A hybrid foundation

According to Steve Case, the hottest topic for discussion at the second annual meeting of The Giving Pledgers was impact investing. This puts some emphasis on an idea that was raised at our recent ReCoding Good charrette on Impact Investing, Philanthropy and the New Social Economy.

That idea, quite simply, is this - do we need a new form of philanthropic enterprise designed to work across the continuum from grants to impact investing?

 The last few years have given us both B Corporations and L3Cs - hybrid forms that provides entrepreneurs with a corporate structure committed to both profitability and social good. Is it time for a similar innovation in the way we structure the capital for social good?

Will the next ten years see the creation of hybrid foundations - a capital investing form structured specifically to allow greater flexibility in how funds are used for social good?

New examples of program related investments from the IRS are designed to make these types of investments easier and more common. Private foundations and public grantmaking charities are permitted to make program related investments, so a new form may not be necessary. Many believe that the barriers to more impact investing by foundations is not the institutional form but the professional skill sets of employees and board members' tolerance low tolerance for risk.

Of course, both those barriers - professional skill sets and risk tolerance - may actually be part of the institutional form, or at least the norms that have been created around it. The philanthropic foundation in its current form is marking its centennial this year and next. Since the creation of the Carnegie Corporation of New York and The Rockefeller Foundation, the first private foundations, there has been remarkably little innovation in the institutional form itself.

Shortly after these private foundations were created Cleveland gave birth to the first community foundation, an innovation in its time that took federated giving (until then a largely religious or ethnic community activity) and applied it to place-based communities. Some eighty years later, in 1991, national mutual fund firms started offering donor advised funds. In this decade, Omidyar Network - which is an LLC with an associated philanthropy - and Google.org, the company's philanthropic arm - have both experimented with alternative structures to allow them greater flexibility in how they make funds available. Jeff Skoll has a "suite of organizations" - including a media production company and two grantmaking foundations - that focus on his social change interests. On the :other side" of the ledger, perhaps, we can also point to entities such as Legacy Ventures, which exists to invest donors' assets for maximum return on the premise of a promise to grant those earnings philanthropically. Social investment companies may be said to be pulling investment institutions into the business of social capital. But there are few examples to be found, out of the thousands of foundations formed each year, of institutional redesign. Few other of today's institutions - businesses, schools, universities, libraries, hospitals - look as much like their forebears as do philanthropic foundations.

It's illogical that this century's wealth creators are going to be content with last century's philanthropic forms. While it is still tough to distinguish hype from reality where impact investing is concerned, there are already several states in the nation with new enterprise forms for social businesses, documented new impact capital being made available from governments and private investors, and an emerging body of experience-based reflections on the capital continuum from philanthropy to impact investing.

Impact investing is not the only pressure point on the institutional form. Digital public goods, real-time payment systems, informal networks, globally-viable small organizations, remote care and education, crowdfunding, tax incentives, attitudes about perpetuity, late-in-life philanthropic focus - changes in all these realities also challenge core assumptions that under gird the foundation structure and institutional form.

With the centennial of the modern foundation upon us, as well as an era of wealth creation and inequality that matches that of last century's gilded age, it's time to think about the institutional forms that fit our current needs. This century's great philanthropists should aim not just to match history's great givers in their largess, but also in the creation of mechanisms and institutions that serve the future as well as their predecessors served the past.


ReCoding Good: Impact investing, philanthropy and the new social economy

ReCoding Good: Part 5 | Stanford Social Innovation Review

The next ReCodeGood charrette is May 15th. We will be looking at the policy implications of a social economy in which impact investing, new enterprise forms, philanthropy and nonprofit co-exist. You can read the full blog post at Stanford Social Innovation Review.