Friday, November 09, 2007

Designing new foundations

Quick, name an organizational type that has barely changed since 1913? Publishing companies? Wrong. Hospitals? Wrong. Museums? Wrong. Internet search companies? Huh?

The correct answer is philanthropic foundations. The organizational chart for the original Rockefeller Foundation is remarkably similar to the org charts of most (not all) staffed foundations today. At the top you have a board of directors, and then a CEO/President/E.D. (assuming a corporate, not trust, structure). Then you have a person or department that manages investment decisions, a person/department that manages grantmaking/programs, and a person/department that runs the organization/finances/communication. Nowadays, you might have a chief technology officer as well – wasn’t all that necessary back in JDR’s day.

So imagine the task that falls to today’s chief technologists at philanthropic foundations. The world around them is all about open source, interactivity, social networks, and the wisdom of crowds. They face the daunting tasks of trying to integrate the principles of this networked, open, collaborative, user-as-technologist world into organizations where decision-making processes are tightly guarded and almost entirely internal. Some approach this challenge by helping their program or other colleagues put web 2.0 tools into use in practical ways – using delicious tags to save news clippings of common interest to a single account, where all on staff can access them. The nice thing about an experiment like that is it comes at almost no cost, allowing the foundation technologist to follow Google’s lead and “experiment often, fail fast.” Some foundations that focus on youth programming have recognized the choice to avoid building expensive standalone networks, and are launching groups on Facebook so that the young people can share ideas there. Age sensitivity is tricky here; I recently heard a 24 year old bemoan that fact that “we don’t use Facebook the way college kids do today.”

CTOs at other foundations focus on the principles that underlie hyper-sexy, omni-accessible free tools like blogging, wikis, or mashups, and not on the tools themselves. These leaders are supporting their program peers who fund open access research to “walk their talk,” and post funded proposals to the web where others can learn from them. Others use internal blogs to facilitate discussion across program areas or function departments, inviting in expertise from the finance office to a discussion of affordable housing strategies, for example. *

Either way, the real challenge is trying to fit new tools into old cultures. This is never easy; even when the skills of those you are bringing in seem to be good fits. In a recent Newsweek (November 12, 2007) article on Google’s Associate Program Manager recruiting style, the CEO noted "“Earlier attempts to hire veterans from firms like Microsoft had awful results. "Google is so different that it was almost impossible to reprogram them into this culture.”" Google’s approach – recruit for those with “no experience” and launch them into leadership positions inside Google culture.

So what’s my point? Rather than trying to fit people or technology into old cultures, its time to completely re-imagine the structure of grantmaking organizations. Here are a few suggestions for how the grantmaking entity of the 21st century might be built, by first looking around at what we know about work, resources, and change.

1. Crowds make better decisions than individuals; diverse crowds make even better decisions. Ethnic, racial, gender, class and experiential diversity should be built into decision making teams that are seeking to understand a challenge, imagine new solutions, and seek out financial leverage. Imagine you sought to establish a grantmaking organization that centered around this principle of diverse groups – today’s typical foundation is not what would come to mind.

2. Foundations have investment staff that identify and find specific investment managers by certain types of expertise. They then “outsource” the managing of a certain chunk of endowment assets to that manager, review progress toward goals on at least a quarterly basis, and actively seek a mix of managers according to the foundation’s agreed upon portfolio strategy. Program decisions should be made the same way. Program staff should articulate strategy and set criteria for selection, then look for expert partners who would make the direct grants, manage partner relations, and report on metrics. One advantage of this approach – the expertise of these expert partners (read: investment manager) can be easily leveraged – lots of foundations can bet their “education” strategy on the same explicit set of metrics and goals. The cost of foundation work would go down, the aggregation of resources would go up, and the use of shared metrics and concrete goals would increase. The market would function to make sure there was both a range of partners, and that they succeeded as promised – those that wouldn’t, would go out of business. The range of entities that might play this outsourced program investment role is wide and diverse – nonprofits, consulting firms, commercial media outlets, public agencies – an attribute that should lead to competitive creation of identifiable niches, markers of success, and more standardized metrics.

Some steps in this direction are already visible. Warren Buffet effectively outsourced his program staff needs to his expert partner, the Gates Foundation. The Milken Institute is making big bets to cure prostate cancer, and actively seeking partners that can shape the downstream funding sources through its work with the Center for Accelerating Medical Solutions and FasterCures. Outsourced, leveraged, competitively chosen program experts – not your father’s foundation staff.

3. We are experiencing a “bubble” in philanthropic prizes. Mission related investing is also getting a lot of attention these days. These might both good things, if used as part of a more comprehensive “funding change” framework. For example, many of the new prizes are being made available to do what prizes do best – engage a variety of entrants, including many who would not otherwise be known to the funder; leverage the entrants financial resources and ego – contestants in prize competitions foot the majority of the bill; and attract media attention and a spirit of sport to issues that might otherwise seem drearily sociological, such as increasing exercise options for young children or finding new financial innovations in the health care system. Rather than letting this phenomenon run the usual media attention cycle (Wired, Tired, Expired), foundations ought to be thinking about how the fundamental economic incentives between prizes and grants work within the issues (and issue lifecycles) they care about; and develop funding strategies that align to their goals and are inclusive of these funding tools (investments, loans, grants, prizes, technical support). Then, the organization should be structured to best support either the type of funding or the mix of funding being applied.

4. Think about where the information you need to achieve philanthropic progress lives. Think about how you can best access, share, and deploy that information to achieve your goals – through closed-door analysis? Open source idea generation? By using copyleft principles – that anything you create can and must be made available to be re-mixed by others? Perhaps the most fruitful point of leverage on the issue you care about is wider access to ideas or knowledge? You might benefit from considering the way the Public Patent Foundation works or the Clinton Foundation’s efforts to “organize markets for social good.” Open, collaborative information and the deliberate valuing of shared re-use. That would be different.

5. Think about your resources in light of broader trends and capital sources for the changes you seek. Where are the resources fueling the work you care about coming from? Other philanthropists? Government contracts or fee for services (the two largest sources)? Double bottom line investors or socially oriented funds such as the Pandemic Fund managed by the venture capital firm, Kleiner, Perkins? If you are a commercial medical research firm, nonprofit endowments might be the best source of growth capital for you, consider the role that the Cystic Fibrosis Foundation plays in funding breakthrough research in that arena. There’s a different way of valuing your assets.

6. Finally, what if success really mattered to grant making philanthropies? Perhaps a set of industry practices that motivates and rewards success might work. We have several systemic ways of changing behavior for industries – regulation, tax code changes, investigative journalism, or the introduction of new market types. The foundation field has developed several efforts that hint at this, from market feedback loops such as the CEP effectiveness survey, to ethics and standards of practice, to rapidly growing “giving marketplaces” such as globalgiving or or donorschoose. Where’s the philanthropic structure that will do what eBay did to garage sales, craigslist did to classified ads, gasoline engines did to horse drawn buggies, or reality shows and YouTube are doing to television screenwriting?

As we begin another annual “giving season,” it would be wonderful if those who are about to make significant decisions about their charitable choices, as well as those who advise them, those who benefit from those choices, and those who already work in an organization in just this kind of moment would consider things with an eye to the present and future. Historically, these decisions have centered around a donor or family’s values regarding tax benefits, financial returns, family purposes and social goals they hope to address. In the best cases, these considerations informed the choices around structuring charitable gifts, using some well-known structural choices like a foundation or a supporting organization. Today’s donors ought to consider those same values, but remain wide-eyed and imaginative in terms of current and future organizational possibilities

Remember, problems change, solutions change, and the type of resources that are useful change. The organizations that fund this work should change also. Foundations have several kinds of portfolios that need to be managed – investment portfolios, program portfolios, intellectual property portfolios, and portfolios of financial supports. The most efficient and effective structure to assess, implement, and reassess the development and management of these portfolios in 2007 is unlikely to be static, it’s unlikely to be closed, and its unlikely that it was first built in 1913.

*These are real examples but I didn’t ask permission to name names. Those who are doing these things might jump in here and identify yourself. Feel free to share some other thoughts as well.


Anonymous said...

Hi Lucy - another great post. Thanks for the shout out to GlobalGiving. :)
On the broader point - I am hopeful that there are innovative and new-model oriented folks at many of the "traditional foundations" now...and believe that the next couple of years will tell whether or not they can really wake-up the thinking of their organizations, or if they will be relegated to small, low-impact programming as in the past. Will be interesting to watch

Phil B said...

I'm vibrating with excitement - someone on the same wavelength as me! I should set this post as my desktop background. It's early days for a project I'm conceiving at the moment but if you want to stay in the loop about it I'd love to bounce the occasional update your way and get some feedback!


Sam Tucker said...

Good thinking, Lucy.

I discovered Philanthropy 2173 today and appreciate your philanthropic world view.

You have captured innovative ways to look at the programmatic side of foundations. One you mention is to bring a portfolio-management style to grantmaking in the interest of increasing performance. I also wonder about bringing the foundation's mission over to the investment side. It seems that both sides of the coin have something to learn from each other. And I would much rather have a foundation putting 100 percent of is resources to work toward mission, rather than just five.