You can watch the full video here. If you want to jump around, click here to access the FORA.tv menu of option for the video. You can click on the various titled chapters. In Chapter 2, I layout the history of the Tactical Philanthropy blog and the purpose of the Forum. You can than click on the other chapters to view Paul Brest, Bill Somerville and myself discussing various issues.

The session after mine was about Mission Related Investing. I thought the session was excellent and it was interesting to hear from the KL Felicitas foundation (a leader in MRI) talk about their experience. KL Felicitas is a relatively small foundation so they have a different sort of story to tell than the multi-billion dollar foundations who are starting to get into MRI. Click here to view the video.

You can find a listing of all SoCap08 videos, including the keynote address by Matthew Bishop (who coined the word Philanthrocapitalism) by clicking here.

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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 Brian Gallagher. Brian is the Chief Executive Officer of the United Way of America. United Way of America is the national organization charged with leading the 1,300 local United Ways. Brian has spent his entire career, going back to 1981, at the United Way, and as chief executive since 2002, has been busy redefining the role of the organization. In May of this year, the United Way announced a new 10-year plan that focused the organization on a specific set of new goals. Brian thanks for being here today.

Brian Gallagher: Sean, it’s great to be with you. Thanks.

Sean Stannard-Stockton: Why don’t you begin by talking about the transition of the United Way from a fundraising conduit to an organization focused on community impact and explain the role of your new 10-year plan, titled “Goals for the Common Good” in that shift.

Brian Gallagher: Sure. You know, we really started – local United Ways started this shift 10 or 12 years ago, probably, to get to the real beginning. As a United Way movement, we started it formally just before I came into the CEO role. And fundamentally, it was because of the economic shift in the country. As we move from an industrial to a service to a global knowledge economy…

…it changed the social conditions in communities. It’s – before, we were dealing with finite numbers of individuals and families in terms of social service agencies. And now, we had broad social conditions that were beyond our ability to raise money, give it to a finite group of agencies, and create real impact. And so the economy changed the social condition.

Secondly, the proliferation of nonprofits and the advancing of technology just forced us to redefine the value of United Way. And we just didn’t see the same value in a fundraising federation, or just as a community fundraiser. So we redefined our mission around trying to create impact on a short list of issues in communities. And so the business model became work with different interests in a community, define the issues that communities have in common, build strategies together, and then find ways for donors to invest in those strategies, both with their time, their money, advocacy and so forth. So that shift has proved very successful for us. Our revenue is growing; trust numbers are at all times highs. The pass through money, the designated money to specific agencies, has now gone down each of the last five years, absent the year of Katrina, where there’s a lot of giving to Katrina events, or Katrina organizations.

So we made the shift for those reasons, and even though we were seeing progress institutionally, we made the commitment to these 10-year goals around graduation rates and financial stability and healthy behavior and just health generally because we saw the issues in the country weren’t improving enough. I mean, one out of every four incoming high school freshmen won’t graduate, 50 percent of kids of color won’t graduate. Increasingly, families are financially unstable. We have the highest – or the largest income gap in the country since 1928. And we’re clearly not as healthy as we should be as a country. So we just decided that we needed to get focused on issues that were really important to communities and not just look at our own institutional success.

Sean Stannard-Stockton: So as I understand it, the United Way of America kind of organizes all the local United Ways. But they don’t have to follow your lead on these sorts of issues. So how would you say that the local United Ways have responded to your new goals?

Brian Gallagher: Very positively. You’re right. We can’t – we can’t dictate to local United Ways what issues they work on. Probably the best way to think of us right now is we’ve moved from a federation of independent local United Ways sharing a name and a brand to something closer to a franchise because we’ve gotten much more disciplined around operating procedures as a part of membership and governance and ethics and financial reporting and so forth. But, the fact is when – before we announced these 10-year goals, we’d been working with local United Ways for the 18 months before that and asking them to take a look at what work were local United Ways involved in around the country. And fundamentally, what you find is that they’re working in these areas, but they’re defining the metrics of success and the strategies a little differently. So we knew that we had the possibility to get much more consistent in terms of our aspiration as a movement. And we worked from the bottom up.

Secondly, when we made the shift from fundraising to impact, we were split right down the middle. Half of local United Ways said they were in the fundraising business, half said they were in the community change business. But once we got roughly right the mission by, again, talking to local United Ways, talking to donors, talking to subject area experts, we now have 90 percent of all local United Ways saying they’re in this business of changing community conditions. So we are – if you get the purpose right and you get the focus right, and then what you do is you start identifying best practice and where is success happening around the system, and then you share in real time. You actually accelerate the change pretty dramatically and folks will follow it. But you’re right. We’re not a top down organization, but spending my career in local United Ways has really helped me understand how you galvanize a group of local community-based organizations behind a single kind of initiative or issue. And so the response has been really positive.

Sean Stannard-Stockton: Okay. I want to connect the decisions that you’re making to kind of some broader changes in the way donors are behaving, or at least the way I see it. Over the last decade, it seems donors have gained access to far more information about nonprofits.

Brian Gallagher: No question.

Sean Stannard-Stockton: And in many cases, it seems that donors no longer feel they necessarily need outside help, whether it’s from the United Way or community foundations, to decide where to give. But I would argue that donors are still at a significant disadvantage in determining which nonprofits are doing the most good in a specific area. So would you like donors to the United Way to feel that giving to your organization is the best way to have an impact in the three specific areas, education, a sustainable income, and health that you’ve chosen? Or is the United Way still the best way for donors to give to their community regardless of the specific causes that the donor cares about?

Brian Gallagher: Well, you know, it’s interesting because there’s no question that donors have a lot more – they have access to a lot more information than they ever have. You’re exactly right. And so there’s – we don’t want donors to ever look at United Way as kind of a blind trust investment. In other words, you know, they know better than me. Let me give to the United Way and that will take care of community. In fact, I have said to my colleagues across the country that we should look at every contribution that’s made to you, every investment that’s made to you as being donor designated. The question is designated to what? So for years and years we said give to the community chest or choose your favorite agency. We made it about agencies. And so folks, for 13 years in a row, put more money into individual agencies. Since we’ve created this issue focus, we’ve said you can make an investment to support you community, or you can make an investment in this housing initiative, or this education product, or this health product. And the amount of money going into those products across our system is increasing, and the amount of money going to individual agencies is going down.

What it tells us is that donors still need outside help for a couple of reasons. One, they need the leverage. You could make an investment as a donor in a particular organization or a particular program, but if you make it – if you make that investment in tandem with, say, what United Way is doing with other investors, you actually get to take advantage of our infrastructure. And as long as we will see the donor as an investor, we can make a win-win happen. The other is, quite honestly, even though donors have a lot of access to a lot more information, local United Ways are on the ground, working with all these different organizations and other players. And again, we don’t want a blind investment. But we think we can help inform donors even beyond the access to the information they currently have.

Sean Stannard-Stockton: In December of last year – I don’t know if you’re aware of this or not, but the Chronicle of Philanthropy published an article I wrote, predicting 10 potential surprises that might happen in 2008. And one of those predictions read, “A United Way authored outcome measurement template will be adopted by the sector as the standard format for nonprofit organizations to report on their effectiveness. The narrative-driven form will soon be available for download from the home pages of many nonprofits.” Now tell me, is this prediction off the wall? I’m still confused why the 990, which is an IRS compliance document, has become the standard reporting document for nonprofits rather than a document created by and for the nonprofit community.

Brian Gallagher: Couldn’t agree with you more. You know, the work that we’ve been a part of on the 990 reform, we pushed as hard as I think any institution in the country to get the 990 much more focused on results against mission. And no question, there has to be you know, the financial reporting and so forth that the public needs and the IRS needs, but we have fallen so short of making that document something that’s really useful to donors and investors around the country. So it’s – you know, the problem is that the 990′s not going to be reviewed and changed in any – in real time. So I think, not just United Way, but there’s a number of organizations that are doing really good work on trying to create documentation and information that’s really about what I think the ultimate accountability is, is are you getting results against mission and purpose?

And 15 years ago we created a logic model around program outcomes that have been adopted by public sector funders and private sector funders all across the country. Whether that happens here or not is not the reason we did it, but I think that there’s really good work going on within some of the private foundations across the country, community foundations, United Ways. And I don’t think it’s off the wall. I think we will come to, maybe not in ’08, but in the near term, a consistent way to measure effectiveness of organizations and coalitions and collaborations because I think the market’s going to demand it. And the current kind of watchdog groups in the 990 and so forth are just going to fall short of what the market needs.

Sean Stannard-Stockton: And it really seems to me that the changes in the 990, while good, to me kind of miss the point only in the sense that this is an IRS document, and it would be far better to start from scratch with a document created by an organization that understands results and mission. And you know, the IRS’ job is somewhat separate from that.

Brian Gallagher: Yeah. And you know what I’ve thought about this, Sean, is that the – unlike the for-profit sector, there isn’t a rational capital market in nonprofits. I mean capital does not always follow real, rational return on investment. So you don’t, therefore, get capital coming into the sector to, say, create the capacity for that kind of evaluation process. But if we could find a way to resource a capacity that would create a consistent way to measure the effectiveness against purpose, and the governance and the finances of nonprofits, and for a way that you could – somebody could make money doing it, or that it would create such a social benefit that capital and resources would come to it, I think it’s part of the answer.

Sean Stannard-Stockton: Absolutely. In a recent article in the Chronicle of Philanthropy about your new 10-year plan, you were quoted as saying, “I’m not trying to sugarcoat the change this is going to mean for our partners,” Does this mean that you think many nonprofits are not having an impact, and so they’ll have to change their programs? Or do you simply mean that nonprofits will have to change the way they report on their impact?

Brian Gallagher: I think we’re going to have to change. The fact is that the most – let me first say that this work can’t happen without nonprofit agencies actively engaged in it. So this isn’t – sometimes we’re criticized for saying we don’t believe in nonprofit agencies and so forth. We do, but the fact is that if social conditions in the country, and the improvement against those social conditions were directly correlated to the number of nonprofits we’ve created in the last 15 years, we should be much further along versus not making progress against these big issues in education, income, and health. So what I think, we’re going to have to change the way we do our business. For instance, it won’t be good enough for us to say,” Last year we funded 500 after school programs in our community, and we’re gonna increase that by 20 percent.” When a million kids, incoming freshmen, aren’t graduating. And half the kids of color aren’t graduating.

Instead you’re going to have to say, “Look. This isn’t just about after school programs. This is about how do we cut in half the drop-out rate in these public schools – or in these schools.” And nonprofit agencies working with teachers’ unions, working with parents’ organizations, working with volunteers, we’re going to have to change how we do our work together. This isn’t about funding more after school programs. There will have to be after school programs, but that’s not the metric of success. So the nonprofit agencies that are – that will be willing to innovate and change and truly integrate, not share information, not cooperate, but integrate their work with others in order to actually create a greater result, they’ll be very successful. They already have been in the shift that United Ways have made to date. But those that don’t, those that want to stay kind of, you know, just focused on their own programs or aren’t willing to think differently about how to create real change, yeah, I think that run the risk, not just of losing support of United Way, but just losing support generally.

Sean Stannard-Stockton: So I gotta get back to the core of this question though, is that you have all these nonprofits out there, and you are shifting the way that you’re framing the measurement of United Way’s goals. But is that just a shifting of reporting, or are you essentially saying, “Look. A lot of these nonprofits we’re funding are not having an impact. And so we need to reframe this discussion so that we’re funding organizations that are having impact.” Because I really think that’s a critical question for the nonprofit community at large. Is the community having an impact and we’re just talking about how to measure that impact? Or is it actually that we’re talking about reframing how nonprofits operate so that they have more of an impact?

Brian Gallagher: It’s reframing how we operate to have more of an impact. The nonprofits – I’ll just speak for United Way and United Way support, and then I want to come back to something beyond money. But the organizations that are relatively more effective than others in any one of these issue areas and are better aligned to make results at a – to kind of create results at a community level, they’re gonna get more support than others that are not. A perfect example, when I was working in Columbus, Ohio, I was the United Way CEO. And we made a shift to get into service supportive housing. And the local YMCA was very nervous about it because we had always funded their daycare programs. And they could – they saw money potentially shifting away from that.

And a new director came in. He and I sat down. I said, “You’ve got a 150 single room facility here. You have housing expertise. Why don’t you come talk to us about how you might play a different role in service supportive housing?” We raised money. We bought property. We used HUD money and Section 8 funding to rehab buildings. We went to the mental health board to – for it to be part of ongoing support services. And the YMCA got big contracts from us with huge increases in their allocations from United Way to manage these facilities. So that’s absolutely reframing how nonprofits are going to have to work to create greater impact because we’ve been in – there’s been so much inertia, not just within United Way, but our systems were built for that national, industrial economy. And we’re going to have to shift the way that we do our work together, and bring in different partners. And those that can’t make that shift, they – we just can’t afford to support them any longer.

Sean Stannard-Stockton: Well Brian, that’s all the time we have. I really appreciate you joining us today.
Brian Gallagher: Thanks, Sean. Happy to do it.

Sean Stannard-Stockton: This has been the Tactical Philanthropy podcast. You can visit us at tacticalphilanthropy.com. You can learn more about Brian Gallagher and the United Way at liveunited.org. As always, thanks for listening.

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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 Mark Kramer. Mark is the founder of FSG Social Impact Advisors. FSG is a nonprofit organization that seeks to advance the practice of philanthropy via consulting with foundations, corporations, and nonprofits to increase their effectiveness and their impact. They publish research on philanthropic value creation and evaluation and create tools and best practices within philanthropy. Mark, I really appreciate you joining us today.

Mark Kramer: Thank you, Sean. I’m delighted to be here.

Sean Stannard-Stockton: Mark, FSG recently published a report called “Compounding Impact”, about mission-related investing. Would you start off just by defining what MRI means and maybe talk a little bit about the difference between SRI, PRI, and MRI?

Mark Kramer: Sure, and as that alphabet soup suggests, terminology is actually a huge problem in this field. I would not say that there are consistent definitions for any of those terms out there. But in the broadest sense, what we’ve seen is foundations increasingly taking into account their mission and the social impact of their investments when they think about investing their endowment funds. And there really are a couple different ways to think about the social dimension of your investments. One is simply to screen your portfolio. In other words, to avoid stocks and companies that you think do bad things, like tobacco companies. Or to have a positive screen, where you put more of your assets in companies that are doing what you think of as good things, like, perhaps, alternative energy, green energy.

A second way to have impact with your investments is through your vote of the proxy that you have as a shareholder. And there’s some very interesting work that Rockefeller Philanthropy Advisors, and some other organizations, have done around the role that foundations can play by influencing corporate behavior through their proxy votes. The third area, and the area that…

…we concentrated most on, is what we called proactive mission investing, where you’re actually putting your money into an enterprise, which could either be for-profit or nonprofit, that is achieving social benefits and that couldn’t deliver those social benefits without your investment.

And in that area we see tremendous growth. We see that foundations, over the last – oh, I would say over the 30 years from 1969 to just around 2000 – the amount of money going into these proactive mission investments was growing at about three percent a year. In the last five years, it’s actually been growing at about six percent a year. And we think in just the last two years, the amount of new money going in has almost tripled. So there’s just tremendous momentum around foundations moving into this space.

Sean Stannard-Stockton: Could you give us an example of an MRI opportunity in the nonprofit space and one in the for-profit space?

Mark Kramer: Sure. I think that – let me start with one in the for-profit space, which is one of my favorite examples. It’s a for-profit company called Waste Concern, based in Dhaka in Bangladesh. And the problem is in the slums in Bangladesh the government doesn’t regularly collect garbage. And so it rots in the streets. It’s a tremendous health hazard. It actually creates greenhouse gases and carbon emissions. And two engineers got together and said, “Maybe we could hire some of the unemployed people in the slums to collect garbage. We could recycle what could be recycled, and we could create organic fertilizer from the rest and sell that.”

And they had a terrible time raising money to start up. And ultimately the Lion’s Club and the UN environmental program gave them the money to first set up their operation about six years ago, handling two or three tons of garbage a day. It’s proved immensely successful. They’re actually able to sell carbon credits in addition to the fertilizer. They’re now employing thousands of people. They’re handling 700 tons of garbage a day. It’s the waste from three million people. They’ve branched out to other cities in Bangladesh, and they’re beginning to franchise it in Vietnam and Sri Lanka. It’s reducing carbon emissions. It’s increasing crop yields with organic fertilizer. It’s employing people who haven’t been employed. And it’s making money. And it’s able to grow at the tremendous rate at which it’s growing because it’s able to tap into the for-profit capital markets.

And I think that it’s much harder to grow a nonprofit rapidly than it is to grow a for-profit, if you have an economic model that works. So to our minds, part of the beauty of mission investing in for-profit enterprises is the ability to tap into these capital markets. A nonprofit one is an example, perhaps, in affordable housing. Meyer Memorial Trust, a foundation out in Oregon, is – has one of its focus areas around affordable housing. And as they went out and talked with nonprofit developers who build affordable housing, they found that they could get commercial financing to actually build the housing once they owned the property and had the plans and had the zoning permits and so on. But there was a considerable amount of money that was needed to get to that point, to find property, to go through all of the various permit requirements, to engage with the community and get their permission. And there was no financing available for them to do that. And so Meyer put together a loan fund that enables them to borrow money at very low interest rates for this initial stage of development. And then once they have the approvals in place, and can get the bank financing, they can repay this money back to Meyer.

Sean Stannard-Stockton: And so Meyer both got their capital returned as well as some degree of interest?

Mark Kramer: Yes. Exactly.

Sean Stannard-Stockton: So it seems to me that many people view “doing good” versus “doing bad” as laying on the same spectrum as negative financial returns or positive financial returns. So the implication is that maximizing financial returns means not pursuing social good, and vice versa. Is this trade-off real, or do social returns and financial returns really lay on spectrums that are uncorrelated with each other?

Mark Kramer: Sean, that’s a great question. And that really does go to the core of the issue. And what I would say is the biggest barrier to promoting more social investment out there. And I would say that three years ago, when we first began to look into this, I would have agreed 100 percent with the idea that there’s a trade-off. But the fact is, there is not. And you look at the Heron Foundation in New York – FB Heron – which is a real leader in mission-related and program-related investing. Almost a third of their endowment is in mission-related investments. They track very carefully each investment against the comparable index for its asset class. And they have consistently equaled or beaten the market returns for similar assets with their mission-related investments.

Most recently they’ve put together a fund that’s a positive screen of public equities of companies that are doing good things in inner city around the country. And one of things they’ve found is that in the last couple years, this socially screened portfolio has outperformed the market because one of the screens they’ve looked at in terms of good company behavior screened out predatory lending. And the whole sub-prime mortgage crisis, they bypassed completely, not because they knew it was coming, but because their social screens eliminated those candidates. So they actually outperformed the market, merely because they were trying to achieve positive social impact.

Sean Stannard-Stockton: Okay. You know, at the recent Council on Foundations conference there were no less than three sessions with the words “mission-related investing” in the title. And there were a couple more which weren’t titled that way, but at their core were really about this issue. But I wonder if the interest in MRI far outstrips the actual deal flow in this area? In other words, there’s a lot more talk about MRI than there’s actual investment opportunities. And this seems especially true, to me, for foundations that are smaller, say under $50 million dollars in assets, where a single bite of a deal might be just too large for them to put that much of their endowment into. But your report does state that foundations with less than $200 million dollars are doing a lot of the MRI work. So for foundations who want to engage in MRI, are there sufficient investment opportunities for them to do it?

Mark Kramer: Well, there are kind of two parts to that question. You’re right. We’re seeing a lot of growth and a lot of innovation among smaller foundations. The larger foundations that have been doing mission-related investing for years are typically doing low interest loans to grantees, program-related investments. And they haven’t changed their formula, by and large, in a long time. And so a lot of the innovation we’re seeing is with the smaller foundations. But I think it is very hard to find deals. I think deals are out there, but the people who come talk to a foundation every day are grantees and grant seekers. They’re not people – entrepreneurs, venture capitalists, people doing business deals. And the program staff often don’t have expertise in that area. And the financing staff often don’t have expertise in the social issues that are being addressed.

So this split that most foundations have between the business side and the grant-making side is a real barrier here. I think one solution we’ve seen is the use of intermediary organizations – community development finance institutions, venture capital funds, other kinds of organizations that pool investments in – investment capital – in order to make investments in social enterprises. And we actually did a report more recently called “Aggregating Impact,” which was funded by the Surdna Foundation, it is on our website. And we found 1,000 mission-investment intermediaries in the United States working in different regions, working on different topics. And we made that list available online. But there really are tremendous resources and tremendous advantages to working through intermediaries, rather than trying to simply place the investment capital yourself.

Sean Stannard-Stockton: Sure. Well, let’s shift gears for a minute and talk about a report that you published last year called “From Insight to Action”, about trends and best practices in foundation evaluation. With my background in investing in the stock market, I’ve been frustrated that foundations do not spend more time evaluating nonprofits directly and then releasing those reports to the public. Now, if you’ve read my blog, you know we’ve discussed some of the problems with this idea, but would you comment on whether you think information sharing would be a benefit to the field? And if it would, why it’s not a more common practice?

Mark Kramer: I think it would be an immense benefit to the field, and I think it’s a very, very hard cultural barrier to overcome. There is a strong sense, still in the field, that philanthropy is about caring, is about the emotion, the concern, the effort even more than it is about a hard-nosed look at the results. And I think that that view is less strong than it was five years ago, but I think it’s still out there in the field to a significant degree. I think there’s also a real hesitation of foundations to say anything bad about a grantee, or to in any way harm a grantee’s chances to raise funds from others by putting forth what they see as negative results.

And I think this is tremendously unfortunate. I’ve actually talked to a couple foundation CEOs who, on their retirement, when I’ve said what was your greatest achievement, two of them have said putting a nonprofit out of business that just wasn’t doing a good job. And yet that’s so rare. That’s so rare, and yet, if you think about how valuable the philanthropic dollars we have are, and how scarce they are, and how big the problems are that we’re trying to deal with, of course if you can help others use their money more effectively and avoid what might be very compelling-looking nonprofits that actually aren’t very effective, you’re doing a great thing for the world. But it’s just such a big cultural barrier.

Sean Stannard-Stockton: I agree. It seems to me that it would absolutely revolutionize the way that smaller donors could fund high-performing nonprofits, and that foundations would truly leverage their impact from all the good work that they’re doing in terms of the research and evaluations. Given what you’ve learned in preparing that report, what advice would you give to individual donors or smaller foundations who want to evaluate their giving? An organization or a person who really doesn’t have a full staff and hasn’t necessarily thought about evaluation, but says, “I do want to be more hard-nosed about how I give?”

Mark Kramer: Well, there’s no way around the fact that it takes some time. We found a number of examples in the report of quite small foundations that might have only one or two staff members who were doing what we thought was a great job of evaluation because they really were focused enough in their giving that they were able to go out to the sites and really understand what was going on in the programs they were funding. And I think that the short answer is if you want to do good grant making and you want to be able to evaluate progress with very limited staff, you need to be very, very focused. You can’t do it if you’re giving 50 grants in 50 different areas. But if you’re working in one area, you probably can be knowledgeable enough to really be effective.

Sean Stannard-Stockton: Well, Mark, I really appreciate your time. And I look forward to speaking some time in the future.

Mark Kramer: Well, thank you very much, Sean. It was my pleasure.

Sean Stannard-Stockton: This has been the Tactical Philanthropy podcast. You can visit us at tacticalphilanthropy.com. And you can learn more about Mark Kramer and FSG Social Impact Advisors at fsg-impact.org. Thank you so much for listening.

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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 Fred Krupp. Fred is president of the Environmental Defense Fund. EDF uses public-private partnerships to tackle the world’s most serious environmental problems. They are known for their long success of leveraging market forces to further their mission, and their strategy of partnering with the world’s largest corporations. Fred and his co-author, Mariam Horn, have recently released the book, Earth: The Sequel. Fred, thank you so much for joining us.Fred Krupp: Delighted to be here.

Sean Stannard-Stockton: Fred, your book is full of stories about innovative ways that for-profit entrepreneurs frequently are creating powerful new business models that they believe, or that you believe, has the potential to save the planet. Why don’t you begin by telling us a story or two about some of these entities that are competing in a marketplace in a way that you think has this potential to save the planet.

Fred Krupp: Sure, Sean. We tell the story of Bernie Karl, up in Alaska, who had this for-profit idea that he could have a lot of tourists visiting his resort if he built an ice hotel. But he had a find a way to keep that ice hotel frozen in the summer. Unfortunately, he built the hotel, summer came, the hotel melted. And Forbes dubbed this the dumbest business idea of the year. But he persevered…

…He was an American entrepreneur. He was willful. He had a vision. He wasn’t going to take no for an answer. And eventually he developed a way to rebuild that ice hotel, keep it frozen all summer long, and tourists are flocking there. He’s making a lot of money. But the story doesn’t end with Bernie. He pioneered the first use anywhere of warm water, low temperature water, being used to run a geothermo generating plant. And now United Technologies, his partner on this venture, has created a whole new division and is exporting these generators all over the world.

We tell the story of solar energy. Until now, solar energy has been a bit too expensive. So there’s entrepreneurs working on getting the price down. Talk a little bit about Conrad Burke from an InnovaLight, who has developed a way to use the cheap, unrefined silicon – sand, really – to liquefy it into a paint, so he can paint solar cells onto most any surfaces, including a roof. So that, instead of having to mount an expensive glass box solar panel, it brings the cost down. All ready, in the solar industry, we have – First Solar now has a market cap of 16 billion dollars. As a matter of fact, the late philanthropist John Walton put some money in to that company, $250 million, and his estates owns now that share of First Solar, now worth 5 billion dollars. His money was multiplied 20 times over. So we see the beginnings of entrepreneurs developing clean power that the planet’s going to need.

Sean Stannard-Stockton: In your book, you talk about the potential for artificial trees that can suck carbon dioxide out of the atmosphere. That’s one of the stories that kind of resonated with me. Would you explain to the listeners how carbon trading can harness market forces to actually reward inventors of tools like artificial trees, as well reward major polluters who are able to find innovative ways to reduce their output.

Fred Krupp: Sure. You know, cap and trade for sulfur worked extremely well. And it can work, and is beginning to work for carbon dioxide. Not yet in the United States because we have not put any limits on throwing global warming pollution into the sky. But once we do that, here’s how it would work. Every company would have, either by purchase or by distribution, a certain amount of pollution they’re allowed to put in the air. Take power plants, for instance, power plants would be asked over time to cut their emissions by first, 25%, then 50%, and then a higher amount. But take the initial cut, say, of 25%. The power plants that fail to do that would have to buy carbon reduction credits from other companies. So they would be penalized for putting extra global warming pollution into the sky. They would have to pay extra for it. And they would have to pay for the amount that they’re over their limit to be reduced somewhere else.

But on the other hand, those power companies, or even people in other businesses – even, potentially, farmers – who figure out a way to take more carbon dioxide or global warming pollution out of the system, they would be earning these global warming pollution reduction credits. And they could sell into a new, green market. So while we would be penalizing those who put up more than the government wants, we would be rewarding those who drive pollution levels down. Now, in total, pollution would have to come down because the amount of pollution permits that would be given out would be declining over time. And the only way you could put out more pollution than you are allowed would be to buy a permit from someone else.

So this is the market system that has never been used for global warming pollution in the United States until now. And this is how it would create a pot of gold; create a stream of mega prizes for those who figure out how to do things, like Klaus Lackner, who’s working on this artificial tree. I don’t know if he’ll be successful or not, but I sure know, Sean, that I want him to be offered a pot of gold so that he keeps working on it, if he is successful.

Sean Stannard-Stockton: So I’m imagining the comments coming in from some of my readers. Some of which, maybe, are not as enamored with market-based solutions as you are and I am to a degree. Does using market-based solutions imply that we’ll have to focus on, kind of, cleaning up our own mess, rather than creating it in the first place. Because I’m picturing this world where all the trees are gone and free market advocates are pointing to the wonderful success of artificial trees.

Fred Krupp: Well, artificial trees is just one example. Whatever fixes we use have to be ecologically sound. We don’t want to be compounding a problem by creating another problem. But the mere – the fact of the matter is it’s our market system that got us into this mess. It’s the profit motive and greed that have caused global warming because people are allowed to dump this global warming pollution into the air without any limit. So I know it seems counterintuitive to say that the profit motive that got us into the fix can get it out of – can get us out of this fix, but here’s why. We live in a society where entrepreneurial capitalism is the most robust force we have that drives the economy. So when we flip the economic incentives, that are all wrong now for the planet, when we flip those incentives on their head, suddenly we can harness entrepreneurs and engineers, inventors, businesses large and small to reduce their pollution. And even invent things to take carbon dioxide out of smoke stacks, to change farming practices so we build up organic matter in the soils and thereby are taking carbon dioxide out of the air. It’s when we fundamentally changed our flawed market systems and align the economic signals with the values we need to have a future that we secure the future.

Sean Stannard-Stockton: Let’s take a step back for a minute from environmental policy, and talk about the broader potential of market-based solutions to problems traditionally attacked using philanthropy or government dollars. So the field of philanthropy seems to operate largely outside of market forces, some of which is good, but in many cases that lack of market forces doesn’t encourage philanthropy to move forward to create new, effective ideas. So whether a donation produces any social good or it does not, doesn’t always affect the viability of a donor continuing the same practice. So drawing on the lessons you’ve learned from working at EDF, how do you think that foundations or other funders or non-profits can leverage market forces in their own work?

Fred Krupp: That’s a great question, and of course, I’ve given a lot more thought to global warming and environmental pollution than I have to the extension of these principles generally, but I’ll take a crack at your question, Sean. I would say a couple of things. One, I think it’s important that foundations offer prizes and incentives to those NGOs who are most effective. So I would like to see, as much as possible, foundations move – and we’re already seeing them move in this direction – but I endorse the movement toward, kind of, performance-based philanthropy, where there’s accountability among the grantees. And the grantees that really get the job done are rewarded for their results. And where just fighting the good fight, or putting out a good effort isn’t what drives philanthropists, but grant-making is, instead, really driven by performance metrics, and even prizes for innovative ideas.

One thing, Sean, Matthew Bishop from The Economist said to me the other day that not only has he seen a lack of accountability in the nonprofit sector, but sometimes he sees nonprofits in the education and other social arenas with very good ideas, but without the drive to take those good ideas to scale the way a for-profit would have. And I would say this is something, I think, that grantors should play a constructive role encouraging nonprofits that have breakthrough capital to really take those ideas to scale. And, you know, that is another specific way.

The last answer to your question, and the most complicated one, of course, is for many social problems, actually having NGOs remake the economics of our society so that there are incentives to solve some problems we have in the education arena, or creation of jobs, or housing arena. This is, I think, you know, where a lot of breakthrough intellectual capital is. And I’m convinced that, although it won’t work for every social problem, it can work for more problems than we’ve currently imagined.

Sean Stannard-Stockton: Sure. That makes a lot of sense to me. We have time for one more question here. EDF is known for partnering with corporations like McDonald’s and Fed Ex to help those companies reduce their environmental footprint, while also lowering their expenses. This kind brings to mind, to me, the concept of carrots and sticks, and what is the better way to effect change? So why do you favor, really offering carrots, to polluters or to anybody else, rather than threatening bad actors the way that many other environmental groups do? I’m interested in the answer specifically in a broader sense of affecting social change and using carrots or sticks, and how you can be most effective.

Fred Krupp: Well, Sean, first of all, I do want to point out that EDF does continue to take lawsuits. It’s now less than 5% of what we do, but we’ve got some fine environmental lawyers, and we’ve litigated all the way up to the Supreme Court against, say, Duke Power. We won a case last year by a vote of nine to nothing from the Supreme Court on air pollution, even at the same time as we were partnering with Duke Energy on the United States Climate Action Partnership. So we have all the tools in the toolbox at the ready.

But I do think, you know, if we’re going to move America, we have to move American business. And American business, in fact global business, has tremendous market pull. Think of Wal-Mart and all their suppliers. And Wal-Mart’s ability to phase out selling energy-hog TVs, and phase in selling super-efficient flat screen TVs. So that as America moves to more and more flat screens, the amount of energy wasted can be minimized. There’s enormous ability to effect change that companies have. Let me give you an example.

Most people know that EDF kind of pioneered the use of these partnerships; first with McDonald’s on helping them find other answers to packaging their hamburgers besides the Styrofoam box. But more recently, in the last few years, we partnered with McDonald’s again on the use of antibiotics in poultry. And McDonald’s specified to all their suppliers that they no longer wanted chickens routinely fed antibiotics, just as growth promoters, to — all the chickens were being fed this, not to treat any disease, but just a way to make the chickens grow faster. Once McDonald’s put that new rule into effect, the biggest poultry operations in the United States all phased out of doing this, not only for McDonald’s, but for their businesses in general. And this is a big deal because most antibiotics in America — believe it or not, 70% — are used on farm animals, not people. And yet people suffer the ill effects because the stuff that’s used on farm animals creates bacteria that are resistant to antibiotics, so that when we’re sick, increasingly, sometimes the drugs of last resort don’t work.

So I know this is a bit of a complex anecdote, but having McDonald’s agree to change its practices was able to change this in a way, much more quickly and effectively than a multi-year campaign to get Congress to change the rule. Congress should specify that these practices haven’t been ended. But here we were able to change American business practices in a speedy, efficient, effective way. And it’s one of the reasons I think that by helping companies do the right thing and praising them for doing the right thing, giving them that carrot, many times we can move faster than with any other technique. Not all the time. Sometimes we have to go to court, as we did with Duke Energy.

Sean Stannard-Stockton: Well, Fred, thank you very much for joining us today.

Fred Krupp: Thank you, Sean.

Sean Stannard-Stockton: This has been the Tactical Philanthropy podcast. You can visit us at tacticalphilanthropy.com. And you can learn more about Fred Krupp and the Environmental Defense Fund at edf.org. Thank you so much for listening.

During the interview, Alberto discusses the foundations effort to hire an “online community manager”, why one of the Knight Foundation’s major projects might make some people “vomit on the table” (and why he’s OK with that), how the foundation is planning on funding “wonderful strangeness”, and the promise of “prize philanthropy”.

(Please be patient while you wait for the audio file to download. The transcript is below.)

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Alberto will be responding to comments, so let us know your thoughts. You can read the transcript by clicking on the link below.

(Full disclosure: my brother is currently on a Knight Fellowship at Stanford. However, he was not involved in any way with the production of this content nor in setting up the interview).

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 the Tactical Philanthropy at Ensemble Capital. My guest today is Alberto Ibarguen. Alberto is CEO of the John S. and James L. Knight Foundation. The Knight Foundation has its roots in the newspaper business and today makes grants that transform journalism and communities. Alberto was publisher of the Miami Herald before he joined the foundation in 2005. Alberto thanks so much for joining us.

Alberto: I’m glad to be here, thanks.

Sean: So first I want to start off and just briefly — the foundation was funded by brothers, John and James Knight. They made their money in the newspaper business.

Alberto: Yes.

Sean: And today the foundation makes grants to, in your words, transform journalism and lead it into the digital age. I believe that the big challenge for philanthropy in the coming decades will be learning how to share information to make the world a better place. What can you tell us from your experience about the challenges and opportunities that the shift to digital information distribution brings with it to journalism and in a broader sense to philanthropy.

Alberto: Well I’ll tell you. First of all just a very minor correction, the foundation was funded by the two brothers and by their mother. It was always separate from the company that the brothers ran. And the foundation was set up by the three of them over time. And they always had journalism and community as the two overriding principles of the — purposes of the foundation. They didn’t prescribe how they wanted the foundation run, or specifically what issues they wanted the foundation to deal with. Which they did on purpose in order to allow subsequent generations of trustees and obviously foundation administration to decide how we should build community and how we should address the issues of excellence in journalism in future generations.

I think there is no doubt in my mind that what we are doing today with the digital revolution, with what we are doing today at Knight Foundation and funding the Knight News Challenge and funding the initiatives we are doing with community foundations, which I’d be glad to tell you about, and funding the Knight Commission on the information needs of communities in a democracy at the Aspen Institute. These are things the Knight brothers would never have imagined but I think they are exactly the kinds of things that the Knight brothers would be doing if they were alive today.

Sean: So it seems to me that for a lot of the business world, the digital revolution looks for the most part to be an opportunity. But for journalism in particular a whole set of challenges have come up. And people have been wrestling with how does journalism function in the digital age and so — what are the challenges and opportunities you think for journalism and how does the Knight Foundation help journalism work through that?

Alberto: Well I think first of all I don’t want to be too corny, but think about our history; Jack Knight was a guy who ran a newspaper in Akron, Ohio. Thanks to new technology, something brand new then called the telephone; he was able to build the second biggest newspaper company in America. He was a guy who understood that you — that change can be discontinuous but change is — the kind of new technology that came along in his day was something that he used as an opportunity.

I think that’s how we ought to approach this. Just like other businesses. It’s not just — at Knight Foundation we don’t have a newspaper that we are running. We’re not affiliated with a television station. We don’t have an interest in any of the telcos. What we do have is a huge interest in making sure that communities have the kind of information they need to manage their business.

We are awash in information and yet at the local level, at the community level, we find that there is less and less usable information of the kind that newspapers and local television stations used to provide. So we can either wring our hands and say, oh dear, I wish we were back in 1966 when things were different. Or we can say, all right who’s got ideas out there? And that’s what we decided to do.

Last year we had our first year of the Knight News Challenge. We offered five million dollars for ideas for using digital platforms to deliver news and information on a timely basis to a geographically defined community. Why do we do that? Doesn’t that sound suspiciously like what newspapers and local television used to do except on digital platforms, number one. And number two; we did it that way because virtual communities don’t need our help to propagate, to do their business. By using the Internet, using the web, using digital technology for informing geographically defined communities, I think it does need help. I think it does need focus.

The reason it’s important is that we still elect the people who decide — who decide and define environmental policy, education of your kids, who fixes the potholes, who doesn’t, or whether to fix the potholes in a particular community. All of that is still done by geographically defined communities, by election in geographically defined communities.

So I think it’s really — and we still live in geographically defined towns. And I think it’s important that we figure out how to share the kind of information we need for these entities called communities to run themselves and figure out how to do it digitally. It isn’t going to — it just isn’t an option, in my view, to sit around and say I wish we were all reading the newspaper or I wish we were all listening to a one-hour local news report on television. That’s gone and — or at least it’s gone in the way that we knew it. And with the kind of reach that it used to have.

Is it your cup of tea that you get your news and information on your cell phone, on your telephone? It may not be but it certainly would be somebody else’s. And that’s why last year, for example, as part of the contest we gave a grant to MTV to hire and they have hired 51 young people to cover the presidential campaign on cell phone.

So they will be covering it, texting and video clipping the presidential campaign in each of the 50 states and the District of Columbia. And then once a week MTV will, or several times a week I guess, MTV will run, “the best of” and if you want to get Mary’s report from Iowa or Pete’s report from Kansas send in your telephone number at this website and you can sign up and get the report.

Now some people will listen to this and they’ll just vomit on the table. They just, they will absolutely — they just won’t be able to stand the idea that you can actually deliver serious news and substantive news and information in such a frivolous way.

Well that’s too bad and so for them I recommend they continue subscribing to the newspaper, which is delivering information in a way that suits them. But for a whole generation of people who are used to using their telephone, their cell phone as a primary means of communication, this is going to make the presidential campaign something that happens as part of their lives. It’s kid to kid. It’s on the preferred medium of — the preferred platform of information. And I think the worst that will happen is those folks will be touched by an important civic event, the presidential campaign. But what I really think is going to happen is that we’re going to learn a lot about how to deliver serious news on these other platforms.

Sean: Okay, so let’s talk a little more about The Knight News Challenge for the listeners that don’t know the background. And Alberto you want to add anything to this? The News Challenge, you’ve committed 25 million dollars for the next couple of years that you are going to award as, essentially, prizes to people who have the best concepts on how to transform community news. Is that a good characterization?

Alberto: That’s a great characterization and really what we’re willing to do is give you the money to carry out your experiment or your innovation. And the reason why it’s not exactly without rules, because it does have to be a digital platform. It does have to be news and information timely shared. And it does have to be for a geographically defined community. But outside of that we decided to have no other rules. And the reason for that is that we did not want, by setting up a bunch of rules, we did not want to get back variations of things we had already imagined. What we are looking for were fresh ideas and we’re willing to fund the experiment. We are willing to fund the innovation.

Sean: This sort of philanthropy, generally referred to as prize philanthropy, where part of the outcome here is that not only are you going to fund a set of people who have these ideas but you’re going to motivate another group of people who don’t end up getting the award to actually put their idea into action enough to pitch it to you. And some of those other ideas may very well go on and do their work with some other sort of funding.

Alberto: That’s exactly right. And by the way we actually, last year when there were a number of ideas that the staff did not feel were appropriate or were not as good as some of the ones we funded, we actually introduced the people who proposed them, the potential grantees; we introduced them to other potential funders so that the ideas could move forward with others.

Sean: Do you think that prize philanthropy is sort of something that can be used really broadly in philanthropy or is it really just kind of transformational type projects?

Alberto: Hmm. Well I’m not, explain to me what you mean by really broadly?

Sean: In other words, prize philanthropy is being used by different foundations for different purposes. But it is a very, very, very small piece of the overall grants made. And so do you see prize philanthropy as continuing to have a very kind of niche piece of what foundations do or could it grow into something that maybe most foundations have some sort of prize philanthropy grant in progress.

Alberto: I think it will grow and I think, exactly how much it will grow I suppose we’ll all get to see. But here’s why I think it will grow. I think it will grow because we have the capacity to get back — how should I say this? We have the capacity to get back the ideas we can fund. We have the technology and we have the attitude among people that is different from “I write, you read” or “I broadcast and you listen.” And instead the new model is I produce and we participate. And that’s a very different way of thinking about how to approach community issues than before where the foundation might say we are interested in journalism and we will fund a — we will endow a chair of journalism in sports and society. That’s not one I made up that’s one we actually did. We will endow a chair in investigative reporting, we will endow a chair in you name the subject and we probably endowed a chair in it.

Sean: You know at the Council on Foundations community foundation meeting down in San Francisco this year and I spoke on the morphing media panel. And I forget who it was, but somebody wrote an op-ed for the San Francisco Chronicle that day talking about community foundations’ roll in community news reporting.

Alberto: Right. That was Dan Gilmore.

Sean: Yeah. Right.

Alberto: In the San Francisco — and I spoke the next day at the lunch and I used part of his column and that’s when I was, actually, sort of talking slightly extemporaneously and — this is a true story. I actually had a speech written for the lunch and I actually got bored with my own speech and I thought this is ridiculous I don’t want to talk about this. I want to talk about information in community and that’s when I got off on that tangent and then in the course of talking I said, “You guys probably aren’t involved in this but none of you are involved in it, even though it is clearly a core need of your community. Maybe you’re not involved because you’re scared or maybe you’re not involved because you don’t know enough about media.”

So here’s what we’ll do. We’ll invite all you people down to Miami in February, which got some acceptance. And we’ll hold an information seminar. So actually, the seminar we’re holding on February 20th is cosponsored by the Council on Foundations and ourselves. And the idea is to bring these 250 people, both executives of community foundations and board members, and have them first of all accept that it’s a core need and second of all consider whether this is a roll they would like to play. And if is, we’re willing to match them.

Sean: That sounds really great. One of the themes of my blog in recent weeks has been efficient markets in philanthropy and how efficient markets require really good information that’s widely distributed. And that’s true across funders trying to make grants to people trying to make political decisions. And as a financial advisor, efficient markets in financial markets mean one thing and I think that philanthropy is kind of desperately in need right now of more efficiency in the sense of efficient markets and information flow. So it’s a great roll for you guys.

Alberto: Well that’s great. I — well you’ve just given me yet another reason to pay more attention to your blog. Thanks.

On a different topic here is our thinking about arts in Miami. We believe that arts, public education, and sports are a great way for Miamians who come from all parts of the world to form a common experience and create a new Miami. There’s a place that’s going to develop a fusion culture, it’s going to be this one where half of us were born in another country and ¾ of us were born some place other than Miami. So we’re in the middle of a major effort to fund various arts projects in the city.

Some of our endowment, some of our grant making, are endowment grants to the art museum to the local symphony. But half of our endowments and this is back to where we were talking about before. Half of our grant making in this round is really offering to the community an opportunity to tell us their ideas for making art in Miami. And the way that will work is we’ll offer twenty million dollars, four million dollars a year for each of five years, for ideas about making art in South Florida. If we like your idea, we’ll invite a proposal. If we end up liking the proposal, we will ask you for how you are going to match our contribution. And if you want to write an opera or write a poem or run a museum or do whatever the project is, we’re interested in hearing from you. And I think this is a way that between the twenty million dollars we’ll do in endowments to two museums and an orchestra, and the twenty million dollars we will offer to people in general, plus the twenty million dollars that they will bring in matching grants, it’s 60 million dollars in a period of five years. That I think can really have a transformative kind of influence in a city like Miami.

Sean: I want to ask you…

Alberto: And let me just say one other thing Sean, and that is what I hope will come out of this is ideas that we would simply never have imagined. I can imagine the 50,000 kids that are going to go through the art museum — that’s at the Miami Art Museum. I can imagine the new technology that they use at New World Symphony and I can imagine the cutting edge art that they can do at the Museum of Contemporary Art. I want to believe — I do believe, I’m actually betting 20 million dollars on believing — that I cannot imagine the number and variety and depth and wonderful strangeness of the ideas that are going to come out when we ask people, as generally as we intend to, when we ask people what are — how do you want to make art?

Sean: Wonderful strangeness, that’s a great line. I want to talk specifically about a job that you are hiring for now with the title of online community manager.

Alberto: Online community manager, right.

Sean: And so philanthropy is slowly moving into the digital age. It’s only in the last year to two years that there has really been all that much kind of a robust conversation across different blogs and online platforms.

Alberto: Mm-hmm.

Sean: And as far as I know you’ll be the first foundation to hire for this, with this job title. What are you trying to create with this and why is it a need for your foundation?

Alberto: Well, we’re — it seems to me that everything that I’ve just talked about is an acknowledgment that the future is participatory. We’re going to — the day of the website that says, here is what I am or who I am and you come — there is a value in being able to come to the Knight Foundation’s website and finding out what we did in the past. But it isn’t really going to tell you what we might be thinking about or what we might be developing for the future. It certainly isn’t — it certainly doesn’t do — speaking, really, very selfishly, it doesn’t do anything for me to have a website, it just costs me money. What I really want is a place that fits the way people are thinking about information these days. A place where we might fund you or somebody else to write something that will provoke a debate or will pull it from someplace else. That will suggest a way of attacking a particular either social problem or interesting problem in journalism or interesting problem in philanthropy.

And I don’t think that’s the sort of thing that you can simply post and hope that other people will have comments for. If you look at most of the newspaper stories these days that will allow readers to post a comment afterward, it’s really pretty static and the responses are, “cool story,” “I hate this story”, “why didn’t you also…” The responses are sort of one-liners if you will. And they’re not structured as a discussion. They are not structured even as a debate. But just as sort of throw away lines.

In order to have a real, live ongoing discussion, I think — and Mark Fest, who has worked with me on this, we really believe that you’ve got to have somebody who is not simply of the web. Who is not simply digitally natural but is also somebody who is curious about the issues that we deal in, who is concerned about the questions that effect philanthropy, who is concerned about the questions of information in the 21st Century. And somebody who is going to be doing as much reading and provoking discussion as he or she is going to be hosting discussion. That’s the platform we want, we are preparing for this person. But the platform itself is kind of an inanimate object. You’ve really got to have a human being who is really going to drive and make that place exciting. And what would thrill me more than anything is to have that become the place where people go to debate issues that matter to them.

Sean: So it seems to me that most foundations have been extremely hesitant to do much of anything online. And just since this last fall, for whatever reason, I’ve seen more and more people from foundations, at Packard and Kellogg and where ever, interacting on my blog and interacting on some other blogs. I kind of have the sense that institutional sized foundations will have to, over time, become involved in the digital community. It’s not just a choice that they make, but it’s something that they will essentially have to do. Do you think that the online community manager roll is unique to the Knight Foundation or do you imagine that over time many, many large foundations will have similar type rolls you know managing the foundation’s interaction in the digital world?

Alberto: Well, first I sense the same thing as you that there is more and more interest in engaging the web. There’s more and more interest in foundations and engaging the web. I will tell you my one personal, deep disappointment in all of this is that Jonathan Fanton who is president of the MacArthur Foundation got an avatar on Second Life sooner than I did. I’m really ticked off about that. But separate from that, I really think you’ve got — if you are going to engage people, you can’t wait for them to come to you. And I don’t see how you do our work; I don’t see how you do our business in philanthropy without engaging the community, without engaging the people that you’re trying to work with.

I think anybody who has that worldview simply then will look at, what are the ways you do it? You can do it by wading into a crowd in physical space or you can do it by wading into a crowd in virtual space. Either way works. I think we ought to be doing both. And I think people will be doing both.

Sean: Well, Alberto I really appreciate your time today.

Alberto: My pleasure. Thank you very much for your interest in what we are doing and stay in touch.

Sean: This has been the Tactical Philanthropy podcast you can visit us at tacticalphilanthropy.com. You can learn more about Alberto and the Knight Foundation at the knightfoundation.org. Thank you so much for listening.

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.

• Launch Podcast

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?

Phil: Right.

Sean: And you need a whole different measurement system.

Phil: Right.

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,

Phil: Right.

Sean: … the use of social media tools.

Phil: Right.

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 …

Phil: Yep.

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.

Phil: OK.

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.

Today’s podcast is with Heather McLeod Grant and Leslie Crutchfield, the authors of the new book Forces for Good: The Six Practices of High-Impact Nonprofits. Forces for Good examines the characteristics of nonprofits that are achieving high impact. Heather’s been an advisor to the Center for Social Innovation at Stanford, as well as to many nonprofits. She holds an MBA and worked at McKinsey, consulting with for-profit companies. Leslie is a managing director at Ashoka, a research grantee at the Aspen Institute, and a philanthropic advisor to foundations and high net worth individuals.

During the podcast Heather and Leslie discuss the importance of nonprofit groups engaging in political advocacy, the difficult in measuring impact (and the flaws in Charity Navigator’s system of measuring efficiency), the need for nonprofits to engage their volunteers, and the ways in which nonprofits can learn from Web 2.0 companies.

If you post comments and questions in the Comments section, Heather and Leslie will respond.

You can read some background about the book and both authors here.

• Launch Podcast

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 guests today are Heather McLeod Grant and Leslie Crutchfield. Heather and Leslie are co-authors of the newly released book, “Forces for Good. The Six Practices of High-Impact Nonprofits.”

Heather’s been an advisor to the Center for Social Innovation, Stanford, as well as to many nonprofits. She holds an MBA and worked at McKinsey, Consulting for for-profit companies. Leslie is a managing director at Ashoka, a research grantee at the Aspen Institute, and a philanthropic advisor to foundations and high net worth individuals. Thank you both for taking the time to speak with us.

Heather: Thank you.

Leslie: Thank you Sean.

Sean: Heather, why don’t we start with you. Why don’t you tell us a little bit about the book? I’d especially like to hear your thoughts on why measuring nonprofit impact is still a new field. The nonprofit sector’s been around for a long time. Why is it that we are still trying to figure out what makes a nonprofit actually have an impact?

Heather: Sure. Well the book is really about the six practices that some of the best nonprofits in America have used to scale their impact. So when we set out to write it, we wanted to identify the highest performing social sector organizations that have gotten to scale in really the last 30 to 35 years. We deliberately went through a rigorous methodology and selected 12 groups that we studied for several years. And then, from our research, we distilled these six practices.

So the six practices are the things that we’ve identified that have helped these organizations increase their impact. We really think that they are practices that the rest of the sector can learn from. In particular, those social entrepreneurs, like the Ashoka Fellows, and other nonprofit leaders who want to understand how they can be much more effective in their work and really, again, increase their impact.

I think one of the big challenges in the field today, as you’ve pointed out and as you write about a lot in your blog, is this lack of measurement. We faced this in our research. When we first set out to identify the 12 organizations, we immediately came up against the problem of a sector that lacks a common metric, as the for-profit sector does. So Leslie and I joke that Jim Collins had it easy, because when he wrote “Good to Great,” he could go out and look at stock market performance as the agreed upon metric of success or effectiveness, if you will.

Well, in the social sector, we don’t have that single metric, so we ended up using a very different approach in our research to identify the high impact organizations, more of a crowdsourcing approach involving a peer survey and lots of in-depth expert interviews. What we realized is that there are a couple of challenges around measurement. One is this question of kind of apples to apples measures. So, when you’re looking at an organization in the environmental field, how they measure their impact or their success is going to be very different from how an organization in, say, the education field measures its success, or in the arts field, or in housing and community development. So, there’s this problem of relativism between fields in the sector.

Secondly, as Jim Collins points out, in the business sector money is both an input and an output. So — he writes about this in “Good to Great and the Social Sectors”, and we believe it’s true — in nonprofits, money is only and input, not an output. So in business, you put capital into the company and then you measure your return on investment by profit, or total return to shareholders. So money is both the input and the output. In nonprofits, you use the money to fund the organization’s work, but that’s not how you measure your impact, because obviously, these organizations are filling in for market gaps. There’s this challenge again around money being only an input in the nonprofit sector.

That’s why we think that groups like GuideStar and Charity Navigator — many of the metrics that we look to right now are well intentioned but misguided, because they are only looking at things like budget size or overhead ratios as the measure of success. Right? They’re looking at how much money you spend on your program versus your administration. What we’re saying is that doesn’t tell us anything useful about their effectiveness. It only tells us about their efficiency. Efficiency is not necessarily correlated with impact, as we found in our research.

So we write about this a lot more in the book, about this challenge of measurement, and about needing to shift the debate in the sector to really focusing on outcomes or impact, rather than just looking at efficiency.

I guess the last thing I would say is we realize this is a challenge. It’s particularly difficult because often times, as we discovered in our research, social change takes a long time to see or to appear. Sometimes you need to be looking at the success of an organization over a 10 to 15 year time period. It’s not as short a time span as quarterly returns or the time scale that the financial markets use to track.

Additionally, there’s an issue of causality, because many of the groups we studied are real leaders in their fields. They build coalitions. They advocate. They change business behaviors. It’s not necessarily — it’s sometimes difficult to separate out who in this field has been the leader. Nevertheless, we believe, despite all these challenges, we really do need to move in the direction of looking at impact as the right measurement, rather than efficiency.

Sean: I think, as you both know, I agree with you 100 percent on this issue of examining inputs as opposed to outputs. I wrote about that in a Financial Times column, in which I cited your article, and talked about Charity Navigator. One way to think about what they’re doing, and this is what you already touched on, is this idea that because input, the costs, are easier to measure, that therefore, that is where most of the focus has been on. And yet, I think that we all agree, that it’s really the output, the impact, that makes — that’s the whole reason a donor’s giving to an organization in the first place.

When you think about individual donors, or readers of the Tactical Philanthropy blog, who maybe can’t do the kind of survey methodology that you did in trying to identify who — where should I be giving? Who are the high impact nonprofits? How can an individual donor even begin to scratch the surface of this issue? Leslie, why don’t you take this question and just tell us, how can we — other than just simply looking at the 990 or the cost inputs — what can a donor do to funnel their money in the right direction?

Leslie: Sure. Well, we believe that donors, whether they’re billionaires giving away millions every year or just everyday citizens who are supporting charitable organizations through their churches, their synagogues, or their local community groups, can actually use the six practices that we identified in the book to guide their gift-making. We believe these six practices really are useful as a proxy for judging which organizations are having, or really have the potential to create very significant results.

So, for instance, one of the practices that we write about in the book in the first chapter, called Advocate and Serve. One of the most interesting things that we found among the nonprofits that we’ve studied is that they all eventually engaged in both providing direct services — giving food to the hungry, building houses for the poor — as well as advocating for policy and lobbying for larger awareness about their issues. So they sort of refused to choose between just being an advocacy group or just being a direct services group.

For instance, in the field of women’s issues, you see groups like the Junior League, which engage legions of volunteers to serve in battered women’s shelters and lead clothing drives, and on the other end of the spectrum, you have NOW — National Organization for Women — which fights for things like abortion rights and equal pay for women. They’re both trying to advance the cause of women, but they go about it in very different ways. The best nonprofits end up doing both. Donors and volunteers who give their time — which is in many ways as valuable as money — to nonprofits should look to see the ones that are leveraging their services and engaging in policy.

Frankly, a lot of people shy away from this, even in this country where we have an open democracy. It’s perfectly legal for nonprofits to lobby and advocate for policy reform. We encourage donors to look for it even if it could be confusing from the outside.

Another thing that readers of the “Financial Times” column can consider is, when they’re thinking about giving their time as volunteers — President Clinton writes about this in his recent book that just launched, “Giving.” We all have so many ways that we can give to charitable organizations. One in two Americans volunteer — American adults volunteer in this country. We found some really great success practices that sort of distinguish some of the great nonprofits from others. It really has to do with how they engage these volunteers.

They don’t just treat volunteers as a source of free labor or a check; they really engage them in the mission of their organizations. Probably lots of your readers, people in this country, have participated in a Habitat for Humanity house build or a similar type of event. Great nonprofits really try and find ways to create meaningful experiences. If the nonprofits that you work with or care about aren’t doing that, you could go back to them and say, “Let’s find ways so that I can have a more meaningful engagement.”

Sean: You know, the last guest on this podcast was Robert Egger, who is kind of pushing the nonprofit primary project.

Leslie: Sure, we know Robert. In fact, he was a field expert for our panel of experts in the hunger area.

Sean. Sure, and just looking at the various ways that — the various approaches that the nonprofits you identified work with, DC Central Kitchen seems to line up with many of those. I was interested by this idea that you have that the best nonprofits are going to engage in policy advocacy. That’s something that Robert is pushing for on a field-wide basis. Yet, there’s a lot of resistance to it, that, “Well, we all don’t have things in common. And we really shouldn’t be sticking our nose into these political issues.” Why is it that you think that nonprofits who do this are more effective? Shouldn’t they just be focused on their specific issue and really on the nuts and bolts of getting things done?

Leslie: Well, it’s interesting. What you’re pointing out, with the challenge with DC Central Kitchen and it is endemic to the entire sector. There’s a lot of confusion, and frankly, uncertainty and fear around lobbying and policy and advocacy. It — you know, there’s a lot of stereotypes that go along with it. You have this image of fat cat lobbyists on K Street doing big lunches with politicians. It has sort of a sleazy aura to it.

And yet, whether you’re a corporation or a nonprofit, if you believe in the causes you’re involved with than you sort of have — we believe you have a responsibility to go and engage in the debate. We have a free, an open country and many of the nonprofits that we studied really overcame the same fears and uncertainties that lots of charitable organizations have today.

Just one example, America’s Second Harvest, which is the nation’s network of food banks, so DC Central Kitchen is a member of America’s Second Harvest. That organization and all their member food banks, for decades, really didn’t engage officially in policy advocacy at all. And then what happened was, in the 1990s under welfare reform under President Clinton, you saw a movement to eliminate many of the programs that really sustain hungry people in this country, food stamps, EITC, and other programs.

So America’s Second Harvest had this huge network of food banks and all the volunteers and supporters that fund and work with the organization. They said, “We have to get involved with this. Otherwise, we’re going to see food stamps zeroed out. We’ll see the EITC cut.” That’s the Earned Income Tax Credit program cut. ‘We’re not going to be able to do our job of feeding hungry people.” Instead, they fought to just not only keep those programs but expand them. Since America’s Second Harvest — and many of the other groups involved with fighting against hunger, like FRAC and like The Center on Budget and Policy Priorities — they worked together in coalition to protect and actually expand these programs so that more hungry people could be served. Now, across the America’s Second Harvest network, it’s taken for granted that they’re going to be involved in policy advocacy, because on the ground, they saw more food, more agricultural products — pasta, beans, rice — coming through their doors so they could do their jobs better.

We write a little bit in the book about how some of these organizations were able to change their mindset. But we will say, it’s a common issue. We believe it can be overcome even if an organization didn’t start out thinking that way.

Sean: We have time for one last question, and Heather, I’d like to direct it to you, with your background in consulting to both nonprofits and for profits. One of the things that I run across, and myself coming from the business side of investment management, is a that a lot of times people who have their entire careers, or most of their careers, in the nonprofit sector have, what I think is a misperception, that for-profit businesses are run through very extensive data analysis or financial management. But in fact, when you think about really outstanding companies like Apple or Starbucks or Google, I’d argue that their success is really predicated on their focus on mission, not so much through number crunching or bottom line analysis. When you think about the characteristics of success that you identify in your book, how and why are they different from just the best run for-profit companies?

Heather: I think that’s a really interesting question and I think, in particular in my work, I’m very interested in this question about what we can learn from the other sectors. I think we’re seeing those lines begin to blur and break down as more nonprofits start for-profit subsidiaries or social enterprises, as more for-profits become concerned about social responsibility. Certainly, this is the focus of the Center for Social Innovation at Stanford, where I work.

What’s interesting to me, when we set out to look at these organizations, we had sort of — we had our — Leslie and I joke, we had our MBA slash consultant hats on. We went in looking for the classic management silos, if you will, around marketing and financial efficiency and brand, and in the nonprofit sector, things like building your board and so on. These kinds of myths of for-profit management applied to the nonprofit sector, if you will, don’t always hold up. So if you just took the kind of business school textbooks around what makes for a well-managed company, and applied it to nonprofits, you’d be missing half the picture.

What we found is actually something quite different and quite interesting. We actually think that the nonprofits we studied in many ways have more in common with Web 2.0 businesses, for example, then they do with the IBMs or Microsofts. For one thing, these organizations are all incredibly mission-led, as you’ve already pointed out, that the mission is front and central. They are about a cause. They are also about building movements, or networks. So they build social networks, as we explore in the “Inspiring Evangelist” chapter, where people get really involved and care about the cause of this organization so that they become advocates for the cause. So these nonprofits are really empowering people to take action on their own.

Additionally, they build nonprofit networks. They work through a kind of network structure rather than a kind of more traditional corporate command and control structure.

In addition to working with businesses, I think another great example of these nonprofit organizations actually engage the corporate sector in helping change their behaviors and making markets work more efficiently. What we found was quite surprising, that these nonprofits are actually very leading edge, that they are showing us new forms of managing, engaging people, and having impact that are not really textbook examples we’ve inherited from the corporate sector.

In many ways, I think it would be interesting to have a Google or an Apple, as you suggested, sit down and talk to some of these nonprofits, or even a FaceBook or Wikipedia, and explore some of the commonalities there. I think these nonprofits really are showing us a new way, not just for the private sector, and how the private sector can be more socially responsible, but they’re also showing us a new way and coming up with innovative examples for government. We think policy leaders in government need to be looking to these most innovative nonprofits for new solutions to problems that have plagued us for decades.

Leslie: You mentioned companies like Apples and Starbucks and Googles. All those companies are led by quintessential entrepreneurs, right? Steve Jobs, Howard Schultz, Larry Paige and Sergey Brin. Entrepreneurs, in the end, really aren’t driven by profit either. The true entrepreneurs want to build things. They want to see great companies grow. Steve Case, the founder of America Online, who wrote the forward to our book, they didn’t get in it necessarily for the profit. They got in it because they love the technology. They’re revolutionaries in their fields.

It’s the same thing with nonprofit leaders. All or the leaders that we write about in “Forces for Good,” they’re social entrepreneurs, whether they would call themselves that or not. They’re entrepreneurs, but they just put themselves in the charitable sector. They have social purpose organizations. You’re point about those companies being mission driven. Our nonprofits are obviously mission driven.

We actually think they take it a step further. In “Good to Great” Jim Collins writes about the level five leader, right? Great corporate leaders put the interest of their company even above their own individual ego needs. Well, in the nonprofit sector, we see it kind of layer out — we joke it’s the level six leader. Great nonprofit leaders not only put the interest of their company or organization ahead of their own ego, they put the entire cause ahead of their individual organization.

Sean: Right.

Leslie: So, for instance, with the Heritage Foundation, it wasn’t about necessarily getting Heritage’s name out there, it was about building this conservative movement, which led to the Republican takeover in Congress in the ‘90s, and a number of other wins for the Right.

Sean: That certainly makes a lot of sense. And so the entrepreneurialism may be what makes mission focus.

This has been the Tactical Philanthropy podcast. You can visit us at tacticalphilanthropy.com. You can learn more about Heather and Leslie, and buy a copy of their book at forcesforgood.net. Thanks so much for listening.

Today’s interview is with Robert Egger. Robert is a driving force behind the Nonprofit Primary Project and is the Founder and President of the DC Central Kitchen. During the interview, Robert explains the political clout of the nonprofit sector, says it is an urban myth that nonprofits cannot be political involved, and calls me “brother” twice. I think that this is one of the more important conversations I’ve recorded. Whether you are a donor, work for a nonprofit, or at a foundation, you’ll find a lot to stimulate your thinking. You can learn more about Robert via the background notes I posted last week.

Robert will be answering your questions and comments in the Comments section of this post, so fire away.

• Launch Podcast

You can click on the link below to read the transcript.

Sean: 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 Robert Egger. Robert is the founder and president of the DC Central Kitchen. DC Kitchen provides marketable culinary skills to homeless men and women while recovering over one ton of surplus food each day and turning it into 4000 meals for the hungry in the Washington D.C. area. In each of the past two years, Robert has been named to the Nonprofit Times list of 50 most powerful and influential nonprofit leaders.

Sean: Robert, I know you’ve been running around the country, thanks for taking the time to talk with us.

Robert: I’ll always stop for you, my brother!

Sean: Tell me this, why don’t you begin by telling us about the Nonprofit Primary Project. You said in a recent blog post that September 6th, the date of the inaugural Nonprofit Primary Project candidate forum with presidential candidate Mike Huckabee was, and I quote your post, “A day that may well one day be regarded as our Independence Day.” Why is this project so important?

Robert: Well, again, this is a once in a millennium – and I use that term a lot- but it really is, it’s close to one of those once in a lifetime shots where there’s been 80 years since there’s been a presidential campaign in which there’s no incumbent. So, you’ve got in a sense a horse race going on, so it’s the perfect time for the nonprofit sector to take it up a notch, and move beyond the time in which we did it ourselves, or we were allowed to be divided by our sub-sector issues. You know, during the last campaign we saw, for example, the Children’s Defense Fund hosted the first ever… all the candidates came to talk about the issues of children, and that’s cool. But again, as long as we remain divided by housing, AIDS, arts, children, and all these other issues, as important as each one is, it’s in my personal opinion we’re weak, and at this stage of the game, we’re 40 years into the war on poverty, and given what’s coming: 80 million people getting old, a very aggressive global economy, a change in generation that won’t be nearly as prone to giving checks as the Boomers were, this mandates a very aggressive new tactic. And for me, the idea of the nonprofit sector interjecting itself into this election as a sector, a sector that represents 10% of the economy, 10% of the workforce, and I think most importantly, that has 80 million people who either work with or volunteer at a nonprofit behind us, you know, if we’re smart, and we’re involved, we can completely change the game. And that’s why we were so excited when Governor Huckabee came, because again that was the first time ever, at least to my knowledge, ever, that a presidential candidate spoke to the sector as a sector, and that’s a bold, amazing step for us.

Sean: So tell us, for listeners that don’t know about the Nonprofit Primary Project, what are the goals, and how is it functioning, and are other candidates going to be coming through?

Robert: It’s very simple. You have to understand that even though I’m an ardent believer in robust discussion about all the laws that currently limit us, for this case, we are really, completely adherent to all the IRS regulations about what a nonprofit can or cannot do. So first and foremost, we have to provide equal access to all the candidates, so we really decided to keep it focused up in New Hampshire. Because, A). We’re doing this on a shoestring budget. It’s not as if any big foundations are giving us, you know, tens of thousands of dollars, or even millions of dollars, and frankly, we didn’t have the time to hustle a moveon.org kind of infrastructure. So literally, I took 15 grand of money I made from speaking fees, we get it matched, so we put 30 thousand on the ground, we hired legal consultant to make sure what we did was legal, but what we’re doing is basically inviting candidates one at a time to come and meet with nonprofit leaders in New Hampshire representing nonprofits across the country. And first and foremost, that in of itself is something also that’s equally cool, is that the nonprofits of New Hampshire recognized their kind of catbird seat, and rather than limiting their opportunity, their proximity to the candidates, to, again, pitch in their own little sub-sector things, on these special days, they’re standing together as nonprofits. And again, they’re standing on behalf of all of us out there, which is a really brave thing. It’s something we owe them a real debt of gratitude for. What we’re doing is we’re not asking for anything, because the reality is, we’re as divided as the rest of America. I have no illusions that the nonprofit sector can agree on a lot of stuff, but the point is, what we’re trying to do is keep this very focused for the time being, and we’re saying in effect, again, as I mentioned earlier, here is the… over the next 4 to 8 years, if you’re elected president, there’s a high likelihood you’re going to have to deal very, very aggressively with, again, aging population, 80 million people getting old, white collar jobs probably leaving America the same way blue collar jobs did in the 1970s. Given that, we see the nonprofit sector as a great partner. So, how would you partner with us, and how would you strengthen us to be a good partner? That’s basically what we’re asking the candidates, and we’re recording those answers and putting them on YouTube, again, trying to say to the larger nonprofit sector: Look, there’s a lot of people who want to be president, but unless someone has the brains to recognize that 10% of the economy, 10% of the workforce is wrapped up in what we do, it really gives us a sense of vision and leadership. We should look at that as individual voters, and then, as we go forward, we can start to be maybe a little bit more bold and daring in the way we seek to interpret our share of the workforce, our share of the economy.

Sean: So, even though you say that the Nonprofit Primary Project is completely within the letter of the law regarding nonprofit involvement with politics, being involved in this way is rather controversial. You and Pablo Eisenberg had quite a duel this summer when you debated the appropriate role of nonprofits in politics. For listeners that aren’t familiar with it, the debate began in the pages of the Chronicle of Philanthropy, continued in a Hudson Institute debate, and then spilled onto the pages of my blog, where both of you submitted more thoughts on the issue. In one of your recent blog posts, you call the idea that nonprofits can’t be political an urban myth. Tell us about your line of thought on this issue, and why you think somebody as esteemed as Pablo Eisenberg is wrong.

Robert: Well, there’s so many different levels to approach this. First and foremost, most organizations just had their head down trying to make payroll, so, what they do is convince themselves, for right or wrong, they’re just too busy to be involved. Or secondly, and this is equally understandable, many people think that our ability to influence something as gigantic as the Federal Government, or policy in America, is beyond our grasp, and, you know, “I’d love to help, but boy, that’s just too big a task, and I’ve really got to make payroll, so good luck.” Or, they all fall into the kind of “Well, we don’t have anything in common. What do Georgetown University and the DC Central Kitchen have in common? We’re too diverse a sector to ever find common ground.” These are understandable myths that I think many people fall in to. So you’ve got that first trap. Then you’ve got the second, once you do get involved, there’s definitely the urban myth that nonprofits can’t be involved politically at all. I mean, many people just kind of buy that whole cloth. And to a certain extent, I’ve likened it to when the kitchen fist opened and we started going into restaurants and hotels, there was an urban myth, that’s still pervasive quite frankly, even though we’re 20 years in to what we do as an industry, I think it was Newsweek that just had a big article on the Freegans, acting as if the idea of capturing food that was thrown away is some sort of brand new discovery. So there’s still these urban myths that the health department won’t let you reuse food. So again, it’s understandable that people buy into the notion that it’s illegal for nonprofits to even be involved politically. And so I started exploring that, because what I quite often do is I look at things, and I say, in effect, “Huh, I wonder where that came from?” And I just did a little cursory research and I found that what it boiled down to was our inability to be political was slipped into law by Lyndon Johnson in the 1950s, basically to silence some critics in Texas who were openly challenging the validity of the recent election results. So he slipped in, under the banner that somehow nonprofits and foundations in particular were involved in “non-American activities”, again this was the McCarthy era, it was easy to slip in language that said, in effect, that nonprofits can’t be partisan. And, you know, he silenced an entire sector that way. And I think that we grew up with this, and no one’s really ever stopped and said “Wait, hold it a second here! Is this practical? Is this actually smart business?” Take out the whole idea of “Oh, we’ll be sullied if we do it” and all this other gobbledygook that Pablo and them put out about us losing our nonprofitness, which I find almost comical in its application. Again, that word, “nonprofitness” sounds to me like the word “femininity.” You know, it’s like “We’d like to give you the vote, little ladies, but we’d hate for you to lose your femininity.” I just find it absurd, but I’ll come back to that. But finally, the notion that, you know, even if we can be political, we can’t be partisan, and that’s where we’re drawing the line with the Primary Project. We’re doing everything but being partisan. We’re offering, again, equal access, equal questions, equal coverage to all the candidates, because, again, we’re almost trying to get the candidates, as well as the sector, to almost simultaneously wake up to what we’re talking about here. Quite frankly, there’s many people in the nonprofit sector, and guarantee you almost universally, within the cadre of candidates running for the office, there is a stunning, stunning lack of understanding of the depth of the sector. Without mentioning names, we’ve had… and again, this goes back to being fair. But nonetheless, we’ve had candidates who have looked us in the eye when we’ve said “We’d like to talk to you about your vision for the nonprofit sector and your understanding of the nonprofit sector.” And people will give kind of platitudes about “Well, you know, boy, we couldn’t do it without the nonprofit sector,” “It’s faith in action,” and “Boy, where would we be in New Orleans without the nonprofit sector?” But again, people who want to be the President of the United States of America don’t even really begin to understand that, again, that we’re one-tenth of the economy, or that there’s 80 million people out there that are really looking for someone who sees in us the underpinnings for a great vision for what America could be. I say this over and over, but you’ve got 80 million people who will just work like pack mules man, we’re all here really dedicated to making our communities, our cities, our states, our country, a better place to live. That’s an army of people looking for a leader. So it’s surprising at times, and this was evidenced, in fact just recently, even though we’ve had, a lot of the candidates are poking around trying to find the right date in their schedule, we offered candidates an opportunity, in New Hampshire, to come to a leadership summit, in which 300 nonprofit leaders would be assembled. We sent notice out to every single one of the candidates, and nobody accepted the invitation. Now, the reality is that if we were 300 firefighters, or 300 principals, or 300 nurses, they would be climbing all over each other to get in front of us. But the fact is, and we gotta deal with this as a sector, we are not regarded as something important. We’re regarded as charity, or worse, we’re only regarded as a group of people who just have their hand out, and want, want, want.

Sean: What you’re saying here I think really kind of shakes the frame of how people view politics and nonprofits, but it isn’t the first time that you, I think, have shaken the frame of how people think about the nonprofit sector. In 2004 you wrote a book called Begging for Change, and you argued in it there was a lack of logic and a startling amount of waste and inefficiency in the nonprofit sector, and you said that donors need to change the way we give, and nonprofits must change the way we use what we’re given. So, how should donors give, and how should nonprofits be using this support?

Robert: Well, you know, again, there’s two sides to this coin. The DC Central Kitchen, and I must admit, one of the great honors I had in being selected of the Nonprofit Times 50 most influential people, in 2006, and I think frankly I didn’t really check that hard, but in 2006 I was the only person who operated a direct service nonprofit on that list. Everyone else is a foundation head, or an association head, or a politician. That’s one of the things that fascinates me, how we interpret what is influence and power, and I’d like to see a lot more direct service nonprofits considered in the future. This is one of the things that on a daily basis many of us have to figure out how to make the machines we run, which are often times band-aids, run better, faster, stronger. I always say, 49% of my time will always be dedicated to “How can I make the DC Central Kitchen more efficient, more effective, more powerful?” But when you cross that line over 50% of your time, that’s when you’re starting to institutionalize the band-aid. I have no interest in doing that. We have revenue generators at the kitchen, I’m very diversified, but I don’t have any goal, I don’t want to be a self-sustaining food program in the nation’s capital. At the end of the day, me and a thousand, tens of thousands of other organizations do what needs to be done, but shouldn’t be here in the first place. We can never lose track of the fact that we were never supposed to be the answer, and I think that’s where we got off on this wrong road. Somewhere in the 80s and 90s we got drunk with ourselves, and started to think if we built bigger this, or bigger that, it would be a solution. I love when I often times, and I often times employ subterfuge, but I’ll get in front of a group of brothers and sisters in the sector and I’ll say “Hey man, I was in a town recently, in which, can you believe it, their attitude about crime was to build more prisons.” You know, everybody will huff and puff and make noises, and it’s like “OK, you know, then why are we building more food banks? Why are we building more pantries? Why are we building more nonprofits?” It’s the same flawed logic. And this is what I’m after, you know, I mean, I love the sector, man, I love what it represents as far as, kind of, the American Spirit. But, again, it never, never was supposed to be… I always say, man, rock & roll and nonprofits were the Boomer generation’s great gift to America. I mean, both kind of existed prior, but we took it up a notch. Somehow or another, both of them kind of got hijacked, I mean, rock & roll got hijacked and sanitized and sold back as entertainment, and nonprofits, the same thing, it’s been sold back as good deeds. It was never supposed to be that. It was supposed to be, you know, I don’t know, man, something that really… you know, challenged America to think more about, “What kind of country do we want to be? What sort of relationship do we want to have to our community and to our neighbors?” And I think we somehow got lost, and I’m just anxious to see us find our way back home.

Sean: Yeah, you can really hear the passion come through in your voice, and I wonder how much that comes from, as you say, working for a direct service nonprofit. Paul Shoemaker, who’s involved with Social Venture Partners, launched a blog recently, and in one of his first posts, he wrote about how he feels that everybody in the sector needs to be spending more time thinking about the clients that we serve, as opposed to thinking so much about efficiency, or about markets, or about how all this works. So I was wondering if you could spend a little time telling us about DC Kitchen, and about how your experiences there, working directly at a nonprofit, and working directly with the clients that you serve, affects your view on the sector.

Robert: Well, you know, the Kitchen was born out of a volunteer experience. I was a reluctant volunteer who went out on a truck one night that fed people outside, and, frankly, all I did was propose an alternative that I felt was not only more efficient and effective, and would get more people fed better food, but by adding job training, the idea of bringing all this surplus food back to a central kitchen, but instead of just having volunteers come in and cook to serve the poor, why not let the poor in to learn skills? That way the restaurants and hotels and hospitals that donated the food, in exchange could get trained entry-level people, and you could actually shorten the line by the very way you serve the line. That attitude, if I may, was born of two distinct attitudes of mine. One is, again, this is the way you’re supposed to do it, but B, and I think most importantly for our conversation today, is there’s 80 million people getting old, so we’ve got to get as many people who can out of this system and working to make way for those who will be old and infirm who are coming. You can see it a million miles away. But it’s one thing to actually imagine, you know, for a young guy running night clubs to say “I think I’ll start a program that will train men and women who are out of prison, out of drug treatment programs, dealing with mental health,” and actually doing it. And over the past 19 years, with a great group of people, man, I think we’ve developed one of the best programs in America. Again, it’s 80% of the staff are graduates of the program, you know, we’re really… I’ve never endowed the building. I’ve never wanted to build a new headquarters. We’ve endowed the staff, so that people can go back to school, we have family leave, and we’re trying to do everything the right way. But again, man, we are located in the basement of the biggest shelter in America, and I stay here, even though at times the ceilings drip, it’s hot, it’s muggy, it’s, you know… at times you have almost a wall around our kitchen to keep pests out, and keeping it clean. But this is where it’s at, and I really want to ensure that when people come to visit, you know, congressmen, senators, movies stars, or just Joe and Jane to volunteer, you know, that we’re not sugar-coating this, there’s nothing romantic about poverty or homelessness. It’s a vile, wretched situation that demands 100%, 365 dedication to “what next?” And again, like I said, it’s no disrespect, but I think for too long we’ve allowed academics, and people who’ve never made a payroll, to apply theory to where we should go as a sector, and rarely are people like myself, and again, the tens of thousands of other people who run direct service, rarely are we asked, you know, what do we think? Like I said, this Nonprofit Times thing, I don’t know how many times I’ve met with people, and they say in the most condescending way possible, “Oh, Robert, we love what you do. You’re a saint. But we’re going to go over here and have a real conversation about how we’re going to solve the problems, so excuse us.” And that’s what a lot of direct services get, and I think that that’s a lot of what the Primary Project is also about, quite frankly. Saying, to, again, rank-and-file workers, volunteers, a younger generation of people who are coming in, and also an older generation, frankly, that coming in through the volunteer sector. In effect we’re saying, look, this isn’t working for us, and it’s not gonna work. So, we’re open, and we’re going to push it a little bit further, and if our supposed leaders don’t want to go along, hey man, that’s cool, but you’re not leading us. You know, they always say, if you lead and no one’s following you, you’re just taking a walk, and there’s a lot of people out there taking a walk.

Sean: Well Robert, we’re out of time, but I know you have a blog that I read. Why don’t you tell our listeners what the URL is?

Robert: Well, interestingly enough, I think I’m about to relaunch the DC Kitchen website, which is www.dccentralkitchen.org. It’s about to tip over from all the extra junk I’m trying to do, and I think, for people who simply want to call and volunteer, it’s gotten to be a little bit too much, so I’m actually going to be starting a separate website now, www.robertegger.org, that will start to detail a lot of my adventures around the country speaking, and just some of the op-eds I’m writing, because again, like you said earlier, I’m after the whole ball of wax, man. There’s no sitting still, there’s no resting, it’s full tilt, 100% rock solid every day. So that’s where you can find me, and I’m always around!

Sean: Hey Robert, thanks for taking the time to speak with us.

Robert: A pleasure my brother, I wish you well.

Sean: This has been the Tactical Philanthropy podcast, you can visit us at tacticalphilanthropy.com. Robert just gave you the URLs for more information about himself, and you can learn more about the Nonprofit Primary Project here. Thanks for listening.

Today’s interview is with Cheryl Dahle. Cheryl was employee number 24 at Fast Company Magazine and spearheaded the launch of the Fast Company Social Capitalist Awards. During the interview, Cheryl talks about mainstream media coverage of philanthropy, the importance of social enterprises and the challenges faced by nonprofits that try to grow rapidly. You can learn more about Cheryl via the background notes I posted last week.

Cheryl will be answering your questions and comments in the Comments section of this post, so fire away.

• Launch Podcast

You can 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 Cheryl Dahle. Cheryl is West
Cost Bureau Chief of BlueEgg.com, and a contributing writer for Fast
Company magazine. Hi Cheryl, thanks for calling in today.

Cheryl Dahle: Hi!

Sean: Cheryl, you were employee number twenty four at Fast Company
magazine and over time, due in large part to your influence as I
understand it, Fast Company started to cover social enterprise issues
alongside the traditional business issues. You spearheaded the Fast
Company’s Social Capitalist Awards. Can you tell me why a company like
Fast Company became so interested in social enterprise issues?

Cheryl: Sure. I think one of the biggest reasons was that our mission
was to focus on innovation in the world and how people were using
business models to accomplish lots of change in the world. One side of
that was making lots of money, putting new products into the world,
breaking boundaries around design, and innovative business thinking.
And there’s also a flip side to that which is a lot of the innovators
we were focusing on who were in this non-profit realm, or whose aims
were not even non-profit but who were oriented toward social good, were
just as smart, just as innovative, and had just as much value to offer
to our readers in terms of lessons as those that are more typically
thought of as entrepreneurs, like the Bill Gates’ of the world or the
Michael Dells.

So from our perspective there was a lot of value for our readers in
writing about these stories. I think that there’s also a sense of
optimism there and a sense of possibility in that part of the coverage
that really goes to one of the themes of the magazine around work/life
balance and one of the things that we’ve continued to return to in the
magazine over the years is that people’s lives are getting less
bifurcated. There’s less of this notion that, “I have my work life and
it is completely cut off from my home life and my personal vision
around what my goals and values are in the world. Part of what we were
seeing was this incredible merging of people wanting to express their
values through their work and being hard driving, really creative,
really bottom line oriented business people. So social enterprise is
really one of the most perfect expressions of that kind of fusion. So
that was one of the pieces of that trend that we found really
compelling and thought that our readers would find really compelling as
well.

Sean: Fast Company isn’t the only mainstream business publication that
has been talking about social enterprise and philanthropy, but
historically, mainstream media has segmented issues around philanthropy
and non-profit activity in either seasonal issues or into niche media
like the Chronicle of Philanthropy. Do you think this trend toward
covering non-profit, social enterprise issues on an ongoing basis in
the mainstream media is this here to stay or is this just kind of an
outgrowth of Bill Gates and Warren Buffet events and something that’s
just an early twenty first century event.

Cheryl: I’m honestly not sure because I think that in order for this to
become a topic that the media visits in a nuanced and consistent way I
think it is going to take some shifts within media culture. I think
right now if you talk to people who are mainstream journalists, as a
topic, despite the fact that philanthropy is big business and there’s a
lot of money changing hands and it is actually a really important part
of the economy, it is seen as being “soft.” If you want to build a
career as a journalist within the mainstream world, focusing on
philanthropy really isn’t a great move for your career. So there’s this
weird pressure within the field of journalism to avoid this kind of
coverage, to avoid looking at these things because it is dumped into
this whole do-gooder category. That’s why I think you see the attention
being limited to the seasonal shtick. It’s sort of, “Oh, it the
holidays,” or “Oh, its time for tax write-off season, so we’ll spend
some attention on this.” I think the other piece of it that there’s not
a lot of consistent attention spent on philanthropy as a system and
social change as informed by philanthropy. If you are a business
writer, one of the things you want to focus on in choosing your stories
is, “What are the companies that are actually changing the game? What
are the executives and people that are coming up with groundbreaking
ideas?” So in order to understand which of those topics you want to
write about, you really need to understand the change within particular
business divisions and industry. You need to know your territory. And
there is a lot less time and energy spent on understanding, “What are
the levers that effect social change?” As a journalist trying to pick
which foundations are doing exemplary work, you would need to
understand social issues as much as you would need to understand the
financial issues involved. That again is not a very prestigious beat.
It’s not a beat that a lot of news organizations have budgets to fund.
It is seen as do-gooder territory. So I think that some of the shift
that needs to happen is actually within media organizations, the way
that they view these beats; and for individual reporters, the way that
they approach these types of stories – thinking about it not as, “Hey,
here’s a holiday roundup of some non-profits,” or “here’s some
interesting foundations.”

I would say to one of your other examples, the Bill Gates/Warren Buffet
angle, I’m gratified to see that there are more reporters who are
following philanthropy, I’m not excited about the lens of this being,
“Let’s follow what the celebrity rich people are doing.” They are doing
some interesting things. Don’t get me wrong, I think that’s a
legitimate story, but it’s the only story that’s getting out there in
mainstream media. If you look at innovation as a lens as opposed to
wealth and celebrity as a lens, you could come up with a lot more
stories than just two or three that run every year about what Pierre
Omidyar is doing or what Bill Gates is doing.

Sean: When you talk about innovation or business I agree completely
that that lens is a critical lens for people to see philanthropy
through, because it’s what makes it accessible to exploring in a more
in depth way. I think that’s part of why social enterprise is
important. I don’t think it is something that’s going to supplant the
non-profit as an organizational type, but it’s a very important lens to
look at philanthropy through. You’re involved in something like that
right now, so why don’t you tell us about your current project,
BlueEgg.com.

Cheryl: Sure, BlueEgg is an e-media company. It is basically about
trying to produce content and websites and information for the people
who walked out of Inconvenient Truth saying, “I get that global warming
is an issue, but what can I do about it?” And they are people who have
lives, live in certain parts of the country and have made commitments
to certain lifestyles and they are not going to move to Vermont and buy
composting toilets right? So it’s this notion that it’s “Green for the
rest of us.” And it’s trying to provide really practical information
and get us over this hump that the response to global warming is either
(a) I can’t individually do something about it or (b) it’s so
overwhelming that nothing we can do can actually make a difference. So
there are a whole lot of people who are actually interested in this
topic and from the perspective of trying to figure out, for instance if
you’ve just purchased a new home, where you would go for information
about the types of appliances you might buy or the types of renovations
you might do, materials you can use, energy savings, rebates on solar
panels. Those kinds of things. There’s not one place to go for that
kind of information. Our aim is that we will be that place where you
will be able to find practical information, inspiration and other like
minds who are interested in exploring what they can do but don’t
necessarily feel like they belong in this bucket of … greenies.

Sean: Why is BlueEgg a for-profit company rather than a non-profit?

Cheryl: Well, there are a couple of similar ventures out there that are
non-profits. One of the big reasons is that there are limited
non-profit funding streams available for big media products. For a
non-profit, I can think of a good example other than National
Geographic. So the issue then becomes that if you want to have a wide
impact, if you want to get to mainstream consumers and you want to
impact the way they think about the world, you need to think big. And
the level of that you need to scale to that level is simply beyond what
you could get through non-profit channels. The average grant size for
foundations is about $40,000 and if you look at becoming a multimillion
dollar company and having a distribution system that allows you to get
out to mass consumers, raising money in $40,000 increments just doesn’t
get you there.

Sean: In your introduction to the 2007 Fast Company Social Capitalist
Awards, which you’ve kind of inspired, you wrote, “To philanthropic
purists who fear that the stain of profit making might corrupt the
conscience of social endeavors, the message is clear: Quit thinking
small.” That speaks directly to what you’re talking about right now
with BlueEgg. Can you expand on why you’re thinking small if you’re not
pursuing profit making as part of what you’re doing?

Cheryl: Well, I think that a lot of it has to do with just the way that
the capital markets are structured for non-profits. If you look at the
way that startups work in the for-profit world, there are much more
structured and readily available streams of capital that wind up (a)
actually weeding out a bunch of bad ideas, which is a good thing, (b)
weeding out a lot of duplication, which is a good thing, and (c) enable
you to move pretty quickly. Which is not to say that it’s a fun or
Polly-Annish process to raise money for a startup, but what you wind up
with on the non-profit side is this sense of a real ceiling that you
hit in terms of growth. There have been some innovations recently in
taking a look at how that kind of thing might get restructured, but if
you’re a non-profit and you have a budget somewhere between $8-12
million, it’s really tough to find a foundation that can give you a
significant enough investment to get to the next level. You also run
into issues around the attitudes toward some of what gets funded, so
foundations are much more interested in funding specific programs and
specific line items than they are in funding growth. So on the
for-profit side you have a growth plan that has you actually invest in
people before you actually need those people to be deployed. You would
never suggest to a company that is scaling that they not be building
capacity – if they’re making widgets then factory capacity, if they’re
rolling out intellectual property its adding additional staff – you’d
never say to them, “We won’t pay for that. That kind of scaling isn’t
appropriate, but we want you to expand to reach a ton more people and
clients.” I think there’s a bit of a sense of wanting the non-profit
world to be able to scale without understanding what resources are
necessary to do it. That’s kind of what I meant by “playing small.”

Sean: Well Cheryl, thanks so much for joining us today and I hope that
all of us can think big in everything we do in this area. This has been
the tactical philanthropy podcast. You can visit us at
TacticalPhilanthropy.com. For more information about Cheryl Dahle and
BlueEgg Incorporated, visit www.BlueEgg.com, and you can learn more
about the Fast Company Social Capitalist Awards at
www.FastCompany.com/socap. Thanks for joining us.

Today I’m happy to present the delayed podcast with Stacy Palmer, editor of the Chronicle of Philanthropy. Stacy was involved in founding the paper in 1988, the leading newspaper in the philanthropic sector. During the interview, I ask her about her thoughts on philanthropy blogs, the Chronicle’s plans for their own blogs, the mainstreaming of philanthropy, and whether all of the hoopla over Buffet and Gates is warranted.
You can learn more about Stacy via the background notes I posted last week.

Stacy will be answering your questions and comments in the Comments section of this post, so fire away.

• Launch Podcast

You can click on the link below to read the transcript.

Sean Stannard-Stockton: My guest today is Stacy Palmer. Stacy is the editor of the Chronicle of Philanthropy, which she helped found in 1988. Hi Stacy, thanks so much for joining us today.

Stacy Palmer: Thanks so much for having me.

Sean: I’d like to start of by talking about the emergence of philanthropy blogs. In February of this year, the Chronicle of Philanthropy launched “Give and Take,” a really great roundup of the various philanthropy related blogs. What’s your view of the role of philanthropy blogs, and do you read them yourself?

Stacy: I think they’re extremely important and it’s a wonderful development in the world of philanthropy that people are speaking out in various ways and getting other people involved in the conversation who may have been left out before. We think they are very important, which is why we scan them, but we realize that a lot of our readers don’t have time to look at them. While many of us do try to look at them as much as possible and look for story ideas and thoughts about what people are talking about, in addition to the coverage we give, we do realize that something not everybody has time to do.

Sean: Will the Chronicle ever launch your own blog or blogs, instead of just reporting on other people’s blogs?

Stacy: We have discussed that a great deal, and one of the things the Chronicle feels strongly about is that we are reporters covering this field, we’re not experts on the field, and we love to give other people’s views but we don’t want to ourselves be giving opinions about the non-profit world and for the most part blogs tend to take a position in some way or another. So I think that we won’t, but we may ask bloggers to post regularly for us or something like that. I could see that possibility in the future, much like in our opinion page where we ask people to state their views all the time but we don’t ourselves write editorials.

Sean: That makes sense. One group of philanthropy experts would be foundations themselves. Why do you think more foundations don’t write up their own blogs?

Stacy: The foundation world is often challenged by how public or private they should really be. When we first started our newspaper almost twenty years ago there were many foundations that didn’t take calls from our reporters and didn’t have public relations people and didn’t believe there was any role for foundations to speak out, and that has obviously changed considerably. That’s a welcome development, but I think we are still seeing foundations wrestle with how much should they say in public and how much should they be private about.

Clearly grant seekers want them to talk a lot more and I get questions all the time about whether foundations will become more transparent, disclose more information. I think grantseekers expect that in this day and age, so I think they’ll probably come under pressure to write more and post more information on blogs.

Sean: I find that most of my readers, and from what I can tell most readers of non-profit and philanthropy blogs, are non-profit and philanthropy professionals. My hope is that over time donors are going to become a larger part of the readership because at the end of the day they are really the engine that drives philanthropy. Recently we’ve seen a number of donor focused magazines pop up, but they’ve had somewhat mixed success. Does the Chronicle have much of a donor readership? Do you think donors are interested in philanthropy media?

Stacy: We absolutely think so and we have a number of donors who subscribe to the Chronicle. One of the things we’ve often thought about is that at one point we may spin off some information specifically for them. But there’s not a lot of information available to donors to really enable them to make informed decisions. That’s a big challenge, especially now that people are so interested in the world of philanthropy and giving away more money than ever. The need is certainly out there, so we do hope that there is some way that we can provide this information. We find that already people who are significant donors are subscribed to the Chronicle, not people who give away $100 a year, but nonetheless.

Sean: A spin-off would be great. I’d love to see something that was really focused on donors. You’ve been with the Chronicle of Philanthropy since the beginning in 1988. I have the sense that right now philanthropy is entering the mainstream of American culture in a way that is truly new. Do you agree and what do you think is driving that awareness if you do?

Stacy: I do think so. We’ve seen other waves where philanthropy has been an important topic. Certainly, the beginning of the tech boom, when young people were starting to give away gobs of money, more than we’d ever seen anybody alive give away. There was a lot of attention focused on this area, but now even more attention is being paid, so we are definitely in a new moment. Whether its going to last for a long time is going to depend on whether people start to give some of these very large sums and whether the money is seen to be given away successfully or not. If there are a few too many scandals that means the reporters will focus on that angle, not so much on what is this money doing, what it accomplishes, where it should be going.

Sean: That’s interesting to me that you stake part of how long this is going to last on the perception of successfulness. There’s a project called the Philanthropy Awareness Initiative and Mark Sedway there put on a session at the Council on Foundations meeting in Seattle recently call “Demonstrating Impact” that was really about awareness. My take on it was that awareness is really about transparency at its base because its really about showing people what you are doing and how well you are doing it. You began this conversation talking about transparency. Is transparency something that can really have legs since that is perhaps the whole underpinning to the whole boom in charitable giving?

Stacy: I think it is going to have to in some way, just because donors are demanding it in so many ways. Whenever there are survey done asking, “What holds you back from giving more,” its that they don’t know enough about what the non-profit cause is accomplishing and they don’t feel that they get financial results. I think they’d also like to know more about what the established foundations have found successful, and what they’ve failed at, because a lot of the established foundations have obviously spent a lot of time thinking about things.

I think some of the interesting efforts going on, like the Rockefeller Foundation sort of soliciting ideas from the public about what are good solutions out there that it should consider financing, some of those things, the foundations out there that have money to spend investigating that, that could be useful to all kinds of donors, so there are lots of different ways that transparency can happen and I think people really will come to expect it.

Sean: Obviously one of the important markers of awareness in the general culture was Bill Gates’ and Warren Buffet’s gifts and decision last year to work full time in philanthropy. During a PBS interview you did last year with the Gates Foundation, you talked about how important his decision was to work at the foundation full time. You said, “It’s this idea that he may indeed attract many more people into philanthropy because his image is so important to people. If more people see that this is a vital role, that this is something someone who has had a vital business career has decided he wants to do full time, a lot of other people might think about making that kind of commitment to society.” You said that over a year ago. Now that we are past kind of the euphoric phase of celebrating what Gates and Buffet were doing, is this continuing on? Are people of lesser means making this decision not just to say, “I’m aware of it,” or make a gift, but to actually become involved in philanthropy?

Stacy: I think so. We’re seeing this big societal transformation as the baby boomers reach retirement age and start thinking about what they’ve done with their careers. Many of them certainly aren’t ready to retire, they are going to live healthy lives, we hope, for many, many years. But as they look ahead and ask what they have accomplished, we’ll at least see a growing number of people saying, “I was really successful financially but I didn’t really accomplish what I set out to in life many years ago and now I really want to do something that feels good to me in my heart and my soul,” and they’re looking to the non-profit world to fulfill many of those dreams. So for a lot of people just writing a check doesn’t cut it, they really want to do a lot more. They’re thinking about full time careers in either paid jobs or unpaid positions where they have a little more flexibility is something we’re going to see a lot of. I think that’s why when people did watch Bill Gates give up the business world it made it easier for other people to think about doing the same thing. Certainly, you can do it even if you don’t have the resources of Bill Gates.

Sean: Well Stacy thanks so much for sharing your insights with us.

Stacy: Thank you very much.

Today’s interview is with James Canales. Jim is president and CEO of the James Irvine Foundation, a 1.7 billion dollar private foundation dedicated to expanding opportunity for the people of California.

You can read a complete background report on Jim here (feel free to add your own background notes via the comments). Briefly: Jim was one of the panelists at the Demonstrating Impact session at the Council on Foundations conference in Seattle this year (you can read my write-ups here and here). The Irvine Foundation recently released a report called Midcourse Corrections (I wrote about it briefly here). After committing to a $60 million initiative, the biggest in their history, the Irvine Foundation realized that all was not going as planned. They released the Midcourse Corrections report to help other foundations avoid the mistakes they made. This is exactly the sort of knowledge sharing that I’ve been advocating.

Make sure to enter the Comments section at the bottom of this post to follow along with and participate in a follow up conversation with Jim.

• Launch Podcast

Expand this post using the link below to read the transcript.

Sean: 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 James Canales. Jim is president and CEO of the James Irvine Foundation, a 1.7 billion dollar private foundation dedicated to expanding opportunity for the people of California. Hi, Jim. It’s nice to have you on the show.

Jim: Oh, thanks very much, Sean. Nice to be here.

Sean: So, Jim, I’d like to just jump right in and start talking about Midcourse Corrections. I’ve blogged about that some already. You released this report in May of this year and detailed a number of problems you were seeing with your largest initiative in the foundation’s history. What led to the release of the report, and how did Midcourse Corrections further the mission of the Irvine Foundation?

Jim: Well, in our case, the Midcourse Correction Report, which we commissioned Gary Walker, who is the President Emeritus of Public/Private Ventures, to write, was really an effort on our part to take a step back from an activity that we undertook in 2003, which was to take a very close and hard look at an initiative that at that point was several years in its course, and a decision we made in 2003 to make a number of fundamental changes based on a close look at the initiative in that point in time.

And now, as we near the conclusion of this eight-year effort on our foundation’s part, we thought it might be valuable to share some of the lessons that we learned from making that Midcourse Correction, that we thought might be of value not just to us, as we think of other complicated initiatives in the future work of the Irvine Foundation, but perhaps to other philanthropies, given that these kinds of multi-site, big, complicated long-term initiatives are something that you tend to see across other foundations.

So it was really our desire and effort to share what we had learned from our experience in an effort to inform the field and, hopefully, in an effort to prevent others from perhaps making some of the same mistakes that we made a number of years ago.

Sean: You know, I really like this concept, that foundations, or any philanthropists, can view themselves as a member of a field, and therefore, doing work to help other philanthropists is in your own self-interest as opposed to a truly competitive market situation where your own success is all that matters. But releasing a report like Midcourse Corrections is relatively rare. I mean, there are some other instances of it, but do you think that that’s because the Irvine Foundation has a different mindset in viewing these issues, or is this something we’re just going to start seeing a lot of across the field?

Jim: Well, it’s my hope that we are going to see more of this across the field. And I was pleased that, there was no collusion here, if you will, that the Hewlett Foundation also recently released a report around a major initiative, a neighborhood initiative, that they had undertaken for many years. Paul Brest, the president of that foundation, commissioned a similar report to look at some of the lessons learned from that effort. These two reports came out at roughly the same time.

Actually, in my mind, I hope that it’s a refreshing signal that we will see other foundations taking a step back from time to time and finding ways to share lessons from the experiences that they learned.

One of the things I noted in the foreword to our report is that one of the many great privileges that we have as a private foundation is access to knowledge. We have so much [unintelligble] in our institutions because of the work that we are able to do with other partners. The question is how can we try to capture that knowledge and share it in ways that might be useful to others? That’s really what we’re trying to do through this report.

Sean: I’ve been writing a lot about transparency on the Tactical Philanthropy Blog. I believe that transparency is most important not as a public accountability issue, but as a highly effective way for foundations to increase their own effectiveness and to help all foundations complete their mission.

However, I recently had a foundation employee leave the following comment on a blog that I’ll quote from: “I worked for a foundation that had great success and big failures. We published some of these failures. All transparency did was to allow our so-called failure to eclipse the many successes in discussion.” How would you respond to this view of transparency?

Jim: Well, I think it gets back to what you’re saying, which is I think transparency is a mindset, it’s a value, and it’s something that ought to permeate across the foundations. I think that in the case of the institution that maybe every once in a while releases a report that talks about a mistake that it might have made or an effort that perhaps didn’t go as they had planned, and that basically becomes their sole effort at transparency — I can understand that that may lead some to feel that all attention had been diverted to that effort.

But if you’re an institution that has transparency as a core value and, therefore, it’s manifested in a whole number of ways, not just through the release of reports that talk about mistakes, but also through ways to share some of the work that your grant partners are doing, through dynamic websites that help people to access stories of the work that you are supporting, as well as just basically to access your grants, as well as making an effort to be out in the field at conferences, to be a visible partner to others in the fields in which you work. All of that, to me, bespeaks a commitment to transparency.

So therefore, transparency, for me and for our foundation, is really about being open about the work that we are doing: hopefully, the successes that we are able to support as well as ways that perhaps things didn’t go as we had hoped they’d have gone — not just to say we made a mistake, but also to say, “Here’s what we learned from it, and here’s how it might inform our own work going forward, and potentially might inform the work of others.”

Sean: Jim, I attended and wrote about the Demonstrating Impact session at the Council on Foundations Conference this year in Seattle. In fact, my post on the session has become the most widely read post in the blog’s history. During that session, your fellow panelist James Knickman said, “We need to frame our release of failures as an attempt to learn. No one tells scientists they’re failures when their experiments don’t work.”

This view of philanthropy as a field that should be characterized by experimentation, risk-taking, and thinking really far outside of that box fits with my own view of where philanthropy needs to go. Do you agree with this prescription for philanthropy, and if so, what do you think prevents the field from making this shift?

Jim: Well, I absolutely agree with Jim Knickman. I think that it is true that philanthropy, at least our value here at Irvine, and I think it’s the same for Jim as well, is that our role is to foster innovation, to take risks, to make bets, and to test hypotheses in the work that we do — and obviously this is all work that we do through others, not just on our own.

And as a result, because we are doing that kind of work, I think it is important to take a step back from time to time and figure out, “What are we learning from the risks that we’re taking? What are we learning from the bets that we’re making? What are we learning from the hypotheses that we’re testing that may well lead us to find ways to improve upon the work that we do going forward.”

To me, foundation work is very much a give-and-take process. You test the strategy, you learn from the test of the strategy, and then hopefully you refine that strategy as you go along. So, for me it’s very much at the core of the way we approach our work here, I think something that is a good movement in philanthropy. In terms of why this may not be a value that’s been part of the field over time? I’m not sure that I know that much about that or the motives of others, but I can simply say that in our case, I just think having this agenda of finding ways to share our knowledge broadly is an important value, and it’s something that we’re committed to.

Sean: If you think about that analogy that Jim made, comparing scientists and philanthropists, scientists have that culture of sharing information, and they don’t view it as admitting their failures. It’s simply sharing what we know. That’s a cultural value that we have as scientists. It’d be wonderful to see that as a widespread cultural trait in philanthropy.

Jim: I would agree with that and I think one of the challenges, one of the obstacles — and you have probably a number of obstacles that get in the way from our ability to have that mind set — is: If you think about it, in philanthropy in private foundations at least, the market force is really to make grants.

You have budgets to meet, you have payouts that you have to meet and the way that our institutions are structured is we are structured as grant makers. We make grants.

The question for me is, how much time are we able to then devote to monitoring those grants in an effective way and to thereby accumulating and gaining knowledge from the work that we are doing from the grants that we made a year ago, two years ago, and then finding ways to roll that knowledge up in a way that is accessible to others.

I think that’s one of the challenges. Because I think if you are trying to keep your staff fairly lean and I think many of us in foundations make an effort to keep our staffs lean and an effort to really invest largest possible resources in the community and you have pressure to make grants, and you have board dockets that you need to attend to.

I think it’s often hard to have the discipline to find the time to take a step back and say: “What are we learning from this work?” and not what just are we learning in terms of our internal conversation.

Obviously I think all foundations have those conversations on an ongoing bases but how do we find the time and carve out the space to then share that learning whether it’s through an article on a website or whether it’s through publishing these kinds of reports or whether it’s writing up [unintelligble], or serving on panels we have an opportunity to take a step back and reflect.

I guess it’s my hope that we will see in philanthropy a higher premium on that kind of activity. I think it ultimately enriches the field as a whole.

Sean: That would be great. Absolutely. Yeah, Jim Knickman made another comment in the session that was very well put in responding to a question on measuring impact. Knickman said, “A good soup is made up of lots of parts, it is hard to identify if the garlic or the carrots is what’s making it good. But you can identify if the soup is good. If you’re making a bad soup, do something different.”

How do you think that the impact of philanthropy can be best measured in service of providing us today with what we need to improve as a field?

Jim: Well, I think you need to begin by unpacking the term impact. And by saying, what do we mean by having impact? The way we thought about it in our foundation is that we have taken a fairly holistic view of that.

I mean, clearly I think as foundations and given where our resources go, priority needs to be on finding ways to measure and to assess whether we are having impacts through the grants that we are making to the partners that we are engaging with and obviously toward the ends that we are agreeing to when we support work.

Obviously there is work that we can do, we can have grantees self report on their progress toward goals and objectives. From time to time we can hire evaluators to assess the effectiveness in particular initiatives or cluster of grants that we’re undertaking and I think that’s all well and good and foundations are doing that and it is a good and worthy and important activity to undertake.

At the same time it’s been our view here at Irvine that we try to take a broader approach in terms of thinking about our performance. And we’ve created something we call a Performance Assessment Framework which we’ve described on our website.

This was something which we engaged with our board a couple of years ago and when the outcome of our process was the development of a framework that we wanted to test for a few years primarily to report back to our board on how we assess our performance as an institution.

We then decided not just to obviously work with our board and to share the results with our board but also to share that publicly, again to make hopefully a contribution and to develop our own thinking about this by sharing it broadly with the field.

One of the things we found when we undertook this process is there weren’t a lot of examples out there of foundations that have thought holistically about the way they assess their performances in institution.

There were some examples. The Lumina Foundation does this, the Rockefeller Brothers Fund had some examples, to Robert Wood Johnson Foundation where James Knickman worked, had some good examples. So those were good examples we drew from to create our framework.

And I won’t go into details. Anyone who’s interested can go to www.irvine.org and find the Performance Assessment Framework on there. But it effectively looks at three areas related to programmatic impact and then three years related to organizational impact.

The whole effort is, again, to create a holistic picture that says, “How do we as an institution think about our performance and assess our performance and report to our board on an annual basis on our performance?” Which, again, takes a more holistic view, obviously program impact is a big part of it but we think that there are other dimensions that an institution like ours ought to be looking at.

Sean: So we have time for one last question. I want to swing back to transparency a little bit. A lot of the focus seems to be on really large instances of transparency, like the Midcourse Corrections Report, which took a lot of time and money and should hopefully have a very large impact.

A lot of the new social media tools, which is referred to as Web 2.0, make it extremely inexpensive for people to update the world on every little action that they do. Have you seen anything in philanthropy, maybe anything that you’re doing or ways that people in philanthropy think about having transparency around smaller issues not around giant programs but around the every day things that they do, without getting bogged down in just revealing meaningless stuff that they do on a daily basis?

Jim: Well you know it is interesting; one of the other panelists at the Council of Foundation Session was Joel Fleishman. Of course who recently wrote a book called “The Foundation” and the subtitle of the book is “A Great American Secret”, and in many respects I’ve been very pleased to see this movement toward transparency in the philanthropic community because I do think that there is a lack of wide spread understanding of what our institutions do, the role that they play and hopefully an understanding of the contributions that we make.

And, again, I want to stress in talking about contributions that foundations make, that these contributions are all made in partnership with those we are privileged to support. It’s not just us, it could never be just us and we are an in abler of a wonderful constellation of organizations that make up the non-profit sector.

So in that context, I do think that the movement toward transparency is an important one. I find that I’m learning every day from others in the field about ways that we can do this more effectively and perhaps even in smaller ways.

Now, your blog is an example of I think something that might be characterized as Web 2.0. We are seeing, obviously, it seems to me a proliferation of blogs on philanthropy on the non-profit sector. I have been pleased to see some of my colleagues in foundations take this on, on their own.

There is a woman whose name I don’t recall, but who runs a community foundation I believe somewhere in the Midwest whose started her own blog. I know that Albert Ruesga of the Meyers Foundation has his own blog.

I think that these are great tools to just shed light into the work of our organization like into the world of organizations that many people don’t know much about. I think that the more people understand the work of foundations the better that our field is and I hope that we at Irvine are making some very small steps toward contributing to that broader aspiration.

Sean: Well, Jim, thank you for the steps you have taken toward transparency already. Thank you for joining us today.

Jim: Sean, thanks again for having me.

Sean: This has been Tactical Philanthropy Podcast. You can visit us at tacticalphilanthropy.com. For more information about the James Canales and the James Irvine Foundation visit irvine.org. Thanks so much.

Today’s interview is with William Schambra, director of Hudson Institute’s Bradley Center for Philanthropy and Civic Renewal. Bill is definitely the most controversial person I’ve featured in the podcast series, a fact that you’ll need to know to follow the comments that I’m sure will be coming. Part of what gets certain people’s juices flowing is Schambra’s conservative political views. The Bradley Center is widely considered a “conservative” think tank and Schambra was a senior advisor and speechwriter to Attorney General Edwin Meese under President Ronald Reagan. During the 2007 Council on Foundations conference, Schambra gave a speech (which I wrote about here) in which he readily acknowledged his political “outsider” position relative to the leanings of most of the audience.

Bill Schambra is a controversial figure. Certain bloggers have been waiting with baited breath to take a swing at him in the follow up discussion that will be occurring shortly (Bill will be responding to questions and comments in the Comments section at the end of this post). One writer advised me “Don’t wimp out, Sean. Either you play Bill or he plays you. That is his job.” Here’s my approach to these interviews; I think that verbal combat is an important element of the fire that forges better ideas. But I want that verbal combat to center around the ideas that are under discussion, not the people who voice the ideas. So let’s have at it. Bill sets forth a damning argument that strikes at the very heart of how philanthropy is practiced. He questions the concept that foundations in particular, or any philanthropic enterprise, can ever solve the root cause of most problems. Give it a listen, ask your questions, make your arguments and we’ll see if we can’t all come out the other side a little better for our efforts.

Make sure to enter the Comments section at the bottom of this post to follow along with and participate in a follow up conversation with Bill.

• Launch Podcast

Expand this post using the link below to read the transcript.

[intro music]

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 Bill Schambra. Bill is the Director of Hudson Institute’s Bradley Center for Philanthropy and Civic Renewal.

Good morning, Bill. Thanks for taking the time out of your day to speak with us.

Bill Schambra: Well, thank you, Sean, for the opportunity to talk to you.

Sean: Why don’t you begin by telling us about the mission of the Bradley Center and how you became the Director?

Bill: All righty. Well, I came to the idea of the Bradley Center after working at the Bradley Foundation in Milwaukee for 10 or 11 years. And in the course of working for the foundation, I came to the conclusion that an awful lot of philanthropic dollars were wasted in the United States. Not wasted in the way that we usually think of, as sort of pursuing superficial charity, but wasted in the sense of pursuing big ideas that were ill-thought through and didn’t pan out.

And then people, at the end of some substantial experiments, never properly looked at what they were doing and came up with the kind of evaluation that would allow them to do things differently in the future. So when I left the Bradley Foundation in–what was it–2001, I came to the Hudson Institute, and they were kind enough to fund what became the Bradley Center for Philanthropy and Civic Renewal.

Sean: All right. You used the word “wasted,” and the effectiveness of foundations and effective philanthropy in general, is always a hot topic. It’s something we discuss on the Tactical Philanthropy blog on a regular basis. Last year, in an opinion piece published in “The Chronicle of Philanthropy,” you called for the creation of an “Office of Second Thoughts.” Specifically, at the Gates Foundation, but the implication was this concept needed to be at all foundations, or at many of the large ones. Can you tell us a bit about your thinking in this area?

Bill: Yeah. Well, I think, in terms of measuring effectiveness–as you say, that’s a very hot topic today. And there are no shortages of experts and techniques and schools of thought about measuring the effectiveness of philanthropy and the programs they support.

But what concerns me is not so much the effectiveness of specific programs, but the larger question of effectiveness in philanthropy, the sort of pursuing grand ideas, marshaling millions of dollars in collaborations behind these magnificent experiments that go on five years and that sort of slowly peter out, and no one ever looks at it and says, “Well, that was really a dumb idea. [laughs] Why did we ever think that was going to work?”

There’s a kind of a conspiracy of silence when it comes to some of these grand failures. It’s not something that you can detect with sort of the micro-measurements that have become part of the trade in philanthropy. It’s something that you really [indecipherable] and say, “You know, boy, we’re really on the wrong track. We’re on the wrong track in a big way.”

And that’s sort of what I had in mind when I was suggesting that a foundation could benefit from something like an Office of Second Thoughts, or what other people call ombudsman–what, in newspaper language, is a public editor.

Like all of us, newspapers end up sometimes focusing on a story and carrying it to the bitter end, and afterwards, they kind of slap themselves on their foreheads and say, “You know, we really got carried away with this, and we really did sort of pursue this past the point of appropriateness.” And the public editor looks at that kind of reporting and says, “Well, you should’ve done it differently. You should’ve…”

And a foundation, I think, could benefit from this kind of thing. I mean, once a foundation has bought into a way of doing things, it tends to focus monomaniacally on that approach, and it tends only to talk to people who agree with that approach. Certainly, anyone they fund to do this project, to carry out this approach, they’re so committed to it that they never [indecipherable] what’s going on.

And the result is, down the line, that a lot of money is spent. And they would’ve benefitted from kind of an overview from 30,000 feet, somebody saying, “Boy, you know, this was just really one of three ways of looking at this problem. We should’ve thought this through a bit more carefully.” So that’s the sort of thing I had in mind by an Office of Second Thoughts.

Well, I was going to say, in the case of Gates, in particular, the Gates Foundation–or really, any foundation committed to very particular technical approaches, and medical approaches, to human problems, they often end up… And this is a criticism that one has heard about the Gates approach in particular. You end up pursuing the kind of technological fix, without understanding that it’s all occurring in the context of some larger political and economic and social and cultural values that need to be taken into account, and that ends up sometimes counteracting or defying the effects of what you’re trying to do. And that’s the sort of consideration that an ombudsman or an Office of Second Thoughts could bring to bear on what you’re doing.

Sean: It seems like we’ve had a couple examples recently of foundations doing what you suggest. Namely, the Irvine Foundation’s “Midcourse Corrections” report, and Hewlett’s “Hard Lessons.” Assuming you’ve read those, or if you’re familiar with them, is this kind of what you’re talking about, or is this maybe not going in the right direction?

Bill: Well, the very helpful report that I’m most familiar with along these lines, the Annie E. Casey Foundation in Baltimore pursued something called New Beginnings, if I recall correctly. They invested over five or I think it’s five years something like $55-million dollars in several cities or in the country to achieve certain kinds of results with young people in high schools.

They had these grand theories about how this money was going to coordinate services for young people and they were going to have which significant reductions and teen pregnancy and career aspirations and whatnot, and it turned out, you know, the $55-million dollars disappeared and really, they had very little to show for it.

What they did, what the Casey Foundation to their eternal credit did was to commission this report and was to take a look at what had happened and their publication, it was called “Lessons learned the hard way” or was it, like them not exactly the name of the report but it was a very nice report and that it did in fact come to grips with that failure. But an awful lot of foundations, and we’ve named now, three reports out of the 300,000 initiatives that had been undertaken in the last 20 years by foundations.

We’ve named a handful of reports that have actually done the sort of thing, that kind of in-depth analysis and rethinking and that’s it. There’s precious little of that going on and that’s a real shame, that’s a real shame.

Sean: Whether any of these foundations make mid-course corrections or not, in general they’re focusing on root causes and during the 2007 Council on Foundation’s conference, you gave a speech where you, you’ve said this other places as well, criticized philanthropy’s focus on dealing with root causes. But a lot of people define philanthropy as the dealing with root causes and derisively use the word “charity” to define dealing with general symptoms as opposed to causes. Can you tell us a little bit why you think the root-cause approach is all wrong?

Bill: Well, the root cause approach sounds so good and we’ve now talked about root causes for over a century. I mean, the first person to describe the difference between philanthropy and charity is the difference between dealing with root causes versus [symptoms], was John D. Rockefeller himself. So this is back in the 1890s. So we’ve had over a hundred years of experience with this approach.

The essence of which is, you know you pursue a solution to a problem until you figure out the real source of it and you tinker with that and you change it once and for all. And thereby you really help that problem in a decisive way so that charity, the charitable approach to that problem, no longer becomes necessary. So you can dispense with charity, save money, move on to the next problem.

As I say, it sounds like a terrific idea but it just hasn’t happened that way. I mean I would be hard pressed to name a single social problem. Now certainly in the area of medicine and public health, foundations had some success, the Rockefeller Foundation went on of course, famously, through its sanitary commission, attacked hookworm in the South and did a terrific job getting rid of it. But you’ve seen absolutely no similar experience in the area of social problems, nothing that foundations, no approach the foundations have tried in that area, have really penetrated to the root cause of a problem and removed it once and for all from the public agenda.

Sometimes the search of root causes has had some pretty evil effects as well. I mean you have the experience in the 20s and 30s, the Rockefeller and Carnegie foundations spent some money pursuing what they thought was a very promising science of eugenics, which was the effort to trace human problems to the root cause of bad genes, you know, bad genetics. If you could just fix that problem, then a lot of disease and social problems would disappear, in their view.

So that the answer was, you know, it was two-fold; it was to encourage the genetically superior to reproduce and it was to encourage the genetically inferior to not reproduce. If that meant sterilization and isolation, solitary confinement for people who were supposedly, genetically inferior, then that was fine.

This was a cause that foundations, these early progressive foundations, avidly supported and the notion of second thoughts, I think, would have been very valuable in this area. But so far are we from that kind of fundamental thinking about what we’re doing that you would look at the foundation histories, in vain, for even a mention of eugenics, that kind of very badly misfiring approach.

This is at a time incidentally, when our ability through genetic science, to substantially alter the human character and the human body, you know, we have more capacity in that area then ever. It would be a very good time for us to think about how, for foundations, to become involved in exploring the moral and ethical dimensions of that. But they’re so blind to their own past that they don’t even realize that eugenics was once a popular philanthropic cause.

Sean: OK, I want to change direction a little bit here and quote from a speech that you gave to the Maine Association of Non-profits recently and you said, “Consider for instance, the way we have increasingly incorporated the language and techniques of the business world into the non-profit sector. We all need a business plan. We should call contributions investments. We need to be more entrepreneurial. We need to focus more in generating revenue. Now all this is fine up to a point, but if it means that the non-profit sector comes to view it’s functions simply as delivering goods and services more efficiently and less expensively to customers, then we’ve lost our way. Civil society isn’t about customers, it’s about citizens.”

Now, this concept of the pros and cons of for-profit business models and non-profit models has generated a huge debate on the Tactical Philanthropy blog. It seems to me that while non-profits should not simply adopt for-profit business models, business logic can be used to improve the non-profit sector. Do you disagree with that?

Bill: My understanding of the non-profit sector starts with the notion that the non-profit sector is the place where citizens enter public life, try to understand their own social, political, cultural problems and come up with their own solution to those problems. That’s where it starts. It’s not about the non-profit sector as I would like to think of it, it’s a sector where services are delivered, one way or the other, whether they are business services or government, you know, whether there is an economic profit or whether it’s government services.

It’s primarily a place where citizens learn the difficult business of self-governance and that primarily is a matter of trial and error of a rather amateurish and clumsy sort of a tackling of their own problems their own way. I think there’s nothing wrong with that and in fact I think that’s the glory of civil society.

Foundations in so far as they are constantly pushing non-profits to be more efficient, more business-like, to rely on trained expertise rather than on amateurs and volunteers, I think that’s a very dangerous trend for civil society because it tends to take the sphere of public life where people do learn to do difficult business of self-governance and take it out of the hands of citizens and put it in the hands of trained experts.

I don’t think efficiency, I don’t think expert delivery of services is the proper standard by which to evaluate civil society. It is citizenly engagement and that is necessarily a messy, duplicative, amateurish business. It involves reinventing the wheel. I mean you constantly hear people say, “Gee, you know, let’s find the best practices so that non-profits don’t have to keep reinventing the wheel.” There’s something to be said for reinventing the wheel. That’s how citizens learn how to govern themselves right. They learn; each generation has to learn anew, the lessons of self-governance.

So I think there’s a vast amount of messiness, and amateurism, and the sloppiness, if you will, that characterizes civil society and should characterize civil society and there’s nothing wrong with that.

Sean: OK Bill, I have one last question for you. I gather that you’re a pretty active reader of the philanthropy blogs and you’ve reached out by email to a couple of bloggers that I know, but you’ve voiced your disappointed to me in the past that bloggers have not made more use of the various publications and speeches available on the Bradley Center website and I am particularly interested in how the online and offline conversation about philanthropy can be connected.

Do you have any suggestions for how the online philanthropy conversation can engage participants who do not regularly read or write blogs?

Bill: Yeah, I think what I meant to you in that comment, we at the Bradley Center, we try to have panel discussions about once a month on matters that are agitating philanthropy in the non-profit sector.

I think my major complaint about the sector and this is something that bloggers are beginning to write, is that we really don’t have enough of this kind of lively conversation about some fundamental issues in the sector. I mean we sort of fall into patterns like ‘measurement is good’ and ‘efficiency is the goal’ and we need outcome-based results; those kinds of easy sort of formulaic answers to questions. And we don’t have a serious conversation about them, which is what I tried to do at Bradley Center with our panels and which I, you know I think you guys are doing this well.

Now one of my panels recently, I actually put together after reading some blogs on this question of aligned investing, you know the Gates Foundation recently came under fire for investing in companies that the Los Angeles Times, I think it was, alleged, the corporations in which they were investing were undertaking practices that actually were undoing the results of their grant making. The paper suggested that it might be better for them to kind of take, you know, to re-examine their investments with that in mind, and Allison Fine, a blogger, had some thoughts on that, as did Lucy Bernholz.

So I actually had Allison and Lucy here for a panel on that, with a couple of folks who were skeptical, shall we say, to the investing on the other side and I noticed that GiftHub, Phil Cubeta, was you know, was properly appreciative  of the fact that I had composed a panel out of a conversation that had begun on the blogs.

I suppose there are ways that I can try to figure out how to take my panels and have blog discussions attached to them as well, which is I think something you suggested to me, but we’re technologically backward, shall we say. I am not quite sure how to do that. We do need to do more than that.

Sean: There is just as much need I think for bloggers to find ways to have offline conversations rather than demanding everybody get with the tech bandwagon and do everything online.

Bill, thank you so much and that’s all the time we have. This has been the Tactical Philanthropy podcast. You can visit us at TacticalPhilanthropy.com. For more information about Bill Schambra and the Bradley Center for Philanthropy and Civil Renewal, visit pcr.Hudson.org.

Today’s interview is with William Thomson, Andrew Carnegie’s
great-grandson. In our conversation we discuss the just announced winners of this year’s
Andrew Carnegie Medal of Philanthropy, what William’s great-grandfather
would have thought of today’s “new philanthropists”, why philanthropists need to “court risk” the blurring of
the lines between for-profit activity and philanthropy, and an emerging
philanthropic trend in Europe.

This interview was booked and recorded before I decided to have guests
participate in a follow up online conversation with listeners. We’ll
get back to that format next time with Bill Schambra.

• Launch Podcast

Expand this post using the link below to read the transcript.

[music]

Sean Stannard-Stockton: Hello, and welcome to the Tactical Philanthropy Podcast. I’m Sean Stannard-Stockton, author of the Tactical Philanthropy blog and principle and director of Tactical Philanthropy at Ensemble Capital.

My guest today is William Thomson. William is the great grandson of Andrew Carnegie and a member of the executive selection committee of the International Carnegie Medal for Philanthropy, which is often referred to as the Nobel Prize of philanthropy. Good Morning, William. Thanks so much for speaking with us today.

William Thomson: Good morning, Sean. I am pleased to be here.

Sean: Why don’t you begin by telling us about the history of the Carnegie Medal of Philanthropy? And we don’t have time to discuss each of the recipients in depth, but maybe you can tell us about them briefly.

William: The medal started in 2001 here in New York and it was the brainchild of Vartan Gregorian, president of the Carnegie Corporation of New York. He set out to do two main things: to spread the message of philanthropy by awarding this medal to great philanthropists who had done a lot to benefit their country and the people of their country — or even globally — and the second idea was to publish the name of Carnegie as a philanthropist, as a kind of international example of what great things can be done in this way.

This year we have four recipients. The Heinz family — whose sustained philanthropic efforts in the world of environment, education, economic opportunity and the arts — are very well known, I think, throughout the United States.

Then we have the Tata family from India, who are a big, well-established industrial family. and they have been funding for many years a number of pioneering institutions and social sciences, cancer research, tropical disease research. They give away every year between 8% and 14% of the net profits of the controlling company to a very wide range of causes.

Then we have Eli Broad, founder of two Fortune 500 companies. I think he was also well known. The Broad Arts Foundation activities covers over 25 major museums and institutions throughout the United States and also that includes, of course, New York City’s Museum of Modern Art.

And then finally, we have the Mellon family. They are a Pittsburgh-based family who have extended into Washington and New York and it started, I think, in the 1930s when Andrew Mellon donated his extensive art collection to begin the National Gallery of Art in Washington. They do a lot in many areas, life sciences but also particularly in land preservation.

Sean: So in the press release announcing this year’s awards, you commend the winners for “courting risk.” Why do you think taking a risk is an important part of philanthropy, and how can we encourage more philanthropists to take risks?

William: Well, I think there are two reasons for this, Sean. One is that very often the philanthropist has come from a business in which he succeeded precisely because he has taken risks. So he has a natural affinity to taking risks. The other is that I would think a lot of philanthropy doesn’t need to take risks. If you are going into the cutting edge of making changes in society, you are going to have to take risks.

Sean: You are the only member of the Carnegie family still involved in the foundations he created. What do you think your great grandfather would say about how philanthropy is practiced today? Would he feel like nothing has really changed? Or, if he saw differences from the philanthropy that he practiced, would he like what he saw or would he be disappointed?

William: That’s a very difficult one because I suppose in some areas he might feel disappointed, but in other areas he might be enormously encouraged. I like to think, first and foremost, that he would find the work of his institutions to be something that he was really proud of.

The fact that, by-and-large — there is, I think, one exception which is the Hero Fund in Germany which disappeared in the Nazi era — but by-and-large, his institutions have all flourished and are relevant today. So I think that would be very, very important to him.

In terms of what he would find different today, I think your own interest in the spread of philanthropy — that more people are interested in doing things in that world — of course would be different. It’s not just confined to the very rich, which is where he was aiming his interests at the time. Because he saw these vast fortunes being accumulated and then being passed down to families and not being used for the good of the future of the country.

Sean: When you talk to some of the so-called new philanthropists who talk about venture philanthropy or the new high-tech entrepreneurs who are engaging in philanthropy for the very first time in a broad way, sometimes the language used indicates that what they are doing is new. And if you talk to some of the older, more established foundations, they will say this is not really new, this is what we have done all along or what we set out to do.

Do you think that there is really something new going on in philanthropy today — not just more people — but that the practice is somehow new?

William: I think there are some changes. An awful lot of it, as you rightfully say, is actually the same in a new guise. You’ve still got to follow it through. You still got to find a way of funding it, how you work through it and develop it.

I suppose one of the differences that I think the new philanthropists are tending to bring, is that they are much more target-achievement based, if I could put it that way. In other words, they are saying, “This is what we want to do. How are we going to measure the results from this?”  Then they tick off as the initiative progresses or the philanthropy progresses. They tick off the results to see that it is going on track. I think that is also bringing more of a business mind to the way they do things.

Otherwise, the fact that more people are interested in philanthropy and the fact that there is perhaps easier access of the Internet and the profusion of publications that we are also getting on philanthropy. There is more awareness of what philanthropists — or what philanthropy — rather can do.

Sean: Certainly. Certainly. One of the new trends is this blurring of the line between for-profit activities and philanthropic activities. So the Google Foundation for instance, is not actually a private foundation. It is a for-profit corporation that’s dedicated itself to philanthropic work.

There are a number of organizations that people call social enterprises that, many times, are structured as for-profits but have a mission of improving the world in some way.

I think if you look back at Andrew Carnegie, his philanthropic work and his for-profit work were separate, only in the sense that his for-profit activity was not intended to achieve philanthropic goals. Instead, the proceeds from the for profit work was put into the philanthropic goals.

There is a lot of debate around this. Is this a good thing or a bad thing? Should for-profit and philanthropic work come together or should they be kept separate?

William: Well, it is a matter of circumstance to my mind on this. You are perfectly right about saying Carnegie followed his business career, his industrial career, and then he went into philanthropy. He was actually pursuing philanthropy in a small way, but it was not connected with his business at all and it was a separate issue when he came to sell his business.

He had this huge fortune, of course. He wanted to make it work for the good of mankind. I think one of the differences that we have to be aware of today is that no company could reasonably go out in the market with a mission statement that said, “We are going to mine something out of the center of the earth, cause environmental havoc, but at the end of it we will take the profits and do something good.”

Companies — by their nature — have to look good in what they are doing, but companies also — to be profitable and to grow and to be successful — they need to reinvest in themselves, and I think it is quite difficult for a lot of companies to find spare money to put into philanthropy if they need that for their own capitalistic growth.

Sean: On the Tactical Philanthropy blog I talk about a second great wave of philanthropy that is currently underway in the United States. I understand that you see the rise of a new philanthropy in Europe as well. Can you tell us a little bit about European philanthropy and how it is different or the same as American philanthropy?

William: Well, I am not so familiar with the American side to say how it is necessarily different, but I think there are some interesting points from the philanthropy in Europe.

First of all, there are some breakthroughs throughout Europe and throughout the rest of the world, but the US is the lead in philanthropy. And the greatest example is certainly set in the U.S.A. Having said that, if you take, for instance, the people of Scotland, they are awfully generous in circumstances where there may be a world appeal.

For instance, the tsunami two years ago. When that came, the Scottish people dug deep in their pockets and sent money to the tsunami appeal. I am not talking about big philanthropists writing million dollar checks. I am talking about ordinary people in the street writing out or sending donations of maybe $20, $30, $60, $100 dollars, that sort of thing.

There was a tremendous amount; they were very, very high on it. So, we have that sort of charitable giving already in place, but it tends to focus on a current event and then be generous that way.

Where I think America is different, is that it is more strategic than we tend to be, except for the very big individual philanthropies. It is more strategic in where it places its giving.

Sean: Well, I have time for one more question here, and it is pretty open-ended, so you can take it in whatever direction you want. But I am wondering what you think the important challenges and opportunities facing philanthropy globally is today.

William: In that respect, I am not sure I see very much change from when Andrew Carnegie was looking at philanthropy. We have health, an enormously important matter still. We have education, which is still hugely important to the developing world. And we have perhaps most important of all — the one that was dearest to his heart towards the end of his life — was peace and conflict resolution.

Sean: All right, this has been the Tactical Philanthropy Podcast. You can visit us at tacticalphilanthropy.com. For more information about William Thomson and the Carnegie Foundation, visit carnegie.org. Thanks so much for listening.

Today’s podcast marks a new chapter in my evolving attempt to facilitate cross-disciplinary conversations in the field of philanthropy. As I announced yesterday, interviewees will now be expected to participate in a discussion of the podcast topics in the days after each release. However, for this to be successful I need your help. My readers have already shown a great interest in posting comments and emailing me their thoughts. Now is your opportunity to do the same with the thought leaders who are featured in the podcast. So leave your comments and questions and check back often to watch the discussion unfold.

Kicking off the new format is Paul Shoemaker of Social Venture Partners (SVP). SVP is like a giving circle on steroids. Using a venture capital model, SVP makes grants but also provides their grantees with knowledge, skills and valuable contacts. If you want more context about Paul and SVP check out info here, here and here.

As you develop your questions for Paul, I would encourage you to think about the following topics that we’ve already discussed: giving circles, measuring impact and outcomes, venture philanthropy, the impact of high tech entrepreneurs entering philanthropy for the first time, and “new” vs. “old” philanthropy.

Paul defends the venture capital concept, criticizes “big mouthed”, arrogant individuals for diluting the term “venture philanthropy”, tells us why he thinks there really is a “new donor” today, and talks about the rise of giving circles. Let Paul know what you think. Leave a comment at the end of this post or email me any thoughts or questions. I have Bill Schambra lined up to try this new format and a major foundation CEO considering giving it a try. Help me make this work and I think this venue will attract important leaders and spark a lively conversation. Thanks so much to everyone who has been participating in the discussion here. It has been my great honor and pleasure to watch the debate unfold.

• Launch Podcast

Expand this post using the link below to read the transcript.

[music]

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 Paul Shoemaker. Paul is the Executive Director of Social Venture Partners. Good morning, Paul. Thanks so much for joining us.

Paul Shoemaker: How are you doing Sean?

Sean: I am doing good. Thank you. Paul, why don’t you start off and give us a brief overview of Social Venture Partners and then tell us why you joined SVP and took on the role of Executive Director.

Paul: You got it. Well, we are an international network of engaged philanthropists. There are SVPs in about 23 cities. There is a network called SVP International. What is common to all of those is that it is made up of individuals that contribute not just their financial but their human capital as well. That means that our members are directly involved in deciding where grant money goes in the community. They are involved in lending their professional skills and expertise to nonprofits as volunteers to help them build their capacity.

They are also involved in ongoing education to increase their knowledge about the nonprofit sector and about philanthropy. The end result, the two missions of that body of work, Sean, are number one to help nonprofit organizations become stronger and help them build their capacity and secondly, it is to help philanthropists build their own strength and their own capacity as philanthropic and civic leaders. As I mentioned in the start, it has spawned now into 23 cities, about 1,700 partners across America and a group in Japan.

Sean: What do you think attracts your members to venture philanthropy? I would assume that many of them have already engaged in some level of giving before joining SVP. Why do they decide to join SVP rather than continue in their kind of annual traditional giving?

Paul: Well, first of all a lot of them probably do continue part of their philanthropy in a traditional way which is totally fine. It is probably not rocket science. The reason folks join us is because they have the desire to be more engaged in their philanthropy. They want to be closer to the work. They will learn. They want to grow as a philanthropist and some combination of those reasons is why they join our organization. It’s more kind of motivated.

As it goes on, those reasons are valid but as time goes on what becomes more significant to them is the network of people, the value they get out of it, the impact that they believe that they are having on the community they think they get out of an approach like this. It is usually some combination of that first set of reasons is why someone joins.

Sean: So the concept of venture philanthropy has proven to be somewhat controversial over the years. What do you think the role of venture philanthropy is today and why do you think venture philanthropy is important?

Paul: Well as some people inside the sector know, venture philanthropy is one of the terms that got [unintelligible] in the late 90s. The original intent of the name – and a few organizations like Roberts Enterprise Fund and Robin Hood, who were really the pioneers of this and we jumped on – the original intent specifically was the notion of long-term capacity focused engaged relationships between philanthropists and nonprofits.

The term became controversial, in part, because some folks disagreed with that approach but also a lot of it was because a lot of people started using that term to describe themselves and a lot of them happened to be big mouthed and suggested they were going to save the world with their great business practices which is not what we intended by it.

If you look at it in the intentional, intended meaning of the term, I would be glad to stand up for it. It is a term that got used in a lot of different ways. The controversy was about arrogance and some things like that.

As far as why I think it’s important. It’s important because our suggestion is not even remotely the only or necessarily the best approach. What it is is it’s great for certain nonprofits at certain stages and for certain philanthropists and civil leaders in certain stages of their development.

It’s more about filling a particular segment of the market and with those organizations, those nonprofits we work with, there are nonprofits just like for-profits that at certain stages they need not just investment in the product but in the whole organization.  They need not just money but they need advice and expertise and networks, etc.

On the flip side of that, there are philanthropists that at a certain point, it’s the reasons I just described to you a minute ago why they joined. They need different parts of that value equation and their evolution in the different points in that philanthropy. A lot of our folks, the vast majority of our folks, they still practice a lot of philanthropy outside of SVP as well as inside it.

So we exist not only to do the work of the organization to build certain nonprofits, we’re also trying to be a catalyst for their own individual philanthropy outside of SVP and help them become more effective in that work.

Sean: Paul, personally, I am really intrigued by the concept that philanthropy, because it is not subject to market forces, often doesn’t have to learn from its failures. I think there is a shift in that trend right now, for instance, the Hewlett Foundation on the front page of their website has a link to a study that they call “Hard Lessons” where they talk about what is essentially a failure and the lessons they learned from it.

You just wrote an article in the Stanford Social Innovation Review about the closing of the Bay Area chapter of SVP titled “Profiting from Failure.”

Paul: Yeah.

Sean: What did SVP learn from the failure of your Bay Area chapter and then more broadly, how do you think philanthropy in general can learn to profit from their failures?

Paul: Yeah, let me start with the latter first if I can, the former for the most part somebody can read Stanford Social Innovation Review. The broader point and you framed it well Sean is that not only is there, there are no market forces. There is not even particular motivation for a funder to describe and learn from its failures. They don’t have to be public about it which is probably what made what Hewlett did really highly admirable and important.

If you think about any industry, any factor, any business, any nonprofit is an industry. Nonprofit organizations are businesses and fundamentally you get better not because of the good decisions you make. Almost anybody will tell you you learn more from your failures than your successes. In the private sector you don’t have any choice. The market exposes your failures and you have to learn from them or else you will fail.

The same is just like you said in the absence of market forces for foundations you don’t have it. The motivation to do it is not particularly high because you are shown where you made mistakes. But as a fundamental proposition, your ability to get better and the slope, if you will, of your learning and your effectiveness curb gets significantly reduced if you don’t have a chance to learn from other people’s mistakes and you don’t learn from your own mistakes.

So I think it’s a real kind of fundamental dynamic of the sector that makes its level of innovation and progress and effectiveness. It slows it because there aren’t those forces there to make it happen. In the specific case of SVP Bay, the broad point is at that point we were about half a dozen cities and some of them were succeeding and some of them were failing.

The founding and creation of SVPs in other cities beside Seattle was not part of the plan so it happened very organically for a while and San Francisco was a great example of, at that stage of the process, we were growing this thing organically but we really didn’t know how to intentionally create and scale a nonprofit network across North America.

So the lesson at that point really was organic is fine for a while, but at some point you’ve got to be intentional and just like every nonprofit locally or any nonprofit that’s tried to expand and replicate, it is extremely hard, ten times harder than you think and I think it’s a lot harder than doing it for a private sector business.

Sean: So I talk a lot on Tactical Philanthropy about giving circles and the important role I think that they can play in the current philanthropic environment. So while SVP may, we can say, represents a giving circle on steroids, can you talk a little bit about giving circles in general, I mean how you view them and their place in philanthropy?

Paul: Yeah, I think it depends on, there’s a lot of different giving circles, so it kind of depends on how far you go with it. At a minimum level, just act to get better with peers, I think it is a reinforcement for the act. It’s an opportunity to learn from other people, it’s an opportunity to get confident in what you do, that’s kind of Giving Circles 101 I guess.

I think it beats the heck out of somebody not being a part of one. Where it grows up from there, depending on how long it exists, how much financial capital is in it, how much human capital’s in it, how they focus on relationships with nonprofits. The further it goes along all of those dimensions, the more you get into giving circles, not just as a learning in a social environment but also as leverage, as a way for multiple funders to bring together resources to focus in a collaborative, integrated way as opposed to everybody making one-off decisions, the notion that we can do more here together than I could on my own.

So its importance is a function of how far you take the idea at each level. I think it adds a piece of value to the sector that doesn’t exist when you’ve only got individual funders acting on their own.

Sean: I think that SVP – there’s a sense in the field right now – that people involved in SVP represent to some extent, a kind of new donor and there’s some debate around people who say, “Well, what the so-called ‘new donors’ are doing, is really not much different from what any of the existing philanthropists were doing when they first started.”

Do you think that the concept even has any validity? Is there a new donor today or are the people that you’re interacting with, are they really approaching philanthropy in a new way, and I don’t just mean venture philanthropy, I mean the people who are attracted to philanthropy in new ways?

Paul: Great question. I’m going to answer at two levels but the first level, which you may be expecting, which is, the new versus old, that was just like venture philanthropy, it was one of those terms that just kind of got tiring several years ago and frankly, new versus old, it didn’t say anything about whether it’s effective or not anyway.

So the new-old concept is pretty tired at least for somebody who has had heard it for a while and I know that in our case and I think a lot of others group’s case you’d be nuts not to learn from people who came before you.

Now, the point about whether there’s something new, every single piece that we do, collective grant making, strategic volunteering, donor education, you can find those pieces somewhere in a community of individuals but you cannot find putting them altogether in one organization to the degree to which we engage our members in the work and with each other that is unique.

So when folks ask me if there’s anything we’re doing here that’s unique or new, the parts, no. The way we put them together, yes.

And the part “Are Donors New”, it’s interesting, I’ll try, I would answer this question differently, maybe six or seven years ago and I would have said, “No, there’s not that much difference.”

And clearly there’s plenty of ways in which there are probably more similarities than differences but – and I know I got a little bit of bias on it but having lived here now for ten years – I do think there’s a difference in the degree to which, on average not universally, but on average philanthropist want to be engaged and they want to be hands on. I don’t think that was just a fad, I think it’s for real and I think I see that show up in many places.

So I do think that that is somewhat different and I don’t know if it’s because of a different generation or because people have money at a younger age or what the reason is and whether that carries with it. I think, for an organization like us is both up to the new duty and the responsibility because the more engaged they are, so it’s kind of like a risk/return ratio. They could add more value, they could also mess more things up.

Sean: OK, Paul, as we end, a last good piece of advice for my listeners and my readers from you. If you were talking to somebody who wanted to start their own giving circle, especially something that is more modest than SVP, what advice would you give to them to help make sure it works?

Paul: Great question. I would say a couple of things. Number one, do it. I think the things that are important and there’s definitely no rocket science here but it comes down to things like I think you got to make sure you got some leadership and who wants to be the organizer. When folks just kind of come together and everybody agrees to do it by committee, it can be a problem. So I think leadership matters.

Also, depends how far it goes, I think you need somebody to play the administrative role. So I guess the broad point I would say is number one, there’s a lot of information, lot of resources out there, you can always learn from, and number two, try to be clear and make sure people are fulfilling different roles in the group and a lot of what I just described to you, it isn’t even particular to even giving circles. It’s kind of more about group dynamics and how you get organized and you’re effective.

Sean: OK Paul, I really appreciate your time, and taking the time to speak with us today.

Paul: Keep it up. Thank you very much for having me.

Sean: This has been the Tactful Philanthropy Podcast. You can visit us at tacticalphilanthropy.com. For more information about Social Venture Partners, visit svpseattle.org. Thanks for listening.