Today’s podcast is with Phil Buchanan, executive director of the Center for Effective Philanthropy. The mission of the Center for Effective Philanthropy is to provide management and governance tools to define, assess, and improve overall foundation performance. As the Center’s first executive director, Phil has led the organization to play an increasingly important role in the philanthropic sector. His comments have appeared in numerous national publications, and he is a member of the Nonprofit Times Power and Influence Top 50.
During the podcast Phil and I discuss why most foundations are not strategic, the role of intermediaries in fixing the philanthropic capital markets, and a “secret club” of foundations that seem to be responsible for all of the innovation in philanthropy.
If you post comments and questions in the Comments section, Phil will respond.
Click on the link below to read the transcript…
Sean Stannard-Stockton: Hello, and welcome to the Tactical Philanthropy podcast. I’m Sean Stannard-Stockton, author of the Tactical Philanthropy blog, and principal and director of Tactical Philanthropy at Ensemble Capital. My guest today is Phil Buchanan. Phil is the executive director of the Center for Effective Philanthropy.
The mission of the Center for Effective Philanthropy is to provide management and governance tools to define, assess, and improve overall foundation performance. As the Center’s first executive director, Phil has led the organization to play an increasingly important role in the philanthropic sector. His comments have appeared in numerous national publications, and he’s a member of the NonProfit Times Power and Influence Top 50. Phil, it’s a pleasure to have you here.
Phil Buchanan: Great to be here. Thanks for having me.
Sean: So Phil, everyone talks about how important it is to be strategic in philanthropy. My own concept of tactical philanthropy is premised on the idea that people are already being strategic, and that what they’re not paying enough attention to is to financial tactics. But in your most recent research report, Beyond the Rhetoric, you claimed that most foundations, even the ones that claimed they are, are in fact not acting strategically. So what’s going on here?
Phil: Yeah Sean. I mean I think everybody–or most people anyway–believe that they’re strategic, but that’s different from actually being strategic. So what we did in that research was to interview CEOs and program officers at foundations, and ask them about how they make decisions, how they allocate resources, and then we applied a really simple definition, which was, basically, is the framework for decision making focused on the external context in which the foundation works, and does it include a hypothesized causal connection between the use of foundation resources and the achievement of goal? So, I am making these decisions because I believe that if we support these organizations it will lead to these outcomes.
And what we found is that a minority of program officers and CEOs were totally strategic or overwhelmingly strategic in their decision-making. But the good news is that some were and that they stood out in a variety of ways. And of course, the immediate question is, “Why are people who–during other portions of our interviews, would cite the importance of strategy in order to maximize impact, say that it was necessary to create maximum impact–why would the very same people who say that not be acting strategically?”
I think that there’s a few reasons. One is that it’s incredibly hard to be disciplined in that way, of always tying back your decision-making about resources to, “How is that going to lead us to the achievement of our goals?” And also, there aren’t, for foundations, a lot of forces that push you in that direction. On the contrary, the forces push you in the other direction. So being strategic means saying no more often. It means actually having to decide that certain really important issues that you feel passionately about, you’re not going to pursue because you’ve chosen not to. So there are all kinds of things that I think pull foundation officers in the direction of being less strategic. So it takes discipline and a real passionate belief and willingness to act on the belief that you will make more impact by being more focused and clear about the relationship between what you’re doing and that achievement of those goals. That’s just not easy.
Sean: Briefly, is there a relatively simple way for a foundation who wants to do a self-analysis to understand if they’re strategic? Are their any tools on your site, or any tools elsewhere where somebody can get a sense of how strategic they’re being?
Phil: Yeah. There’s a list of questions–and this is just a start–I think there’s a list of questions in the report, Beyond the Rhetoric, on page 20 of that report, and basically what we say is that total strategists answer most of these questions with a simple yes. It’s things like can I describe the goals for my work in a way that’s understandable, without others needing to ask for clarification? Do I conduct regular assessments of the impact of the work I do? Can I point to data based analysis of the external environment that contributed to the development of my strategy? People who met our criteria for being a total strategist would answer yes to those questions.
What we’re seeking in the next phase of this research is really to test the development of a more formal self assessment tool, something like the Myers-Briggs for foundation decision makers, so a tool that people could use that goes a little farther than just a list of questions. We feel like we’ve got more work to do to be ready to unveil something like that. That’s what we’re going to be working on over the next year. We hope to have that out and then hope it would be broadly available and used by foundations so that the people might take a self-assessment. Then come together with their colleagues and talk about it, because one of the things that we realized is that in our research is that often people with very different approaches to decision-making work side by side at the same foundation. So we might have a total strategist CEO, but little does she know here program officers fall into whatever other categories, say the Charitable Banker. They need to know that they’re on different pages in order to be able to talk about where they want to be and what they want the approach of their foundation to be.
Sean: That sounds like a great tool. I look forward to you launching it. Over the past few years, we’ve seen an explosion of new, intermediary firms in the philanthropic sector. Rather than giving money the way a funder does, or executing social programs the way a nonprofit does, intermediaries are in between those two, and helping the sector perform better. Obviously, your organization is a case in point. It seems to me that the sector itself, the framework in which everybody operates, is desperately in need of an overhaul. And I think that the intermediary firms are one of the keys to changing that dynamic. So as someone operating in this space, how successful do you think these intermediaries are being and what kind of promise do they hold?
Phil: Wow. It’s hard to generalize about a group, a diverse group, of organizations. I believe that in general, there isn’t enough good information to inform philanthropic decision-making. I think that–my critique of intermediaries would be–would vary organization by organization. There are some organization doing great work, and others, I think, whose value is less clear. But I think the system’s also not working, as it should. So one of the frustrations that I have is hearing people have the same conversation again and again, and not recognizing the other’s who have struggled with the same question.
So, to give you an example, I can’t tell you how many people I’ve talked to who have said, they’re going to start the sort of Morningstar equivalent for the nonprofit sector. A simple and accurate diagnosis is there is much better information flow in the for profit sector than there is in the nonprofit sector. It’s not clear that funding is flowing to the most effective organizations in the nonprofit sector; therefore the answer is something that’s analogous to the kind of information services that exist in the business world.
I don’t disagree with any of that, but where people usually fall down is in completely underestimating the complexity of doing this, and the differences that exist between sectors. There’s a reason the nonprofit sector exists. It exists because there are problems that defied solutions that businesses or government were going to come up with, and therefore by definition, these are complex problems. They don’t lend themselves to easy assessment and, of course, there’s no universal measure in our world. There’s no analog to profitability or stock appreciation. So actually then, building the system that would allow people to make better decisions is really complicated and difficult.
That said, it should happen. It should be possible for donors to get more information about whether nonprofits have clear goals and strategies and performance indicators they’re using to assess progress. It should be easier to get information about what others think of those organizations. There’s a lot of promising activity out there. GuideStar obviously performs a really, really valuable service, and I think they’re trying to do more with the information they have and to gather more supplemental information. Then there’s new initiatives, like Great Nonprofits, Perla Ni’s organization which was on the cover of the most recent Chronicle of Philanthropy, had a great idea, I think, to get a place where people can go and offer their perspective on nonprofits that they’ve either been served by or volunteered with. All of that, I think, is really positive momentum. My fear is that the activity is fragmented and that much of it is below the radar screen, so that there a lot of people making pretty significant philanthropic decisions without even the knowledge that some of these resources exist.
Sean: Why do you think, given the concentration of assets at the largest foundations, why are all these efforts such grass roots efforts? Why is it that the largest foundations aren’t just putting half a billion dollars into creating something like this Morningstar product that you’re talking about, because they understand that, while the analogy is correct between–in my opinion–between the nonprofit and the financial markets, what is the incorrect piece of that analogy is that you don’t have to measure the financial outputs of the nonprofit sector, because there are none?
Sean: And you need a whole different measurement system.
Sean: But the market place analogy is correct. They seem to understand that, if you talk to Hewlitt or you talk to Gates or you talk to Packard. Why is it that they are not excited to plunk hundreds of millions of dollars and just doing this thing at scale? Why is it that Perla or Holden at GiveWell, which was also in the Chronicle issue, they’re totally grassroots? Why is that?
Phil: Well, I mean, in fairness, an organization like GuideStar, for example, has received significant foundation support. It’s much less dependent on foundation support than it used to be, as it’s developed an earned revenue stream. So I don’t think it’s the case that foundations haven’t stepped up to try to support–that some foundations haven’t stepped up to try and support these kinds of initiatives. And I also think that it is more complicated even, I would argue, than you just made it out to be, because of the fact that there’s no common unit of measurement. I mean, the right measures from one organization might be completely different than the right measures for another organization. And in that–so it’s not just that it’s not about financial measures, it is deeper than that. It’s the fact that it’s not even about common units of measurement. So I think it is genuinely complex and some of the attempts to solve the problem have not been mindful enough of the complexity.
But getting back to the question about foundations. On the one hand, I would say that foundations deserve some credit for having provided support to some of the organizations that are working on this issue. On the other hand, I would agree with the critique that large foundations in this country should do much more than they have to support the infrastructure of philanthropy or the nonprofit sector. There are foundations, like Hewlitt, that have made a significant commitment in that area, but–and Packard did have a major program, and now has less of a commitment, obviously as everyone knows. But, I mean, these are–there are foundations that, over time, have put a lot of resources into this area. And then there are many that do very little.
The good news I see there, just looking at our own funding–we’re about–next year we’ll be a little bit under a five million dollar budget in terms of expenses. We’re approaching 50-50 earned and contributed revenues. We’re not quite there yet, but we’re getting close. We’re at–next year we’ll be at about 45 percent earned revenue. As I look at whose supporting us, we’ve got some big grant commitments from foundations like Hewlitt and RWJF, and Packard is supporting us, and Gates provides us some support.
But the good news that I see is an increasing number of foundations that don’t have program areas into which we would fall, are none the less, supporting us at a lower level, because they believe that it’s in their interest for the sector to function more effectively and for foundations to have access to the kind of data that we provide for the research to be conducted for us to be able to develop new tools that help foundations to be more effective. So they’re paying, not just for whatever tools they may use that we would provide them, but they’re also supporting our development and growth. And I know that other infrastructure organizations have also received more of those kinds of discretionary contributions, where people say, “Look, this isn’t our program area, but we all have an interest in a strong sector.”
The last think I want to do is argue that foundations should stray from their strategy. I mean, I think foundations should be really focused in their strategy, but I do think a case can be made that everybody has some obligation to support the strength of the sector. I don’t think those are–necessarily have to be contradictory. I wish foundations would do more, but I also want to acknowledge that there are foundations that have stepped up in that area.
Sean: When you go through the list of foundations that fund your organization, you find that many of them are the same organizations that are on the cutting edge of things like mission related investing, transparency,
Sean: … the use of social media tools.
Sean: What do you think drives these organizations to focus on transforming the sector? You already kind of answered why more foundations are not so interested, but why these ones? That group, it’s like they’re in a club, and they don’t have any natural affiliation, but you go to any cutting edge conference or cutting edge …
Sean: … organization, and they’re on that list.
Phil: Yeah. It’s challenging because my view of foundations is that they’re greatest strength or potential strength is their freedom to take on issues that other actors in our society won’t take on because there’s not a profit incentive or because there’s not a political advantage to addressing the issue. So I think that’s foundation’s great strength. It’s also, as is often the case, your strength is also your weakness, it’s also their greatest weakness, because it means that foundations are free to be ineffective and not create impact. And there isn’t a lot that anybody can do about it.
So, to your question of what is motivating this group of foundations that seem to be more innovative, open to utilizing all the tools to achieve impact that might be out there, pushing themselves to be more open about what they’re trying to achieve, and more forthcoming with assessments of results, I think that what’s motivating them is the sense of moral obligation to make the greatest possible impact with the dollars that they’re responsible for. I hope that’s the motivation.
I think that is the only thing that will compel foundations, and I think there are a lot of foundation leaders who are motivated by that moral imperative. I hope it’s not political realities, or some sense that we need to do this to stave off regulation. I don’t believe that that’s the motivation for most of these folks. I hope that it’s not, because I don’t think, ultimately, that works. I mean, I think the only way that foundations will make a stronger case to those who are skeptical about them is to be so committed to achieving impact, to understanding whether they’re achieving the impact that they want to achieve, to assessing, to demonstrating both the evidence of success and the evidence of failure, so that others don’t make the same mistakes they do. It’s only when the great number of foundations operate in that manner, that people will stop having such tough questions of foundations, because they will see the evidence of impact and they will see the value.
I think right now, any–my honest appraisal would be that it’s a mixed bag. There are some examples of foundations that are doing terrific work, where you think, “Boy, it’s really a good thing for our society that they exist.” And they’re taking on issues in a way the others couldn’t. They’re making an impact. And then you see other examples where you wonder whether they’re not squandering some of the opportunity that exists to make impact.
Sean: OK. We have time for one last question and actually only a brief answer.
Sean: There’s a lot of talk about philanthropy going through a transformation right now. I believe it is. Do you think that we’re just at a cyclically high level of change, or are we truly witnessing a transformation, so that 50 years from now, when people look back, they’ll talk about the transformation that was occurring in 2005 through 2010?
Phil: So, quick answer, and I hope it doesn’t sound too self-serving, but I think one can only see these things from where one sits. Six years ago, our organization basically didn’t exist. One of the first things we did is create a tool called the Grantee Perception Report that allows foundations to understand what grantees really think of it on all kinds of different dimensions. I can’t tell you how many people told me to my face that we would fail, that it would never work, that foundations would not participate in this kind of process and expose themselves to critiques in this way. The fact that they have suggests to me that the change is fundamental, that it’s not cyclical, that we’re not going back, that there’s going to be more and more of an emphasis on being clear about goals, clear about strategies, and to really assessing performance along the way, and to being more open every step of the way because people realize that you have to be if you’re really trying to create the most good that you can.
Sean: I hope you’re right, and I do believe you’re right. This has been the Tactical Philanthropy podcast. You can visit us at tacticalphilanthropy.com. You can learn more about Phil Buchanan and the Center for Effective Philanthropy at effectivephilanthropy.org. Thanks so much for listening.