Today’s podcast is with Phil Buchanan, executive director of the Center for Effective Philanthropy. The mission of the Center for Effective Philanthropy is to provide management and governance tools to define, assess, and improve overall foundation performance. As the Center’s first executive director, Phil has led the organization to play an increasingly important role in the philanthropic sector. His comments have appeared in numerous national publications, and he is a member of the Nonprofit Times Power and Influence Top 50.
During the podcast Phil and I discuss why most foundations are not strategic, the role of intermediaries in fixing the philanthropic capital markets, and a “secret club” of foundations that seem to be responsible for all of the innovation in philanthropy.
If you post comments and questions in the Comments section, Phil will respond.
Click on the link below to read the transcript…
Sean Stannard-Stockton: Hello, and welcome to the Tactical Philanthropy podcast. I’m Sean Stannard-Stockton, author of the Tactical Philanthropy blog, and principal and director of Tactical Philanthropy at Ensemble Capital. My guest today is Phil Buchanan. Phil is the executive director of the Center for Effective Philanthropy.
The mission of the Center for Effective Philanthropy is to provide management and governance tools to define, assess, and improve overall foundation performance. As the Center’s first executive director, Phil has led the organization to play an increasingly important role in the philanthropic sector. His comments have appeared in numerous national publications, and he’s a member of the NonProfit Times Power and Influence Top 50. Phil, it’s a pleasure to have you here.
Phil Buchanan: Great to be here. Thanks for having me.
Sean: So Phil, everyone talks about how important it is to be strategic in philanthropy. My own concept of tactical philanthropy is premised on the idea that people are already being strategic, and that what they’re not paying enough attention to is to financial tactics. But in your most recent research report, Beyond the Rhetoric, you claimed that most foundations, even the ones that claimed they are, are in fact not acting strategically. So what’s going on here?
Phil: Yeah Sean. I mean I think everybody–or most people anyway–believe that they’re strategic, but that’s different from actually being strategic. So what we did in that research was to interview CEOs and program officers at foundations, and ask them about how they make decisions, how they allocate resources, and then we applied a really simple definition, which was, basically, is the framework for decision making focused on the external context in which the foundation works, and does it include a hypothesized causal connection between the use of foundation resources and the achievement of goal? So, I am making these decisions because I believe that if we support these organizations it will lead to these outcomes.
And what we found is that a minority of program officers and CEOs were totally strategic or overwhelmingly strategic in their decision-making. But the good news is that some were and that they stood out in a variety of ways. And of course, the immediate question is, “Why are people who–during other portions of our interviews, would cite the importance of strategy in order to maximize impact, say that it was necessary to create maximum impact–why would the very same people who say that not be acting strategically?”
I think that there’s a few reasons. One is that it’s incredibly hard to be disciplined in that way, of always tying back your decision-making about resources to, “How is that going to lead us to the achievement of our goals?” And also, there aren’t, for foundations, a lot of forces that push you in that direction. On the contrary, the forces push you in the other direction. So being strategic means saying no more often. It means actually having to decide that certain really important issues that you feel passionately about, you’re not going to pursue because you’ve chosen not to. So there are all kinds of things that I think pull foundation officers in the direction of being less strategic. So it takes discipline and a real passionate belief and willingness to act on the belief that you will make more impact by being more focused and clear about the relationship between what you’re doing and that achievement of those goals. That’s just not easy.
Sean: Briefly, is there a relatively simple way for a foundation who wants to do a self-analysis to understand if they’re strategic? Are their any tools on your site, or any tools elsewhere where somebody can get a sense of how strategic they’re being?
Phil: Yeah. There’s a list of questions–and this is just a start–I think there’s a list of questions in the report, Beyond the Rhetoric, on page 20 of that report, and basically what we say is that total strategists answer most of these questions with a simple yes. It’s things like can I describe the goals for my work in a way that’s understandable, without others needing to ask for clarification? Do I conduct regular assessments of the impact of the work I do? Can I point to data based analysis of the external environment that contributed to the development of my strategy? People who met our criteria for being a total strategist would answer yes to those questions.
What we’re seeking in the next phase of this research is really to test the development of a more formal self assessment tool, something like the Myers-Briggs for foundation decision makers, so a tool that people could use that goes a little farther than just a list of questions. We feel like we’ve got more work to do to be ready to unveil something like that. That’s what we’re going to be working on over the next year. We hope to have that out and then hope it would be broadly available and used by foundations so that the people might take a self-assessment. Then come together with their colleagues and talk about it, because one of the things that we realized is that in our research is that often people with very different approaches to decision-making work side by side at the same foundation. So we might have a total strategist CEO, but little does she know here program officers fall into whatever other categories, say the Charitable Banker. They need to know that they’re on different pages in order to be able to talk about where they want to be and what they want the approach of their foundation to be.
Sean: That sounds like a great tool. I look forward to you launching it. Over the past few years, we’ve seen an explosion of new, intermediary firms in the philanthropic sector. Rather than giving money the way a funder does, or executing social programs the way a nonprofit does, intermediaries are in between those two, and helping the sector perform better. Obviously, your organization is a case in point. It seems to me that the sector itself, the framework in which everybody operates, is desperately in need of an overhaul. And I think that the intermediary firms are one of the keys to changing that dynamic. So as someone operating in this space, how successful do you think these intermediaries are being and what kind of promise do they hold?
Phil: Wow. It’s hard to generalize about a group, a diverse group, of organizations. I believe that in general, there isn’t enough good information to inform philanthropic decision-making. I think that–my critique of intermediaries would be–would vary organization by organization. There are some organization doing great work, and others, I think, whose value is less clear. But I think the system’s also not working, as it should. So one of the frustrations that I have is hearing people have the same conversation again and again, and not recognizing the other’s who have struggled with the same question.
So, to give you an example, I can’t tell you how many people I’ve talked to who have said, they’re going to start the sort of Morningstar equivalent for the nonprofit sector. A simple and accurate diagnosis is there is much better information flow in the for profit sector than there is in the nonprofit sector. It’s not clear that funding is flowing to the most effective organizations in the nonprofit sector; therefore the answer is something that’s analogous to the kind of information services that exist in the business world.
I don’t disagree with any of that, but where people usually fall down is in completely underestimating the complexity of doing this, and the differences that exist between sectors. There’s a reason the nonprofit sector exists. It exists because there are problems that defied solutions that businesses or government were going to come up with, and therefore by definition, these are complex problems. They don’t lend themselves to easy assessment and, of course, there’s no universal measure in our world. There’s no analog to profitability or stock appreciation. So actually then, building the system that would allow people to make better decisions is really complicated and difficult.
That said, it should happen. It should be possible for donors to get more information about whether nonprofits have clear goals and strategies and performance indicators they’re using to assess progress. It should be easier to get information about what others think of those organizations. There’s a lot of promising activity out there. GuideStar obviously performs a really, really valuable service, and I think they’re trying to do more with the information they have and to gather more supplemental information. Then there’s new initiatives, like Great Nonprofits, Perla Ni’s organization which was on the cover of the most recent Chronicle of Philanthropy, had a great idea, I think, to get a place where people can go and offer their perspective on nonprofits that they’ve either been served by or volunteered with. All of that, I think, is really positive momentum. My fear is that the activity is fragmented and that much of it is below the radar screen, so that there a lot of people making pretty significant philanthropic decisions without even the knowledge that some of these resources exist.
Sean: Why do you think, given the concentration of assets at the largest foundations, why are all these efforts such grass roots efforts? Why is it that the largest foundations aren’t just putting half a billion dollars into creating something like this Morningstar product that you’re talking about, because they understand that, while the analogy is correct between–in my opinion–between the nonprofit and the financial markets, what is the incorrect piece of that analogy is that you don’t have to measure the financial outputs of the nonprofit sector, because there are none?
Sean: And you need a whole different measurement system.
Sean: But the market place analogy is correct. They seem to understand that, if you talk to Hewlitt or you talk to Gates or you talk to Packard. Why is it that they are not excited to plunk hundreds of millions of dollars and just doing this thing at scale? Why is it that Perla or Holden at GiveWell, which was also in the Chronicle issue, they’re totally grassroots? Why is that?
Phil: Well, I mean, in fairness, an organization like GuideStar, for example, has received significant foundation support. It’s much less dependent on foundation support than it used to be, as it’s developed an earned revenue stream. So I don’t think it’s the case that foundations haven’t stepped up to try to support–that some foundations haven’t stepped up to try and support these kinds of initiatives. And I also think that it is more complicated even, I would argue, than you just made it out to be, because of the fact that there’s no common unit of measurement. I mean, the right measures from one organization might be completely different than the right measures for another organization. And in that–so it’s not just that it’s not about financial measures, it is deeper than that. It’s the fact that it’s not even about common units of measurement. So I think it is genuinely complex and some of the attempts to solve the problem have not been mindful enough of the complexity.
But getting back to the question about foundations. On the one hand, I would say that foundations deserve some credit for having provided support to some of the organizations that are working on this issue. On the other hand, I would agree with the critique that large foundations in this country should do much more than they have to support the infrastructure of philanthropy or the nonprofit sector. There are foundations, like Hewlitt, that have made a significant commitment in that area, but–and Packard did have a major program, and now has less of a commitment, obviously as everyone knows. But, I mean, these are–there are foundations that, over time, have put a lot of resources into this area. And then there are many that do very little.
The good news I see there, just looking at our own funding–we’re about–next year we’ll be a little bit under a five million dollar budget in terms of expenses. We’re approaching 50-50 earned and contributed revenues. We’re not quite there yet, but we’re getting close. We’re at–next year we’ll be at about 45 percent earned revenue. As I look at whose supporting us, we’ve got some big grant commitments from foundations like Hewlitt and RWJF, and Packard is supporting us, and Gates provides us some support.
But the good news that I see is an increasing number of foundations that don’t have program areas into which we would fall, are none the less, supporting us at a lower level, because they believe that it’s in their interest for the sector to function more effectively and for foundations to have access to the kind of data that we provide for the research to be conducted for us to be able to develop new tools that help foundations to be more effective. So they’re paying, not just for whatever tools they may use that we would provide them, but they’re also supporting our development and growth. And I know that other infrastructure organizations have also received more of those kinds of discretionary contributions, where people say, “Look, this isn’t our program area, but we all have an interest in a strong sector.”
The last think I want to do is argue that foundations should stray from their strategy. I mean, I think foundations should be really focused in their strategy, but I do think a case can be made that everybody has some obligation to support the strength of the sector. I don’t think those are–necessarily have to be contradictory. I wish foundations would do more, but I also want to acknowledge that there are foundations that have stepped up in that area.
Sean: When you go through the list of foundations that fund your organization, you find that many of them are the same organizations that are on the cutting edge of things like mission related investing, transparency,
Sean: … the use of social media tools.
Sean: What do you think drives these organizations to focus on transforming the sector? You already kind of answered why more foundations are not so interested, but why these ones? That group, it’s like they’re in a club, and they don’t have any natural affiliation, but you go to any cutting edge conference or cutting edge …
Sean: … organization, and they’re on that list.
Phil: Yeah. It’s challenging because my view of foundations is that they’re greatest strength or potential strength is their freedom to take on issues that other actors in our society won’t take on because there’s not a profit incentive or because there’s not a political advantage to addressing the issue. So I think that’s foundation’s great strength. It’s also, as is often the case, your strength is also your weakness, it’s also their greatest weakness, because it means that foundations are free to be ineffective and not create impact. And there isn’t a lot that anybody can do about it.
So, to your question of what is motivating this group of foundations that seem to be more innovative, open to utilizing all the tools to achieve impact that might be out there, pushing themselves to be more open about what they’re trying to achieve, and more forthcoming with assessments of results, I think that what’s motivating them is the sense of moral obligation to make the greatest possible impact with the dollars that they’re responsible for. I hope that’s the motivation.
I think that is the only thing that will compel foundations, and I think there are a lot of foundation leaders who are motivated by that moral imperative. I hope it’s not political realities, or some sense that we need to do this to stave off regulation. I don’t believe that that’s the motivation for most of these folks. I hope that it’s not, because I don’t think, ultimately, that works. I mean, I think the only way that foundations will make a stronger case to those who are skeptical about them is to be so committed to achieving impact, to understanding whether they’re achieving the impact that they want to achieve, to assessing, to demonstrating both the evidence of success and the evidence of failure, so that others don’t make the same mistakes they do. It’s only when the great number of foundations operate in that manner, that people will stop having such tough questions of foundations, because they will see the evidence of impact and they will see the value.
I think right now, any–my honest appraisal would be that it’s a mixed bag. There are some examples of foundations that are doing terrific work, where you think, “Boy, it’s really a good thing for our society that they exist.” And they’re taking on issues in a way the others couldn’t. They’re making an impact. And then you see other examples where you wonder whether they’re not squandering some of the opportunity that exists to make impact.
Sean: OK. We have time for one last question and actually only a brief answer.
Sean: There’s a lot of talk about philanthropy going through a transformation right now. I believe it is. Do you think that we’re just at a cyclically high level of change, or are we truly witnessing a transformation, so that 50 years from now, when people look back, they’ll talk about the transformation that was occurring in 2005 through 2010?
Phil: So, quick answer, and I hope it doesn’t sound too self-serving, but I think one can only see these things from where one sits. Six years ago, our organization basically didn’t exist. One of the first things we did is create a tool called the Grantee Perception Report that allows foundations to understand what grantees really think of it on all kinds of different dimensions. I can’t tell you how many people told me to my face that we would fail, that it would never work, that foundations would not participate in this kind of process and expose themselves to critiques in this way. The fact that they have suggests to me that the change is fundamental, that it’s not cyclical, that we’re not going back, that there’s going to be more and more of an emphasis on being clear about goals, clear about strategies, and to really assessing performance along the way, and to being more open every step of the way because people realize that you have to be if you’re really trying to create the most good that you can.
Sean: I hope you’re right, and I do believe you’re right. This has been the Tactical Philanthropy podcast. You can visit us at tacticalphilanthropy.com. You can learn more about Phil Buchanan and the Center for Effective Philanthropy at effectivephilanthropy.org. Thanks so much for listening.
Thanks for the mention of GreatNonprofits, Phil! I wanted to add to Phil’s point that there are a few foundations that do support initiatives to create better information about nonprofits. We’re supported for instance, by the Kellogg foundation for which we’re very grateful for both their money and their willingness to back something bold and new. And Hewlett has both mentioned us in their publications and followed our progress.
In general though, you’re right, Sean that there aren’t a lot of foundations supporting nonprofit performance assessment. That’s because, in my opinion, foundations don’t feel the pain of insufficient information. They have access to reams of “hard” information – including strategy, theory of change and indicators – that nonprofits submit as a part of their grant application; as well as a lot of “soft” data points – they’ve had lengthy discussions with the CEO or ED of the nonprofit; they’ve typically done a site visit and perhaps talked to volunteers and program participants, they’ve talked to other funders and with other nonprofits in the sector. Because of the in person interactions they have, they also feel the sense of empathy that triggers giving.
It is the individual donor who typically doesn’t have the access to the data, time to do the research or time to walk around and talk face to face with the nonprofit. So correspondingly, we see in donor surveys that donors have low confidence that their money will be well spent by nonprofits. The majority of American, according the NYU research, thinks that most nonprofits are poorly managed.
Greater information – in the form of the “hard” information as well as the “soft” information, such as the constituency reviews which GreatNonprofits focuses on – can boost individual donor confidence and also enable theme to make a strategic decision.
I hope that more foundations will realize that initiatives that address the assessment question can have a huge payoff when they attract greater individual giving.
Perla & Phil, my comment in the podcast was not suggesting that foundations have done nothing to support publicly available nonprofit information. I asked why foundations do not get together and plunk half a billion dollars into a project? The answer may very well be what Perla suggests; foundations do not face an information problem themselves.
If these were the for-profit markets, that argument would make sense. The protection and use of superior information is one of the keys to profitability. However, in philanthropy, social returns accrue to the public at large. Therefore foundations can generate the exact same type of returns on their dollars when they enable other donor/investors to make better decisions. Since individual donors give so much more each year than foundations, it seems to me that foundations can achieve huge returns on their grant dollars by enabling the public to gain access to the same kinds of information that they themselves use.
Phil, am I missing something here? Does not effective philanthropy require achieving the highest social returns regardless of whose dollars are invested? Are their any legitimate reasons for foundations to pursue the direct investment of their own grant dollars ahead of empowering individuals to give better if the social returns that accrue to a public information project exceed what foundations can do with their own directly given dollars?
I think you’re right, conceptually, Sean. But foundations, like individual donors, are looking to understand the connection between what they funded and what happened on the ground — impact. It’s very difficult to demonstrate conclusively that support of better information led to better decisions which in turn led to greater impact, even though we all get it conceptually. That’s a lot to trace back. So that’s part of it: donors want something more tangible. (We face this struggle at CEP in our fundraising efforts.)
I think the other part is that it’s difficult to figure out what the best model is — which one deserves the big investment and could handle it. I expect that, within the next couple of years, we’ll see the foundations that support the philanthropy infrastructure space starting to do less seed funding of various different approaches and more big bets on the ones they deem most promising. And I think that’s a good thing, as long as they make good judgments, of course.
I can protest in front of City Hall or I can create an infrastructure that is capable of mobilizing 100,000 to protest in front of city hall. I may have trouble tracking the impact of all of that. But I’d rather have the 100,000 people on my side.
Also, if there was a $500 million fund put together by various foundations that was available to support strong information tools, I promise you foundations would have a ton of promising organizations beating at their door. This is the kind of project that Prize Philanthropy is designed for!
I am just explaining what I think is going on — not endorsing it. I am all for more foundations investing in infrastructure in a big way. I think the returns would be dramatic.
I understand that. My last comment made it sound like you and I disagreed because you were making the other side of the argument that neither of us agree with. I understand you’re just explaining the current mindset.
So given your role as a consultant to foundations who want to be more effective. How might you phrase the argument that there are very large social returns on investment to be had by foundations that fund information tools that help individual donors give better?
Or do you think this is a fallacy? If I’m a multi billion dollar foundation interested in education, can I achieve bigger impact through funding education reform or through empowering individual parents to direct their time and money in ways that effect education reform?
See this comment that I left of the Google Finance profile for the Hewlett Foundation for a little context.
I think, Sean, you’re wrong to frame this debate in terms of having a bigger social impact. It’s not a particularly sound strategy for having a bigger social inpact unless foundation boards and staff members start thinking democracy leads to better decisions than they can make as experts.
That’s because the protest analogy is wrong. Large foundations don’t ever equate to the protester in front of City Hall. They give a big campaign donation so they can walk through the door and have their voice heard. If American politics have taught us anything about this, it is that money is always the easier way to have an influence on an organization and a cause than trying to rally 10,000 people. Not necessarily the better or only way, but the easier way.
It’s only worth the expense, then, if you believe the 10,000 people will get a better result by having the information and the influence than you would have with that money by yourself. As a foundation, if you think you make good choices as a foundation with expertise in an issue area, then why encourage people to disagree with you? Why not just fund the nonprofits that you identify as doing the best reform work to hire a better development staff? Presumably, a better development staff can handle its own marketing just fine and recruit the 10,000 individuals to show up. They can “empower individual parents” to influence education reform.
The foundation, then, can just keep buying influence and leave someone else to do the hard work.
For a foundation to think its strategic for donors to have information, especially objective information, about nonprofits is to believe you can do better not just by getting pople to give more to the organizations you care about. You have to believe that you can learn something from what the donors do with the information that you don’t already know. You have to think transparency and criticism (oh, yes, we’re back there again) are effective. That runs counter to how almost every foundation operates (the Case Foundation is obviously experimenting with a different approach) in relying on issue experts to make recommendations rather than democratic votes.
I wouldn’t frame the need for information solely in terms of individual donors, nor would I try to pretend we can calculate in some precise way the benefit of better information. But I believe the returns on a better information infrastructure would be significant.
If every nonprofit and every foundation articulated succinctly its goals, strategies, and performance indicators – and if it was all easily accessible – better decisions would be made. Individual donors and foundations could steer money to those with goals that aligned with theirs, strategies that seemed compelling and implementable, and indicators that demonstrated impact – or the probability of impact. Nonprofits, the media, and public could judge foundations on their goals, strategies, and indicators. Board members at nonprofits and foundations could compare their organizations’ approaches easily to that of other, like organizations – and hold CEOs accountable.
It stands to reason that, without ready access to this information, decision-making (at least by those who care about effectiveness) suffers and organizations get funding and recognition based on brand recognition or reputation, rather than evidence of results. But let’s remember, too, that organizations like BBB Wise Giving Alliance and GuideStar and others are aggregating some of this information already and others, such as Urban Institute and the Center for What Works (to name a few of many), are undertaking promising work on effectiveness measures in particular areas. (And many of these efforts have foundation backing.) We’re not staring from scratch, here.
I don’t disagree, Phil. I would LOVE to see that sector.
For me, the logical extension of my other post is that those outside entities – like GuideStar, the Center for What Works, Great Nonprofits, etc. – are going to be easier to sell to foundations than trying to sell Sean’s approach of “it’s more strategic for you in x program area to make information available to donors.”
In the case of giving to these types of outside organizations, the foundation is giving to the sector. That’s a different level of analysis altogether and one less likely to be controlled by a “how much impact” calculation because it’s simply not possible to make a sound one. If you’re thinking about the nonprofit sector’s health, you’ve already moved from thinking about health of a species to the health of an ecosystem shaped by many, many factors. You have to believe, as I think Phil’s early post noted, that less tangible, less direct impacts are still worth a large investment. We should encourage that kind of broad thinking, but lots of foundations will continue to have a strategic focus on an issue much smaller than the sector’s health.
I probably implied, more than I intended, that foundations aren’t interested in that kind of learning one can do through evaluation and public sharing of information about an issue. Some are. But it’s not obviously more strategic to empower individuals with the information to make better education reform decisions if your mission is education reform and you have strong opinions about the strategy that should be used. If you see yourself as having a lot of internal expertise and strong beliefs about where reform should head, then it is much more efficienct to persuade people that you’re right on the basis of branding, marketing, and the influence of your dollars. It’s harder (and riskier) to try to persuade people to your view on the basis of giving objective information. People might not use that information as you see best; their strategy might not be yours. That’s a “status quo” force that all information and transparency initiatives are working against.
The hopeful response is that as donors start to demand more than branding and foundations look for data about nonprofit effectivness, that it will become more strategic for foundations to invest in sharing objective information.
Sorry I’ve lagged in responding. I’ll take your posts one at a time.
You’re right, my use of the protest analogy was a poor choice. I withdraw it and offer a direct explanation.
In the for-profit markets, investors want to own a company and do not care if other investors participate. All the for-profit investor cares about is the return they achieve on their investment. They care about the company producing profits only to the extent that those earnings accrue to them as investors. Once they sell their share of the business, they do not care how the company performs.
Compare this to a nonprofit investor. The returns accrue to the public at large and so a nonprofit investor should not care if their donation gets a return, just that the nonprofit produces a return for the social benefit. Even if they are not funding the nonprofit, they should still want the nonprofit to perform well because the social returns accrue to them even as non-funders (since they accrue to the public).
My point is that attracting money to a cause is just as (or more) important as funding it directly. A foundation might be able to give $1 million to an education reform nonprofit. But by establishing themselves as experts on where to give in a focus area and then showing people why they should give to the nonprofits they pick, they can attract far more money to their chosen nonprofit.
I’m not arguing that the public will make better decisions than the “experts”. I’m saying that efficient markets will produce better outcomes than inefficient markets. In the for-profit world, inefficient markets are great for “expert” investors because they can exploit superior information to generate outperformance of investment returns. But these inefficient markets reduce the total returns in the market by preventing capital from flowing to the best performing investments.
What I’m saying is that unlike in the for-profit market, “expert” philanthropist enjoy no advantage from superior information. The returns they generate accrue to the public, and so no “outperformance” is possible. Instead, they should be interested in the total market functioning at a higher level, since that is the only way to increase the social return on investment.
I’ll be back in a bit to respond to your second comment and Phil’s comment.
Phil, in an efficient market, investing is a zero sum game. Maximum returns are generated globally so the only question is matching an investors risk/return preferences. In inefficient markets, higher returns accrue to more “effective/smarter” investors. In a public benefit market, since all returns accrue to everyone, investors should desire an efficient market within which they could align their social investments with their personal values/goals.
The philanthropic capital markets are highly inefficient. Far more inefficient than any for-profit marketplace.
Therefore it seems to me that making the philanthropic capital markets more efficient should be the number one priority of large funders who desire to be effective.
Clearly, very few people (myself included) believe that precise calculation of social return on any action can be generate. I don’t think this calculation is a prerequisite of efficient markets.
Also, there are a LOT of projects in the work to distribute better information more efficiently. You name a few, recent comments on this blog from me and others have offered other examples. We are far from starting from scratch.
What I would love to hear you say (if you agree of course!) is that you believe that the philanthropic capital markets would be far more efficient (and therefore generate far higher social benefits globally) if we had much better information available publicly about which nonprofits are effective and how to evaluate them. Since foundations possess a lot of this information (given their army of program and evaluation staff focused on this issue), they would make philanthropic capital markets far more efficient by making a serious effort to distribute this information publicly.
Do you agree with that (long winded!) statement?
Young Staffer, in response to your comment #9.
I agree with you 100% that certain things are an easier sell to foundations. I’m trying to argue what they should do (in their own self interest), not what I think they can be convinced to do.
The problem as I see it with them funding information aggregators like Guidestar is that the most important information is the information that foundations themselves possess. I find something like PubHub or GiveWell way more interesting than Guidestar because these two sites are providing really interesting, qualitative information. Guidestar and other information aggregators will never be very useful until really useful information is being distributed through them.
What the for-profit markets tell us is that quantitative information is very critical, but the really important information is the qualitative information and the context it provides for analyzing quantitative data.
I don’t think there is a logical consistency to foundations funding information distribution projects while not public distributing the information they possess.
I enjoyed the podcast and it is great to see the energy and fresh thinking re what is needed. Have a great weekend.
A few quick thoughts in response to some of the recent comments. First, foundations should absolutely share what they learn about the successes and failures of different strategies, so that the dollars can follow what works and not what doesn’t. (I think we’re seeing progress in this area — not enough, but some.) Second, I think foundations should do more to support information infrastructure for the sector, but I don’t think it’s possible to prove that this is the surest way for foundations to maximize return on their grantmaking, Sean: I think if we overstate the case, we risk undermining it. Third, my understanding is that Guidestar is doing a lot to encourage nonprofits to provide supplemental information that goes way beyond 990 data. I continue to think that there are both promising new initiatives as well as a lot being contributed by those who’ve been at this a while. And we should try to engage both in the thinking about what the information infrastructure should look like. Bob Ottenhoff of Guidestar or Art Taylor of BBB Wise Giving would be interesting choices for future podcasts, Sean…
Stephanie, Glad you found this all interesting. It is great to see you and so many other foundation employees reading this blog and beginning to join the conversation. I look forward to hearing more from you over time. I know that we could all gain a lot from you sharing your knowledge with us.
Phil, I should clarify a point I’ve made because I agree with you that overstating the case will undermine it. I think that information sharing is the best way to increase the social return on investment being produced by the Third Sector. However, I agree with you that in isolation, an individual donor may be able to achieve (or at least observe) more impact through a direct grant rather than through supporting a more efficient sector.
The stock market returns about 8% a year. That is the return that accrues to investors. If companies took steps to be more efficient and effective, the return on the asset class might increase to 9% (for example). But the stock market is already pretty efficient.
I think the Third Sector is facing an opportunity to double (or more) the social return being generated through building a more efficient market place. To me this potential dwarfs what any one funder might be able to achieve through a well placed grant.
I’ll see if I can get Bob or Art for a future podcast. Great idea. Just to be clear though, I don’t think the problem (or the solution) lies in one or two organizations, we require a sea change in the way that our sector views the value of information.