1. FOUNDATIONS CALLED ON TO FUND INNOVATIVE IDEAS; ADJUST PORTFOLIOS TO DEVOTE 10 PERCENT TO 'INTELLECTUAL RISK'

Every foundation should adjust its portfolio to devote 10 percent of its resources to "intellectual risk," the development of new ideas that push the edges of our knowledge. That's according to onPhilanthropy's Susan Raymond in one chapter of Mapping the New World of American Philanthropy, edited by Raymond and Mary Beth Martin. Raymond writes that the pursuit of knowledge for its own sake is often seen as being at odds with an interest in practical solutions to immediate problems, and in conflict with the current drive for impact in philanthropy. But the drive for results, Raymond continues, threatens to make philanthropy risk averse and mechanical, with philanthropy officials resembling mortgage lenders assessing whether to provide a loan.

Blogger Alex Steffen agrees with Raymond on the importance of philanthropy looking to the fringes as it seeks to encourage innovation. But is philanthropy up to this task? In a June post to his WorldChanging Blog, Steffen suggests that innovation is not common in the mindsets of those engaged in advocacy and charity. Steffen explains his argument by first admitting that it is an oversimplification. But, he continues, both advocates and philanthropists are much more interested in avoiding risks than taking them. Effective activists and "do-gooders" like to take action - feed the hungry or end animal testing now - not uncover new ideas about future action or future needs through research. That is why he suggests that foundations find it challenging to cultivate innovation. But it's critical that they at least try, since he reasons that little innovation would emerge without philanthropy's support.

2. RESEARCH FIRM CONSIDERING COMPARING INVESTMENT RESULTS OF FOUNDATIONS; NEW STUDY REPORTS RISE IN HEDGE FUNDS INVESTMENTS

Do foundations want to measure how well their investments are doing compared to their peers? Morningstar, a prominent investment research company, is currently reviewing the feedback it received from pension, endowment, and foundation representatives to an earlier announcement that it is considering launching a free, voluntary database. This database would track, on a monthly basis, these public or public-interest funds' performance, expense, and portfolio holdings. Morningstar suggests the move would be in the sector's interest. "We hope everyone involved...will step forward and support transparency," a May 24 press releasequotes one official. The company plans to report this year whether, based on feedback, such a database is viable.

Meanwhile, the Commonfund Institute released a studyin June which found that foundations enjoyed a return of almost 14 percent of assets in 2006 - almost double the rate of return in 2005 - in large part because of their increasing investments in international stocks and hedge funds. According to this survey of 279 private and community foundations, just under half of the average foundation portfolio is now invested in more traditional funds, such as domestic stocks and bonds, and that amount continues to decrease. Among so-called alternative investments, comprising over one-fifth of the average portfolio, 46 percent were in hedge funds, largely unregulated pools of managed money. And Commonfund reported that foundations expected to increase such investments this year.

3. THREE FOUNDATIONS RELEASE EVALUATION REPORTS CRITICAL OF THEIR INITIATIVES, SEEKING TO HELP SECTOR LEARN FROM FAILURES

Three foundations have recently released reports on their work that go beyond reporting just good news about positive program results. In fact, these reports, based on independent evaluations - and summarized in the next two items - focus more on analyzing what went wrong or at least what didn't go quite as planned over the course of several major foundation initiatives. As the William and Flora Hewlett Foundation's Paul Brestwrites in an introduction to the report his foundation released (see item #5), foundations should expect they will often fail when they tackle challenging social problems. But, he adds, learning from failure or disappointment is more easily said than done, and "failure" is treated as a dirty word in the sector. The authors of this report, focused on Hewlett's Neighborhood Improvement Initiative, write that most evaluation reports offer nothing too deep or candid about what it really takes to do the work. They leave the impression that the same discoveries and mistakes keep getting made, over and over again, and that relevant lessons aren't learned.

Echoing what Brest writes in his report's introduction, a report from the James Irvine Foundation (see item #4) says that it is difficult for foundations to learn from midcourse assessments and make needed adjustments in ongoing initiatives.  Midcourse changes may be threatening to grantees, and foundation staff members themselves may feel that admitting initiatives are not going well reflects badly on their own performance.

4. FOUNDATIONS ADVISED TO BE SKEPTICAL WHEN GRANTEES CALL FOR MORE TIME, RESOURCES

Foundations should make external, midcourse review a planned event in large-scale initiatives, and they should be skeptical about calls for more time, more resources, and more assistance. Those are key lessons from the James Irvine Foundation's report Midcourse Corrections to a Major Initiative. Written in very clear language, the report critically assesses the foundation's largest initiative, an eight-year, $60 million effort that sought to improve the educational performance of low-achieving students in California. The Irvine report says foundations are hobbled by a tradition of politeness in grantmaking, with foundations reluctant to raise concerns about grantees the way businesses do with contractors.

This tradition of civility is also alluded to in a report from the John S. and James L. Knight Foundation, which states that foundations should worry less about being difficult and prescriptive than about being too vague and too hands-off. If something matters to the success of a program, foundations should not be afraid to take a hard line even if it poses difficulties for and brings resistance from grantees. The Search for Shining Eyes: Audiences, Leadership and Change in the Symphony Orchestra Fieldanalyzes what ended up being a 10-year effort to help 15 orchestras across the country revitalize the symphony experience and increase attendance among the ticket-buying public. One reason the initiative didn't meet with as much success as it might have, according to the report, is because the Knight Foundation consented to grantee demands about the impracticality of requiring music director participation in its program. The result was that a crucial participant remained absent and the program suffered.

5. REPORT SAYS FOUNDATIONS SHOULD BE WILLING TO EXPERIMENT, DEVELOP SHARED DEFINITION OF SUCCESS WITH GRANTEES

The foundations that seem most likely to create new knowledge from their initiatives - if they succeed and especially if they fail - are those that are willing to experiment and those that embrace the idea of learning while doing. This often means "building the airplane while flying it," according to the Hewlett Foundation's report on its 10-year Neighborhood Improvement Initiative. Hard Lessons about Philanthropy & Community Change from the Neighborhood Improvement Initiative reinforces the critical importance of clarity about goals, strategies, and indicators of progress, as well as the need for all participants in a joint venture to agree on these matters. There should be a shared definition of success and how it will be measured before an initiative is implemented. Further, the report says being experimental means becoming a partner in, rather than an owner of, the discovery process. This requires a productive relationship between a funder and its partners, including not just grantees but community members as well.

6. FOUNDATIONS ADVISED TO LET GRANTEES TAKE THE LEAD IN EVALUATION

To move the field of foundation evaluation forward, foundations should focus fewer resources on identifying the ultimate impact of their grants and devote far more effort to gathering information that can help them and their grantees improve their near-term effectiveness. Such a shift will often result in simpler and less expensive evaluation practices that provide more timely information. That's according to From Insight to Action: New Directions in Foundation Evaluationfrom the nonprofit consultancy FSG Social Impact Advisors. The report, part of an effort to develop pragmatic evaluation approaches that enable foundations to achieve greater social impact, is based on nearly 100 interviews with foundation staff, board members, and evaluators and includes real-life examples of successful evaluation efforts based on those interviews. To improve foundation evaluation, the report says that better ways of organizing and sharing successful evaluation techniques are needed, so that individual funders of all sizes can understand the range of choices and identify which approach to evaluation best fits their particular circumstances. Among the principles underlying effective evaluation practices is the rule that foundations should let grantees take the lead in evaluation. The most accurate and efficient metrics FSG Social Impact Advisors found were often developed by grantees.

7. FOUNDATIONS CALLED ON TO FUND MORE RESEARCH INTO ISLAM, ADVOCATE FOR FEDERAL ADVISORY COUNCIL ON FOREIGN POLICY

The federal government and the nation clearly need foundations to fund more research about Islam and the Middle East and global sources of resistance to technology-based modernity, similar to the support provided by the Carnegie Corporation and others during the Cold War for studies of Soviet society. So says Rodney Nichols, formerly of the New York Academy of Sciences, in a chapter of a new book analyzing changes in philanthropy and offering recommendations to improve practices in the field. Through contributions from experts in the field and led by Susan Raymond and Mary Beth Martin from the consulting firm Changing Our World, Mapping the New World of American Philanthropy: Causes and Consequences of the Transfer of Wealthexamines various aspects of charitable giving and philanthropy, including giving by ethnic populations, generations, women, and corporations (see also item #1 above). In one chapter, Raymond, a columnist for the online publication onPhilanthropy and a regular consultant to organizations focused on international development, calls for the creation of a federal advisory council for foreign policy modeled after other, similar, existing bodies, such as the President's Advisory Council on Science and Technology. She argues that establishing this kind of entity would allow government officials to share ideas with and learn from foundations, which are moving major resources into areas of direct consequence for national security and foreign policy. The goal would be to generate a greater range of viewpoints to help improve the efforts of both the government and foundations.

8. RELIGIOUS LEADER SAYS CREATION OF PHILANTHROPIC 'COMMITTEES OF DISCERNMENT' WOULD HELP ENSURE DONORS ACT IN PUBLIC INTEREST

One way to keep wealthy donors from acting too much on their own in their grantmaking to set public policy agendas is to establish "committees of discernment." That's according to James Kowalski of the Cathedral Church of Saint John the Divine in New York, who says such committees could become as commonplace in philanthropy as ethics committees in hospitals. Writing a chapter in Mapping the New World of American Philanthropy (see item #7), Kowalski defines a discernment committee as one that involves a diverse group of people making decisions collectively to serve the common good. Such a committee would help keep philanthropists from becoming engaged in "idolatrous philanthropy" -  "making things over in [their] own image" - by giving without consulting others. Such a committee would help givers gain more certainty that they are addressing important problems with appropriate strategies, Kowalski suggests.

9. AUTHOR SAYS DRIVE FOR NEUTRALITY HAS NEUTRALIZED SOCIAL SCIENTISTS, FOUNDATIONS

Why have historically liberal foundations had so much difficulty shaping public conversation about the growing economic divide? Alice O'Connor of the University of California, Santa Barbara suggests it's in part a result of these foundations' misbegotten drive for neutrality that led them to accommodate, and thus empower, conservative social knowledge in post-welfare debate. O'Connor argues for a more actively charged social science in one of three books issued by the Russell Sage Foundation in recognition of its hundred years of funding social science. O'Connor's Social Science for What? Philanthropy and the Social Question in a World Turned Rightside Updocuments how, especially over the past half-century, social science has become not so much neutral but neutralized, detached from its ideological roots and failing in its original aim to further the public interest. As conservatives became more aggressive with their "antigovernment rhetoric," social scientists and their funders eventually retreated from politically charged disputes, with foundations distancing themselves from more controversial grantees. As a result, philanthropy finds itself in a state of uncertainty, if not crisis, as it confronts the challenges of a world she calls "rightside up."

Instead of challenging conservatives' various ideological claims on empirical grounds or simply criticizing conservatives for being ideological, O'Connor argues that generally liberal social science and its funders should admit to their own ideological commitments, which still allow for objectivity in research. She says the early Russell Sage Foundation offers examples of how foundations today can play a vitally important role in providing the social, institutional, and discursive space for creating a more socially purposive social science, by forcing discussion of serious, contentious issues.

10. OUTGOING FOUNDATION LEADER CALLS ON FOUNDATIONS TO BECOME MORE EMPHATIC, POLITICAL; SAYS STAFF SHOULD SERVE ON GRANTEE BOARDS

If foundations want to boost the societal influence of the sector, they should work "more emphatically, more energetically, more politically" than they have been, according to Edward Skloot, who recently stepped down as CEO of the Surdna Foundation. In the introduction to a book the foundation published earlier this year, Skloot repeats his previous calls for more useful research on the sector, more effective collaboration across sectors, and more advocacy by foundations - all with the ultimate aim of helping better society. The book, Beyond the Money: Reflections on Philanthropy, The Nonprofit Sector and Civic Life, provides a selection of the often-provocative speeches Skloot gave over the last eight years about the state of American philanthropy and civil society.

In addition, the book features one previously unreleased memo Skloot wrote to his board last fall about whether to allow the foundation's program staff to serve on its grantees' boards. Skloot endorses the practice. He writes that having foundation staff serve on grantee boards offers grantees help "beyond the money." The practice also allows foundations to learn more about their grantees, getting a more realistic understanding of their day-to-day activities and needs. Skloot adds that the sector can expect to see more of this engagement in the future - a result in part of venture philanthropists' interest in serving on the boards of organizations they fund.

11. FOUNDATIONS CALLED ON TO PROVIDE 'TUGBOAT-STYLE LEVERAGE' BY BEING NIMBLE, HUMBLE IN WORK TO IMPROVE LARGER INSTITUTIONS

Foundations should be nimble and humble as they push and guide larger institutions, such as school districts and public agencies, in promising new directions. That's the premise behind what the Ewing Marion Kauffman Foundation's Carl Schramm calls "tugboat-style leverage." Examples of Kauffman's work that fits this model are provided in the Kauffman Thoughtbook 2007. In the opening chapter of this publication, issued instead of and providing more detail than an annual report, Schramm specifically reports seeing tug-boat leverage in the foundation's efforts to spread the teaching of entrepreneurship. For example, many universities not participating in the foundation's efforts have launched their own entrepreneurship courses - and these are increasingly cross-campus efforts, not solely the province of business schools.

In another chapter, Deborah Hoover of the Burton D. Morgan Foundation writes about her foundation's partnership with the Kauffman Foundation in northeast Ohio. Hoover says that while foundations are quick to insist their grantees collaborate, it is still relatively rare for foundations themselves to work as closely as Morgan and Kauffman have in their joint grantmaking efforts supporting the growth of entrepreneurship programs at five liberal arts colleges in Ohio. The intent is to create models for adoption on liberal arts campuses nationwide, according to Hoover.

12. FOUNDATIONS CALLED ON TO WORK WITH, GIVE GOVERNMENT OUTSIDE KICK TO HELP IMPROVE COMMUNITIES, SOLVE ISSUE OF HOMELESSNESS

It's crucial that foundations support advocacy to encourage governmental efforts to improve communities and the quality of people's lives. That's according to Deborah De Santis of the Corporation for Supportive Housing, who spoke at a May gathering focused on strategies foundations could employ to help end homelessness. At this special session at the Council on Foundations' 2007 annual conference, discussion centered on the emerging idea that solving homelessness is actually possible and not the "insurmountable" task it has long been viewed as. The Partnership to End Long Term Homelessness issued a press releasesummarizing comments made at this session.

But any realistic efforts to address the issue of homelessness require foundations to work more with local, state, and federal governments than they currently do - government advocacy was identified at the session as the most important strategy grantmakers can pursue. Philanthropy can help make the system serving the homeless smarter and more effective, according to the session summary, but government controls the real resources and must do the heavy lifting. So foundations should act as a powerful outside force that galvanizes governments to make long-lasting change to help the homeless.

13. FOUNDATIONS CALLED ON TO ESTABLISH NATIONAL INFRASTRUCTURE TO IDENTIFY, DEVELOP FUTURE LEADERS OF NONPROFIT SECTOR

Foundations should help establish a national infrastructure to identify, recruit, develop, and convene aspiring nonprofit leaders, according to a gathering focused on the topic. The discussion at this meeting, which was organized by Indiana University's Center on Philanthropy and sponsored by the McCormick Tribune Foundation, is summarized in Passing the Torch: A Summary of the 2006 Philanthropy Summit. The discussion at the summit highlighted the fact that advisers to young people, including university career office staff and university faculty, often have limited knowledge about the nonprofit sector. As a result, according to one panelist, the sector has lost a lot of committed and interested college students. Further, most nonprofits don't have the benefit of a human resources department or a recruiting program, nor have they been as smart as large companies in intentionally identifying talented employees and grooming them for leadership positions by giving them "stretch" assignments.

14. COMMUNITY FOUNDATIONS ADVISED TO BECOME MORE DISCIPLINED, FOCUSED ON PROVIDING COMMUNITY LEADERSHIP

Community foundations should become much more disciplined, intentional, and invested in providing ongoing community leadership if they hope to help their communities and reinvigorate civic life and stay competitive with other giving vehicles. That's according to a recently issued paper, Community Foundations and Community Leadership, whichformed the basis of discussion at an Advanced Practice Institute at the Council on Foundations' Annual Conference in May. Issued by CFLeads, formerly the Coalition of Community Foundations for Youth, the paper argues that community foundations have great potential to help tackle community problems and rebuild trust in public institutions. But too often community foundations exercise leadership, including public policy outreach, on an ad hoc or episodic basis, which is both inefficient and ineffective. Community foundations should invest in community leadership like they have supported marketing and communications and the development of national standards over the last decade, according to the paper. This paper is the first in what will become a series from CFLeads addressing "the moral and market imperative" of community leadership among community foundations.

15. STUDY FINDS ONLY SPORADIC INVOLVEMENT OF FOUNDATIONS IN MISSION INVESTING; LACK OF KNOWLEDGE RESTRICTING PRACTICE

Most foundations currently engage in mission investing only sporadically or devote only a small fraction of their assets to the practice, and few have developed internal processes and controls for managing these investments on a consistent and reliable basis. That's according to a study offering what it says is the first comprehensive look at the current and historical landscape of U.S. foundations' mission investments, defined as investments that are tied to a foundation's mission while still focused on earning financial return. Issued by the nonprofit consultancy FSG Social Impact Advisors,   Compounding Impact: Mission Investing by U.S. Foundationsfound that most of foundation mission investing has been concentrated in program-related investments, or PRIs. Nearly all PRIs have expected financial returns below the market rate. The report says a lack of knowledge and opportunity is restricting the further growth of mission investing.

Nonetheless, foundations are, in fact, beginning to make more market-rate mission investments. In 2005, 11 percent of mission investments had market-rate expected financial returns, and over the past five years this segment has grown three times as rapidly as below market-rate investments. The fastest growth has been among foundations with assets under $200 million.

Of Related Interest

Author: 'Tax-Exempt' Designation May Lose Favor as Nonprofits Increase, Continue Practices
The rationale behind the "tax-exempt" designation for nonprofits may be weakening, according to Susan Raymond in Mapping the New World of American Philanthropy (see item #7). Raymond suggests that support for nonprofits' special tax status may be declining because the blurring of lines between the nonprofit and for-profit sectors has led to questions about whether nonprofits are making a distinctive contribution to society; nonprofits' failure to pay taxes is causing hardship for government; and the sheer increase in the numbers of nonprofits has made them a more visible target.  But also contributing to the weakening of the rationale for nonprofits' tax-exempt status is, Raymond says, the lack of discussion among sector leaders about any of this.  It's not in the best interests of nonprofits for government to be in fiscal crisis. She argues that more discussion should focus on whether nonprofits ought to pay taxes or at least contribute in other ways to governments that are strapped for funds.

Study: Older, National Foundations Less Likely to Fund Nonprofit Operating Costs
Established foundations, or those in operation between 10 years and 55 years, are less likely to support grantees' administrative and fundraising costs than younger foundations, which have been in existence for less than 10 years, according to a recent survey. This survey from Indiana University also found that foundations which had a national focus in their grantmaking are less likely to fund overhead costs than those with a local outlook. And few foundations have written policies regarding funding either administrative or operational costs - 18 percent and 35 percent, respectively. Nonetheless, Paying for Overhead also noted that a substantial number - just over 68 percent - of foundations surveyed reported funding some kinds of overhead costs, from salaries to rent to legal and accounting fees.  The Indiana University study was funded by a grant from the Aspen Institute's Nonprofit Sector Research Fund.

Related Reading

Advisor: Foundations Let Important Overpower Essential by Not Prioritizing Climate Change
By focusing on alleviating current human suffering, foundations are "mostly rearranging deck chairs on the planetary Titanic." Charles Conn, a former Silicon Valley entrepreneur and current advisor to the Gordon and Betty Moore Foundation, admits that his analogy is hackneyed in an opinion piecein the Summer issue of the Stanford Social Innovation Review. But by avoiding challenging societal and global issues such as climate change or by only taking modest, safe steps toward addressing them - and focusing instead on other issues - Conn says foundations are letting the "important" crowd out the "essential." Foundations should coordinate efforts far more than they do, according to Conn, who argues that foundations should band together and direct some resources toward a long-term, stable, and sustainable ecosystem. He also argues that foundations should appoint critical outsiders, such as scientists, to their boards to hold them to "more courageous standards."

Foundation Report Reiterates Importance of Clarity, Flexibility in Grantmaking
Like some other recent evaluation reports (see items #4 and #5), another report finds that a combination of clear goals and flexibility is needed in grantmaking programs, as is integrating evaluation and technical assistance roles and providing "real time" feedback to allow for mid-course corrections. A Legacy of Leadership and Support for Grassroots Grantmakingassesses the Charles Stewart Mott Foundation's 10-year Community Foundations and Neighborhoods Small Grants Program. A key result of the program was establishment of a national network, originally named the Neighborhood Small Grants Network and now called Grassroots Grantmakers, the organization that issued this report. The assessment finds the network is increasingly serving as a central clearinghouse for information about the variety of capacity-building approaches that funders can employ to strengthen neighborhood groups and leaders, notably in low-income areas.

New Resources

Two Foundation-Funded Resources Offer Guidance on Funding Racial Equity
Two new resources, both with funding from the Ford Foundation, offer guidance to foundations on the issue of racial equity. Effective Communities' Just Philanthropyaims in part to advance the field's understanding of appropriate benchmarks to use in assessing efforts to lessen disparities among races. This Web site includes many resources for foundations, including various essays and three tools, which the organization has produced in consultation with nearly 100 foundation and nonprofit leaders. For example, the organization developed a framework for guiding conversation about practices related to racial equity. It has also developed a scoring tool to help choose among grant proposals based on which of the proposals is likely to generate greater racial equity and social justice.

The Philanthropic Initiative for Racial Equity has similar aims, and it has just released a similar publication that offers practical advice on racial equity grantmaking. Produced with Grantcraft, Grantmaking with a Racial Equity Lens offers advice on promoting and deepening commitments to racial equity, which contrasts with the notion of "colorblindness." The latter is a seemingly race-neutral practice, according to the guide, that actually simply keeps in place non-blind historical racial advantages and disadvantages. Foundations can create a dedicated program for racial equity work or infuse the commitment across all of its programs. The guide also offers firsthand examples of foundations turning a racial equity lens inward, or on foundations' own practices, as well as the challenges and resistance involved.