Tactical Philanthropy Podcast: Brian Gallagher

Today’s podcast is with Brian Gallagher, CEO of the United Way of America. In the interview, Brian discusses how United Way is transitioning from a fundraising organization to having a focus on community impact. He comments on the prediction I made in the Chronicle of Philanthropy that the nonprofit field would adopt a United Way impact statement as a potential reporting replacement for the 990. And he explains the way he thinks the changes at the United Way will affect nonprofits.

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.