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social investing research initiative What does it mean to say that philanthropy is 'effective'? the philanthropists' new clothes Stanley N. Katz Woodrow Wilson School, Princeton University American Philosophical Annual Meeting Symposium: Effective Philanthropy Philadelphia, April 23, 2004 To hear many tell it, something of a sea change has taken place in the foundation world in recent years. There are, it would seem, new ways of choosing whom to make grants to, new ways of making grants, new ways of interacting with grantees, new ways of assessing the effects of foundation grants. If we listen to the way some philanthropists talk about what they're doing, their enterprise is very different one from what it was even a decade ago, never mind at the birth of philanthropy. But if the practice of the new and improved philanthropy is (as it is claimed to be) different from traditional philanthropy, it also seems that it is different more than one way: the new and improved foundation philanthropy is termed new and improved it is "strategic"; sometimes it is "mission-driven"; sometimes it is "effective"; sometimes because it is "venture philanthropy"; sometimes because it achieves "leverage." Depending on whois doing the telling, the new and improved philanthropy is new and improved in what seem to be quite different ways. Now those of you who know what I have written and said about foundations over the past several years will know that I have been skeptical about the direction — or directions — which foundation philanthropy has taken over this period. I have not changed my mind. I will try briefly, towards the end of this talk, to persuade you that there are reasons for an audience of scholars and cultural administrators to be concerned about this issue. But I will use the bulk of the talk to try to clarify the differences between the various brands of new and improved philanthropy, to the extent that there are any. This is important, I think, because at the moment it seems to me that there is less consistency in the denotations of the new catchwords of foundation philanthropy than there might be about emerging behavioral changes in the foundation world. The nominal changes proclaimed by foundation managers are, I will argue, less profound than the consequences of the new assumptions about the role of philanthropy which they mask. So I want in this talk to try to provide a taxonomy of these brands. This way, we will perhaps be able to get a handle on what we are dealing with in the new world of philanthropy, and so to lay the groundwork for something of an assessment of these developments. I am going to focus on the three developments in the current nominalist campaign within the foundation sector that seem most important to me, even though these are the only new such developments claiming to be out there: strategic philanthropy, effective philanthropy, and venture philanthropy, and I am going to tackle them in that order. Strategic philanthropy One potential cause for confusion in the discussion of "strategic" philanthropy is that the term is used to describe two philanthropic practices that are actually quite different creatures. There is the strategic philanthropy in which corporations engage, and the strategic philanthropy in which foundations engage. I am not going to be particularly concerned with the former, but it is as well to know what it is. To say a company's charitable contributions are an example of strategic philanthropy "means that there is some connection, however vague or tenuous, between the charitable contribution and the company's business."(1) Or, as Jerry Marx puts it, "most efforts to define the concept in the literature have emphasized reciprocity, [suggesting] that corporate philanthropy should be integrated into the overall strategic planning of the company to benefit both the recipient organization and the corporation." Marx himself goes on to define strategic philanthropy as practiced by corporations as "the process by which contributions are targeted to meet business objectives and recipient needs."(2) So this form of strategic philanthropy describes a corporation's attempt to kill of two birds with one stone, by making philanthropic contributions that will both serve its commercial interests and do some social good. But the kind of strategic philanthropy I am concerned with today is the kind practiced by foundations. It is not as easy to find a sentence-long definition of this kind of strategic philanthropy as it is of the strategic philanthropy carried out by the corporate sector. Instead, it seems that it is to be recognized by its descriptive characteristics: one knows strategic philanthropy is taking place when certain things are being done, and done in a certain way. Justice Stewart's definition of pornography seems in point here. For instance, one of the early academic contributions to the debate about strategic philanthropy is Porter and Kramer's "Philanthropy's New Agenda: Creating Value." Porter and Kramer argue that doing strategic philanthropy entails doing four (somewhat overlapping) things: (a) achieving (measurable) superior performance in a specific area; (b) choosing a unique positioning; (c) engaging in unique activities; and (d) forgoing some grantmaking opportunities in order to focus on others.(3) Indeed, it is accepting that one can't do everything that Porter and Kramer think is most important: "Deciding what not to do is the acid test of whether a foundation (or any organization, for that matter) has a strategy."(4) Kramer suggests, in a later article of his own, that the three elements of strategic philanthropy are "identifying the change one hopes to bring about, clarifying internal values and strengths, and ascertaining external needs," and that "it is only by undertaking all three simultaneously that a fully formed strategy, capable of evaluation, can be achieved." (5) This, I must confess, I do not find very enlightening. Perhaps because the description of the things one must do to be a strategic philanthropist is so abstract, I'm not sure I would ever know it by its alleged characteristics. Porter and Kramer do provide some examples, but they are of an odd sort, seeming almost to undercut their claims about strategic philanthropy — especially its novelty. For example, they refer approvingly to Ford and Rockefeller grantmaking on the Green Revolution, and Carnegie's impact on education. Then they write: "It is work of this kind — not only pursuing knowledge breakthroughs and establishing pilot projects but also pushing them through to fruition — that we tend to associate with foundations of an earlier era. Today some foundations are carrying out activities with such potentially high impact. The Pew Charitable Trust, for example, recently created the Pew center on Global Climate Change to study global warming, educate the public, and coordinate international negotiations."(6) But if foundations of an earlier era did what strategic philanthropy would have today's foundations do, it's difficult to see what the concept of strategic philanthropy is adding to the debate. Perhaps an actual and self-proclaimed practitioner of strategic philanthropy will fare better. While Rebecca Rimel of the Pew Charitable Trusts never gets so far as a succinct definition of strategic philanthropy, she provides a longer list of the things that strategic philanthropists (or in her case, "strategic grantmakers") do, and she is more informative than Porter and Kramer. Here are the highlights: • Strategic grantmaking responds to a ripe opportunity. Timeliness is key. • Strategic grantmaking has the appropriate partnerships in place early on. • Strategic grantmaking is simple in design. • Strategic grantmaking allocates an appropriate amount of resources. • Strategic grantmaking approaches a problem on multiple fronts. • Strategic grantmaking is both ambitious and feasible. We want our grants to be successful, but we also want to make sure that the bar is set high enough. Grants are risks; we accept that. If, however, we can learn from grants that fall short, then the failure is mitigated and our future grants ought to be stronger. • Strategic grantmaking considers core competencies, in Pew's programs and in the trusts at large. • Strategic grantmaking ought to show progress in three to five years. Time is a finite resource. We try to spend it wisely. And, here is what comes closest to a definition: For us, strategic grantmaking has a well-defined goal that is larger than that of a single project. A single grant cannot be "strategic" in itself. It must be part of a cluster of grants that have a focus. At the same time, that single grant has an explicit and achievable objective. Strategic grantmaking also has a discernible impact on a problem. We have to do more than offer Band-Aids and, ideally, work on more than symptoms. We aim to identify underlying causes, because attacking them is the only way that finite resources can make a difference.(7) Now, one might to start with thinking that to describe this assemblage of injunctions (most of them none too new and rather obvious) as strategic philanthropy and as a significant departure from existing grantmaking practices is a little grand. But this is not what strikes me most forcefully when I read and hear about strategic philanthropy. Rather, I am struck by a powerful feeling of déjà vu. Because I have seen this stress on addressing causes rather than symptoms before, in the thinking of the very earliest American foundation creators, Andrew Carnegie and John D. Rockefeller. Indeed, I would claim (and in fact Barry Karl and I did so some three decades ago) that what is distinctive about the rich dpmprs in America in the late nineteenth century is that they aimed their giving squarely at causes and not at symptoms; or, to put it another way, they practiced what we now call philanthropy rather than charity. That the great American philanthropists have always attempted to attend to underlying causes is what makes them philanthropists, even if they sometimes made conventional charitable grants — palliative giving — as well. So I am bemused to see the claim that foundations should aim at root causes touted as a new claim. It may be that modern foundations have lost their way in this fundamental philanthropic quest, and are today doing too much in the way of symptom-alleviating and not enough in the way of cause-addressing grantmaking. But the solution lies in returning to what was best in the past. Much of the current foundation promotional rhetoric seems to me to bespeak a troubling lack of knowledge about the history of the great and large American foundations. Effective Philanthropy Much has also been written and said about "effective" philanthropy. We should perhaps pay a little heed to the very term itself. One might think, to start with, that to claim the title "effective philanthropy" for one's own or a certain kind of philanthropy risks alienating the bulk of the existing philanthropic community to the extent that it implies that their philanthropy so far has been ineffective. What lies behind the use of the term "effective philanthropy," I think, is the justifiable anxiety among foundation leaders, boards and staffs about whether they and their work are, in fact, effective. Joel Fleischman, formerly of Atlantic Philanthropies is one of the many who have hinted that this is what might be at issue. At a recent colloquium organized by — who else? — The Center for Effective Philanthropy, he made the familiar point that foundations don't have market or re-election pressures to keep them on the straight and narrow. As a result, they have little reason or incentive to measure and seek to understand the effectiveness of their grantmaking and to maximize its impact. This is not automatically to assert that foundations make no impact; Fleishman went on to say "I believe foundations do make a difference." He finished that sentence, though, by asking: "But where are the data?"(8) Fleischman's concern is one shared, it would seem, by many foundation leaders and staffs, and is one heightened by the periodic pressures foundations face to show that they make a difference and deserve the special status and privileges they enjoy. I think Fleischman's question — where are the data? — picks out the feature that goes to the heart of the question. Like strategic philanthropy, effective philanthropy is difficult to define, but what particularly seems to characterize it is that it seeks to measure its impact and by so doing to increase that impact. This, to put it perhaps over-simply, is what's effective about effective philanthropy: it focuses on the measurement and evaluation of foundation efforts, programs, impact and performance. In another Center for Effective Philanthropy publication, we read that foundation "CEOs are … convinced that ‘accountability and performance measures will help us better reach the social outcomes we seek.' The question is no longer whether to measure, but how to do so constructively. …This sentiment appears to represent a substantial shift in thinking in the foundation field."(9) This is true even as the Center admits that "[f]ew foundation executives we spoke with expressed confidence in their current ability to assess impact, but there was a widely shared sense of resolve among all of them to push further in this area."(10) It also begs the question of what accountability means in the foundation sector – but my response to that question will have to wait for another paper. It is to the credit of the advocates of effective philanthropy that very few of them make light of the difficulties involved in measuring impact. Doing so takes time and money, and lots of it, and social science skills that are as yet imperfectly developed. For and all the time and money in the foundation world may be unable to deal with the problem of causality — establishing that some achieved outcome that was aimed at by a foundation grant or program was achieved by that grant or program. This is why we often find effective philanthropy straying from attempting the most rigorous forms of assessment and measurement into finding proxies for performance, such as whether grantees have been strengthened, or how much influence a foundation has in its field, or whether it is able to persuade other foundations to fund its grantees (whether the foundation has "leverage," as it's become known).(11) I mentioned earlier that in some respects it is difficult to distinguish the new philanthropic approaches from one another, that they share features and emphasis. Here's a case in point: effective and strategic philanthropy coincide in stressing the importance of focus. You will recall that Porter and Kramer argued that deciding what things not to do is the most important decision philanthropy can make. So, too, effective philanthropy calls for focus. As the Center for Effective Philanthropy has it, "[a] decade ago, some foundations were content to fund a disparate collection of projects within their fields of interest, trusting that they had done their part and that their grantees would be in the best position to identify and fill social needs. As one CEO described it, "letting a thousand flowers bloom." None of the CEOs we interviewed, however, subscribes to this approach today. These CEOs believe that foundations must know at the outset what they are seeking to achieve. "You have to begin with the end in mind," said one foundation CEO. "You need a well-articulated roadmap." (12) This "logic of deep focus" requires that foundations (a) select a field, (b) establish specific and achievable goals, and (c) choose an approach. (13) I do not have time this morning to do justice to this issue, but let me suggest here that the deep problem of philanthropic strategy is not deciding what to achieve, but in knowing beforehand what is the most likely method of reaching the desired end. To think that there are simple answers to this question is to overestimate the effectiveness of contemporary social science. Venture Philanthropy "Venture"philanthropy is, I believe, the hottest trend in modern philanthropy, and the one that has made the biggest splash. It is easier to define than strategic or effective philanthropy. Venture philanthropy is the attempt to apply the techniques of venture capital to philanthropy. I don't know that anyone can be credited with giving birth to the concept of venture philanthropy, and I suspect it arose in the West, and I don't know who coined the phrase, but Christine Letts, William Ryan and Allen Grossman were certainly in the offing with their Harvard Business Review article of 1997. They point to the similar challenges foundations and venture capital firms face: "selecting the most worthy recipients of funding, relying on young organizations to implement ideas, and being accountable to the third party whose funds they are investing." (14) If they face similar challenges, Letts and her colleagues go on to argue, can philanthropic foundations not learn something from the way venture capital firms run their operations? (Of course, it was more plausible and certainly cooler to suggest this pre-dot.com crash than it is now; but we should avoid throwing the baby out with the bathwater.) For most venture philanthropists, the primary lesson that foundations should take from venture capitalism is to focus more on ensuring the long-term development of their grantees — their capacities and skills, infrastructure, networks, organizational ability — and perhaps a little less on "program efficacy."(15) The suggestion is that foundations should build closer and longer relationships with grantees, offering them expertise, advice and consultation about organizational growth, as well as simply providing funding. But this is not all there is to venture philanthropy; it also involves the setting of goals and standards, which makes it looks rather like effective and strategic philanthropy. Here is Mark Kramer's composite picture of venture philanthropy, for example: Venture philanthropy has never been precisely defined, but it generally emphasizes a few common principles. The first is helping nonprofit groups gain the capacity to serve more people more effectively by building the infrastructure and management capacity of the organization. Second is that grant makers are highly engaged, bringing not just money but also management assistance through a close and long-term involvement with grant recipients. Third, clear benchmarks or performance are jointly developed by both the grant makers and recipients, and future support is contingent on meeting these goals.(16) These, then, are the rudiments of venture philanthropy, but some very big claims have been and are being made about it. As late as the beginning of this year, one Harry Edelson had this to say about the promise of venture philanthropy for the ailing practice of traditional philanthropy: Social problems are outpacing philanthropy's ability to deal with them. But there is a solution. The answer is to establish unique venture capital firms called PVCs (Philanthropic Venture Capital firms) that will use the disciplines and incentives of investing while solving some of the world's leading social problems. Such a setup could increase funding for social causes, create a more productive use of nonprofit funds and design new technologies to cure rather than just alleviate social ills.(17) We'd best get to it, then. Especially if, as Edelson goes on to say, "[b]ased upon historical venture capital results, PVCs should achieve annual returns of 5% to 30%, even though the focus will be on solving social problems."(18) Far more realistic, I think, is the Roberts Enterprise Development Fund, a venture philanthropy foundation on the West Coast that focuses on providing employment opportunities for people with little or problematic job experience. Instead of assuming that it can both do good and make money, REDF aims to meet far more modest goals: "REDF expects that at any given time, 70% of the enterprises in the portfolio will be profitable (or if losing money, doing so according to plan), while 30% will be losing money at greater rates than planned. REDF is willing to tolerate more business performance risk as a necessary tradeoff of employing its target population."(19) But however much money venture philanthropic enterprises can be expected to lose or make, and whatever positive consequences might have for grantees and their programs, I am going to assert again that this nominally new approach is not really telling us to do anything we didn't already know to do (or, at least, should have known to do). I can not do much better here than quote Kramer at some length: [T]he three main elements of venture philanthropy- building operating capacity, close engagement between donors and recipients, and clear performance expectations- are not new at all. Many would argue that those have been the trademarks of effective philanthropists for decades, and that they were well on the rise long before venture philanthropy gained public attention. … Perhaps venture philanthropy is more of an evolution than the revolution it first seemed to be. Already, it is beginning to blend in, taking its place as one style of grantmaking among many. … In short, venture philanthropy's greatest lasting effect may be to reinforce a few basic principles of effective philanthropy that were already emerging. And, like many of the dot-coms that made venture capitalists so successful for a while, what seemed so new about venture philanthropy may have been the sizzle, not the content.(20) More Critical Thoughts So far, I have tried just to lay out the lineaments of and so distinguish three "new" approaches to philanthropy. I concede that I have not been able to draw firm boundaries between them, and this is in part because there is a strong "family resemblance" between them. I am reminded of the wit who said, presumably of some work of art or literature not his own, that what was good in it was not new, and what was new in it was not good. Perhaps the first point to make is that I am a little suspicious of the general developments which has given rise to each of these new practices. Part of the problem, as I noted, is that philanthropic foundations are perennially uncertain about their performance, and perhaps rightly so. As Michael Bailin has suggested, "even at its best philanthropy is still an inconclusive experiment" and "it seems clear that philanthropy is still a work in progress."(21) An insecurity about its ability to do good seems a long-standing characteristic of foundation philanthropy. This, in turn, leaves foundations vulnerable to fads and fashions. In recent years, for very complex reasons, these fads and fashions have tended to be driven by the market. This is true of both government and the third sector. When we reinvent government, as Osborne and Gaebler had it, we do so in the image of the market. And to the extent that making our foundations effective, or strategic, or "venturesome" relies on importing market mechanisms into the philanthropic sector, we put in jeopardy some of the distinctive features of the sector. Goodin is making a somewhat more general point, about the third sector in general, but he captures the intuition I am trying to give voice to about the potential implications of aspects of the new philanthropy for foundations: [T]he third sector works where the states and markets fail. … [W]hat enables the Third Sector to play that role in supplementing the other two sectors is that the sector is motivationally and organizationally distinct from the other two. Recalling that fact ought to make us wary of arrangements … that straddle the various sectors. The worry must be that, in bringing different sectors under the same yoke, the very thing that made the Third Sector a useful adjunct to the other two sectors- its organizational and motivational distinctness- risks being lost. (22) The marketization of philanthropy, even conceptually, risks losing what has made philanthropy valuable — the fact that it fills the gaps that states and markets don't — and can't. If cost-benefit analysis of the sort the "new" philanthropy often relies on suggests — as it may tend to — that foundation funds will be better directed to serving low risk rather than high risk communities (or low risk rather than high risk research, for that matter), the implications for high risk communities and research may be dire. Conclusion My intention today is simply to alert you to the nature of the emerging rhetoric of the "new" philanthropy, and to suggest is that it is not really so new. But the proof of the pudding is not in the rhetoric but the reality of foundation behavior, and that is a more complex subject. For now I simply want to suggest the potential implications of the emerging rhetoric for the older and larger foundations that have been the principal sources of funding for most of the individuals and institutions represented in the Society. My contention is that the effect of these ideas may be significant for donees in the university research community. Increasinlgly, the large and relatively old foundations on which we depend are indeed becoming more focused on highly selective areas of grantmaking (and therefore requiring very specific goals), more insistent on short-term, specific and measurable results, less inclined to be interested in research (especially basic research), and more inclined to go to contract agencies (think tanks) than to universities to have the projects they favor carried out. They are also increasingly proactive than reactive with regard to projects. All of this means that the old system of collaboration between university-based researchers and the big foundations is giving way to a much more selective, competitive relationship that may no longer amount to a research funding system. Pressure will be on university researchers and development officers to tailor their programs to specific emerging foundation interests, to restrict the temporal range and limit the riskiness of what they do. This may be good for foundations, but it is not good for universities. And insofar as the original intuition of philanthropy was that research was at the core of the foundations' quest for the root causes of human problems, fundamental changes in philanthropic commitment to research represent a potentially deep change in the social role of foundations. To this extent, there is indeed something new in the new philanthropy. And the higher education community would do well to worry about it. The traditional twentieth century partnership of universities and foundations has produced significant results, both in terms of abstract knowledge and of concrete contributions to human welfare. There may be better ways for the two sectors to collaborate in the future, but I would hope that the foundations would think long and hard about what they are giving up in defining effectiveness in a narrow (and potentially unimaginative) manner. For universities, the alternative sources of funding are governments, corporations and individuals. Of these, only the government is likely to respond positively and on a large scale to the research needs of the universities. Given the emerging deficit environment of federal and state governments, this should give us pause. And so should the specter of moving to a more European-style research funding environment. One of the glories of the American approach has been its uniquely public/private partnership approach. I hope we can rethink it rather than discard it. I am not worried about the "heart" in philanthropy. I am worried about its mind. (1) Michael E. Porter and Mark R. Kramer, "The Competitive Advantage of Philanthropy," Harvard Business Review, December 2002, p. 58. (2) Jerry D. Marx, "Corporate Philanthropy: What is the Strategy?" NVSQ, 28/2, June 1999, p. 187. (3) Michael E. Porter and Mark R. Kramer, "Philanthropy's New Agenda: Creating Value," Harvard Business Review, November-December 1999, pp. 126-127. (4) Porter and Kramer, "Philanthropy's New Agenda," p. 127. (5) Mark R. Kramer, "Strategic Confusion," Foundation News and Commentary, May/June 2001, p. 44. (6) Porter and Kramer, "Philanthropy's New Agenda," p. 125. (7) Rebecca W. Rimel, "Strategic Philanthropy: Pew's Approach to Matching Needs with Resources," Health Affairs, May/June 1999, 18/3, pp. 229-230. (8) Joel Fleischman, quoted in The Center for Effective Philanthropy, "Assessing Foundation Performance: Current Practices, Future Possibilities- Lessons Learned from a Gathering of Foundation Leaders," November 14-15 2002, Boston, p. 4. (9) The Center for Effective Philanthropy, "Toward a Common Language: Listening to Foundation CEOs and Other Experts Talk About Performance Measurement in Philanthropy," 2002, p. 5. (10) The Center for Effective Philanthropy, "Toward a Common Language," p. 8. (11) The Center for Effective Philanthropy, "Toward a Common Language," pp. 7-8. (12) The Center for Effective Philanthropy, "Toward a Common Language," p. 9. (13) The Center for Effective Philanthropy, "Toward a Common Language," pp. 9-10. (14) Christine W. Letts, William Ryan and Allen Grossman, "Virtuous Capital: What Foundations can Learn from Venture Capitalists," Harvard Business Review, March-April 1997, p. 37. (15) Letts, Ryan and Grossman, "Virtuous Capital," p. 38. (16) Mark R. Kramer, "Will ‘Venture Philanthropy' Leave a Lasting Mark on Charitable Giving?" The Chronicle of Philanthropy, May 2 2002, p. 38. (17) Harry Edelson, "Philanthropic Venture Capital: Its Time Has Come," Venture Capital Journal, January 1 2004. (18) Edelson, "Philanthropic Venture Capital." (19) Melinda Tuan, with Jed Emerson, "The Roberts Enterprise Development Fund: A Case Study on Venture Philanthropy," p. 6. (20) Kramer, "Will ‘Venture Philanthropy' Leave a Lasting Mark on Charitable Giving?" p. 38. (21) Michael A. Bailin, "Requestioning, Reimagining, and Retooling Philanthropy," NVSQ, 32/4, December 2003, p. 635. Similar evaluations are common. See Bruce Sievers and Kirke Wilson, "Where We've Been: Our Half Century," Foundation News and Commentary, March/April 1999, p. 38; (22) Robert E. Goodin, "Democratic Accountability: The Third Sector and All," Hauser Center for Nonprofit Organizations at the John F. Kennedy School of Government, Harvard University, June 2003, Working Paper no. 19, p. 4. |
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