1. CHALLENGES, DILEMMAS OF EFFECTIVE FOUNDATIONS

Foundations do not do nearly enough to agree on standards of good practice for the field, nor to increase their own performance, according to Joel Orosz of The Grantmaking School at Michigan's Grand Valley State University. Orosz further writes in a new book that the foundation field suffers from an anti-historical bias that leads practitioners to repeatedly stumble over the very same challenges that felled their predecessors, as well as to repeat past successes, recast as "new" or "bold departures from past practice." A former program officer at the W.K. Kellogg Foundation and author of an earlier textbook about effective grantmaking, Orosz notes that it was with some trepidation that he wrote his latest book, which focuses on foundation flaws. But, how else, he asks, is a field to improve if it doesn't expose bad practices and promote good ones, striving to replace the former with the latter.

Effective Foundation Management: 14 Challenges of Philanthropic Leadership - And How to Outfox Them focuses on what Orosz identifies as the "formidable fourteen" challenges and dilemmas facing foundation officials and specific strategies for addressing them. The challenges include a lack of pre- and post-employment training for foundation program officers and tensions between foundations' boards and staff as well as among the program, finance, and administrative teams. The dilemmas include the desire to create the greatest good for the greatest number versus the desire to make a profound impact in a limited scope, and the need for advice from experts versus advice from those who have to live with the results. Orosz suggests the dilemmas occur when right and right collide: neither choice is wrong. In fact, the only wrong decision would be to try to "live in the no man's land between the choices." Foundation leaders can't escape hurting people or forsaking causes if they hope to be effective, Orosz suggests.

2. PHILANTHROPY SHOULD PAVE WAY FOR ECONOMIC GROWTH

The 21st Century will be shaped not by war or trade, but by how trillions of dollars in the United States and other countries will be used for philanthropy. That's according to George Mason University's Zoltan Acs, speaking at a recent Hudson Institute forum convened to discuss a paper for which Acs was the lead author. The Entrepreneurship/Philanthropy Nexus: Nonmarket Source of American Entrepreneurial Capitalism links entrepreneurship, or the creation of wealth, to philanthropy, or the reconstitution of wealth. The paper suggests that the prime purpose of American philanthropy is to give back to the community by building up great social institutions that in turn pave the way for future economic growth. In this context, philanthropy should be creating institutions that increase opportunities for entrepreneurship, according to Acs, director of GMU's Center for Entrepreneurship and Public Policy. Foundations should allocate their funding in ways that help society grow and function better, focusing especially on fields and issues where there is great uncertainty and where the other major sectors of society - the market and the state - aren't funding or can't fund. As an example, at the Hudson Institute discussion Acs cited philanthropic support for the establishment of many educational institutions and research universities, from Stanford to Johns Hopkins, that now drive the entrepreneurial revolution. These institutions have played critical roles in recent American success, yet they were not created by the state or the market.

3. NONPROFITS, FOUNDATIONS WITH DIVERSE BOARDS ARE MORE ACCOUNTABLE, EFFECTIVE THAN THEIR PEERS

The greater the ethnic and racial diversity among board members, the more likely a nonprofit is to have an outside audit, a separate audit committee, a conflict of interest policy, and a whistleblower policy. That's according to a report from the Urban Institute, which suggests this intriguing link between diversity and accountability practices bears further investigation. The report is based on findings from the first, national, representative study of performance and accountability in the sector. It concludes that many boards are not very active when it comes to carrying out some basic stewardship responsibilities. According to Nonprofit Governance in the United States, one contributor to overall weak oversight by nonprofit boards is nonprofits' difficulty finding board members. The study reports that 70 percent of nonprofits are having a hard time recruiting board members. But the ethnic homogeneity of many boards raises questions about the ability of nonprofit boards to be responsive, especially to the diversity of the constituencies served by their nonprofits.

Meanwhile, the Center for Effective Philanthropy recently released Assessment to Action: Creating Change, which distills the key insights from a conference earlier this year of more than 225 foundation trustees, CEOs, and other senior executives. The report offers numerous examples of foundations that have worked on developing and altering their grantmaking strategies, as well as on assessing and improving their effectiveness. According to this report, one necessary part of being effective is having a diverse board, one that goes beyond tokenism, which is defined as having two or fewer people of color represented. Too often people of color are recruited to boards to represent "their people" and not for their expertise on non-racial issues.

4. BABY BOOMERS TRANSFORMING PHILANTHROPY THROUGH SOCIAL ENTREPRENEURSHIP PRACTICES

The greatest innovation to come from the huge intergenerational transfer of wealth that has now begun will be the development of new models of doing well and doing good, or what is known as "social entrepreneurship." That's according to a new book focused on the best practices of individuals who have made effective decisions about their social investing, their financial legacy, and their family's long-term interests. Written by Randall Ottinger, a high-tech executive turned philanthropy consultant, Beyond Success: Building a Personal, Financial and Philanthropic Legacy reports that the rapid increase in the number of philanthropists and nonprofits has not helped society get much closer to the root causes of homelessness and other social problems. According to Ottinger, part of the reason so many people fail in trying to leave a legacy for future generations is the difficulty they have in navigating the wealth and philanthropy industries, where expertise is contained in silos rarely brought together in an integrated way.

But baby boomers are already transforming the field of philanthropy, Ottinger says, by casting off traditional ways of thinking about nonprofits and by bringing innovation born from the creativity they learned in business. And they're also transforming the wealth advisory industry by requiring that advisers deliver more than just financial advice and provide insights related to philanthropy. He identifies three leadership practices in philanthropy that lead to positive, social impact: applying learned and innate skills to a social cause that is "close to home" in terms of personal interest or experience; giving more than just money to create leverage; and acting with others by networking or pooling assets. Ottinger stresses the last point, emphasizing the value of developing philanthropic portfolios that focus on a particular cause, with grants made to support multiple nonprofits tackling various aspects of the cause. He also praises the growing number of donor collaboratives that pool funds and knowledge to make an impact in an issue area.

5. FOUNDATIONS SHOULD SUPPORT, BUT NOT BE THE FOUNDERS OF, NONPROFIT NETWORKS

Growing demand for nonprofits to do more and better is leading some in the sector to push for more collaborative networks, which can help increase efficiency and impact and build remarkable capacities. Nonetheless, it's key that foundations don't play the role of network organizers. That's according to a guide published by the Barr Foundation, which reports that those networks formed as a result of external, especially donor-driven, demand are less sustainable in the long term than those that evolve organically out of existing partnerships.

Net Gains: A Handbook for Network Builders Seeking Social Change seeks to help advance this field of practice by drawing on lessons from the private sector, which has much more experience using networks, as well as from some 20 established networks of nonprofits, including the Council of Michigan Foundations. The guide notes that networks in the nonprofit sector are rarely organized to take full advantage of what networks can do. Too often the power of networks is limited by entities wanting too much control, and seeking to use the networks for their own purposes. The guide says that more foundations are helping to establish networks by supporting multiple entities tackling the same problem rather than just strengthening the capacity of individual organizations. In fact, the Barr Foundation's Marion Kane suggests in the guide that this is exactly how foundations can help establish a network without having to organize it directly - by offering funding focused on solving a specific problem, not on a particular organization or network.

6. GAP BETWEEN RHETORIC, REALITY IN FOUNDATIONS' USE OF STRATEGY

There's a disconnect between what many foundation staff believe will create the most impact and what they actually do on a daily basis - and the Center for Effective Philanthropy says this gap between rhetoric and reality merits immediate internal attention on the part of foundation staff and trustees. The Center surveyed CEOs and program officers from 21 large foundations to gauge how much foundation strategy affects foundation decision making. The answer, according to Beyond the Rhetoric: Foundation Strategy, is "not much." Although most foundation officials acknowledge and often extol the advantages of having a strategy, the majority of actual foundation decision making frameworks do not meet the Center's basic definition of a strategy. A "strategy" requires clear goals and a set of activities to achieve these goals, the report notes, and it focuses on the external context in which a foundation works, with a hypothesized causal connection between the use of foundation resources and goal achievement.

Based on the survey, defined as an "initial portrait" on the subject, the Center identified four distinct categories based on individual respondents' descriptions of their decision making frameworks. Respondents from very large foundations fall disproportionately into the category of "partial strategists," who use some strategy but often cite the difficulty of assessment as keeping them from doing more. The report suggests strategists are not born but evolve over time, after sometimes painful and tough decisions. The Center plans to create a roadmap for foundations that want to become more strategic.

7. BETTER FINANCIAL TOOLS NEEDED BY BOTH SPEND DOWN AND PERPETUAL FOUNDATIONS

"With more imagination and courage, today's donors can more effectively help solve today's problems," says John Hunting of the Beldon Fund, who bemoans the timidity of foundation trustees with regard to payout and lifespan. The Beldon Fund is one of 13 foundations profiled in a report that have strayed from "traditional" foundation practice by paying out more than 5 percent of their assets annually and by not seeking to exist in perpetuity. Beyond Five Percent: The New Foundation Payout Menu was produced through a joint project of the French American Charitable Trust, Northern California Grantmakers, and the New York Regional Association of Grantmakers. The report notes that it's tempting for foundations to pursue the traditional path because a large endowment confers status. Moreover, in light of the many priorities pressing on foundation leaders, it is easier and less risky to do what everyone else does - that is, pay out at 5 percent - rather than develop a different approach to spending. The report suggests these baker's dozen foundations could help push the sector to develop better tools for allowing even perpetual grantmakers greater flexibility. Beldon's Hunting, for example, suggests the need for better forecasting and planning tools so that spending levels can be tailored to meet program goals. He suggests thinking of the grants budget as a number that will fluctuate, and advocates the creation of a system of investments, grants, and spending that will go up and down over time.

8. NOT EVERY NONPROFIT SHOULD EXIST INDEFINITELY; TIPS FOR FUNDERS TO HELP IMPROVE NONPROFIT FINANCING

Though foundations should help nonprofit organizations become more financially sustainable, not every nonprofit should exist forever. Some nonprofits should garner robust financing in the near-term so that they can quickly achieve their goals and close up shop. That's according to a publication focused on funding practices supporting nonprofit organizational capacity and long-term financial health. Capital Ideas: Moving from Short-Term Engagement to Long-Term Sustainability includes principles to guide foundation funding of nonprofits that were discussed at a March symposium at Harvard University. The report calls for foundations to emphasize their role as partners with - rather than overseers or auditors of - grantees.

Over the summer, Harvard's Hauser Center for Nonprofit Organizations released a follow-up paper that goes into greater detail about ways foundations can help nonprofits succeed, with a particular focus on four of the 10 principles drafted at the symposium. These four principles for funders are: understand when you're "building" (i.e., seeking to grow or alter an organization) or "buying" (i.e., supporting the ongoing work of an organization) and fund accordingly; actively pool resources when more funds are required; minimize transaction costs involved in applying for and reporting on grants; and conceive of a grant as funding an entire nonprofit, not just the one program a foundation may be interested in. Many funders seek specific metrics and reporting on a funded program "as though the initiative were cleanly separate and distinct from the organization carrying out the activity."

9. HOW TO BOOST NONPROFIT CAPACITY

Foundation efforts to enhance the management, governance, and performance of nonprofits are more complex than traditional grantmaking because they require a longer time horizon, multiple sites, issues of confidentiality, and movement beyond project-based support. That's according to a briefing paper funded by the James Irvine Foundation which offers a guide, including numerous examples, to long-term capacity-building initiatives. Deeper Capacity Building for Greater Impact: Designing a Long-Term Initiative to Strengthen a Set of Nonprofit Organizations explains how to design such an initiative, following nine critical steps, from setting goals, to clarifying the foundation's role, to deciding how to evaluate the effort, to figuring out what will happen to grantees after the initiative concludes. Among other specific advice, the paper recommends funders consider getting input regarding the initiative design from the nonprofits that may be involved.

10. GUIDELINES PROPOSED, ONLINE TOOL DEVELOPED TO HELP FUNDERS EVALUATE ADVOCACY AND POLICY CHANGE GRANTMAKING

Both grantmakers and advocates have traditionally deemed advocacy efforts as difficult to measure. As a result, advocacy and policy grantees are either treated as exceptions to the rule that grantees should be evaluated or are asked to conform to the often ill-fitting evaluation expectations that funders have of other grantees. That's according to a paper from the Harvard Family Research Project, just one of several recent efforts to help spread advocacy and policy change evaluation. The paper, available from Harvard's Julia Coffman, proposes nine guidelines for funders as they evaluate advocacy and policy change grantmaking. The guidelines include being clear about how a foundation will use evaluation. Ideally, evaluation should not be used to identify programs that can be replicated, or to offer a summary judgment about whether an advocacy effort worked or was worthwhile, according to the paper. Rather, funders should learn from evaluations about what makes advocacy effective and apply these learnings to future advocacy and policy grantmaking.

Meanwhile, a new online tool has just been developed to help with advocacy evaluation efforts. Continuous Progress, a product of the Aspen Institute's Global Interdependence Initiative, just launched its Advocacy Progress Planner, based on the Harvard Family Research Project's Composite Logic Model for advocacy and policy change evaluation. Funded by the California Endowment, this tool serves both planners and evaluators by offering the range of possible outcomes and target audiences that might be relevant to a certain advocacy or policy change strategy. The model helps a user focus on identifying the proper goals of any advocacy effort, which depends on where the issue stands in the policy process.

11. ADVOCACY STRATEGIES OFTEN EVOLVE OVER TIME, SO EVALUATION OF THEM MUST BE ADAPTIVE, TOO

Advocacy evaluation differs from typical evaluation efforts, according to another recent publication, because advocacy strategies typically evolve over time. Advocacy activities and desired outcomes can shift quickly - in part because unpredictable, uncontrollable factors are common in the policy process. The Spring issue of the Harvard Family Research Project's Evaluation Exchange summarizes new developments shaping advocacy and policy change evaluation, which the publication narrowly defines as activity that seeks to inform or influence policy or legislation. Harvard's Julia Coffman writes in one essay about the importance of providing "real-time feedback," and not just assessments after-the-fact, to inform strategy development. Related to this, interim reports are likely to be more valuable to advocates than a final report issued at project completion.

This issue of Evaluation Exchange, the first in an expected series focusing on "Hard-to-Measure" topics, also features reports from representatives of four foundations, including the California Endowment and the Annie E. Casey Foundation, discussing their expectations and approaches. Jackie Williams Kaye of the Atlantic Philanthropies says that among other ways grantmakers can help build the advocacy evaluation field is to stop asking for multiyear outcomes with single-year grants. Either funders should provide support over multiple years or align expectations with the grant's time frame.

12. PHILANTHROPY'S FUNDING TO FIGHT HIV/AIDS STILL GROWING, THOUGH NOT NECESSARILY IN AREAS OF MOST NEED

American philanthropic support to fight HIV/AIDS continues to grow, according to a new report that also notes the discrepancies in funding vs. needs, both domestically and internationally. Funders Concerned About AIDS recently released its fifth annual report on the subject, finding that U.S.-based philanthropies approached $1 billion in commitments to fight HIV/AIDS in 2006, or more than two-and-a-half times 2005 commitments. The vast majority of the commitments are targeted at the global fight against the disease, particularly in sub-Saharan Africa. The Caribbean, historically a region with a high concentration of HIV/AIDS, received one of the smallest shares of international commitments, according to the report. Meanwhile, not only is a smaller percentage of funding going toward addressing the epidemic domestically, domestic funding isn't keeping up with the disease's spread. As the report notes, the Northeast continues to receive a considerable share of domestic funding while the South accounts for much of the epidemic's growth.

13. FOUNDATIONS SHOULD HELP CHANGE PERCEPTIONS OF RURAL AMERICA

Grantmakers should fund organizations working to change attitudes about rural America, according to the National Committee for Responsive Philanthropy, and foundations already funding rural causes should arrange site visits to introduce urban funders and rural nonprofits. These were among nine recommendations gleaned from focus groups and interviews with 80 leaders of rural nonprofits and offered in Rural Philanthropy: Building Dialogue From Within. This NCRP report explores both real and perceived obstacles to strengthening rural philanthropy, as well as strategies for overcoming them. Among the obstacles that deter foundations from rural grantmaking are stereotypes about rural people and places, both negative and positive, including their being viewed as safe and self-sufficient. There's also the fact that foundations perceive rural nonprofits as having less capacity than they actually do. Among strategies NCRP offers to improve philanthropic support for rural areas are: increased, multi-year, core operating support, and working with intermediaries and funder collaboratives.

Meanwhile, a report for the Center for Rural Strategies also recommends strengthening the role of intermediaries working with urban funders and rural grantees, as well as sharing grantmaking success stories and the ways in which rural communities work together. The Greenberg Quinlan Rosner Research firm recently updated a three-year-old survey about foundation giving to rural communities for the Center. The firm reports that while funders have greater awareness of rural communities, there is little evidence of a substantial increase in philanthropic resources directed at rural areas. Further, there is still a substantial cultural and geographic disconnect between foundations and rural areas. With most foundations based in urban settings and directed by urban dwellers, in the case of rural needs, "out of sight does mean out of mind," according to the Greenberg research firm.

14. JUDGING FROM THEIR EXPERIENCE WITH HURRICANE RELIEF, FOUNDATIONS SHOULD DEVELOP 'PLAN OF ACTION' FOR DISASTER RESPONSE

When responding to disasters, it's better for foundations to have a strategic "plan of action," rather than just jumping in, to ensure that giving provides the maximum benefit. That's according to a study from the Foundation Center which reports on the amount of resources donors provided in response to Hurricanes Katrina and Rita and describes the experience and insights of several leading funders of hurricane relief. Giving In the Aftermath of the Gulf Coast Hurricanes: Update on the Foundation and Corporate Response reports that the vast majority of foundations went outside their usual grantmaking guidelines to provide appropriate disaster relief. Some funders remained engaged beyond their initial relief efforts - and also beyond when they had originally expected to exit - to help the region create better educational, health, and social service systems, and to develop a stronger, more coordinated civil society sector.

15. 'DOUBLE BOTTOM LINE' IS DOUBLE BIND FOR MANY NONPROFIT SOCIAL ENTERPRISES

A review has turned up not one entirely self-sustaining nonprofit-based social enterprise, and a report based on the review says the idea of nonprofits running enterprises is deceptively difficult for even the savviest of organizations. This report, The Limits of Social Enterprise: A Field Study & Case Analysis, from the Seedco Policy Center finds that a more sober mood has started to permeate the social enterprise field overall as more information about some of the early experiments has begun to emerge. While embracing the general idea of social enterprise, the report, through its analysis of a failed social enterprise and broad review of the field, raises caution about the specific notion of nonprofits operating businesses. Nonprofits striving to meet a "double bottom line" too easily find the effort becomes an impossible double bind, with enterprises established as social-purpose businesses but bankrolled and evaluated as nonprofits. One challenge, for example, is that start-up costs for businesses are often greater than most foundations are accustomed to providing in grant support, according to the report.

Of Related Interest

Nonprofits' Return on Investment Should Include Cost Savings to Society
A new report, the result of a project seeking to answer the question of how to recognize return on investment in nonprofits, calculates that the thousands of nonprofits in the Washington, D.C. area contribute at least $9.6 billion to the area's economy. Beyond Charity: Recognizing Return on Investment, How the Nonprofit Community Impacts Greater Washington by the Nonprofit Roundtable of Greater Washington notes the specific impact that each of 100 local nonprofits is having in raising the area's quality of life. According to the report, which was produced with support from the World Bank Group Community Outreach Program, the return on investment in nonprofits can be viewed from three perspectives: the immediate and long-term savings that accrue to society because of nonprofit activity (e.g., as occurs when residents use community-based health care rather than expensive emergency rooms); the multiplying impact that nonprofits have because of their ability to leverage a wide range of resources from government, the business sector, and private philanthropy; and nonprofits' work strengthening community by connecting people to each other, preserving the region's safety net, and engaging people on civic issues.

Preparations Underway for 2008 Nonprofit Congress
The National Council of Nonprofit Associations is currently accepting invitations to participate in this year's second national Nonprofit Congress, to take place just as the presidential and Congressional election campaigns begin in earnest. Over 800 nonprofit leaders are expected at the Congress, which will focus on the priority issues of nonprofit organizational effectiveness, advocacy, and public awareness. NCNA is currently accepting session proposals through mid-January as well as general registration for the event, which will be held June 1-4, 2008 in Washington, D.C.

Related Reading

Foundations Can Improve Efficiency, Effectiveness by Using Investment Intermediaries
With more foundations going beyond grants to make mission-related investments through loans or venture capital, funders should consider using or even helping create mission investment intermediaries, according to a new report. Funded by the Surdna Foundation and produced by FSG Social Impact Advisors, Aggregating Impact: A Funders Guide to Mission Investment Intermediaries defines these intermediaries as organizations, such as community development finance institutions and screened equity funds, which collect capital from multiple sources to reinvest in people and enterprises. The report notes that they deliver both social impact and financial returns with minimum risk and lower transaction costs. To do so, the intermediaries use a variety of tools or advantages, including specialized expertise, performance reporting, and access to a much greater pool of capital that can greatly leverage a funder's investment. The report says funders could increase the efficiency and effectiveness of their mission investing by utilizing the wide range of intermediaries that currently exist or by helping create new intermediaries or new product offerings.