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.
A hybrid foundation
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.
Putting data in context
(logo from NFF Financial Scan)
The Nonprofit Finance Fund has a new tool out, called Financial SCAN, that is quite exciting. It takes the deep financial analysis for which NFF is noted as a framework for gathering and making sense of nonprofit organizations' 990 data. In partnership with Guidestar, Financial SCAN pulls information from nonprofit profiles and presents it in a templated form built from NFF expertise.
A user gets the best of aggregated web data - you can search for any nonprofit - and the expertise of financial experts who've been working with nonprofits for decades. I hope this will be the end of "one size fits all" measures, such as the overhead ratio, that were easy to generate from aggregated data but almost meaningless in real life. Financial SCAN takes a broad slice of data and puts it in context so you can understand it.
Here's the video introduction to Financial SCAN:
I've already thought of several uses for Financial SCAN. Obviously, nonprofits can use it to understand their own information more completely - it's an inexpensive way to get NFF's wisdom about their own finances, something a lot of organizations can use. It will be useful to foundations and donors in their due diligence process, especially if they use the reports as a jumping off point for discussion with potential grantees. You can order up comparables - so you can compare arts organizations, you can look at an organization's finances over time, and you can cluster by geography so place-based grantmakers (I'm looking at you, community foundations) can get useful snapshots of key partner organizations.
Financial SCAN can be used as a one-off, as a regular part of due diligence, as a capacity building tool, for regional or issue-based planning (Mash these data with a CEP/Monitor Institute Strategy Landscape tool to get a vital sense of the health of a sector), and to help understand organizational change over time. Nonprofit executives, donors, donor advisers, public agencies, public funders, and program officers can all benefit.
The data powering Financial Scan is organizational and financial information. The NFF screens help users understand what data means what, what financial signs to look for, and how to assess the "health" of the organization from a series of independent "vital signs." Full analysis and understanding still requires knowledge of the people involved, local context, constituent feedback, performance and outcome measures.
In our data rich world, putting data in context and making sense from it is where the fun is. It's taken us almost ten years to build a robust supply of information about nonprofits and make it available online. Keeping that data supply updated, "clean," and comparable is an ongoing task. But now that it's here it's great to see the practical iteration and innovation on top of it that makes it actually useful. This is the phase that's given us WASHFunders, strategy landscapes and now Financial SCAN. There will surely be more to come.
Governance in the 21st Century
Remember the public pressure on the Komen Foundation that led the organization to change a board decision? I said back then this was a harbinger of a new expression for public accountability that foundations need to understand. It is an early edge of a new kind of governance capacity for which most foundations (and most nonprofits) are not prepared. If you think it's about a social media strategy, you're wrong.
The Gates Foundation is experiencing this right now. The Foundation provided grant funds to the American Legislative Exchange Council (ALEC). ALEC works on many policy issues. In the wake of the killing of Trayvon Martin ALEC's support for "stand your ground" laws has drawn outrage and calls for boycotts from many directions, including from a group called the The Progressive Change Campaign Committee (PCCC). The Gates Foundation has said it will continue to meet its current grant obligations to ALEC (which run over another 17 months) but won't make further grants.
Put aside what you think of Komen, Gates, ALEC, or PCCC for a moment. This is not about any of these organizations per se. It is about public pressure, organized and otherwise, on nonprofits and foundations, about their decision making. It is about making decisions that will be challenged, and striking the right balance between legitimate board governance and respecting people's right to agree or disagree with you.
The kind of organizing that led Komen to change its decision and that is now calling for change from Gates is easier than ever. It can be turned on in an instant and reach unprecedented scale at unprecedented pace. Boards of directors of nonprofits and foundations need to know this, they need to expect it, and they need to engage with both critics and supporters. They need, in other words, to govern in a new landscape in which each and every decision they make may be the one that transforms supporters into critics (see Komen) or turns educational policy grants into part of national outrage about gun laws and racial justice (see ALEC).
Is this about a social media policy? I don't think so. Is it about governance, engagement, conversation, accountability, structural consistency, clarity of mission, and a willingness to remain civil while participating in difficult areas of work riven with disagreement? Yes. Nonprofits are part of civil society which thrives only when it is filled with multiple points of view and diverse approaches to problem solving. The "public" will not agree with every decision a foundation or nonprofit makes and they have a right to express that disagreement. Foundations and nonprofits have a right (and a responsibility) to make their decisions and expect a public response to them.
What we need civil society organizations to do is discuss, civilly, their points of view, their decisions, and their goals. And to structure themselves to be able to do so. This requires thinking about the constitution and skills of their staffs, boards, and
advisors, the way they provide access to their key decision makers, and
the ways they engage with critics and supporters in the real context in which those things will happen, not in some nostalgic early 20th century institutionally-bound model.
Business has already learned that there is simply too much information for one organization to hold it all. As Bill Joy has said, "the smartest people are always going to work for someone else." The MIT Media Lab has an interesting chart to show the relationship between information and organizations.The point of these ideas is to encourage businesses to build networks that will be better able to manage information and generate new ideas. But the power of networks and permeable organizations applies not just to generating new ideas. In the case of nonprofits and foundations, generating ideas with the public, communicating ideas and theories and strategies with the public, and civilly debating with the public - especially the public that disagrees with you - is going to be a critical attribute in the future. See this article (pp 14- 15) from Darin McKeever of Gates Foundation on "embracing the scrutiny of the crowds."
This may involve new kinds of constituent representation on boards. It could involve an ongoing advisory board role or meaningful, regular discussion of issues with stakeholders. There are many forms and tactics that institutions can try to be more conversational. But first, they need to recognize that the days of "broadcast" and "isolation" are over and structure themselves accordingly. What is at stake is not individual grant decisions, but public trust in and the legitimacy of these organizations as a whole.
ReCoding Good - Are Nonprofits People, Too?
Stanford Social Innovation Review just posted the latest in our series of #Recodegood updates. Here is the synthesis of the conversation on March 20 about Citizens United, political giving, and the nonprofit sector. The SSIR post has links to the previous updates as well.
The conversation also catalyzed thinking about data - here is that post.
There are several presentations and materials linked off the article. Would love to hear your thoughts.
