Report #152: May 2009

Impact of Economic Criss and Global Needs

 1. CENTER IDENTIFIES AREAS FOR PHILANTHROPY TO HELP ADDRESS NEEDS FROM ECONOMIC CRISIS: BASIC HEALTH NEEDS, AVOIDING FORECLOSURES
The Center for High Impact Philanthropy at the University of Pennsylvania has identified several areas in which philanthropy can help address needs brought on by the current economic crisis and gaps in government coverage. Specifically, the Center’s Action Agenda calls for support for local community health centers, which can help meet growing demands for basic health services as many Americans are ineligible for even expanded Medicaid and other boosts from the federal stimulus. Foundations can also help pay for “door knock” programs, in which representatives of nonprofits go door-to-door to help homeowners at risk of foreclosure understand their options and inform them that housing counselors are available at no cost. This Action Agenda is the first step in the Center’s effort to develop a full-fledged investment guide for philanthropists focused on pressing issues and those practices and models with the best promise for impact and efficiency. The guide is being shaped with guidance from funders, researchers, community leaders and policymakers. Anyone is welcome to mail to help contribute to the guide’s development.

 2. PUBLICATIONS REPORT INCREASING FOUNDATION ADVOCACY DURING DOWN ECONOMY, ESPECIALLY AT STATE LEVEL
Foundations appear to be increasing their levels of advocacy in the down economy, especially at the state level. Five foundations in Minnesota teamed up to release a report to help the state government transform itself to perform better and cost less. In a March 30 editorial, the Minneapolis Star Tribune praised the foundations, saying they “deserve applause for leaving their comfort zones and wading into the state’s politically charged budget debate.” In Georgia, the Arthur M. Blank Foundation has commissioned research to identify available but untapped federal dollars for state agencies in areas including education and human services. In an interview with the Council on Foundations’ online Thought > Action > Impact journal, Peggy McPhee of the Arthur M. Blank Foundation commented on the increased role advocacy is playing at the Foundation this year. She said the Foundation will work with state legislators and agencies to secure the additional funding. Finally, the Cleveland Foundation’s President, Ronn Richard, is serving in a volunteer capacity as Ohio’s “infrastructure czar,” specifically helping to guide money from the federal stimulus, reports a Cleveland Plain-Dealer blog.

 3. NONPROFIT LEADER’S PREDICTIONS FOR SECTOR IN NEXT YEAR: INCREASED DEMANDS FOR IMPACT, REPORTS OF SCANDAL
The economic recession will force more charities to demonstrate their impact, but it may also lead to more nonprofit scandals coming to light. That’s according to Ken Berger of the charity-rating organization, Charity Navigator, in his predictions for the sector over the next year or so. Berger identifies increased funding by the federal government and decreased funding from all other sources as his leading predictions, as well as demands for more sophisticated measures of nonprofit impact. Berger says that with charity-regulating agencies under-staffed and under-funded, a bad economy may only increase reports of scoundrels perpetrating charitable scams, further weakening the public’s trust in the sector. He also echoes many others’ calls for foundations to help fund the costs of mergers, an option that he hopes nonprofit leaders will consider more seriously as a way to succeed.

 4. LEADING SCHOLARS SAY NONPROFIT SECTOR MAY BENEFIT FROM CRISIS IN BUSINESS-THINKING; NEEDS TO PROVE ITS ENTREPRENEURIAL SPIRIT
As ironic, or even inappropriate, as it may sound, the nonprofit sector may benefit from the current crisis of confidence in business and business-thinking – but the sector needs to do a better job demonstrating that it is in fact an entrepreneurial sector. At a February 20 Hudson Institute discussion on what the economic recession means for nonprofits, Lester Salamon of Johns Hopkins University said now is the time for the sector to position itself as truly entrepreneurial – or producing social benefit by applying new ideas to existing resources – and not just a sector that is doing noble work. Paul Light of New York University and Peter Frumkin of the University of Texas at Austin agreed with Salamon. Frumkin suggested that the sector should push back on the notion that the sector should be more business-like and instead help businesses learn from nonprofits, partly by focusing on something larger or more meaningful than the bottom line.

 5. CALLS FOR FOUNDATIONS TO REASSESS INVESTMENT STRATEGIES: MORE DUE DILIGENCE, SOCIALLY RESPONSIBLE INVESTING
Foundations need to continually reassess their investment strategies and undertake more due diligence to ensure they invest in vehicles they understand, according to the Commonwealth Fund’s Chief Operating Officer John E. Craig, Jr. In a new report, New Financial Realities: The Response of Private Foundations, Craig documents the shift at foundations over the past two decades towards much riskier investments, especially in bull or “frothy markets,” and notes that this shift often wasn’t matched by the increased oversight that riskier investments demand. He ends by discussing plans at the Fund, which include acting on its chief goal of health care reform and reducing spending over the next few fiscal years, but in a strategic way that does not hinder the ability to play a role in reform.

Meanwhile, Todd Cohen of the Philanthropy Journal wrote in an April 14 post to the Stanford Social Innovation Review blog that foundations need to become more active investors. In addition to blowing a big opportunity to shape social and economic change, investing passively means that foundations continue to enable the type of corporate excesses that brought about the current crisis. Cohen cites the latest Proxy Review from the As You Sow Foundation, offering a review of socially responsible investing from foundations in the past year and a look at the year ahead. It also identifies those foundations that have taken an active role in investing.

 6. SUSTAINABLE INVESTING BOOK SAYS FOUNDATIONS NEED TO DO BETTER JOB FACTORING SOCIAL CONCERNS, CLIMATE CHANGE INTO INVESTMENTS
A mutual fund company executive calls the traditional business strategy of doing whatever is necessary to make money and then donating one’s profits to charity an outdated principle. Yet, Julie Fox Gorte of Pax World Management Corporation, writing in a book on sustainable investing, says that the strategy is “still the attitude of many foundation and endowment trustees.” Gorte and other contributors to the book, Sustainable Investing: The Art of Long-Term Performance (edited by sustainable investing advocates Cary Krosinsky and Nick Robins), write that too many years of not properly factoring in social concerns and climate change in investment decisions may turn out to be the widest-ranging market failure ever seen. Stephen Viederman, former president of the Jessie Smith Noyes Foundation and a leader in shareholder advocacy, writes that the largest global investors have not rushed to embrace approaches addressing climate change, or to invest in new funds that have social and financial goals. Maximizing returns is still presumed to be the standard necessary to meet obligations of fiduciary duty. Viederman calls for a new, more meaningful definition of fiduciary duty that balances financial returns with social and environmental concerns.

 7. STUDY, PANELISTS SAY FOUNDATIONS SHOULD THINK MORE ABOUT LONGEVITY; CONSIDER OUTSOURCING GRANTMAKING FOR MORE EFFECTIVENESS
Very few foundations have conversations concerning how long they should operate, even though donors and trustees benefit from such an explicit discussion about longevity. According to a recent Urban Institute report, Limited Life Foundations: Motivations, Experiences and Strategies, such discussions help foundations clarify and solidify goals and purposes, regardless of their ultimate longevity plans. The Institute hosted a March 26 panel discussion to discuss the report and the topic of foundation perpetuity, a subject of increasing attention in a time of increasing needs. At the discussion, Andrew Crosby of the Nonprofit Quarterly said that such exploration can help foundations assess ways to maximize value to society. Yet the most striking finding from the report was how infrequently those foundations with a limited lifespan actually considered how to make the most impact with their giving. Francie Ostrower of the University of Texas at Austin writes that many limited-life foundations were established simply as a way to ensure the donors’ intent was honored and that they would not create a bureaucracy.

In an online-only Nonprofit Quarterly essay, Arthur Schmidt of GuideStar argues against foundation perpetuity. He also suggests foundations should maximize their social value by, among other things, completely segregating endowment and grantmaking operations. Schmidt essentially says they should outsource grantmaking either to dedicated grantmaking intermediaries or to grantmaking departments of other foundations. This would allow the endowment manager to ensure that a foundation’s annual payout is granted as effectively as possible because grantmaking managers can be hired and fired based on effectiveness. Adding a layer of competition would make all grantmaking more effective and efficient, Schmidt argues.

 8. BOOK CALLS FOR MORE CROSS-SECTOR COLLABORATION IN THE FIGHT AGAINST GLOBAL POVERTY
Too often in global development, there’s little or no prior consultation or coordination among the many, multi-sector actors, even as they fund projects in the same area or even the same project through the same nonprofit. According to several authors in a recently published volume on global poverty, there’s been too little attention given to pursuing synergies among the various players. This lack of cross-sector collaboration is a central reason why there’s been only limited progress in the fight against poverty. The Brookings Institution’s Lael Brainard took the lead in producing Global Development 2.0: Can Philanthropists, the Public and the Poor Make Poverty History?, co-edited by the Institution’s Derek Chollet. In an introductory chapter, co-written with communications consultant Vinca LaFleur, Brainard notes that the increasingly competitive field of actors fighting poverty, including mega-philanthropists and the global public itself, is causing established players to reexamine their role and raise their game. In another chapter, Jane Nelson of Harvard University says there appears to be growing consensus that, among other things, economic growth and good governance are two major keys for sustained development and poverty reduction.

 9. BOOK CRITICAL OF DEVELOPMENT AID SAYS PHILANTHROPY SHOULD OFFER CASH INCENTIVES TO HELP COUNTRIES WEAN THEMSELVES OFF AID
In the book Dead Aid: Why Aid Is Not Working And How There Is A Better Way for Africa, Dambisa Moyo persuasively argues that foreign aid of all kinds isn’t working and suggests that philanthropy, among other actors, should offer more “conditional cash transfers,” monetary bonuses given to the poor as an incentive to perform tasks that will help them escape poverty. Moyo, formerly of Goldman Sachs and the World Bank, says such transfers are popular and have been proven effective in the developing world. Beyond that, Moyo suggests philanthropy could help persuade Western citizens to become active and demand more of their governments’ development assistance, which she says, at least in Africa, is largely “being poured down the drain.” Moyo writes that Africa, alone among the continents of the world, seems to be locked in a cycle of dysfunction, and while there is a confluence of factors contributing to that failure, aid – chiefly that from governments and international bodies– is most at fault. According to Moyo, studies of aid have shown no appreciable impact on development, yet aid remains a centerpiece of today’s development policy. In no other sector would such proven failures be allowed to persist, she writes. Moyo’s book offers a blueprint for Africa to wean itself off aid, presenting a menu of market-based alternatives to fund economic development across poor countries – among these, expanded trade, microfinance and especially, foreign direct investment. She cautions that none of this can be easily achieved without the cooperation of Western donors, who should help loosen their hold on the continent.

 10. CENTRALIZED REPOSITORY BEING DEVELOPED FOR FOUNDATIONS FUNDING OVERSEAS; HELP EASE VETTING PROCESS, REDUCE WASTE
The Council on Foundations is leading a team of individual grantmakers and grantmaking organizations in creating a centralized repository of previously approved foreign NGOs, which could be used by international grantmakers. A major hurdle for U.S. foundations funding internationally has been the time-consuming and expensive process required by the IRS to vet foreign NGOs. Because the IRS prohibits grantmakers from using another organization’s “good faith determination,” and because there is no current broad-based agreement on standards, grantmakers are duplicating efforts as they pursue this vetting process individually – or even turning away from international grantmaking in frustration. TechSoup Global is working to establish the Council’s repository, which should streamline the process and reduce administrative burden. It’s expected to be operational by early next year, upon IRS approval.

 11. GATES FOUNDATION OFFICIAL CALLS ON FOUNDATIONS TO SERVE AS LOAN GUARANTORS TO FLEDGLING ENTITIES, INCLUDING POOR NATIONS
Alexander Friedman, Chief Financial Officer of the Bill and Melinda Gates Foundation, says that foundations should serve as financial guarantors to fledgling entities, such as charter schools, or even governments in the developing world. By guaranteeing part of an investor’s principal – meaning foundations wouldn’t put anything up front, and probably ever – Friedman argues in a short essay, published in the book Creative Capitalism, that foundations could help these schools or nations become more attractive to lenders. He further argues that this strategy would be a bigger boost than almost any imaginable grant, especially in the case of poor nations. Creative Capitalism, stemmed from on an online conversation last summer that was provoked by a call from Bill Gates at the 2008 World Economic Forum for more capitalistic efforts going beyond mere profit-generating. Edited by prominent journalist and founding editor of Microsoft’s Slate Michael Kinsley, the book features many contributors and a real debate about the merits of “creative capitalism” – whether it differs from corporate philanthropy and whether capitalism was already creative enough.

Strategies for Social Sector Practice

 12. NONPROFITS RELUCTANT TO DISCLOSE EVEN MANDATORY DOCUMENTS ONLINE, ACCORDING TO NEW SURVEY ON NONPROFIT TRANSPARENCY
Although 93 percent of nonprofits have embraced the internet to disclose basic information about their programs and services, very few in a recent GuideStar survey had posted major documents online. Nonprofits in this survey displayed a great reluctance to disclose even those documents that they are required to make available for public inspection, such as an organization’s basic IRS letter granting tax-exempt status. Only 3 percent had posted these letters online, according to GuideStar’s first annual report on nonprofit transparency. The report, The State of Nonprofit Transparency, 2008: Voluntary Disclosure Practices, was written by GuideStar’s Dan Moore, the former chief charity regulator in New Mexico, and includes recommendations from GuideStar, chief among them is the need for nonprofits to provide more information on their websites. The organization hopes the report, along with a new GuideStar Exchange seal for those nonprofits adhering to its guidelines for transparency, will serve as a catalyst to encourage greater sharing of nonprofit information. More transparency is needed to create and maintain public trust in the sector, according to the report.

 13. REPORT SAYS SOCIAL MEDIA TOOLS CAN HELP REDUCE DUPLICATION IN SECTOR, REALIZE ESTABLISHMENT OF CENTRALIZED KNOWLEDGE BASE
A report prepared for the W.K. Kellogg Foundation notes that the development of social media technologies, including wikis and blogs, has opened up new opportunities to reduce duplication and fragmentation in philanthropy. According to Intentional Innovation: How Getting More Systematic about Innovation Could Improve Philanthropy and Increase Social Impact from the Monitor Institute and Clohesy Consulting, such technologies should help finally realize the establishment of a centralized archive and knowledge base where funders can obtain information about efforts, performance and innovations at scale. The report identifies opportunities for foundations working together to build a more efficient and effective system for solving social problems. It also introduces a framework to help bring to the innovation process the same kind of discipline that the sector has learned to use in strategic planning, business development, venture investment decisions, and so on. According to the report, potentially great innovations in the sector are routinely squandered or lost because they don’t fit, aren’t noticed, can’t scale or are too overwhelming to absorb.

 14. FOUNDATIONS’ COMMUNITY INITIATIVES NEED TO EXPAND, SCALE UP TO BETTER ACHIEVE PROMISE, ACCORDING TO DEBUT FOUNDATION REVIEW
Many comprehensive community initiatives (CCIs) have failed to achieve their promise, according to a survey from Pennie Foster-Fishman of Michigan State University and the W.K. Kellogg Foundation’s Robert Long. Writing an article in the debut issue of the peer-reviewied journal The Foundation Review, published by Michigan’s Grand Valley State University, the authors note that these efforts will never succeed if the focus remains on small-scale successes, those confined within boundaries of a specific neighborhood or to a targeted issue within a neighborhood. These efforts need to expand or at least scale-up so that more residents and more neighborhood areas can benefit. This issue focuses on CCIs, which have been launched over the past two decades by a small but influential cohort of foundations as a means of generating sustainable, community-wide improvements in health and quality of life. An article by Tina Trent of NeighborWorks America and David Chavis of Community Science identifies factors for CCIs to generate sustainable, community-level outcomes: having a single broker or entity in charge of the initiative; well-defined roles and responsibilities; meaningful community engagement in establishing priorities and planning how best to achieve goals; and competent and effective leadership and staff.

 15. REPORT SAYS FOUNDATIONS SHOULD HELP ASSESS EMERGING TECHNOLOGIES’ ENVIRONMENTAL IMPACT, UNINTENDED CONSEQUENCES
Philanthropy has a big role to play in helping make sure emerging technologies such as nanotechnology, used in high-tech consumer gadgets, are as green as can be. According to a report on environmental philanthropy, philanthropy can help fund unbiased information assessing the technology’s environmental impact and unintended consequences. Written by UBS Philanthropy Services’ Maximilian Martin, E4C – Ecosystems for Change: Environmental Philanthropy – Catalyzing Sustainability reviews the emergence of environmental philanthropy, a relatively recent historical phenomenon only about a century or so old. What triggered it was concern about what humans did to nature, as the ability to fundamentally transform the physical environment became evident. According to Martin, almost all aspects of the physical environment today require some form of active management. He notes that environmental philanthropy holds the potential for greater use of third-party, objective assessment mechanisms – something analogous to consumer reports – providing clues as to which organizations or coalitions of organizations are accomplishing their objectives.

Of Related Interest
Monograph Defends Broader Definition of Diversity
The Philanthropy Roundtable has issued a monograph by the Wall Street Journal’s Naomi Schaefer Riley calling recent pushes for greater philanthropic diversity “superficial,” focused on only cosmetic diversity – centered on race, ethnicity, gender and sexual orientation. Riley works to defend an older, broader conception of diversity in American Philanthropic Diversity: What It Means, Why It Matters. She argues that “true diversity” revolves around freedom as the “indispensable element” of the American experience, with a diversity of interests and a diversity of talents. This includes freedom to form entities or associations catering to a specific group in society, regardless of that particular group’s cosmetic diversity.

Harvard Scholar: Foundations Can’t Shape and Manage Social Change Themselves
To successfully invest in social innovation, foundations should embrace three precepts that go against their predilections, according to Steven Lawry of Harvard University. Writing an article in the Spring issue of the Stanford Social Innovation Review (subscription required), Lawry says that foundations need to recognize they can’t shape and manage social change themselves. Powerful ideas come from outside the foundation, so shaping highly specific program strategies will lead a foundation to reject these ideas. Foundations should also not let measurements of impact slow innovation, which will take time to fully develop. In addition, foundations should let grantees take the lead, since ultimately grantees will do the heavy lifting. They should also not try to “own” discrete pieces of what are ultimately complicated and highly integrated endeavors. If the larger program is a success, there will be plenty of credit to go around, Lawry writes.

Bridgespan Consultants Offer Funding Models to Help Philanthropists Become More Effective
In an article in the Spring Stanford Social Innovation Review, William Landes Foster, Peter Kim and Barbara Christiansen, all affiliated with the Bridgespan Group, identify 10 nonprofit funding models that they hope will help philanthropists, among others, in becoming clearer about their funding strategy and more effective in the programs they support. The models are inspired by those that exist in business, used as shorthand for articulating quickly and clearly how a business will succeed in the marketplace. Models in which foundation support is sharpest include the “Big Bettor” model (mostly focused on medical research or environmental issues that require substantial support in tackling a major problem) and the “Local Nationalizer” model (focused on a local issue, such as education or child development, in which most funding comes locally, but national funders can help replicate or scale-up the effort).