1. FOUNDATIONS 'BLUNTLY REFUSE' TO PARTICIPATE IN MINORITY GIVING SURVEY; REPORT FINDS GRANTMAKERS TO BLAME FOR UNDERREPRESENTATION OF MINORITIES IN POLICY DEBATES

Minorities are underrepresented or even missing in action in discussions of public policy matters, including on issues that disproportionately impact them – and it's "largely attributed" to a lack of foundation support for minority-led organizations, according to the Greenlining Institute. The Californiaadvocacy organization just released its second annual survey of foundation giving to minority-led organizations, nonprofits with more than 50 percent of staff and board members from minority populations and which work to serve minority communities. Though it made some significant methodological adjustments to its survey, the Institute found little change in numbers from last year's study – 3.6 percent of grant dollars currently flow to minority-led organizations (after excluding one very large grant that skews the results) – and little change in foundation attitudes toward the survey. The Institute reported that only five of 35 foundations "actively cooperated" in providing information. It singles them out for thanks in the report, Investing in a Diverse Democracy, along with the 10 foundations that provided feedback to help improve the study. Meanwhile, nine foundations "bluntly refused" to participate, and 17 provided no response, forcing the Institute to rely on Foundation Centerdata as well as its own analysis of grantees. The Institute acknowledges its survey's shortcomings, and calls on foundations to cooperate and provide useful feedback so that it can produce more accurate reports in the future.

The Institute stressed that the lack of foundation support for minority-led organizations is a critical issue. To help publicize the report, the Institute created a 12-minute video, in which one advocate says the report's findings show minorities "are disenfranchised" and that "democracy is at risk." Robert Ross of the California Endowment said on the video that elected officials and other policymakers should at least be aware of the lack of foundation funding for minority organizations and ask some questions about the issue.

2. NCRP REPORT OFFERS IDEAS TO MAKE FOUNDATIONS MORE DIVERSE, DEMOCRATIC; SHOULD ESTABLISH COMMUNITY ADVISORY COMMITTEES

A new essay calls on nonprofits working to improve diversity among corporate, government, and educational institutions to follow the Greenlining Institute's example and target foundations, specifically foundation boards. Foundation boards are less diverse than those serving the nation's largest corporations, according to this essay published by the National Committee for Responsive Philanthropy. And the forthcoming intergenerational transfer of wealth that will soon infuse trillions of new dollars into foundation coffers only makes achieving greater diversity more urgent, according to the essay, written by former NCRP director Rick Cohen. The Ford Foundation commissioned the essay, Building Solid Foundations: New Approaches to Substantive Philanthropic Accountability, to provide foundations with ideas and aspirations for improving their accountability to society. At the heart of substantive accountability, according to Cohen, is the question of social value. The sector needs more debates about what foundations are doing and ought to be doing about poverty and other critical public issues.

The substantive accountability challenge, as framed by Cohen, is for foundations, which are "not very democratic institutions," to open up – at least by engaging their own constituencies. He argues that private foundations should emulate the health conversion foundations by, for example, creating community advisory committees to work with foundation boards. Cohen's other ideas for increasing substantive foundation accountability include: maximizing payout amounts; widely disseminating foundation investment policies and practices; and listening to what grantees have to say about the substance of foundation work. In some cases, nonprofits endure foundation behaviors that in a market setting would not be tolerated by consumers or clients, Cohen asserts.

3. FOUNDATION EXPERT: CONGRESS SHOULD CREATE AGENCY TO REGULATE NONPROFIT SECTOR, IDEAS TO IMPROVE FOUNDATION TRANSPARENCY

As a first step to increasing foundation accountability, Congress should create an independent, private agency in charge of nonprofit sector oversight modeled after the National Association of Securities Dealers, which regulates brokers and brokerage firms in partnership with the federal Securities and Exchange Commission. The Internal Revenue Service does not seem equipped to handle oversight duties, at least not alone, according to Joel Fleishman of DukeUniversity. Fleishman recommended this idea, originally proposed by Marcus Owens, former director of the IRS's nonprofit oversight office, in a just-released book, which also offers other ideas aimed at improving the sector's self-regulation efforts. Based on extensive research, Fleishman focuses his comprehensive book, The Foundation: A Great American Secret, on documenting the habits of foundations that have carried out successful initiatives as well as the far fewer numbers deemed to have failed in achieving real impact on society (see item #4 below for more on this point). Fleishman reports that many foundations seem less interested in achieving impact than in merely "showing the world that their hearts are in the right place." But more should be expected of foundations than simply expressive giving, since they are often the only institutions in a position to introduce significant change in society, he argues.

Fleishman is particularly concerned by the lack of foundation transparency, especially the unwillingness of funders to publicly share details about grantmaking practices and results. Fleishman says there is "no excuse" for the lack of transparency, given the quasi-public nature of foundations that results from the tax benefits they enjoy. He calls on the sector to create a transparency-enforcement board to which persons denied information could appeal for redress; a transparency-enforcing mechanism; and a system for publicly rating foundations on the extent to which they fulfill obligations of transparency. And larger foundations could be required to employ an ombudsman, who would independently and fairly act on complaints about foundation failures to disclose requested documents.

4. SUCCESSFUL FOUNDATION INITIATIVES HAVE SIMILAR FEATURES, AUTHOR REPORTS; FAILURES ALSO SHARE CHARACTERISTICS

In his new book (see item #3 above), DukeUniversity's Joel Fleishman teases out some common characteristics among 100 foundation initiatives that have had significant impacts on society. Among these common features are: the need to focus and limit fields in which foundations become involved as well as to align all their resources to match that focus; and then the need to work to maintain both focus and alignment over time, while also being open to new issues and information as they arise. "A foundation must be willing to make hard choices and to stick with programs and grantees over a long period of time if it is to achieve significant impact," Fleishman writes. Case studies of all 100 initiatives reviewed for the book are available online.

Fleishman also identified commonalities among those foundation initiatives widely considered to have failed. More often than not, according to Fleishman, failure results from the combination of a strong desire to do something about a problem and a lack of understanding about just what to do. Failures are nothing to be ashamed of, he asserts, but rather "badges of honor" signaling foundations are trying harder to serve the social mission that justifies their tax-favored treatment. What is a shame, he says, is the unwillingness of foundations to own up to their failures. Fleishman only counted four foundations that have done so.

5. FOUNDATIONS ARE IMPULSIVE, HAVE ATTENTION-DEFICIT DISORDER; OTHER THEMES FROM EFFECTIVENESS SYMPOSIUM

In recently published comments, Duke University's Joel Fleishman argues that foundations don't conduct their business the way state-of-the-art for-profits do – in fact, he suggests they don't even conduct their business as a prudent individual might her own private business affairs. Instead of acting in a systematic way, foundations act in impulsive, subjective fashion, Fleishman said at a symposium held in Berlinin 2005. The German foundation Bertelsmann Stiftung held this symposium and recently published its proceedings, Effectiveness, Efficiency and Accountability in Philanthropy: What Lessons Can Be Learned from the Corporate World? Fleishman said that many foundations are beginning to recognize their inadequacies – which include what he called foundation attention-deficit disorder, or confining grants to a maximum three-year time frame, a "dysfunctional" practice that doesn't promote true impact. Fleishman identified five other ways in which foundations are addressing their shortcomings, including by establishing performance benchmarks and providing general operating support to grantees.

One of the main themes from the symposium, as detailed in the publication's overview chapter which was co-authored by Bertelsmann Stiftung's Heribert Meffert: Because foundations represent a small share of all nonprofit funding, their prime concern should be to ensure they are effective. To be effective, according to the publication, foundations should work to leverage business support, public spending and policy, and citizen action. Further, foundations need to adopt proactive marketing strategies in order to achieve their goals; working inwardly is no longer appropriate for the expanded range of foundation activities, he says.

6. FOUNDATIONS SHOULD PROVIDE OPERATING SUPPORT GRANTS OF LARGER AMOUNTS, LONGER TERMS THAN IS CURRENT PRACTICE

Surprisingly, it doesn't seem to make much difference to grantees whether a foundation provides program or general operating support. Most grants today are simply too small and short-term to make much of an impact either way, according to a new research report from the Center for Effective Philanthropy. In Search of Impact: Practices and Perceptions in Foundations' Provision of Program and Operating Grants to Nonprofits incorporates various data sources and surveys in its analysis, and finds that large foundations provide less than 20 percent of their grantees with operating support. To have the most impact on grantees, according to the report, foundations should provide operating support grants, and they should make grants that are larger and longer term than the vast majority of foundation grants today. Foundations should also strive for high-quality interactions with grantees, clearly communicate foundation goals and strategy, and have an external orientation and relevant expertise within the foundation. The Center has created an online comments section to which readers can post and share their reactions to the new report.

Foundations' preference for program-restricted support derives in part from a commonly held belief among foundation leaders that it is the only way to responsibly track the use of foundation grant dollars and connect foundation funding to the achievement of specific goals, according to the report. Other foundation leaders that do provide operating support who were interviewed by the Center challenged that belief though. One suggested that general support allows grantees to plan for assessments according to performance indicators that mattered to them, the grantees, not just to their funders.

7. FOUNDATIONS MAKING SUBSTANTIAL INVESTMENTS IN NONPROFIT CAPACITYBUILDING; CAUTION ABOUT FUTURE, NEED FOR MORE RESEARCH

The more foundations measure their own effectiveness, the more they'll invest in nonprofit capacity building since this can be a prudent way to improve nonprofit – and, therefore, also foundation – impact. That was one trend identified in a foundation-funded report from the Human Interaction Research Institute. This report, Exploring Foundation Financial Investments in Nonprofit Capacity Building, sheds light on foundation support of nonprofit capacity building, both broadly and narrowly defined. It reports that foundations are making substantial investments in nonprofit capacity building, though funding has decreased a bit in the last several years and there are reasons for caution about the future. Community foundations, for example, are traditionally strong investors in capacity building, but their support is likely to be reduced as a result of increasing restrictions placed on funds by community foundation donors. The report concludes that researchers and practitioners should come to better agreement on a definition of nonprofit capacity building and conduct more research into capacity building efforts. And HIRI suggests that its study could be used to help establish benchmarks for community discussions about the practice, similar to a 360 Degree Dialogue it pilot tested in August. A guide based on that dialogue will be published in early 2007.

8. FOUNDATIONS COMMENDED FOR EXPERIMENTING; PROFESSOR STRESSES IMPORTANCE OF LEARNING FROM FAILURE

Foundations that try to measure the effects of their social experiments are to be commended even though it must be acknowledged they simply cannot know for sure the best way to proceed in solving social problems. That's according to Gerard Alexander of the University of Virginiaand an adviser to a private foundation. Alexander was a panelist at an Oct. 19 discussion at the Hudson Institute that focused on the new book Strategic Giving by the Universityof Texasat Austin's Peter Frumkin. Alexander gave the event's most far-ranging and provocative speech, in part a result of what he said was his relative inexperience with philanthropy as well as his deeper grounding in political science. Alexander says it's just reality, not a "condemnation," that social science's knowledge about what causes poverty and many other social phenomena is "deeply inadequate." As a result, those engaged in philanthropy cannot know, for example, what kind of nonprofit activity is most likely to alleviate poverty. There's no good social science underlying the issue – "we don't know enough about social processes" to answer the question.

Nonetheless, foundations should keep experimenting and evaluating what they do. Those that experiment but don't bother evaluating the effort, he said, "aren't in it to try to improve the human condition" – they're motivated more by doing something they can feel good about. Alexander also stressed the importance of foundations reporting to the public what they learn, especially when they fail. Failure is "where knowledge comes from, most times," he said, noting that failed experiments have made an important contribution in the natural sciences (see also #4 above).

9. LITTLE KNOWN OR PUBLICLY SHARED BY FOUNDATIONS ABOUT BEST WAYS TO EVALUATE ADVOCACY EFFORTS; REPORT OFFERS IDEAS

Foundations should provide more clarity about their broad social change goals so that grantees don't have to guess about what's expected of them and know how their activities fit within a funder's overall theory of change. That was one theme expressed in a discussion among funders, grantees, and evaluators which is summarized in a new report, The Challenge of Assessing Policy and Advocacy Activities: Part II – Moving from Theory to Practice, from Blueprint Research & Design. Prepared for the California Endowment, the report documents key themes from a March 2006 convening that considered conceptual approaches to policy change and ideas for evaluating advocacy activities.

This report follows on an October 2005 report by Blueprint –The Challenge of Assessing Policy and Advocacy Activities: Strategies for a Prospective Evaluation Approach – that captured the state-of-the-field in advocacy evaluation. As it turned out, since the field of advocacy evaluation is so new the original report did not unearth a commonly-practiced methodology or widely-used tools. In fact, according to the 2005 report, much of what is known about how best to evaluate policy work has either not been written down, or has been written in internal and often informal evaluation reports that foundations do not commonly share.

According to the second, more recent report, few forum participants had much experience to relate and could only offer general ideas about evaluating advocacy efforts. The Blueprint analysis called for more people to experiment with evaluations. In addition to more clarity on overarching foundation goals, another key theme from the report is the need for foundations to be open to what is learned through evaluation, accepting bad news and accounts about strategies that fail as well as success stories.

10. ONLINE RESOURCES AIM TO IMPROVE KNOWLEDGE, PRACTICE OF ADVOCACY EVALUATION

Two new online resources aim to help improve knowledge and practice about advocacy evaluation. The recent Blueprint report prepared for the California Endowment (see item #14 above) singles out the new online Advocacy Evaluation Resource guide from the nonprofit Innovation Network, which aims to be a one-stop shop for current research in evaluation efforts of policy work. Funded by JEHT Foundation and the Atlantic Philanthropies, Innonet's Advocacy Evaluation Resource guide seeks to identify a practical planning and evaluation framework for policy advocacy, in part through guidance from an Advisory Board of evaluators, advocates, and funders.

Continuous Progress is another new online guide focused on advocacy evaluation. Developed by the Aspen Institute's Global Interdependence Initiative, the site intends to serve both grantmakers and advocates, walking them through the steps involved in evaluating policy efforts. While the site focuses specifically on foreign policy advocacy, or advocacy to affect U.S.policy toward the developing world, the concepts and ideas generally apply to all advocacy evaluation. It also includes an exhaustive Resources and References list section that includes other publications and guides useful to grantmakers, advocates, and evaluators of all types of change efforts, not just those in the foreign policy arena.

11. PHILANTHROPY STILL HAS ROLE TO PLAY AS MICROFINANCE BECOMES MORE COMMERCIAL; NEED FOR A MICROCREDIT RATING SYSTEM

Philanthropically-minded business executives and entrepreneurs are working to make the philanthropy-supported practice of microfinance a profitable business venture. And that's as it should be, according to Emily Chamlee-Wright, an economics professor at Beloit College, who argues for greater commercialization in the field. Chamlee-Wright wrote an essay in a recent volume of DonorsTrust's Conversations in Philanthropy arguing that microfinance, as a means to alleviate poverty, is "nowhere close to reaching its potential." The vast majority of microfinance organizations are still dependent on donor funds, she says, and they would benefit if forced to seek out commercial sources of funding and respond more directly to client demand. It is by being responsive to clients' needs, not donors' wishes, "where the greatest potential for sustainability lies," she says.

So does philanthropy still have a role to play? Certainly. Chamlee-Wright says donor support will still be critical in providing seed capital and helping develop infrastructure. Philanthropy should help facilitate development of an information-sharing infrastructure among microfinance organizations, something akin to a credit bureau rating system. Heather Wood Ion, an advisor on international health policy and head of the Goldie Hawn Institute, adds in the publication's lead essay that a communication network is needed to enable philanthropic organizations to share lessons learned and assess their efforts. Meanwhile, Claire Morgan of George Mason University writes in a "Comments" piece, which reflects on the essays in the volume, that philanthropy should focus on helping to secure the institutional environment surrounding microfinance, by ensuring that the political-legal system is transparent, avoids corruption, and secures private property rights to make investors more confident of their investments.

12. TOO MUCH PHILANTHROPY IN MICROFINANCE COULD HARM PRACTICE; PEACE PRIZE-WINNING FOUNDER SAYS PHILANTHROPY SLOWED SUCCESS

But philanthropy needs to be careful with its support of microfinance activities. Claire Morgan of GeorgeMasonUniversityappends her ideas for philanthropic support of microfinance included in a "Comments" piece in Conversations in Philanthropy (see item #11 above) with the following caution: Donors shouldn't offer too much support or get too involved in the actual processes of microfinance, she writes, or "they will probably do more harm than good." It's a sentiment shared by Alejandro Chafuen of the Atlas Economic Research Foundation. Just as too much water in soil can damage certain plants or lead to flooding, Chafuen writes in his Comments piece that too many resources flowing into microfinance could lead to negative outcomes. In fact, philanthropy may have actually helped to stunt the growth of the microfinance field, according to one of the field's principal funders, eBay co-founder Pierre Omidyar. Omidyar was quoted in an Oct. 30 New Yorker article that philanthropy's "undemanding capital" – which is provided with nothing expected in return – allows recipients to pursue uncompetitive and unsustainable efforts. This expansive article explores the growing tension between for-profit and nonprofit approaches to microfinance, reporting that for-profit efforts are less willing to branch out into new, harder-to-serve rural areas.

Even the field's famous founder raises doubts about philanthropy's role, going so far as to suggest he could have found success sooner without philanthropy. In an interview published in the Nov. 27 Business Week, Nobel Peace Prize-winner Muhammad Yunus suggested that his microfinance organization, Grameen Bank, could have been successful and independent sooner than it was – if philanthropy hadn't been involved. "Earlier, when donors wanted to give us money, we were always swayed and took the money," he said. "If donors hadn't given us the money, we would have discovered earlier" that we could support ourselves. He cautioned other microfinance organizations, increasingly popular with philanthropists, to stay away from philanthropy's sway: "If it's a business, it should be running as a business."

13. HAS THE RUSH TO MICROFINANCE CREATED AN ECONOMIC 'BUBBLE'? AND WHY HASN'T IT TAKEN OFF IN THE U.S.?

So philanthropy can continue to help – and hurt – microfinance now that the focus has shifted to trying to make it profitable. But just how profitable and successful can the practice hope to become? A Nov. 27 Forbes article raised doubts, quoting experts in the field on the dearth of rigorous studies assessing microfinance activities, and reporting that the practice has become an emotional, impulsive behavior. In fact, Forbes suggested the practice of microfinance, at least in India, is an economic "bubble" that may soon burst on account of too many new microlenders who aren't being careful in ensuring success – of those they are lending to as well as with their own organizations' sustainability.

Meanwhile, the rush to make microfinance a profitable business practice has been cited as the reason it has not taken off in the U.S. as it has in developing countries. The costs are prohibitive and the likelihood of profit not as encouraging, according to the Dec. 11 Washington Post. That may be true, but is the point to profit or to help alleviate poverty? The Dec. 6 Wall Street Journal quoted one U.S.-focused microlending organization executive commenting that the profit motive doesn't drive other efforts to meet U.S. social needs, such as job-training programs or affordable-housing initiatives. "If markets can solve poverty, why haven't they?" asked Eric Weaver of Lenders for Community Development.

14. NONPROFITS COULD INSTITUTE PRACTICES, COMMON IN ART WORLD, TO ENCOURAGE COMPETITION, LEADING TO 'SOUNDER' PHILANTHROPY

A challenge facing philanthropy today is that giving has become essentially a top-down, arbitrary affair with criticism discouraged, according to Frederick Turner of the University of Texas at Dallas. It "is churlish to criticize the generous impulse of a giver who puts his money into some wasteful and ineffective but benevolent project," Turner writes in a commentary piece included in a recent volume about microfinance in the DonorsTrust's Conversations in Philanthropy. His prescription: Perhaps the nonprofit sector should institute practices that would encourage competition, at all levels. As in the arts, these might include critical reviews, exhibitions, literary and aesthetic education, historical and biographical accounts, and prizes. Turner argues that this could point the way to a "sounder" philanthropy, providing a better basis for sustainability. And not just in microfinance, he adds, but in other fields as well, from scientific and medical research to higher education.

15. TOO MUCH PHILANTHROPY SPENT MAINTAINING STATUS QUO; NEED FOR 'CATALYTIC INNOVATION,' LIKE COMMUNITY COLLEGES

Too much philanthropy that seeks to address social problems is devoted to maintaining the status quo and is given to organizations wedded to old solutions, delivery models, and recipients. All the while, the returns on philanthropic investments are disappointing. That's according to a December article in the Harvard Business Review, which argues that what's needed is expanded support for organizations which are approaching social-sector problems in fundamentally new ways. Calling this "catalytic innovation," the HBR article says the practice challenges status-quo-oriented nonprofits by offering simpler, "good-enough" alternatives to address seemingly intractable social problems. Catalytic innovation is based on the "disruptive innovation model" in business, which was conceived a decade ago by the lead author of the HBR article, Harvard's Clayton Christensen. Christensen and his co-authors write that catalytic innovations are not specifically nonprofit: neither for-profit nor nonprofit tax status "has an automatic advantage" in addressing social challenges, they argue. And in fact, most of the examples cited in the article involve for-profits providing education or health care.

One nonprofit-centered catalytic innovation model cited in the article is community colleges. Foundations are increasingly supporting community colleges, according to the Nov. 13 New York Times. Community colleges are easier to access and less costly than traditional four-year colleges, and provide higher education in "good-enough" quality for the public – all signs that they're a catalytic innovation, based on the Harvard Business Review definition and reporting in the New York Times article, which was included in the paper's annual Giving section.

Of Related Interest

Online Commentators Call for More Criticism of Charitable Giving
There needs to be more criticism of charitable giving in the wake of Warren Buffett's multi-billion-dollar gift to the Bill and Melinda Gates Foundation. David Nasaw, an Andrew Carnegie biographer and professor at the City University of New York, called for more scrutiny along the lines that mega-philanthropists faced more than a century ago. Writing in a Nov. 10 Slate article, Nasaw said that even if all of today's billionaires followed Buffett's example, the growth of the foundation sector is a mixed blessing: foundations are virtually free to do as they wish without public scrutiny or involvement. "Shouldn't we also be asking...about the health of a society that looks to handouts from the wealthy" to make society work? Former Labor Secretary Robert Reich added to this line of criticism in an Oct. 2 The American Prospect Web Exclusive. Reich writes that he remembers a time when "government collected billions of dollars from tycoons like these...and when our democratic process decided what the billions would be devoted to."

Related Reading

Grantmakers in Health Offers Examples of Funders Successfully Engaged in Advocacy
The Connecticut Health Foundation's work in advocacy shows what can be accomplished with timing, focus, and strategy, according to a profile of the foundation's past work in ensuring that thousands of residents in the state did not lose health coverage. The Fall edition of Grantmakers in Health's new series GIH Inside Stories provides historical detail and analysis of just how the foundation beat what at the time seemed like insurmountable odds. The key to success was, in part, the foundation's showing real commitment to the issue and following it through, according to"Counting in Connecticut: Arming Advocates to Protect Health." Grantmakers in Health has provided additional examples of health funders who engage in advocacy and public policy work to increase access to health care. Improving Health Care Access: Grantmakers Share Their Experiences profiles 11 funders of varying sizes and histories who employ different approaches to increasing access, including supporting state legislative efforts at health reform and building public support for change.

McKinsey Quarterly: Lessons for Foundations Considering Changes in Operations
Uncertainty about change may be as difficult for staffers to cope with as change itself, and communicating what's happening as soon as possible are key lessons for foundations considering changes in their operations. Those are two lessons drawn from the Atlantic Philanthropies' decision to spend down its assets in the next decade or so, as identified by McKinsey consultants and reported in a McKinsey Quarterly Web exclusive. The article reports that the once-anonymous grantmaker has so far successfully handled the switch to spending down its assets and refocusing its grant priorities, which involved inevitable "messiness." It could have done a better job of letting staff know about some changes earlier, though, since the delay created staff frustration and lowered morale for a time.

New Resource

CLPI Guide Helps Nonprofits Engage in Legislative Advocacy
The Center for Lobbying in the Public Interest has published an attractive, easy-to-follow guide to help nonprofits engage in legislative advocacy. Make a Difference for Your Cause: Strategies for Nonprofit Engagement in Legislative Advocacy guides organizations in building their organizational capacity to engage in advocacy, and helps them understand nonprofit lobbying laws and factors they should consider in using legislative advocacy to advance their missions. Offering examples of nonprofits that have successfully used public policy engagement, the guide also aims to help proponents of advocacy engagement within a nonprofit win over others in their organization, usually the executive director or board members, who are reluctant or confused about the benefits of advocacy.