startup universe didn’t look anything like the tech startup landscape. Tech startups have founder meetups, online training portals, and investors hankering to go all in on the next big tech solution. Meanwhile, tech nonprofits (organizations with software or hardware at the core of their impact model) were weirdos, stuck at the juncture of the tech and nonprofit worlds. Only a few existed and they operated with little support from either sector.

Kevin and I thought this was a missed opportunity. In the last 10 years, the cost of launching a tech startup dropped from millions to thousands of dollars. With cloud-computing, digital networks, and the ubiquity of mobile, the marginal cost for return on impact decreased drastically, making the business case for tech nonprofits very compelling.

“ We’ve found that one of the biggest hindrances to innovation in the nonprofit sector is restricted funding.”

Determined to empower more nonprofits to leverage tech for social impact, Kevin and I took some cues from the tech playbook and launched Fast Forward. Our accelerator program equips tech nonprofits with seed stage funding, training, mentorship, and connections to the entrepreneur and investor community. While we take a sector agnostic approach to our portfolio, we look for organizations building tech solutions for social issues like education, healthcare, human rights, and the environment. We are able to invest in these early stage tech nonprofits thanks to philanthropic funding from philanthropists familiar with tech models like Google.org, BlackRock, Omidyar Network, and AT&T. Our approach and funding model have been strongly influenced by the tech sector in four key ways:

1. Accelerator Programs

Philanthropists have used leadership programs to train emergent social entrepreneurs for decades. Technologists apply a similar model in a program called an accelerator or incubator. We combined the best of both into the Fast Forward program. We call the Fast Forward program an accelerator because it occurs over an accelerated period of time – 13 weeks. Equal parts leadership development and startup boot camp, our curriculum is built around defining and measuring impact, board development, product design, and hiring technical talent. Our cadre of over 100 mentors for our cohort come from both worlds – nonprofit leaders and philanthropists as well as engineers and leading startup founders.

2. General Support Funding

Each tech nonprofit in our cohort is granted $25,000 in unrestricted funding. We’ve found that one of the biggest hindrances to innovation in the nonprofit sector is restricted funding. Could you ever imagine a VC telling a startup they will fund a new version of the app, but not the Chief Technical Officer (CTO) and tech team required to build it? No. Sadly, that’s often the case in philanthropy. Too often, the technology for a nonprofit is thought of in terms of software licenses rather than as a staffed role integral to achieving impact. For a nonprofit to build programs and products that can impact millions, they need the same general support money considered the norm in the for-profit sector. This type of funding enables a nonprofit to hire the required tech team. As tech development becomes an essential component of impact, nonprofits need CTOs to drive this work. Foundations need to double down on general support if we want to see innovation at scale.

3. Growth Funding

Early stage funding is not a short-term partnership in venture capital. VCs typically invest a small amount in the beginning and then increase their investment when a product hits a growth inflection point. Philanthropists, however, tend to fund in terms of projects or annual timeline versus a long-term trajectory. As a result, nonprofits struggle between launch and the point at which they are ripe for mezzanine capital, larger gifts granted by foundations once a nonprofit hits an impact inflection point. The design phase is ongoing, and product launch is just the start of that journey. Donors should recognize philanthropy as the ultimate risk capital and make bets on people and teams building products with the potential to scale.

4. Timing

Philanthropy is slow paced. Tech development and product iterations progress quickly. If it takes six or more months to process a grant, the technology will have advanced beyond the proposal. At Fast Forward, follow-on funding is released as soon as the books are closed on a donation. We don’t wait, because tech doesn’t wait.

So has implementing tech methodologies helped Fast Forward and our cohorts achieve impact? Absolutely. Take our alumnus CareerVillage, a platform that crowdsources career advice from professionals for students in low-income areas. Since the Fast Forward accelerator in 2015, CareerVillage has scaled from reaching 500,000 students to over 1.5 million.

In three years, Fast Forward has accelerated 23 tech nonprofits. These organizations have impacted over 18.4 million lives and raised over $26 million in follow-on funding.

Technology has the power to achieve unprecedented impact in the social sector. Philanthropists have a lot to learn from the tech world.

--Shannon Farley

From Good Idea to Problem Solved: Funding the Innovation Means Funding the Process
February 8, 2017

(Mandy Ellerton and Molly Matheson Gruen joined the [Archibald] Bush Foundation in 2011, where they created and now direct the Foundation's Community Innovation programs. The programs allow communities to develop and test new solutions to community challenges, using approaches that are collaborative and inclusive of people who are most directly affected by the problem.)

This post is part of the Funding Innovation series, produced by Foundation Center's Glasspockets and GrantCraft, and underwritten by the Vodafone Americas Foundation. The series explores funding practices and trends at the intersection of problem-solving, technology, and design. Please contribute your comments on each post and share the series using #fundinginnovation. View more posts in the series.

Mandy Ellerton

Molly Matheson Gruen

Good ideas for solving our toughest social problems come from a variety of places. But, we need more than just good ideas – we need transparent and thoughtful ways to get community buy-in and a wide variety of perspectives to make those ideas a reality.

For a cautionary case in point, take the origin story (later chronicled in the book The Prize) of the ill-fated attempt to transform the failing Newark public schools. A prominent governor, mayor and, later, an ultra-wealthy tech mogul, hatched the idea to radically transform the schools in the back of a chauffeured S.U.V. Commentary suggests that these leaders did not consult community stakeholders about the plan, only half-heartedly seeking community input much later in the process. As one community member put it to these leaders, "You have forced your plans on the Newark community, without the

measure of stakeholder input that anyone, lay or professional, would consider adequate or respectful." To some observers, it's no surprise that without initial community buy-in, nor a transparent process and over $100 million later, the plan ultimately crashed and burned.

But, let's not throw stones at glass houses. The Newark example is indicative of a larger pattern especially familiar to those of us in the field of philanthropy. We've learned that lesson the hard way, too. Many of us have been involved in (well-intentioned) backroom and ivory tower deals with prominent community leaders to magically fix community problems with some "good ideas." Sometimes, those ideas work. But a lot of times, they don't. And unfortunately, we often chalk these failures up to innovation simply being a risky endeavor, comparing our social innovation failure rates to the oft-discussed (maybe even enshrined?) business or entrepreneurship failure rates. What's more, we almost never actively, sincerely discuss and learn from these failed endeavors.

But social innovation failure often comes at a cost, leaving behind disillusioned community members, bad outcomes for some of our most vulnerable, and lots and lots of wasted dollars that could have gone to something better. Take the Newark example: the failed attempt to transform the schools created massive civic disruption, re-awakened historic hurts and injustice and will likely leave community members even more skeptical of any future efforts to improve the schools.

Through our work at the Bush Foundation, we've learned that truly good ideas–those that will really have a sustainable impact–are often created in deep partnership and trust between organizations, leaders, and–most critically–the people most affected by a problem.

But, that kind of deep community partnership and transparency takes a lot of work, time, and attention. And, most everything that takes a lot of work takes some funding.

Community-innovation

That's why we created our Community Innovation programs at the Bush Foundation in 2013: to fund and reward the process of innovation–the process of solving problems. While the emphasis in innovation funding is often on "early stage" organizations or projects, we joke that we are a "pre-early" funder or that we fund "civic R & D." We provide funding for organizations to figure out what problem to address in the first place, to get a better understanding of the problem, to generate ideas to solve the problem, and then, after all that work (and maybe having to revisit some of the earlier stages along the way), the organization might be ready to test or implement a good idea. See how we depict that "pre-early" problem solving process here.

Most importantly, throughout the innovation or problem-solving process, we also look for particular values to drive the organization's approach: Is the organization genuinely and deeply engaging the people most affected by the problem? Is the organization working in deep partnership with other organizations and leaders? Is the organization making the most of existing resources?

Let's bring it to life. Here are three examples of the 150+ organizations we've funded to engage in a process to solve problems in their communities:

  • World Wildlife Fund's Northern Great Plains initiative is bringing ranchers, conservationists, oil business developers, and government officials together to create a vision for the future of North Dakota's badlands and a shared energy development plan that protects this important landscape.
  • PACT for Families Collaborative engaged truant youth, their parents, education staff, and service providers to understand barriers to school attendance and redesign services and test strategies for positive, sustainable solutions to truancy in western Minnesota.
  • Pillsbury United Communities is using human-centered design processes to engage North Minneapolis residents to address their neighborhood's food desert and create North Market: a new grocery store managed in partnership with a local health clinic that will also be a clinic, pharmacy, and wellness education center.

"We've learned that truly good ideas–those that will really have a sustainable impact–are often created in deep partnership and trust between organizations, leaders, and...the people most affected by a problem."

Our grantees and partners are teaching us a lot about what it takes for communities to solve problems. One of the biggest things we've learned is that collaborative projects often take far more time than anyone initially expects, for a variety of reasons. Over the past few years nearly a third of our grantees have requested more time to complete their grants, which we have readily agreed to.

For example, the Northfield Promise Initiative is a highly-collaborative, cross-sector, community-wide effort to address education disparities in Northfield, Minnesota. The initiative utilizes action teams composed of diverse stakeholders to drive its work. Early on in the project they decided to stagger the rollout of the teams rather than launch them all at once. That allowed them to take more care in composing and launching each team and allowed interested stakeholders to engage in multiple teams. In addition, later teams could learn from the successes and challenges of the earlier ones. As the grantee put it, "Partners felt strongly that it is important to give the process this extra time to ensure that all the different community voices and insights have been included (thereby maintaining this as a community-owned initiative)." We gladly extended their grant term from two years to four years so that they could spend the time they believed necessary to lead the problem-solving effort thoughtfully and inclusively.

Bush-altlogo-colorFor more helpful examples, here are a couple of resources to explore:

  • One of our innovation programs is an award for organizations that have a track record of solving problems with their communities, called the Bush Prize for Community Innovation. Together with our evaluation partner Wilder Research, we created a report about some of our Bush Prize winners that digs into specific conditions, methods and techniques that appear to help organizations innovate.
  • We believe storytelling and transparency inspire innovation. Our grantees openly share what they're learning as they pursue solutions to community problems in grantee learning logs. The learning logs also include references to specific techniques and methods the organizations use to pursue innovation.

As funders, we also have a role in the innovation process that goes beyond writing the check. By virtue of our relationships and portfolios, we have a bird's eye view of the field. By opening up what we are learning, we hope to build trust with our stakeholders and help others build on our work, hopefully leading to more and better future innovations.

-- Mandy Ellerton and Molly Matheson Gruen

From Early Stage Funding to Lasting Impact: The Venture Philanthropy Approach to Funding Innovation
February 1, 2017

(Christy Chin, Managing Partner at Draper Richards Kaplan Foundation [DRK], is instrumental in finding, funding and supporting DRK entrepreneurs, as well as cultivating and engaging DRK’s network of donor partners. As a venture philanthropy firm, DRK provides critical early stage capital to social enterprises tackling some of society's most challenging issues.)

This post is part of the Funding Innovation series, produced by Foundation Center's Glasspockets and GrantCraft, and underwritten by the Vodafone Foundation. The series explores funding practices and trends at the intersection of problem-solving, technology, and design. Please contribute your comments on each post and share the series using #fundinginnovation. View more posts in the series.

Christy Chin Photo - DRKWow! How time flies by when a partnership works so well.  As I prepared for my final Watsi board meeting, I reflected on how much Chase and his team had accomplished and what a joy it is to be part of their quest to make healthcare accessible to all. 

In July 2013, we first met Chase Adam.  It was only a few days after he had pitched Watsi, the first nonprofit to be accepted into Y-Combinator.  In no time, Ron Conway, Tim and Billy Draper were urging DRK to take a look at Watsi.  Chase was ready to make the case for Watsi to be in the DRK portfolio, and he had a few questions of his own.  From the first meeting, there was a constructive and respectful exchange because we were aligned on the end goal – healthcare for all.  As a venture philanthropy firm, DRK conducts rigorous due diligence, not unlike the way in which a venture capital firm evaluates a for-profit investment.  These are our key questions:

Is it addressing an important social issue?

Definitely. A large percentage of our work at DRK is focused on global health, so we know that access to medical care, especially surgical treatments, is a critical problem.

Watsi, the first global crowdfunding platform for medical treatments, leverages scalable technology to solve a substantial need for patients abroad.

Chase’s commitment to radical transparency was distinctive. From the very beginning, Watsi allowed anyone and everyone to see how the money was moving and how the patients’ treatment, with their consent, was progressing.  Transparency of funding increased accountability from the moment a patient’s profile was shared to the delivery of the medical procedure. There was an elegance to Watsi that was extremely appealing.  

“ We firmly believe that multi-year, unrestricted funding is precious capital that nonprofits need to build organizational capacity.”

Is the solution being proposed likely to create meaningful change?

Yes, early results were promising.  In the first seven months after launch, Watsi processed more than 3,700 donations and funded medical treatments for more than 250 patients abroad. DRK has seen many success stories of how technology can enable rapid transformation of an ecosystem, and we truly believe in the power of technical innovation to make an impact on vulnerable populations.

Does the leadership team have potential?

Even though Watsi was still in its early stages, I was confident that Chase had what it takes to be a successful entrepreneur. His passion for the mission was contagious, and he was clearly a resource magnet. Chase was able to attract both financial and human capital to support his vision.  

Is the solution scalable?

At the time, Watsi was already operating across 13 countries and working diligently to identify new partners to scale this model. Today, Watsi operates in 24 countries globally.

DRK bet on Chase in 2013 because we saw the potential for this model to dramatically shift the way governments and institutions fund healthcare treatments abroad, with real-time data collection and complete transparency. I had the privilege of joining Watsi’s board for those three years; DRK requires a DRK representative serve on all grantee boards. As part of DRK’s portfolio support and board service, we openly share our networks to help connect our entrepreneurs with people we believe can catalyze their efforts. In return, we ask for a three-year projection of the organization’s metrics and milestones that demonstrate the impact the entrepreneur hopes to achieve while s/he is an active member of the DRK portfolio. We also expect that the entrepreneur will regularly engage with DRK through written progress updates and in-person check-ins, as well as ongoing conversations with the board representative and, as needed, other key members of our finance, operations, and development team.  

I was fortunate to be joined on the Watsi board by Premal Shah, President of Kiva (an early DRK grantee), and experienced firsthand the power of the DRK network coming full circle.  In December, as my final board meeting with Watsi approached, I reflected on what made Watsi a great example of why we at DRK are so passionate about our work and strongly believe in this investment approach.  

DRK stacked logoDRK was founded in 2002 by Bill Draper and Robin Richards, two highly successful venture capitalists who chose to leverage their success in the venture capital world, applying their skills, expertise, and resources to solve complex social issues. DRK’s venture philanthropy model has been shaped by Bill and Robin’s legacy – we find, fund, and support early stage social entrepreneurs whose ideas have the potential to drive systems-level change.

Since our founding, we’ve raised $110 million in private capital and funded over 100 social enterprises – and we’re aiming to double that number over the next five years. We seek out entrepreneurs with qualities that we know are critically important – vision, energy, determination, courage, passion, and empathy. Our entrepreneurs are tackling important challenges across the globe, including healthcare, education, social justice, poverty alleviation, and the environment.

In the 15 years that DRK has been involved in this work, we’ve learned some powerful lessons that we hope to share with the funding community.  We firmly believe that multi-year, unrestricted funding is precious capital that nonprofits need to build organizational capacity.

We’ve also learned that handing over grant dollars alone isn’t enough. At DRK, the biggest difference we can make for our grantees is providing them with unrelenting support and serving as an advocate on behalf of their organizations.  We’re one of the first institutions to believe in their vision, and we never stop asking the tough questions. As a team, we’ve developed pattern recognition from sitting on many diverse boards and have gained a deep understanding of the challenges our entrepreneurs are likely to face. However, there is always a level of risk we have to account for, and not every DRK portfolio organization becomes a successful endeavor. We are incredibly fortunate to have a supportive board and a community of donor partners that not only accept, but encourage our team to take those risks and explore new possibilities with the potential for great impact.

I can’t emphasize enough the importance of our entrepreneurs’ efforts across the globe, and I encourage you to take a moment to visit DRK’s website (www.drkfoundation.org) to learn more. For any institutions interested in exploring the venture philanthropy model, please contact us and we would be more than happy to share our learnings. We have seen the difference that early-stage funding can make for social entrepreneurs. I hope the next time your organization comes across an entrepreneur like Chase, an extraordinary leader with a big idea, you too will make that bet.

--Christy Chin

 

Fueling Innovation Through Competition
January 25, 2017

(June Sugiyama is director of Vodafone Americas Foundation, leading programs for social impact innovation.)

This post is part of the Funding Innovation series, produced by Foundation Center's Glasspockets and GrantCraft, and underwritten by the Vodafone Foundation. The series explores funding practices and trends at the intersection of problem-solving, technology, and design. Please contribute your comments on each post and share the series using #fundinginnovation. View more posts in the series.

June Sugiyama PhotoInnovation is a word used so frequently that perhaps it has become almost trivial. Globally, we use innovation to describe many things, from new technologies, to new processes, to disruptive ideas, but the action of innovation itself becomes harder to define, and harder still to execute. Countless ideas are abandoned because entrepreneurs could not find the proper funding or mentorship to build their idea from a mere thought to a reality.  

Many entrepreneurs and startups will turn to venture capitalists (VCs) to try to gain funding and support, but it is a challenge in and of itself to get a meeting with a VC, much less secure VC money. This is where foundations and philanthropies, which might be more poised to take risks, can help fill the gap by providing grants to new social impact ideas and start-ups. At the Vodafone Americas Foundation – whether through grants or competition – our goal is to support organizations that use wireless technology to impact change, spark innovation, improve lives, transform the global development sector, or empower women and girls.

“ Countless ideas are abandoned because entrepreneurs could not find the proper funding or mentorship to build their idea from a mere thought to a reality.”

One avenue we take to support organizations – whether a nonprofit, university project, or start-up – is to provide traditional grants earmarked to help develop their product or service to drive social good. However, traditional grants are not the only model for supporting innovation; companies and foundations big and small are developing competition programs to help good ideas develop and move forward. A competition with specific criteria and parameters becomes a refined filter to find driven and passionate individuals - not an arbitrary search. Both commercial and philanthropic organizations host competitions to find the perfect match for unique, effective, innovative, and sustainable solutions to rise to the surface.

Specifically, for us, since Vodafone is a telecommunications service provider, we focus on the ability of mobile technologies to drive innovation for those in need. Because mobile technology is ubiquitous, with over 7 billion mobile subscribers worldwide, it is one of the most effective tools for social change. Innovative mobile solutions have already started to change economies through mobile money, mobile micro-loans, delivery of healthcare through mHealth, education through mobile platforms, and so much more.

VAF_WIP-w-o-winner-block_3inEach year we look for new ideas that leverage mobile for a better world through our Wireless Innovation Project, (WIP) a competition.  The competition is designed to promote innovation and increase the implementation of wireless-related technology. The competition recently opened its ninth annual call for submissions. In March 2017, we will select the winners, with first place receiving $300,000; second place $200,000; and third place $100,000. The winners can receive both the funding and potential mentoring they need while we can invest in the causes and services that are important and meaningful to our mission.

We are excited each year for the WIP competition because it provides unique opportunities for entrepreneurs and the Foundation alike. For example:

  • We get to see their passion firsthand. Each year, we ask the finalists to pitch their project in person at our California offices. This provides us the opportunity to meet new entrepreneurs (and for them to meet one another) to witness their drive and passion for the project. Although there are costs for the Foundation to hold in-person competitions and get everyone under one roof, we feel strongly about getting to know the person behind the innovation; we need to know that they are as committed as we are to ensure a good partnership.
  • Competition brings out the best. In a competition format, naturally there are winners. Driven by a prize and inspired by their peer competitors, all participants are compelled to perform at their very best. A competition sometimes forces people to think outside of the box and go beyond their original concept to differentiate themselves throughout the competition. Within just the competition period itself, entrepreneurs and their ideas may undergo multiple evolutions to arrive at a distilled, quality product or service. The competition format also allows participants to become inspired by one another’s work in a way that is not often possible in traditional grantmaking in which grantees blindly compete against one another.
  • Focus more on potential than current status. What happens when you have a great idea and not much to show for it yet because it’s simply a little early? While it may not be true for all competition models, our Wireless Innovation Project makes it easier for entrepreneurs to highlight the potential of a product or idea and win the competition based on the future impact it can drive versus actual business results seen to date. This allows a greater range of companies, especially start-ups, to gain funding where they may not have been able to otherwise. Our prize money might be just what they need and just at the right time to propel them to where they need to go, like completing a prototype or testing a market.
  • Gather multiple ideas at once. Our annual competition seeks innovations in more than one issue area so it allows us to tap into a diverse source of information and ideas, all at the same time, as well as support these ideas in a bigger way. While we work with different organizations throughout the year for traditional grants, the WIP competition opens up the possibility for us to witness an individual solution or organization to grow and evolve. In one year, we may have a winner that has a solution for the environment and another for financial inclusion. It is truly an engaging experience to learn about, guide, and finally support so many novel and potentially valuable ideas. The WIP competition allows us to generate new connections that we previously may not have made through the traditional grant-giving route. We can break out of our own network to create larger, more integrated networks with entrepreneurs and startups across multiple industries as we make connections with almost all the applicants – not just the winners. We hope that with these partnerships that we create and foster, we continue to make sustainable and dynamic discoveries for solutions that impact great change. 

There are many competition models across the industry, but our model has already identified outstanding innovations that have gone on to win more accolades and additional funding, which has allowed them to reach market and even expand their solutions to create greater impacts. Two of the many notable examples are Mobile ODT, which uses a phone camera for colposcopies, and Nexleaf, which makes a vaccine monitoring platform. Each has been able to turn their ideas into scalable solutions that are revolutionizing healthcare capabilities in emerging markets.   

Finding what was never imagined possible is why so many foundations, companies, and even governments take advantage of the competition model. The model allows brilliant ideas to come forward and help solve specific, important issues in our world today.

--June Sugiyama

 

Learn from the Transparency Challenge Highlights Reel
January 19, 2017

(Janet Camarena is director of transparency initiatives. A version of this post first appeared on the James Irvine Foundation blog.)

Janet Camarena PhotoWho doesn’t love a challenge? Marathons and Olympic events spur individual athletes to break records, mountaintops invite climbers to scale greater heights, and moonshot challenges motivate innovators to aim for the impossible. Could transparency pose similar challenges and opportunities for philanthropy?

Last November, Glasspockets launched a new feature designed to inspire foundations to greater transparency heights. Using data gathered from 81 foundations that have taken and shared the “Who Has Glass Pockets?” transparency assessment, the Glasspockets team identified transparency benefits and trends in a new Foundation Transparency Challenge infographic.  Since it’s often easier to learn by example, the infographic serves as a highlights reel showcasing foundations that are succeeding where most fear to tread, and this post digs in a little deeper to help other foundations learn from some of the selected examples.

Less Pain, Much to Be Gained

The Foundation Transparency Challenge reveals the toughest challenges for philanthropy — those elements that are shared by the fewest participating funders.

The infographic curates the hundreds of documents we have aggregated in Glasspockets to highlight those that can serve as good examples, including pain points for the field such as providing assessments of overall foundation performance, codes of conduct, and grantee feedback mechanisms. Below are observations about each of these based on some good examples from our collection of participants, along with an explanation of why these particular examples were selected.

Assessment of Overall Foundation Performance

Opening up how a foundation measures its own progress develops a culture of shared learning across the field. Despite the fact that many foundations emphasize impact assessment for their grantees, few lead by example and share how they measure their own progress.

Transparency Challenge - Shared Learning Infographic
Only 22 percent (18 foundations) of the 81 Glasspockets participants use their websites as a vehicle to share an overall foundation performance assessment though some do (The James Irvine Foundation, the Robert Wood Johnson Foundation, and the New York State Health Foundation.)

Irvine’s assessment is also unique because it is updated annually, aligned to the rhythm of a foundation annual report — a good tip for those considering how to make the ritual of the annual report a more beneficial exercise.

Another common pitfall is foundations often focus all of their assessment efforts on the grantmaking side. Dashboard metrics in these three examples of performance assessments include things like social media, reputational capital, communications and learning, staffing, financial performance, and funding in diverse communities, in addition to programmatic dashboards. In other words, they look at the institution as a whole.

Grantee Feedback Mechanism

Providing a way for grantees to provide a foundation with ongoing feedback serves to strengthen relationships with stakeholders and creates a culture of continuous improvement, yet only 31% of our sample do so. Most foundations have a contact form of some kind, but few take the step of creating a form specifically for feedback year-round. Opening up a foundation’s website in this way helps break down the insularity of philanthropy.

“Learn from a new Transparency Challenge infographic, which serves as a highlights reel showcasing foundations that are succeeding where most fear to tread.”

Because it is difficult for foundations to receive unvarnished feedback, the David and Lucile Packard Foundation uses a neutral third party service to collect confidential feedback, in addition to giving the option of providing the foundation with direct feedback at any time.

Another obstacle for feedback is grantee time. A good step taken by both Packard and the Barr Foundation is to provide prompts that make it easier for the grantee to consider areas in which they might have advice for the foundation.

In the case of Barr, its online form resembles a Yelp review format that allows a star rating and offers a quick multiple-choice survey in addition to the ability to provide an open-ended response.

Code of Conduct

Finally, posting a Code of Conduct is a small but simple way to build credibility and public trust by demonstrating an institution’s commitment to professional and ethical conduct. Many foundations do not post a code of ethics or guiding principles, but even for those who do, surprisingly few explain what happens if the code is violated.

The codes of conduct offered up by Commonwealth Fund, the Alfred P. Sloan Foundation, and the Rockefeller Foundation are good examples for peers; they include rules of engagement that one might expect, and they also have rare but important details about the consequences of a code violation.

These are just a few of many examples in “The Transparency Challenge” infographic, so take a look to see which examples might inspire you to the next mountain peak on your journey to openness. In a future post I’ll review the remaining examples we highlighted and why.

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

 

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

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

Subscribe to Transparency Talk

Categories