Money Well Spent: A Strategic Plan for Smart Philanthropy, Second Edition 9781503606036

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Advance Praise for the Second Edition “Philanthropy is a complicated trade, and anyone who wants to understand how to be truly effective must read Brest and Harvey’s indispensable book. It offers a comprehensive and comprehensible overview of the process, supplemented by a rich trove of examples and insights from two masters of the craft.” —LARRY KRAMER, President, Hewlett Foundation “The extraordinary freedom enjoyed by philanthropy brings responsibilities. Brest and Harvey offer new and experienced philanthropists alike an invaluable guide to consider those responsibilities and to learn about the exciting innovations and growth in philanthropy over the last decade.” —CAROL LARSON, President and CEO, David and Lucile Packard Foundation “The most important book for how to translate large-scale financial resources into large-scale social change. Brest and Harvey provide an essential resource for how foundations can successfully navigate the vast complexities of evidence-based philanthropy, impact investing, and policy change, while creating measurable value.” —LAURA ARRILLAGA-ANDREESSEN, Founder of SV2, Stanford PACS, LAAF.org, and author of New York Times Bestseller, Giving 2.0 “Paul Brest and Hal Harvey offer a lucid, reader-friendly, and persuasive case for why rigorous strategy is indispensable for anyone using philanthropy to make the world a better place. It is the best guide available today, bar none.” —JOEL L. FLEISHMAN, Duke University, author of Putting Wealth to Work “Money Well Spent is the most thorough, comprehensive, and authoritative guide to effective philanthropy published to date. It weaves together compelling examples of philanthropic successes and failures with practical, step-by-step guidance. Every major donor, foundation staff and board member, and philanthropic advisor needs to read this book.” —PHIL BUCHANAN, President, The Center for Effective Philanthropy

Praise for the First Edition “An invaluable resource that distills the essence of strategic philanthropy for those seeking to achieve a greater social impact.” —BILL GATES, Co-chair, Bill & Melinda Gates Foundation “This is an ever-so-practical and yet ever-so-thoughtful contribution to our understanding of how philanthropy should work.” —WILLIAM G. BOWEN, Late President, The Andrew W. Mellon Foundation and Princeton University “In philanthropy, as in investing, you need a solid strategy to understand what works, what fails, and why. Money Well Spent provides the tools philanthropists need to create an effective strategy and achieve success.” —GEORGE SOROS

MONEY WELL SPENT

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MONEY WELL SPENT A Strategic Plan for Smart Philanthropy, Second Edition

Paul Brest and Hal Harvey

STANFORD BUSINESS BOOKS An Imprint of Stanford University Press • Stanford, California

Stanford University Press Stanford, California © 2018 by Paul Brest and Hal Harvey. All rights reserved. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying and recording, or in any information storage or retrieval system without the prior written permission of Stanford University Press. Special discounts for bulk quantities of Stanford Business Books are available to corporations, professional associations, and other organizations. For details and discount information, contact the special sales department of Stanford University Press. Tel: (650) 725-0820, Fax: (650) 725-3457 Printed in the United States of America on acid-free, archival-quality paper Library of Congress Cataloging-in-Publication Data Names: Brest, Paul, author. | Harvey, Hal, author . Title: Money well spent : a strategic plan for smart philanthropy / Paul Brest and Hal Harvey. Description: Second edition. | Stanford, California : Stanford Business Books, an imprint of Stanford University Press, 2018. | Includes bibliographical references and index. Identifiers: LCCN 2017057764 (print) | LCCN 2017058935 (ebook) | ISBN 9781503606036 (electronic) | ISBN 9781503602618 (cloth : alk. paper) Subjects: LCSH: Nonprofit organizations—United States. | Philanthropists— Charitable contributions—United States. | Charities—United States. Classification: LCC HD2769.2.U6 (ebook) | LCC HD2769.2.U6 B74 2018 (print) | DDC 658.4/012—dc23 LC record available at https://lccn.loc.gov/2017057764 Cover design: Michel Vrana Typeset by Motto Publishing Services in 11/15 ITC New Baskerville

For Iris, my life partner and uncompromising editor, with love and gratitude. PAUL

To Heather, for her tolerance and love, and to Jeremy, Thea, and Mariah, for making this old man proud (most) every day. HAL

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CONTENTS

Preface to the Second Edition

xi

Introduction

1

PART 1: INTRODUCTION TO STRATEGIC PHILANTHROPY

5

1. The Promise of Strategic Philanthropy PART 2: PHILANTHROPIC STRATEGY FROM SOUP TO NUTS

7 29

2. Problem Analysis

31

3. Developing Solutions

48

4. From Theory to Action

61

5. Evaluating the Impact of Your Philanthropy

76

6. Using Outcome Data to Increase Your Impact

92

PART 3: GRANTMAKING

113

7. Preparing to Open for Business

115

8. Inviting Proposals and Conducting Due Diligence

129

9. Forms of Philanthropic Engagement and Funding

148

10. Impact Investing and Mission Investments

164

11. Working with Others in the Field

188

12. Principles and Practices of Effective Philanthropy

210

x

Contents

PART 4: TOOLS OF THE TRADE

215

13. Promoting Knowledge

219

14. Improving Individual Lives

239

15. Influencing Policy Makers and Businesses

262

PART 5: ORGANIZING YOUR RESOURCES FOR STRATEGIC PHILANTHROPY

291

16. Structures for Philanthropy

293

17. Principal and Principle

304

Afterword

315

Acknowledgments

319

Notes

321

Index

359

PREFACE TO THE SECOND EDITION

Even before Warren Buffett’s $31 billion gift to the Bill & Melinda Gates Foundation garnered huge media attention, the twenty-first century was on its way to being the century of philanthropy. In the decade since the first edition of this book, other huge philanthropies, some in the form of limited liability partnerships rather than tax-exempt foundations, have appeared on the scene—for example, the Emerson Collective, founded by Steve Jobs’s widow, Laurene Powell Jobs; the Chan-Zuckerberg Initiative, founded by Priscilla Chan and her husband, Mark Zuckerberg, a cofounder of Facebook; and Good Ventures, founded by Cari Tuna and her husband, Dustin Moskowitz, also a Facebook cofounder. In 2010, Bill Gates and Warren Buffet began recruiting the wealthy people of the world to contribute a majority of their wealth to philanthropic causes during their lifetimes or in their wills. As of 2017, the pledge has 158 signers, either individuals or couples. Most of the signers of the pledge are billionaires, with their pledges totaling more than $365 billion.1 Today, there are almost ninety US foundations with assets over $1 billion; more than two hundred with assets over $500 million; and myriad foundations with assets over $1 million.2 Transfers of wealth by gifts and bequests are predicted to increase greatly in the coming decades, with significant portions of the monies going to philanthropy. The philanthropic sectors in China and India and some other countries are also growing. And there also is a growing global interest in novel finance mechanisms, includ-

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ing results-based financing and socially motivated investing—socalled impact investing. The second edition of Money Well Spent reflects these developments and trends. More important, it reflects the field’s, and our own, growing understanding of how to do philanthropy effectively. We began the first edition when we were at the William and Flora Hewlett Foundation—Paul as president and Hal as director of its Environment Program. We’re proud of the foundation’s leadership in practicing what might be called strategic philanthropy. But at that time, the foundation was close to unique in this practice, and we were learning while doing. Ten years later, strategic philanthropy is still not pervasive. But it has taken root not only among larger foundations but also in the practice of an increasing number of high-net-worth individual philanthropists. Concomitantly, the infrastructure of the field supporting their work has flourished. At the same time, our own experience has broadened and our knowledge has deepened. Paul retired from the Hewlett Foundation to return to Stanford, where he joined the Stanford Center on Philanthropy and Civil Society and has been teaching about philanthropic strategy and impact investing at the Law School and Graduate School of Business. Hal moved from the Hewlett Foundation to become founder and CEO of the ClimateWorks Foundation and then to found Energy Innovation, which consults on clean energy for a broad range of philanthropists and organizations. All of these developments have given us new perspectives on the principles and practices of strategic philanthropy. As in the first edition, a somewhat disproportionate number of our examples are drawn from the William and Flora Hewlett Foundation—not (merely) because it is an exemplary grantmaker but because we worked there and continue to keep up with its activities through friends and colleagues, including Paul’s successor as president, Larry Kramer.

MONEY WELL SPENT

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INTRODUCTION

People choose to engage in philanthropy for any number of reasons: to solve pressing social problems, to act on religious or philosophical dictates, to aid the less fortunate, to instill altruistic values in their children, to achieve recognition, or to give meaning to their lives.1 Regardless of motive, most philanthropists want to use their money to best effect. Yet the history of efforts to improve people’s lives—from reducing drug addiction and high school dropout rates, to protecting ecosystems, to ameliorating global disease and poverty—demonstrates how difficult it is to actually make a difference. There are three basic requirements for having real impact as a philanthropist: motivation, money, and a winning strategy. You need to bring the first two to the table; this book serves up the third. Strategy matters in philanthropy just as it does in investing, running businesses, and conducting wars. While a good strategy cannot ensure success, it improves the odds—and its absence virtually assures failure. Effective grantmaking requires strategies based on clear goals, sound evidence, diligent care in selecting which organizations to fund, and provisions for assessing the results—good or bad.

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Introduction

Whether you are giving away $100,000 or $1 billion a year, your funds are not unlimited, and a good strategy can multiply their impact many times over. Our goal is to help you make the world a better place according to your own lights. We do not presume to tell you either how much to give or what passions to pursue.2 Those are personal choices. Philanthropic goals are as diverse as individuals’ conceptions of what is good for society. You may wish to promote the arts, religion, education, health, or world peace; protect the environment; or support the search for extraterrestrial life. You may want to stimulate social change, preserve the status quo, or return to halcyon days. While your choice of goals—commissioning symphonies or supporting the destitute—can be debated from a moral point of view, such issues are outside the scope of this book. Like a car repair manual, a guide to strategic philanthropy is essentially value neutral. The manual can be used equally to fine-tune an ambulance or the getaway car for a bank heist. By (almost) the same token, our book is useful for the pursuit of a wide variety of philanthropic goals, and some people, ourselves included, will regard certain of these goals as wrongheaded or even loathsome. When philanthropy addresses some of the hotbutton issues that divide the citizens of our pluralistic society, it is inevitable that one person’s ambulance is another’s getaway car. Indeed, even when goals, such as poverty alleviation or improved education, are widely shared, there may be differences about the appropriate ways to achieve them—for example, voluntary private action versus government spending and policy regulations. The book arises out of our belief that philanthropy can make a great difference in the world but that much of its potential is not realized. To put it bluntly, hundreds of millions of philanthropic dollars are squandered through donations to organizations that have no impact whatsoever. This is a guide for how to make a difference. It is intended to do for philanthropists what the best books on business strategy do for business entrepreneurs and executives. We wish to provide readers with the concepts necessary

Introduction

3

to design a strategy to achieve their charitable goals and to assess the strategies of organizations that seek their support. Our fundamental premise is that, as important as the sheer number of dollars devoted to philanthropy may be, intelligent planning, systematic implementation, and continual feedback are even more crucial. Part 1 consists of a single chapter that makes the case for strategic philanthropy, using contemporary examples of successful and failed philanthropic projects. Part 2 takes the reader through the steps of developing and evaluating a philanthropic strategy. Its five chapters offer a framework that is essential for achieving results. This is the most technical and “academic” portion of the book. But if you have time to read only one part of the book, we recommend this one. Part 3 applies the framework from Part 2 to the actual practice of grantmaking. It begins with determining the scope of your interests and continues with vetting applicants and considering appropriate forms of philanthropic funding, including impact investing. The three chapters of Part 4 take a deep dive into major ways of achieving one’s philanthropic objectives: promoting knowledge, providing goods and services, and influencing government policies and business practices. Part 5 covers two constitutive aspects of engaging in philanthropy: the choice of structures—checkbooks, donor-advised funds, and the like—and your spending plan—ranging from giving all your philanthropic capital away in your lifetime or sooner to creating a perpetual foundation. The book ends with a short Afterword that addresses some concerns about the consequences of philanthropy, strategic or otherwise. We should disclose at the outset that strategic philanthropy demands serious focus, time, energy, and consultation. As individual philanthropists come to see what’s required to make a real difference, they often conclude that high-impact philanthropy

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Introduction

is not a one-person, part-time operation. It usually requires at least some professional staff. That’s why most of our examples are drawn from staffed foundations. If, as you read the following pages, you decide that you cannot or do not want to do it on your own, and lack the resources or interest to establish a staffed foundation, there are other good options. For example, you can place your assets in a trusted private foundation (as Warren Buffett did), in a strategically oriented community foundation, or in one of the increasing number of funds that manage portfolios of grants. You can mirror grants from a foundation that has a powerful strategy. Or you can become a sustaining supporter of a very-well-managed nonprofit group that has its own strategic focus and discipline. This book is intended not only for those who amass or inherit the fortunes that make large-scale philanthropy possible but also for the many others who counsel them and help spend their money, including the staff and boards of foundations, the myriad nonprofit organizations that seek philanthropic support, and the increasing number of professionals who advise wealthy clients on philanthropy. It is also designed as a textbook for the increasing number of university courses on philanthropy. Although we value knowledge for its own sake, this book is written with an instrumental purpose: to improve the effectiveness of your philanthropy with the ultimate goal of making the world a better place. Our theory of change is that this book will help readers who are already strategically oriented become even better and will whet others’ appetites. Doubtless, this is a speculative and somewhat optimistic belief. After all, for every thousand books written with the hope of making a difference in people’s lives, let alone society at large, at most one or two succeed. But we think of our effort in terms of expected return: the probability of impact may not be high, but its potential magnitude is. In any event, writing the book has been a labor of love and voyage of discovery for both of us.

PART ONE

INTRODUCTION TO STRATEGIC PHILANTHROPY

is synonymous with “result-oriented,” “outcome-oriented,” and “effective” philanthropy. It refers to philanthropy in which donors seek to achieve clearly defined goals, they and their grantees pursue evidence-based strategies for achieving those goals, and both parties monitor progress toward outcomes in order to make appropriate course corrections and ultimately evaluate their success. The basic imperative of strategic philanthropy is to deploy your resources to achieve your goals most effectively. This calls for approaching the work with a clear-eyed appreciation of the inevitable risks of failure as well as the potential for success. Your chances of success are greatly increased by having well-defined goals and a sound strategic plan to achieve them. The goals describe what success would look like, and the strategic plan details every step necessary to achieve them, including indicators that you are on the right path—or, conversely, that you’ve strayed or lost your way. This one-chapter part begins with a section on choosing goals and then sets out some contemporary examples of strategic philanthropy. “STRATEGIC PHILANTHROPY”

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Chapter 1

THE PROMISE OF STRATEGIC PHILANTHROPY

The Choice of Philanthropic Goals Since strategy is merely a means for achieving goals, you can’t have a strategy until you have decided what you want to achieve. Some of Hal’s and Paul’s goals for their personal philanthropy, such as combating global warming, are identical. Some differ: Hal cares about protecting the great landscapes of the American West; Paul is devoted to classical chamber music. But, as we said in the Introduction, this book is designed to help you be effective in pursuing your goals, not ours. Many philanthropists’ goals are determined by particular commitments and passions that motivate and precede their philanthropy. They may come from personal experience or be based on religious, philosophical, or personal beliefs—for example, the effective altruism movement’s argument that charitable giving should be dedicated solely to addressing catastrophic risks and improving the lives of the world’s poorest people,1 or the idea (which is in tension with effective altruism) that philanthropists have a special obligation to their geographic communities.2 For some, the urge to be altruistic precedes particular objectives; they

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may benefit from an inquiry like the famous What Color Is Your Parachute? approach to choosing careers. Without suggesting that you should follow Cari Tuna’s and Dustin Moscowitz’s particular path, you may find these young Giving Pledgers’ approach evocative. At the time they made their pledge, Dustin, a cofounder of Facebook, wrote that he viewed his good fortune “not as personal wealth, but as a tool with which I hope to bring even more benefit to the world.”3 While Dustin devoted attention to building another company, Cari undertook a several-year exploration of their philanthropic goals and approaches. In her own words, Cari wondered “how many excellent causes I and other U.S. donors might be overlooking because we had never encountered them personally.”4 She joined forces with the cofounders of GiveWell, which rates charities that address global poverty, to have in-depth conversations with a broad range of practitioners and funders, and she cofunded grants with more experienced foundations to learn about grantmaking and get a direct sense of the activities and impact of grantee organizations. Cari and Dustin created the Good Ventures Foundation and the closely allied Open Philanthropy Project.5 While the precise language of the foundation’s underlying values has changed over the years, they are captured on its current website: The primary goal of our giving is to improve the lives of as many people as possible as much as possible. We believe that all lives are valuable, including future lives. These guiding principles have big implications for the foundation’s approach to grantmaking. Some donors prefer to give closer to home. Some find it helpful to limit their scope to a particular country or region. We think being open to giving in any region is a comparative advantage of ours. Much of the foundation’s grantmaking to date has been focused on the poorest places in the world, where dollars go further toward saving and improving lives. But we’re also fund-

The Promise of Strategic Philanthropy

9

ing organizations in the developed world with the potential to increase human well-being at scale.6

The website explains: “As a new foundation, we’ve decided not to commit to focus areas just yet. Instead, we’re taking time to learn about causes across the major categories of philanthropy— direct aid, research and development, and policy advocacy—in search of important areas on which we could have an outsized impact long-term.”7 The foundation has set these criteria for choosing causes for grantmaking: • Importance: What is the problem, how many people does it affect, and how deeply does it affect them? • Tractability: What are the possible solutions, and do opportunities exist to make tangible progress? • Crowdedness: Who else is working on the issue? Is it an area that is underfunded (rather than more “crowded” with donors) where Good Ventures therefore could have a bigger impact?8 Many new philanthropists do not have the capacity—or attention span—to engage in anything approaching Cari Tuna’s arduous learning journey. And, of course, you may start with a different set of values and goals. But she provides a model of a thorough process, which can be adapted to fit your own resources. While Cari worried about overlooking charitable opportunities that she and Dustin had not personally encountered, philanthropy often begins with donors’ personal experiences. For example, when his wife was treated heartlessly by hospital staff, Dr.  Har vey Picker, a pioneer in X-ray technology, used the resources of his family foundation in collaboration with the Commonwealth Fund to support research and advocacy that established the idea of patient- centered care.9 Bill and Melinda Gates’s exposure to poverty in Africa was a side effect of a safari trip they took in 1993.10 Ed Scott’s anchor gift to found the Center

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for Global Development was inspired by a documentary on the disastrous consequences of the World Bank’s and International Monetary Fund’s imposition of austerity measures on developing countries.11 Although Cari and Dustin came out of the gate with incredibly ambitious goals, it is not unusual for people who have acquired great wealth to initially seek safer targets for their philanthropy and only later—if ever—consider bolder and more complex goals.

The Necessity of Strategy And this brings us to strategy. Whatever your philanthropic motivations and goals may be, a sense of mission, commitment, and passion is essential to every aspect of your work. But for every case where mission, commitment, and passion were translated into impact, there are hundreds where philanthropists acted as if these qualities alone sufficed. Without the capacity to move beyond passion to reason, planning, and execution, the sector would be left largely with well-meaning gestures that confuse good intentions with real effects. Whether you are concerned with combating global warming, eradicating hunger, curing diseases, or reforming education, you are in for a challenge not just because social change is the product of a large variety of forces that are hard to isolate, much less affect with any certainty, but also because, unlike the financial returns of a business or even electoral returns in politics, philanthropy has no common measures of success. Philanthropy is a field with poor feedback and messy signals—and those signals are often distorted by the pervasive flattery that colors transactions in the money-giving business. Thus, once you have acknowledged your passions and determined your goals, mind and muscle must come in to design and implement a strategy to realize them. A strategy comprises the unromantic, nitty-gritty working out of the means to accomplish your

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philanthropic ends. The ultimate goal of a strategy is to achieve impact, which is at the opposite end of the spectrum from good intentions. Impact means making a difference—not in some existential or universal sense but rather in terms of your own philanthropic goals.

Philanthropic Successes and Failures The chapters of this book are full of real-world examples, intended to give you a sense of the range of the practices and tools of philanthropy and their applications to varied situations. We describe failed as well as successful philanthropic efforts. Grantmaking almost always involves risk taking—sometimes relatively low, as in grants to long-standing service-delivery organizatons; sometime extremely high, as in the case of policy-advocacy strategies— and risk taking entails a chance of failure. The relevant questions are whether the potential reward is worth the risk and whether your strategy is designed to mitigate risks to the extent feasible. We emphasize failures because philanthropists can learn a lot from failure. As Joel Podolny, dean of Apple University, remarked, “Success is a lousy learning environment,”12 and learning from one’s failures is among the core tenets of strategic philanthropy. But you can learn from your failures only if you are candid in recognizing them. With great respect for Krista Donaldson’s leadership of D-Rev in designing products for developing countries,13 we couldn’t disagree more with her comment that “calling a learning a failure will discourage honesty and integrity—and hinder the pursuit of impact.”14 Taking the opposite point of view, Vanessa Kirsch, founder of New Profit, the venture fund for social entrepreneurs, astutely said, “If an organization walks through our door and says they’ve never failed, we’re skeptical.”15 When we were at the Hewlett Foundation, we inaugurated an annual contest for “the worst grant from which you learned the most.” Because of the foundation-

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wide learning that came from it, the prize became a sought-after honor rather than a mark of opprobrium. For the same reasons that the foundation’s grantmaking improved by telling it like it was, we believe that yours will as well. In most instances, it’s pretty obvious when a strategy has failed: the activities necessary to implement a strategy were not carried out or, if they were, did not create the sequence of events necessary to achieve your intended outcome. Seemingly successful outcomes present a particular problem, however. It is often difficult to determine whether a good outcome was the result of your grantee’s intervention or whether it would have happened in any event—what’s called the “counterfactual”—as a result of other forces. Why does it matter? Not mainly so that you can feel good (or bad) about your accomplishments—though we wouldn’t begrudge anyone those feelings—but rather so that you and others can learn what works and doesn’t work in order to improve your own performance and that of your grantees. As we see in Chapter 5, there are some robust methods for testing causality in interventions that provide goods and services such as food, health, and education. It’s far more difficult, however, to assess causality in efforts to influence legislative policy and corporate behavior. To some extent this is inherent in the complex social and political dynamics intrinsic to these interventions. But it’s also a product of the poor level of analysis and transparency of many philanthropic efforts and the tendency, not discouraged by philanthropists, their supplicants, and their peers, to be self-congratulatory. One noteworthy effort to bring rigor, including counterfactual analysis, to these stories is the Open Philanthropy Project’s commissioned case studies of the history of philanthropy.16 Our book draws on several cases from this nascent collection. With this background, we examine some examples of different modes of philanthropy with successful, unsuccessful, and ambiguous results.

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Fighting Poverty through Service Delivery The Robin Hood Foundation, whose approximately $200 million annual budget is funded by hedge fund managers and other individual donors, is devoted to fighting poverty in New York City.17 The foundation has four programs: 1. Jobs and economic security (e.g., microlending, financial literacy, and helping people access public benefits) 2. K–12 education (e.g., high-performing charter schools) 3. Early childhood and youth (e.g., abused children, children aging out of foster care, and early childhood education) 4. Survival/health (e.g., homelessness, emergency food, HIV/ AIDS) The foundation’s grantees are mainly service-delivery organizations, to which it provides capacity-building assistance as well as grant dollars. Robin Hood employs a common metric for assessing grantees’ performance and its own aggregate performance in the first three programs: the boost that a program gives to the lifetime earnings of participants. According to its benefit-cost analysis, every dollar granted has a 12× multiplier effect on outcomes for Robin Hood’s beneficiaries.18 While the foundation’s grantmaking process calls for a systematic assessment of every applicant’s benefit/cost ratio, this is not the sole basis for making grants. Former chief program officer Michael Weinstein writes: The ratios are useful guides but they are imprecise. They amount to one of several tools in a funder’s tool kit. Smart funders would no more make grant decisions based solely on the arithmetic of benefit/cost ratios than smart admissions officers at competitive undergraduate colleges would make decisions based solely on the arithmetic of SAT scores. . . . Along with other information, benefit/cost ratios steer a funder toward grantees with the best chance to fulfill its mission.19

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The numbers provide a focal point for discussions about an organization’s effectiveness, but program officers are encouraged to push back on numbers that don’t jibe with their experience or fully capture an organization’s value. The goal is to test the program officers’ judgments against relatively objective numbers and subject the numbers to a reality check.20 Robin Hood is a highly strategic foundation. Its activities are focused on the unquestionably important goal of alleviating poverty in New York City. Though not the only possible measure of success, the individual benefit conferred on a poor person is a perfectly good one.21 And though there are strategies besides funding service delivery, including policy research and advocacy, this is a sound, relatively low-risk approach. Finally, Robin Hood’s use of empirical data in its highly transparent decision making is exemplary.22 The foundation holds itself accountable not only for outcomes but for impact—for achieving outcomes that would not have happened but for its grants. Robin Hood has a large budget, a sophisticated grantmaking process, and a commensurately large staff of about seventy-five professionals who conduct due diligence and provide support to its grantees. Can an individual philanthropist also be strategic in making grants to service-delivery organizations, whether for the benefit of poor families, the environment, music students, or any of the myriad beneficiaries of nonprofit organizations? Our answer is absolutely yes, but with some conditions. Although you needn’t have a single overarching goal for all your philanthropy, you must have (1) a clear goal for each gift or grant you make and (2) reasonable confidence that the organization is capable of achieving that goal. While the first condition is relatively easy to meet, the second is more difficult because many nonprofit organizations don’t keep track of, let alone divulge, their own progress and outcomes, and there is no third-party service that measures impact for a broad array of organizations. Absent such indicators, strategic individual philanthropists may imitate the grantmaking of a foundation in which they have

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confidence or give to one of the increasing number of issue-based funds (see Chapter 11) in which they have confidence. What is not strategic is to give to an organization based on its heartrending appeals, its charismatic executive director, or requests from your friends or business associates.

Reducing Drug Abuse through Community Action From 1988 to 2003, the Robert Wood Johnson Foundation (RWJF) invested $87.9 million in its Fighting Back initiative to reduce drug and alcohol addiction in a number of disadvantaged communities.23 Before undertaking the program, RWJF conducted an extensive two-year analysis of past community efforts to address alcohol and drug abuse, which centered around decreasing the supply of drugs mainly through increased law enforcement. Those efforts were characterized by the absence of community leadership and lack of coordination among programs, communities, and local and state governments—and they were total failures. Consistent with the best thinking in the field of community change, Fighting Back was premised on the belief that a local community could address its drug problems by coordinating the work of government agencies, schools, and nonprofits with community efforts and individual treatment programs. The initiative specified measurable outcome indicators, which included sustained reductions in the initiation of drug and alcohol abuse among children and adolescents, in drug- and alcohol-related deaths and injuries, in health problems related to alcohol and drug abuse, and in drug-related crimes. From more than three hundred applications, RWJF chose fifteen communities whose proposals linked strategies for prevention, early intervention, treatment, and relapse prevention. In each community, a lead organization was chosen based on its demonstrated ability to pull together health care and other community resources. Each community pursued three complementary strategies:

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• Increasing the physical and social conditions that deter alcohol and drug use through community policing, street lighting, and cleaning up housing projects • Strengthening individuals’ ability to resist and recover from alcohol and drug use through parenting classes, youth programs, academic assistance, and case management for alcohol and drug abuse clients • Diminishing the availability and accessibility of alcohol and drugs by closing crack houses, demolishing abandoned buildings, and closing liquor outlets in risk areas Yet, as a comprehensive evaluation concluded, “a sustained, 10-year community-based coalition approach with ample technical assistance and direction, top-notch people, and sites that were pre-selected, did not produce robust results in terms of decreasing substance abuse.”24 Among the explanations for the initiative’s failure were distrust and competition for funding among organizations and agencies, which distracted from its main goal. We think of RWJF’s Fighting Back initiative as a highly strategic effort. It had a clear focus, it was based on good evidence, and it was carefully implemented. It contrasts sharply with the Hewlett Foundation’s failed Neighborhood Improvement Initiative, described in Chapter 11, which was flawed from the outset. It should be noted that, typical of RWJF’s practice of making assessments of its initiatives publicly available, its evaluation of Fighting Back contributed to the growing body of information about what works and doesn’t in community change. Subsequent years have seen many more efforts to address problems on a community level, including “collective impact” initiatives, where individual philanthropists and family foundations can also play a role. Though it may be too early to tell, their overall success rate has not been remarkable, perhaps attesting to the intractability of the problems addressed and the difficulties of coordinating multiple independent actors.

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Reducing Smoking and Smoking Deaths in the United States We follow a story of a significant failure by RWJF with a story of its significant and far-reaching success.25 From 1991 to 2009, under the leadership of Steve Schroeder, the foundation devoted $700 million to reducing smoking in the United States. The Annie E. Casey Foundation and California Wellness Foundation also contributed to the effort. The foundations made grants supporting policy research, advocacy, coalition building, communications, and cessation programs. As described by the Center for Public Program Evaluation, Through these and other programs, RWJF focused its efforts on building policy and public health infrastructures designed to prevent smoking, help those who already smoke to quit, and transform the national culture and social acceptability of smoking. For example, the Foundation, along with other leading tobacco-control advocates, supported an expansion of comprehensive statewide tobacco-control programs that used mass media and community-based organizations to discourage smoking. It promoted increases in federal and state excise taxes, a powerful disincentive to smoking, especially among youth. It also helped bring about prohibitions on youth-targeted advertising and marketing, enactment of smoking bans, access to proven smoking cessation treatments, insurance coverage of such treatments and authority for the Food and Drug Administration (FDA) to regulate tobacco products.26

RWJF supported research on policies, such as regulation and taxation, that might reduce tobacco use. It invested millions of dollars in “SmokeLess States programs” to support statewide plans and activities to reduce tobacco use, especially among children and teenagers. It also supported research on the treatment of tobacco addiction and the translation of successful research into practice and built the demand for effective treatment ser-

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vices. The foundation also helped broker a Master Settlement Agreement that ended litigation between the states and the tobacco industry with an agreement that imposed restrictions on tobacco advertising, marketing, and promotional programs.27 The Center for Public Program Evaluation’s report concludes: In 1990, virtually no one was covered by smoking bans. By 2009, state and local government smoking bans covered 57 percent of Americans in workplaces, 65 percent in restaurants, and 54 percent in bars. . . . The impact of these changes is significant in terms of smokingrelated mortality and illness. As a result of the excise taxes, price increases linked to the Master Settlement Agreement, indoor smoking bans and other tobacco-control policy changes put into place between 1993 and mid-2009, at least 5.3 million fewer people were smoking in 2010 and a cumulative total of more than 60,000 smoking-attributable deaths had been averted. By 2063, some 70 years after the first data became available since RWJF started its tobacco-control work, 12 million fewer people will smoke and 2.1 million smoking-attributable deaths will have been averted, assuming the new policies continue.28

By 2009, smoking and its attendant morbidity and mortality rates had fallen dramatically, and social norms in many parts of the country had changed to disfavor smoking. Of course, it is impossible to know how much of this to attribute to the foundations’ work. As a result of the 1964 report of the surgeon general of the United States, which linked smoking and specific diseases;29 efforts by the Food and Drug Administration to regulate tobacco products; and publicity by the American Cancer Society, American Medical Association, American Heart Society, and other groups, smoking had already begun to decline before RWJF came on the scene. The historian Benjamin Soskis notes that “it is not possible . . . to isolate the RWJF funding from the various other actors that also might have been pushing for similar reforms,” but he concludes that it likely contributed to positive health outcomes.30

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We’ll let readers consider for themselves whether they would invest in an effort where one could not more clearly attribute the outcome to the expenditure of $700 million of philanthropic dollars. Our own answer is unequivocally yes. It is the nature of a decision that it must be made before you know the outcome. The most you can do is predict is how likely you are to have impact in achieving your intended outcome, and at what cost, and to design and implement the best possible strategy. The history of RWJF’s campaign against tobacco is that of well-thought-out and wellexecuted strategies.

Advocating for School Choice The Lynde and Harry Bradley Foundation’s and the Walton Family Foundation’s (WFF) efforts to implement the vision of school vouchers proposed by free-market economist Milton Friedman provide another good example of a multipronged advocacy strategy.31 Joined by twenty-eight other foundations, they gave close to $400 million to more than a hundred organizations concerned with school choice. The late journalist Rick Cohen observed: “These foundations deserve credit for serving as the capital bulwark for a movement that has had significant impact in shaping the public’s understanding of K–12 education.”32 The Bradley Foundation’s first efforts came in the late 1980s, in the form of funding for a scholarly book supporting school choice.33 It then supported the legal defense of Milwaukee’s experimental voucher program and advocacy for public programs. Beginning in 1992, some of the foundation’s largest grants went to a private, nonprofit voucher program for low-income students, which served as a pilot for the eventual government program. The Bradley Foundation’s multifaceted support was critical to the development of Milwaukee’s school-choice program and to the advocacy that led to the Supreme Court decision that upheld it.34 Grantmaking by WFF included funding parent organizing to build support for public policies that provide school choice; managing and strengthening publicly funded scholarship programs;

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providing families with useful information about their traditional public-, public charter-, and private-school options; and evaluating the performance and effects of school-choice programs.35 Although Bradley and Walton moved vouchers from a theoretical idea to plausible public policy, the school-voucher movement has stalled, at least for the moment.36 The Bradley Foundation continues to fund groups supporting private-school vouchers.37 As we mention in Chapter 5, evidence suggests that school choice does not improve student outcomes. Indeed, WFF’s theory of change has evolved from the belief that “more choices would generate more competition [and that] competition would catalyze systemic improvement,”38 to the understanding that “choice is necessary, but . . . choice [alone] cannot stimulate systemic transformation and large-scale improvements on their own.”39 Among other things, WFF is putting hundreds of millions of dollars into charter and private schools that target low-income students. Based on the two foundations’ websites, other documents, and activities, they had rather different, albeit compatible, goals. The Bradley Foundation’s funding of school choice was aimed at protecting the freedoms of “competent, self-governing citizens, who are understood to be fully capable of and personally responsible for making the major political, economic, and moral decisions that shape their own lives, and the lives of their children.” 40 The WFF sought “to improve K–12 outcomes for all students, especially those of limited means, by ensuring access to high-quality educational options that prepare them for a lifetime of opportunity.”41 Each foundation has acted strategically to further its objectives. WFF’s explicit acknowledgment that its original theory of change was not working is a signal act of strategic realignment based on empirical evidence. Whether the foundations have succeeded in their objectives may depend on the time frame involved. As we write in the fall of 2017, it seems possible that the voucher movement may gain new momentum with President Trump’s appointment of Betsy DeVos as secretary of education. As for Walton’s goal of providing qual-

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ity education for disadvantaged children, the foundation has contributed to the small but increasing number of children who attend quality charter schools. Individual philanthropists who share one or both of the foundations’ objectives have many opportunities to pursue them. The Philanthropy Roundtable, an organization comprising mainly conservative family foundations, holds workshops on K–12 education that provide current information about these issues.42 And donors who wish to support high-quality charter schools in their area or nationally have access to far better evaluative data than are available about most nonprofit organizations.43

Building the Field of Open Educational Resources To quote from Wikipedia, one of the most widely used “open” sources of information, “Open educational resources (OER) are freely accessible, openly licensed text, media, and other digital assets that are useful for teaching, learning, and assessing as well as for research purposes.”44 OER is the center both of a field of linked researchers, practitioners, and organizations, and a movement whose participants are evangelical about the goal of increasing and protecting open access to educational resources.45 The movement began in the 1990s with David Wiley’s leadership of the Center for Open and Sustainable Learning at Utah State University; a grant by the National Science Foundation (NSF) to California State University to create a database of free online higher education curricula; the launch of the Public Library of Science (PLOS), a nonprofit publisher of open-access science, technology, and medical journals; and the Budapest Open Access Initiative, an international effort to make academic research articles freely available on the Internet. The term “open educational resources” was coined at a 2002 meeting of the United Nations Education, Scientific and Cultural Organization (UNESCO). In 2001, the Andrew W. Mellon Foundation and William and Flora Hewlett Foundation made large grants to MIT to support its OpenCourseWare (OCW) initiative, which makes the teaching

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materials for almost all of the university’s courses available free online, under an open copyright license. That same year, also with funds from Hewlett, Larry Lessig and others founded Creative Commons (CC), whose mission is to “develop, support, and steward legal and technical infrastructure that maximizes digital creativity, sharing, and innovation.”46 CC “provides free, easy-to-use copyright licenses to make a simple and standardized way to give the public permission to share and use your creative work—on conditions of your choice.”47 The most open license, Creative Commons Attribution (CC BY), allows anyone to “copy and redistribute the material for any purpose in any medium or format and remix, transform, and build upon the material as long as the user gives the author appropriate credit and indicates if changes were made.”48 As of 2017, more than 1.2 billion works—text, music, video, photos, and other digital resources—have been shared with the world using CC licenses. Besides Wikipedia, Khan Academy is one of the best-known open online resources. An increasing number of academic journals are open, as are many (though by no means all) videos published on YouTube and photos on Flickr. Several Massive Open Online Courses (MOOCs), including those on EdX and Philanthropy University, are CC-licensed. One major domestic OER effort has been to encourage the writing, publication, and use of open textbooks for K–12 and college levels. In 2015, The US Department of Education announced its #GoOpen campaign to encourage states, school districts, and educators to use openly licensed educational materials. The same year, the US Department of Labor announced that postsecondary educational materials developed under a major grant program must be released with a CC BY license. Along similar lines, NSF requires that papers supported by its grants be available for downloading, reading, and analysis free of charge no later than twelve months after initial publication.49 UNESCO and the Organisation for Economic Co-operation and Development (OECD) have played a significant role in expanding OER globally.

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A recent article on the state of OER summarizes the movement’s achievements: The extent of coverage for higher education from MIT OCW and its many translations into different languages is enormous. More than 100 million unique visitors, including scholars, teachers, and students, have explored content on the MIT site (and millions more who speak and read in languages other than English have visited the sites of the 250 higher education institutions from all over the world in the Open Education Consortium). . . . Thousands of open textbooks and hundreds of full open courses are now available for the most highly enrolled US college courses and are being translated into many languages, helping more students afford college.  .  .  . Teacher Education in Sub- Saharan Africa (TESSA), COL, and TESS-India support high-quality professional development for teachers in a half dozen African nations and seven states in India, together influencing teachers of hundreds of thousands of students.50

At the K–12 level, Khan Academy materials have had hundreds of millions of users. An important by-product is the work of the Foundation for Learning Equality (FLE), which has developed a method for delivering Khan and other educational materials in settings where there is no connectivity and no electrical power. FLE has brought educational materials to an estimated two million–plus users through its work with large nongovernmental organizations in refugee camps, US prisons, and other resourcelimited settings. Full K–12 open curricula reaching millions of students are available in English, as are hundreds of textbooks and online courses. Open textbooks are also available in dozens of countries. Since its grant to MIT, the Hewlett Foundation has played a key role in developing the field, not just through funding but also through intellectual leadership, by nurturing the field’s organizations, and by using its convening power to keep the participants linked. While Hewlett remains the single largest funder of the

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OER infrastructure, the movement is also being supported by the Arnold, Gates, Charles Koch, and Open Society Foundations, the Helmsley Trust, and many smaller foundations and high-networth individual donors. For example, Khan Academy was a small start-up, on the verge of bankruptcy, when John and Ann Doerr discovered it and provided both funds and steady guidance to build it into its current prominence. Importantly, an increasing number of foundations are making their own publications, as well as those created under their grants, available under CC licenses.51 The OER movement could not have happened without the proliferation of computers and the advent of the Internet in the last decades of the twentieth century. It depended on creative academics, entrepreneurial nonprofit leaders, and visionary government officials—and on the commitment and perseverance of philanthropy.

The Mind-Set of Strategic Philanthropy: Maximizing Expected Social Return Having seen some of the many forms that strategic philanthropy can take, you might wonder what it doesn’t include. The answer, unfortunately, is much philanthropy as it is actually practiced. If a strategy is a road map showing the way to a goal, the goals of many philanthropic gifts and grants are not sufficiently specific to be placed on any map.52 We do not suggest that such philanthropy is harmful. In our personal lives, the authors regularly make year-end gifts to organizations for which we have warm feelings. These gifts make us feel good, and doubtless they help good organizations. But this is not the way to change the world, and it certainly is not a responsible way to give away someone else’s money. In the introduction to Part 1, we set out the elements of strategic philanthropy: clearly defined goals pursued through evidencebased strategies; and monitoring progress toward outcomes and

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assessing their achievement in order to make appropriate course corrections. Here we would like to add an element that underlies these practices: maximizing the expected social return (hereafter, just expected return) of one’s philanthropic efforts. The idea is simply that you want your (inevitably) limited resources to achieve the greatest possible impact. For most objectives—whether improving the graduation rates of disadvantaged youth, feeding the hungry, or preventing AIDS—the more you accomplish, the better. The more you accomplish with the same resources, the greater the expected return. The concept of expected return accounts for the risk involved in achieving your goals. It is a function of the magnitude of the impact times the probability of achieving it. The cost of a program and the expected return of its outcome together describe its cost-effectiveness. The impact of some philanthropic activities is pretty certain: if you are supporting a soup kitchen, you and the organizations you are funding will know at the end of the day how many people (who might otherwise have gone hungry) you are feeding, and you can predict what the organization will achieve tomorrow. For many if not most nonprofit activities, however, the impact is anything but certain. How many pregnancies will a teen pregnancy prevention program prevent? Will advocacy for bail reform succeed in state legislatures, and, if so, will reform measures be implemented by prosecutors and judges? Realistically, one usually cannot calculate the likelihood of success with any degree of precision. Even so, an expected return mind-set that estimates expected return while acknowledging its huge margins of error has many benefits: • It encourages philanthropists and the organizations they support to marshal their resources most effectively to accomplish shared objectives. • It puts the administrative costs of the foundation and those of the organizations it supports in the proper context: specif-

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ically, those costs are justified to the extent, but only to the extent, that they contribute to an organization’s impact (discussed in Chapter 9). • It helps a philanthropist recognize the risks of implementation so that attention can be given to minimizing or mitigating them. • It justifies risky nonprofit ventures that have high potential benefits if they succeed. Consider the likelihood of an organization’s succeeding in reducing global warming or of a medical research institute’s developing an AIDS vaccine. The probabilities may be low, but the potential impacts are enormous. • It encourages philanthropists to be realistic and candid about failure. “Failure” is almost a dirty word in our sector. Yet a large proportion of nonprofit activities and foundation grants fail to achieve their objectives. As we noted earlier, without acknowledging failure, an organization loses one of its most important avenues of learning. • It helps a philanthropist understand his own tolerance for risk. Some funders are prepared to take huge risks of failure. Others are quite risk averse. You can sometimes find effective ways to achieve objectives that fit your tolerance for risks or undertake several projects with different risk levels so that the overall “portfolio” is in line with your appetite for risk, or choose different objectives that can be achieved without too much risk. In fact, everyone goes through some sort of expected return analysis when deciding to make a grant. It is usually informal, and often even unconscious. Bringing the analysis out in the open forces disciplined thinking when comparing and assessing proposals. It also highlights particular vulnerabilities in a program— aspects of the strategy where the probabilities seem particularly uncertain or noticeably low. In cases like these, it may well be

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worth the effort to gather more information or to design redundant strategies.

Application to Your Own Philanthropy The five case studies in this chapter examined several quite different strategies: delivering services, collaborating to improve a community’s well-being, supporting knowledge building, advocating for policy changes, and building fields and movements. The likelihood of success or the risks of failure vary greatly. Putting aside the particular goals of these philanthropic efforts, which approaches appeal to you? Why? And what is your own attitude toward philanthropic risk taking in these or similar circumstances?

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PART TWO

PHILANTHROPIC STRATEGY FROM SOUP TO NUTS

we take you through the steps of developing a philanthropic or nonprofit strategy. For most practical purposes, there’s no difference between developing a strategy to guide your own philanthropic giving in a particular area and a nonprofit organization’s development of its strategy. Nonetheless, you may ask, why is developing a strategy an appropriate task for philanthropists rather for the organizations they support? In later chapters, we consider how active a role you wish take in regard to a grantee organization in determining the strategy for addressing a particular problem. But even if you believe that this should be primarily the grantee’s responsibility, you will at least need to assure yourself that its staff has adequately thought through the proposed strategy and that it makes good sense. In other words, those on both sides of the table should be in the know. Here are the basic steps involved in developing a strategy:

IN PART 2

• Clarifying what problem you’re trying to solve • Understanding your beneficiaries and their needs • Understanding the causes of the problem

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• Clearly articulating your intended outcome and an evidencebased theory of change that will achieve it • Designing a plan for implementing your strategy and anticipating problems with it • Preparing to get feedback as you implement the plan We walk through these steps together with Peggy and Fred Gordon, a married couple, who are concerned with homelessness in their city. They have asked you, the reader, and us, the authors, to help sketch a strategy to address this problem.

Chapter 2

PROBLEM ANALYSIS A problem well put is half solved. —JOHN DEWEY1

You can think of most philanthropy as either responding to a problem or seizing an opportunity. While these are two sides of the same coin, focusing on the problem side tends to sharpen analysis. A problem can be understood in several different ways.2 In its narrowest sense, a problem is a situation in which something has gone wrong—for example, a river is polluted and the fish are dying. Sometimes nothing has gone wrong yet, but there is reason to believe that if action is not taken, something may go wrong in the future—for example, if your city is not adequately prepared for an earthquake or flood, thousands of people may die unnecessarily. Most broadly, a problem is a situation in which something is less than ideal—where the world as it is varies from the world as we would like it to be. For example, a particular region suffers from poor agricultural productivity, and you believe that it could be improved. Or you may believe that it’s a problem that audiences for classical music are shrinking. A problem does not exist abstractly, but always from someone’s point of view. What one person may regard as a problem may be a satisfactory state for someone else. One nonprofit organization may believe that any laws permitting abortion jeopardize a fetus’s

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absolute right to life, while another may believe that a woman has an absolute right to terminate her pregnancy. One organization may believe that government needs to regulate citizens’ ownership of guns more strictly, while another believes that almost any regulation of ownership violates the US Constitution. Even in the simplest case of individuals’ seeking to solve their own personal problems, the nature of the problem and their underlying needs or interests are not always self-evident. Fashioning a robust solution requires getting at the essence of the problem and identifying their needs or interests even when they have not been explicitly articulated. The process of defining a problem typically begins with a description of the current state of affairs and what the decision maker finds wrong with it. Even when one’s sense that something is wrong is inchoate, stories of hardship, conflicts, or frustrations can help describe the problem, and data can indicate its magnitude. The problem might be as global as “7.3 million teenage girls in developing countries become pregnant each year” or as local as “it takes two months for the utility company to respond to consumer complaints.” The problem-solving process should provide some sense of what the ideal would be if the problem were solved: “No teenager will become pregnant,” or perhaps “No teenager will become pregnant unless the pregnancy is planned and she and her partner have the capacity to care for the child without compromising their own futures;” or “The utility company will respond to consumer complaints within twenty-four hours.” As the word implies, it may not be feasible to achieve the “ideal.” But it will provide a benchmark against which solutions can be assessed.

Problem Framing: Getting to the Heart of the Problem A Zen adage recommends that one should ask “why?” five times to get to the heart of a problem. (This is very different from inquiring into the causes of the problem.) In getting to the heart of a

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problem, the question may often best be phrased as “why is this objective important?”—and there are also other kinds of questions that help us understand what the problem is really about. Questioning each stated objective may lead to a closer approximation of the real problem. Consider this example from public policy, concerning the transportation of hazardous material to a distant waste dump. Q. How shall we get hazardous materials to the waste dump? A. We should minimize the distance that the trucks must transport the material. Q. Why is this objective important? A. Shorter distances would reduce both the chances of accidents and the costs of transportation. Q. Why is this important? A. Accidents cause automotive injuries and fatalities and, in our case, exposure of the public to hazardous material. Q. Have you considered whether distance is the only factor relevant to determining the number and seriousness of truck accidents, and the number of people likely to be exposed to the hazardous material if there is an accident? A. Good point! We should minimize exposure in order to reduce the health impacts of the hazardous material. Q. Why is it important to reduce health impacts? A. That’s obviously important.3

At this point, we have reached the decision maker’s fundamental objective—the basis for the next phase of the problem-solving process. Note that stopping with the first stated objective—minimizing the distance that the material is transported by trucks— would have significantly narrowed the range of possible solutions and, indeed, led to a putative “solution” that might have exacerbated rather than solved the underlying problem. Let’s try this again a little closer to home and, for the first time, engage Fred Gordon in a conversation to try to get to the heart of the problem of homelessness as he views it.

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Q. Why is homelessness a problem? A. Homeless families need shelter. Q. That sounds more like a particular solution. We’ll come to solutions later. But first, why is homelessness a problem? A. Because no one should have to live on the streets. Q. Why is living on the streets a problem? A. People are exposed to the elements—cold, rain, snow, heat. Q. And why is that a problem? A. It is uncomfortable and unhealthy. Also, they lack adequate sanitation. Q. Why is that a problem? A. It creates health issues for them, and they may also infect others. But there’s a more basic problem as well. Being homeless deprives people of dignity, privacy, and personal security. Q. You are making some assumptions of fact here—I’m wondering particularly about your statement that homeless people may infect others. How certain are you that this is correct? A. Well, that’s what I’ve heard. Q. We’ll return to that later. But meanwhile, why is the problem important to you as a philanthropist? A. I empathize with people who have to endure these hardships. Q. There are many poor people in your city who are not homeless, but they and their families suffer similar hardships. Why do you want to limit the scope of your philanthropy to the homeless? A. Maybe in a few years, we’ll expand our philanthropy to others. But I believe that it’s good to begin with a focus. Also, to tell you the truth, I’m affected by what I see on my way to work every morning—a line of homeless people, including mothers and their children, waiting patiently for a meal at a church. Q. OK. I’ve got that. But why are you concerned only with homeless people in your city rather than more broadly, even globally? Is that a matter of focus too? A. No, it’s a matter of personal preference. I was born in this city and have spent my life here, and I’m committed to it. Also, I

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feel more comfortable when I can see the results of my philanthropy rather than being informed I’m doing good somewhere else.

As the dialogue with Fred illustrates, the way that any of us think of a problem is affected by our preconceptions and personal experiences. The dialogue with Peggy reflects her quite different perspective. Q. What do you feel is the problem with homelessness in your city? A. We need to move homeless people out of town. Q. That sounds more like a particular solution. We’ll come to solutions later. But first, why is homelessness a problem? A. Homeless people congregate in some residential and business neighborhoods. Q. Why is this a problem? A. You should see the homeless encampment blocking the sidewalks just down the street from my office! Q. And why is that a problem? A. They disturb and frighten people and make it uncomfortable for residents and business patrons to walk on the streets. They reduce residents’ quality of life, lower property values, and reduce merchants’ revenues. People won’t want to do business in the city, and it will lead to the city’s decay. Plus, the homeless people abuse drugs, and some engage in criminal behavior. Also, many of these people have diseases, which they may pass on to other residents. Q. That sounds like you are making some big factual assumptions. How certain are you that they actually cause those problems? A: Well, that’s what I’ve heard. Q. We’ll return to that question. But meanwhile, why is the problem important to you as a philanthropist? A. I am a resident of the city and a taxpayer. My husband and I own some businesses. Our neighbors and business associates are adversely affected.

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Q. Aren’t there some other major problems, such as poor schools, a crumbling infrastructure, and poor public services that adversely affect the same individuals and businesses? Why not try to address those? A. As Fred said, it’s good to have some focus. Moreover, addressing those problems would involve us in political advocacy, something I’m uncomfortable with even if it’s a legitimate activity for a foundation.

Peggy and Fred each described the problem of homelessness in terms of their own, distinctive frames based on their personal experiences. In the dialogue with Fred, we suggested two alternative frames for viewing the problem: problems of the poor rather than just the homeless poor and problems of homeless people beyond his city. These would have significantly increased the scope of his philanthropy. And in the dialogue with Peggy, we suggested broadening her frame from problems she believed homeless people created for the city’s residents and businesses to problems the residents and businesses faced from other sources as well. As it turned out, they rejected our suggestions, and we didn’t argue with their decisions. The purpose of the dialogue was to help them explore alternative frames, not to impose any on them. The Gordons’ conceptions of the problem of homelessness are shaped by their experiences and images. More generally, the images, metaphors, and labels that you bring to a problem can have a powerful framing effect. Do you view negotiation as a game, a war, or a collaboration? In an interesting experiment, participants played a prisoner’s dilemma–type game in which they had the choice of cooperating or defecting. Those who were told that the exercise was called the “Wall Street game” were more likely to defect than those told it was called the “community game.” 4 Just thinking about the game one way or another changed the way they behaved. In the context of philanthropy, consider the terms that foundations use to refer to their grantees: “customers,” “partners,” and

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“agents.” While “customer” captures the importance of maintaining a good relationship, it ignores the fact that the real beneficiaries are the communities and individuals that the foundation and grantees are serving. “Partner” captures some ideal aspects of the relationship but ignores the imbalance of power that often separates funders and grantees. “Agent” captures the power relationship but understates the importance of the grantee’s autonomy. Although we haven’t heard the term used in philanthropy, one might also consider the grantee as a “seller” of services to the funder. You can’t avoid using metaphors, but be conscious of their hidden meanings; don’t become their prisoner as you frame a problem. Framing a problem too narrowly is not an error unique to novice philanthropists. Consider this whopper of an error made for decades by the United Nations and many organizations funding K–12 education in the poorest developing countries. In response to the statistic that one hundred million children—mostly girls— in developing countries received no education at all, many bilateral and multinational donor agencies framed the problem solely in terms of barriers to access to elementary education. Adopted in 2000, Goal 2 of the United Nations Millennium Development Goals (MDG2) defined universal primary education in terms of enrollment.5 But MDG2 neglected the scandalously poor education that often occurred within schools and the fact that merely removing barriers would stress systems that were already operating on the margin. School fees were correctly understood as a significant barrier, and enrollments in Malawi jumped by 62 percent in the first year that the country provided free primary education. But the shock in demand exacerbated already overcrowded classrooms and shortages of teachers, textbooks, and materials. And this, in turn, led to a reduction in enrollments—not because of barriers to access but because ineffectual schooling didn’t seem worth sacrificing the child’s help with household work or tending the farm. It is now understood that getting students into the classroom

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doesn’t come close to ensuring that they are learning. Though lack of attendance is part of the problem, it is also a symptom. Obtaining an education depends on factors such as whether there are books in the classroom, whether the teachers are adequately trained, whether the teachers show up, whether students are physically healthy and sufficiently fed so that they can focus their minds on learning, and whether it is safe for them to walk to school or spend the day there. The new UN Sustainable Development Goal, adopted in 2015, is to “ensure inclusive and quality education for all and promote lifelong learning.”6

Elements of an Effective Problem Statement Our dialogues with Fred and Peggy Gordon were intended to help them develop effective problem statements, much like the UN’s 2015 revised statement on education. At this point, Fred and Peggy might describe their respective understandings of the problem in the following ways. Fred would say, “Homelessness deprives individuals and families of dignity, privacy, health, and personal security.” Peggy would say, “Homeless people adversely affect the economy and the quality of life for other individuals in the city.” In our view, an effective problem statement has these characteristics: • It gets to the heart of the problem—what the problem is really about. • It identifies your intended beneficiaries—for whom you are solving the problem. • It is not a particular solution in disguise but is sufficiently broad to admit to a range of solutions and not foreclose any plausible ones. • It avoids hidden and dubious factual assumptions. The dialogues with Fred and Peggy were intended to help them get to the heart of the problem as each one of them sees it. Let’s see how their problem statements fit the other criteria.

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Identifying Intended Beneficiaries For whom are you solving the problem? Each of our philanthropists identified a different group of intended beneficiaries—for Fred, it was the homeless people dwelling on the streets; for Peggy, it was the residents and businesses of areas of the city where homeless people tend to congregate. Later on, it will be interesting to see if we can figure out a solution that works for both of them. Even if we look at the problem just from Fred’s perspective, there are a number of possible beneficiaries, including • single homeless individuals • homeless families • homeless children • homeless veterans • runaway kids who have no safe place to live • chronically homeless people suffering from addiction, physical, and mental problems • people who are not yet homeless but vulnerable to being evicted It is unlikely that we can help craft a solution that effectively addresses all of these beneficiaries’ needs. Peggy obviously has a different set of beneficiaries in mind. Some solutions to the problems affecting homeless people themselves may also solve the problem of the beneficiaries on whom she is focused. But from the perspective of the residents and businesses who are Peggy’s concern, homelessness is a different problem than it is for the other beneficiaries. This suggests that you can’t define the problem without describing the intended beneficiaries of your potential solution. Sometimes, what might be initially described as a unitary problem may have multiple beneficiaries, and the solutions might work better for some than for others, or even at the expense of others. Consider the problem that “audiences for classical music are

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shrinking.” The solutions may differ depending on whether the intended beneficiaries are (1) the audiences who lack exposure to classical music, (2) children who are less likely to learn musical instruments, or (3) professional musicians who can’t earn a living. A 2010 report by the Institute of Medicine notes that cases of HIV/AIDS in sub-Saharan Africa will greatly outstrip the availability of treatment by 2020. It urges nations to intensify prevention rather than treatment measures as the best long-term strategy for combating the disease. “Because treatment will only reach a fraction of those who need it, .  .  . preventing new infections should be the central tenet of any long term response to HIV/ AIDS in Africa.”7 Notice that preventing cases of HIV/AIDS will benefit different individuals than curing existing cases—people who are not yet infected rather than those who already have the disease. While the former approach has greater long-term public health benefits, its individual beneficiaries are not identifiable, while the beneficiaries of treatment know just who they are and may object vehemently to being denied curative drugs. There’s a well-known psychological phenomenon known as the “identifiable victim effect,”8 which describes philanthropists’ and policy makers’ willingness to spend enormous resources to aid individuals known to be in distress, while being reluctant to spend much to prevent the same harm from occurring to myriad anonymous people. What choice would you make if you had to allocate scarce dollars to HIV/AIDS prevention or cure?

Avoiding Premature Solutions In their dialogues, both Fred and Peggy proposed particular solutions. Of course, they eventually need to choose and implement a solution. But first they need to understand more about the problem. Fred and Peggy are not unique in their tendency to fix on solutions too early. This can be a by-product of what is often a constructive “fix-it” mentality. But it can also be the result of what the French call an “idée fixe,” or the old saying that “to a person with

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a hammer, every problem looks like a nail.” Consider what solutions are foreclosed by these problem statements, and articulate a better description of the underlying problem: • The problem of obesity is that consumers lack information about the nutritional and caloric content of junk foods. • Inner-city elementary school children don’t have enough after- school tutoring programs.

Empirical Assumptions Almost every problem description contains empirical assumptions: something in the water is causing fish to die; the transportation of hazardous materials might cause harm to the city’s residents; audiences for classical music are shrinking. With an understanding of whom Peggy and Fred wish to benefit, let’s return to our philanthropist couple and the empirical assumptions that underlie their descriptions of the problem of homelessness. Fred focused on what he believed to be the needs and interests of homeless individuals and families, such as dignity, privacy, health, and personal security. Peggy focused on what she believed to be the needs and interests of residents, businesses, and communities adversely affected by the homeless: personal safety and security, revenues, and quality of life. How could the philanthropists move beyond their assumptions about the needs and interests of beneficiaries to learn what they actually are? One important source of information is the beneficiaries themselves. As Darren Walker, president of the Ford Foundation, wisely noted, “Listening to and learning from those we seek to help is essential for us to enhance our impact. . . . Listening can help us more intimately understand our institutional ignorance and biases, and allow us to learn about how we can do better.”9 Our philanthropists want to improve other people’s lives, but their intended beneficiaries are likely to know their own needs better than Fred and Peggy do. This means that Fred, or perhaps a skilled observer working on his behalf, would go out on

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the streets to observe and listen to homeless people in their environment to learn what they believe their problems and needs are. Peggy could observe how homeless people interact with residents and shoppers. She could also talk with her intended beneficiaries to learn what they believe their problems and needs are. Both Fred and Peggy were concerned with health among the homeless population and the likelihood that they infected other residents. Here, the views of potential beneficiaries pale beside scientific data. Epidemiological studies indicate that rates of tuberculosis, HIV/AIDS, and hepatitis C are much greater among the homeless than in the general population.10 Because these diseases are transmitted by close contact or sharing needles, however, the principal risk of infection is to other homeless people, not to the population at large.11 Although we can take risk of general infection off the table, there is plenty left to sort through. Fred’s statement that “homelessness deprives individuals and families of dignity, privacy, health, and personal security” seems pretty obviously correct— though, for some, the problems may originate in the underlying conditions that lead to their homelessness. Peggy’s statement that “homeless people adversely affect the economy and the quality of life for other individuals in the city” may be less self-evident. In any event, we should help her get some sense of the scope of these problems. If they are of small magnitude, it may not be worth funding a program to reduce or eliminate them. To learn more, Peggy could ask the city’s law enforcement officials for their records or retain someone with the appropriate skills to survey residents and business owners.

Understanding Problem Causes Identifying dubious empirical assumptions hidden in a problem statement clears the deck for accurately diagnosing the causes of a problem and relating them to possible solutions. We identify problem causes, not to narrow possible solutions to those that

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would address so-called root causes, but rather to open up a range of possible solutions. For example, if you are concerned about the devastating effects of malaria, understanding how the disease is propagated is essential to identifying possible points of intervention—reducing the population of mosquitoes through poison or genetics or eliminating their habitats; protecting people against mosquitoes through bed nets or developing better antimalarial medicines or a vaccine. If you are concerned about the depletion of salmon in the Pacific Northwest, you must understand why they are being depleted. Is the cause overfishing, pollution from farms running into spawning streams, dams on the spawning streams—or all three? If you are concerned about the high rate of teen pregnancies in your community, you need to understand why teenage girls get pregnant. Are the pregnancies intended and, if so, why? If not, why are the young people not taking adequate precautions? Are they aware of contraceptive methods? Do they have access to contraception? If we are mistaken about the causes of the problem, our understanding of the beneficiaries’ needs may be incorrect and our solutions may be ineffective. For example, imagine a British organization or government agency concerned with addressing the outbreak of cholera in a London neighborhood in 1854. Under one prevailing folk theory, cholera was caused by a miasma, or bad air. You might recommend that residents stay indoors or wear masks when they are outside (Figure 1). In what may have been the first example of modern epidemiology, the English physician John Snow discovered that cholera was caused by water-borne bacteria. This led to the solution of removing the pump handle from the neighborhood’s contaminated water supply.12 For a contemporary example, consider these questions: Are greenhouse gas emissions created by humans contributing to climate change, and does climate change have catastrophic consequences? If, contrary to the beliefs of virtually all climate scientists, those who deny these causal connections were correct, then

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FIGURE 1.

Advice for preventing cholera

all the proposed remedies of reducing greenhouse gas emissions (e.g., replacing fossil-fuel energy production with renewables) would be as worthless as staying indoors to avoid cholera. People sometimes say that the best solution is one aimed at the “root cause” of the problem. In the case of climate change, reducing the production of greenhouse gases is almost surely the best solution. But it would be folly to exclude other solutions, such as sequestering those gases or adapting to climate change by protecting low-lying areas against what is now an inevitable rise in sea level.

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Sometimes, directly addressing the root cause is not costeffective or even possible. The root cause of malaria is the Plasmodium parasite, carried by Anopheles mosquitoes. But current technologies are not up to eliminating the parasite or its carrier. Nonetheless, drugs and insecticide-treated bed nets can prevent people from contracting malaria, and medicines can cure or mitigate its effects. There are many causes of homelessness—for example, poverty, lack of affordable housing, natural disasters, drug and alcohol abuse, mental and physical illness, and posttraumatic stress disorders. Victims of domestic violence may also need to leave their homes to maintain their safety or the safety of their children. Would you recommend that Fred and Peggy Gordon tackle only root causes in addressing the problem of homelessness in their city?

Before You Begin to Solve the Problem At the beginning of this chapter we wrote that, in its broadest sense, a problem is a situation in which something is less than ideal—where the world as it is varies from the world as we would like it to be. Of course, it is seldom possible for a solution to a social, environmental, or health problem to actually achieve the ideal world. But having this aspiration in mind can help you develop an ambitious but realistic intended outcome and strategy for achieving it, even if it falls far short of your ideal. In considering solutions, you should aim for one that maximizes the achievement of your most important objective and, if possible, also achieves other important objectives without having unintended bad side effects. While it is not always possible to “have it all,” you should at least know what that would mean. For Fred, the ideal is that no person his city suffers the hardships of homelessness. For Peggy, it is that no resident or business in the city is adversely affected by homeless people. With a clear problem statement and an analysis of the causes of the problem, you are almost ready to address the problem (what-

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ever it may be) for your beneficiaries (whoever they may be). But you are probably not the first person to try to solve this problem, so it would be wise to discover who else is tackling the problem, what you can learn from them, and, indeed, whether you can collaborate with them. There might already be organizations addressing the problems of homelessness in Fred and Peggy’s own city. Possibly, they’re concerned with a segment of the homeless population—say, runaway teens—that is not the Gordons’ particular focus. Or perhaps the organizations are poorly run and ineffective. But maybe there’s an organization that’s doing an excellent job of serving the very populations that concern the Gordons. If so, the Gordons might decide to support their work rather than start a new organization. And even if there’s no local organization that would achieve their goals, before taking the big step of starting their own organization, the Gordons can learn a great deal from the strategies, successes, and failures of efforts to address homelessness in other places.

Application to Your Own Philanthropy 1. Describe a Social Problem That Interests You Throughout Part 2, we ask you to develop a strategy to solve a social (or environmental or health) problem of your own choice— for example, drug addiction, energy use, animal rights, or whatever. Choose a problem in which you have a deep interest and describe it in a few sentences.

2. Get to the Heart of the Problem Assume that you are the founder of a new organization created to address the problem that you just described. Invent a dialogue between you and a trusted, tough-minded, demanding colleague to help clarify the problem by getting to its heart. (You don’t actually have to work with a colleague; just be a playwright and create the script.) The dialogue should have these elements:

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• Your colleague begins by asking why the problem the organization is trying to solve is a problem. • One of your answers mistakenly includes a solution to the problem. • Your colleague (more or less gently) tells you that you need to get a deeper understanding of the problem before coming up with solutions, and continues asking “why”-type questions.

3. Write an Effective Problem Description Examine the dialogue you just wrote. Now, rewrite the description of the problem that the organization is trying to solve, while (1) minimizing empirical assumptions and (2) avoiding including solutions in the problem description. Does this problem description make any empirical assumptions? If so, how would you test them?

4. Identify Problem Causes Using the problem description you just wrote, identify several of the significant causes underlying the problem, say why you believe they are significant causes, and describe how confident you are in your belief.

Chapter 3

DEVELOPING SOLUTIONS

Now that we have identified some of the major causes of the problem, we can start to look at a range of potential solutions. First, we should undertake a scan of various approaches to addressing the problem.

Fundamental Approaches to Philanthropic Problem Solving What do we mean by approaches? Most of the great variety of work done by nonprofit organizations, governments, and public institutions can be placed in three general categories, which we return to later in the book. Promoting knowledge. Philanthropists support basic and applied research and other forms of knowledge development in fields ranging from medicine to rocket science, philosophy, and political theory. For example, the Laura and John Arnold Foundation supports evaluations to learn which social interventions work and do not work. Philanthropists also support building fields by helping link researchers, theorists, practitioners, advocates, organizations, and policy makers concerned with common problems. For example, the William and Flora Hewlett Foundation is working to create a field linking the many stakeholders involved in cybersecu-

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rity; and a consortium of foundations, under the umbrella of the Water Funders Initiative, is working to build a field to address issues of water security and safety. Improving individual lives. When you think about charities, the chances are that the first ones that come to mind are nonprofits that provide direct services—to disadvantaged youth, the homeless, drug addicts, and so forth. Many nonprofits provide services to poor clients at no charge. Others, such as orchestras and theaters, depend on a combination of charitable donations and fees. Influencing policy makers and businesses. In recent decades, philanthropists have supported organizations using policy advocacy to mitigate global warming, reduce the unnecessary incarceration of convicts, and protect farm animals; and they have supported movements ranging from the Tea Party to marriage equality for gay and lesbian people. Returning to our philanthropists, the Gordons might well conclude that there’s sufficient knowledge about the causes of homelessness and its likely solutions that, rather than support further research, they want to take action. One possible approach would be to provide health care and other services to homeless people on the street. Although it offers immediate care, this intervention accepts the status quo of people living on the streets—in other words, it is unlikely to change the number of people who are without homes. Although it might begin to address Fred’s concerns, it wouldn’t address Peggy’s at all. Another example of direct services would be to provide permanent supportive housing for chronically homeless people—free housing combined with health and social services. Although it is much more expensive than on-the-street care, it has the potential to reduce homelessness—a definite advantage. And it addresses both philanthropists’ concerns. Yet another approach is to help individuals and families at risk of becoming homeless stay in their homes. This also involves service delivery in the form of defending families against eviction. Perhaps it also addresses both philanthropists’ concerns. But it

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imposes a cost on landlords by requiring them to keep on tenants who may not pay their rent on time, and this will likely lead to their opposition—and to Peggy’s as well. A very different approach would be to ameliorate the conditions that lead to homelessness, perhaps by advocating that employers be required to pay a living wage or that the city provide a basic minimum income. While it’s valuable to learn about these possible approaches, you cannot determine the most effective one for solving a particular problem at this early stage. Rather, you must first hypothesize plausible strategies and compare their feasibility. The two most fundamental criteria in choosing among these various approaches are (1) which will have the greatest impact in solving the problem and (2) which are within the philanthropist’s resources, acting alone or together with others. Predicting impact can be complicated. On the one hand, a service-delivery program that has proven successful in many other venues has a good chance of succeeding in your city. But it helps only one individual at a time. On the other hand, advocating policy change, if successful, can improve the lives of many individuals, but it is a risky strategy since policy advocacy often fails to achieve its objectives. So the choice of strategy will involve an estimation of risk and reward. When deciding whether you have the funds for a given strategy, you’ll want to consider factors such as scope and time frame as well as the possibility of cofunding or directly collaborating with others. We return to these issues later in the book.

Developing Alternative Solutions We can’t solve problems by using the same kind of thinking we used when we created them. —ALBERT EINSTEIN

Before fixing on a particular strategy to solve the problem, you need to consider alternative solutions. Just as the best description

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of the problem is not necessarily the first to come to mind, so it is for potential solutions or strategies. Earlier we suggested continually asking why? to identify your goals. Now ask how?, or (in the lingo of human-centered design) how might we? to generate solutions. The most fundamental rule is don’t stop with the first good idea that comes to mind. There may be better ones out there. It is often useful to begin by considering both solutions that maximize the achievement of your most important objective even at the expense of others, and those that simultaneously satisfy several important objectives even if they are not optimal for any one of them. Creativity in developing solutions to problems. The generation of alternative solutions calls for creativity. By creativity, we do not mean self-expression in the artistic sense but rather innovation akin to that of a scientist or engineer—creativity that is goal oriented and aims to come up with pragmatic solutions to a problem. This calls for a mind-set that views problem situations from multiple perspectives.1 Such creativity is often fostered by engaging in divergent thinking—imagining and generating a broad range of options—before evaluating, analyzing, criticizing, and narrowing down the range of alternatives. Some of the most creative breakthroughs occur “when an idea that works well in one domain gets grafted onto another and revitalizes it.”2 “Social marketing” is a good example. An innovator in the field, Population Services International, draws lessons from marketing products in the business sector to sell contraceptives and other health-related products at subsidized prices to the poorest people in Africa and other developing areas. In its roughly hundred-year history, American philanthropy has played a role in developing many creative solutions that have had real impact on society. Consider these examples: • public libraries • Sesame Street • insulin to treat diabetes

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• releasing poor criminal defendants on their own recognizance • creating the profession of the nurse-practitioner • the 911 phone emergency line • hospice care • painting lines on the shoulders of highways to prevent accidents • school vouchers3 You have the potential to fund equally important breakthroughs in the coming decades. After all is said and done, however, it may turn out that the best solution to a problem is a triedand-true approach—but you can’t know that until you have considered other possibilities. In any event, the ultimate test is not whether a solution is novel or innovative but whether it works. Indeed, we have seen novelty per se drive so many philanthropic decisions at the expense of bringing effective existing strategies to scale that we’re tempted to propose a ten-year moratorium on the very use of the word “innovation.” Returning to our philanthropist couple: Fred and Peggy Gordon considered their various choices. After much research about approaches that have worked elsewhere and discussions with Casa, the major homelessness organization in their city, they decide that the most promising approach would involve a “housingfirst” permanent supportive housing program. The main beneficiaries of this intervention will be chronically homeless single men. The Gordons realize that this will not reduce the number of evictions by people in danger of becoming homeless or serve all members of the homeless population. But it has the promise of reducing the current number of homeless individuals in their city. Fred likes this approach because it meets his desire to help people who are homeless live safely and with dignity. Peggy thinks it is the right approach because it addresses her concern about getting homeless people off the street. Permanent supportive housing will offer chronically home-

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less people free housing, combined with what are called wraparound support services that address problems of physical and mental health and substance abuse; where possible, it will also help them prepare them for employment. Under a housing-first program, people are provided long-term housing with no preconditions—although strong efforts are made to induce them to accept drug, mental health, or other counseling where appropriate to their needs.4 When the Gordons began discussions with Casa, the organization already provided housing for the homeless without any supplemental support in two units—on Apple Street and Bascom Avenue, respectively—each with about fifty apartments. Casa is eager to adopt a permanent supportive housing program. With Fred and Peggy’s support it will add fifty units to the housing complex on Bascom Avenue and provide wrap-around support services to all of the one hundred people who will live there.

What Would Success Look Like? The Intended Ultimate Outcome The intended ultimate outcome. Before the Gordons and Casa take any further steps to implement their proposed strategy, they will agree on what they would regard as a successful outcome—what we’ll call their intended ultimate outcome. Success for the permanent supportive housing program is stable residency for the formerly homeless people living in the supportive housing complex. Adopting the metrics of a similar program in Santa Clara County, California, the ultimate outcome is (at least) one year’s continuous residency (permitting minor lapses for time back on the street or in jail or hospital). Note on aspirational outcomes. Casa will hold itself accountable for the specified ultimate outcome of the permanent supportive housing program. But its executive director and the Gordons may hope that this leads to better long-term consequences for many of their beneficiaries—that the residents live fulfilling lives and be-

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come productive members of their community or that the program leads to community-wide benefits beyond the particular individuals served. For want of a better term, we call these “aspirational outcomes.”5 It is motivating for an organization to have broad aspirations for its programs. But those aspirations shouldn’t be confused with outcomes that are the program’s immediate outcomes and for which it will hold itself accountable.

Theory of Change Now, let’s think through the activities that Casa must perform to achieve that outcome. This is the core of the organization’s strategy, and we refer to this as its theory of change. The theory of change embodies the causal links between the activities the organization will perform and the ultimate outcome (Figure 2). At the far right side is the ultimate outcome: previously homeless people become stable residents—a major change in their status. At the far left side are the major activities that the organization performs: providing housing and wrap-around support services.

FIGURE 2.

Theory of change for permanent supportive housing

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But there are major steps missing: To achieve our goal, homeless people must take advantage of the housing and services offered— significant changes in their behavior. Those are our intermediate outcomes. So the theory of change embodies the basic steps—the chain of causation—leading from the organization’s activities to the ultimate outcome. Note that the other approaches to addressing homelessness that our couple considered and rejected have different ultimate outcomes and different theories of change leading to them (Figure 3).

Will the Theory of Change Work? Whether an activity will lead to an intermediate outcome and whether the intermediate outcome will lead to the intended ultimate outcome are questions of fact. Simply offering a service doesn’t guarantee that anyone will use it or that it will improve their lives. The most important function of a theory of change is

Activities

Intermediate Outcomes

Ultimate Outcomes

Provide health services to homeless people on the streets

Homeless people accept services

Homeless people are healthier

Litigate to protect tenants at risk of homelessness from being evicted

Courts prevent eviction

Tenants do not become homeless

Advocate for living wage

1. City requires employees to be paid a living wage 2. People at risk of homelessness are employed

FIGURE 3.

People at risk do not become homeless

Alternative approaches to addressing homelessness

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to explicitly describe the links from an organization’s activities to its intended ultimate outcomes via any intermediate outcomes— and to test the theory against actual knowledge of what works. Our theory of change raises four questions: 1. Will the homeless people move into the housing provided by our organization? 2. If they move into the housing, will they accept the services offered? 3. If they move into the housing and accept the services offered, will the services be sufficient to keep them in stable residence? Perhaps, for example, some have mental health problems so severe that they’ll be back on the street pretty soon. 4. Even if the program succeeds as hoped, might it have the unintended consequence of making the city a magnet for homeless people from other cities who seek shelter and support? The theory of change must include all causal links necessary to achieve the outcome. It will not work if a necessary causal link is absent or if an indicated causal link does not, in fact, have its intended effect. The cartoon shown in Figure 4 nicely captures the necessity of including all causal links in a theory of change. Social change is, if anything, more difficult than physics or engineering. As noted, the strength of the causal links is an empirical question. When people talk about an “evidence-based” program or policy, they mean that there is good empirical evidence for the necessary causal links. An intuitively plausible theory of change is better than none at all, but the nonprofit sector is littered with programs based on ideas that seemed intuitively plausible but were not valid. Therefore, the better the theory of change, the sounder its use as the basis for a strategy. How can Fred and Peggy assess the theory of change underlying the proposed permanent supportive housing program even before they have funded it? One starting place is to look at similar

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The necessity of causal links. Source: Copyright © 1985 Sidney Harris Science Cartoons Plus

FIGURE 4.

programs and examine the evidence of their success. They would learn that permanent supportive housing is regarded as a promising approach to reducing homelessness for some populations. A review article titled “Permanent Supportive Housing: Assessing the Evidence” concludes: The moderate level of evidence indicates that permanent supportive housing is promising, but research is needed to clarify the model and determine the most effective elements for various subpopulations. Policy makers should consider including permanent supportive housing as a covered service for individuals with

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mental and substance use disorders. An evaluation component is needed to continue building the evidence base.6

This may seem a lukewarm basis for plowing millions of dollars into a new program. But as we explore in more detail in Chapter 5 on evaluation, it indicates the limits of social scientists’ ability to predict the effects of social programs.

Addressing Wicked Problems Homelessness and many of the other social issues discussed in Part 2 are amenable to clear problem definitions and well-defined theories of change. But what about situations where problems or solutions are obscure or protean? Consider, for example, the “Madison Initiative,” launched by Larry Kramer, the current president of the Hewlett Foundation, whose “grants support organizations working to address the intense political polarization and hyper-partisanship that have made it so difficult in recent years for Congress to fulfill its responsibilities as the first branch of our government.”7 Problems of this sort are complex, or “wicked,” because they cannot be definitively formulated and do not lend themselves to straightforward strategies. In “Strategic Philanthropy for a Complex World,” John Kania, Mark Kramer, and Patty Russell note that in addressing wicked problems, strategic plans become obsolete the moment they are written because the world changes so quickly.8 Solutions often must be explored by trial and error by (not their metaphor) throwing spaghetti against the wall and seeing what sticks. Many potential solutions are likely to have a whack-a-mole quality—as exemplified by efforts to reform campaign finance. The recent fascination with complexity has led some philanthropists to cite the supposed wickedness of problems as an excuse for avoiding the hard work of strategic problem solving. On the contrary, problems of this sort call for a comprehensive analysis of the systems in which they are embedded from the very start—a

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more arduous task with more moving parts than designing a relatively linear theory of change.9 Ultimately, though, as suggested by the Madison Initiative’s grants (which are set out with exemplary transparency on the foundation’s website), the best way to address a wicked problem is to break it into components, each of which has a strategy that can be monitored to observe its progress and its interaction with other strategies.

Application to Your Own Philanthropy 5. Determine Your Approach to Solving the Problem Using the problem description you wrote for “Write an Effective Problem Description” (Chapter 2, #3), identify (a) several plausible approaches to solving the problem; (b) the one that you believe is most likely to succeed; (c) your reasons for that belief; and any (d) concerns you have with this approach.

6. Specify the Ultimate Outcome of Your Program Specify a single ultimate outcome for your organization. (Remember that the ultimate outcome is the one your organization will hold itself accountable for achieving.) If you have more than one ultimate outcome, choose what you deem to be a particularly important one.

7. Design a Theory of Change Using the form in Figure 5, sketch a theory of change for achieving your ultimate outcome. • The box at the far right should contain a short description of the ultimate outcome. Activities

FIGURE 5.

Final Intermediate Outcome

Your own theory of change

Ultimate Outcome

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• The box at the far left should briefly describe the main activities the organization will carry out. • The middle box should briefly describe the final intermediate outcome—what the beneficiaries or others must do to get to the ultimate outcome. How confident are you that the activities will lead to your intermediate outcome, and what evidence do you have to justify your confidence? How confident are you that the intermediate outcome will lead to the ultimate outcome, and what evidence do you have to justify your confidence?

Chapter 4

FROM THEORY TO ACTION How Will We Get There? The Action Plan

We now have a general idea—a “theory of change”—for achieving our intended ultimate outcome. In this section, we turn that into an action plan. The action plan, which describes the steps that an organization will take to achieve its ultimate outcome, is essentially a more detailed version of the theory of change. What we call an “action plan” is often called a “logic model” or just a “theory of change.” On the one hand, we don’t like inventing new terms in a field already replete with jargon. On the other hand, “logic model” is the epitome of jargon. And though it suggests the idea that each step must follow from the preceding one, “logic” doesn’t really capture the empirical nature of the causal links. The action plan serves a number of purposes: • Documenting the elements of the strategy • Assigning responsibilities to staff members and managing the organization • Communicating the strategy to various stakeholders, including grantees, beneficiaries, funders, and collaborators • Determining whether you are on course toward your intended ultimate outcome

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• When things go wrong, providing a reference point to see where they went wrong • Passing a successful strategy from one organization to others Especially when it is used for internal management, an action plan may describe the organization’s activities in excruciating detail. For our purposes, we stay at a relatively high level of generality. Let’s examine Casa’s action plan in Figure 6 and work our way from right to left, beginning with the ultimate outcome. Ultimate outcome. The ultimate outcome is success for the organization—the change in the world that the organization will hold itself accountable for. We already defined this as previously homeless people become stable residents. Intermediate outcomes. The intermediate outcomes are changes in the world outside the organization—typically changes in people’s behavior—necessary to achieve the ultimate outcome. In our case, the main intermediate outcomes are that previously homeless people move into the housing and participate in the supportive programs. Activities and outputs. If you compare the action plan with the theory of change in Chapter 3, you’ll see that we’ve added a col-

FIGURE 6.

Action plan for permanent supportive housing

From Theory to Action

FIGURE 7.

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Activities/outputs versus outcomes

umn for “Outputs” to the right of “Activities.” Outputs are, in effect, the deliverables created by the activities. Acquiring housing is an activity—what the organization does. Making the housing available to homeless people is the output of the activity—it’s what the organization delivers to its beneficiaries. The distinction between activities and outputs is not particularly important, but many people use it, and we think you should know the terms. What is important, though, is the distinction between activities and outputs, on the one hand, and outcomes, on the other. Activities and outputs are things the organization does. Outcomes happen in the world outside the organization as a result of what it does (Figure 7). Here’s an old saying that may help you remember the distinction: “You can lead a horse to water, but you can’t make it drink.” Leading a horse to water is an activity or output; the horse’s drinking is the desired outcome. For another example, knocking over the first of a line of dominoes is an activity/output; the successive dominoes’ falling is the outcome. We have now added more detail to our theory of change. If the action plan just seems like a theory of change with more detail, that’s exactly right. It has more detail about what the organization does—its activities and outputs. It may also include more detail about the intermediate outcomes that need to happen as a result

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FIGURE 8. Rube Goldberg’s simplified pencil sharpener. Source: Artwork Copyright © and TM Rube Goldberg Inc. All Rights Reserved. RUBE GOLDBERG ® is a registered trademark of Rube Goldberg Inc. All materials used with permission. rubegoldberg.com. Copyright © Rube Goldberg, Inc. Reprinted with permission.

of what the organization does. These will be helpful when we develop performance metrics later. Now that you’ve mastered the concepts of a theory of change and action plan, here’s an example by someone who surely never used these terms but who certainly understood the concepts: Rube Goldberg (Figure 8). Rube Goldberg’s action plan describes a detailed set of causal links beginning with the activity A (opening the window) and ending with the ultimate outcome R (a sharpened pencil). Rube Goldberg’s action plan makes empirical assumptions about how the world actually operates—ranging from gravity, electricity, and

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other laws of physics, to the behavior of woodpeckers and opossums. His intervention is only as good as his empirical assumptions. This is no less true of social interventions. Any break in Rube Goldberg’s chain of events will result in failure of the entire project. This is true of many philanthropic projects as well. Note, however, that Goldberg has provided a degree of redundancy: an emergency knife in case the opossum or the woodpecker gets sick and can’t work. Philanthropists can do this as well. But you can’t know what redundancy to build in without having a thorough understanding of the causal chain. In Rube Goldberg’s example, two interventions are necessary: opening the window and flying the kite. After that, nature takes its course, largely beyond his control. That sounds simple enough, but now think about how hard it is to fly a kite while leaning out of a window. So this part of the plan for implementing the strategy requires some ramifications beyond the basic causal chain— it requires describing what confederates you will need outside the window and. well, how to go fly a kite. Albert Einstein described the ideal action plan when he (purportedly) said, “Everything should be made as simple as possible, but no simpler.” Of course, Rube Goldberg has made his contraption as complicated as possible. Some actual organizations’ action plans rival Rube Goldberg’s in complexity. Granted that many social problems are complex, solutions that have many moving parts are not likely to be robust against their complexity.

Understanding and Changing Beneficiaries’ Behavior The ultimate outcomes of virtually every social program require effecting changes in beneficiaries’ behaviors. For example, the ultimate outcome of permanent supportive housing is to change the behavior of formerly homeless people to move from living on the streets, or spending time in jails and hospitals, to becoming stable residents. Achieving this outcome requires the intermedi-

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ate outcome of the beneficiaries’ moving into the housing and accepting supportive services. Perhaps in an ideal world, you would just inform beneficiaries about why a change in their behavior is desirable. But that is often not sufficient. In our case, homeless people may be suspicious of professionals trying to help them, and some of the beneficiaries may suffer from illnesses and addictions that impede their transition into permanent supportive housing. Thus, a critical part of many action plans will involve (1) identifying whose behavior needs to change in what ways to achieve your outcome, (2) figuring out how to help beneficiaries change their behavior, and (3) effecting real change. There are two fundamentally different ways to gain information about these matters: academic research and local ethnography. Academic research may amalgamate ethnographic analyses, surveys, and experiments to provide an evidence-based understanding of people’s behaviors. We focus here on local ethnography, which is often a valuable supplement to broader research findings and sometimes the only information that you will have. Consider, for example, the use of insecticide-treated bed nets. If correctly placed and consistently used, they provide an effective way to prevent the beneficiaries from contracting malaria. But here are a few of the possible reasons that beneficiaries may not use bed nets effectively for their intended purpose: • The instructions on how to use the bed nets aren’t clear enough. • The instructions are written in a foreign language, or the beneficiaries are illiterate. • The bed nets are not designed to fit over their beds well enough to keep the mosquitoes out. • The insecticide has lost its potency.

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To learn about the barriers that are preventing the bed nets from serving their intended function, you must engage in ethnography, or what is called “empathy” in the field of human-centered design. A leading design organization, IDEO, explains: Building empathy for the people you serve means understanding their behavior and what motivates them. Understanding behavior enables us to identify physical, cognitive, social and/or cultural needs that we can meet through . . . products, services and experiences. . . . Empathy means deep understanding of the problems and realities of the people you are designing for. It is important to do research across many different groups of people and to “walk in their shoes.”11

To do this, one observes the beneficiaries, engages them through interviews, and, where useful, immerses oneself in their experiences. If the stakeholders’ current behaviors are not conducive to achieving a program’s ultimate outcomes, you must understand why not before you can design a strategy for changing their behavior. For example, if village residents do not understand how to use the bed nets, the simple solution is to provide instructions, but there may be other behavioral barriers as well: • People may forget to use the bed nets or to have them re-treated. • By the time people are ready to go to bed, they may be too tired to use the bed nets. • The villagers may not believe that bed nets are effective. • Use of the bed nets may conflict with cultural or social norms. • The villagers may prefer to use them for fishing. Each of these barriers may need to be addressed differently. Once again, the main technique for learning about these barri-

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Barrier

Proposed Solution

People may forget to use the bednets or to re-treat them when the insecticide is depleted

If they or family members have mobile phones (and many do), send them text reminders

By the time they’re ready to go to bed, they may be too tired to use the bednets

Instill habits of preparing bednets earlier in the day

People may not believe that bednets are effective

Provide vivid stories of the benefits of bednets without emphasizing the dangers of not using them, since research shows that people tend to take risks (e.g., with respect to their health) when they focus on losses

Use of the bednets may conflict with some cultural or social norms

Recruit respected figures in the community, and demonstrate that they or their fellow villagers use bednets. (People tend to conform to the behavior of peers.)

People may prefer to use bednets for fishing

Design the bednets so that they are not useful for fishing

FIGURE 9.

Behavioral barriers and solutions

ers is ethnography. To respond to on-the-ground implementation challenges, you will need to add a new activity to your action plan: influencing the beneficiaries’ behavior to induce them to use bed nets. Figure 9 shows some possible ways to address the barriers to using bed nets.

Performing a Premortem Many factors can lead to a strategy not working out as you planned: • Faulty assumptions in the theory of change or action plan • Misaligned stakeholder interests

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• Dysfunctional organizational culture • Poor management • Beneficiaries’ self-defeating behavior • Inadequate infrastructure • Politics and media • Civil conflict, environmental disasters, and other acts of God • Unintended consequences If and when a strategy fails to actually change beneficiaries’ behaviors and achieve its intended outcome, you can do a postmortem to understand what happened. But there’s no need to wait. It is helpful to plan for challenges before you encounter them. Instead of waiting, conduct a “premortem”: Before you begin implementing a strategy, you and your grantees can look ahead and assume that it has failed and then speculate about what led to the failure. This will give everyone permission to think and say things that otherwise might seem disloyal and will help counter people’s tendency to believe that their plans will succeed. You can inspire creativity by doing some unstructured brainstorming about what led to the program’s failure. And you can supplement that by going through the action plan step by step and asking, “What barriers are there to this stage of the plan succeeding?,” and “What can go wrong here?” Returning to our permanent supportive housing program, the premortem may disclose flaws in the underlying theory of change, such as missing or unsubstantiated causal links. It also may disclose problems in implementing the program. For example, it may reveal that Casa is not up to the task of providing the necessary support services. Perhaps its staff are trained for other functions, and the program calls for new kinds of expertise. Or the premortem may disclose that you lack adequate funding to maintain the program at its intended scale. Some of these problems may be cured by relatively simple modifications of your plans.

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Others may call for postponing, radically changing, or even abandoning the program. In conducting a premortem, it is useful to consider the roles of stakeholders, a category that includes anyone who may be affected by the problem you’re trying to solve or affected by your solution. The beneficiaries themselves are one key group of stakeholders. We’ve already mentioned two major ways that our homelessness program could fail—that the beneficiaries won’t be attracted to the housing or won’t participate in its programs. Other stakeholders include the board, staff, and other funders of Casa, and potential supporters and opponents of the program. Stakeholders who are likely to support implementation of the permanent supportive housing program include law enforcement and public health officials. What about opponents? You might think, “We’re trying to do something really great to improve people’s lives. Why would anyone want to stop us?” But consider the neighbors of a housing complex, who may be concerned about their property values and disruptive occupants. In any event, identifying potential supporters and opponents of the program is the first step toward enlisting allies and neutralizing opponents or even converting them to your cause.

Anticipating Unanticipated Consequences Our theories of change and action plans take into account the beneficiaries of a program or policy and the stakeholders most immediately affected. But most strategies are situated in systems that radiate beyond these stakeholders. Intended good deeds often have not-so-good unintended consequences. Consider, for example, a municipality’s decision to provide fully subsidized permanent supportive housing for its homeless population. In the preceding chapter, we speculated that this might have the unintended consequence of attracting more homeless people to the city. If so, the program may meet the core goal of

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helping the homeless currently in the city but may not reduce the ultimate number of homeless on the street. Or consider a nonprofit organization’s strategy to prevent homelessness by aggressively defending tenants against evictions based on nonpayment of rents. Might that have the unintended consequence of making landlords screen out tenants on the margin of homelessness or raise their rents?

Preparing to Implement the Plan, Tracking Progress, and Assessing Success You have now designed a policy or program and are (almost) ready to implement it. One major set of tasks remains—preparing to gather systematic feedback on how it is working. If you’ve ever piloted a boat or plane or, for that matter, driven a car or bicycle, you know that you need to make constant adjustments to stay on course. Obtaining and responding to feedback when implementing social strategies is at least as necessary and, if anything, more difficult. There are essentially four forms of feedback available to you: 1. Information about whether and to what extent you have achieved the ultimate outcome 2. Information about progress toward the ultimate outcome— progress in activities, outputs, and intermediate outcomes 3. Information about whether your program contributed to the outcome (a different question from whether the outcome was achieved, discussed in Chapter 5) 4. The views of beneficiaries and other stakeholders, including your grantees and your own staff, about any aspects of the implementation An organization must be concerned with two aspects of the ultimate outcomes: (1) indicators or measures of success and (2) targets

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or goals for what constitutes success. Of course, the organization must specify indicators before it can set targets. The indicator or measure of the success of a fund-raising campaign might be “dollars raised” or “new donors” added. The target for that campaign might be $25,000 or a 10 percent increase in new donors. A frequently-used guideline for developing metrics is captured by the acronym SMART: S = Specific: clear and focused to avoid misinterpretation M = Measurable: can be quantified and compared to other data A = Attainable: achievable, reasonable, and credible under conditions expected R = Realistic: fits into the organization’s constraints and is costeffective T = Timely: doable within the time frame given Specific and Measurable refer to the indicators themselves. Attainable, Realistic, and Timely refer to targets that the organization hopes to reach. You should treat the components of the acronym as suggestive rather than literal. In the case of our homelessness program, these are the Specific and Measurable indicators: • Ultimate outcome: how many people are in stable residency for how many months • Outputs: how many housing units are available • Intermediate outcome: how many people live in the housing units and accept social services To determine what are Attainable, Realistic, and Timely targets, we can look at the success of similar programs in similar cities and take into account what we know about our own homeless population and our resources. Based on this information, we might draw these conclusions:

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• Casa can create fifty new units of housing at Bascom Avenue and provide wrap-around support services for all of its one hundred residents. • The program will be able to recruit one hundred homeless people to live in the housing. • Eighty of those residents will accept support services. • Within two years after our program is up and running, Casa is likely have a 60 percent success rate—that is, sixty formerly homeless people admitted to the program’s housing will have been be in stable residence for at least one year. Why measure progress and develop targets? It’s as simple as this: Without measuring progress, you and your grantee would have no way of knowing how the organization is doing and would be unable to make necessary corrections if things don’t go as planned. While measuring progress through SMART metrics is essential, an organization should be open to feedback of all sorts, whether quantitative or qualitative. Negative feedback from beneficiaries and other stakeholders often is a leading indicator that the program is not doing well. In Casa’s permanent supportive housing program, we would particularly want to get the views of the actual beneficiaries—the formerly homeless people living in our units—and the views of the staff members who serve them. We should also get feedback from people who began living in our units but left and are back on the streets—why did they leave? And we should get the views of homeless people on the streets whom Casa unsuccessfully tried to recruit to learn why it failed to recruit them. If an organization meets its targets, it might ask if it could meet even higher ones. Failure to meet targets—whether for ultimate or intermediate outcomes or activities or outputs—should be an occasion to examine the causes of underperformance. The action plan will serve as the blueprint for guiding that examination. Per-

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haps some specified activities were inadequately performed. Perhaps the outcomes call for activities that were not specified. Or perhaps the organization did everything right, but unforeseeable external circumstances, such as the great recession of 2008, threw a monkey wrench into the works.

Application to Your Own Philanthropy 8. Design an Action Plan Design an action plan for your organization and include the following elements: • Ultimate outcome: Again, fill this in from the ultimate outcome identified in “Specify the Ultimate Outcome of Your Program” (Chapter 3, #6). • Intermediate outcomes: This should include at least the final intermediate outcome as identified in “Design a Theory of Change” (Chapter 3, #7), but it may include others leading up to it. • Activities, outputs/deliverables: Include those leading to the intermediate outcome(s).

9. Identify Stakeholders Review your action plan developed in “Design an Action Plan” (#8) and identify at least three stakeholders who might support the organization’s activities and three who might oppose them. What are the barriers to beneficiaries’ engaging in behavior necessary to achieve your ultimate outcome? How might you cause them to change their behavior?

10. Conduct a Premortem Look ahead and assume that your strategy has failed. Identify weaknesses in the action plan (or theory of change): How might

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they have affected your organization’s program, and how can you deal with them?

11. Prepare for Feedback as You Implement the Program Refer to your answer to “Design an Action Plan” and develop a plan to gather systematic feedback on how it is working. Using your organization’s action plan as a guide, create SMART metrics and targets for the following: • At least two output metrics and targets • At least two intermediate outcomes metrics and targets • One ultimate outcome metric and target Which of the metrics will be most informative about whether or not your program has met its ultimate outcome? If you could get feedback from only one stakeholder, who would that be and why?

Chapter 5

EVALUATING THE IMPACT OF YOUR PHILANTHROPY

Two years after the permanent supportive housing program was launched, more than 80 percent of the formerly homeless people initially admitted to the program have been in continuous residence. Needless to say, Fred and Peggy Gordon and Casa’s director are very pleased to have surpassed their goal of 60 percent. They believe that the wrap-around support services, which many residents availed themselves of, made all the difference. As they are celebrating their success, some obnoxious party poopers (your authors) remind them that the fact that a program’s intended outcome occurred does not mean that the program caused the outcome or (the same thing) that the program had impact. Maybe the residents would have achieved the same level of housing stability even without the support services. To use the technical term, this is the “counterfactual”—what might have happened even in the absence of the program. Perhaps you’ve heard the story of the New Yorker who rode the Fifth Avenue bus to work every morning. Every day, when the bus stopped at Forty-Second Street, he opened the window and threw the sports section of the newspaper into a litter basket. After many years, the bus driver asked why he did this, and the man replied,

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“I do it to keep the elephants off Fifth Avenue.” “But there aren’t any elephants on Fifth Avenue,” said the bus driver, to which the man responded, “See, it works!” The basic point is that correlation does not necessarily entail causation. Suppose that it’s a nice day at the beach. People are getting sunburns, and people are eating ice cream. Perhaps getting sunburned causes people to eat ice cream—to cool off. Or perhaps eating ice cream causes people to get sunburns—they feel so cool from the ice cream that they hang out in the sun too long. Of course, you know that something else is causing both phenomena—the weather: it’s a hot, sunny day. This seems pretty obvious. But in more complex situations, it’s easy for people to confuse correlation with causation. One can find many less obvious errors in the media and, indeed, in science. For example, in the years after the introduction of hormone replacement therapy (HRT) for postmenopausal women, medical scientists saw a correlation between HRT and the reduced risk of heart disease—a so-called negative or inverse correlation. But a later randomized controlled trial found that HRT actually increased the risk of heart attacks. It turned out that the original studies had not taken into account that women on HRT “were also more likely to see a doctor (which is how they were put on hormone therapy in the first place), and probably more likely to exercise and to eat a healthful diet, than women who were not taking the drug.”1 Thus, the relationship wasn’t that taking hormones made women healthy; it was that healthy women took hormones. “OK, we get the theoretical point,” the Gordons say, “but just knowing the city as we do, we’re pretty sure that many of these residents would still be on the streets were it not for the housing program.” But the Gordons acknowledge that they are less sure about the role of the wrap-around support services, which cost about as much as the housing itself. Granted, almost all of the tenants availed themselves of some of these services—for addiction

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and health problems. But how much, if anything, did the services contribute to their housing stability? That’s something they would like to evaluate. Fortunately, the program has some features that allow us to explore several approaches to evaluation. Recall that at the time the Gordons began discussions with Casa, the organization already provided housing for the homeless without any support in two units—on Apple Street and Bascom Avenue—each with about fifty apartments. Then, with Fred and Peggy’s support Casa added fifty units to the housing complex on Bascom Avenue and provided wrap-around support services to all of its residents. Fortunately (though this is sadly atypical), Casa kept detailed data on its residents’ outcomes from the start.

Methods of Evaluation With this background, let’s discuss three techniques to help determine whether the wrap-around support services contributed to the residents’ housing stability.

Before/After The before/after (also called pre/post) technique involves measuring an outcome before implementing the program and measuring it again afterward to see if it has increased, decreased, or stayed the same. In effect, the “before” group is the counterfactual—what would have happened in the absence of the program. Its advantage is that it is relatively easy to implement, since it only requires being able to measure the outcome at multiple time points. Its disadvantage is that it may reflect factors other than the intervention and depends greatly on the window of time you choose to look at. From 2013 through 2014, Casa provided housing at Bascom Avenue without any support services. As just mentioned, in 2015, with the Gordons’ support, Casa added fifty units and began supplementing housing with wrap-around support, such as health

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services and psychiatric and drug counseling. A comparison of residents’ housing stability during the period 2013–14 with the period 2015–16 indicates that many more formerly homeless people become stable residents after the organization provided those services than before.2 Can we attribute the improvement to the wrap-around services? Or might changes in the external environment have accounted for the result? Perhaps during the later period, the police undertook a major crackdown on drug dealers, greatly reducing the amount of drugs available to homeless individuals and thus reducing addiction. Before/after comparisons can provide useful indications of causation. But the evaluator must take account of changes in external circumstances that could have contributed to a different outcome before and after the sampling period. Determining what these circumstances might be requires understanding the dynamics of the relevant social system—in this case, factors that contribute to individuals’ being homeless and factors that might ameliorate the condition. But there’s always a possibility that the evaluator was not aware of an external factor that might have contributed to the outcome.

Matching The matching technique involves comparing the group that receives your program with a group of people who do not receive your program but have been “matched” with the first group on a number of potentially important attributes—for example, age, sex, race, health, history of drug abuse, and incarceration—that might predict success or failure in permanent supportive housing. Compared to, or combined with, before/after, matching can help account for some alternative explanations for any effects the program seems to have. Before considering how matching might be useful in determining whether the wrap-around services of permanent supportive housing contribute to its beneficiaries’ stable residency, note

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that there are two very different possible counterfactuals. First, we might compare the housing stability of residents of Bascom Avenue’s permanent supportive housing program with that of homeless people on the street, who have no housing whatsoever. If there turned out to be no difference, that would signify that the program had totally failed. But if residents of Bascom Avenue did better than homeless people on the street, we wouldn’t know whether this was the result of only providing housing or of providing housing with wrap-around support services. The Gordons are pretty sure that merely providing housing makes a positive difference and are interested in ascertaining the value added of wrap-around services (with the counterfactual being that they do not). Fortunately, they can find a comparison group in the residents of Casa’s Apple Street apartment complex, which still provides basic housing without support services. When someone is eligible for housing, Casa’s program administrator assigns the individual to one or the other housing complex based on a mix of factors: (1) the apartments’ proximity to the neighborhoods where the person lived on the streets and had social ties; (2) the person’s own preferences; and (3) the person’s own judgment about whether he might benefit from the support services. To determine whether the support services contributed to more stable residency—defined by at least a year’s continuous residency—let’s compare residents at Bascom Avenue, who are offered support services, with residents at Apple Street, who are not. To use the technical terms, we’ll call residents of Bascom Avenue the “treatment group” and call residents of Apple Street the “comparison group.” Suppose that many more people who receive support services have become stable residents. Can we conclude that the support services caused that outcome? Unfortunately not. The idea behind matching is that if the people in the two groups are, on average, identical in all relevant characteristics, but those in one group benefit from the program and those in the other group do not, the program itself is the only thing that can

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have caused the different outcomes. To determine which factors might be relevant, you need to identify the causes of the problem and the theory of change underlying the solution. The challenge, however, is that it is usually impossible to identify all relevant characteristics besides the program, which means that there are some characteristics that won’t end up being matched across the groups. Each of the administrator’s assignment criteria creates a problem of this sort: (1) There might be systematic differences in homeless people drawn from the neighborhood near Apple and the neighborhood near Bascom. (2) The very fact that an individual chooses support services may reflect better mental health than others, which conduces to success in Bascom. This distortion of matching is known as selection bias. (3) By the same token, and a different form of selection bias, the fact that the administrator assigned people to Bascom based on her judgment that they would benefit from the support services makes it difficult to ascertain whether those services would have benefited those she did not assign. The evaluator can improve on matching by employing the difference-in-differences (DiD) technique, which combines matching with before/after: The evaluator takes measurements of both the treatment and comparison groups before and after the program and then compares the changes between the two groups. If she has the data, this technique is relatively simple and helps rule out major alternative explanations—though it is still vulnerable to the two groups’ being poorly matched. We should note that the results of all evaluations, including randomized controlled trials, must be tested for statistical significance—for whether any difference observed between the comparison group and the treatment group is meaningful or is merely due to chance. Statistical significance is a function of the magnitude of the average difference between the groups, the variance (or spread) of the individual outcomes within each group, and the size of the samples. Evaluation results based on very large samples with small differences between them can be statistically signifi-

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cant, as can the results from small samples with large differences between them. While a statistically significant effect means that you can be pretty confident that it was caused by the treatment, it cannot tell you whether the effect is significant as a practical matter—whether it’s large enough to justify the cost of the program necessary to achieve it.

Randomization In sum, the limitation of the before/after technique is that it does not account for changes in the external environment over time. The limitation of matching is that it may not account for unobserved but salient characteristics of the people within the groups and may be subject to selection bias in who chose or was assigned to the program. A randomized controlled trial (RCT) is not subject to these problems. Suppose that Casa’s housing administrator, rather than use her judgment to assign clients to one or the other housing complex, flips a coin for each applicant—heads, he is assigned to basic housing services at Apple Street; tails, to permanent supportive housing at Bascom Avenue. How does the process of random assignment solve the problems inherent in matching? First, it eliminates our worry about “selection bias”—that people likely to benefit from the program self-selected into it or were assigned by the administrator to participate in it. Second, and more fundamentally, with a sufficiently large sample size, random assignment can cancel out any potential differences between the two groups other than the fact that only one received the treatment, leaving the treatment as the most plausible explanation for any differences observed in the outcome. The advantage of this technique is that it does the best job of establishing causality. Although offering services to one group while denying them to another sometimes may give rise to ethical concerns, in our case, random assignment may be a fair way of allocating scarce resources. Social scientists call an RCT an “experiment,” in contrast to

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an evaluation based on matching, which is called a “quasi experiment.” The RCT is said to be the “gold standard” of techniques for establishing causality. Some thoughtful social scientists argue that the alternatives to RCTs are so poor that they’re seldom worth using. Our own view is that this is too extreme. The value of alternative evaluation methods and, indeed, the decision whether and when to evaluate a program, depend on the circumstances, including your resources and access to data. We recommend that you read The Goldilocks Challenge, in which Mary Kay Gugerty and Dean Karlan  explore four rules for informing and improving these decisions: • Credible: Collect high-quality data and analyze the data accurately. • Actionable: Commit to act on the data you collect. • Responsible: Ensure that the benefits of data collection outweigh the costs. • Transportable: Collect data that generate knowledge for other programs.3 Sometimes you can assess the effects of your philanthropy without complex measures, especially where the theory of change is pretty straightforward. A donation to a soup kitchen feeds someone otherwise likely to go hungry. If you make a gift to a symphony orchestra to allow youngsters to attend without charge, a simple before/after comparison may give you all the information you need. But formal evaluations are often the only way to establish that an effort at social change is making a difference. If you lack the resources to conduct an evaluation of your own program, look for evaluations that have already been conducted of similar programs. There are increasing numbers of field experiments on social interventions, and you may find something of relevance. The good news is that to the extent that an evaluation can demonstrate that a theory of change is valid and robust—that it is gen-

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eralizable to other populations and locations and applicable outside the specific context—then you have some assurance that an intervention based on it will achieve the desired effects. And this brings us to the question of generalizability.

Generalizability and the Challenge of Replicating a Successful Program If Casa’s permanent supportive housing program at Bascom Avenue has been very successful, some other philanthropists might wish to implement identical programs elsewhere—for example, in the outskirts of the city in a peri-urban area named Green Meadows. They will need to know whether Casa’s success is generalizable—that is, they’ll want a reasoned prediction about whether it will work at another time, in a different place. This is the question of “generalizability” or “external validity.” In an excellent article on the topic, Mary Ann Bates and Rachel Glennerster, from the Abdul Latif Jameel Poverty Action Lab (JPAL), suggest a four-step framework for addressing this question: Step 1: What is the theory behind the program? That is, what are the mechanisms by which it works? Step 2: Will these mechanisms operate in local conditions? Step 3: How strong is the evidence supporting the necessary behavioral change? Step 4: What is the evidence that the implementation process can be carried out well?4 The researchers offer childhood immunizations in rural India as an example. Full immunization requires at least five visits to a clinic. But after one or two visits, many parents did not bring their children back. A study found that small incentives for parents, coupled with reliably available services at convenient mobile clinics, increased full immunization rates sixfold, from 6 percent

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to 39 percent. Would this work in other developing countries that have very low immunization rates? Step 1: Theory of change: Parents’ willingness to persist through the schedule was sensitive to small changes in costs, such as the time and transport cost of getting a child to a clinic. The underlying theory of change is that material incentives for each visit would significantly increase compliance. Step 2: Local conditions: Knowledge of local institutions is important for determining basic conditions such as whether clinics open regularly and whether the vaccine supply is reliable. Publicly available data are also useful. In particular, if most children receive at least one immunization but tend not to return for the rest, this suggests a problem similar to that observed in the original study. Step 3: Behavioral conditions: Indian parents wanted to vaccinate their children—or at least had no strong opposition to vaccination. Successful implementation of the program elsewhere likely depends on parents’ having similar attitudes. There is considerable evidence from studies involving various preventive health measures that small reductions in the price of preventive health care can dramatically improve adoption rates. Step 4: Local implementation: A critical component of the theory of change requires the clinics to provide a small but valued incentive to parents to get their child immunized. What the incentive is and how it is delivered must be adapted to the local situation. In India, the incentive took the form of a bag of lentils. In places with widespread mobile money technologies, cash incentive might be delivered through electronic payments. Notice that determining whether the circumstances of a proposed new locale for a vaccination program are similar enough to those of the rural Indian program calls for a process of match-

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ing analogous to that considered previously—that is, one must ask whether stakeholders in the new locale are similar in salient respects to those where the program succeeded. The underlying theory of change provides a framework for considering which factors might be salient. Turning to our own problem, the philanthropists who are considering imitating Casa’s program in Green Meadows examine possibly relevant similarities and differences: 1. The theory of change is identical. 2. But local conditions in Green Meadows differ in several respects. The Gordons’ housing units are in poor neighborhoods with the highest rates of homelessness. By contrast, residents of the Green Meadows program will be relatively isolated from homeless people on the street. Perhaps isolation will protect the residents against counterproductive influences, including drug and alcohol abuse. But perhaps the social isolation will be detrimental to their success. Also, while both areas’ homeless populations suffer from high rates of drug addiction, the drugs are different, and so is their availability. In the Gordons’ city, the main addictive drug is heroin, which is relatively expensive and may make it more difficult to maintain the habit. In Green Meadows, meth is the drug of choice, and it’s available in abundance and at low cost. 3. With respect to behavioral conditions, the two drugs call for different approaches to detoxification, and data about the relative success rates are mixed. Also, a majority of the homeless in Green Meadows are Latino, but those in the Gordons’ city are mainly white and African American. We’re not sure how their cultural differences might affect the outcomes. 4. With respect to local implementation, the Gordons’ program uses licensed physicians, psychiatrists and psychologists, and registered nurses, while the Green Meadows program will

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have to rely largely on paraprofessionals for psychological and addiction counseling, Thus, while the theory of change is the same, there are some potentially salient differences between the Gordons’ successful program and the proposed program in Green Meadows. All things considered, the philanthropists supporting the Green Meadows program are guardedly optimistic. But they would have greater confidence if similar permanent supportive housing programs had been evaluated in a number of different situations. We have been speculating about whether the permanent supportive housing program at Bascom Avenue could be successfully replicated elsewhere. Note, however, that the Gordons and Casa’s director faced the same question when initially deciding whether to implement the program at Casa. They knew that other programs had been successful—but in locales different from that of their city. So they, too, needed to consider whether differences in local conditions would affect the program’s outcomes.

Lessons from Program Evaluations Evaluations can fail for many reasons. While assessing the results of an RCT is largely an exercise in math and statistics, conducting an RCT requires considerable craft. Failing in the Field, by Dean Karlan, catalogs five categories of evaluation failures: • Inappropriate research settings • Technical design flaws • Partner organization challenges • Survey and measurement execution problems • Low participation rates5 But when program evaluations, especially RCTs, are done well and when their results are generalizable, they have enormous potential to inform interventions to improve people’s lives. Just how

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great a difference they can make for the poorest people in the world is demonstrated in two books written by pioneers in applying evaluation techniques to programs addressing global poverty: Poor Economics, by Abhijit V. Banerjee and Esther Duflo, founders of the MIT Poverty Action Lab;6 and More Than Good Intentions, by Dean Karlan, founder of Innovations for Poverty Action, and Jacob Appel.7 The rest of this chapter mentions just a few examples of program evaluations, in the United States as well as abroad, that have important, generalizable implications. We begin with some findings about a program that worked, followed by examples of evaluations indicating that programs did not work. The Nurse-Family Partnership (NFP) is a program in which a registered nurse visits low-income, first-time mothers during their pregnancies and children’s infancies to support their having healthy pregnancies and becoming responsible parents—all with the goal of improving child and maternal outcomes. For many years, the organization’s interventions were supported by philanthropists and had been subjected to at least three well-conducted RCTs in different geographic areas in the United States.8 In 2016, South Carolina launched a version of NFP as a pay-for-success program along the lines of those described in Chapter 6, which included an RCT.9 While the success of NFP in several locales is reason for optimism about its generalizability, we note that the evaluations were conducted by the researcher who designed the program and had an obvious interest in its success; by contrast, the South Carolina program is being evaluated by an independent organization, JPAL. With respect to the generalizability of the theory of change, one might have thought that NFP’s key mechanism was the information imparted to mothers by the visiting nurses. A replication of the program with visiting paraprofessionals rather than nurses showed diminished effects,10 however, thus suggesting that it may make a difference who imparts the information. As valuable as learning that a social intervention succeeds is

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determining that it does not succeed—so that funders will seek better options rather than pour money down the drain. It turns out that strategies that seem intuitively certain to succeed sometimes do not and, indeed, may actually do harm to their intended beneficiaries. The evaluation firm Mathematica was commissioned to conduct a randomized controlled evaluation of federal abstinence education initiatives. Mathematica worked with four states to randomly assign schools either to receive or not receive abstinence education programs and then analyzed students’ self-reported sexual activity rates. The results, released in 2007, show that students whose schools received abstinence programs were just as likely to be sexually active as students whose schools did not.11 James Wagoner, president of Advocates for Youth, said of the results: “After 10 years and $1.5 billion in public funds these failed abstinence-only-until-marriage programs will go down as an ideological boondoggle of historic proportions.”12 A famous example of a demonstrably ineffective intervention is the Drug Abuse Resistance Education (DARE) program, which sought to prevent youth substance abuse through classroom instruction. Randomized controlled studies of the DARE program consistently showed that students in treatment and control groups had the same rates of both short- and long-term drug use.13 Along similar lines, Joan McCord, a criminologist who evaluated programs for troubled youth,14 conducted a longitudinal study comparing participants in a program that provided mentoring, healthcare services, and summer camp to high-risk boys with a control group of similar youths. She found that boys in the program were more likely to become criminals, have employment and marital problems, and become alcoholics than those in the control group. The evidence contradicted not only the expected outcome but also the participants’ own belief that they had benefited from the program. (McCord hypothesized that the boys in the treatment group may have felt they were given the attention because something was wrong with them, making it a self-fulfilling prophecy.)

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She found similar paradoxical effects from a “ just say no” drug education program and from “Scared Straight,” a program designed to deter young people from following a criminal path. In 1997, the New York City Voucher Experiment randomly assigned several thousand low-income families with K–4 students to either a treatment or a control group. Families in the treatment group received school vouchers for private-school tuition, worth $1,400 per child per year for four years,15 while families in the control group did not receive vouchers. After three years, researchers administered math and reading tests to students in each group and analyzed the results.16 It turned out that vouchers did not significantly affect children’s test scores in the aggregate.17 But that study was hampered by the attrition of its sample size because families in the control group moved away and the experimenters lost track of them.18 A recent study of the DC Opportunity Scholarship Program (OSP) avoided this problem: After one year, the OSP had a statistically significant negative impact on the mathematics achievement of students offered or using a scholarship. Mathematics scores were lower for these students . . . (by 5.4 percentile points for students offered a scholarship and 7.3 percentile points for students who used their scholarship), compared with students who applied but were not selected for the scholarship. Reading scores were lower (by 3.6 and 4.9 percentile points, respectively) but the differences [for reading] were not statistically significant.19

Vouchers for private schools should not be confused with voluntary enrollment in charter schools. Although there is tremendous variability, with many charter schools performing below their public-school counterparts,20 some charter management organizations, such as KIPP and Aspire, show significant improvement in math and reading skills for poor inner-city children.21 (Returning to the issue of generalizability, note that students must volunteer to attend charter schools, thus manifesting a motivation that conduces to academic achievement. It is by no means obvious what

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the educational outcomes would be if charter schools became the norm in a school district and students were assigned to them.)22 In sum, if you are a philanthropist with a long-term commitment to a field, it is well worth putting funds into evaluation. If you are supporting a new idea, then the imperative grows. If you expect your program to scale significantly, then your burden of responsibility—to really test the idea—grows proportionally. Be prepared for some frustration and some insights, and for some intuitions to turn out wrong. Most of all, be prepared to learn.

Application to Your Own Philanthropy 12. Sketch an Impact Evaluation Plan Outline a plan to evaluate the program you developed in the preceding chapters, using a matching approach or RCT. What are the strengths of the evaluation method you selected? What are its limitations?

13. Address the Prospects for Replicating and Scaling the Program Assume that your program has been successful and you wish to replicate it in other locales. What problems might you encounter? What information would help you determine the likelihood that the replicated program would succeed?

Chapter 6

USING OUTCOME DATA TO INCREASE YOUR IMPACT

We conclude Part 2 by considering ways that you can use data about outcomes to improve the impact of your philanthropy. • First, we look at two charity evaluation services that are useful for individual philanthropists or foundations with few or no staff members who wish to evaluate the performance and cost-effectiveness of nonprofit organizations. • Second, we consider how a foundation’s internal decision making can take into account the relative impact of different grants that seek to achieve the same outcome. Our example is the Robin Hood Foundation, which makes grants to fight poverty in New York City. • Third, we look at the recent phenomenon of Pay for Success (PFS), or result-based financing, in which an organization is paid for achieving agreed-upon outcomes. • Finally, we consider the role of more or less calculated risks in philanthropic strategies. All of these approaches use cost-benefit analysis (CBA) or costeffectiveness analysis (CEA). CBA compares the total costs of a program with the benefits it produces:

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Net Value = Total Benefit − Total Cost Under CBA, an activity is justified if, and only if, its benefits outweigh its costs; and the greater the net value the better. Net value is sometimes called “expected value” and sometimes (analogous to the term in finance) “expected return.” The closely related concept of CEA is useful in deciding which program to pursue among several that have the same intended outcome. CEA is embodied in a ratio, obtained by dividing the cost of each program by the impact of its outcome. It can be thought of as a measure of philanthropic leverage: Cost-Effectiveness Ratio = Total Costs / Impact While CBA requires assigning a dollar value to outcomes, CEA allows you to compare outcomes of similar programs without monetizing them. Impact is a measure of the program’s ultimate intended outcome—or at least a measurable intermediate outcome that serves as a reasonable proxy. For example, a high school drop-out prevention program would likely treat the number of drop-outs prevented as the most important outcome. The simplest application of CEA involves comparing the impact of different programs seeking to achieve the identical outcome. For example, if it costs one food bank a total of $10 (including indirect costs) to serve a meal to a homeless person, and it costs another food bank $15 to serve a similar population in a similar neighborhood in the same city, the first program is more cost-effective than the second. CEA can also be used to compare programs that have different outcomes if the outcomes can be compared in terms of a single metric. In the two following examples, GiveWell uses the metric of quality-adjusted life-years (QALYs) to compare health programs in developing countries, and the Robin Hood Foundation uses the boost in an individual’s lifetime earnings to compare antipoverty programs in New York City. It is impossible as a practical matter, and perhaps even theoret-

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ically, to compare programs that have radically different sorts of outcomes. Consider a foundation that has programs in K–12 education, environment, and the arts. Even if one can compare the outcomes of grantee organizations within one of these programs, there is no common metric that would allow comparison of, say, an organization that improves educational opportunities for disadvantaged students with one that protects endangered ecosystems or that provides audiences with classical music.

Rating Charities Based on Improving Outcomes Two charity rating services, GiveWell and ImpactMatters, rely primarily on information about nonprofit organizations’ impact. GiveWell rates nonprofits that address global poverty based on four criteria: evidence, cost-effectiveness, room for more funding, and transparency: Evidence. We seek out charities implementing programs that have been studied rigorously and ideally repeatedly, and whose benefits we can reasonably expect to generalize to large populations, though there are limits to the generalizability of any study results.1

GiveWell uses evidence essentially in the ways described in Chapter 5, with a particular emphasis on RCTs and a concern for the generalizability of interventions that work. Cost-effectiveness. We attempt to estimate figures such as the total “cost per life saved,” “cost per disability-adjusted life-year averted” or “cost per total economic benefit to others, normalized by base income” for each of the charities we consider. We seek out charities running programs that perform well on metrics like this.

It is easiest to understand GiveWell’s approach to cost-effectiveness in health interventions, where programs are assessed in terms of their effect on disability-adjusted life-years (DALYs)—a widely used global metric of disease burden that combines mor-

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tality and morbidity in a single metric representing years lost due to ill health, disability, or early death.2 One DALY is equal to one year of healthy life lost, with different disabilities given different weightings by the World Health Organization. For example, Alzheimer’s is weighted at 0.666 of a year, severe anxiety disorder at 0.523, blindness at 0.195, and lower back pain at 0.061. GiveWell compares charities in terms of the cost of DALYs. Room for more funding. Our top charities receive a substantial number of donations as a result of our recommendation. We ask, “What will additional funds—beyond what a charity would raise without our recommendation—enable, and what is the value of these activities?”

While the cost-effectiveness metric captures the organization’s work as it currently exists, room for more funding estimates the effectiveness of additional funding. GiveWell notes, “In the past, we have suspended recommendations of strong charities when we didn’t feel they could use additional donations quickly and effectively.” Transparency. We examine potential top charities thoroughly and skeptically, and publish detailed reviews discussing strengths of these charities as well as concerns related to their work or room for more funding. We also follow top charities’ progress over time and report on it publicly, including any negative developments. Charities must be open to our intensive investigation process—and public discussion of their track record and progress, both the good and the bad—in order to earn “top charity” status. We also believe that any good giving decision involves intuition and judgment calls, and we aim to put all of our reasoning out in the open where others can assess and critique it.

Transparency is not an effectiveness metric as such but enables donors, as well as GiveWell itself, to assess an organization’s operations and outcomes. Application of the first three criteria demands considerable

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data—from the organization itself as well as from public health and other government agencies—and high-quality evaluations of an organization’s outcomes. At any time, GiveWell is confident in rating only a handful of organizations among its top charities. GiveWell’s work is informed by the philosophy of effective altruism, described in Chapter 1. Its exclusive focus on developing countries is based on the belief that poverty in those countries is far more severe than in developed countries and that improving lives in the Global South tends to be more cost-effective. GiveWell rates only organizations that provide direct services—for example, distributing malaria-preventing bed nets or providing pills to treat intestinal parasites. Its website explains: We believe there have been many efforts to find and address the root causes of poverty, and that they haven’t generated strong conclusions or successful programs. Root-causes-based approaches are, in our view, the kind of speculative and long-term undertakings that are best suited to highly engaged donors. . . . We also believe that direct aid . . . can empower individuals to make differences in their own communities. These individuals may be better positioned to understand and address many problems than we are.3

As much as we admire GiveWell’s rigorous approach to evaluation, the contrast between addressing “root causes” and providing services or direct aid strikes us as a red herring. There is a vigorous debate among scholars and practitioners about whether individual interventions by themselves can move the needle on global poverty and other social and environmental problems better than strategies to change policies and entire systems, whether or not they are aimed at root causes.4 Yet GiveWell is doubtless correct that it is far more difficult to evaluate strategies to change policies and systems, and its ratings are designed mainly for individual donors who lack the time or staff to delve deeply into the details of a strategy.

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ImpactMatters is a relatively new nonprofit that performs impact audits to rigorously estimate the philanthropic impact of service- delivery organizations.5 ImpactMatters does not itself undertake experiments but rather constructs an estimate using the nonprofit’s own evidence and provides a rating for the quality of that evidence. ImpactMatters also provides feedback to audited nonprofits on how to improve. For example, ImpactMatters audited D-Rev, which improves the health of poor patients served by underresourced medical facilities by designing and distributing affordable medical devices. The outcome D-Rev uses to measure success is deaths and disabilities averted. D-Rev has not conducted a rigorous randomized trial to estimate its impact (although a quasi-experimental study is under way). Instead, ImpactMatters used data from internal evaluations combined with some estimates from the medical literature (generalizability) to estimate that D-Rev devices sold in a given year between 2013 and 2015 averted thirty-eight thousand DALYs. D-Rev expended $1 million and hospitals and patients paid $21 million over that period, so the program averted one DALY (equivalent to one year of healthy life) for every $600 spent. Of the nonprofits audited in ImpactMatters’ pilot period, several have a mission to boost the income of very poor people in developing countries, allowing a donor to compare their costeffectiveness. Assessing the cost-effectiveness of programs of these sorts ultimately depends on the robustness of their underlying evaluations and, if one is predicting their future cost- effectiveness, on the generalizability of the evaluations in (inevitably) different circumstances. Even medical interventions are subject to this limitation. While deworming medication and insecticide-treated bed nets have highly predictable effects when properly used, their use often requires behavior changes by the beneficiaries or other stakeholders, and these may vary enormously from one instantiation of a program to another.

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Comparing a Foundation’s Grantees Based on a Common Metric As mentioned in Chapter 1, the Robin Hood Foundation focuses on fighting poverty. Like GiveWell, it employs a cost-effectiveness analysis to compare organizations—though it does so for its own grantmaking rather than to provide ratings to the general public. Because most of its programs seek to improve its beneficiaries’ future incomes, Robin Hood measures “how much a program boosts the earnings of a participant above what that participant would have earned in the absence of the program.” This metric is based on the premise that “poverty is generally defined in terms of income, so that a program that boosts income directly cuts the number of poor people or the severity of their poverty.”6 Here’s an example of how Robin Hood calculates the net benefits of Bob’s Jobs, a women’s workforce development organization: • There were 150 women enrolled in Bob’s Jobs. • Of these women, 72 completed the training; 41 held on to their jobs for only three months; and 31 still had jobs at the end of one year. • The 41 women with short-term employment enjoyed an average salary increase of about $2,900, or $120,000 in total. • The average annual salary increase for the 31 women who held jobs for at least a year was approximately $12,000.7 Robin Hood makes these assumptions about the thirty-one women with job persistence: • They will continue to be employed for thirty years. • Their annual salaries will increase by 1.5 percent above inflation. • They have an average of 1.8 children each; given research findings on the effects of parents’ employment, each family will realize an intergenerational income boost of $56,000.

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• The discount rate—that is, the number used to calculate how much an amount of future money is worth today—is 3.5 percent. Thus, the net present value of the benefits to the thirty-one long-term workers is $9.1 million. Adding the onetime salary boost for the forty-one short-term workers, the total benefit of the program is $9.2 million. In the year in question, Robin Hood made a $200,000 grant to Bob’s Jobs. Thus, the benefit/cost (B/C) ratio was 9.2M = $46 per $1 granted 200K In this case, Robin Hood took into account the fact that other private and public donors supported Bob’s Jobs and discounted its own contribution by 50 percent, for a net B/C ratio of 23:1.8 The B/C ratio provides a basis for comparing Bob’s Jobs both to other workforce development programs and to all other programs that measure their ultimate success in terms of a boost to their beneficiaries’ income.9 Even with its focus on service delivery, the Robin Hood Foundation recognizes the large margins of error in these calculations and also relies on qualitative information and judgments in the grantmaking process. Just as GiveWell does not rate policyadvocacy organizations, Robin Hood does not support them; it funds only “poverty-fighting programs that provide long-term, comprehensive, and intensive services that produce measurable results.”10 The Hewlett Foundation’s Performing Arts Program illustrates one way that qualitative and quantitative outcomes can be combined in a program strategy. The program avowedly takes an expected return approach to its grantmaking. In addition to qualitative indicators of excellence, the foundation employs quantitative criteria such as paid and free attendance at grantee events, the attendance of diverse demographic groups, and rates of participa-

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tion in the grantees’ education and community-based programs. The program’s website explains: Expected return estimation is valuable for its ability to help Program staff make their assumptions explicit and to bring to the surface aspects of grantee performance that might otherwise have gone unrecognized. Nevertheless, .  .  . because it is highly dependent on values that are difficult to estimate precisely or validate by analysis, expected return estimation can be subjective and contain significant margins of error. Expected return estimation also generally carries an implicit assumption that the benefits of different activities are independent from one another. Where major interaction effects are evident, activities can be combined for analysis, but such combinations must be handled explicitly and add complexity to the process. For these reasons, it is important to emphasize that expected return is only one factor the program uses to assess grantees in the decision to support, renew, or exit. The program also considers the results of site visits, performance reviews, interviews with administrators and board members, and financial reviews. High expected return estimates generally correlate with strong performance in other terms, but the program does not simply select the highest expected return funding opportunities without regard for these other factors. The program expects to use expected return estimates as an element of, not a replacement for, its relationship- driven grantmaking model.11

Pay for Success A growing number of state and local governments are entering into contracts that pay organizations only (or mostly) if they succeed in delivering social outcomes or impact, such as reducing recidivism or homelessness or improving the prospects for disadvantaged children.12 Here are several examples.

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Recidivism. The prevention of recidivism has been a popular subject of PFS contracts because rates of recidivism—especially for young men—are very high and programs to reduce recidivism yield measurable outcomes, are easily evaluated, and can create cost savings as well as social benefits. In 2012, for example, Governor Andrew Cuomo of New York decided to launch a PFS program to address this long-standing problem. The state retained the PFS intermediary organization Social Finance to quarterback the project and contracted with the Center for Employment Opportunity (CEO) as the service provider.13 CEO had a program that provided intensive life skills training and placement into a subsidized part-time job immediately after release, followed by placement into a full-time unsubsidized job, with counseling and support for job retention for one year thereafter. In 2004, CEO had participated in an RCT, which demonstrated significant decreases in rates of recidivism among the exoffenders who were at the highest risk of returning to prison. CEO and Social Finance developed a strategy to serve a total of two thousand previously incarcerated individuals in Rochester and New York City between 2014 and 2018. The program would have two phases, each serving a cohort of one thousand individuals over three years, with the US Department of Labor (DOL) committing to performance-based payments for Phase I and New York State paying for Phase II. Under the program, the New York State Department of Corrections and Community Supervision (DOCCS) identifies eligible ex-offenders in the two cities and then randomly assigns them to CEO or to a control group. Performance-based payments depend on three outcomes: reduction of recidivism, transitional jobs, and regular employment. • Reduction in recidivism, based on “bed days” avoided: the average reduction in the number of days in prison for CEO’s clients compared to those in the control group. This metric was intended to capture the budgetary costs of incarceration and

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the severity of any subsequent crimes. Payments are based on the marginal cost of an additional day of incarceration. An average reduction of 36.8 prison days per person during the time periods of the contract would trigger payments of $85.00 and $90.10 per day in Phases I and II, respectively. • Engagement in transitional jobs: the number of treatment group participants who start CEO transitional jobs on supervised work crews primarily for public institutions. Payments are based on the value to the public sector provided by the services. Treatment group members who start a CEO transitional job will trigger success payments of $3,120 and $3,307 in Phases I and II, respectively. • Employment: a binary metric based on positive earnings in the fourth quarter after release from prison, based on data from the New York State’s Department of Labor. Payments are based on greater anticipated tax revenue and reduced public assistance. A minimum increase of 5 percent would trigger a payment of $6,000 in Phase I and $6,360 in Phase II. The program was designed to reduce perverse incentives and the risk of “gaming”—a service provider’s meeting the payout criteria without actually achieving the desired outcomes. One obvious way to game a PFS contract is to “cream” by selecting easy-totreat participants. Under the contract, however, DOCCS selects high-risk participants, who are randomly assigned to the treatment group or to a control group, thus avoiding the possibility that CEO could cherry-pick participants who were the most likely to succeed. As of this writing, evaluation of the program is under way. Homelessness. In 2015, Santa Clara County, California, launched Project Welcome Home to serve 150 to 200 people who are chronically homeless and end up in emergency rooms or jail and use other government-funded services at a disproportionate rate. Third Sector Capital was the project intermediary, and the non-

Using Outcome Data to Increase Your Impact

Participant Milestone

# months of continuous tenancy 3 months 6 months 9 months 12 months Cumulative payment through 12 months Each month after the first year of stable tenancy

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Success Payment per Participant

$1,242 $1,863 $2,484 $6,831 $12,240 $1,035

Payment schedule for Santa Clara County permanent supportive housing program

FIGURE 10.

profit organization Abode Services provided permanent supportive housing placement and support services of the sort described in the preceding chapters, with the goal of increasing continuous stable tenancy. The county begins to issue success payments when a participant achieves three months of continuous tenancy, and payments increase after each three-month milestone for a year. By the end of twelve months, the county will have paid $12,240 per participant. The table in Figure 10 shows the milestones that trigger progressive payments. A PFS project depends on B/C calculations by both the government and the service provider. The government must be able to quantify the benefits it expects to flow from the PFS project. Governments are concerned with creating cost savings (i.e., reducing out-of-pocket costs) and/or welfare benefits for the program’s beneficiaries. In the ideal PFS contract, the government can calculate the break-even point for savings based on the current costs incurred by its provision of a service. The monetary value of welfare improvements—for example, health, education, and public safety—are based on calculations of the sorts used by GiveWell and the Robin Hood Foundation.

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Recidivism programs have good data on the direct and social costs of incarcerating a prisoner. A study by the State of Maryland summarizes: The majority of cost savings from a reentry program are associated with avoided reimprisonment. Within this category, the largest cost savings come when an agency can close a wing of a prison or an entire prison due to a drop in the number of prisoners. . . . At the time of the release, individuals return to the community with norms and attitudes that are maladaptive to society outside of the prison walls. Compounding the problem, many, if not most, have weak labor market attachments and social supports. Reentry programming can thus provide a highly socially valuable set of services, independent of the fiscal impact, that contribute toward stronger and safer communities when former inmates are able to begin rebuilding healthy and productive lives.14

Reducing recidivism also reduces the costs to victims, including lost earnings and medical costs from injuries, property loss, and the psychological costs of feeling unsafe. For homelessness programs, the main benefit is the value of stable residence to homeless people themselves, but a government may take into account the costs of emergency care and other services for homeless people on the streets. Since even the best social programs have success rates well below 100 percent, the service provider must predict how many clients it must treat at what cost to achieve one successful, and therefore billable, outcome. Significantly overestimating the program’s success could lead to the service provider’s insolvency. The uncertainties inherent in this estimation impose a risk, to which the service provider may reasonably respond by demanding a higher cost per outcome at a lower threshold for success. In any event, the service provider must have enough working capital to implement the program and must also take the risk that it won’t be paid if the program fails. To mitigate the cash flow problem, some PFS programs are supported by a combination of

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philanthropic and commercial investors, who front the working capital and are repaid only to the extent the program succeeds. Alternatively, the government may pay the organization for providing services, with a bonus for successful outcomes, or use a “rate card” scheme. In addition to doing their separate calculations, the parties must agree on a method for determining success payments. There are essentially two ways to establish a benchmark for payments under a PFS project: (1) an evaluation that compares outcomes for the provider’s clients with those of a similar group who did not participate in the provider’s program and (2) a “rate card” (like that shown for Santa Clara County’s homelessness program) in which the provider is paid a specified amount for each client who achieves a successful outcome, with the payment based on the government’s estimate of the benefits of such outcomes. With a rate card, the government payer defines the target group of beneficiaries, the outcomes it wishes to purchase, and the price per outcome it is willing to pay. The main reason that the parties to a PFS contract might choose to adopt rate cards in lieu of RCTs or other evaluation methods is that rate cards are much simpler and less expensive to implement, and payment determinations can be made much more quickly. Service providers may find rate cards less risky because they don’t require proof that their particular interventions contributed to the outcome.15 Rate cards permit governments to contract with multiple service providers, each of whom can work with the same target population as long as each has its own identifiable clients. And rate card programs avoid the cost and the moral implications of tracking a comparison group whose members do not receive the services. But rate cards come with significant limitations as well. The absence of a comparison group limits both the organization’s and the government’s ability to determine whether the outcomes were achieved as a result of the intervention or because of external factors. Also, while each experimental evaluation contributes to the

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knowledge base of the impact of an intervention, rate cards make a lesser contribution. We imagine that rate cards are most valuable in situations where there are reliable data about the impact of social programs and social scientists are reasonably confident in their external validity.

The Valuation of Outcomes and High-Risk Philanthropy So far, this chapter has focused on organizations delivering social services to individual clients. Suppose that an organization’s success rate, though not 100 percent, is reasonably stable and predictable. Now suppose that you, as a philanthropist, are concerned with the increasing problem of opioid addiction in your city and are considering making a $1 million donation to an organization that provides direct services to cure addiction. How much is it worth to cure a case of opioid addiction? You probably would applaud a government’s asking this question, as it did of the value of preventing a case of recidivism or homelessness in the preceding PFS examples; a government has a limited budget, which you hope it will use wisely. Philanthropists face the same question. After all, a dollar spent trying to reduce addiction could be spent to achieve another outcome you are concerned about. Suppose that you value a single case of an addiction cured at $10,000. It costs your potential grantee $400 to treat an addict, and 40 percent of treatments are effective, for a net cost of $1,000 per effective treatment. Thus, your $1 million donation would support the treatment of 2,500 individuals, curing 1,000 cases of addiction. Under a CBA analysis, the expected value of your grant would be $9 million: 1,000 successes × $10,000 (the value of each addiction cured) − the $1 million cost = $10 million − $1 million = $9 million Before you decide to make this donation, you learn of another organization that, rather than provide direct services to addicts, advocates for legislative or administrative changes involving the

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prescription of opioids, with the goal of preventing addiction in the first place. How do you compare the two? By contrast to the service-delivery organization, which will provide results within a relatively narrow margin of error, advocacy strategies tend to be highly risky. Even if the legislation is adopted and implemented, it is difficult to predict precisely how many instances of addiction it will prevent. Moreover, given the hurdles of the political process, as well as the complexities of implementation, the likelihood of success of reducing opioid addiction is difficult to quantify with any precision. Thus, assessing an advocacy strategy adds the element of risk to the cost-benefit equation in the form of likelihood of success. The expected value of the strategy takes into account the magnitude of the benefit if the strategy succeeds, the likelihood of success, and the cost of pursuing the strategy. Let’s make some simplifying assumptions. Suppose that it will cost the organization $1 million to have a chance of getting the regulation adopted and that, if adopted, the policy change will prevent 100,000 people from becoming addicted—for a cost of $10 per addiction avoided. Since you value each addiction avoided at $10,000, that’s a net value of $999 million: 100,000 addictions avoided × $10,000 (the value of each addiction avoided) − the $1 million cost = $1 billion − $1 million = $999 million But this does not take into account the likelihood of success (LOS). Considering the political environment, the organization’s CEO estimates that there’s a 20 percent LOS.16 When you multiply the value of the policy change by this 20 percent, you end up with an expected return of $199 million for your grant of $1 million. This is still much greater than the expected return of the servicedelivery program. In fact, advocacy has a greater expected value than the service-delivery program even if the LOS falls to just over 1 percent. But remember, there’s always a substantial possibility of achieving nothing at all.

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For all of the risks of failure, a great deal of contemporary philanthropy involves policy advocacy—in areas including climate change, civil liberties and civil rights, criminal justice, and many others. The equality gains of people of color, women, and gay and lesbian people in the past half century all depended on advocacy; and while much of the work was done through grassroots movements, it was significantly supported by philanthropy. Some commentators have argued that the support of policy advocacy requires rejecting the quantitative approach outlined in this chapter. For example, Bruce Sievers, formerly executive director of the Walter and Elise Haas Fund and now a visiting scholar at Stanford University, writes: The environmental movement, the rise of the conservative agenda in American political life, and the movement toward equality for the gay and lesbian communities, all aided by significant philanthropic support, have transformed American life in ways that lie beyond any calculations of “return on investment.” Of course, we believe that there have been calculable returns on investments in these issues, but the point is that these movements have recast the American moral landscape, resulting in enormous change in the way society functions and understands itself, with consequent changes in policy. Commitment of philanthropic resources to these issues was not merely a matter of analyzing increments of inputs and output; it was a moral engagement with wooly, unpredictable issues that called for deeply transformational action.17

We agree with Sievers’s observations and, as mentioned previously, recognize that the margins of error for predicting the impact of policy advocacy are enormous. But looking at opportunities through an expected return lens does not narrow a philanthropist’s choices. On the contrary, it can inspire philanthropists to play long shots when the jackpot is immeasurably large, as it is, for example, in averting catastrophic climate change and pro-

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moting civil rights. It is the fact that the social returns they seek, though not quantifiable, are potentially huge by any standard that gives philanthropists the courage to fail. We have used policy advocacy as a central example. But there are many other examples of risky philanthropy, including publicinterest litigation; second-track diplomacy (such as informal meetings of Israelis and Palestinians to get productive peace talks under way); and support for developing innovations in medicine (such as an AIDS, malaria, or Ebola vaccines). In many of these cases the outcomes are subject to what economists term “uncertainty” rather than “risk,” because the likelihood of success is not realistically quantifiable. Besides its uncertainty and great potential for failure, risky philanthropy has another characteristic that makes it unappealing to some funders: they won’t necessarily get the credit for its success. The causes of social change are usually too complex and the actors too many to claim that any single grant, or even a series of grants, tipped the balance. But the willingness to assume great risks and forgo attribution carry the potential for truly great impact. Archimedes famously said, “Give me a lever and a place to stand, and I can move the world.” The best high-leverage risktaking philanthropy, undertaken with focus and a clear strategy on a big problem, at least gives you a chance.

The Value and Limits of Metrics Bruce Sievers’s skepticism about applying an expected value framework to policy advocacy is just one component of a broader critique of what he calls a “business model” of philanthropy, aimed at the concept of “social return on investment” (SROI)— another term for expected return:18 Unlike businesses .  .  . philanthropic and nonprofit organizations operate in two worlds. One of these is defined by instru-

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mental objectives such as financial stability [or] number of people served. The other world, however, is defined by different end goals of human action: education, artistic expression, freedom of thought and action, concern for future generations, and preservation of cultural and environmental legacies. . . . These ends are the goals and aspirations of the human experience and are not reducible to the same kinds of categories that define profit margins and make for the most efficient production of widgets. .  .  . SROI does not and cannot adequately account for the complex and intangible human dimensions of what nonprofit organizations seek to accomplish. The meaning and import of a ten-year process of policy development, a shift in public consciousness, a spark of understanding brought through the arts, or the transformation of a single human being in a youth development program simply cannot be captured by SROI.19

We agree that philanthropy operates in two worlds. But the two worlds that Sievers describes are essentially those of ends and means—and it generally makes good sense not to conflate them. To be sure, the complexities of social forces beyond your control, and even beyond your ken, realistically entail that grantmaking seeking social change has far more unknowns than certainties. But philanthropists must make choices, and an expected value framework reflects the reality that a grant dollar spent on a poorly designed strategy or a low-performing organization is a lost opportunity to support a more effective strategy or organization. Without attempting to quantify social returns, the investment metaphor embodies the mind-set, discussed in Chapter 1, that presses foundation staff to use their donor’s resources as effectively as possible.

Application to Your Own Philanthropy Assume that you care enough about the opioid addiction crisis (or some similar social problem) to devote significant philanthropic

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resources to addressing it. What factors would enter into your decision whether to support services to individuals (with relatively stable and predictable success rates) or policy advocacy, which has the potential to benefit many more people but has an unpredictable and low success rate?

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PART THREE

GRANTMAKING

IN PART 2 we examined the elements of philanthropic strategy from

soup to nuts—from defining a problem to developing a strategy to solve it and evaluating the strategy—through the eyes of a philanthropist couple who were concerned about reducing homelessness in their city. In Part 3, we consider how to apply this framework to actual grantmaking. There are at least three rather distinct models of doing philanthropy, each of which calls for the analysis described in Part 2. To achieve your philanthropic goals, you might invite proposals from organizations that have their own strategies. Your analysis of their proposed strategies lies at the core of due diligence. You might develop your own strategies and seek out organizations that will carry them out; or you might develop your own strategies and carry them out yourself. Most of Part 3 focuses on the first of these, though we also consider examples of the second. The third model is that of an operating foundation—in effect, a self-funded operating nonprofit organization. Our main focus is on grantmaking, however, and we will generally assume that you are making grants through a foundation—though the discussion is relevant to other vehicles, including your checkbook, a donor-advised fund, or a limited liability company.

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Chapter 7

PREPARING TO OPEN FOR BUSINESS

Choices in Philanthropic Goals and Strategies Throughout this book we have noted that a philanthropist’s goals are essentially personal and subjective. As with other choices, however, you can be more or less thoughtful about the scope of your goals and approaches to achieving them. There are any number of approaches—tools in the strategic philanthropist’s toolkit—to achieving your social objectives, ranging from supporting basic research and building fields of inquiry, to providing direct services to help one individual at a time, to carrying out policy advocacy. Strategic philanthropy neither privileges nor excludes any of these different approaches in the abstract. On the contrary, which ones you use should depend primarily on their effectiveness in achieving your particular goals. Nonetheless, some other personal or psychological factors may also be involved, for example: • You may want to see the results of your philanthropy sooner rather than later. • You may want to identify the particular beneficiaries of your philanthropy or be willing to benefit unidentified people.

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• You may want to see tangible effects on people’s lives or to support the development of knowledge that will take decades to lead to practical applications (if it ever does). • You may be more or less tolerant of the risk of failure. • You may want to play a major role in designing and pursuing a strategy or be satisfied to be one of many contributors. • You may want your generosity to be recognized or prefer anonymity. The following three-dimensional framework may help you determine the role that these sorts of interests and desires play in determining your philanthropic strategies.

1. Does the problem inhibit life’s fulfillment or threaten life itself? Programs supported by philanthropists can range from those that nourish the human spirit and help cultivate creativity (parks, the fine arts) to those that try to ensure the necessities of a good life (food and shelter, clean air and water, freedom, justice), to those that try to make life possible (research into cures for HIV/AIDS and malaria, efforts to halt nuclear proliferation). You can think of the problems along a continuum: Inhibits life’s fulfillment Compromises necessities of life Threatens life itself

We have little to add to centuries of philosophical debates about how one should balance addressing incommensurable goals of these sorts. These are all legitimate and important pursuits and will appeal in different mixes to different philanthropists. But they have different implications for philanthropy and require quite different strategies.

2. How long will the harm persist? Can be eliminated in the foreseeable future (reversible)

Grows exponentially

Lasts forever (irreversible)

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This axis is concerned primarily with the consequences of postponing action rather than trying to prevent or mitigate a harm now. If you reduce conventional pollutants, such as soot or sulfur dioxide, the air will become clean and breathable within a matter of days. By contrast, even after water pollution stops, a lake may take decades to recover. And even with massive reductions of greenhouse gases, the earth will continue to get hotter for a century or more, with irreversible damage to agriculture, habitats, and human health. The effects of poor educational systems may be passed on for a generation, but they will dissipate eventually if education is improved. However, the loss of biodiversity is irreversible.

3. What is the scope of the problem? Small (local/few people)

Significant

Vast (global/many people)

You can think of the scope of the problem in terms of the number of people affected or in terms of geography. The number of people affected may range from a few identifiable individuals (the children at the Helping Hand Orphanage to a larger but graspable number (high school drop-outs in your community), to the unimaginably large (victims of a nuclear disaster). The scope of the problem may be defined in other units as well: for example, acres of land or on a scale of local to global. A park can improve your neighborhood. A conservation easement can protect local lands. A wilderness bill can create regional environmental protection. An effort to protect the Amazon rain forest could protect hundreds of millions of acres. An effort to reduce greenhouse gases is aimed at an immense amount of global real estate. Problems such as war, human rights, poverty, and economic development in foreign countries or regions are global for several reasons: they are abstract and often far away from home; they tend to involve vast numbers of anonymous people; they often

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FIGURE 11.

Small and large cubes

transcend political boundaries; their time scales do not align with political clocks (e.g., elections) or business tempos; and they often require working in unfamiliar and complex social and economic systems. These three axes can be combined in a three-dimensional chart, shown in Figure 11, with one end of each axis anchored in the small cube, while the other end extends infinitely outward toward the big cube. Many goals involve a mixture of elements. For example, working to prevent irreversible damage to a unique art treasure would be represented by a large value on the vertical axis but is solidly inside the small cube on the other two. We begin, however, by considering the two extremes: work in the small cube, focusing

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on local life-fulfilling, reversible problems; and work at the outer edge of the big cube, covering global, irreversible, life-threatening problems.

The Small Cube Inside the small cube are programs that address the relatively near-term, non-life-threatening needs of a relatively small number of people. The small cube might include building a gallery in your city’s museum or supporting a charter school. Such philanthropy has several attractive characteristics: • The processes of change are clear and readily graspable. Your money is the direct link between the need and its satisfaction. • The risks of utter failure are relatively low. You know in advance that you will almost surely improve some people’s daily lives. • Results tend to be achieved and visible in the near term. You can watch the museum gallery being built over the course of a few years and see beds in the homeless shelter filling up. Perhaps you will even observe a decline in the number of homeless people on the street. • Problems tend to be relatively easy to solve, and causal links between your philanthropy and the result tend to be clear. You made a gift to the museum, which in turn hired an architect and contractor, who designed and built the new gallery. • The philanthropist’s generosity is more likely to be recognized. Grants in the small cube often provide immediate individual recognition. The small cube has its limitations as well. A frequent correlate of direct and immediate returns on your philanthropic investment is less leverage. Museumgoers in your city are better off, but statewide education in the arts may remain woefully inadequate. Although temporarily housing the homeless addresses some people’s urgent needs, it does not prepare them for self-sufficiency. Moreover, immediate improvements can be swamped by other

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forces: an unusually cold winter could stress the available facilities for the homeless well beyond their capacity—a problem that more ambitious antipoverty strategies might mitigate.

The Big Cube At the outer edges of the big cube are massive, irreversible catastrophes that threaten life itself. The biggest advantage of philanthropy designed to address these problems is that you might save hundreds of millions of lives or preserve hundreds of millions of acres. The Green Revolution, supported by the Rockefeller and Ford Foundations, was global in scale; it probably doubled global agricultural productivity, saving untold numbers of people from starvation. (It must also be said that the Green Revolution had some serious downsides, and the story is not simple;1 but the scale of change this initiative created was truly world changing.) The Rockefeller, Ford, Mellon, Hewlett, and Packard Foundations’ support for international family planning provides another example. Again, not without its controversies,2 this effort had a role in reducing the global fertility rate from 5.0 children per woman to 2.3 today; the so-called demographic dividend is often credited for accelerating economic development in East Asia.3 Problems toward the edges of the big cube tend to require ambitious grantmaking and a tolerance for ambiguity and complexity. Being larger in scale, they usually take more time to solve than other problems. They often require influencing a large number of decision makers. They call for a deep understanding of the systems in which the problem and possible solutions are embedded. Work in the big cube also requires patience. The time frames of serious reform can be decades long, and attempts at quick fixes are unlikely to reap much beyond raised, then dashed, hopes. Conversely, sticking to a subject greatly increases your ability to spend money well as you develop expertise in finding the best leverage points. Work in the big cube requires knowing what others are doing to address the same problem and a willingness to combine

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resources toward common ends. Even if the problem is solved, you may never know whether or how much you contributed to the outcome. Thus, if you mean to practice philanthropy in the big cube, you must recognize these factors: • The processes of change are often indirect and complex. Strategies for helping farmers in developing countries improve their productivity or sell their commodities abroad involve complex technological, economic, and social interventions. Strategies for reducing childhood obesity are similarly complex. And strategies for reducing nuclear proliferation or global warming often require indirect advocacy—efforts to convince citizens to induce policy makers or businesses to take certain actions. • The risks of complete failure are high. For every successful effort to bring about large-scale change—the Green Revolution or the reduction in teen smoking—there are many strategies that have not succeeded, at least not yet. The reform of large urban school systems remains elusive; we do not yet have an AIDS vaccine; poverty is still endemic in many communities at home as well as globally; and environmental degradation is accelerating. There certainly is risk in pursuing ambitious aims. • Results can be invisible, intangible, and long term. The results of work in the big cube are often measurable only by small statistical changes, and even these may take decades to emerge. Indeed, it may be impossible to perceive successes in the big cube that prevent catastrophes, such as a nuclear detonation or a pandemic. • Causal links between philanthropy and the result can be obscure. Efforts to achieve large-scale change typically involve many actors from both philanthropy and other sectors. Our own image of such ambitious projects, especially when they require advocacy, is that of many people pushing a boulder up a hill.

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Even if they succeed, you will seldom know whether any one person’s contribution made a difference. • The philanthropist’s generosity is not likely to be recognized. This follows from all of the factors just mentioned—especially the intangibility of results happening in the distant future and the difficulty of attributing success. But the advantages of working toward the large edges are profound: If you are successful, your efforts will affect millions of people and can prevent irreversible damage. The patience, the risk, and the indirectness of such philanthropy can be offset by benefits that make the costs seem trivial by comparison. Although assessing philanthropic impact in terms of expected value does not always favor risky large-scale projects with a long time horizon, we believe that philanthropy is grossly underinvested in such projects—precisely because they are risky and distant in time and locale and because many philanthropists desire the gratification of directly touching people’s lives on a daily basis. Why do we put special emphasis on the outer cube? Because there are very few actors in society with the mandate or the capacity to work on problems that cross political boundaries or that take more time than a single political term or a business’s annual report. National political leaders are first and foremost focused on local economic conditions, domestic economic and social issues, security problems—and reelection. Protecting biodiversity? Dealing with climate change? Thinking about women’s rights in other regions? There is no natural tableau for this work in government policy making. Foundations are not anchored by political considerations or by geography, and they do not need to show a profit or win an election. They are uniquely free to take on big challenges. They can and should accept the possibility of failure as the flip side to smart risk taking. We believe that this virtually unconstrained freedom comes with commensurate responsibilities.

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The Space between the Cubes Most philanthropy lies somewhere between the extremes of the small and big cubes. A program aimed at transforming K–12 education in California is somewhere in the middle on all three axes—the scope is substantial; the results of the work, if successful, will affect the current generation and their progeny; and the beneficiaries can be expected to have higher incomes, better health, and better enjoyment of arts and culture. Efforts to combat teen smoking and obesity are similar. To be successful in these realms, philanthropists will probably have to define a geography that is larger than a community and smaller than a continent. They will need to work in policy realms, from tax to public health. They must understand the techniques of marketing to teenagers. And they will not know, until statistics show changing trends, whether their strategy is successful. But success could affect far more people, far more profoundly, than the same funds spent building a new hospital wing.

Pursuing the Same General Goals in Different Zones The nature of the problem you seek to address plays a significant role in determining strategies, time horizons, and the other characteristics of philanthropy just discussed . But depending on how broadly you define your philanthropic goals, you can often carve out problems that suit your philanthropic resources and style. Suppose that you are concerned with poverty in your community. You might support a food bank, a “livable wage” campaign, or a job-training program. Supporting direct services like the food bank is paradigmatically within the small cube. It has immediate, tangible results and is relatively risk free: it is virtually certain that some people will be helped. The livable wage advocacy strategy, by contrast, has significant risks. There are few organizations capable of carrying it out and no guarantees that it will succeed. Even if the policy is adopted, there remains the con-

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tested empirical question of whether a livable wage will actually improve the lives of the poorest people in your community. The job-training program lies somewhere in the middle. The payoff is less immediate and less certain than direct services, but it has the potential to move people out of poverty and is more likely to succeed—albeit benefiting a more limited population—than the livable wage campaign. Someone concerned with poverty or disease in developing countries has a similar array of available strategies. Within the small cube—and with immediate and visible results—you can provide disaster relief or subsidize the provision of AIDS drugs for residents of an African village. Further out on the axes—with complex strategies and uncertain payoff—you can support a campaign to prevent the transmission of the HIV virus. Where you decide to intervene on this spectrum depends on where you think you can make the greatest impact, given your resources. It also depends on how you weight the potential leverage of the more abstract and risky philanthropic investments compared to those that directly, visibly, and immediately touch human lives. Do you find it more compelling to cure individuals already afflicted with a disease or to prevent many others from getting it in the first place? To provide relief to the known victims of a disaster or to plan to avoid its recurrence? Your own personal values and preferences may lead you to prefer one approach or the other, with profoundly different effects. Even philanthropists with relatively small resources can tackle large-scale problems by combining their resources with those of other funders—for example, by consciously joining other funders or simply by providing general support to a nonprofit organization devoted to the problem. Although this usually requires forgoing the individual recognition that may come with being the sole funder of a project of more modest scale, collaboration in one form or another has been at the heart of many of philanthropy’s great successes. Although your $20,000 donation may seem

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like a drop in the bucket for an organization with a $3 million budget, it is only due to a number of funders like you that the organization can achieve its goals. There is no single “right” philanthropic objective or approach, but there are profoundly different choices. The choice of a subject will substantially affect the character of the grants that follow. Individuals may differ not only in their philanthropic interests but in their preferences for where to position themselves on the axes described earlier. And some people may feel most comfortable having a mix of approaches. Our purpose in suggesting these axes is to provide some reference points as you consider where your own philanthropic interests lie.

Learning Your Fields Before settling on a goal and approach for an area, it is worth going through a deep consultative process to learn about the best research, strategies, and practices aimed at solving the same problem that you’re trying to solve; to learn which organizations are working on the problem, with what successes and failures; and to learn which other funders are supporting work in the area. We have been struck by how many philanthropists will tackle a new area without examining the landscape, either reinventing wellfunctioning wheels or rediscovering perpetual motion. Without claiming that we consulted as deeply or widely as ideal, here is a personal example from our involvement in the Hewlett Foundation’s review of the goals for its conservation work in the American West. Together with program staff and occasionally with board members, we conducted a six-month listening tour to learn how the landscape—literally and figuratively—was changing, what new problems were emerging, and how we could best address them. To this end, we met with current grantees to understand their work; with other funders to get their perspectives and open up avenues for future collaboration; with other stakehold-

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ers, such as ranchers and religious groups; with environmental scientists and other academic experts in western ecosystems; and with political leaders in the West. We discussed tentative strategies with the foundation’s board of directors and then circled back to many of the same people and organizations to check on the directions where we were heading. It would have been foolhardy to seek a consensus among these diverse stakeholders. But by the time the foundation began implementing the strategies, we were confident that at least we understood the various interests and perspectives. Most of the foundation’s western strategies were well beyond the small cube, and not all succeeded as well as we had planned and hoped. But the substantial gains we made would not have occurred without this consultative process and, indeed, its continuation as the strategies were implemented.

Determining a Focus The Edna McConnell Clark Foundation (EMCF) was founded in the 1950s with an endowment flowing from Avon’s success in cosmetics and household products.4 By the mid-1990s, EMCF’s $25 million grants budget supported five distinct programs: children, justice, New York neighborhoods, student achievement, and tropical disease research, the last of which played a major role in the elimination of trachoma, the leading cause of preventable blindness in the developing world. In 1999, under the leadership of Michael Bailin, EMCF, while responsibly phasing out these legacy programs, decided to focus on a single subject: economically disadvantaged youth. This decision to focus its grantmaking was a signal act of strategic philanthropy. We don’t mean to imply that you cannot have more than one objective. Some very successful foundations have multiple programs. The key question is how much impact you can achieve with whatever financial and human resources you have. EMCF’s belief that it could be more effective by focusing all of its

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resources on one subject made great sense in its circumstances and has paid off magnificently. As we describe in later chapters, under Bailin’s successor, Nancy Roob, EMCF has become the national leader in addressing the problems of disadvantaged youth.

Expressing Your Goals and Strategies in a Mission Statement At some point you will want to decide on one or more focal points for your philanthropy—in terms of both goals and approaches. Even the largest foundation in the world cannot effectively spread its human and financial resources too broadly through what has been termed “peanut butter philanthropy.” Though it’s by no means necessary, you may find it helpful to embody your goals at a general level in a mission statement. Here are some examples of foundation mission statements: • Improving the global environment • Enhancing the human condition • Supporting all aspects of the creative process for a worldwide community of artists • Reducing global poverty • Inspiring individuals to make responsible choices and take direct personal actions to achieve a peaceful and environmentally sustainable future As you can see, mission statements tend to be vague and aspirational compared to specific goals. But this does not mean that mission statements are without value. For example, the process of drafting one can provide a board of trustees an opportunity to discuss the organization’s core values. In any event, goals are not deduced from a mission statement. Rather, the process tends to be recursive, with goals helping determine an organization’s mission and the mission statement then providing a check—not a prohibition but a moment of reflection—as you consider new goals.

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For a foundation that has a number of different but related goals, the mission statement may try to tie those goals together. But when the goals are really disparate, there’s no point in struggling for false unity. For example, the Moore Foundation states: Gordon and Betty Moore established the foundation to create positive outcomes for future generations. In pursuit of that vision, we foster path-breaking scientific discovery, environmental conservation, patient care improvements and preservation of the special character of the San Francisco Bay Area.5

And, by the way, it’s perfectly all right for a foundation not to have a mission statement. Our former employer, the William and Flora Hewlett Foundation, does not have one—unless you count Bill Hewlett’s objective of “improving humankind” or its public radio tagline, “Helping people build measurably better lives.”

Application to Your Own Philanthropy Identify a problem that you wish to help solve through your philanthropy, and choose two approaches to addressing the problem— one in the small cube and the other in the far reaches of the big cube. What are the factors that put the different approaches in their respective cubes? Which approach most appeals to you personally? If you don’t find either approach appealing, where would your approach lie and why?

Chapter 8

INVITING PROPOSALS AND CONDUCTING DUE DILIGENCE

The preceding chapter focused on your or your foundation’s internal decision making to set your philanthropic goals and strategies. Here we turn outward—beginning conversations with potential grantees to inform them of your interests, inviting applications, and conducting due diligence.

Making Your Goals and Approaches Known to Potential Grantees Whether you invite grant applications through an open process or reach out to particular organizations, potential grantees need to know whether and how they fit with your interests. A mission statement may provide some guidance: a foundation whose stated mission is to “improve literacy for children whose home language is not English” is unlikely to receive requests to commission works of classical music. But mission statements are broad and tend to be fairly static, while the foundation’s grantmaking interests at any particular time are likely to be more specific and may change to meet changing circumstances. How can you mitigate the reciprocal burdens of prospective grantees’ writing, and your having to read, applications in which

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you have no conceivable interest? Publishing grant guidelines on your website can help applicants determine how closely their activities are aligned with your interests. Grant guidelines can combine your goals with the general approaches you plan to use to pursue them: for example, “The Flores Foundation invites proposals by organizations with comprehensive after-school programs that center around English reading and writing skills.” Clear guidelines are a gift to the field: they can drastically reduce the effort spent on futile applications and allow those that may be candidates to deliver sharper strategies rather than general background. While grant guidelines can reduce the time you spend reading and politely declining applications, however, they are not a panacea. To reduce is not to eliminate: Hope springs eternal for every applicant who believes that you share a common interest, so you will inevitably receive some applications that are far afield from your interests. Yet you may learn from applicants whose strategy may not be in your sweet spot but who may provide valuable insights.

Inviting Letters of Inquiry and Proposals Unless you already have a relationship with a grant applicant, you will both benefit if the applicant submits a letter of inquiry (LOI) before submitting a full-blown proposal. The LOI is a brief description of the problem the applicant plans to address, the proposed solution, the organization’s capacity to implement the solution, and how the problem and solution fit your grant guidelines.1 It’s unfair to put the applicant to the trouble of writing a full proposal unless a grant is at least possible—and an LOI reduces the burden on your staff as well. Suppose that you examine the LOI and without unnecessary delay—since the applicant is sitting on pins and needles—conclude that it looks sufficiently promising to invite a proposal. After you have studied the proposal and had preliminary conversations with the applicant’s staff, you will usually have a pretty

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good idea whether you are interested in funding the organization. If you decide not to move forward, be as candid as possible in telling the applicant why not. And be prompt—since the plans of both accepted and rejected applicants hinge on your decisions. Once you move forward from LOI to a proposal, the presumption begins to tip in favor of funding unless the due diligence process turns up serious problems. It is important to let applicants know of concerns early on and not lead them down a long garden path—and off a cliff. There may be instances when you are not yet convinced that you will make a grant and a full proposal will help you learn more. If possible, let the applicant submit materials already prepared for other funders. This way you can learn without imposing too heavy a burden on the organization. The proposal will serve as the basis for discussions and negotiations between the funder and applicant and, eventually, for a contract between you. The final version of the proposal is typically incorporated in the formal agreement and becomes the grantee’s commitment to what activities it will perform and what outputs and outcomes it will deliver. Any proposal should include background information about the applicant’s history, structure, IRS status, leadership, and finances—all to help you understand the organization and determine whether it has the capacity to carry out the proposed activities. But the essence of a proposal is the applicant’s answer to these questions, which we return to later with slightly different language:2 1. Where are you going—that is, what is your ultimate intended outcome? 2. How will you know if you have arrived? 3. How do you plan to get there, why do you think your plan is likely to succeed, and what are its chances of success? 4. How will you know if you are on course? 5. Do you have the capacity to implement the plan?

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The two of us have read several thousand proposals and have been distressed by how many of them lack this basic information. A bad proposal typically begins with a vivid description of a terrible crisis, continues with a laundry list of proposed activities to address the crisis, and culminates with a thick pile of attachments— financials, tax rulings, board lists, and so forth. The proposal has pathos (the opening) and ethos (the credentialing attachments) but is mostly shorn of logos, the logical cords connecting the activities to the solution. How can you help applicants submit proposals that have a reasonable likelihood of being funded? In addition to informing them about your own mission and goals, tell them what you value in a proposal. Here is what we would ask for in a proposal to work on a specific program or project.

1. Provide a description of the problem, grounded in numbers where possible. Suppose that the applicant is trying to protect an area of California’s 840-mile coastline. The proposal should describe what is threatening the coastline. How real and urgent is the threat? What are the consequences of inaction? For another example, the problem underlying a proposal to run a teen pregnancy prevention program might be that 20 percent of teenage girls in our inner-city schools become pregnant before graduation, and the large majority of these girls never complete high school. The problem underlying a proposal to develop and market clean charcoal in Haiti is that “half of the population uses wood and/or agricultural residues as their primary cooking fuel. Breathing the smoke from these fires leads to persistent acute respiratory lung infections, mostly in children.”3 With information of this sort in hand, you can begin to understand the nature and scope of the problem and thus the nature and scope of a proposed solution.

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2. Provide a SMART description of the organization’s intended outcome—that is, what success in solving the problem would look like. As mentioned in Chapter 4, SMART stands for Specific, Measurable, Attainable, Realistic, and Timely. Specifying the intended outcomes, or goals, with some precision will give you and the applicant a common benchmark of success and reduce the likelihood of arguments about whether the desired results were achieved. (The trouble with an “I know it when I see it” approach to goals is that you and your grantee may see quite different things.) Here are some examples of specific goals: • “Within three years, we expect to protect 10 miles of coast from development.” • “We intend to reduce pregnancy rates for teenage girls in our city by 10 percent within two years.” • “We intend to improve human health in Haiti by creating micro-enterprises that specialize in the production and sale of affordable, clean-burning cooking charcoal made from agricultural waste. By the end of two years, more than 10,000 families are expected to be using the agro-charcoal. The program will reduce the rate of respiratory infections among children by 20 percent.”4

3. Provide a description of the system in which you will intervene, the nature of your intervention, its underlying theory of change, and your action plan. In our conservation example, the primary decision-making authority is the California Coastal Commission. Will the commissioners be influenced by science, and, if so, what evidence will you present? Will you advocate that the governor fill vacancies with commissioners sympathetic to the desired outcome—and how will you get the governor’s ear? In addition, or instead, will

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you launch a lawsuit against some egregious developments, and do you have the capacity to undertake the litigation? Or (a trick question) will you educate the general public about the necessity of coastal conservation? For a fraction of the costs of reaching and convincing millions of California citizens, for whom coastal conservation is a low priority, the organization could engage in more focused advocacy strategies, which almost surely have a greater likelihood of success. In sum, the grantseeker should demonstrate real system knowledge by identifying the key decision makers, the forces acting on them, and ways to leverage those forces to achieve the mutually desired result. In the teen pregnancy proposal, it might suffice to indicate that the organization plans to implement comprehensive sex education that has been shown to be successful with the relevant demography. The Haiti charcoal project involves a number of novel components: using an inexpensive technology to make cleanburning charcoal from agricultural products, forming charcoalmaking cooperatives, and funding the cooperatives’ upfront costs with microcredit loans. In addition to demonstrating that the technology is feasible, a sound proposal would describe the production costs and demand for the charcoal and show that the economics of the business would carry it forward once the grant funds were used up. One purpose of this aspect of the proposal is to enable you and your prospective grantee to assess and reduce strategic risks. To this end, the proposal should also realistically describe the strategy’s chances of success. At one end of the spectrum is a servicedelivery program for which the applicant organization has a solid track record in delivering results; absent unforeseen changes in the external environment, the chances of success are high. A wellevaluated teen pregnancy prevention program would be close to this end—with the understanding that “success” means not that all girls in the program avoid pregnancy but that a predicted percentage of them do.

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At the other end is an advocacy strategy like that in the proposal to protect the California coastline, where the chances of success may be well under 50 percent. One advantage of a wellthought-out action plan (of the sort described in Chapter 4) is that, rather than guess at an aggregate likelihood of success, the organization’s leaders can estimate the likelihood of success of each stage of the plan. An organization’s overoptimistic prediction of success is reason to question its competence to design and carry out a strategy. The Haiti charcoal program lies somewhere between the advocacy strategy and the teen pregnancy prevention program. It is novel, and its success requires the coordination of a number of actors—lenders, producers, and consumers—in a quite unstable economic system.

Reviewing versus Designing Strategies Foundation staff are one step removed from the actual work of grantees. They seldom have the on-the-ground experience, the relationships, or the close contact with stakeholders that grantees do, and while this distance sometimes provides a useful outside perspective, it can also make for poor decisions. Should a group working on climate change in China campaign against coal or promote renewable energy? This simple question gets deep into economic assumptions, political structures, and policy design. The answer for Hebei Province may be different from that for Guandong. The grantee in China has to weigh local cultural issues, political pressure, operational issues, and more. While it is perfectly appropriate for the foundation staff to interrogate the grantseekers’ assumptions and strategies, it is quite a different matter to impose distant judgment on the issue. More generally, while we hope that Part 2 has provided a framework for you to design your own strategies as well as assess others’, philanthropists and their staff must be careful not to pur-

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sue their own strategic vision without incorporating the experiences of grantees. The danger is that instead of reviewing grant proposals, querying experts, synthesizing ideas, and respecting those with years in the field, foundation staff can become auteurs, seeing themselves as the fount of wisdom as well as the arbiters of money.

4. Provide a monitoring process, including SMART targets for major activities, outputs, and intermediate outcomes on the path to the ultimate outcome. Just as a driver wants to know the car’s speed and how much fuel is left in the tank (or charge in the battery), an organization and its funders will want a “dashboard” of relevant indicators to assess a program’s progress. Monitoring involves collecting information about an organization’s progress on a regular basis to provide feedback. Monitoring progress is essential to managing any effective organization—whether a business, government agency, or nonprofit. Monitoring lets managers see how they are meeting their objectives in real time and allows for midcourse corrections, for abandoning failing strategies and doubling down on those that succeed. It is commonplace for businesses to use dashboards to track progress, and nonprofit organizations are increasingly using them as well. Typically, dashboards are web-based tools that compile and display key measurements of the organization’s performance, finances, and staff in an easy-to-understand manner. For example, KaBOOM!, a nonprofit organization that supports community efforts to build playgrounds in poor neighborhoods, uses a dashboard to track statistics such as the number of playgrounds built each year, the number of playgrounds built in neighborhoods filled with needy families, and the organization’s various costs.5 The key to building a successful dashboard is capturing data concerning the major activities, outputs, and outcomes that

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the organization cares about—data that can be used to make realtime programmatic, managerial, and financial decisions. Dashboards or their equivalent are important for an organization’s funders as well—to help it get back on course where necessary and to decide whether or not to renew a grant, or with what conditions, when the time comes. Designing and implementing monitoring systems can be costly, but a philanthropist who cares about the success of a program will not stint in funding them. Monitoring does not require social science studies by outside experts. Rather, it calls for the organization’s own personnel to obtain systematic feedback. A well-constructed proposal will contain benchmarks for each of the major activities, outputs, and intermediate outcomes; and the grantee’s annual report to the funder will assess progress against them. Of course, the report will also include qualitative information about the organization’s activities and accomplishments, including an explanation for any significant deviation of actual performance from the benchmarks and plans for addressing any shortcomings. As we describe later, the views of intended beneficiaries and other stakeholders provide a particularly valuable source of data for service-delivery programs. In our California coastline example, the grantee would report on agreed-upon activities or intermediate outcomes, such as meetings with the commissioners or their staff, in addition to the ultimate outcome of miles of coastline protected. The teen pregnancy prevention program would include counseling data, such as the number of girls entering and remaining in the program during the year and data relating to their pregnancy rates. The Haiti project would focus on the number of entrepreneurs making and selling the charcoal, the number of households using it, and how the enterprise is faring financially. Funders must balance the value of measuring progress against the costs it imposes on grantees. Social change is difficult to gauge, so surrogate measures are often necessary. Even when each mon-

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itoring point has a good rationale, too many indicators impose a toxic burden on the grantee organization. One experienced grantee with a six-year record of large-scale successes told us about a foundation that coupled a large grant with the requirement of reporting on fifty-nine milestones. This is at best foolhardy; at worst, abusive. A good test of reporting requirements is whether they benefit the grantee organization as well as the funder. In any event, if grant makers cannot identify a specific, tangible benefit from a reporting requirement, they should drop it. Finally—and this is a point that applies to other aspects of the proposal as well—you are usually not the only star in the grantee’s universe of funders, and not necessarily the brightest or longestburning sun. At the same time that you impose your requirements for proposals, reporting, and evaluation, the other funders backing your grantee are doing the same. So even if each individual funder’s reporting requirements are entirely reasonable, they may impose a cumulative burden that distracts the grantee from pursuing your shared goals. Insisting on special data, formats, and timing can throw grantees into a reporting frenzy. Ideally—though the ideal is seldom met—funders would agree on common reporting requirements. In any event, it is a good practice to keep your unique requirements proportionate to the size of your grant. (Indeed, a relatively small funder can often rely on the diligence and evaluation of larger funders.)

5. Determine the organization’s capacity to carry out the action plan. Beyond the formal legal aspects of due diligence—for example, ensuring that the grantee meets IRS requirements—and understanding the organization’s goals, strategies, and tactics, you must ensure that the organization has the financial and human capacity to carry out its plans. To this end, the proposal should describe both what resources are necessary to successfully pursue the strategy and how the organization intends to obtain and deploy them. In the Hewlett Foundation’s “worst grant” contest, mentioned

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in Chapter 1, the most common nominees involved grantees’ organizational failures—from poor leadership and governance to not noticing that they were running out of money. In a rare documented example of organizational failure, the W. K. Kellogg Foundation described its funding of an innovative enterprise with a charismatic leader and an inspired set of ideas for connecting social entrepreneurs to funders.6 Kellogg and other funders knew that these ideas were untested but were willing to take a risk on an entrepreneurial CEO’s new nonprofit. As it turned out, the CEO lacked the management skills to implement his ambitious vision, and the organization pursued too many ideas and never achieved focus. It became mired in efforts to create an online technology without a well-thought-out business plan. The funders did not monitor the organization closely enough and assumed—wrongly, as it turned out—that its board was providing adequate oversight. An evaluator later concluded that the funders did not pay sufficient attention to “issues of governance, mission, or accountability in this start-up organization.”7

Different Demands for Different Stages of Development Assessing the robustness of an applicant’s strategies and its capacity to carry them out is an essential aspect of the due diligence process. So too is coming to a judgment about the risks involved. One of philanthropy’s distinguishing roles is its ability to provide risk capital to the nonprofit sector. Although you will try to mitigate risks through careful problem analysis and planning, some strategies are inherently riskier than others. A philanthropist interested in innovative or complex strategies must be willing to accept many failures as the price of a chance of an occasional huge success. Your confidence in a grantee organization’s performance and stability often depends on its stage of development. The Edna McConnell Clark Foundation, which, as noted, funds organizations serving disadvantaged youth, characterizes its grantees’ evalu-

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ation capacity in three developmental stages and provides the funding and technical assistance to help organizations move from one stage to the next: 1. Most of the organizations begin in the “apparent effectiveness” category. This includes having anecdotal stories of success, a positive reputation in the community, a sound theory change, or perhaps some data about who participates in their program. Often, however, they do not collect systematic data about the populations they serve. 2. Over the three to six years of the initial grant, the organization is expected to reach at least “demonstrated effectiveness,” in which data collection is rigorous, the youths’ achievement can be compared to a control or outside group, and an external evaluator is hired or internal capacity for evaluation is developed. 3. The highest level, “proven effectiveness,” consists of statistically rigorous, scientific evaluation.8 Whatever an organization’s stage, consider the concept of materiality: the monies spent on evaluation should be proportional to the importance of the knowledge to be gained by the funder, the grantee, and the field at large.

Supporting Organizations with Multiple Programs We have illustrated the due diligence process through examples of grants to support specific projects or programs. But philanthropists and their foundations often provide unrestricted, general operating support to organizations that maintain multiple programs. How does the due diligence process operate in this case? Consider a grant to a community center that provides an afterschool program for children, arts and theater for adults, and various services for the elderly. In addition to taking a gestalt view of the organization and its role in the community, you can reason-

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ably expect the organization to answer the preceding questions with respect to each of the programs that you deem particularly important. Granted that impact of the community center may be greater than the sum of its individual parts, it is accountable for the functioning of each of those parts. Consider how the organization’s own CEO and board think about its different programs. Unless they treat the after-school, arts, and senior programs separately, they would not be able to design and implement strategic plans, formulate budgets, and assess progress.

Beyond the Proposal: The Importance of Listening For all the importance of the document, nothing can substitute for site visits and other in-person meetings that allow you to form a judgment of the organization’s leadership and its capacity to undertake the strategy. These visits are also beneficial to a grantee, who needs to understand your expectations. As in the world of venture capital, a critical aspect of due diligence involves assessing the organization’s leaders—through direct interactions and inquiries of others who know them—to develop the confidence necessary to entrust them with a grant to carry out the work. Also, as in that world, if you are a relatively junior participant and have a trusted lead partner, you can reduce the burden on both the grantee and yourself by avoiding a duplication of efforts. If the due diligence process produces a grant, it will lead to a relationship that may last anywhere from a year to many decades. This will involve reports, meetings, evaluations, and so forth.9 The rest of this section examines a topic that is surprisingly new to philanthropy: the importance of listening. In the pathbreaking article “Listening to Those Who Matter Most, the Beneficiaries,” Fay Twersky, Phil Buchanan, and Valerie Threlfall write: Too often nonprofits and funders ignore the constituents who matter most, the intended beneficiaries of our work: students in

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low-performing schools, trainees in workforce development programs, or small farmers in sub-Saharan Africa. In bypassing the beneficiary as a source of information and experience, we deprive ourselves of insights into how we might do better—insights that are uniquely grounded in the day-to-day experiences of the very people the programs are created for. . . . Well, we listen a little. On site visits, funders talk to participants in the programs they fund, but these are largely staged events and hardly represent a systematic solicitation of beneficiary responses. Some nonprofits survey those they seek to help, but the quality of these surveys is typically poor. . . . It isn’t that we don’t care about beneficiaries. They are, after all, why programs exist and why funders provide support. . . . Perhaps we don’t really trust the beneficiaries’ point of view. Maybe we’re fearful of what they might say—that without the benefit of “expertise” they might be misinformed or wrong. Perhaps we’re scared that we will learn something that calls our approach into question. Maybe we don’t know how to solicit beneficiary feedback routinely in a way that is reliable, rigorous, and useful. Or perhaps incentives aren’t aligned to value sufficiently the insights we have gathered. In business, companies often receive a prompt wake-up call when they don’t listen to their customers—sales and profits, the universal measures of success, generally decline. In the social sector, however, we may not get timely notice if we ignore our beneficiaries. Beneficiaries have few choices. They frequently accept a flawed intervention rather than no help at all, and they often express gratitude for even a subpar effort. As Bridgespan Group partner Daniel Stid described the incentive structure, “[Beneficiaries] aren’t buying your service; rather a third party is paying you to provide it to them. Hence the focus shifts more toward the requirements of who is paying versus the unmet needs and aspirations of those meant to benefit.”10

Fay Twersky and others subsequently established the Fund for Shared Insight,11 one of whose goals is to study and promote “per-

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ceptual feedback”—the “perspectives, feelings, and opinions individuals have about their experiences with an organization, product or service that are used to inform and improve the practice and decision-making of that organization.”12 We are strong proponents of perceptual feedback, but with the caveat not to confuse it with the evaluation of a program’s impact. For example, the authors of the “Listening” article discuss the value of listening to the experience of high school students and medical patients. We don’t doubt that negative perceptual feedback is often a leading indicator of a program’s suboptimal performance, but we’re less sure whether and when positive feedback implies high performance. Patients who have unpleasant experiences in a clinic are unlikely to return, but patients may have pleasant experiences but receive poor medical treatment. We have focused on listening to the philanthropist’s beneficiaries, but it is important to listen to other stakeholders as well. In the early 2000s, the Bill & Melinda Gates Foundation invested more than $1 billion in a nationwide initiative to create small high schools.13 While the initiative had successes with small schools created from scratch, its efforts to break up large, urban high schools into “school-within-a-school” academies largely failed.14 Leaving aside questions about the theory of change underlying the initiative,15 the foundation’s failure to engage teachers and administrators engendered strong opposition. An observer of the Gates initiative noted: District administrators sought and received Gates grants to transform multiple high schools in their large, urban districts all at once, without input from school-level administrators or from teachers. In other cases, school administrators themselves got Gates grants, without any prior engagement of teachers. . . . To no one’s surprise, the veteran teachers fought back. Some resented the top-down assertion of the Gates Foundation that Bill’s money meant he could tell people what to do. Others really did not want to take on the level of deep engagement with students that small, personalized high schools demand. Others

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did not like the academy to which they were assigned or the colleagues with whom they were placed. The resistance of veteran teachers was certainly not the profession’s most noble hour, but it was entirely predictable, given the culture of typical American high schools.16

A year later, Mark Zuckerberg, who had made his fortune in Facebook, was approached by Cory Booker, then mayor of Newark, New Jersey, and the state’s governor, Chris Christie, who requested a $100 million donation to improve public education in Newark. As described by Dale Russakoff in The Prize, the initiative centered around plans to streamline an incredibly bloated bureaucracy, improve teaching through merit-based pay and retention, close underperforming schools, and increase the number of charter schools.17 The politicians’ plan was intentionally top down in the belief that an open process would be subverted by self-interested stakeholders—particularly teachers, other school employees, and union leaders: “Real change has casualties and those who prospered under the existing order will fight loudly and viciously.”18 A reform-minded but abrasive white woman was installed as superintendent of the largely black school district. The initiative encountered a strong backlash from community leaders, who regarded it as “colonial”—something “done to people rather than in cooperation with people.” As the school board chair said to the superintendent, “You have forced your plans on the Newark community, without the measure of stakeholder input that anyone, lay or professional, would consider adequate or respectful.”19 The initiative did produce some educational improvements, especially through charter schools, but they were diminished by a willful disregard for the roles of key stakeholders. As a blogpost from the Atlantic put it, the story “shows how well-intentioned reform-minded outsiders may wade clumsily into a school system’s entrenched webs of traditions, allegiances, cultural habits, and underlying conditions.”20 Consistent with its values, the Gates Foundation conducted

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an evaluation of the small high school initiative, which Bill Gates summarized in his 2009 annual letter.21 Acknowledging the failure to transform existing large schools, the foundation has continued efforts to improve the educational outcomes of disadvantaged students in other ways. In 2014, Mark Zuckerberg and his wife, Priscilla Chan, announced a $120 million commitment to education in the San Francisco Bay Area “to support new district and charter schools that give students more high quality choices for their education.” One indication that they learned from the Newark experience is the announcement’s language that “we’ve listened to the needs of local educators and community leaders and we’re excited to support them.”22 Returning to the three main examples in this section, although it is important for the conservation advocacy organization and supporting foundations to be viewed favorably by the California Coastal Commission and other decision makers, the beneficiaries of coastal conservation are relatively remote and diffuse. By contrast, feedback from teenage girls and the potential users of charcoal are critically important for the service- and productdelivery programs.

Good Philanthropic Behavior A core precept of high-impact philanthropy is that modest resources can lead to large-scale change. This requires great strategy and good luck, to be sure, but it also requires strong partnerships. No professional relationships are more important to a philanthropist than those with grantees. At their best, the relationships are trusting, candid, and collaborative and organized around learning from each other; at worst, they encourage domination by the funder and only-good-news reporting by the grantee. These are inherent dangers caused by the parties’ unequal positions of power. Many philanthropists are very successful people, as are the senior staff of their foundations. They have money to give and are

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essentially unaccountable to any outside constituency. These are potential ingredients for hubris and obstacles to true partnership. Here’s a personal story. From 1987 to 1999, Paul was the dean of Stanford Law School. During these twelve years, the day hardly went by when students, faculty, or alumni, didn’t tell him what he was doing wrong—and at least once in a while they were right. Then in 2000, he became president of the Hewlett Foundation and, within a matter of months, judging by all his new interactions, underwent a personal transformation, and, by all external signals, achieved perfection. Yeah, right! The danger of his believing this was at least mitigated by a framed Yiddish proverb sent him early on by a colleague at another foundation: “With money in your pocket, you are wise and you are handsome, and you sing well, too.” And it is a constant danger. Foundation officers don’t often hear criticism from potential grantees—and almost everyone they know, or who knows someone they know, is a potential grantee. We are, of course, strong supporters of strategic philanthropy. Foundations should have clear goals based on a substantive understanding of issues and a strong sense of what drives change. They must track whether plans deliver results. They must use intelligence to correct course. They must focus—and persist. But they must do all of this while respecting the autonomy and strategic insights of the organizations and nonprofit leaders they support. How can you capture the benefits of partnerships without slighting the importance of independent thinking and action and without falling prey to the catnip of money and power? First and most important, when you find good nonprofit leaders, give them the benefit of the doubt. And then constantly remind yourself about the imbalance of power and its impact on decisions and evaluations. It takes a bit of work to get past the rosy glow that often characterizes grantee-grantmaker conversations. Among its other services, the Center for Effective Philanthropy will survey a foundation’s grantees and prepare a “Grantee Perception Report” that

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provides the foundation with considerable information about how it is coming across to grantees, while protecting their anonymity.23 Grantees are asked about the clarity of the foundation’s communications, interactions with its grantmaking and monitoring processes, and the foundation’s understanding of and impact on grantees and their fields. Though by no means a measure of a foundation’s actual impact, poor relations between a foundation and its grantees are unlikely to conduce to effectiveness. All of this said, we reject the metaphor of the grantee as a “customer.” The real customers are the individuals or communities whose lives the grantee and grantor are supposed to make better. And it is this fact that not only justifies but demands that the diligence that is due be duly done and that funders be hard-nosed about what is getting accomplished, and what is not. In short: Listen well. Show respect. Learn when you can. Ask for what you really need to make decisions rather than put the grantseeker or grantee through an onerous checklist. But keep your and your grantees’ eyes on the prize of positive impact for your shared beneficiaries.

Application to Your Own Philanthropy Consider a substantial grant that you have made or that you might consider making. What sort of perceptual feedback from beneficiaries and other stakeholders would be appropriate, and who should seek the feedback: you, the grantee organization, or both?

Chapter 9

FORMS OF PHILANTHROPIC ENGAGEMENT AND FUNDING

You, or your foundation, can support a particular nonprofit organization by making a grant that will allow it to continue its ongoing operations at more or less its current level or by providing the organization with risk and growth capital that will enable it to scale or significantly improve its services. Or you can act as an architect and general contractor to solve a particular problem, engaging various organizations to carry out discrete parts of your plan. In any of these cases, you can fund the organizations in either of two ways: by providing unrestricted, general operating support or by supporting a particular program or project. Your choice of the manner of funding will be informed by the degree to which the organization’s activities coincide with your goals. General operating support is the preferable form of funding when the grantee’s activities are aligned with your goals.

Support for an Organization’s Ongoing Operations General operating support (GOS)—also called “core” or “unrestricted” support—is the most common way that donors support an organization’s ongoing operations. Your unrestricted annual

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gifts to human rights, environmental, and community organizations, and to symphony orchestras and museums, are paradigmatic examples of GOS. Such support allows the organizations to allocate resources to their own highest priorities, as well as to support back-office operations, pay utility bills, and the like. Philanthropists who provide GOS must have confidence in the grantee’s overall expertise, strategy, management, and judgment. In the best case, that confidence is based on a thorough assessment of the organization. But the philanthropists need not have deep substantive or strategic expertise in the grantee’s fields. They typically leave to the organization the decisions about how to approach its work. Why wouldn’t a philanthropist who is supporting an organization’s ongoing operations always do so through GOS? Consider a couple of examples. While a Yale alumnus with an undergraduate degree might make an unrestricted gift to the university, an alumna of Yale School of Medicine might prefer to restrict a gift to the Medical School, to which she feels a particular affinity. Although an unrestricted gift to a self-defined unit, division, or program has many of the characteristics of GOS, only a gift to the institution as a whole actually constitutes GOS. A grateful patient might make a gift restricted to cancer research at the Medical School or an even more restricted gift to support a particular cancer researcher. Thus, the broader your interests, the more likely you will be to find an organization to which to make a GOS grant. But this also depends, correspondingly, on the breadth of the recipient’s mission and activities; so while a grant for cancer research to a medical school would be designated for one of its programs rather than GOS to the university as a whole, a grant for the same purpose to the single-purpose American Association for Cancer Research would be GOS. In other words, the appropriateness of GOS or project support is essentially a function of the alignment, or overlap, of the philanthropist’s goals and the grantee’s activities. As shown in Fig-

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FIGURE 12.

Alignment of philanthropist’s goals and grantee’s activities

ure 12, GOS is presumptively the best form of support where the alignment is substantial; project support makes sense when the philanthropist’s goals coincide with only a portion of the organization’s activities. As another example, suppose that Alice cares about improving educational outcomes for disadvantaged inner-city children and is impressed by the results of certain charter schools, such as KIPP and Achieve. The best way for Alice to support them would be through GOS grants to those schools. Suppose that Barry shares Alice’s goals but believes that the children would be much better off if the schools taught robotics. Barry might make a project grant to enable the schools to hire instructors to teach the subject. In addition or instead, he might make a GOS grant to an organization that is solely dedicated to hosting interschool competitions in robotics.

Negotiated General Operating Support Exit, Voice, and Loyalty, the title of Albert O. Hirschman’s insightful book, succinctly describes the ways that people can engage with organizations in which they have a stake. Like typical small investors in for-profit companies, most donors who provide GOS have

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no voice in the decision-making process and can choose only between loyalty and exit. Their interactions with the organizations are passive—reading newsletters and annual reports and writing checks. Based on their satisfaction with these experiences, donors may increase, decrease, maintain, or end their financial support. A philanthropist who intends to make a large GOS grant, especially one that accounts for a significant proportion of an organization’s budget, need not choose between loyalty and exit but may decide to exercise her voice through negotiated general operating support. Assuming that the philanthropist is generally (not necessarily perfectly) aligned with the grantee organization’s self-defined mission, she asks the organization to specify its intended outcomes and its plans for achieving them and requests that the organization report (say, annually) on progress toward those outcomes. Subject to this light accountability, the grant is unrestricted—that is, the organization’s CEO and board have full discretion to allocate the donor’s funds as they believe will best achieve their mission. The business counterpart of a philanthropist negotiating the terms of GOS would be a large private-equity investor’s having some voice in the investee’s strategy. Negotiated general operating support grants manifest the philanthropist’s support for the grantee’s mission and confidence in its choices about how best to run the organization and spend the grant funds, while ensuring that the grantee’s work is congruent with their shared goals.

Providing Risk and Growth Capital In addition to or instead of supporting an organization’s ongoing operations, philanthropists can help build and grow promising nonprofit organizations. We return to this approach, which is sometimes called “venture philanthropy,” in Chapter 14. Philanthropists can support early-stage ventures directly or through intermediaries like Ashoka and Echoing Green that specialize in social entrepreneurship. The Edna McConnell Clark

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Foundation helps build the capacity of later-stage organizations that serve disadvantaged youth. One of EMCF’s signature grantees is the Harlem Children’s Zone (HCZ), a nonprofit, community-based organization that aims to improve outcomes for poor children and families living in a sixty-block area of central Harlem by helping parents, residents, teachers, and other stakeholders create a safe learning environment for youth. HCZ was part of a pilot effort by EMCF to test its approach to supporting organizational growth. Seeing the great potential in Geoffrey Canada, HCZ’s brilliant leader, EMCF made an early grant to help the organization expand and underwrote the costs of engaging the Bridgespan Group, a nonprofit consulting firm, to help HCZ develop a business plan. With the foundation’s support, HCZ also developed standards for assessing outcomes and began a continuous evaluation process to measure its impact on youth and families served. Nancy Roob, president of EMCF, remarks: The business planning process at HCZ helped executive director Geoff Canada and Harlem Children’s Zone take a careful, thoughtful look at its programs and operations. In doing so, HCZ realized that some of its efforts did not fit into its larger goal of helping youth and families. By realigning its services and programming (including spinning off some divisions) toward its larger mission, HCZ today is able to more effectively help young people in Harlem make a successful transition to productive adulthood.1

After HCZ’s business plan mapped out stages to scale up effectively, EMCF began providing the organization with negotiated general operating support, joined by other funders, including the Robin Hood and Picower Foundations. Philanthropic “investors” like EMCF must perform the same due diligence as those who support an organization’s ongoing operations—and then some. They must assess organizations’ capacities, needs, and potential for growth and sustainability and under-

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stand how to replicate successful pilot programs. They may also provide project grants for capacity building in areas including strategic planning, management, evaluation, governance, fundraising, and communications.

The Philanthropist as Architect and General Contractor Philanthropists sometimes play an active role in solving social problems beyond supporting the missions of individual organizations. They may draw on organizations’ particular capacities and link them with each other and with experts, policy makers, and practitioners. This approach is essential when a field lacks strong organizations whose missions and activities are closely aligned with a funder’s goals—which may happen if the funder’s goals are novel or not mainstream or if the field is new or is not well developed. But even in a fairly mature field, a single organization may lack the capacity to solve a multifaceted problem. Moreover, organizations in a field may be disconnected and competitive with one another at the expense of transparency and collaboration. A foundation that has broad knowledge of a field may possess a perspective that no single organization does. The foundation may go beyond building the organization’s capacity to become a partner in strategic planning and implementation. Often, a philanthropist’s effort to solve a social or environmental problem calls for bringing together the distinct capacities of several different actors. In these cases, the philanthropist is a combination of architect and general contractor, coordinating the work of disparate subcontractors with expertise in their particular domains to get the job done. For example, at one time the Hewlett Foundation’s Environment Program included the goal of reducing pollution from heavy-duty construction equipment. There was no single nonprofit organization that had this as a major goal or that had the capacity to take on the work by itself. Thus, the program director

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(Hal) made a series of grants to various organizations having expertise in technology, health, and federal regulatory matters, with the aim of persuading relevant industries and the Environmental Protection Agency to reduce harmful emissions. As another example, a group of large, medium, and small foundations worked together to save the Great Bear Rainforest in British Columbia—the largest tract of coastal temperate rain forest left on earth. The foundations supported a coalition of conservation and First Nations groups working with Canadian government agencies, industry, and residents to protect the Great Bear ecosystems and ensure economic opportunities for the coastal communities whose livelihoods depend on them. Much of this work was hands-on, requiring the direct participation of the foundations in convening and cajoling groups with different interests. Among other things, the foundations helped the coalition obtain funding from British Columbia and Canadian national governments to protect these precious ecosystems in perpetuity. A crucial element in this big project was that a few of the foundations each committed nearly full-time dedicated staff to work on the project. These program officers formed a closely knit, highly efficient workgroup, trusted by all the funders, which greatly simplified the decision-making process. While most of the grantee organizations in these examples were nonprofits, there’s no magic in that. A foundation acting as architect/general contractor may find that the best purveyor of a service that has great social impact is a business—for example, a public relations firm that can effectively convey a message about addiction. The Thomas and Stacey Siebel Foundation Meth Project has endeavored to reduce methamphetamine abuse in Montana and other states through a massive advertising campaign through billboards, print media, radio, and television.2 Its “Not even once” campaign was targeted at teens who had not yet used meth. The ads were scary, vivid, and blunt, portraying the negative physical, psychological, and social effects of meth use—teeth falling out, attempted suicide, physical violence—through per-

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sonal testimonials. Although the Meth Project includes nonprofit grantees, much of its work involves advertising through conventional for-profit and public media. (There is some uncertainty about the project’s actual impact.)3

A Presumption Favoring Reliable General Operating Support We have been examining forms of funding through the lens of philanthropic impact: What best achieves your goals? Without abandoning this perspective, let’s look at how the form of funding affects grantee organizations—a matter of genuine concern to strategic philanthropists who care about the vitality of the fields in which they work. This concern leads to a presumption in favor of reliable GOS. Unrestricted support is the lifeblood of a nonprofit organization. A well-run organization will have developed its own strategic plans. Its ability to innovate and its very integrity depend on having control over a substantial portion of its budget. But funders with particular projects in mind sometimes press an organization to engage in activities not central to its own mission. As the number of project-oriented funders increases, the organization’s own plans can become fragmented and distorted. An organization that depends heavily on project support must engage in fund-raising that cobbles together grants of interest to particular funders while trying to maintain some semblance of a coherent plan. Many organizations find it difficult to “ just say no” to any source of substantial funds. Unrestricted funds enhance an organization’s own resilience in the face of unexpected events and enable it to respond flexibly to changing needs. For example, Enterprise Corporation of the Delta, a community development financial institution, was able to respond quickly to the devastation of Hurricane Katrina only because it had flexible support from the F. B. Heron Foundation and others.4 The organization provided bridge loans to individu-

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als and businesses, while victims waited for the slower bureaucracies of FEMA and insurance companies to reimburse them. Similarly, the International Council on Clean Transportation (ICCT), which helps nations establish laws and strategies to reduce pollution from cars and trucks, was able to respond quickly when California governor Arnold Schwarzenegger became interested in a low carbon fuel standard that would decarbonize transportation fuels. ICCT used its GOS funds to analyze the proposed policy. Within weeks of the project’s launch, the European Union asked for help to consider a similar policy. ICCT was able to swing staff into Europe, undertake a quick analysis of its situation, and add substantially to the European Union staff capacity. ICCT also played a major role in uncovering Volkswagen’s massive cheating to meet US diesel emission standards.5 It could not have addressed these matters had it relied solely on project support. A report by Grantmakers for Effective Organizations (GEO) noted that while restricted dollars deprive nonprofits of the infrastructure they need to perform effectively, and contribute to widespread burnout among nonprofit leaders,6 general support grants contribute to openness and trust between grantmakers and grantees. One reason for this was suggested by interviews with California foundation executives, who indicated that “general operating support grantmaking meant that the foundation engaged in more of a partnership model than a supporter of specific programs.”7 It is not just general operating support but reliable funding— grants of several years’ duration with the prospect of renewal— that contributes to an organization’s effectiveness and sustainability. Reliable support over a period of years permits grantees to engage in long-term planning, which is a boon for virtually any organization.8 Grant Oliphant of the Heinz Endowments explained that multiyear funding “provides predictability for both funder and grantee that is critical for the grantee to do planning around staffing and programming. . . . It’s a little like a business that knows it has a fairly reliable revenue stream versus living three months out from oblivion.”9

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You may wish to assure that an organization does not become too dependent on your funding and may therefore impose a cap on the proportion of your contribution to its total operating budget. And you may also wish to foster competition for your funds to assure that a grantee remains among the best of its kind and to allow or even encourage new organizations to enter the field. But there is tremendous value in an organization’s being able to count on continued funding as long as it continues to perform well. Long-term support allows organizations to hire staff of higher quality—as the best staff will be able to demand a degree of job stability. It allows the organizations to dig more deeply into their chosen subjects and tackle more ambitious projects that have longer time frames. Almost all important social change takes substantial time to accomplish. Sustained support of high-quality organizations equips them to deal with this reality. Thus, many nonprofits are at least as concerned with having long-term commitments as they are with having general operating support.10 In sum, when interests are well aligned, reliable general operating support serves funder, grantees, and their ultimate beneficiaries. Indeed, the benefits are so great that even a funder with specific goals should stand willing to provide long-term general operating support to an organization whose activities encompass but are not limited to those particular goals—even at the cost of some “slippage” between its strategic focus and the organization’s operations. Negotiated GOS with an agreement that the organization will report on the particular activities of interest to the funder often provides a workable middle ground. Yet many foundations are reluctant to make general operating support grants. Here are some of the reasons that have been articulated, along with our comments on them. My contribution is too small to make any difference to the organization. A grant of general operating support often accounts for only a small fraction of an organization’s budget, so the funder may wonder just what difference its particular grant makes. No single grant, whether for a specific project or general operating sup-

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port, is likely to have a discernible effect in solving an important problem. The key question is whether the organization is making effective use of its funds so that each dollar you contribute helps move the needle incrementally toward your shared goals. General operating grants cannot be evaluated and are therefore intrinsically unstrategic. The evaluation of a narrowly defined project is determined by the nature of the project itself: If your goal is to increase the number of wild salmon in the Pacific Northwest, you count the salmon. A philanthropist who makes a GOS grant to an organization in effect accepts the grantee organization’s mission as his own and evaluates the success of the grant essentially as the organization’s CEO and board evaluate their own performance. In other words, when you make a general support grant you are investing in the organization’s overall success. The F. B. Heron Foundation, which focuses on asset building in low-income communities, notes that its core support grants are evaluated based on the grantee’s planning documents,11 thus measuring progress in terms of the organization’s own ambitions and plans. EMCF builds strong evaluation into its general operating support grants to youth development organizations to measure the grantees’ impact on their intended beneficiaries.12 If you are a major funder of a multipurpose organization, negotiated general operating support can provide an ample framework for evaluation. Although your grant is unrestricted, you can agree that evaluation of the grant will focus on a particular subset of the organization’s activities. The point, ultimately, is that foundations that give general operating support grants can and often do take evaluation seriously. Rather than characterize these grants as impossible to evaluate, they see them as an opportunity to encourage improvements of the grantees’ own evaluation systems. As a result, general operating support grants can be strategic and yield measurable results. Renewable general operating support creates an entrenched position for some organizations to the disadvantage of others. Because the most

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valuable sort of general operating support is multiyear and renewable, philanthropists may be concerned that offering general operating support is tantamount to a perpetual commitment. Some foundations deal with this problem by limiting general operating support to a fixed number of years. But if you are contributing to the impact of a successful organization, this surely is counterproductive. The better way to resolve the dilemma is to be very clear, both internally and with grantees, that general operating support will be renewed if and only if it is justified by agreed-upon progress and outcomes, and that proposals for renewals must be competitive with those from other organizations in the field. In conclusion, we think, not entirely kindly, that some of the resistance to renewable general operating support grants comes from the fact that it is more fun for individual philanthropists, foundation board members, and program officers to move from one project to another. Novelty is intriguing, but steadiness is more likely to win the day.

Paying the Full Costs of a Grant You hire a plumber to unclog your drains. He submits a bill for $100, but you write him a check for only $75. When he asks about the other $25, you explain that you’re paying only for his direct costs—his time on the job and any materials used—and not for indirect costs such as maintaining his shop, advertising, insurance, and the like. Outrageous behavior? Absolutely. Yet many philanthropists and foundations treat their grantee organizations this way every day. And while you can be pretty sure that the plumber won’t work for you again, most grantees suck it up, skimping on vital systems and engaging in “creative” cost accounting, which increases funders’ skepticism about their actual costs and results in what has been termed the “nonprofit starvation cycle.”13

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Why would most philanthropists never cheat commercial vendors in this manner but routinely stiff their nonprofit grantees—while calling them “partners”—by refusing to pay full indirect costs? There are several possible explanations. While you will know whether the plumber unclogged your drains, its often harder to know whether you got what you paid for with a grant to a nonprofit organization. Donors may erroneously believe that a high overhead rate indicates low effectiveness. Also, in the absence of generally accepted cost accounting principles, donors may have greater confidence in an organization’s budget for direct costs. A recent study examined the finances of a sample of high-performing domestic and global nonprofit organizations. It noted that “regardless of their missions, which varied greatly, indirect costs fell into four general categories: administrative expenses, network and field, physical assets, and knowledge management.”14 (Because nonprofits have different funding models, the survey omitted fund-raising costs.) The researchers found that different kinds of organizations have very different kinds and amounts of indirect costs. [For] a biomedical sciences laboratory that employs researchers tasked with finding cures for lethal diseases, . . . direct costs are researchers’ time and materials to conduct complex experiments. In addition, this institution must make a significant indirect investment to conduct its work—it must pay for large facilities and sophisticated equipment capable of performing to the strictest biosafety standards. Required physical assets claimed 57 percent of this organization’s spending, more than double the amount (24 percent) spent on administration. Another 8 percent went to knowledge management, bringing total indirect costs to 89 percent. The cost structure was very different for a large international NGO where network management is the salient capability. It takes a well-managed organization at global, regional, and local

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levels to translate funding from an international development agency into, for example, well-nourished children in India’s Bihar state. This organization’s largest indirect expenditure category, network and field at 17 percent, sustained the field office operations infrastructure. Physical assets for all those offices absorbed 12 percent of indirect costs, followed by 8 percent for administrative costs and 4 percent for knowledge management. Total indirect costs for this NGO came to 41 percent.15

The nonprofits in the study fit into four broad categories: US direct-service organizations, US policy-advocacy organizations, international networks, and research organizations, with indirect costs ranging from 21 percent to 89 percent of direct costs, and a median rate of 40 percent. Yet most foundations have capped indirect cost payments at 15 percent, with some paying much lower amounts and some paying none at all. This research persuaded Darren Walker, president of the Ford Foundation, to increase its standard overhead rate to 20 percent while working with others in the sector “to encourage more honest dialogue about the actual operating costs of nonprofit organizations.”16 Previous efforts to persuade philanthropists to pay the actual costs of the activities they ask organizations to perform have not moved the needle, however, and the results of the current effort remain to be seen.17 Implementing fieldwide accounting standards might help and so too would reports on actual costeffectiveness of programs (along the lines discussed in Chapter 6). But we see at least two barriers that need to be overcome. First, Charity Navigator,18 by far the most popular charity rating service, provides no information about an organization’s impact and counts indirect costs against its rating..19 Second, and more fundamentally, efforts to persuade philanthropists to pay full indirect costs face strong psychological headwinds. A team of social scientists conducted experiments on what they termed the “overhead aversion”—overhead being a synonym for indirect costs. They believe that donors “feel that they made a greater im-

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pact when they know they are helping the cause directly as opposed to when their contribution pays the salary of a charity’s staff member”: The results of the laboratory experiment demonstrate that individuals are sensitive to overhead levels. As overhead increased, the proportion of individuals choosing to donate decreased significantly. Moreover, the effect disappeared when someone else covered the (same) overhead costs, suggesting that this aversion is driven by individuals’ need to feel that their personal donation has a positive impact on the cause. . . . The results of our field and laboratory experiments support the importance of perceived personal impact in the decision to donate. The notion of perceived personal impact relates to the theory of “warm glow,” which suggests that impure altruism guides an individual’s decision to give: Donors care not only about helping the cause but also about how doing so makes them feel. The warm glow a donor experiences when helping the recipient of the donation is greater than the warm glow he or she receives from helping to cover the charity’s overhead costs.20

The researchers propose “overhead-free donations” as one solution to overhead aversion. They cite as an example, Charity: Water, whose website announces: “Private donors cover our operating costs so 100% of your money can fund water projects.”21 The Robin Hood Foundation does likewise. While this may be in the short-term interests of any particular organization, it sends the entirely wrong message to philanthropists that indirect costs are less real or necessary than direct costs. Earlier we discussed the difference between providing general operating support and project support and recommended a presumption in favor of GOS. A GOS grant doesn’t distinguish between direct and indirect costs but allows the organization to decide how best to allocate the grant funds. Unfortunately, however, GOS grants account for only about 16 percent of US foundations’ grant dollars.22 It would not be unfair to say that project grants

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that do not include full indirect costs are parasitic on an organization’s GOS grants.

Application to Your Philanthropy What are your views about the authors’ arguments (1) for a presumption of general operating support and (2) for payment of the actual reasonable indirect costs when making project grants?

Chapter 10

IMPACT INVESTING AND MISSION INVESTMENTS

Introduction Philanthropists and their foundations typically make money through investments in public and privately owned companies and make grants to nonprofit organizations from returns on these investments. Most companies in philanthropists’ investment portfolios produce social value by providing consumers with goods and services they desire and by creating jobs. These investments are usually socially neutral in the sense that the investors’ only interest is to make money, which is the mandate of the vast majority of fund managers to whom philanthropists entrust their investments. In sharp contrast, all grants to charitable organizations, from individuals or foundations, are socially motivated and constitute a total monetary loss, with no possibility of a financial return. The rationale for making a grant is to improve the world in some way that markets alone will not do, with the hope that the social benefits justify the expenditure. This chapter explores the realm of hybrid approaches—socially motivated financial investments, or so-called impact investments. Impact investing involves intentionally placing capital in enterprises that generate social or environmental goods, services,

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or ancillary benefits, with the goal of creating beneficial social outcomes. The investors expect financial returns ranging from the highly concessionary to market rate or even above market.1

Concessionary and Nonconcessionary Impact Investments Impact investments can be divided into two broad categories: concessionary investments, which expect to make some financial sacrifice—by taking greater risks or accepting lower returns— to achieve the investors’ social goals; and nonconcessionary investments, which expect risk-adjusted returns at the same time that they hope to achieve social goals. Most so-called double-bottomline impact investments are nonconcessionary.

Concessionary Investments Here are some examples of concessionary investments. Peer-to-Peer Kiva is a crowdfunded peer-to-peer microfinance platform that allows retail investors to make loans as small as $25 to individuals and small organizations—mainly in developing countries—with the goal of alleviating poverty.2 Philanthropists cover its operating costs. Kiva’s individual investors are concessionary investors; they lose the time-value of the capital invested and assume the risk of default without compensatory returns. Kiva made a $5,000 loan to Victor, a Mexican immigrant in the United States, who, because of the lack of a credit history, was unable to obtain a regular bank loan to open his own coffee shop. Kiva raised funds from more than sixty retail individuals to provide him with a loan with no interest. Victor repaid the first and subsequent loans, so his lenders did not lose any capital. But this was clearly a concessionary investment, since the lenders accepted a high risk of nonpayment with no prospect of a financial return.

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Funds Root Capital is a nonprofit social investment fund that invests in agriculture in the Global South. It aims to fill the “missing middle” of finance—the underserved gap between microfinance and commercial banking—by providing below-market loans to small agricultural businesses, such as coffee growers. Root’s goal is to subsidize these businesses until they reach a point where they are sustainable and have access to mainstream capital. Root’s investors earn an average return of 2.5 percent. Root’s loan to Furaha, a coffee cooperative in the Democratic Republic of the Congo, provides an example of its concessionary investments. Root made a one-year loan of $75,000, anticipating that, between risk premium, the cost of underwriting and monitoring, and return for investors, it would suffer a net loss of more than $20,000. Root covers some losses of this nature with revenues from more lucrative loans, but the program as a whole is loss making and must be subsidized by philanthropic funding.3 Omidyar Network (ON) is a philanthropic investment firm that seeks to achieve a positive social impact with all its investments and that approaches impact investing with a strong presumption that subsidies tend to distort markets.4 ON generally accepts below-market returns only when it believes that an investment can catalyze an entire market. For example, ON invested in MicroEnsure, a mobile platform that provides insurance to poor families in Africa and Asia. MicroEnsure made insurance easy (claims are submitted via Short Messaging Service, or SMS) and salient (bundling insurance and airtime), thus giving the company the potential for significant market impact. ON invested expecting positive but below-market returns, believing that MicroEnsure’s success would catalyze a new market serving millions of marginalized people. Foundations The concession in a concessionary investment is the functional equivalent of a grant. When made by foundations, concessionary

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investments often take the form of program-related investments (PRIs), which typically are equity investments, loans, or loan guarantees. The Internal Revenue Code specifies that a PRI must have the primary purpose of accomplishing the foundation’s charitable purposes and that the production of income or appreciation of property may not be a significant purpose.5 The Internal Revenue Code treats PRIs by US foundations quite similarly to grants, including counting them toward the required annual payout of 5 percent of the foundation’s endowment. Unlike grant funds, which a foundation can never recover, the principal of PRIs is recoverable, at least in theory, and the investment may also earn interest or other returns.6 The Bill & Melinda Gates Foundation uses PRIs instead of grants when it believes that the investee has potential to become a sustainable business that will attract commercial capital. • The foundation made a PRI to bKash, a provider of mobile financial services for people living at the “bottom of the pyramid” in Bangladesh.7 By investing in bKash, Gates sought to pave the way for the company to attract commercial capital. bKash had a $15 million capital need, which Gates satisfied through two different forms of funding: a grant of $4 million to fund charitable activities that were unlikely to generate a return for the company; and an $11 million equity PRI. The foundation anticipated recovering 50 percent of the amount invested.8 • The Gates Foundation made a low-interest PRI loan to MKOPA, a Kenyan start-up that sells solar-powered lighting on an affordable installment plan. Customers make installment payments through their mobile phones on a pay-as-yougo basis; if they fall behind on payments, the M-KOPA lighting device is switched off remotely and resumes working only when the customer catches up. The foundation expected to receive all of its loan principal back with some interest, and made the loan hoping to demonstrate to local banks that MKOPA’s model offered a good risk for unsubsidized lending.9

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The David and Lucile Packard Foundation began making PRIs in 1980 and to date has invested more than $750 million in PRIs in the form of loans, equity investments, and guarantees. • The Freshwater Trust is a nonprofit organization that seeks to attract private investments in conservation of rivers and streams. The Packard Foundation partnered with the Gordon and Betty Moore and the Kresge Foundations to provide Freshwater Trust with a $5 million loan, which was initially structured as a nonconcessionary investment. After the foundations realized that a financial concession would allow Freshwater Trust to scale more effectively and rapidly, they restructured the loan as PRIs, sacrificing the possibility of financial gain to achieve their environmental goals. • Afaxys is a for-profit pharmaceutical company providing affordable oral contraceptives and other health-care products to public health clinics. The Packard Foundation made a $4.5 million low-interest loan to provide growth capital, allowing the company to launch its private-label contraceptives, thus expanding its products for low-income patients.

Nonconcessionary Investments Nonconcessionary impact investments seek to “have it all”—social impact plus market returns or better. They typically take the form of mission-related investments (MRIs)—equity or debt investments that expect risk-adjusted market returns (thus also attracting socially neutral capital) as well as social impact; or socially responsible investments (SRIs)—investments in companies that adhere to good environmental, social, and governance (ESG) practices. We focus first on MRIs, whose potential to earn a profit for the philanthropist-investor makes them an attractive investment vehicle. Here are examples of nonconcessionary MRIs by ON and Bridges Fund Management, two funds with social missions.

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• Dailyhunt is an Indian mobile app that publishes news and e-books in twelve Indian languages, with the objective of serving poor non-English-speaking populations. At the time it launched, similar business models had performed well in other parts of the world, thus reducing the investment risk. ON invested alongside socially neutral, commercial investors, seeking market returns or better. • Ruma is a financial and information services provider in Indonesia. ON invested in the enterprise at an early stage with the goal of making financial transactions affordable for very poor consumers. Although ON believed that Ruma had the potential for good financial performance as well as social impact, commercial investors were not attracted to the company because they believed that that it was too risky. ON’s investment turned out to be a success both socially and financially. Ruma has provided financial services to millions of poor people in Indonesia and given ON solid returns; it has attracted commercial capital for subsequent rounds of financing. • Bridges Fund Management focuses on underserved markets in the United Kingdom, making investments that can generate financial returns at the same time that they meet pressing social or environmental challenges. It is a nonconcessionary investor whose impact metrics are “fully aligned with commercial success.”10 In 2009, Bridges invested in the Babington Group, a training and apprenticeship provider focused on young NEETs (young persons who are “Not in Education, Employment, or Training”), with the aim of providing education and employment to marginalized, working-class people in the United Kingdom. Seven years later, Bridges realized a 33 percent internal rate of return (IRR) on exit, and it reported positive social outcomes—supporting more than thirty-two thousand learners and helping more than thirtyseven hundred formerly unemployed people to find jobs.

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• In 2008, Bridges invested in The Gym, which provides health and fitness facilities at an affordable price—at a time when fitness facilities were a luxury in the United Kingdom and levels of obesity and related diseases were rising. Because the enterprise replicated a business model that had shown success elsewhere, the investment did not involve a great financial risk. Seven years later, The Gym had more than sixty locations and many thousands of members who had never previously been able to afford a gym membership. The investment also performed very well financially, valued at six times its cost.

Concessionary and Nonconcessionary Investors in Pay-for-Success Programs Chapter 6 described Pay-for-Success programs, in which a government entity pays service providers for achieving outcomes or impact rather than for their activities and outputs. Many service providers are unable to absorb the operating costs during the period—which may be a number of years—before the outcomes are known. One approach to solving this problem is for philanthropic and commercial investors to front the operating costs and then be repaid by the government to the extent the agreed-upon outcomes are achieved. The typical “capital stack” for a PFS program comprises • loans by commercial lenders, usually at the lower end of riskadjusted market rates • below-market loans from foundations (typically made through PRIs) or from high-net-worth individuals, which are repaid either to the foundation or to a revolving fund for disbursement to other PFS programs • grants from foundations or high-net-worth individuals For example, the Santa Clara County homelessness project was financed with $7 million in funding from a mixture of grants and

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low-interest loans from private foundations, corporate foundations, and community development financial institutions (CDFIs). The New York State antirecidivism prevention project was funded through $13.5 million from individual investors in a private placement offering by Bank of America/Merrill Lynch. The philanthropic below-market loans are, by definition, concessionary. The nature of the commercial loans depends on the payment terms and perceived risk to the investors.

The Criteria for “Impact” and Its Measurement In Chapter 5, we discussed the meaning of “impact” at considerable length. To recap briefly, impact means more than that your intended outcome was achieved. It means that your intervention contributed to the outcome’s occurring. It means “beating the counterfactual,” where the counterfactual is that the outcome would have occurred to the extent that it did even without your contribution. To return to an earlier example, Casa’s permanent supportive housing program had impact in reducing homelessness if it caused there to be fewer homeless people in the city than if the program had not operated. The Impact of the Investee Enterprise The question whether an impact investor’s investee enterprise has impact is no different from the question whether a nonprofit grantee has impact. • The question with respect to M-KOPA is whether the poor Kenyans served by the business would have had access to affordable, clean, safe lighting if it weren’t for M-KOPA. The data indicate that the lighting reached more than eight hundred thousand households that would not otherwise have been able to afford solar lighting. • The question with respect to The Gym is whether the number of working-class people in the United Kingdom with access to fitness facilities was increased by The Gym’s activities.

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Many of The Gym’s members had never been members of a fitness club before, suggesting a positive answer. Measuring Enterprise Impact An impact investment cannot achieve its social or environmental goals unless the investee itself is successful in achieving those goals. In Part 2, we spent considerable time considering the measurement of the outcomes and impact of nonprofit organizations. Here we turn to the parallel question in the context of impact investments. As in the case of nonprofits, there are several distinct measures of an investee’s success: • Its outputs: the good or services that the enterprise produces • Its outcomes: the effects of the enterprise’s outputs on improving people’s lives or the planet’s health • Its impact: the difference the enterprise makes in improving people’s lives compared to what would have happened in its absence (the counterfactual) Outputs are relatively easy to measure and, thus far, have been the main focus of measurement in the impact investing field. The Global Impact Investing Network has developed the Impact Reporting and Investment Standards (IRIS),11 “the catalog of generally accepted performance metrics that leading impact investors use to measure social, environmental, and financial success, evaluate deals, and grow the sector’s credibility.”12 The related Global Impact Investment Rating System (GIIRS) is a rating and analytics platform for impact investors to assess a company’s or fund’s social and environmental outputs.13 Although IRIS includes some output measures, it is mainly concerned with financial and operational measures. GIIRS ratings are based on a survey spanning five categories: leadership, employees, environment, and community, which are operational; and products and services, which is output oriented. Here are some examples of IRIS and GIIRS metrics:

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• Agriculture: amount of the product/service sold by the organization during the reporting period; number of smallholder farmers or co-op members supported or sourced from during the last twelve months • Education: number of students enrolled as of the end of the reporting period • Environment: percentage of revenue that the organization earns from projects and services designed to deliver a specific social or environmental benefit during the reporting period; processes to dispose of organic waste, wastewater, and other nonhazardous waste • Product sustainability: percentage of revenues generated from products that have received a third-party certification for the environmental sustainability of the production process. The IRIS and GIIRS systems include some outcomes, which are more difficult and costly to measure, since they require looking beyond the walls of the enterprise to ask how people’s lives have been improved. For example, a GIIRS survey question on local economic development asks whether a company’s innovative approach has changed the industry. An IRIS indicator for financial inclusion counts the number of new businesses created by the investee enterprise. IRIS and GIIRS do not attempt to identify impact—that is, what outcomes would have been achieved in the absence of that particular enterprise. As in the case of nonprofit interventions, the measurement of impact is a quite expensive undertaking, requiring evaluation methods of the sort described in Chapter 5. In some cases, however, the investee organizations are the only providers of goods or services in an area, suggesting a close link between their outcomes and impact. The Impact of the Investment Investors whose only goals are to hold stock in companies they feel good about and to avoid holding stock in companies they feel bad

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about can stop right here. In fact, they could have stopped before even measuring the companies’ outcomes. But a true impact investor—someone who is concerned with achieving impact by increasing a company’s socially valuable products or practices—must not only measure the outcomes of the investees’ enterprises but also must estimate the impact of his or her own investment. To understand what this means, let’s return to Casa’s permanent supportive housing program in Part 2. Suppose that the organization succeeded in reducing homelessness in Fred and Peggy Gordon’s city. It seems almost ridiculous to ask whether their $1 million grant contributed to Casa’s impact. The counterfactual is that Casa would have received that $1 million and would have supported as many homeless people even without their generosity. In the world of nonprofit organizations this would count as a miracle. If some other donor had also contributed $1 million, the chances are that the combined gifts would have enabled Casa to serve even more homeless people. Turning to impact investing, suppose that Kiva’s investors had not invested in Victor. Might he nonetheless have received a loan with such good terms to start his business? Perhaps—and this is the counterfactual—ordinary commercial nonsocially motivated investors would have provided the same capital at the same price. But this seems highly unlikely, since we know that before securing the loan, Victor had been turned down by banks. Even if Victor had been able to secure a loan from a commercial lender, it would have come at an unaffordable cost, while the Kiva loan had no interest. Similarly, the Gates Foundation’s PRI equity investment in bKash provided capital that the company would not otherwise have received—at least not at the same cost. Recall that the foundation expected to suffer a 50 percent loss, and what sensible commercial investor would knowingly make such an investment? The Kiva and Gates investments each had investment impact, which is also sometimes called additionality because the investment makes something “additional” happen that wouldn’t hap-

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pen through ordinary commercial capital markets. Investment impact is also called social value created. An investment that creates social value is very different from one that is merely aligned with your values. Value alignment just means that you deem your investee’s outputs (goods or services) or practices (e.g., its treatment of employees or the environment) to be socially valuable. Investors can achieve value alignment by holding stock in companies whose outputs or operations are consistent with their values and avoid holding stock in companies whose outputs or operations they despise. But this does not by itself create social value by increasing the quantity or quality of the investee’s socially valuable product. (An analogy here might be rooting for your local sports team to win by watching it on television; you may hope your team wins, but your tuning in does not affect the outcome.) There’s no doubt that Bridges’ investment in The Gym was aligned with the fund’s goal of improving the lives of working-class people in the United Kingdom. Did it also add value by increasing the investee’s outputs? Here’s our analysis. The investment was made from Bridges’ Sustainable Growth Fund, which targets a 15 to 20 percent net IRR where social impact is in “lockstep” with financial returns.14 With that rate of return perhaps The Gym would have been adequately capitalized by socially neutral investors. Bridges’ managing partner explained, however: “This was a venture which traditional investors were reluctant to attempt since the model was untested in the U.K., but we felt it was a risk we should take given the potential social impact in terms of both development . . . and its fit within our healthcare and well-being theme.”15 If, as the emphasized text suggests, other investors were reluctant to invest in The Gym (or reluctant to invest without Bridges’ anchor investment), Bridges would have had impact by making capital available (or attracting capital) that the enterprise otherwise would not have obtained. And there are other ways that Bridges’ investment might have had impact. Venture capitalists

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and private-equity investors often supplement their financial support by providing their investees with various forms of assistance relating to strategy, governance, hiring, networking, and the like. Because Bridges cared about the social impact as much as financial returns, it may have provided technical assistance to improve The Gym’s social outcomes that socially neutral commercial investors wouldn’t have. Also, socially neutral investors might seek profits at the expense of social impact in a way that Bridges would not. In sum, there are a number of possible ways that impact investors can create social value: 1. Identify socially valuable opportunities overlooked by socially neutral investors, because impact investors particularly seek out those opportunities. 2. Provide capital that socially neutral investors would not provide, at least not at as low a cost. a. The investment may be concessionary inasmuch as the impact investor knows she is taking a risk disproportionate to the expected return. b. The investment may be nonconcessionary because the impact investor has information that leads her to believe that it’s a better investment than socially neutral investors think. 3. Be “patient” by being willing to accept a longer time for (re)payment than socially neutral investors demand. Again, this may be concessionary or not. 4. Support the enterprise’s social mission to an extent that socially neutral investors would not. 5. Protect the enterprise’s social mission from being compromised to increase financial returns. Impact investors may do this, for example, by designing sustainable governance structures and incentive compensation schemes that place importance on advancing the social mission.

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With these in mind, let’s return to how different kinds of impact investments can create social value.

How Concessionary Investments Create Social Value By providing capital that socially neutral investors would not provide (at the same cost), concessionary impact investments fit squarely within the 2(a) category if they enable a company to increase its socially valuable outputs.16 This suffices to create value—and the investments may create value in the other ways as well. Because the amount of the concession is the equivalent of a grant, a funder might wonder how to choose between an impact investment and a grant. The Gates Foundation’s funding of bKash is illustrative. As mentioned earlier, the foundation made an $11 million equity investment on subsidized terms, expecting to lose half the value in discounted present-value terms. The foundation might have made a $5.5 million grant in lieu of its $11 million equity investment. It believed, however, that using the traditional vehicle of an investment rather than a charitable gift would send a positive signal to potential commercial investors. More important, it thought that the expected social impact from the investment would exceed what was attainable with an equally costly grant. A company’s management may be more disciplined in meeting its obligations to an investor than a grantee is to a grantmaker, and an investment can give a funder rights that would be highly unusual in a grant agreement. For example, the terms of the foundation’s equity investment required bKash’s board to engage in a rigorous review of its governance and gave the foundation the ability to appoint a board member. The terms of an investment agreement can also broaden the foundation’s recourse—through put rights, consequential damages, make-whole requirements, and the like—and give the investor priority claims on assets such as intellectual property if the company abandons the charitable objectives or goes bankrupt.

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How Nonconcessionary Investments Can and Can’t Create Social Value Nonconcessionary investments in large-cap publicly traded companies cannot create social value, but nonconcessionary investments in private equity can sometimes do so. Investments in Large-Cap Publicly Traded Companies If concessionary investments represent the relatively easy case for investment impact, or additionality, market-rate investments in large-cap publicly traded companies (which are inherently nonconcessionary) represent the impossible case: investments in such companies cannot increase or improve the investee company’s outputs or processes. Suppose that you believe that mobile telephony has great benefits for poor people in the United States and in developing countries. You buy a million shares of AT&T or of the publicly traded Kenyan mobile phone company Safaricom, hoping to reduce the cost of phone service for the poor. How much impact will you have? The answer is zero. If the price of shares of a business increases because it is valued by socially motivated investors, socially neutral investors will be equally interested in selling their shares for a profit, and there will be no additional benefit to the company itself. In general, stock transactions do not affect a company’s share price, which is determined instead by the shares’ present value of future dividend payments, which in turn is determined by profitability.17 In short, you can align your values with (or “root for”) largecap publicly traded companies whose products or practices you admire, but you can’t have any impact by buying their stock— at least not on secondary markets.18 And value alignment may come at a cost in terms of loss of portfolio diversification.19 The F. B. Heron Foundation, whose mission is to “help people help themselves out of poverty,” believes that it can maintain a valuesaligned public-equity portfolio without sacrificing competitive

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market-rate returns. Heron’s aim is not to create social value but to purge the portfolio of all investments that are misaligned with their mission.20 For example, Heron divested from two companies, Foxconn and Walmart, whose employment practices it believed to be antithetical to its mission. On the whole, however, the portfolio has not performed very well. Private-Equity Investments The ON and Bridges examples suggest that it may be possible to create social value through private investments. One reason that some small enterprises cannot attract commercial capital is that investors lack information about them. Private markets, especially those involving niche social businesses, are not as informationally efficient as public markets, and impact investors may possess an expertise and a specialized network that socially neutral investors cannot match. From these vantage points, impact investors can identify opportunities for risk-adjusted market returns that other investors just don’t look for, thus creating social value by providing social enterprises with capital they would not otherwise have. It is difficult to generalize about the scope and magnitude of such opportunities, which, among other things, depend on the competitiveness of the particular sector involved. Omidyar Network has created a framework it calls the “returns continuum” to categorize its social investments along a range that goes from purely commercial to grantmaking. ON divides its non-concessionary investments into two categories: A1—“marketvalidated” commercial investments, and A2—“non-marketvalidated” investments.21 In A1 investments, ON invests alongside socially neutral investors in companies that can achieve strong financial returns. There is little, if any, opportunity to add social value through these investments. The A2s are investments where, despite a promise of good financial returns, the lack of readily available and widespread information keeps commercial investors away, at least

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initially. Typically, A2 investments involve companies that serve bottom-of-the-pyramid customers in developing countries. Commercial investors might lack the expertise to spot such opportunities, or they might not view them as profitable precisely because they serve low-income consumers. ON, however, has great knowledge of these sectors and can thus venture where commercial investors do not, injecting capital in companies that cannot yet tap into commercial capital markets. Just like other private-equity investors, impact investors can add value to their investees in ways besides their financial contributions—by providing technical and governance assistance, helping them build strategic relationships, and so on. When Bridges first invested in The Gym, for example, it helped the new enterprise scout for locations that would serve its client population.

The Path of Impact Investments While many grant-funded organizations will need perpetual subsidies—for example, to enable them to benefit people who are too poor to pay market prices for necessary goods and services— most concessionary impact investments seek to move an enterprise to an equilibrium where it will not require ongoing subsidy. Thus, the crowdfunded loans to Victor, facilitated by Kiva, were intended to give him the boost that would take him from an uncreditworthy aspiring entrepreneur to a suitable candidate for a commercial loan. The Gates Foundation’s below-market investments in bKash were intended to put the company in a position where it could attract commercial capital. No one should regard a subsequent bank loan to Victor as an impact investment; nor, if and when bKash is traded on a public stock exchange, should anyone think of those who purchased its stock as impact investors. A nonconcessionary impact investment, though not subsidized, has the same goal of moving the investee to a position where it can attract commercial capital. At the time Bridges made its initial investment in The Gym, the enterprise could not attract socially neutral investors; by the time it sought to raise a second round,

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however, the business was performing splendidly and was able to gain those investors. Bridges could rightly be proud of getting The Gym to this place, but its investment in the second round, though aligned with the fund’s values, did not create social value.

Measuring the Social Value Created by the Investment The necessity of measuring investment impact, or additionality or social value added, is unique to impact investing. The state of measurement is embryonic both because it calls for answering the often difficult question of what would have happened “but for” the investment and because of impact funds’ and individual investors’ pervasive lack of interest in the question. Nonetheless, there are some bright spots. Bridges Fund Management partnered with the Skopos Investment Fund (“a global, private, investment fund that seeks to promote human dignity, just societies and sustainability through impact investing”) to develop an impact measurement system that takes both enterprise and investment impact into account. Their impact criteria include “but-for” causation, which is specifically intended to identify the presence or absence of social value created: Would change occur “but for” Skopos’s investment?22 To answer this question, the Skopos framework considers social value added from two points of view: • The end users: Did the investment generate additional results for its intended beneficiaries? Did it merely displace a similar result? Did it have the unintended consequence of displacing a better result? • The investor: Did the investor add value to the investee’s results? What is the probability that the intended result would have occurred anyway? As another example, the agricultural impact investor Root Capital has developed an innovative tool that combines enterprise and investment impact and assesses the blended metric against financial returns.23 Root is a concessionary investor that makes

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loans that are expected to yield either modest positive returns or negative returns (losses), cross-subsidizing the latter with the former. Root bases the measurement of enterprise impact on these factors: • Poverty level in the regions where an enterprise operates • Expected performance of an enterprise in addressing poverty • Environmental vulnerability, as measured by water scarcity, soil degradation, threats to biodiversity, and exposure to climate change • Expected performance of an enterprise in addressing environmental vulnerability • Scale, as measured by the number of farmers and workers reached by an enterprise. Root assigns an investment one of three levels of investment impact: • Low: A borrower likely could have received a similar loan from a commercial lender. • Intermediate: A borrower likely could have obtained the loan from some other mission-driven organization but not from a commercial lender. • High: A borrower likely could not have received a similar loan on similar terms from any other source. Based on these criteria, Root assigns a prospective loan a value between 0 and 10. Root assigned the loan to Furaha an impact value of 8 points. With respect to enterprise impact, the company served very poor farmers and was committed to offering them price premiums and access to electricity. With respect to social value created (additionality, or investment impact), because Furaha operates in a particularly challenging area of the Democratic Republic of the Congo, it was very unlikely to secure credit

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elsewhere. At the other end of the spectrum in Root’s portfolio lies the loan to Uganda Cocoa & Commodities (UCC), with a total expected impact rating of 1.5. The enterprise impact score was similar to Furaha’s, because UCC served low-income farmers in a climate-change hotspot. But UCC received adequate credit from commercial banks, so it scored zero on the investment impact side. Each loan also has an expected financial return, ranging from a complete loss to a modest gain. Because Root Capital is willing to trade off financial return for social impact, it creates a “hurdle rate” for each investment—the minimum rate of return that would justify making the investment. The hurdle rate is determined so that, overall, it keeps Root sustainable. Root Capital has used this analysis to evaluate the performance of its portfolio as a whole. Adapting a widely used concept from finance, it maps out an “efficient impact frontier” where a portfolio would offer the highest level of overall impact and financial returns. Its analysis highlights and calls into question loans that cause its actual portfolio to fall short of the frontier.

Nonconcessionary Mission-Related and Socially Responsible Investments for Purposes Other Than Value Creation As the term suggests, mission-related investments are nonconcessionary investments consistent with a philanthropist’s or foundation’s mission—for example, in health products for a foundation whose mission focuses on health. Socially responsible investments are investments consistent with a philanthropist’s or foundation’s values, whether or not embodied in their mission. SRIs are often determined by a company’s compliance with ESG standards. For example, a foundation whose mission does not involve the welfare of workers may nonetheless make socially responsible investment decisions based on a company’s treatment of its employees. We can identify four reasons, besides impact, that investors might want to make nonconcessionary MRIs or SRIs. First, investors may simply seek value alignment through MRIs and SRIs.

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Second, investors might want to own stock in companies that meet high ESG standards and eschew companies with poor ESG ratings in the belief that this is a good long-run financial strategy. This is more or less the approach taken by Generation Investment Management, which was a pioneer in assessing the long-term financial benefits of businesses run in socially and environmentally responsible ways.24 Along these lines, there is considerable interest in creating reliable integrated reporting standards that could help investors assess the overall sustainability of businesses. For example, the Sustainability Accounting Standards Board (SASB) is developing accounting standards to induce and guide corporations in disclosing material information about their ESG practices to investors.25 Third, even when investment decisions do not have a direct financial impact, they may play a role in social movements to influence the behavior of consumers, regulators, and other stakeholders and hence (directly or indirectly) companies themselves. For example, a foundation’s decision to divest its portfolio of fossilfuel investments may be a part of a movement to push society toward alternative energy sources. The Rockefeller Brothers Fund’s decision to divest from fossil fuels was significant not because of its (nonexistent) financial impact on the fossil-fuel companies but because of publicity given divestment by an organization whose original endowment came from Standard Oil. (Chapter 15 examines movements to change a firm’s or industry’s behavior.) Finally, investors may try to affect the behavior of a publicly traded company by proposing or voting on shareholder resolutions that affect its activities. For example, Ceres,26 a sustainable investor network that coordinates such efforts, recently galvanized ExxonMobil’s shareholders to pass a resolution forcing the oil giant to publish reports on how climate change is likely to affect its business.27 On the whole, however, the successes of “shareholder activism” have mainly been around profitability rather than social outcomes.28

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Impact Investments with Questionable Impact At the time of this writing, an increasing number of banks and other institutions are offering investment products that promise both social impact and market-rate or better financial returns. Examples include Bain Capital’s Double Impact Fund and TPG’s Rise Fund, whose stated mission is to “drive global impact through uncompromised business performance.”29 The Rise Fund was inaugurated with a $120 million investment in EverFi, a provider of subscription-based digital learning that reaches more than sixteen million learners from all social backgrounds, educating them on important topics such as financial literacy, sexual assault, alcohol responsibility, STEM (science, technology, engineering, and math), and career readiness. Although we do not know enough about this particular investment to assess whether or not it creates social value, we conclude the chapter by flagging a number of cautions. • Nonconcessionary investors’ claims to have private information should be taken with a grain of salt. These investors are in tight competition with myriad private-equity investors whose success depends on developing value-relevant private information. • Though not impossible, it is difficult to create social value (as distinguished from achieving value alignment) while also delivering market-rate financial returns or better. Funds that promise both deserve special scrutiny. • Seemingly nonconcessionary investments may have hidden concessions, including accepting more risk, than might be apparent to a fund’s limited partners. • The socially screened mutual fund industry should be understood as offering investors a value alignment strategy, not an impact investment strategy. Investors in such funds should take care to understand the premium expense ratios charged

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by the sponsors of such funds as well as the sacrifice in diversification they are likely to offer. The appropriate benchmark against which to evaluate private investments is other private investments, including their significant illiquidity premium. • Suppose that a fund’s general partner promises its limited partners both social impact and market-rate returns. If there are many opportunities that present this overlap in the fund’s particular domain, everyone is happy. But if such opportunities are scarce, the general partner will have to compromise one or the other goal. Especially because she and her limited partners will find it much easier to measure financial success than social impact, the latter is likely to be sacrificed, intentionally or not. • If the fund is serious about impact, it should report on impact as well as financial returns, including an estimate of an investment’s social value created. A strong signal that the general partner is committed to social impact as well as financial returns would be that her compensation is based on (more or less) objective measure of social impact as well as financial returns. • The presence of any public equities in a self-styled impact fund should be treated as the thirteenth strike of the clock, which calls the others into question. This is not to say that an individual philanthropist or foundation should not have a portfolio that includes socially neutral and socially motivated investments. But their investments in an impact fund should have, well, impact.30 One final and somewhat different point. Thus far, we have focused on an investment’s putative impact in achieving positive social goals. However, impact investments in large-scale development projects have the potential to cause unintended harms to individuals, communities, and the environment, and may call for

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self-scrutiny as well as accountability mechanisms similar to those developed by development finance institutions.31 We believe that the field of impact investing holds real promise. Our overarching concern is that it will appear to “grow” by ignoring impact and that this will cast a shadow of doubt over truly impactful impact investments, with the same dampening effect that snake oil salesmen had on the emergence of genuine pharmaceuticals in the nineteenth century.

Application to Your Philanthropy The authors argue that additionality, or social value added, is an essential component if impact, while some fund managers regard this requirement as an unnecessary complication and burden. What is your view?

Chapter 11

WORKING WITH OTHERS IN THE FIELD

Philanthropists work with many others—including grantee organizations, governments, businesses, and other philanthropists— and, crucially, with the people their programs are intended to help. How they manage these relationships will determine their effectiveness and either engender or destroy respect. So far, we have focused on the philanthropist’s relationships with applicants, grantees, and (in the case of impact investments) investees, to improve the well-being of their mutual intended beneficiaries. We conclude Part 3 by examining relationships with other participants in the field of philanthropy.

Cofunding and Collaborating Being aware of the presence of other funders in your field is, of course, a prerequisite to creating opportunities to achieve common ends. And in some circumstances, actual collaboration can significantly increase your impact in addressing social problems. Funders can work together to generate better ideas, build broader constituencies, and increase the amount of money available to pursue their goals. Collaborations among foundations lie at the heart of many major philanthropic efforts, ranging from

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the Green Revolution to protecting the Great Bear Rainforest, to regional and local initiatives such as restoring the salt ponds in San Francisco Bay to wetland habitats. But collaboration has inevitable up-front costs in the time and effort spent making decisions together with one’s partners. And collaboration can place grantees into a perilous all-or-nothing position. As the saying goes, “When elephants dance, mice get trampled”—so pay attention to the combined weight that you and your partners may impose on groups in the field. The process of joining forces can often be frustrating, and a beneficial outcome is hardly assured. As one funder remarked, “If I stopped to count the number of failed efforts at funding collaboratively, I’d be so depressed, I’d leave the business.”1 Ultimately, the extra effort is justified only if it results in greater impact in achieving your philanthropic goals.

Aggregating Capital through Funds Philanthropists’ most fundamental form of collaboration is the aggregation of dollars to make things happen on a scale beyond what any single funder could accomplish. Actually, much joint funding takes place without any explicit collaboration, simply by virtue of philanthropists’ independent provision of general operating support to an organization. If you look at the donor list in the program at a theater or music performance, you’re likely to see acknowledgments of donors who never communicated with each other. It is not the funders but the organization itself that creates this highly efficient form of virtual collaboration, which also reduces the costs and potential downsides of intentional collaboration. The purposeful aggregation of resources can come about in various ways. A relatively easy way is to contribute to a fund dedicated to a shared goal. For instance, Blue Meridian Partners is on its way to aggregating $1 billion from foundations and high-networth individual philanthropists to improve outcomes for economically disadvantaged youth in the United States.2 It was incubated

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by the Edna McConnell Clark Foundation, an acknowledged expert in the field, and will provide long-term unrestricted grants to organizations that have strong evidence-based programs, such as Youth Villages and Nurse-Family Partnership. Nancy Roob, CEO of EMCF, is also CEO of Blue Meridian. The fund has eight “general partners”—individuals or foundations who have committed at least $50 million over five years, each of whom has one vote on the board—as well as nonvoting “limited partners” who have committed at least $10 million. The Bright Funds Foundation has created a number of funds in areas including US education, disadvantaged youth, San Francisco poverty, New York City poverty, global conservation, global climate, global public health, global poverty, and global sustainable food and agriculture.3 Each fund is managed by an expert in the field who has discretion to determine strategies and make grants. In contrast to Blue Meridian Partners, Bright Funds will accept contributions of virtually any size.

Giving Circles Giving circles are a form of collaborative philanthropy in which individual donors pool their money and other resources and decide together how and where to donate them. A giving circle is often hosted by a nonprofit public charity, so members’ donations are immediately tax deductible even though grants are made at indeterminate future dates. A cross between a book club and an investment club, a giving circle offers a philanthropy-focused social environment for members and helps them learn about grantmaking processes as well as issues in specific areas of concern—from the needs of women in developing countries to underserved populations in their own communities. Social Ventures Partners International (SVPI) is perhaps the best known of the formally organized giving circles, with more than one thousand members in twenty-three affiliates.4 Silicon Valley Social Venture Fund (SV2) is an independent giv-

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ing circle, whose members, or “partners,” make an annual donation of at least $6,000. Like a private foundation, SV2 solicits formal grant applications, which are decided on by committees of partners. SV2 maintains long-term relationships with its grantees, funding capacity building and providing its partners’ professional expertise to the organizations it supports. While some giving circles, like SV2, focus mainly on regional issues, others are issue based. The Queer Youth Fund gives to small youth-led organizations concerned with LGBTQ issues; Dining for Women addresses women’s and girls’ poverty in developing countries; and the Latino Giving Circle network is concerned with Latino issues throughout California.

Giving to Private, Operating, and Community Foundations When Warren Buffett, the chairman of Berkshire Hathaway, announced his $31 billion pledge to the Bill & Melinda Gates Foundation, he acknowledged that he knew a lot more about making money than about giving it away. So in deciding how to donate his enormous fortune, he approached the task like an investor. “When people are thinking about amassing wealth, they frequently go to someone else that they think knows more about it than they do. . . . Why not apply the same thinking when you’re eventually dispersing wealth?” he asked.5 Instead of creating his own foundation from scratch, Buffett decided to place his assets in an existing, proven institution. He understood that achieving social impact is difficult work and that the staff of the Gates Foundation has deep expertise in both the substance and procedures of philanthropy in their shared areas of interest. So one alternative to doing philanthropy entirely on your own is to follow Warren Buffett’s example and place all or some of your philanthropic assets in an existing foundation that shares your goals and that has strong leadership and a track record of effective philanthropy. This is the philanthropic equivalent of investing one’s money in Berkshire Hathaway or in a good mutual fund.

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In Chapter 14, we describe the venture philanthropy firm DRK, an operating foundation that accepts contributions (a minimum of $1 million payable over five years) from “donor partners.”6 The donation of assets by high-net-worth individuals is the life blood of community foundations—501(c)(3) public charities that make grants in specific regions or cities. Since their missions are generally oriented broadly toward improving quality of life in a geographic area, community foundations support a wide range of programs and activities—promoting arts and culture, sustaining vulnerable populations, and broadly improving social and economic well-being. For example, the Philadelphia Foundation funds nonprofits that operate in the Greater Philadelphia area to foster the economic, civic, and social vitality of the community.7 The Hawaii Community Foundation seeks to strengthen the state’s communities.8 The staff members of community foundations perform much the same roles as their counterparts in private foundations—and they also counsel individuals holding donor-advised funds. It is typical for a single program officer to have a broad portfolio of grantmaking areas.

Engaged Collaboration In the late summer of 2016, several foundations and individual funders acted on an extraordinary opportunity to collaborate for climate impact. That October, nations that were parties to the Montreal Protocol on Substances That Deplete the Ozone Layer (the international treaty governing the use of chemicals that deplete the ozone layer) planned to gather in Kigali, Rwanda, to try to reach agreement on phasing down the extremely potent greenhouse gases known as hydrofluorocarbons (HFCs).9 HFCs were created in the early 1990s for use in refrigeration and air conditioning to replace the chlorofluorocarbons (CFCs) that contributed to producing a hole in the ozone layer. The Montreal Protocol had been remarkably successful in getting rid of CFCs, but at a high environmental cost. While HFCs don’t de-

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stroy the ozone layer, they are almost ten thousand times more potent than carbon dioxide in causing global warming. Fortunately, scientists have developed climate-safe alternatives. And in October 2016, the nations of the world were discussing how to eliminate these climate superpollutants through an amendment to the Montreal Protocol. In September, eighteen funders pledged $52 million for developing nations that agreed to phase down HFCs. The funding would be used to support the adoption of energy-efficient cooling technologies at the same time as the refrigerants were replaced. The plan worked. Some 197 countries committed to cut the production and consumption of HFCs by more than 80 percent over the next thirty years. Scientists estimate that the Kigali HFC amendment alone could avoid as much as 0.5 degree Centigrade of global warming by 2100—perhaps up to 1 degree Centigrade with increases in energy efficiency. The funders formed a steering committee, hired three expert staff who formed the Efficiency Cooling Office (ECO) housed at Climate Works Foundation, and formed a twenty-member technical advisory committee. The funders also agreed to principles of collaboration, which stipulated that they would share information and align grantmaking around the agreed-upon funding strategy. The Kigali Cooling Efficiency Program (K-CEP) was launched publicly in March 2017. K-CEP awarded approximately $40 million by the end of 2017. The steering committee meets quarterly for the funders to keep learning from each other and the ECO team as the work unfolds. The scale of this collaboration, the speed with which it came together, the potential for impact, and the intensity of ongoing funder cooperation as K-CEP moves into implementation have been exceptional. Many factors came together to make this work. A few pioneer foundations invested over several years to help create the Kigali opportunity and kept partner foundations apprised of progress. The excellence of the grantees who worked tirelessly toward an HFC amendment encouraged funders to engage. And

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K-CEP funders seized the moment and acted swiftly to make generous commitments, buoyed by the trust they built together within the climate philanthropy community in recent years. Of course, K-CEP will succeed only if it actually reduces greenhouse gas emissions. The K-CEP funders have also developed a “Kigali Progress Tracker,” a shared results framework that will be used to track activities, outcomes, and impacts. A “scorecard” and regular reports will support real-time learning to share with the parties, institutions, and agencies of the Montreal Protocol and help K-CEP funders deploy funding as effectively as possible.

Creating Intermediary Regranting Organizations Philanthropists have also collaborated in creating intermediary organizations that may engage in grantmaking and other activities. For example, the Energy Foundation (with Hal as its founding CEO), launched in 1990 by the Rockefeller and MacArthur Foundations and the Pew Charitable Trusts, is now supported by more than two dozen different foundations and an increasing number of individual philanthropists. It develops strategies to improve energy efficiency and promote renewable energy in the United States and China and makes grants to dozens of nonprofits, as well as providing technical assistance to governments. The Energy Foundation’s staff serve as virtual program officers for its funders, providing a degree of expertise that it would be difficult and expensive even for large foundations to replicate. The Fund for Shared Insight, described in Chapter 8, which promotes foundation transparency, provides another example.

Collective Impact There are many problems whose solutions require the collaboration of philanthropists with nonprofit organizations, businesses, government entities, beneficiaries, and other stakeholders. In a seminal 2011 article, John Kania and Mark Kramer of FSG Social Impact Advisors gave this approach to coordinated intervention the name “collective impact.”10 The poster child cited in the arti-

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cle is the Strive Partnership, a community initiative designed to improve performance and reduce dropouts in Cincinnati’s public schools: [A] core group of community leaders decided to abandon their individual agendas in favor of a collective approach to improving student achievement. More than 300 leaders of local organizations agreed to participate, including the heads of influential private and corporate foundations, city government officials, school district representatives, the presidents of eight universities and community colleges, and the executive directors of hundreds of education-related nonprofit and advocacy groups. These leaders realized that fixing one point on the educational continuum—such as better after-school programs— wouldn’t make much difference unless all parts of the continuum improved at the same time. No single organization, however innovative or powerful, could accomplish this alone. Instead, their ambitious mission became to coordinate improvements at every stage of a young person’s life, from “cradle to career.”11

Over its first five years, Strive Partnership noted improvements in kindergarten readiness, reading and math achievement, and high school graduation rates. In 2010, the organization morphed into StriveTogether, a national initiative that today supports more than seventy community partnerships that engage with more than ten thousand local organizations. A preliminary evaluation indicates that the collective-impact approach leads to new ways of collaboration among community partners through what the organization calls the “civic infrastructure,” which, in turn, leads to positive outcomes.12 An evaluation of StriveTogether is scheduled for release in 2018. The collective-impact framework calls for diverse groups to work on a specific issue in a defined region through a common agenda, a shared measurement system, mutually reinforcing activities, continuous communication, and backbone staff support. Just as a football team demands a more coordinated strategy than,

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say, a solo golfer, a collective-impact initiative requires an overarching strategy, common metrics for measuring progress, and a process for adjusting the strategy if the metrics suggest the need for course correction. It is difficult to organize, let alone sustain, an initiative that meets these demanding criteria, and the approach is not always successful.13 Nonetheless, hundreds of collective-impact initiatives have been organized around the world, with some showing promise in areas including pollution, childhood obesity, substance abuse, health care, employment, neonatal mortality, criminal justice reform, and education.14

Processes of Collaboration For collaborations to be successful, the parties must attend to process dynamics and potential pitfalls. Group decision making. Decision making by consensus is not an efficient process. The time consumed is a function of the number of collaborating funders, the number of staff members tasked to the joint enterprise, the participants’ willingness to compromise on matters of procedure and substance, and the internal structure and leadership of the group. The more collaborating partners, the greater the need to accord some deference to a steering committee or even a lead funder. Of course, agreeing on procedure itself takes time, but it has great potential payoff; in the absence of an agreement, procedural issues tend to be recycled ad nauseam. The allocation of tasks among funders. Grantmaking involves a number of labor-intensive activities, including due diligence, monitoring, and evaluation. Avoiding duplication of these efforts can save both the funders and grantee organizations time and money. To delegate any aspect of its grantmaking responsibilities, a funder must have considerable confidence in its peers—confidence that ultimately can be developed (and on occasion diminished) only through ongoing professional relationships. Fairness to grantees. Collaborative grantmaking seeks to further the missions of both funders and their grantees. But imagine the

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terror that runs through the veins of grantees when their funders all get together for a private meeting to potentially remake the field. And this takes us to the next point. The dangers of groupthink. When a group of funders gets together, they have isolated themselves, at least for the moment, from practitioners’ opinions. They might conjure up a brilliant new approach, or they might not. Either way, they have concentrated field-making or field-damaging power. Of course, fresh thinking is also often needed. But before implementing their new ideas, funders should test them with grantees and other stakeholders and show respect for the strategic choices that organizations in the field have made. Strategic planning overload. It is a simple matter for a program officer to ask a grantee a bundle of important questions: What are the milestones? How will you handle a negative outcome? Which stakeholders are left out of the process, and how will you reach them? Are you staffed for success? For failure? And so forth. If you add up all of the clever questions from all participants, and then add in different requirements for proposals, accounting, reporting, and evaluation, you will have created the endless process machine. Each question and each requirement may seem important, but the sum of different demands from various funders can be a massive distraction. Effective grantmaking requires coordination among the group and individual funders’ letting go of some of their favorites. Organizational cultures. The internal cultures of the participating institutions can have dramatic effects on collaboration. The effects are asymmetric, with pathologies detracting more from the common venture than good internal practices contribute to it. In the end, only one’s experience with individuals and institutions can determine who is a good collaborator and who is not. As attractive as the potential impact may be, experience sometimes teaches that with some players the game is just too frustrating to be worth the candle. Flexibility versus loss of focus. Every foundation has its own mis-

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sion and decision-making processes. Collaboration almost inevitably calls for some flexibility in processes, and sometimes in mission as well. On the one hand, you should be wary of a youfund-my-project-and-I-will-fund-yours approach to collaboration. On the other hand, you should be open to what Larry Kramer, borrowing from international relations, has termed “diffuse reciprocity”: “an attitude, a willingness to give without demanding a precise accounting of equivalent benefits for each action, albeit because others in the community do so as well.”15 Kramer writes that a regular practice of diffuse reciprocity creates relationships that pay off when collaboration is entirely in your sweet spot. Exiting collaborations. Although foundations frequently collaborate in starting initiatives, there is considerably less collaboration—sometimes not even much notice to partners—in exiting from them. This may be due to changes in a foundation’s leadership or just the fickleness of inward-focused and unaccountable institutions. Absent dire circumstances, responsible philanthropists do not pull the rug out from under either grantees or funding partners but provide reasonable notice and a ramp-down period when they change priorities.

A Tale of Failed Planning and Collaboration The William and Flora Hewlett Foundation’s Neighborhood Improvement Initiative (NII) demonstrates a well-intentioned multi-million-dollar effort compromised by poor planning and collaboration.16 From 1996 through 2006, the Hewlett Foundation committed more than $20 million to an initiative designed to improve the lives of residents in three Bay Area communities—West Oakland, East Palo Alto, and the Mayfair area of East San Jose. The foundation enlisted three community foundations as “managing partners,” and it created new organizations as well as involving existing ones in the neighborhoods. Among the NII’s key goals were to “connect fragmented efforts to address poverty-related issues” and “develop neighborhood leaders by creating a vehicle for in-

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creasing resident involvement in neighborhood planning and improvement strategies.”17 It was intended both to achieve tangible improvements for residents and to strengthen the long-term capacity of the community foundations and neighborhood organizations to sustain change. While the West Oakland project self-destructed early on, the NII left Mayfair and East Palo Alto better than it had found them and helped create organizations that continue to serve their residents in youth development, education, public safety, and other areas. Despite the huge investment of financial and human resources, however, the NII fell very far short of achieving the hoped-for tangible improvements in residents’ lives. The NII’s work in East Palo Alto is illustrative. East Palo Alto is a poor city whose residents are mostly African Americans, Latinos, Asians, and Pacific Islanders. As in the other NII communities, the foundation and its collaborators did not specify what poverty-related issues would be addressed or what results it hoped would be achieved, nor did they articulate a strategy for identifying and developing resident leaders. Rather, the initiative called for a diverse group of East Palo Alto residents to come together to develop a vision for the neighborhood and a general plan to achieve it, which the foundation would fund for six years at $750,000 per year. Residents formed a new organization, One East Palo Alto (OEPA), which in turn formed task forces to discuss issues of individual and family support, neighborhood revitalization, and community building. Community leadership was in continual flux. Over its first three years, OEPA started thirty-nine projects involving dozens of local organizations. These projects were constantly modified and often abandoned. None of them achieved noticeable improvements in the community. At the start of the initiative, Hewlett had engaged the Peninsula Community Foundation (PCF) to provide technical assistance to the grantee organizations in East Palo Alto.18 During the first three years of the initiative, Hewlett became increasingly

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skeptical of PCF’s effectiveness in doing this, and Hewlett’s staff intervened and communicated directly with the organizations. Relations between the foundations soured to the point where they parted ways, and Hewlett staff members worked directly with the East Palo Alto organizations for the remainder of the grant period. While confirming that it was up to the community to determine which particular projects to pursue, Hewlett insisted that the community needed to focus on achieving just a few goals and stick with them. OEPA regarded this not only as heavy-handed but as a breach of trust, and the relationship between funder and grantee became fraught with tensions. Hewlett provided consultants who helped specify the goals, design strategies to achieve them, and build in—as the original initiative had failed to do—indicators of progress. The new goals focused on (1) improving the school performance of Latino pupils, 78 percent of whom scored below the fi ftieth percentile on standardized school tests, and (2) teaching English to their parents, many of whom were not literate in any language, on the theory that this would enable them to help their children with homework and interact more effectively on their behalf with schoolteachers and administrators. These goals were pursued through an afterschool program for the pupils and an evening program for their parents. As it turned out, many of the pupils enrolled in the afterschool program in East Palo Alto demonstrated an increased level of study skills, and a third of them showed improved literacy skills. Many of the adult students achieved a basic command of English, and a small but significant number achieved enough literacy to continue in English-as-a-second-language courses in a nearby community college. Both the youth and adult programs grew to accommodate an increasing number of students. Almost surely, these outcomes could have been achieved with a fraction of the human and financial resources devoted to the effort and without the fracturing of relationships. But the major les-

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sons of the story involve errors in the grantmaking process from beginning to nearly the end. The story reinforces the critical importance of having clear goals, strategies, and indicators of progress—and of the need for all the participants in a joint venture to agree on these matters at the outset. (This does not foreclose significant course corrections along the way—but that term implies that there is a course to correct, and this was not always evident in the NII.) It is a story about inadequate attention to organizational and strategic risks and about the importance of focus and perseverance. All participants in the initiative, including the funder and the technical advisers, underestimated the challenges of building the capacity of community organizations to develop and stick with plans to deal with complex problems. The high failure rates of strategies in this realm should have served as a warning but were not adequately heeded. The story emphasizes the complexities of collaboration, especially when the collaborating partners have unequal power. The Hewlett Foundation was the exclusive source of funding for grantee organizations in East Palo Alto and a large source for PCF. What Hewlett thought of as the responsible and respectful exercise of power was perceived by others as throwing its weight around. Whether or not there’s an objective truth here, it is certainly the case that even a suggestion or hint by a major funder can be overinterpreted by its grantees—and as the foundation increasingly realized that the project was not going anywhere, it did considerably more than hint at or suggest the need for corrections. What Hewlett intended as helpful interventions were sometimes taken as capricious intrusions, and at the very least, the foundation did not handle the change of direction with adequate sensitivity to the community organizations or to PCF. This story highlights the importance of building good evaluation into the project from the start. The NII was strong on “process” evaluation, which focused on how the organizations were relating to the community and developing internal capacity. But not

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until too late did the foundation focus on evaluating outcomes. It was too late not just because it is difficult to retrofit evaluation into an ongoing effort but because it did not force the participants to ask the fundamental question at the outset: What would success look like?—a question that, if asked, would have disclosed the absence of any agreement about the answer. Inspired by the Robert Wood Johnson’s practice of sharing knowledge to improve practices in the field, the Hewlett Foundation published a detailed report on the NII,19 which is available on the foundation’s website.

Summary: Long-Term Collaboration for Real Impact In recent years, Forbes has published an annual report on “big bets .  .  . to solve society’s problems,”20 based on research conducted by the Bridgespan Group.21 Although a number of the “big bets” were collaborative, and several were made to multiple organizations, the emphasis has been on very large donations to individual organizations by individual philanthropists or individual foundations. This is not how philanthropy typically achieves real and lasting impact. Rather, that generally calls for collaboration among multiple funders making “strategically placed grants to many grantees over time, most too small to rise to the level of a big bet in Forbes’ . . . terms.”22 The quotation is from Larry Kramer, current president of the William and Flora Hewlett Foundation, who continues with this example: I am proud of the Hewlett Foundation’s very large grants, but I am as or more proud of the work it has done in areas such as conservation—a focus of grantmaking since 1969. The foundation has, in the years since then, spent upwards of $350 million conserving land and improving rivers in the American West, learning along the way from and with its grantees and fellow funders how to build coalitions and balance conflicting interests to achieve consensus around our goals.

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Spending quietly but steadily, progress has come in fits and starts. There have been gains but also losses, as we made mistakes from which we learned and endeavored to adapt to a constantly changing political and cultural landscape. And gradually, by dint of persistence and steadfast attention, our grantees have achieved significant results. We facilitated their work by spending approximately $20 million per year in recent years (less in earlier years), spread across many grantees. No single one of these grants was large enough to capture the attention of Forbes journalists, but together they represent the patient, steady work and purposeful, sustained focus required for progress. The same can be said for our efforts in other areas, such as conflict resolution, women’s reproductive health, open educational resources, arts education, and more. In all these fields, the foundation made decades-long commitments and achieved meaningful impact not by virtue of flashy big grants, but by conscientious, sustained, strategic support of countless organizations working on different aspects of the problem.23

Kramer goes on to note, and we agree, that Hewlett is not unique in this regard. “Every major foundation has made and is presently making similar bets in its various programs, and each could provide similar examples of long commitments to difficult problems worked on steadily to achieve laudable results.”24

Developing and Disseminating Knowledge Foundations possess considerable internal knowledge. Some of it is formal, such as goals, strategies, grant guidelines, proposals, and (required by the IRS) actual grants. Some of it is tacit knowledge in the minds of program officers, such as the landscape of a field and the strengths and weaknesses of grantees and other organizations that inhabit it. Some of the knowledge is in writing but may reside uncataloged, in grant files or in staff members’

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drawers—notes from site visits and other meetings, grantees’ and consultants’ reports, evaluations, and so on. An article in the McKinsey Quarterly notes that “many philanthropists, fearing that a dollar spent internally is a dollar wasted, have neither the organization nor the systems to manage their knowledge properly.”25 Perhaps beginning with the Annie E. Casey Foundation in 2001, a number of foundations have taken on this issue, often by creating internal knowledge management positions. Casey created simple templates for recording information from site visits—information that had only been captured in program officers’ notes, if then. The foundation eventually defined an entire process for managing its knowledge resources, including what knowledge should be captured, who should be responsible for codifying it, and how it should be maintained and disseminated.26 Building and using knowledge management systems certainly can be costly and time consuming. Like every other aspect of the philanthropic “infrastructure,” it is only justified to the extent that it increases the likelihood of impact in achieving one’s goals. A foundation’s own work may benefit from program officers’ sharing information with colleagues or making it available to their successors so their knowledge doesn’t evaporate when they leave.

Disseminating Knowledge Externally While some knowledge gathered by foundations is appropriately limited to internal use, much can also be valuable to grantees, policy makers, and other funders. While the expected social return on a grant is limited to some extent by its size, the value of knowledge can be multiplied many times over if there are good systems in place for disseminating it. A survey of foundations’ transparency by the Center for Effective Philanthropy suggests, however, that many more foundations believe this than act on it.27 Although most foundations

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responded that they should be transparent about their programmatic goals, strategies, grantmaking criteria, and selection processes, and many are beginning to make these public, the situation is quite different when it comes to revealing their own and their grantees’ performance in pursuing particular strategies. Proffered explanations included that staff lacked the time to organize and share this information and that it could harm grantees’ ability to get support from others or even make them vulnerable to political harassment. Of the 250 foundations that have commissioned Grantee Perception Reports (see Chapter 8), only 20 percent have even published summaries of the reports on their websites, suggesting that concern for reputation may also be a motivating factor. Assuming that a foundation has knowledge worth sharing, transparency has manifold benefits, such as improving public trust and credibility and providing knowledge for other foundations and organizations working on similar issues. We propose a presumption favoring disclosure, taking into account fairness to grantees and not tipping one’s hand to opponents of an advocacy strategy. Having been grantmakers ourselves, we acknowledge program officers’ time constraints. But we also think that the scope of a program officer’s job is defined too narrowly. To put it bluntly, program officers are rewarded mainly for getting money out the door. Although this is a key part of their job description, program officers can also achieve impact by disseminating knowledge to other foundations and organizations that can then act on it. Philanthropic transparency has had some bright spots. For many years, the Robert Wood Johnson Foundation has published reports on hundreds of grants, describing its reasons for making a grant, the problem it addressed, the objectives and strategies used to facilitate change, the results or findings from the work, lessons for the field, communications efforts, and postgrant activities. An RWJF staff member notes that “the people involved in the projects are surprisingly candid about their work and the evaluation of

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their projects.”28 RWJF also maintains other online publications, primers and toolkits, fact sheets, interactive maps (e.g., on tax and tobacco settlement revenues), webcasts and podcasts, and thirdparty evaluation reports on its projects and programs.29 Another, recent example is the Open Philanthropy Project, which is a partnership between the Good Ventures foundation and the charity rating service GiveWell. The Open Philanthropy Project’s mission is “to give as effectively as we can and share our findings openly so that anyone can build on our work. Through research and grantmaking, we hope to learn how to make philanthropy go especially far in terms of improving lives.”30 Its website includes conversations that Cari Tuna, Holden Karnofsky, and others involved in the project have held to learn from others in the field, explorations of potential grantmaking areas, and lessons learned from the foundation’s grantmaking. The past decade has seen two fieldwide efforts to increase foundation transparency. One is the Foundation Center’s Glasspockets initiative, which scores individual foundations’ transparency with respect to information about grantmaking, planning and performance measurement, governance, staffing, and finances.31 The other is the Fund for Shared Insight (discussed in Chapter  8) which publishes materials to assist foundations’ efforts toward transparency.

Supporting the Field of Philanthropy The past several decades have also seen significant developments in organizations that constitute the infrastructure of philanthropy and the nonprofit sector. Without trying to be comprehensive, we mention some key players.32 Some organizations—for example, philanthropic advisory firms such as Arabella Advisors, the Bridgespan Group, FSG Social Impact Advisors, Redstone Strategy Group, and Rockefeller Philanthropic Advisors—make their services available for a fee, and philanthropists can buy what they need.

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Others are membership organizations, which philanthropists can join based on their interests—for example, the Council on Foundations, the National Center for Family Philanthropy, the Philanthropy Roundtable, Independent Sector, various regional associations of grantmakers (RAGS), and affinity groups centered around particular areas, ranging from the arts to environment and health. To these, we would add the increasing number of publications about philanthropy, including the leading journal for the nonprofit sector, the Stanford Social Innovation Review;33 the Foundation Review; and HistPhil, a web publication on the history of the philanthropic and nonprofit sectors.34 Finally, we provide examples of organizations that depend to a significant extent on philanthropic contributions in addition to, or instead of, revenues earned through services and membership: • Organizations committed to developing and sharing information about foundation practices and programs, and improving foundations’ social impact—for example, the Bridgespan Group (which in addition to paid consulting develops and freely disseminates knowledge about the sector); the Center for Effective Philanthropy (which, in addition to conducting Grantee Perception Reports, undertakes sectorwide surveys and studies); Foundation Center; Grantcraft; Grantmakers for Effective Organizations (which, as its name implies, supports philanthropic practices to maintain strong nonprofits); and the Fund for Shared Insight. • Watchdogs, including the progressive National Center for Responsive Philanthropy, which presses foundations to focus on issues of social justice; the generally conservative Philanthropy Roundtable, which advocates for adherence to donors’ intent and is a fierce guardian of foundations’ independence from government regulation. • Donor education programs, including Exponent Philanthropy and the Philanthropy Workshop, which appeal mainly to

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high-net-worth donors—often the principals of family foundations—who want to learn how to “do it themselves” rather than rely entirely on consultants. Additionally, a number of donor circles help members learn about the principles and practices of philanthropy. These include SVPI and SV2, as well as some new organizations that focus specifically on millennials. • University-based research centers, including Duke’s Center for Strategic Philanthropy and Civil Society, Harvard’s Hauser Center for Nonprofit Organizations, London School of Economics’ Marshall Institute for Philanthropy and Social Entrepreneurship, Penn’s Center for High Impact Philanthropy, and Stanford’s Center on Philanthropy and Civil Society.35 • Evaluation shops, including long-standing groups such as MDRC and Mathematica, and two relatively new entrants that have brought the highest standards of social science to assess interventions in developing countries—J-PAL and Innovations for Poverty Action. • Organizations providing information about nonprofit organizations and evaluations of their performance: Charity Navigator (about which we have major reservations), GiveWell, GuideStar, and ImpactMatters.36 Many of these organization have played important roles in moving the philanthropic and nonprofit sectors toward more strategic and outcome-oriented practices. Although spending on improving philanthropic practices can have a significant multiplier effect, only a small fraction of foundations—most notably Case, Ford, Gates, Hewlett, Raikes, and Templeton—have contributed to organizations that maintain the infrastructure of philanthropy. So, in addition to focusing on the core issues of your philanthropy, we suggest that you devote some portion of your budget to supporting infrastructure organizations that cannot be sustained through earned revenues.

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Application to Your Own Philanthropy Consider a couple of examples of philanthropic collaboration that you or others you have observed have engaged in. What were the advantages and disadvantages of collaboration? What would you have done differently?

Chapter 12

PRINCIPLES AND PRACTICES OF EFFECTIVE PHILANTHROPY

In 2012, a group of philanthropic experts and practitioners, known as the Donor Education Network (DEN), developed principles and practices that underlie impact-driven philanthropy. Five years later, these were refined and reiterated by the Impact Driven Philanthropy Funders’ Collaborative, a group of funders and donor education organizations convened by the Raikes Foundation. The group includes funders focused on strengthening support for donors along with partners such as the Philanthropy Workshop, Social Venture Partners, and the Stanford Center on Philanthropy and Civil Society. Their impact-driven philanthropy (IDP) principles and practices nicely summarize the points made in Part 3.1 Impact-driven philanthropy (IDP) is the practice of strategically using our time, talents, and resources to make meaningful, measurable change. Guided by clear goals and strong values, impact-driven philanthropists have a passion for solving problems and a commitment to partnering with the people closest to the problems we aim to solve. While each person’s journey is different, certain core beliefs can guide us to discover the strategies and solutions that will allow

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us to do the most good for the causes we care about. In an effort to provide further guidance for how philanthropists might do the most good with their assets, we offer a set of principles and practices that flow from these core beliefs. Impact-driven philanthropy is a personal journey that offers many paths for exploration and discovery. As such, the principles and practices outlined here are not intended to be a list of absolutes or even a complete inventory of the elements that contribute to achieving greater impact. We understand that different practices have their place in different situations, and we respect that donors have varying amounts of resources and time they can dedicate. Our aim is to provide impact-driven philanthropists with helpful guidelines that they can test and translate into action in their giving—and we share these principles and practices in that spirit. We hope to inspire more donors to embrace the joy and promise of impact-driven philanthropy so that together we can create better outcomes and a brighter future—for our communities and our world.

Core Beliefs 1. Clear, sustained focus: Focusing our giving on specific issues or places, especially those for which we have a personal passion, can help drive our dollars to do the most good. When we invest in causes we’re passionate about and stick with them for the long haul, our work can achieve lasting impact. 2. Research-informed strategy: Exploring the landscape is an important first step toward achieving impact. Research can help us understand the needs of the people we’re hoping to help and the capacity of our potential partners—informing our strategy for making meaningful, measurable change. For those of us with limited time to commit to a cause, research can also help identify others who can leverage our resources for maximum impact.

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3. Continuous collaboration and learning: Joining forces with others allows us to achieve greater impact than we could on our own, especially when we collaborate closely with leaders doing work on the ground. Productive partnerships are built on a foundation of mutual respect. They are sustained by clear communication, alignment of goals and methods, openness about challenges, and conscious striving for learning and improvement.

Principles • We intentionally draw on our values, ethics, and life experiences to identify the cause(s) we want to address and guide our giving, which increases meaning and joy and inspires us to sustain our efforts. • We recognize that each of us comes to this work with a belief system about how change happens that shapes our approaches. • We believe it’s important to learn about and understand the context of the issues we care about and ask who benefits from the work we are doing, who does not, and who might be unintentionally harmed. When we allocate resources based on need, we get greater impact. • We approach our work with problem-solving strategies calibrated to the resources we contribute. • We are transparent about and learn from our mistakes to improve our work and guide others. • We believe that powerful grantmaking results from encouraging leadership in and seeking engagement from the communities we seek to help. • We build productive partnerships with grantees, the public sector, and other collaborators working on our causes, which is essential for making meaningful, measurable change. Partnering and collaborating whenever possible can help

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us problem- solve, course-correct, and get better results over time. • We believe in building high-performance nonprofit organizations, not just programs. • We know that the resources that donors can dedicate vary greatly and believe that investing in intermediaries or aligning with other donors may offer some donors the best path to impact.

Practices • Assess your own beliefs about how change happens and the full array of resources you can contribute—including knowledge, networks, skills, experience, time, and money. • Don’t spread yourself too thin. Instead, focus your resources to make a meaningful difference and learn along the way. • Invest the resources and time needed to deeply understand your issue—including the outstanding needs and current actors in the space. • Understand the systems in which your causes are embedded and make intentional choices about your approach, such as supporting direct services or public policy or system change. • Develop your strategy and goals before selecting the best giving vehicle to help achieve them. • Develop a theory of change (i.e., description or causal chain of how and why a desired change is expected to happen) with clear goals informed by research and a solid understanding of the issues and landscape. Track progress and course-correct. • Stick with new programs or grants for a long enough time period to realistically determine whether they can achieve the goal. • Ensure the size of your expectations is properly aligned with the size of your investment—don’t expect big change if you provide only spare change.

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• Partner with people close to the problems you’re trying to solve— seek their input, listen to their ideas, and invite them to cocreate solutions. • Communicate openly and often with and seek unbiased, regular feedback from all stakeholders—including intended beneficiaries, grantees, and other funders. • Provide flexible, less-restrictive, multiyear funding to give grantees the ability to invest in their core human and technological infrastructure. If providing project or program support, include full indirect costs (overhead) as long as they are in line with effective organizations of that type. • Engage other funders and build a network of peers who may have similar goals, whenever feasible. • Fund efforts to collect, analyze, and build the capacity within nonprofits to use relevant data so you have a basis for understanding what’s working and what’s not. • Use all resources available to inform your work, including peers, consultants, online platforms, classes, and in-person learning opportunities. • If you don’t have the time to invest in the practices articulated here, you may choose to give to an intermediary or issue fund that does that work on your behalf or align your contributions with a respected colleague or funder.

PART FOUR

TOOLS OF THE TRADE

THE THREE CHAPTERS of

Part 4 survey the various activities that you and your grantee organizations can undertake to achieve your shared goals. Like a craftsperson who has decided on a project, the strategic philanthropist will select the tools that, alone or in combination, will get the job done. The goals lead to the selection of tools, not the other way around. With this in mind, the following chapters focus on three sets of tools. We begin with the development of knowledge, which lies at the heart of all of these activities. We then turn to the most common activity in the nonprofit sector: providing goods and services, which often includes influencing the behavior of individuals. Finally, we turn to advocacy—influencing the behavior of governments and businesses. Suppose that you are concerned about the rise in obesity among American youth—concerned both about the health consequences and the economic burdens that will ultimately be imposed on society. After defining the problem along the lines examined in Chapter 2, you will want to learn what is known about its causes. For whom, and to what extent, is obesity caused by genetics, sedentary lifestyles, inadequate labeling of foods, advertising and selling junk food, the absence of stores selling fresh fruits and vegeta-

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bles, the absence of safe and convenient places to play, and other factors? You would probably discover that there is considerable research about the causes of obesity in general, though perhaps less about the particular populations you wish to reach. This is also likely to be the case for solutions to the problem, which would ultimately be aimed at changing the beneficiaries’ behaviors so that they do more exercise and eat more healthily. A successful strategy may require ensuring that families in poor neighborhoods have access to healthy foods, playgrounds, and parks and that schools provide healthy environments as well. Achieving these outcomes may require advocacy as well as provision of goods and services. And some of your efforts may encounter not merely obstacles but active opposition. If schools have contracts with soft-drink companies to maintain vending machines on the premises, you may need to change their practices or policies. To do this, you will plan a strategy: whom to approach—the soft-drink company itself, a school principal, the district superintendent, or the school board—and decide which arguments and constituencies they will respond to. This requires understanding the countervailing pressures. For example, how important are the schools’ economic concerns? Does the soft-drink company support the school football team? It also requires knowing who else might be mobilized (the PTA?) to influence the decision makers.

The Innovation Curve: Goals, Grants, and Strategies in the Early and Later Stages of Development A philanthropist using any of the tools examined in Part 4 will encounter knowledge, field practices, and organizations in different states of maturity. If you compare society’s ability to reduce smoking with its ability to reduce obesity, the former is far more advanced than the latter—in terms of knowledge of the problem, knowledge of what interventions work, and the implementation of those interventions. Changes in thought and behavior can take decades to accomplish. The trajectory of a social problem heading toward a solu-

Tools of the Trade

GROWTH

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Time FIGURE 13.

Innovation curve

tion is captured by the “innovation curve,” which was originally designed to describe the development and diffusion of technological products.1 This S-shaped curve is divided into three phases: innovation, growth, and maturity. Most philanthropic programs tackling serious social or environmental problems aim toward maturity—to “go to scale”— whether the ultimate mechanism is market adoption, changing social mores, or changing policy. Thus, understanding where you are on the curve can help you think about how to direct money, what kinds of results to expect, and what to do when a field or strategy matures. Innovation. At the beginning, organizations’ particular goals may be fluid and the theories and strategies may be unclear. The innovation phase is a time for formulating goals, forming and testing hypotheses about social or scientific approaches to problems, and testing new strategies and policies. The innovation phase often calls for a broad set of grants, since many ideas must be tested to find some that work. It is important not to foreclose potentially valuable ideas. Because testing is central to this phase, foundations should also be prepared to devote considerable resources to evaluation. Growth and adoption. In the growth phase, philanthropists want

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to find ways to help successful strategies go to scale. Grants in this phase tend to be larger than in the innovation phase. Efforts to change social mores will involve a combination of individual behavioral change and campaigns along the lines of the efforts to reduce smoking described in Chapter 1. Efforts to promote changes in government or corporate policies might look more like campaigns—with message development, training of spokespeople, venue analysis, organizing, and so on. Efforts to promote a market strategy might resemble a company’s product rollout. Efforts to obtain philanthropic or government support tend to employ demonstration projects to show feasibility. Maturity. At this point, an innovation takes hold and hopefully becomes sustainable. Philanthropists generally seek to lock in progress in this phase. This may happen through these developments: • Changed social norms and mores: For example, recycling waste becomes cool, or teen pregnancy becomes uncool. • Market adoption: Contraceptives for family planning or preventing HIV/AIDS are distributed through markets in developing countries. • Government policy and support: Governments promote family planning or fund after-school programs. • Sustainable philanthropic support: Myriad individual philanthropists subsidize after-school programs. • Corporate practices: Businesses promote fair-trade coffee and wood products from sustainable forestry. There may be many innovation cycles for each idea or policy that gets to the growth phase, and the growth phase itself may have a number of starts and stops and may sometimes flatline early. What seemed like “maturity” may take a dip, requiring a completely new cycle. Although reality is inevitably complicated, the innovation curve provides a valuable heuristic for thinking about philanthropic efforts to develop social programs and build fields and social movements.

Chapter 13

PROMOTING KNOWLEDGE

There are at least two fundamentally different forms of knowledge: knowledge that is basic, theoretical, and has no immediate consequence but to satisfy our eternal curiosity; and practical knowledge that has foreseeable useful applications. In his classic work, Diffusion of Innovations, Everett M. Rogers notes the relationship between these two: Most technological innovations are created by scientific research, although they often result from the interplay between scientific methodology and practical problems. The knowledge base for a technology usually derives from basic research, defined as original investigations for the advancement of scientific knowledge that do not have a specific objective of applying this knowledge to practical problems.1

Supporting the Institutions That Develop, Conserve, and Disseminate Knowledge and Culture A toast of the Mathematical Society of England goes “Pure mathematics; may it never be of use to any man!”2 Philanthropy has played a key role in supporting universities, museums, and other

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institutions devoted to developing, conserving, disseminating, and teaching knowledge and culture without regard to their practical utility. Progress in the arts and social and natural sciences depends on the creativity of a diverse array of scholars and artists. The continual fertilization and development of ideas cannot be accomplished by funding only specific projects with predetermined outcomes; it requires giving creative individuals the freedom to follow their own lights. Therefore, philanthropists support artists, scholars, universities, and other institutions that foster and incubate creativity. By design, those receiving philanthropic funding will produce diverse outcomes that are difficult to define in advance, let alone measure. There are inevitable efficiency losses in the short run. Not all scholars and artists will be industrious, not all of the industrious will be innovative, and not all innovative ideas will be worthwhile. But support for such open-ended creativity has paid off handsomely over time.3 Here are a few examples of scholars pursuing their own interests that eventually led to developments of tremendous, practical significance—sometimes intended, sometimes serendipitous. Not only their particular projects but the very infrastructure of the institutions on which their research depended was supported by philanthropy:4 • I. I. Rabi’s work at Columbia on the measurement of nuclear magnetic spin, for which he won the Nobel Prize in Physics in 1944, led to magnetic resonance imaging (MRI) and the atomic clock. • Claude Shannon’s research on information theory at Michigan and MIT in the years after World War II was critical to all modern electronic technology.5 • As an immunologist at UCLA, Michael Gottlieb was on the lookout for “interesting teaching cases,” which eventually led to the identification of the human immunodeficiency virus (HIV) in the 1980s.6

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• The 1995 Nobel Prize in Chemistry was awarded to Paul Crutzen and Mario Molina of MIT and F. Sherwood Rowland of the University of California at Irvine for their pioneering work in atmospheric chemistry, which ultimately led to eliminating ozone-destroying chemicals via the Montreal Protocol on Substances That Deplete the Ozone Layer, thus preventing unimaginable damage to the earth and its inhabitants. In addition to particular discoveries in the sciences and humanities, entire fields—ranging from conflict resolution to behavioral economics—started with basic research that had no predefined or practical objective. The point is nicely captured by the title of a monograph by Abraham Flexner, the founding director of the Institute for Advanced Study at Princeton, The Usefulness of Useless Knowledge.7 The Science Philanthropy Alliance was formed in 2015 in response to the US government’s deep cuts in its research and development budgets, with the goal of increasing philanthropic support for basic research in the natural sciences and mathematics.8 Sadly, there is no equivalent group supporting the social sciences. And much funding in both the natural and social sciences is directed to particular projects rather than providing the sort of unrestricted funding that gives researchers discretion to explore new ideas. Philanthropy also has supported the production of art, music, and literature. Apart from various arts organizations, professorial positions often provide artists with the financial stability to pursue their passions. Writers and poets, including Wallace Stegner, Toni Morrison, Joyce Carol Oates, and Seamus Heaney, have held university positions. So too have composers, including Roger Sessions, Elliott Carter, Morton Feldman, John Harbison, and John Corigliano, and architects including Louis Kahn and I. M. Pei.9 Philanthropy supports not only large educational and cultural institutions but also a broad range of other organizations that cre-

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ate and disseminate knowledge, ranging from think tanks, to professional associations such as the American Political Science Association, to communities of interest such as the Jane Austen Society of North America. Philanthropy also is supporting investigative reporting and reporting by nonpartisan media at a time when the culture and economics of the Internet challenge both of these practices. A bequest from Joan Kroc, widow of the founder of McDonald’s, added $200 million to National Public Radio’s endowment—an especially valuable gift when government support of NPR is insecure. ProPublica, a highly respected, albeit left-leaning, source of investigative journalism, was launched in 2008 by a large gift from Herbert and Marion Sandler and has since attracted a broader group of donors.10

Supporting the Development of Applied Practical Knowledge Philanthropy also plays an important role in developing knowledge that, from the outset, is intended to solve a particular problem—involving, for example, health, education, or the environment. Before investing in such knowledge, however, you need to know its place in an overall strategy for achieving the intended beneficial result. Having decided that new knowledge of some sort could make the world a better place, how do you go about promoting its development? Consider a project to improve the lives of the inhabitants of developing countries through efficient, clean cookstoves. We suggest that you think through the following steps before making a commitment to support research: • Ensure that you are solving the right problem. • Ensure that research is on the critical path to solving it. • Look at the research and ensure that there is capacity to support it.

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• Prepare for failure. • Prepare for success. • Test the design. A philanthropist may enter the scene at any of these phases. For example, an innovation may already have been developed and tested in the laboratory and now needs support for field testing. In any event, it is wise to learn whether this research has already been done and, indeed, whether it is already being implemented well by existing organizations that you could support.

Ensure That You Are Solving the Right Problem This is the liminal inquiry that we undertook in Chapter 2. The emissions caused by cookstoves that burn solid fuels, like wood, coal, charcoal, and dung, cause indoor pollution that harms and eventually kills millions of people, especially women and children, who also spend many hours a day collecting the fuel.11 Many existing cookstoves also cause fires.

Ensure That Research Is on the Critical Path to Solving It Sometimes more research is an essential step in the theory of change. But sometimes we know as much as is needed, and the barriers to accomplishing our aim lie not in ignorance but in failed implementation. For example, the science of global warming is by no means complete, and there is a great need for more practical technological solutions. But the most pressing need is to apply existing clean-energy technologies at a larger scale, and this is limited by political commitment, not by a lack of knowledge. In our example, considerable research has been done to develop low-cost cookstoves that use readily available fuels that cause much less pollution and reduce fire hazards.12 But there still is a need for technological development as well as making sure they fit local cultures so they’re actually used.

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Look at the Research and Ensure That There Is Capacity to Support It If research is on the critical path to achieving your objectives, here are a few steps you can take to define its scope: • Engage the opinions of the intended beneficiaries and experts in the field from the outset—not just the research community but those on the front lines who will ultimately make use of the work. For example, before funding creation of a vaccine for use in developing countries, consult on-theground health professionals to understand the practical problems of storing and administering the vaccine. Before funding a database management tool to give teachers continuous feedback on how their students are doing, consult teachers and principals to understand what hardware and software will actually be useful to them. Such consultation can help ensure that the product can and will be used under actual conditions. • Subject the research design to an independent review process—independent of the researchers you are likely to fund.13 • Medical and social science research projects regularly run into the millions of dollars and can take many years to complete. A funder who initiates a research project should be prepared to see it through. Scope the entire project—costs, time, skills, and institutional support—and ensure that, whether alone or in collaboration with other funders, you will have the resources necessary to support both the research and its dissemination. In our example the Global Alliance for Clean Cookstoves,14 a public-private partnership hosted by the UN Foundation, has supported the development of standards for emissions, efficiency, safety, durability, and quality as well as research on technologies to meet the standards.15

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Note on Human-Centered Design In earlier chapters, we alluded to the continually emerging field of human-centered design (HCD).16 HCD in its contemporary form was elaborated by David Kelley, cofounder of IDEO and of the Hasso Plattner Institute of Design (d.school) at Stanford, and it is practiced and taught by an increasing number of organizations and schools. For most of its roughly forty-year history, HCD has focused on the design of products (e.g., Apple’s first mouse) and a range of services and experiences (e.g., riding Amtrak’s Acela Express). More recently, HCD has been used to design interventions in the social sector. As described by the d.school, the design process comprises these core practices: 1. Empathize with the intended beneficiaries and other stakeholders using ethnography—observing, interviewing, and immersing oneself in their experiences—to uncover their deep, often unstated, needs.17 In our example, you would engage in this process with beneficiary families, particularly the women who cook. 2. Define the problem based on the beneficiaries’ and stakeholders’ needs identified in the empathy process. 3. Ideate (i.e., brainstorm) to generate possible solutions, and then select a plausible solution for further investigation. After all, there are a number of possible models of an efficient cookstove. Do this side by side with people who have deep experience in the field. 4. Prototype and test. Prototyping involves iteratively developing inexpensive, readily adjustable, low-resolution versions of the product. The process offers a valuable way to get candid feedback from beneficiaries and other stakeholders, after which you can make changes and get feedback again and again. We discuss testing later in the chapter.

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Prepare for Failure It is difficult to push back the frontiers of human knowledge, and a single success usually requires many attempts. Many research projects fail, and for various reasons: • The results are inconclusive. The effect (or the sample) was too small to know whether a particular drug controls juvenile diabetes or whether an early childhood instructional approach contributes to a child’s reading or social skills—or the results were encouraging but there were other possible explanations for them. • The data may conclusively demonstrate that the intervention doesn’t improve things. In this case, it’s back to the drawing board, with the hope of finding another potential solution. This has recently been the case in a number of promising approaches to an AIDS vaccine. • The intervention may actually be powerful and effective, but there are economic, political, or practical barriers to implementing it in the field—for example, the educational intervention may require intensive one-on-one teacher attention, or the vaccine may have a short shelf life and require special care. Failures in research outnumber successes by a considerable proportion. But many people—possibly yourself and those you will support—tend to be overoptimistic. Conduct a premortem along the lines suggested in Chapter 4 to anticipate what barriers lie in the path of making the cookstove available to and used by its intended beneficiaries. Plan for what will happen if the research fails in one way or another. Be prepared to regroup to find another route to solve the problem. And by all means, consider how failure can contribute to the knowledge base.

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Prepare for Success A demonstration project can be a useful way to test a concept. But you need to plan for what will happen next if it succeeds. Many demonstration projects seem premised on the hope that somehow they will speak for themselves and spread like wildfire. But even an important new discovery—one that can save lives for pennies—is only the start down the road to success. Whatever knowledge is created from your research needs to find an avenue into society. While hope springs eternal, the chances of adoption are greatly increased by treating the demonstration project as only one stage in an overall strategy for impact. This will help you plan to allocate the resources necessary for each stage, or gain them from others, and to engage people or institutions that may play a critical role in replication. The absence of a plausible path to adoption should at least make you consider whether it’s worth undertaking the project. If a model education program requires twice the teacher-student ratio of current schools, its adoption would require a huge increase in the district’s education budget. Is this likely? If not, perhaps you should test another model. Thus, before supporting the cookstove project, you should have satisfactory answers to these questions: Who is likely to manufacture and distribute the cookstoves? Where will their funding come from? What can I do to encourage adoption if the demonstration is successful? The world is littered with demonstration projects that, though they arguably proved the concept, were never replicated because no one prepared in advance for their replication. There are several avenues for fostering the adoption of an innovative idea or technology by its intended beneficiaries. Markets. As the fax machine, computer, and cell phone were spread through commercial markets, so can markets provide a vehicle for spreading innovations supported by foundations and

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nonprofits—prophylactics to prevent HIV/AIDS, bed nets to prevent malaria, and (if it proves successful) our clean cookstove. Sometimes an innovation will be adopted by markets without further philanthropic intervention. In other situations, philanthropy must jump-start the process along the lines of the Gates Foundation’s PRIs described in Chapter 10. Or philanthropy may have to provide a continuing subsidy to get the innovation to the people who most need it. Government programs. Governments have funded charter schools to improve educational outcomes for inner-city kids, hospital protocols to reduce errors in prescribing drugs, and programs to reduce drug addiction and teen pregnancy. While markets tend to discard useless ideas, however, the same cannot be said for governments, which have sometimes persisted in supporting useless programs for preventing AIDS and unplanned pregnancies in the face of all evidence to the contrary.18 Philanthropic support. Once upon a time, it was thought—and perhaps it even happened—that if philanthropists supported proof that an important social or health program for the poor worked in a cost-effective manner, governments would adopt it. At a time of government belt tightening domestically and around much of the globe, this increasingly seems like a fairy tale. Philanthropy has sometimes come to the rescue, for example, through local support for successful charter schools (and unfortunately many not successful ones as well) and through the virtually unique Blue Meridian capital aggregation fund described in Chapter 11. Government policies. Government policies affect private choices in complex and controversial ways.19 They can promote the diffusion of innovations and ideas—from photovoltaic cells to seatbelts to healthy lifestyles.

Test the Design Wherever an idea originated, it will likely need testing, whether through trial and error on someone’s workbench, through pilot

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projects to see whether the implementation of a particular idea actually works, or through the formal means of randomized controlled experiments discussed in Chapter 5. In our example, you would begin by building a prototype of the cookstove to test its efficiency and resilience and then see how it fares in actual use—both technically and socially. The cookstove may indeed use fuel more economically than an open fire— but will it survive rough treatment? Is it portable? Can it hold traditional pots? Can it be made and repaired locally? Is it costeffective? Does a distribution infrastructure exist, or can one be built? Is it consistent with the region’s cooking traditions? Pilot programs can help answer these questions—but only if they are designed from the outset to test whether the intervention actually made a difference. If an evaluation can demonstrate that the theory of change is valid and robust—meaning it can be applied to other populations and locations—then it can be implemented with confidence. If not, then it’s back to the drawing board once again. It often takes time to gather the data and evaluate an intervention to learn whether it has succeeded or failed. You often must be patient for years before knowing whether to move ahead.

Applying the Design Process to a Social Intervention Our cookstove example centered around a product. But the process described here applies to other sorts of interventions as well. For example, in addressing the problem of teen pregnancy in Zambia, IDEO.org and Marie Stopes International developed an imaginative approach by introducing pop-up nail salons, which appealed to the girls’ spontaneity and provided a place where the girls could congregate, gossip, and get contraceptive counseling in a very different atmosphere than a clinic.20 The activities and outputs included creating the venues, staffing them with knowledgeable counselors, distributing flyers or using other means to attract girls to the salons, and ensuring that the girls received ap-

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propriate contraceptive information. The underlying theory of change included the hypothesis that the girls would use this information to avoid becoming pregnant.21 Here’s IDEO.org’s description of how it prototyped and tested strategy for preventing teen pregnancy in Zambia: [We were] trying to find the best way to talk to young girls about safe sex and the options they have to protect themselves. Our first instinct told us that we would get people’s attention when they were out dancing so we designed a few prototypes for clubs, dressed the part and went on a night out. Fairly quickly we discovered that although it was a good place to find congregations of teenagers, it was also an environment where conversations would never reach the depth and engagement we were looking for. As usual, finding out what didn’t work was half the battle and we were pleased to prove our hypothesis incorrect and move on to the next. It so happens that “the next” included a crash course in fine manicuring to be able to give free services to teens at our newly opened nail salon. We rented out a space and set up a pop up nail salon in the middle of the Kamwala street market, a place where hundreds of people shop and loiter around on sunny Saturday afternoons. Part of the team advertised through the little market streets while [others] perfected the art of simultaneous manicuring intertwined with girl talk. The nail salon was a great setting to gather teenage girls and talk about the different types of contraceptives available to them through casual conversation. The girls were comfortable sharing their experiences, had hundreds of questions and were eager to take referral cards and more information back to their friends. There is something special about looking down at your nails, not having any eye contact and throwing in a hard question wrapped inside superfluous comments. “Is this the shade of red you wanted?” “Oh, so the injection made you gain weight?” “Do you also want white tips or just glitter?”

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The prototype went well, but as always, it also opened up new questions for us. We believe the way and pace with which we tell the story about contraceptives has a huge weight on their likelihood of adopting a method. It’s not only about side effects, but also about how they fit in with every girls’ lifestyle. The impact that myths have on decision making is also both fascinating and heart breaking but we haven’t found the right way to communicate truthful and trustworthy information. Our next step is to take everything that worked well and make it better, while also questioning everything that didn’t work, ask ourselves why it didn’t and try again.22

Stimulating Innovation through Prizes A number of foundations and other organizations support inducement prizes to encourage new contributions to a field and recognition prizes to honor those who have made past contributions. While our main interest in this section is inducing innovation, we discuss recognition prizes as well. Recognition can be treated as an end in itself, and it can also be an indirect way of stimulating activities in the future.

Inducement Prizes An alternative to supporting research to produce a specified product or result is offering an inducement prize to anyone who does so. The logic behind inducement prizes is the same as that behind a tournament: Instead of paying people to play, you pay them if they win. Under the right conditions, such competitions can stimulate new solutions to problems. The British Parliament’s 1714 prize for a practical method for determining a ship’s longitude is an early example of an inducement prize.23 The intervening centuries have seen thousands of prizes to stimulate technological advances, including humanpowered flight, nanotechnology, and energy-efficient refrigera-

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tors24 —though it took awhile for consumers to appreciate the benefits of energy-efficient appliances. The XPRIZE Foundation uses inducement prizes to stimulate innovative solutions in subjects including robotic space exploration, educational software for developing countries, mobile apps to increase adult literacy, turning CO2 emissions into valuable products, and accelerating the adoption of artificial intelligence technologies to solve social problems.25 Ashoka’s Changemakers holds competitions to address problems including preventing domestic violence, reducing corruption, and providing accurate information on genetically modified organisms (GMOs).26 The MacArthur Foundation supports a competition to close the opportunity gap through Internet-based media.27 Inducement prizes offer a tool to encourage thought and research in areas that the private sector might not otherwise address.28 They can also encourage a diversity of research approaches. In contrast to making a grant, the philanthropist need not determine in advance who is best equipped to accomplish the goal or specify how they should do so. The uncertainty of prizes requires researchers to find support for their work from other sources, which makes prizes inappropriate as a tool for innovation when the costs of research and development (R&D) are prohibitively high—for example, creating a power source from highaltitude wind turbines. Prize money is a complement to, not a substitute for, other forms of research funding. In any event, before creating an inducement prize, you should think about how the innovation will be disseminated or deployed and who will hold the intellectual property rights to any new technology.

Recognition Prizes The Nobel Prizes, in fields ranging from physics to peace, are perhaps the best-known recognition prizes. While their primary goal is to honor the recipients, they can have more far-reaching consequences. For example, they may enable recipients to continue do-

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ing valuable work, and they can highlight the importance of an emerging field to encourage others to pursue work in it. Perhaps the hope of winning a Nobel Prize has added to some scientists’ motivation to break new ground, and perhaps the Pulitzer Prize has similar effects. The Goldman Environmental Prize not only enables its recipients to continue their good work but, complemented by strong public relations outreach, focuses attention on environmental leaders operating under challenging or oppressive conditions across the globe.29 In addition to giving heart to others working in similar circumstances, it may encourage more philanthropists to support environmental causes. There are hundreds of thousands of other recognition prizes— national, local, and in your child’s fifth-grade class. Their main value is not in the cash delivered but the recognition conferred. The fifth-grade award aside, this requires that the prize itself be recognized by the general public or within a field. And this in turn requires continuity and publicity in the relevant communities, which take time, focus, and money in addition to the prize funds. As a result, the costs of administering and publicizing the prize are often considerably greater than the award itself—by no means a negative if they amplify its benefits, but something that you should take into account.30 While prizes have a role in strategic philanthropy, the benefits are not assured and other tools may often have a greater impact. Prizes involve a one-time injection of funds into a project or individual’s work. Social impact typically requires the patient commitment to support ongoing activities. The alternative to stimulating creativity through a prize is to seek it out and reward it with steady, ongoing support—to support the work of particular individuals or research institutions doing the best work in the field. While prizes are appropriately included in a strategic philanthropist’s toolbox, the question, as always, is whether a prize is likely to have at least as large an effect in achieving your philanthropic goals as an alternative use of your funds.

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Policy Research Institutes (Think Tanks) Research institutions, often called think tanks, play an important role in contemporary policy making and are the objects of considerable philanthropic largesse. In the article “Research Groups Boom in Washington,” New York Times correspondent Elisabeth Bumiller describes the growth in the budgets of policy research organizations, or think tanks, in Washington, D.C. The institutions range from the Center for American Progress (CAP) on the left to the CATO Institute, the American Enterprise Institute, and the Heritage Foundation on the right, with others in between including the Brookings Institution, the Carnegie Endowment for International Peace, the Center for Global Development, the Center for Strategic and International Studies, and the Council on Foreign Relations.31 The centrist institutions just mentioned illustrate how think tanks can be key players in entire fields—in these cases, foreign policy, international relations, and global development. The leftand right-oriented think tanks play an important role in social and political movements. CAP, supported by liberal donors, was founded by John Podesta, President Bill Clinton’s chief of staff and Hillary Clinton’s campaign chairman, and continues to be led by politically active Democrats. The Heritage Foundation is supported by conservative donors and has been led by reliably conservative Republicans;32 as of the summer of 2017, its website supported the Trump administration’s policies.33 Richard Haas, president of the Council on Foreign Relations, notes: “Institutions like this don’t possess power. You’re one of many voices in the political marketplace. It’s up to those in the marketplace who possess power—congressmen, people in the executive branch—to run with one of your ideas.” Well, not entirely. Both CAP and Heritage have affiliated “action” funds that support grassroots activists and lobby members of Congress to achieve their policy objectives.34

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Philanthropy’s Role in Building Fields Philanthropy has often played a role in building entire fields. We use the term “field” to refer to a common set of issues, theories, and practices in which theorists and practitioners share a vocabulary, a set of norms, values, and basic texts. Fields range from medicine and law to education, human rights, dispute resolution, and arguably philanthropy itself.35 Building fields may require supporting existing institutions or establishing new ones. It may, in fact, require creating organizations that will serve as the keystone of the field’s infrastructure. It may call for convening meetings, supporting research and communications, and engaging in policy advocacy. Notes by Luke Muehlhauser on the Open Philanthropy Project’s History of Philanthropy website describe the role of philanthropy in launching and supporting the fields of geriatrics and bioethics and also explain why the fields of cryonics and molecular nanotechnology have shown only anemic growth.36 Here are a couple of examples where philanthropy has played an important role in developing fields.

Care for the Dying Modern efforts to care for the dying in the United States were initially supported by the Commonwealth Fund, a health-care foundation established in 1918. The roots of the movement lie in St. Christopher’s Hospice in London, founded by the English physician Cicely Saunders in 1967.37 Offering both in-patient and home care for the dying and bereavement support for families, St. Christopher’s core tenets included generous control of symptoms, attention to patients’ psychological and spiritual needs, and care and support for patients’ families.38 Florence Wald, dean of the Yale Nursing School, learned of Dr. Saunders’s pioneering work. Together with colleagues from the Schools of Medicine and Divinity, she conducted a two-year

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study of American facilities that cared for the dying.39 Wald resigned from the deanship to support the growth of the hospice model nationwide.40 In 1973, the Commonwealth Fund made a small grant to Wald and her colleagues to study the feasibility of establishing the first modern hospice in the United States. A year later, with additional funding from Commonwealth and two smaller foundations, Hospice Incorporated opened its doors in Branford, Connecticut, serving patients while also acting as a clearinghouse for information on hospice care.41 Program staff of the Commonwealth Fund also helped Hospice Inc. secure a $1.5 million grant from the National Cancer Institute.42 Until her death in 2008, Wald remained a leader in expanding the compassionate care of the dying, including bringing hospice care to prison settings.43 The hospice care movement has been complemented by other efforts to improve the quality of care for the dying. The Commonwealth Fund, in collaboration with the Nathan Cummings Foundation, has supported research on the “end of life.” 44 Since 1989, the Robert Wood Johnson Foundation has given several hundred million dollars to programs seeking to improve end-of-life and palliative care through professional education, institutional change, and public engagement. Among other things, it commissioned a PBS documentary series by Bill Moyers, On Our Own Terms, that followed the stories of several people coping with impending death.45 The Open Society Institute has funded medical school faculty’s research and training in end-of-life care.46 Though many Americans remain uncomfortable with their own mortality, the hospice movement has significantly altered the health-care landscape and provided comfort to many people in their last days and to their families. While foundations continue to support research in this realm, it may have reached the “maturity” stage of the innovation curve. The foundations’ forms of funding were tailored to achieve

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their objectives—project support for research, education, and communication; and general operating support for institutions and programs. The foundations also used their networks and convening power to help build the field. The story is one of funders’ collaborating to support both social entrepreneurs and institutions.

The Population Field at the Turn of the Twenty-First Century While goals may be particularly fluid in the early stages of fields, the maturity phase of the innovation curve may turn out to be the beginning of yet another cycle with revised goals. The population field, to which philanthropy has contributed significantly, provides a good example. After decades of family planning and the stabilization of global population growth in the second half of the twentieth century, a reaction against so-called population control—some aspects of which had been highly intrusive and coercive47—found its voice at the 1994 United Nations International Conference on Population and Development in Cairo. Even though sub-Saharan Africa and much of Asia were experiencing unsustainable population growth, the agenda moved from curtailing population growth toward women’s rights. The Rockefeller and Ford Foundations, which had been pioneers in the field, abandoned it and switched entirely to a “rights” focus. A few other foundations, including Hewlett, MacArthur, and Packard, continued to support family planning, though with muted articulation of the population rationale. Perhaps because of increasing evidence of the detrimental effects of overpopulation on economic growth and family income, population growth may again be emerging as an important philanthropic interest—but with a pervasive concern for women’s autonomy and health that was absent throughout much of the twentieth century.

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Application to Your Philanthropy It is sorely tempting to think that your bright idea will solve a problem. But the history of human progress argues for constantly challenging one’s own ideas and subjecting them to cold-blooded evaluation by others. If you or grantees are currently trying to solve a novel problem, how do you plan to test proposed solutions? Can you think of an example where you or other philanthropists moved forward too quickly with an untested idea?

Chapter 14

IMPROVING INDIVIDUAL LIVES

So you have tested the clean fuel cookstoves in the field and determined that they have the potential to improve the lives of tens of thousands of rural Africans. Two major questions remain: How will you distribute the cookstoves to your intended beneficiaries? And how will you ensure that the cookstoves will be used—and used effectively and safely? We will begin by addressing the question of behavior change, which underlies many interventions supported by philanthropists.

Influencing Beneficiaries’ Behavior A product or service will be used by its intended beneficiaries only if it conforms to their current behavior; if it doesn’t, then you must change their behavior so they make use of it or change the product. Studies of the adoption of safe cookstoves indicate that “context- specific social and cultural factors, including cooking methods, taste preferences, local beliefs, etc., . . . influence perceptions of what makes a good stove and whether an improved stove is desirable.”1 These factors may vary from one region, possibly even one village, to another.

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A failure to tailor an intervention to deeply held cultural norms may doom the project. This was the case with an effort to induce Peruvian families to purify disease-ridden drinking water by boiling it, in a culture that associated warm foods with disease and illness.2 An effort to provide rural Egyptians with purified tap water failed to take account of the social reasons that women congregated on the banks of polluted canals to obtain their water.3 On the other hand, a campaign to promote oral rehydration therapy for rural Egyptian children succeeded in reducing infant mortality from diarrhea by 70 percent, in the face of widespread illiteracy, cultural myths about the causes of diarrhea, and the absence of a word for “dehydration.” One-minute television “dramas,” coupled with cheap and readily available oral rehydration packets, made the difference.4 This outcome had been predicted by a research-oriented pilot project, which is a smart move for almost any large-scale behavioral strategy. Efforts to affect beneficiaries’ behavior go well beyond ensuring that they make use of valuable products and services. Indeed, some of the most ambitious efforts have been aimed at dissuading individuals from using harmful products such as cigarettes, as described in the case study of the Robert Wood Johnson Foundation in Chapter 1.

Behavioral Strategies to Improve People’s Lives In Chapter 4, we referred to the increasing knowledge about how to influence individuals’ behavior, based on psychological “nudges” as well as more conventional economic techniques such as incentives and penalties. As always, the analysis begins by identifying the problem, its causes, and possible solutions—but with a particular focus on behavioral strategies. Service-delivery organizations play a major role in programs aimed at reducing opioid and heroin addiction, obesity and diabetes, teen and unwanted pregnancies. Here, we focus on the reduction of smoking, drawing on the work of the nonprofit behavioral solutions group Ideas42.5

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There are two sorts of behavioral barriers that might impede good decision making: barriers to making any decision at all (e.g., ignoring information about the harmful effects of smoking or thoughtlessly following peers’ smoking habits) and barriers to acting on a decision (e.g., the strong pull of addiction even after having decided to quit). An effective solution must overcome barriers of both types. Here are some examples (and possible remedies) relevant to smoking cessation. The beneficiary lacks important information. Self-destructive behavior may be the result of not having the correct information or of information that is not presented in a salient way. To remedy this, policy makers can provide information in a timely and prominent way. Consider, for example, the warning message on cigarette packages, which are designed to alert potential customers to the dangers of smoking at the point of sale. (The Food and Drug Administration tried to make the warnings even more striking with graphics depicting the harms of smoking, but the regulations were struck down as a violation of the tobacco companies’ freedom of speech.)6 The choice set is too large. People who encounter too many options sometimes make suboptimal decisions or avoid deciding at all. This has been shown to be a problem when employees are asked to choose from a broad array of employer-subsidized retirement plans. The solution is to reduce the number of options, offer beneficiaries the advice of an expert, or set a default option that seems in the beneficiary’s best interests.7 Unfortunately, the multitude of choices among cigarette brands does not seem to reduce smoking rates. It is possible, though, that the large range of choices among smoking cessation devices and programs reduces their adoption. The beneficiary is forgetful or distracted. All of us are forgetful. Often simple tools like to-do lists, calendars, checklists, timers, and other reminder devices are all that is needed. Simple text message reminders have had a great effect in helping people take medica-

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tions, keep appointments, and the like. In our case, text reminders may help people in a smoking-cessation program take whatever actions are called for at a particular time. There’s friction between decision and action. It can be helpful to reduce the friction between a beneficiary’s making a decision and acting on it. For someone who wants to enroll in a smoking cessation program, just telling him the location of the nearest branch and its hours can be helpful. Even better, provide free transportation. The beneficiary fails to take action because of lapses in self-control. One approach to overcoming problems of self-control involves the beneficiary’s committing himself to the action ahead of time in a way that makes failure to follow through with the action difficult or costly. The paradigmatic example is Ulysses asking his sailors to tie him to the ship’s mast so he could not respond to the Sirens’ tempting calls. Asking a roommate or partner to look for hidden caches of cigarettes and throw them out is a commitment strategy. The web-based service stickK lets users sign a “commitment contract,” authorizing a credit card payment to a third party—for example, a cause they despise—unless a referee verifies that the user has met the commitment.8 The beneficiary would be influenced by the salutary behavior of peers but does not know how his or her behavior compares with theirs. The social psychologist Robert Cialdini has done considerable research showing that “if you want people to comply with some norm or rule, it is a good strategy to inform them (if true) that most other people comply.”9 For example, household owners with above-average electricity or water use reduce their consumption when they are shown that their neighbors are more efficient than they are.10 The beneficiary’s behavior does not carry immediate consequences. Traditional policy strategies, such as penalties, taxes, incentives, and subsidies, are often deployed successfully to influence behavior. Some states’ high taxes on cigarettes and municipalities’ tax on sugar-sweetened beverages are good examples. Here is another

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example that may be less obvious: In a randomized controlled study of a smoking-cessation program for General Electric employees, the treatment group received cash incentives to quit— $250 for six months and $400 for twelve months, while the control group received no incentives. The treatment group had three times the success rate of the control—an effect that persisted even after financial incentives were discontinued after twelve months.11 We should add three caveats to the use of economic incentives and penalties. First, they need to be salient in their size or in their signaling effect. Second, in some circumstances, the extrinsic motivation of an incentive or penalty may crowd out an individual’s intrinsic motivation, reducing other-regarding or even self-regarding behavior.12 Third, because of nicotine’s addictive nature, high cigarette taxes may cause smokers and their families to spend less money on food.13

Messages Targeted at Your Beneficiaries The history of smoking in the United States drives home the point that changes in individual behavior are connected with changes in cultural norms or at least the norms of their subcultures. At the beginning of the twentieth century, smoking was stigmatized as a sign of delinquency and moral degradation. But tobacco companies took advantage of the popularity of cigarettes among soldiers during World War I to advertise cigarettes as signs of adulthood and modernity, also aligning smoking with women’s political emancipation and newfound independence. (“Light another torch of freedom! Fight another sex taboo!”) Antismoking campaigns in the wake of the 1964 surgeon general’s report countered this image by featuring celebrity former smokers, who advised, “Don’t be a loser.” Efforts to promote breastfeeding—a practice that has great positive health outcomes for babies—illustrate the difficulties of changing cultural norms, including mothers’ own sense of modesty and the practical obstacles and even hostility that face women who breastfeed in public or in their workplaces. These efforts also

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face challenges from industry: advertisements for infant formula and free products offered to new mothers in hospitals. Just as tobacco products were marketed as symbols of sexual freedom and desirability, baby formula is marketed as a symbol of wealth, status, freedom, and modernity. Best for Babes, a tiny nonprofit organization, is trying to change views of breastfeeding as embarrassing or offensive by promoting it as a chic, smart lifestyle choice for healthy, empowered women, using celebrity endorsements, image campaigns, and the support of breastfeedingfriendly businesses and restaurants.14 Here are a number of things for you and your grantees to keep in mind as you consider directing messages to your intended beneficiaries: • Be clear about your ultimate goals. “Raising awareness”—even raising awareness among a particular target population—is seldom a goal in itself but only a possible means of achieving the goal of changing people’s behavior. It may be necessary, but it is seldom sufficient. • Identify the target population. Focus on the target population where you are likely to have the most cost-effective impact. The messages of the National Campaign to Prevent Teen Pregnancy were directed to boys as well as girls, but the campaign focused particularly on girls because that’s where it thought it could make the most difference. • Script your message so that it matters to the target population. In today’s media scene, it is very hard to grab anyone’s attention. This is especially true of the young audiences whose future patterns of behavior and consumption are being set— because every company in the world is trying to reach them. Make sure that the content of your message will resonate with your audience. In its effort to reduce teen pregnancy, the National Campaign both counseled abstinence and taught about contraception. When the organization turned its attention to reducing unwanted pregnancies among young

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adults, it understood that an abstinence message wouldn’t work for this group. With the goal of reducing litter on its highways, the Texas Department of Transportation retained an advertising firm, which did market research that revealed that most Texans did not think that littering did any harm and believed that the Department of Transportation would clean up after them. Rather than focus on the environment or the cost of cleanup, the firm developed a message that appealed to state pride: “Don’t mess with Texas.” As a result, litter decreased by 72 percent.15 The choice of words matters. Recent decades have seen ideological contests between interest groups, some of whose most powerful weapons are the names they give to their causes: the “estate” tax versus the “death” tax; “choice” versus the “right to life”; “fetuses” versus “unborn babies.” • Select the right media for your audience, look for free media, adopt a campaign mentality, and stay the course. Go where the audience is, using the formats they prefer. You won’t reach teenagers through ads in the New York Times. Consider Facebook, Instagram, and Twitter. It is prohibitively expensive to buy the attention of a large audience. You’re usually better off trying to get free or so-called earned media in radio and television news and talk shows and on the Internet. The key is to have a message that is newsworthy. Whoever you think had the better ideas about inheritance taxes and abortion, there is little doubt that the conservatives built the better media machines—through policy think tanks, radio talk shows, speakers series, campus organizations such as the Federalist Society, and the like. • Collaborate with industry where interests converge, and be prepared for strong opposition where they diverge. Philanthropists planning to operate in a sector where industry has strong interests should be aware of the magnitude of the resources that

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industry devotes to creating demand for its products. Businesses have sometimes been powerful allies in improving the world. Trojan brand condoms is an ally of efforts to reduce unwanted pregnancy and HIV/AIDS infections. A number of organic food companies and apparel manufacturers, and even some hospitals—encouraged by the World Health Organization/UNICEF’s International Baby Friendly Hospital Initiative16 —have promoted breastfeeding. Unfortunately, tobacco provides just one example of powerful industries working on the other side of such issues. In Merchants of Doubt, Naomi Orestes and Erik Conway describe how the same organizations that mounted a multidecade effort to discredit research showing the harmful effects of smoking have provided the same services for fossil-fuel industries with respect to climate change.17 The soft drink industry has supported university research with the goal of demonstrating that sugar-sweetened beverages are not a significant cause of obesity.18 • Understand the limits of media. While mass media allow you to reach a large audience rapidly and spread information, they seldom change strongly held beliefs and behaviors. That may require behavioral interventions along the lines described previously or the support of mass movements, as described in in the next chapter.

Modes of Funding Goods and Services As the saying goes, there’s no such thing as a free lunch. Someone must ultimately pay for the provision of goods and services— whether philanthropists, impact investors, or the beneficiaries themselves.

Markets and Their Alternatives Two fundamentally different approaches define the ends of a spectrum. Continuing the discussion on impact investing in Chap-

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ter  10, at one end lie private markets. Most goods and services— from clothing to food, from health care to automobile repair—are sold by for-profit companies through commercial markets. At the other end lies the provision of free goods and services by charities and governments, with missions ranging from feeding and sheltering the homeless to caring for preschoolers. Some organizations, like churches, provide services that are unavailable in the private sector, while others, like health clinics, have for-profit alternatives. Some work in collaboration with, or as agents of, government: for example, many traditional charities provide welfare under government contracts. And governments themselves provide essential goods and services such as public education, public libraries, fire and police protection, and national defense. Between these ends of the spectrum lie varying degrees of subsidization as well as efforts to redress market failures caused, for example, by high or asymmetrical information costs, high transaction costs, or an organization’s external costs and benefits. Many of the concessionary impact investments examined in Chapter 10 involve subsidies responsive to these factors. Ideally, once a program has been shown to be valuable, it can be sustained by markets. But sometimes the beneficiaries are so poor that their continued use of the product or service requires ongoing philanthropic or government support. The remainder of this chapter surveys different organizational approaches to service delivery. While some philanthropists and commentators have asserted that certain approaches are intrinsically superior to others, we believe that all of them can have value; as always, our view is that you must evaluate any approach in terms of its potential for achieving impact in light of your particular goals.

Market versus Nonmarket-Based Solutions All things being equal, it is preferable to provide goods and services through market mechanisms because of their built-in systems for seeking efficient distribution paths and for equilibrating

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supply and demand. But the decision must be based on the realities of the particular situation, not a preconceived ideology. Some organizations that provide goods and services for the poor, such as soup kitchens and homeless shelters, offer them free of charge because their clients cannot afford to pay anything. Others, like the HealthStore Foundation’s Child and Family Wellness Shops (CFWShops), use market mechanisms to distribute healthrelated goods in rural African communities and typically subsidize a portion of the cost. Long-lasting insecticide-treated antimalaria bed nets (ITNs) provide an interesting example of the alternatives of social marketing and free distribution in Africa. Population Services International (PSI) and the Ifakara Health Research and Development Centre have built distribution networks, including wholesalers and retailers. But even with substantial government subsidies, only a fraction of the population of malaria-ridden Africa uses them.19 Jessica Cohen and Pascaline Dupas tested the proposition that “cost-sharing—charging a subsidized, positive price—for a health product is necessary to avoid wasting resources on those who will not use or do not need the product” through a field experiment in Kenya that randomized the price at which prenatal clinics could sell ITNs to pregnant women. They came to this conclusion: We find no evidence that cost-sharing reduces wastage on those who will not use the product: women who received free ITNs are not less likely to use them than those who paid subsidized positive prices. We also find no evidence that cost-sharing induces selection of women who need the net more: those who pay higher prices appear no sicker than the average prenatal client in the area in terms of measured anemia (an important indicator of malaria). Cost-sharing does, however, considerably dampen demand. We find that uptake drops by sixty percentage points when the price of ITNs increases from zero to $0.60 (i.e., from 100% to 90% subsidy), a price still $0.15 below the price at which ITNs are currently sold to pregnant women in Kenya.20

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Based on a cost-effectiveness analysis of the impact of ITN prices on child mortality, the experimenters concluded that “free distribution of ITNs could save many more lives than cost- sharing programs have achieved so far.” But Jane Miller of PSI expresses the concern that mass (free) distribution could undercut the commercial bed net sector: “At the moment, the donors seem to be saying that money is no object. But it certainly will be in the future.”21 And this brings us to a final thought on the subject—the possibility that subsidies can sometimes distort well-functioning markets and make the very people you want to help, or others similarly situated, worse rather than better off. Subsidies originally designed to protect poor US farmers from the vicissitudes of volatile crop prices have had the catastrophic unintended consequence of underpricing commodities on international markets, making it difficult for developing-country farmers to earn a living.22 In what is doubtless motivated by charitable purposes as well as good marketing, Tom’s Shoes promises that “with every product you purchase you will help a person in need” 23 —for example, the company gives a free pair of shoes to poor children in developing countries. Yet there is reason to wonder about the effects of this program on the indigenous shoe markets in those countries.24 Finally, returning to the Gates Foundation’s investment in bKash, the subsidy may have given the company a monopoly in mobile money in Bangladesh, to the ultimate detriment of the foundation’s intended beneficiaries, the very poor.

Donated versus Earned Revenues Quite a few direct-service organizations depend on related earned income as well as philanthropic donations. The Salvation Army and Goodwill Enterprises generate income through the sale of secondhand goods. The Girl Scouts sell cookies. Museums earn income from membership fees and the sale of tchotchkes in their gift shops. Rubicon Programs in the San Francisco East Bay runs workforce development programs for people with disabilities that provide goods and services—food, gardening services, and the

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like—to paying customers. Microfinance institutions support themselves through interest on loans. Self-Help and Habitat for Humanity, both of which provide affordable housing, have builtin revenue streams from loan interest and repayments. The budgets of both public and private universities depend on tuition as well as gifts and grants. But there are many valuable service organizations that have little if any earned income—for example, America’s Second Harvest, which relies on donated goods and services and individual and corporate financial contributions to feed twenty-five million poor Americans each year.25 By reducing an organization’s dependency on donor funds, earned income may sometimes contribute to its impact, stability, and potential for growth. Whether it actually does so in any given case depends on factors such as the breadth of the organization’s donor base and the relative costs of generating program-related income compared to those of fund-raising. It is better to understand these factors in the context of the particular organization than to rely on earned income as a proxy for success.

The Misleading Distinction between Philanthropy and Charity Many writings on philanthropy quote the cliché, “Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime,” with a strong implication that only the latter truly counts as philanthropy. While helping develop a beneficiary’s self-sufficiency has obvious long-term advantages, it is not achievable by everyone—at least not in time to ward off starvation. A concern with philanthropic impact rejects the facile distinction between “charity” and “philanthropy.” Strategic philanthropy is about actual impact in achieving your goals, and this implies that you should consider any strategy in terms of its expected value. Suppose that you are concerned with the plight of the homeless in your community. The way the distinction is usually drawn suggests that a donation to a homeless shelter is charity, while a grant to an organization trying to eliminate the “root

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causes” of homelessness is (strategic) philanthropy. But what if the impact of the donation is essentially a sure thing, and the effort to eliminate root causes is highly speculative, leading to a lower expected return? In our view, the essence of strategy lies in clarity about your goals and determining which approach best achieves them. That said, a high-quality strategy to change systems, while riskier than direct aid, often has the potential to produce much larger results. And returning to the familiar cliché, among our favorite variations is, “Give a man a fish, and you feed him for a day. Teach a man how to fish, and he’ll sit all day in a boat drinking beer.”

Starting and Scaling Organizations Philanthropy has traditionally played an essential role in starting and scaling service-delivery and other organizations. Here we expand on the role of the philanthropic “investor,” who, as described in Chapters 9 and 10, provides risk or growth capital. Referring to the innovation curve in the introduction to Part 4, some philanthropic investors focus on individual social entrepreneurs at the beginning of their journey; others support nascent enterprises as they emerge; and still others intervene later in the process and help more mature organizations develop and scale.

Supporting Social Entrepreneurs In Capitalism, Socialism, and Democracy, Joseph Schumpeter famously wrote about the rise and fall of business organizations. He noted the role of entrepreneurs in setting off “a chain reaction that encourages other entrepreneurs to iterate upon and ultimately to propagate the innovation to the point of ‘creative destruction,’ a state at which the new venture and all its related ventures effectively render existing products, services, and business models obsolete.”26 Although Schumpeter focused his analysis on traditional business entrepreneurs, social entrepreneurs can play similar roles in promoting creative destruction in the

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nonprofit sector. (For better or worse, philanthropy is not subject to similar forces.) In recent years, this idea of social entrepreneurship has captured the imagination—and the vocabulary—of the nonprofit sector, with particular emphasis on innovation in the provision of direct services.27 Bill Drayton, the founder of Ashoka, who coined the term “social entrepreneur,” says that “social entrepreneurship involves large scale, systemic social change”: The job of the social entrepreneur is to recognize when a part of society is not working and to solve the problem by changing the system, spreading solutions, and persuading entire societies to take new leaps. Social entrepreneurs are not content to just give a fish or to teach how to fish. They will not rest until they have revolutionized the fishing industry. Identifying and solving large-scale social problems requires social entrepreneurs because only entrepreneurs have the committed vision and inexhaustible determination to persist until they have transformed an entire system.28

Along similar lines, Roger Martin and Sally Osberg describe social entrepreneurship as a successful effort to change the social equilibrium. Social entrepreneurship starts with “an unfortunate but stable equilibrium that causes the exclusion, neglect, marginalization, or suffering of a segment of humanity”; it involves an individual “who brings to bear on this situation his or her inspiration, direct action, creativity, courage, and fortitude”; and it culminates in the “establishment of a new stable equilibrium that secures permanent benefits for the targeted group and society at large.”29 Early examples of individuals now dubbed social entrepreneurs include Florence Nightingale, who founded the modern profession of nursing, and Maria Montessori, who developed a new approach to elementary school teaching. The canonic contemporary example is Muhammad Yunus, who was awarded the 2006 Nobel Peace Prize. As head of the Economics Department

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at Chittagong University in Bangladesh, he established the prototype for the Grameen Bank, which made “microfinance” loans to provide credit to the poorest of the poor in rural Bangladesh. The Grameen Bank has served as a model for similar institutions throughout the developing world. The work of social entrepreneurs varies widely. Martin Fisher and Nick Moon’s KickStart creates low-cost irrigation pumps for African smallholder farmers.30 David Green’s Project Impact provides affordable medical technology and health-care services in developing countries.31 John Wood and Erin Ganju’s Room to Read supports literacy and girls’ education throughout the developing world.32 Bernard Kouchner founded Doctors Without Borders, which delivers aid to people affected by armed conflict, epidemics, and natural and human-made disasters. Bunker Roy’s Barefoot College trains illiterate men and women in skills ranging from installing and maintaining drinking water systems and harvesting rainwater to creating affordable housing and solar power grids. Mauricio Lim Miller’s Family Independence Initiative helps families escape poverty by strengthening social networks.33 The precise definitions and characteristics of social entrepreneurship are hotly contested. For example, Bill Drayton asserts that only an individual, initially acting outside any organization, can be a social entrepreneur, while an empirical study by Paul Light of New York University’s Wagner School of Public Service finds that venerable organizations are capable of the same kind of innovation.34 In any event, there are several reasons why you might support social entrepreneurs, as broadly defined, and several ways to do so: • You might support as-of-yet unproved social entrepreneurs for much the same reason that you would support scholars at research universities and think tanks pursuing their own agendas, in the belief that, though not specifiable in advance, significant social value will emerge. This is the likely premise of the foundations and individual philanthropists who give

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generously to Ashoka and of the Skoll Foundation and the Schwab Foundation for Social Entrepreneurship in their support for the general field of social entrepreneurship. • You might support particular social entrepreneurs and their organizations because their activities further your philanthropic objectives, say, in health, education, or international development. You could do this simply through grants or through the practices of venture philanthropy. • You might be particularly interested in supporting ideas that emerge from poor communities and developing countries, in the belief that they are more likely to respond to the real needs of the local population and to be implemented effectively in local conditions. Here, too, Ashoka and the Skoll Foundation provide excellent examples.

Supporting and Scaling Organizations through Venture Philanthropy While most foundations make grants to maintain programs at their current level, venture philanthropists seek out high-potential organizations with the goal of helping them scale. Venture philanthropy involves funding-plus, where the “plus” includes strategic and management assistance. It also involves general operating support-plus, because general operating support, though the primary mode of funding, may be supplemented by project grants to obtain these kinds of assistance. The term “venture philanthropy” is borrowed from the practices of the commercial investors who gave birth to companies like Facebook, Google, Amazon, eBay, and Uber. These venture capitalists provided risk and growth capital, organizational expertise, and access to networks that proved invaluable to those companies’ growth and success. Unlike passive investors who monitor a company’s performance from a distance, venture capitalists often spend significant amounts of time with their portfolio organizations to ensure that their investments have the best possible chance of paying off.

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We use NewSchools Venture Fund to illustrate the social venture process. NewSchools, an organization based in Oakland, California, is committed to improving public education for students in underserved communities. Its portfolio includes innovative charter and district schools, for-profit and nonprofit education technology companies, and diverse leadership pipelines. NewSchools provides its grantees with financial and organizational assistance. Its practice of venture philanthropy, which is characteristic of the field, has five stages: 1. Developing a vision and goals, a theory of change, and an overall strategy 2. Selecting organizations to fund 3. Designing a strategy and providing resources 4. Measuring performance 5. Finding an exit 1. Developing a vision and goals, a theory of change, and an overall strategy. NewSchools’ work arises from the belief that every young person should finish high school with a wide range of choices and the capacity to pursue them. For this vision to become reality, all students need a strong academic foundation and other mind-sets, habits, and skills that conduce to long-term success. NewSchools supports education entrepreneurs who are reimagining learning in service of this goal in three areas: launching new schools and redesigning existing ones; creating edtech tools to support educators and students; and strengthening pipelines of diverse education entrepreneurs and leaders. By investing in innovators in districts, charters, companies, and nonprofits, NewSchools aims to accelerate the shift to schools that are better equipped to prepare young people to be successful in today’s society and economy. 2. Selecting organizations to fund. As part of their due diligence process, venture philanthropists typically ask these fundamental questions:

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• Does the venture fit with the fund’s investment goals? • Is the venture poised to have significant impact on the target populations? • Is the venture’s impact scalable? Does it have potential to grow? • Can the venture’s growth become financially sustainable so that its impact will increase over time? • Do the venture’s management team, ideas, and understanding of the relevant market indicate a high potential for success and impact? These considerations were central in NewSchools’ recent investments in organizations such as Valor Academies, Transcend Education, and Education Leaders of Color (EdLOC). Valor is a growing charter management organization in Nashville, Tennessee, that has developed and implemented an effective approach to delivering academic and social-emotional learning for its students. and is helping other schools adopt it. Transcend Education is a services firm that helps teams of educators all over the country redesign their instructional models to better meet the needs of every student. EdLOC is a growing network of black and Latino leaders that has developed a policy platform and advocacy approach to bring the voices and ideas of leaders of color into the national education conversation. 3. Designing a strategy and providing resources. Once an organization has been selected, the real work begins: bringing the organization through the start-up phase and eventually to scale through the creation of a comprehensive business plan that clarifies the organization’s mission, strategy, and tactics. Venture philanthropists often supplement core general operating support with project support and technical assistance As the business plan is implemented, they continue to serve as advisers to the organization with respect to issues of governance, planning, management, and fund-raising. For example, NewSchools creates

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communities of practice among its ventures and connects them to experts to help move the field forward. NewSchools will often formally cement its advisory role by putting a representative on a grantee’s board of directors. 4. Measuring performance. Venture philanthropists have often been in the lead in measuring the impact of their philanthropic investments. For example, NewSchools compares the performance of the schools it supports with “control” schools serving the same populations. Valor Academies is the highest-performing middle school in Nashville and in the top 1 percent in the state of Tennessee. 5. Finding an exit. A venture capitalist who funds a for-profit enterprise has two possible exit strategies: take the business public through an initial public offering (IPO) or have it acquired by a larger company that views the business as a strategic asset. For a venture philanthropist and its nonprofit grantee, the exit strategy is to find sources of funding that can help the organization be sustainable and grow through some combination of earned income, government subventions, and charitable donations. Julie Petersen, formerly NewSchools’ communications manager, says an exit can be the most difficult part of a venture philanthropist’s strategy: For nonprofits, exits are predicated on organizations either finding a sustainable revenue stream, whether it’s earned revenue, predictable contributions and philanthropy, or public funding, which is what we’re often looking for in our schools’ investments. One of our investment criteria for a new school network is that the team has a revenue and operating plan that gets to sustainability on local per-pupil public funding within four or five years. This allows us to exit those investments within a predictable time period. We also help organizations identify sources of philanthropy or other funding to help them move past the start-up phase. As an early-stage funder, we are clear with our ventures at the begin-

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ning that we will only be with them a few years, and in that time we’ll work with them to identify revenue streams and ongoing philanthropic support. We engage in a fair amount of field building to help encourage larger foundations to see themselves as providers of longer-term growth capital for education ventures, but the capital market is still not as organized as we would like it to be. In the venture capital realm, there’s a whole host of mezzanine funders, private equity funders, and investment banks that are a part of a well-developed and organized capital market for entrepreneurs. This has come a long way in the last decade in the nonprofit world, but there is more work that needs to be done.35

While we have focused on NewSchools to illustrate the venture philanthropy process, there are other venture philanthropists as well. For example, the Draper Richard Kaplan Foundation (DRK) supports domestic and international early-stage social enterprises in health care, education, food security, social justice, water and sanitation, transparency and accountability, and shelter.36 DRK provides the organizations with $300,000 of unrestricted capital over three years, as well as capacity-building assistance, including serving on the organizations’ boards. As of the spring of 2017, DRK had made more than 110 investments and deployed more than $55 million in capital. Its portfolio includes Living Goods, an Avon-like network of entrepreneurial women in East Africa who earn an income going door to door teaching families how to improve their health and selling low-cost medicines, water filters, bed nets, clean-burning cookstoves, and solar lights;37 and Crisis Text Line (CTL), which provides free 24/7 support via text messaging for individuals contemplating suicide or experiencing other emotional crises.38 While DRK specializes in early-stage organizations, the Edna McConnell Clark Foundation and its ambitious offshoot, Blue Meridian Partners (described in Chapter 11), fund relatively mature organizations benefiting disadvantaged children and youth. The international network of giving circles, SVP International, engages in venture philanthropy to support organizations at various

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stages of development.39 Finally, a number of the impact-investing funds described in Chapter 10 combine traditional venture capitalism with venture philanthropy. For all of the buzz about venture philanthropy, there are relatively few funders whose work encompasses most of its practices. At the turn of the twenty-first century, there were only about forty venture philanthropy institutions, whose investments totaled about $60 million per year. Even with Blue Meridian’s $1 billion capital aggregation project, this is a fairly small portion of overall giving in America (which in 2006 was almost $300 billion annually). Whatever its future, venture philanthropy offers some valuable lessons for the broader field. First is the value of supporting an organization as a whole rather than picking and choosing pieces of its activities—providing general operating support when possible rather than funding discrete projects. Second, although they have explicitly limited time horizons, venture philanthropists stay with an organization long enough to see it through a particular stage of development—something that contrasts favorably to the modus operandi of many foundations, which impose arbitrary and often counterproductive time limits on their support even for high-performing organizations and often exit because of donor fatigue rather than as a result of any strategy. And third, like their for-profit counterparts, many venture philanthropists are focused on particular fields—education for NewSchools, services for disadvantaged youth in the case of EMCF— and are thus able to develop deep internal expertise and external networks to assist their grantees.

Supporting Mature Organizations through General Operating Support and Organizational Effectiveness Grants Social entrepreneurs and the philanthropists who support their work hope that their budding ideas will take root and grow into

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mature, sustainable organizations. Hopefully, the initial bursts of innovation and the process of scaling will have created organizations that require ongoing support—typically general operating support (GOS), for the reasons discussed in Chapter 9. The stalwart environmental organizations, for example, have a deep history of developing our foundational environmental laws beginning in the 1970s and earlier. They know the regulations and programs born from the laws, and their opportunities and limitations. They are sophisticated in the court of public opinion as well as in judicial courts. They reach across many states and countries and many topic areas. They can bring millions of members’ opinions to bear on a problem. No brand-new organization can readily build that depth and power, but it is precisely this power that is required to protect land, air, and water. It may not be exciting to provide a few percentage points of a big organization’s budget and may leave you short of bragging rights at a cocktail party, but if you are intent on delivering serious change, this can be exactly the right strategy. In addition to providing GOS, a number of foundations award organizational effectiveness (OE) grants—also called capacitybuilding or management-assistance grants—to selected grantees to improve their capacity to carry out their missions. Typically ranging from $10,000 to $50,000, OE grants enable grantees to hire consultants to improve strategic planning, communications, evaluation, and fund-raising; to strengthen internal management, build boards, and address a host of other management and leadership challenges. As well as improving an organization’s day-to-day impact, OE grants can mitigate the damage created by the sudden departure of an executive director or loss of a major funder, thereby helping ensure its survival and giving donors the confidence to make longer-term commitments.40 The William and Flora Hewlett Foundation and the David and Lucile Packard Foundation are among the few foundations that have stand-alone OE programs. In 2015, Hewlett commissioned a study to learn whether its OE grants had “positive, broader, and

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longer-term ripple effects.”41 Based on surveys and interviews of foundation and grantee staff, the report concluded that OE grants typically met or surpassed their objectives, with most respondents rating their impact as moderate or significant. More generally, according to both foundation staff and grantees, the OE program’s stand-alone structure allows an opportunity for honest conversation about organizational challenges and needs without the fear of jeopardizing program funding. Both groups described the specific value added by OE grants—compared to GOS and/or program funding—as being targeted funding for organizational strengthening, thereby avoiding the need for grantees to justify dedicating resources to this need and ensuring that capacity-building work is prioritized. Self-reports are a weak basis for evaluation, and it would be ideal to look for actual changes in the organizations’ outputs and outcomes. Indeed, it would be wonderful if some foundation would undertake that ambitious project, which could provide empirical evidence for the value of strategic and organizational planning more broadly.

Application to Your Own Philanthropy Consider a philanthropic goal that’s particularly important you, and the nonprofit or for-profit organizations that are particularly important to achieving the goal. What are the greatest needs of those organizations—being sustained, growing somewhat, scaling significantly, or something else? What role have you played or can you play in providing this kind of support?

Chapter 15

INFLUENCING POLICY MAKERS AND BUSINESSES

We saw in the preceding chapter that efforts to change individual behavior often go hand in hand with changes in government policies and business practices. For example, an increase in New York City cigarette taxes contributed to a decline in smoking, especially among teens.1 Also, prohibiting smoking in public spaces and workplaces reduced the opportunities to consume. This chapter focuses on efforts to change public policy and business practices, and ends with a discussion of social movements.

Changing Public Policy We begin with a case study of foundation support for the research and advocacy leading up to the Affordable Care Act (ACA), the most significant change in national health policy since the adoption of Medicare and Medicaid in 1965, and then look at the use of unbridled politics to change social and economic policies.

The Affordable Care Act: Research and Advocacy Foundations funded essentially two lines of work leading up to the passage of the ACA, otherwise known as Obamacare, in 2010.2 The story centers around two foundations: Robert Wood Johnson,

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which mainly supported policy research but expanded to fund advocacy as the possibility of enacting health-care reform became imminent; and Atlantic Philanthropies, the major funder of grassroots advocacy. Since its establishment in 1972, RWJF has been the largest US philanthropic funder in health care. By tradition, RWJF has supported research and stayed far from the boundary that separates a foundation’s permissible charitable activities from lobbying.3 Beginning in 2004, under the presidency of Risa Lavizzo-Mourey, the foundation begin focusing on improving health care in the United States, with a particular interest in research on how to reduce wasteful health expenditures without compromising patient care. Between 2004 and 2010, when the ACA was enacted, RWJF made grants amounting to many hundreds of millions of dollars toward the cause. Moving beyond research, RWJF sought to build a consensus among stakeholders who were often at odds over health reform. It created a “Strange Bedfellows” Coalition, which included representatives of the American Federation of Hospitals, the Health Insurance Association of America (whose CEO had vehemently attacked the Clinton administration’s earlier unsuccessful health plan), Families USA (a strong proponent of universal health insurance), the conservative United States Chamber of Commerce, the liberal Service Employees International Union, the American Medical Association, the American Nurses Association, the American Hospital Association, and the Catholic Health Association of the United States. With the goal of creating a demand for health-care reform, RWJF mounted a national “Cover the Uninsured” campaign, cochaired by former presidents Gerald Ford and Jimmy Carter, which sponsored close to a thousand events, from interfaith breakfasts to health fairs offering screenings and Medicaid enrollment. The foundation also supported the Economic and Social Research Institute’s Covering America Project, led by a bipartisan panel, which explored a variety of health insurance alterna-

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tives. Among the researchers who contributed to the project was the MIT economist Jonathan Gruber, who helped design the Massachusetts health-care program, whose requirement that individuals purchase health insurance became a key part of the ACA. In the words of a review of the foundation’s work during this period, “Cover the Uninsured Week and the evolutionary process that led to it represented a significant departure from RWJF’s traditional philanthropic role and grantmaking approach.”4 The historian Ben Soskis summarizes an interview with David Morse, who had been the foundation’s vice president for communication: Unlike most RWJF initiatives, this project did not involve awarding money to a researcher to study a health issue or to an organization to improve some aspect of the health care system. This was a direct use of RWJF resources—staff, funds and prestige— in an attempt to raise awareness about a key issue and influence the nation’s health policy agenda. The mechanism was also not typical. Instead of creating a fully formed national program office and awarding a grant to a nonprofit or academic entity to administer it, RWJF staff built the campaign incrementally over four years of increasingly ambitious public education activities. The effort relied heavily on a series of contracts with for-profit firms expert in advertising, opinion polling and managing grassroots events. Hundreds of community organizations across the nation were also involved. RWJF staff was the hands-on manager of it all. As David Morse points out, by the final years of the program, . . . RWJF seemed to move even closer to the border of permissible advocacy, running ads about the importance of health insurance for children’s health, for instance, in the states and districts of members of Congress who were on the fence on the issue of S-CHIP [State Children’s Health Insurance Program] reauthorization. 5

Anticipating the possible election of a Democratic president in 2008, the foundation also began to support research that could in-

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form national policy, including projects at Georgetown Law Center on legal issues, at the National Academy of Social Insurance on management issues, and at the Urban Institute on the effects of various reform measures. In 2008–9, RWJF hosted a bipartisan “health-care university” for congressional staffers and briefings by the bipartisan Alliance for Health Reform; and it funded a healthcare reform project by the Bipartisan Policy Center. Around this time, the foundation also began to support grassroots advocacy, putting $20 million into state-based advocacy organizations. Two other foundations, the Kaiser Family Foundation and the Commonwealth Fund, also supported research relevant to the ACA. Jonathan Gruber commented on their “outsized role in helping legislators understand what was going on, keeping track of the various proposals, explaining the various moving pieces, and polling. . . . They became the place that legislators and experts could turn . . . for basically translating for the broader advocacy and policy expertise community what was actually going on inside the Beltway.”6 Kaiser is an operating foundation that focuses on health policy research. The foundation eschews advocacy. Rather, in the words of its president, Drew Altman, it has sought to be “an independent, trusted, and credible source of information that could provide facts, analysis, balanced discussion, and expert commentary in a field otherwise dominated by large interests.”7 In 2005, the Commonwealth Fund, under the presidency of Karen Davis, established a sixteen-member commission of experts and leaders representing every sector of health care, as well as state and federal policy makers, the business sector, and academia. The commission informed the debate leading up to the passage of the ACA by (among other things) demonstrating the underperformance of the US health-care system compared to those of other nations and advocating for specific reforms. In addition to supporting the commission, the Commonwealth Fund held briefings and retreats for congressional staff. It

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evaluated the health-care proposals of the 2008 presidential candidates and bills in the House and Senate. An adviser to a Senate committee noted that “Karen Davis and her team were diligent and tenacious in bringing the results of their work to Capitol Hill at any and every opportunity.”8 Beginning in 2008, Health Care for America Now! (HCAN), an advocacy organization, founded by a coalition of national advocacy groups and labor unions, ran a $60 million campaign to pass the ACA.9 HCAN’s strategy was to build a network of grassroots activist organizations throughout the country and to support advertisements, rallies, media events, and online advocacy. HCAN attacked the insurance industry, broadcasting stories of individual suffering caused by insurance practices and staging protests at the homes of insurance executives. It targeted vulnerable legislators with town meetings, calls, and faxes. It mobilized progressives to push back against the Tea Party when they disrupted town hall meetings during the August 2009 recess. About half of HCAN’s budget was funded by Atlantic Philanthropies, which was founded in 1982 by the Irish American businessman Chuck Feeney, who had made a fortune in duty-free shops. Atlantic is a Bermuda foundation and therefore not subject to the IRS regulations that limit the support of advocacy by US foundations. Atlantic had previously not been concerned with health care, but its new president, Gara LaMarche, thought that a Democratic victory in 2008 would provide a historic opportunity for health-care reform. Atlantic gave HCAN $26 million up front, which enabled the organization to undertake a massive grassroots campaign. Neither Atlantic nor HCAN was entirely on its own. In addition to RWJF and the Commonwealth Fund, numerous smaller foundations supported advocacy by a broad range of organizations, including the powerful AARP. Soskis devotes a considerable portion of his comprehensive essay to assessing the contributions of the various foundations and

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grantee organizations to the enactment of the ACA. He takes note of external factors, such as some of the insurance industry’s despicable practices, and emphasizes the foundational role of policy research long before the ACA appeared on the horizon. All things considered, however, it seems highly unlikely that the ACA would have been enacted but for the activities just described, even if it isn’t possible to single out any particular effort as determinative. Even with these activities, the enactment of the ACA was by no means ensured; it would not have had a chance if the Democrats had not controlled Congress and the Executive Branch. As we write in the fall of 2017, opponents of the ACA have just narrowly failed in an effort to repeal the law—a major platform of the Republican Party. The continued existence of the ACA is hardly more assured than was its enactment. The foundations’ work in support of the ACA was fundamentally results oriented, beginning with the general goal of dramatically increasing health-care coverage for Americans, then analyzing the options of particular reform proposals, and finally supporting a particular approach as it became a real possibility. It was informed by sound, albeit not uncontroverted, evidence from research in economics and health care. Knowing that the research findings would not suffice to enact policy reform, the foundations supported advocacy to translate them into action, sometimes moving beyond the foundations’ traditional comfort zones. The foundations were willing to make truly big bets, committing hundreds of millions of dollars to strategies with uncertain outcomes. Given the uncertainties both of risk and reward, it would have been impossible to undertake a quantitative costbenefit analysis. But even a low probability of providing health insurance to tens of millions of people made it a worthwhile bet. Recognizing that there were unlikely to be quick wins, the foundations committed to funding for the long haul and provided support appropriate to the grantees’ capacities and needs. Many of the foundations conferred and collaborated with each other and

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encouraged collaboration among grantees. And they adjusted their strategies based on continual feedback from grantees, policy makers, and public opinion polling.

Notes on Policy Advocacy We conclude this case study with some general observations about policy advocacy. A sound argument on the merits. Good policy advocacy usually begins with a sound argument on the merits for whatever position you advocate. Most of our political leaders want to do the right thing and—as much as the rest of us—are willing to listen to arguments, at least within the bounds of their preexisting values. Perhaps in an ideal (and utterly academic) world, policyoriented research would speak for itself. Researchers would brief elected representatives and policy makers, who would adopt policies that responded to the best available evidence. In the real world, research alone does not suffice. For one thing, even when the scientific or medical findings are unambiguous, the costs and benefits of adopting a particular policy often are not or, in any event, accrue to different stakeholders with diverging interests. The decision-making process leading to the ACA involved both of these factors. So, while good arguments are valuable, they rarely suffice to advance your policy objectives. If you want to persuade decision makers, it is helpful to sway them with potential political gains or losses. Timing. Asking how to know when an idea’s time has come, the political scientist John Kingdon notes that for an item to get on a legislature’s agenda, it must be viewed as a problem, it must be amenable to some plausible policy solutions, and the political forces must be aligned.10 School vouchers, discussed in Chapter 1, are an example of an idea whose time had not come. But persistence matters, as is illustrated by the success of the conservative legal movement discussed later in this chapter.11 Frustrations with the health insurance industry and President Obama’s decision to put health care at the

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top of his agenda opened what Kingdon calls a “policy window” for health reform—just as various factors, including Obama’s related decision not to expend his early political capital on combating climate change, closed the window for energy policy reform. Venues. When it is possible to identify a single decision maker who can adopt a policy, such as the secretary of health and human services, that’s where to focus your advocacy. But most policy decisions involve multiple decision makers. The ACA involved the president and the entire Congress, which, in turn, involved those who influence them: insurance companies, doctors, hospitals, health advocates, and patients. Not only should you know who the decision makers are, but— within the bounds of a foundation’s permissible advocacy—you should ascertain where to exert the most leverage. There’s no point in spending time on legislators who are solidly on your side or unalterably opposed to your position; the ones who can be moved are the ones who matter. We should emphasize that lobbying per se by US tax-exempt organizations is quite constrained. In our case study, Atlantic Philanthropies had the advantage of being chartered offshore. Clarity of your ask. Is your message, or the policy “ask,” clearly articulated and focused? It does no good to generate a huge political force for “better health care.” You need to advocate for (or against) universal coverage or coverage for particular groups or for a particular mechanism (e.g., single payer, individual mandates) to achieve your objective. Credibility and political weight. No matter how credible you find a source of information, it’s essential that it be credible to your target audience—whether consumers or members of Congress. In designing an initiative to gain more federal funds for contraceptives to reduce unplanned pregnancies among young adults, the National Campaign to Reduce Teen and Unplanned Pregnancy drew on leaders from across the political spectrum, including people who disagree about the morality of sex outside marriage but were concerned about the high abortion rate among women

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in their twenties. Build coalitions among strange bedfellows, as RWJF did. And do not assume that a message that you and your colleagues find compelling will be compelling to others. Related to credibility is whether the group has the political weight to make a difference. Many of the organizations that advocated for and against the ACA had considerable political weight— and building coalitions on either side of the issue created more weight than the sum of the parts. Foundations themselves can be sources of credibility. RWJF, the Commonwealth Fund, and Kaiser all had strong reputations in the health-care field. Perhaps it was to maintain their reputations of nonpartisanship that the first was cautious in its advocacy efforts and Kaiser shied away from advocacy altogether. Grassroots organizing. Many of the preceding points have focused on what are called the “grasstops”—decision makers and opinion leaders comprising elected officials and well-organized citizens’ and industry groups. But campaigns to change regulatory and legislative policy often involve grassroots organizing to reach residents who do not ordinarily participate in government decision making. These were the main targets of HCAN and its funders. The role of the media. Politicians pay attention to public opinion, and public opinion is strongly influenced by the media—today, especially those accessible on TV and the Internet. Yet public opinion is capricious and can be swayed by vivid images and metaphors. As a commentator noted with respect to the ACA, “Public opinion was not a winning battle. All it took was ‘death panels’ and ‘pulling the plug on grandma’ and it swept away all that messaging.”12 A campaign strategy and a campaign mentality. A good policy advocacy strategy will be designed with all these factors in mind. Winning a major policy victory is not easy and requires perseverance. Organizations that can do this are experts in their venues— the places where decisions are made. They understand the whole panoply of forces operating on the decision maker and know

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when and how to engage, and when to lay off. A philanthropist convinced that advocacy is the most appropriate tool for the task should be alert to these considerations and look for nonprofit or for-profit groups that show mastery of the techniques and venues. Politics isn’t nice. It can involve nasty tactics, unholy alliances, and compromises with opponents. Be ready to take heat from your friends when you make a pact with the devil. In one battle between allies, the Environmental Defense Fund roundly criticized the like-minded National Commission on Energy Policy for agreeing to a “safety valve” on carbon emissions, which the committee regarded as essential to garnering support for a mandatory federal cap-and-trade law.13 Opponents of junk food in public schools attacked a leading ally, the Center for Science in the Public Interest, for a compromise with the food industry that would ban selling many sugary foods in school snack bars, vending machines, and cafeterias but allow sales of chocolate milk, sports drinks, and diet soda.14 And RWJF, a leader in the campaign against smoking, was criticized for acquiescing in an agreement with the tobacco companies that some allies thought ceded too much.15 In The Elusive Craft of Evaluating Advocacy, Steven Teles and Mark Schmidt suggest that theories of change of the sort that provide frameworks for service delivery programs do not readily apply to political advocacy: Advocacy is inherently political, and it’s the nature of politics that events evolve rapidly and in a nonlinear fashion, so an effort that doesn’t seem to be working might suddenly bear fruit, or one that seemed to be on track can suddenly lose momentum. Because of these peculiar features of politics, few if any best practices can be identified through the sophisticated methods that have been developed to evaluate the delivery of services. Advocacy evaluation should be seen, therefore, as a form of trained judgment—a craft requiring judgment and tacit knowledge— rather than as a scientific method. To be a skilled advocacy evaluator requires a deep knowledge of and feel for the politics of the

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issues, strong networks of trust among the key players, an ability to assess organizational quality, and a sense for the right time horizon against which to measure accomplishments. In particular, evaluators must recognize the complex, foggy chains of causality in politics, which make evaluating particular projects—as opposed to entire fields or organizations—almost impossible. Tactics that may have worked in one instance are not necessarily more likely to succeed in another. What matters is whether advocates can choose the tactic appropriate to a particular conflict and adapt to the shifting moves of the opposition. . . . Successful advocates know that such plans are at best loose guides, and the path to change may branch off in any number of directions.  .  .  . Successful advocacy efforts are characterized not by their ability to proceed along a predefined track, but by their capacity to adapt to changing circumstances. Funders may be better off eschewing evaluating particular acts of advocacy, and instead focus on evaluating advocates. We believe that the proper focus for evaluation is the long-term adaptability, strategic capacity, and ultimately influence of organizations themselves.16

Advocacy Unbound: Politics as Philanthropy by Other Means Following Carl von Clauswitz’s famous observation that “war is a mere continuation of politics by other means,” one might say that politics is the continuation of philanthropy by other means. In the United States, we are so accustomed to philanthropy being done through vehicles whose 501(c)(3) tax-exempt status significantly limits political action that it is easy to conflate philanthropy with those vehicles. But if the core of philanthropy is giving one’s money or time to benefit others according to one’s vision of the common good, then most political activity, at least by individuals and nonprofit organizations (as distinguished from corporations), is philanthropic as well. Even before the Supreme Court’s landmark 2010 decision in Citizens United v. Federal Election Commission,17 which struck down

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regulations limiting contributions to political campaigns, politics as a form of philanthropy was in ascendance, and it has continued to grow ever since.18 Here we examine the efforts of two wealthy philanthropists to advocate for liberal and conservative causes, respectively. In 1981, Tim Gill founded the software company Quark, which turned him into a multimillionaire by the end of the decade.19 Gill is a gay man, and the gay rights movement first caught his attention in 1992 when a Colorado ballot measure was proposed to protect the right to discriminate on the basis of sexual orientation. Gill began to speak out publicly against the ballot measure.20 In 1994 he formed the Gill Foundation to fund LGBT projects in Colorado, with a particular focus on adopting antidiscrimination measures and securing marriage equality.21 Although some of these activities were done through his tax-exempt foundation,22 we focus here on his advocacy through other vehicles. In 2004 Gill and three other wealthy Democratic donors banded together to turn back the tide of Republican victories in Colorado by funding “527” organizations to help the Democrats win in state Senate and House races.23 Although their advocacy was not particularly focused on LGBT issues, in Colorado, home of Focus on the Family and the New Life Church,24 the influence of the vehemently antigay Christian right virtually guaranteed that no Republicans would support gay rights.25 That year, Democrats took control of both houses of the Colorado legislature for the first time in three decades. Although it is difficult to assess the contribution of Gill’s group, the election results buoyed their confidence and led them to found the Colorado Democracy Alliance (CDA) the following year.26 CDA is a network of 501(c)(3) and 501(c)(4) organizations that directs money to Democratic candidates with the goal of building a progressive infrastructure in Colorado.27 In 2005, eleven states passed ballot initiatives banning gay marriage.28 While many advocates began supporting civil unions as the most viable alternative, Gill remained committed to full

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marriage equality.29 That year he founded Gill Action to elect legislators who support LGBT causes and defeat those who oppose them.30 Gill Action is a 501(c)(4) social welfare organization that can engage in political lobbying and campaign activities.31 The organization worked to gain majorities in closely divided states like Iowa and Pennsylvania. In 2006, bolstered by anti-Bush sentiment nationwide, fifty of the seventy lawmakers targeted by Gill Action, most of them opponents of gay equality initiatives, were defeated. Gill Action used conventional political tactics. It targeted the conservative Republican speaker pro tempore of the Iowa State House of Representatives, who supported initiatives to ban gay marriage in the state, through donations to his opponent.32 In 2010, when Gill learned that the New York state legislature would soon vote on a marriage equality bill, he began to target incumbent state legislators who had voted against a bill to permit gay marriage the previous year. He first did some polling to ascertain whether voters would react negatively to a gay organization’s attacking candidates who supported antigay causes.33 When it turned out that most voters were indifferent, Gill Action donated almost $800,000 to Fight Back New York, a gay rights political advocacy group that has branches in other states.34 Fight Back New York attacked candidates on issues that had no connection to the gay rights movement but that mattered to voters. For example, one incumbent Republican was attacked for charging the state for lavish professional expenses;35 another, for violence against his girlfriend. According to Gill Action’s deputy executive director, all that mattered was that “politicians who deny gays and lesbians basic equality should be thrown out of office.”36 Both candidates lost, and with these and other shifts in the New York State Senate, a marriage equality law passed by a margin of four votes.37 Gill Action continues to attack legislators who support antigay legislation.38 Today it focuses on so-called religious freedom laws that permit businesses to discriminate against LGBT customers

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and employees. When asked whether the results of the 2016 election would affect his strategy, Gill stated, “We’re going into the hardest states in the country. We’re going to punish the wicked.”39 At the other end of the political spectrum is James Arthur (“Art”) Pope of North Carolina, whose philanthropic and political activities were funded by inherited wealth from his father’s chain of retail stores. As a youth, Pope was greatly influenced by Friedrich Hayek and Ayn Rand. He identifies himself as a “classical [economic] liberal” and a political conservative.” Pope’s vision for North Carolina is that of a socially conservative state where taxes, economic regulation, and government spending are dramatically curtailed.40 Pope was elected to the North Carolina legislature in 1988 but quickly learned that his uncompromising positions made it difficult to exert influence from within.41 While still in office, he founded the John Locke Foundation, a right-leaning think tank that advocated cutting taxes and rolling back regulations.42 After several unsuccessful forays into electoral politics, he began to gain political clout from the outside through a network of nonprofit and political organizations. Over the years, Pope has supported libertarian causes and donated more than $20 million to the John Locke Foundation, which advocates reducing health-care benefits and air-pollution standards.43 He founded the Civitas Institute, a right-wing think tank and polling organization, whose 501(c)(4) political action arm, Civitas Action, intervenes in political campaigns. Pope also donates to other conservative political organizations, such as the North Carolina Family Policy Council, a socially conservative group that opposes gay marriage and transgender rights.44 Pope also supports the Koch brothers’ Americans for Prosperity and other national conservative organizations. Pope created and funded the Republican Legislative Majority, a 527 political committee,45 to unseat moderate Republicans in North Carolina. Together with Americans for Prosperity, his organizations successfully attacked David Miner, who declined to

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cosponsor a state constitutional amendment to ban gay marriage and supported a two-year moratorium on the death penalty.46 In the 2004 election season, five of eight targeted Republican legislators had been unseated and replaced by far-right Republicans.47A politician observed, “There weren’t a lot of Republicans willing to cross Pope” after the 2004 and 2006 elections.”48 It was time to go after the Democrats. In 2010, when John Snow, a popular moderate Democratic state senator, stood for reelection, Pope donated funds to a 527 political committee called Real Jobs NC, which combined with Civitas Action to defeat him.49 One attack ad characterized Snow’s support for building a pier as a “pork project,” without noting that it had passed the state legislature unanimously.50 Another ad characterized Snow’s support for a bill to review possibly racially motivated death sentences as advocating the release of violent criminals from death row.51 Snow lost. So did enough Democrats to place both branches of the state legislature in Republican control for the first time since 1870.52 When Pat McCrory, a close Koch ally, ran for governor, Pope’s organizations, together with Americans for Prosperity and other national organizations, donated more than $12 million to his campaign.53 McCrory won the election in 2012 and appointed Pope state budget commissioner. Immediately after that election the North Carolina legislature began to adopt virtually all the policies advocated by Pope. These included reduced taxes, reduced welfare and unemployment benefits,54 rollbacks of environmental regulations, restrictions on abortions, strict voter ID laws, the requirement that transgender people use the bathroom for the sex listed on their birth certificate,55 and a redistricting plan (later struck down by a federal court)56 that diluted the voting rights of African Americans and Democrats and promised to keep Pope’s allies at the helm of government for the foreseeable future. Although Jane Mayer’s excellent Dark Money focuses on conservative advocates, including Art Pope and the Koch brothers, the title of her book applies as well to Tim Gill on the progres-

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sive side.57 Many people to whom we’ve described these examples believe that such bare-knuckle politics should not be called “philanthropy” even if the ends are public-regarding and therefore charitable from the funders’ points of view. But philanthropy has usually been defined in terms of ends rather than means, and we’re not sure why more genteel forms of advocacy count and these do not. Whatever name it’s given, our interlocutors also have expressed skepticism about whether this sort of advocacy should be permitted at all. But it was deemed protected by the First Amendment to the Constitution even before Citizens United. In any event, those who would constrain philanthropy-backed advocacy ought to consider how this would affect the balance of power in a system in which corporations and unions are unconstrained.58

Changing Corporate Behavior Whatever problems concern you as a philanthropist, business probably plays a role in helping solve or exacerbate them. If you care about the poor, it is businesses that provide individuals the jobs and opportunities to escape from poverty. If you care about gun safety, then gun manufacturers can have a major effect—positive or negative—on achieving your goals. The key to stopping global warming ultimately lies in the myriad industries that make and consume energy. Here we use the case study of the campaign for cage-free eggs to examine two complementary approaches that philanthropists can use to influence business decisions: encouraging corporate social responsibility and advocating for regulation.59 Before 2005, the animal welfare movement largely ignored farm animals, focusing instead on companion animals, animal testing, wildlife, and fur. In 2005, animal advocates began a campaign for cage-free eggs—from hens that are not raised in cages but in open-floor systems or out of doors. Advocates made and publicized undercover films showing the conditions of hens as

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well as other animals raised for food (which led to some states enacting “ag-gag” laws forbidding such unconsented photography).60 Early in the campaign, the Humane Society of the United States secured 100 percent cage-free pledges from companies, including Whole Foods and Unilever, and pledges to use 2–5 percent cage-free eggs from fast-food chains, including IHOP and Burger King. At the same time the Humane League and student activists secured cage-free commitments from college campuses. This led an increasing number of egg producers to develop cagefree capacity. In 2008, advocates secured the adoption of a battery cage ban in California (to go into effect in 2015), which was followed by a similar ban in Michigan. (Battery cages are rows and columns of identical cages for egg-laying hens, arranged like the cells in a battery.) In 2011, the Humane Society reached a compromise deal with United Egg Producers, the egg industry’s trade association, with a joint agreement to push for national legislation mandating larger “enriched cages” and for labeling cartons. Fearing the precedent of national farm animal welfare regulations, the pork and beef industries lobbied against the compromise, and the deal fell apart after Congress refused to enact the legislation in 2014. Nonetheless, the following year advocates won the first major corporate commitments from two major food services to eliminate battery cages. During this period, several undercover investigations into battery cages drew national attention. The major food-service companies, like Aramark and Costco, pledged to go cage-free. After McDonald’s pledged to go cage-free in North America, Taco Bell, Wendy’s, and other major fast-food chains made similar pledges. At the start of 2016, grants from the Open Philanthropy Project allowed the advocacy groups to scale up, which led to pledges by Safeway, Kroger, Albertsons, and Walmart to go cage-free.61 Through the rest of that year, advocates used this momentum and their increased resources to secure corporate pledges from most

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of the top grocers, restaurant chains, and food manufacturing companies. Lewis Bollard, who leads the Open Philanthropy Project’s strategy for farm animals, describes how the advocates built up competitive pressure for companies to follow their peers in each sector—food-service companies, fast-food chains, food manufacturers, and grocers. He suggests that the success of the campaign against battery cages was the result of the advocates working cooperatively with companies where possible and targeting recalcitrant companies. Bollard describes these strategies with respect to the former: • Relationship building: Advocates built relationships with the key decision makers at large food companies and identified supporters of reform within each company. • Investor relations: Advocates filed “laudatory” shareholder proposals thanking major companies for their animal welfare work. • Technical support: Advocates held days-long sessions with company food buyers to help them develop and implement cagefree policies. • Industry periodical advertising: Advocates placed ads in Supermarket News, Progressive Grocer, and Restaurant News to compliment new corporate policies, both to affirm companies’ decisions and signal the trend to their peers. Where companies refused to adopt a cage-free policy or refused to meet with advocates at all, the advocates launched campaigns based on these strategies: • Focus on a single issue: Most major farm animal advocacy groups agreed to focus on a single issue for the first time. This both built stronger campaigns and created a clearer and more realistic ask for companies, which previously had been confronted with multiple calls to do different things.

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• Establishment of expectations: Before each campaign, advocates tried to meet with the company to disclose their proposed strategies, after which a number of companies committed to a cage-free policy. • Social media: Advocates mobilized supporters to sign Change. org petitions, comment on companies’ Facebook pages, and otherwise used social media to urge them to improve their practices. • Online videos: Advocates created YouTube and Facebook videos to alert consumers to the suffering of hens in their supply chains. • Grassroots activism: Activists organized street protests outside stores, restaurants, and campus food services and mobilized supporters to call and e-mail the companies to express their support for cage-free policies. • Targeted advertising: Advocates placed outdoor ads around company headquarters and targeted ads against particularly stubborn companies. • Celebrities: Advocates enlisted celebrities, including Brad Pitt and Ryan Gosling, whose letters to companies calling for reform generated significant news coverage. • Investor relations: Advocates bought stock in target companies, filed shareholder resolutions, and secured the support of institutional investors for reforms. The organizations involved in the campaign for cage-free eggs sought to achieve their goals both through corporate social responsibility (CSR) and government regulations. The past several decades have seen the growth of the CSR movement, a capacious term that includes businesses’ avoiding doing harm and doing affirmative good while simultaneously improving brand image.62 Like much human behavior, good corporate behavior reflects a mixture of voluntary decision making and external pressure. Consumers, employees, investors, and government regulators can

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all play a role in pressing for their (sometimes divergent) views of CSR. A massive campaign was launched against Nike in the 1990s, focusing on poor working conditions in the manufacturing plants for its apparel. As the cost of consumer boycotts and protests became higher, improving the working conditions in its factories became financially more attractive to the company. Hannah Jones, Nike’s vice president of corporate responsibility, explained: We were one of the first brands to be targeted by NGOs in their effort to raise public awareness around these issues. It required us to focus on risk management and reputation management because that’s what was under fire. It has been a huge change for Nike to go from that early era of firefighting to our current approach of engaging with external stakeholders in dialogue, consensus, and sometimes on-the-ground partnerships with even our harshest critics. It was through opening up the company and listening, learning, and engaging that we began to see how the social and environmental issues involved challenges way beyond Nike. And it became clear that the only way to solve those problems was through multi-stakeholder partnerships.63

Boycotts are not a first option in changing corporate executives’ minds and actions. As exemplified by the cage-free eggs campaign, it usually pays to offer to work collaboratively and seek win-win solutions—and only turn to coercion when collaboration fails. In Chapter 10, we briefly mentioned the use of shareholders’ voting power to change a corporation’s behavior. Although socially motivated shareholder activism has not, on the whole, proved to be a powerful lever for changing corporate behavior, it remains a potential tool in the advocates’ toolbox. Sometimes the mere threat of a shareholder resolution can add to the power of other advocacy strategies. A campaign to change corporate behavior requires the same strategic and tactical considerations as policy advocacy. This includes knowing the relevant venues and decision makers, enlist-

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ing the media, and ensuring that your grantees have the skills to negotiate and the power to turn up the heat if negotiation doesn’t work. Beyond more or less voluntary change lies regulation, also part and parcel of the cage-free eggs campaign. Governments play a large role in shaping business behavior. Regulations govern US businesses’ labor and employment practices, workplace and product safety, environmental impacts, and competitive practices, to name just a few areas. Philanthropy has supported organizations—from the Natural Resources Defense Council to the American Enterprise Institute and Heritage Foundation—that promote or oppose governmental oversight in all of these realms.

Using Litigation to Change Government Policies and Business Practices Litigation is unpleasant, expensive, and time consuming. In most cases, it is a last resort. But the judiciary is part and parcel of the system of governance, and litigation—or the threat of it—may be the only recourse. Litigation is often used together with other tools. While many of the gains of the civil rights movement were due to grassroots protests, direct action, and legislative advocacy, litigation, beginning even earlier than Brown v. Board of Education, was essential to the movement’s victories, as it has been in establishing basic rights in other areas—fair election practices, proper prison conditions, and so on. It was through litigation that gay and lesbian people obtained the right to marry nationwide.64 Litigation has also played a major role in the contemporary environmental movement. Consider the successful case against the US Environmental Protection Agency to force it to regulate greenhouse gas emissions and the unsuccessful suit brought by automobile manufacturers to void California’s car efficiency standards. The United States, being a highly litigious society, has a host of public interest litigation groups, ranging from Lambda Legal, Earth Justice, and NARAL Pro-Choice America on the left,

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to the Pacific Legal Foundation, Center for Law and Religious Freedoms, and Center for Individual Rights on the right. Litigation strategies typically focus on precedent-setting cases so that the gains made do not have to be refought in the next case. The most capable litigator groups have a keen sense of strategy, understanding which victories will have a massive spillover effect, as well as mastering the particulars of winning their hallmark cases. Most litigation strategies are accompanied by a significant public education effort—especially when the goal is systemic reform. When a legislative component and political leadership are needed,  a media-driven litigation strategy offers the most leverage. In the early 1980s, a group of public interest attorneys filed half a dozen simultaneous suits in California against the practice of putting children into adult jails. Each case exemplified the extreme risks of abuse or other trauma, sometimes resulting in suicide. Their legal relief sought in each case was actually secondary: The lawyers sought a change of laws in Sacramento prohibiting the practice statewide. The lawsuits, filed across the state, were designed to focus attention on their goal. They succeeded as county sheriffs, the attorney general, and then the governor supported corrective legislation. Getting a regulation enacted or winning a lawsuit does not ensure that their outcomes will actually be implemented. Government agencies charged with enforcement are often overwhelmed by other work and are sometimes even hostile to legislative directives. Nonprofit groups play an important role not just in shaping policies but in ensuring their implementation and bringing to light various forms of abuse by government agencies.65

Social and Political Movements Social and political movements are long-lasting advocacy efforts by many activists, aimed at changing deep-seated social norms. We examined aspects of the gay rights, or LGBT, movement and

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the animal rights movement earlier in this chapter. Movements are sometimes joined with field building, as in the development of open educational resources (OER) described in Chapter 1 and the efforts to care for people at the end of life and to protect reproductive rights described in Chapter 13. Here we survey two other movements—both allied with field building—with the former mainly engaging elites and the latter expanding from elites to grassroots.

The Conservative Legal Movement The modern conservative legal movement is an important outgrowth of the broader history of neoliberalism—what’s often described as free-market economic conservatism—beginning with Friedrich Hayek and continuing through Milton Friedman and beyond.66 The story of the conservative legal movement has achieved an almost mythical status, in no small part because progressive commentators have used the story to goad liberals to follow its example.67 The John M. Olin Foundation’s contribution to building the field of economic analysis of law was a key element of the movement.68 The law and economics movement’s principal evangelist was Chicago-trained law professor Henry Manne, who had established a summer institute for law professors—colloquially named “Pareto in the pines” for the Italian economist Vilfredo Pareto and the program’s sylvan locale. The Olin Foundation built a longterm relationship with Manne. It supported the summer institute, which has trained hundreds of state and federal judges. The foundation established a Law and Economics Center at the University of Miami, where Manne taught, and then at George Mason University Law School when he moved there to become its dean. By the end of the 1970s, the foundation recognized that, although it was supporting “decent schools,” they were “not academically respectable in terms of influence on public policy” and made “little or no difference in the hearts and minds of Americans as regards attitudes toward free enterprise.”69 Therefore, the

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foundation sought to establish programs at elite universities, including Chicago, Georgetown, Harvard, Stanford, Virginia, and Yale. Faculty supported by the programs have written influential books and articles—often, but not inevitably, emphasizing the importance of property rights and free markets and the dangers of regulation. To facilitate the rising academic interest in the subject, the foundation funded the American Law and Economics Association. Over a thirty-year period the Olin Foundation devoted $68 million to the promotion of law and economics. When it closed its doors at the turn of the twenty-first century, it made $21 million in grants to its anchor institutions. With the foundation’s support, the economic analysis of law became a dominant paradigm in the legal academy and, to a considerable extent, in legal and policy communities beyond academia. In the words of the prominent liberal legal scholar Bruce Ackerman, law and economics was “the most important thing in legal education since the birth of the Harvard Law School.”70 The conservative journalist John Miller wrote: “As the law and economics movement matured, many of its adherents took positions in the government and won nominations to the federal bench. . . . Law and economics was also crucial in the drive for deregulation as well as the recent belief that new regulations should not be imposed without first considering a cost/benefit analysis.”71 The Federalist Society, the incubator for many conservative judges, is an outgrowth of the law and economics movement. In The Rise of the Conservative Legal Movement, Steven Teles puts the economic analysis of law in the broader context of the conservative legal movement that was supported by a number of foundations besides Olin, as well as by individual philanthropists. He makes two important observations relevant to the themes of this chapter. The first relates to the importance of persistence: The lessons of the first generation of conservative public interest law show that the movement went through a very long period

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of almost complete organizational failure.  .  .  . While the conservative movement has had its very considerable strengths, it was never a monolith, often made serious errors, and succeeded by shrewd adaptation rather than by the far-sighted pursuit of a grand plan.72

Second, Teles notes with respect to strategy and evaluation: The history of the conservative legal movement suggests that successful political patrons engage in spread betting combined with feedback and learning, rather than expecting too much from grand planning.  .  .  . Conservative patrons were willing to accept fairly diffuse, hard-to-measure goals with long-term pay-offs when they had faith in the individuals behind the projects. . . . Conservative patrons were typically quite close to the entrepreneurs they funded and depended on their own subjective evaluation of both a given [policy] entrepreneur’s effectiveness and the information that flowed through trusted movement networks— rather than on “objective” measures of outcomes.73

“Spread betting,” or, to use a phrase coined by Mao Zedong (probably not among these conservative philanthropists’ heroes), letting “a hundred flowers blossom,” is an essential strategy at the early stages of social movements, whose dynamics are protean, to say the least. As a movement develops, some flowers die and others show promise and need to be nurtured. Even then, however, assessing the progress of social movements is radically different from assessing the provision of goods and services (discussed in Chapter 5), which evaluates one flower at a time.

The Women’s Movement and Its Predecessors and Successors The Ford Foundation played a major sustaining role in the women’s movement, beginning in the 1970s. Susan Berresford, who retired as president of the Foundation in 2008, writes: In the early 1970’s, representatives of the women’s movement approached the Foundation’s president, McGeorge Bundy, and the

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program vice presidents to argue that since Ford had been very supportive of the civil rights movement, it ought to be doing the same for women. Soon after, we began to explore what a women’s program would look like. As the program gained momentum in the 1970’s, it focused on promoting educational equity, supporting research in the new field called “women’s studies,” and increasing earning opportunities for women in the United States. We funded groups concerned with women’s pay and entry into formerly all male jobs, girls’ education and participation in sports, and women in the country’s political life. We supported research, public discussion and litigation, some of which reached the Supreme Court. The Foundation made sizable, long-term commitments enabling a number of national and local organizations to challenge discrimination and to build a body of law, policy and practice to protect women’s opportunities.74

As the movement developed, the Ford Foundation added grantmaking on women’s reproductive health, work and family issues, and violence against women. Despite continuing challenges, the American women’s movement has reached the maturity phase (to recur to the innovation curve in the introduction to Part 4). In a sense, it reached maturity within the Ford Foundation itself when, during a grant-review meeting, a program officer raised an issue about women and a colleague responded by saying, “Well, that’s taken care of in the women’s program.” Franklin Thomas, then president of the foundation, disagreed, saying, “We’re all responsible for this.” Berresford notes, “From then on, the message was clear: grant-making officers would be expected to consider gender and ask whether it was an important factor in the problems each program addressed. With that decision, we moved beyond having a women-specific grant portfolio to placing a feminist lens over much of the Foundation’s work.”75 Philanthropic support for the women’s rights movement was preceded by decades of support for the civil rights movement for

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racial equality and followed by support for the LBGT movement. While the Ford Foundation has funded all of these movements, many others, including family foundations, have also played important roles.76 Major funders of LBGT issues include the Arcus Foundation, Gill Foundation, the Evelyn and Walter Haas Jr. Fund, and the Open Society Foundations.77 Perhaps even more than funders of the conservative legal movement, those who funded these social movements were ready and willing to support causes without having specific goals or strategic plans or demanding them of their grantees. Early on, a social movement is often subject to what the philosopher H. L. A. Hart described as the “indeterminacy of aim” that characterizes most human affairs.78 Consider, for example, the goals of civil rights groups after World War II. Were they concerned with equal treatment or equal outcomes? With integration or self-determination? With only intentional race discrimination or with disparate impact, unconscious discrimination, and affirmative action? While some individuals and organizations had clear views on these matters, for many others the immediate problem of removing de jure discrimination loomed so large as to place those other questions in a hazy distance. Moreover, the civil rights movement consisted of many grassroots organizations with diverse constituencies. Goals were reassessed and changed over time, and strategies bubbled up. By the same token, there was considerable fluidity and disagreement within the women’s rights movement about whether its goal was equal treatment or equal outcomes, disparate treatment, disparate impact, or affirmative action. Organizations split, sometimes irreparably, over these issues. The gay rights movement, with the evolution of its beneficiaries from gay men and lesbians to encompass the broad category of LBGTQ, and the evolution of its goals to encompass marriage equality and transgender issues, tell a similar story. The foundations and individual philanthropists that sup-

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ported these movements certainly had a general sense of what they were seeking to accomplish. But at least in the early stages, when grassroots activities looked more like protests than focused advocacy movements, philanthropists’ “strategies” may have consisted of little more than supporting organizations and leaders in whom they had confidence. Over time, however, philanthropists rightly expected the movements’ leaders to supplement passions and amorphous visions with clear goals and strategies. Consider, for example, the NAACP Legal Defense Fund’s strategies in bringing the series of cases leading up to the landmark 1954 US Supreme Court decision in Brown v. Board of Education. Its fundamental purpose was to get the Supreme Court comfortable with the racial desegregation of professional and graduate schools before pressing it to enter the emotionally charged venue of elementary and secondary education. The motivation was the quest for social justice. But the strategy was ruthlessly instrumental and required passing up cries from the heart for immediate action in favor of long-term gains. The foundations that invested in the Legal Defense Fund knew that they were working in partnership with an organization whose leadership not only had its eyes on the prize but had well-thoughtout strategies for gaining it.

Application to Your Own Philanthropy Choose a change in public policy or corporate practice that you would like to see happen. Assume that your advocacy is not subject to any legal constraints and (recalling the case studies of the ACA and cage-free eggs and the notes that followed) sketch a strategy for achieving the desired change. What do you think are the chances of succeeding? Does the work require a broad, hundred-flowers sort of experimentation, to be followed by nurturing and growing the most promising ideas? Or is the path clear? Can you find a powerful,

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strategic, and trustworthy set of grantees, or would it be better to use the power and reputation of your foundation to drive a campaign? There are no obvious answers to these question for many issues, but the discipline of asking the questions can lead to better answers. And, in any event, don’t simply go with your gut. Study failure and success in similar situations. Recruit some veterans of the work to advise you—and some newbies too, with fresh ideas. Above all, don’t artificially constrain your options with unnecessary restrictions or guidelines, and plan to stay the course: Serious change takes serious time.

PART FIVE

ORGANIZING YOUR RESOURCES FOR STRATEGIC PHILANTHROPY

PART 5 EXAMINES two institutional questions. First, we survey the var-

ious structures—from writing checks at your kitchen table to establishing a foundation staffed with program officers—through which you can practice philanthropy. Second, we consider the much mooted question of whether to preserve your philanthropic assets in perpetuity or spend them down during a finite period. We view both of these issues mainly from the perspective of what is likely to have the greatest philanthropic impact.

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Chapter 16

STRUCTURES FOR PHILANTHROPY

This chapter considers the features of various organizational structures for undertaking philanthropy, with the goal of contributing to a philanthropist’s social impact while meeting other personal and financial needs. There are four major structures: • Checkbook • Limited liability companies (LLCs) • Donor-advised funds (DAFs) • Foundations—staffed, unstaffed, or operating foundations We omit the somewhat arcane structure of the supporting organization,1 as well as regranting organizations such as funds and giving circles, discussed in Chapter 11. Before describing the structures, we introduce the factors relevant to choosing among them and describe how philanthropists can get assistance with strategic planning, due diligence, and grantmaking.

Factors for Selecting a Structure The following major factors may determine the structure of your philanthropy.

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The Magnitude of Your Philanthropic Spending The magnitude of your philanthropic spending is not an independent factor but may determine whether it’s worth incurring the costs of setting up and running a foundation or LLC.

Taxes The tax treatment of charitable activities is an important consideration because it may determine the size of your charitable budget and, in any event, affect the “cost” side of the cost-effectiveness of your philanthropic giving. To simplify, a donor can get a tax deduction of up to 60 percent of adjusted gross income for contributions to public charities, including DAFs, and a deduction of up to 30 percent for contributions to private foundations. Assets contributed to a foundation or DAF can be invested tax-free while waiting to be spent, and the donor can influence when they will be spent and for what charitable objectives. There is no deduction at all for political donations and no deduction for impact investments (though a foundation’s program-related investments count toward its required payout).

Flexibility in Approaches to Solving Social Problems Maximum flexibility would mean that donors are not constrained in their choice of means for achieving their philanthropic goals— whether giving to public charities or to for-profit businesses, making political donations, or making impact investments. Donors are in fact constrained only to the extent they wish to enjoy tax advantages. • Donors can give to public charities through virtually every structure. • Donors can make political contributions only from their checkbooks or through an LLC, and they receive no charitable deduction in any event. • Donors can make impact investments from their checkbooks or through an LLC and receive no charitable deduction. For

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tax purposes, an impact investment is generally treated like any other investment and is subject to tax regulations that govern investment gains and losses. • Foundations and DAFs may not make political contributions. • Foundations’ concessionary impact investments are typically made as program related investments (PRIs) and count toward the minimum required 5 percent payout. • Foundations’ nonconcessionary investments (MRIs or SRIs) have no special status.2 • Public charities may engage only in limited lobbying activities,3 and foundations’ support for such lobbying activities is quite constrained. Neither foundations nor public charities may make political contributions or contribute to 501(c)(4) social welfare organizations, often known as political action committees (PACs).

Control and the Involvement of Family, Friends, and Others You may wish to retain total decision-making power or share it with family members or others. Most of the available structures offer broad flexibility in this respect.

Legacy, Succession, Perpetuity, and Anonymity For the reasons discussed in the following chapter, you may wish to spend your charitable assets during your lifetime or sooner, or you may wish to exercise some control over the assets after your death. Different structures are more or less conducive to passing philanthropic assets on to future generations of family members or nonfamily directors. At one end of the spectrum are the funds in a checking account, which, unless bequeathed to a public charity or private foundation, have no charitable status and are subject to an estate tax (with whatever exemptions the law may permit). At the other end is a private foundation, which can hold the philanthropic assets in a trust in perpetuity. Of the various structures for engaging in philanthropy, only foundations must publicly disclose the donations they make.

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Administrative Costs and Assistance in Strategy and Grantmaking Creating a foundation or LLC incurs costs for establishing the entity and annually reporting on its activities, whereas writing a check costs nothing. But the major determinant of administrative costs is not the particular structure but what, if any, assistance you seek in developing strategies, conducting due diligence, and engaging in grantmaking or impact investing. Philanthropic funders can seek the counsel of expert consultants or hire staff members no matter what the structure for their philanthropy may be. Professionals’ fees or salaries are included in a foundation’s administrative expenses and count toward the required payout.4 For individual philanthropists, however, whether writing checks, drawing on a donor-advised fund, or doing philanthropy through an LLC, expenses that do not involve investment management and tax planning are probably not deductible—but the philanthropists should consult tax counsel about this. It’s worth taking a short detour to ask how a philanthropist who does not have an expert consultant or staff can decide what grants to make to achieve his or her objectives. The starting point lies in the elements of strategic philanthropy set out in Part 2. In simple terms, you need the potential grantee’s answers to these questions: 1. What is your organization aiming to accomplish? 2. What are your strategies for making this happen? 3. What are your capabilities for making it happen? 4. How will you know if you are making progress? 5. What have and haven’t you accomplished so far?5 These are the Charting Impact questions proposed by a consortium of Independent Sector, GuideStar USA, and the BBB Wise Giving Alliance. The clearer and more compelling the organization’s answers to the questions, the stronger the indication

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that you should make a grant. These same criteria apply to your selection of a fund of the sort described in Chapter 11. Indeed, when selecting a paid adviser or DAF sponsor (including a community foundation) to assist you with philanthropic decision making, it would be useful to question them on their understanding of the criteria. You might hope that a service exists to assess organizations based on these criteria and on their actual outcomes and impact, but you’ll be pretty disappointed in what’s available. In Chapter 6 we examined GiveWell and Impact Matters, two services that are impact oriented but that evaluate only a tiny fraction of nonprofit organizations. Philanthropedia, owned by GuideStar, evaluates a broader set of organizations based on the crowdsourcing of experts in a field, including academics, funders, grantmakers, policy makers, and consultants.6 Unfortunately, because of financial constraints, its evaluations have not been updated for several years. The two most comprehensive services make no efforts to assess impact. Charity Navigator is the only service that looks at nonprofit organizations across the sector. Unfortunately, it does not rate organizations based on anything approaching these criteria but rather on their accountability, transparency, and financial performance.7 GuideStar publishes the IRS 990 tax returns of all US nonprofit organizations and also includes supplementary information provided by the organizations. It hopes to provide Charting Impact–type information eventually—but it’s not there yet.

Structures With some inevitable duplication of points made in setting out the preceding criteria, let’s examine the particular structures available for undertaking philanthropy.

Checkbooks What we call “checkbook philanthropy” is the most common form of donating money throughout the world—for example, writing

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personal checks to charities or directing your broker to transfer securities to an organization. It can occur on any scale, beginning with $1 in the weekly church collection box to hundreds of millions of dollars to a university. You are entitled to a tax deduction for donations to a tax-exempt public charity or foundation and to a favorable tax treatment of donated appreciated securities. You can also give to political action organizations or directly to political candidates, but neither of these entitles you to a tax deduction. Nor do impact investments, no matter how great the concession. Checkbook philanthropy gives you complete control over donations. Although charitable gifts and impact investments can be made anonymously, certain political contributions are subject to disclosure under the Federal Election Campaign Act of 1971.8 Checkbook philanthropy involves no start-up or administrative costs other than the time and energy you devote to researching organizations, making decisions, and keeping records of your donations. The cost of advisers is unlikely to be deductible (though you should consult tax counsel about the specific circumstances).

Limited Liability Companies In recent years, a number of prominent ultra-high-net-worth individuals, including Mark Zuckerberg,9 Laurene Powell Jobs,10 and Pierre Omidyar,11 have done much of their philanthropy through LLCs, typically partnerships. An LLC, however philanthropic, has no special status under the Internal Revenue Code. A donor transfers funds from his or her checkbook to an LLC, with no tax benefits, at which point it becomes essentially an extension of the checkbook, with all the features just described. Indeed, an LLC is typically a pass-through entity for tax purposes; even if it is formed for philanthropic purposes, it is treated for tax purposes like any other partnership. Both its income and charitable contributions are attributable to its members, so when it makes a charitable donation, its members will receive a tax deduction.12 Political contributions and impact investments are not

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tax deductible, and administrative expenses, including the cost of advisers, probably are not either. (We hasten to say that a philanthropist considering creating an LLC should consult tax counsel about all of these matters.) In addition to limiting the donor’s liability against lawsuits (subject to exceptions that apply to all LLCs13), LLCs provide a ready structure for sharing grantmaking authority through bylaws that allow family members or others to participate as directors or partners. Unlike private foundations, LLCs do not have a minimum distribution requirement and are not required to disclose the objects or amounts of their funding or the salaries of any staff members. While philanthropic LLCs have been criticized for their lack of transparency,14 in truth they are neither more nor less transparent than a donor’s checking account. As a nonprofit lawyer writes, From a tax perspective, Zuckerberg could achieve the same result by simply writing checks to charities. By wrapping an LLC around his philanthropy, he is able to segregate his social endeavors from his business and personal finances. Further, his philanthropy is on such a large scale that he will need to hire staff, locate office space, and incur expenses that one does not typically want to run through a personal checking account. . . . Ultimately, the Chan Zuckerberg Initiative LLC is designed to give its founders maximum flexibility and control while sacrificing some of the valuable tax benefits associated with private foundations.15

Donor-Advised Funds A DAF is in effect a charitable banking account in which you can set aside charitable funds and receive a current tax deduction— the same deduction as for giving to any public charity—while effectively postponing the decision about specific beneficiaries as long as you wish. DAFs are held and managed by nonprofit entities, community foundations, and the charitable arms of for-profit financial service providers such as Fidelity, Vanguard, and Charles

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Schwab. Once the funds are in a DAF, neither income nor appreciation is taxable. The DAF sponsor manages the investments and takes care of the administrative chores of making particular donations. Although the sponsor charges fees for both of these activities, the growth in the number of DAF sponsors has made the fees quite competitive. Many community foundations and a number of commercial DAF sponsors offer professional staff to advise donors on charitable contributions. The quality of advice varies greatly, however; your adviser’s grasp of the Charting Impact principles is a preliminary indication of whether you’re likely to get good advice. DAF sponsors set an account minimum; Charles Schwab’s $5,000 minimum is typical.16 Depositing the money in a DAF account represents an irrevocable donation to the entity that holds the account, after which you can advise, but not direct, the DAF sponsor to make donations to particular public charities. But unless the requested donation is unlawful or violates some specified guidelines,17 the DAF sponsor will act as advised—or else quickly cease to attract new accounts. The funds contributed to DAFs have grown stupendously during the past several decades.18 DAFs can exist in perpetuity, with successor advisers—typically family members—chosen by the donor. Or the donor can specify how remaining funds should be distributed after his or her death. Donors can remain anonymous. Unlike foundations, DAFs are not subject to a minimum distribution requirement— though in fact the average annual payout of DAFs nationally exceeds 20 percent.19

Private Foundations Private grantmaking foundations are tax-exempt, nonprofit organizations. A donor receives a tax deduction at the time he or she transfers assets to a foundation. Since the deduction is limited,20 the major tax advantage of large gifts to endow a foundation is that the assets no longer generate taxable income to the donor and can be invested, sold, and reinvested without being subject to

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income tax. The foundation must pay an annual excise tax of 1 to 2 percent of its investment income and must annually expend at least 5 percent of the value of its endowment through a combination of grants, program-related investments, administrative costs, and certain other expenditures. Foundations can make grants to nonprofit organizations and engage in certain other activities, including program- and missionrelated investments (as described in Chapter 10). They may not engage in lobbying or make political contributions, though they are not prohibited from supporting nonprofits that engage in the limited political advocacy permitted. A foundation must have a board of directors, typically of three or more persons.21 The board structure lends itself nicely to a donor’s sharing decision-making power with others.22 A foundation may be set up to exist indefinitely or may spend down its assets at some point. IRS regulations require foundations to annually file a Form 990-PF, a publicly available document that describes to whom and for what amount grants and PRIs are made, as well as other aspects of its balance sheet, including investment income and the salaries of its five highest-paid employees.23 Foundations have no minimum required size, and the assets of the nation’s more than eighty-six thousand foundations range from less than $50,000 to billions of dollars.24 Although the startup costs are not high, the administrative costs of keeping track of grants and other expenses and filing an annual IRS report generally make this structure inefficient for small endowments. The large majority of private foundations, including many with millions of dollars in assets, do not have any professional staff. Grantmaking is done by their board of directors, sometimes assisted by outside consultants.25 A staffed foundation has precisely the same legal structure as an unstaffed one but has program officers and/or administrative staff. Employing even one or two program officers can maintain relationships with grantee organizations, other funders, government officials, and the media far better than outside consultants.

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While the founder and board determine the foundation’s mission and strategies, program officers typically undertake research, design and evaluate strategies, solicit and respond to applications, engage in due diligence, and monitor and evaluate grants. It is difficult to undertake large-scale strategic philanthropy without the expertise provided by a professional program staff. We should add just a word about the 501(c)(3) private operating foundation, a cross between a public charity and private foundation. Although private operating foundations can make grants, they typically do the same kind of work as conventional public charities—for example, operating museums, zoos, libraries, or research facilities. Although they can receive grants, operating foundations are funded primarily by their founding philanthropist. For example, the J. Paul Getty Trust maintains the two Getty Museums in Los Angeles and manages art conservation and research institutes. In 2016, the trust spent almost $300 million on its own programs and distributed $13 million in grants to other organizations.

Choosing among Structures The different structures may have rather different tax consequences, especially for philanthropists with restricted stock or appreciated assets. We leave these intricate legal and financial matters to your tax adviser and focus on differences that relate to the pervasive theme of this book: philanthropic impact.

Grants to 501(c)(3) Public Charities You can write checks one at a time, use an LLC, or create a DAF and offload the administrative tasks of grantmaking to a DAF sponsor. In any case, if you need assistance in identifying effective organizations in your areas of interest, you must find trusted advisers. If you plan to develop and implement your own giving strategy and devote large amounts of money to it, a foundation with professional staff may well be the most effective vehicle.

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Impact Investing You can write checks directly to social impact funds. If you wish to make a number of concessionary impact investments, foundation PRIs offer a good vehicle but require considerable staffing to do them well.

Political Contributions Your checkbook and an LLC are the only vehicles for nondeductible political contributions, and they also offer you anonymity. Finally, note that you need not put all your golden eggs in one basket. Many high-net-worth philanthropists use a combination of these structures to achieve their charitable goals in financially efficient ways.

Application to Your Philanthropy Given your philanthropic goals, your likely approaches to achieving them over the next decade, and your personal or family interests, what seem to be the best structures for your philanthropy? What are their advantages and disadvantages?

Chapter 17

PRINCIPAL AND PRINCIPLE Foundation Spending Policies

Philanthropists devote considerable effort to investing their endowments wisely, but they give little thought to how much of their assets or endowment should be conserved for the future and how much should be spent now. Although, as Claude Rosenberg wrote in Wealthy and Wise,1 this is an issue for individual philanthropists as well as foundations, we focus on foundations. This chapter considers the relationship between payout and a foundation’s mission. Many foundations pay out the minimum required by US law—5 percent of their assets.2 Assuming that their average investment returns are 8 percent, and assuming an inflation rate of about 3 percent, foundations can maintain their inflation-adjusted payout forever. But unless the founding document indicates otherwise, nothing prevents a foundation from spending more or even spending all of its assets in one year. The question is often posed in binary terms: perpetuity or not. But there are many variations. You might spend down a portion of your endowment today and then maintain a payout that will keep the foundation going forever, albeit with a smaller budget. Or if you do spend down, you can do so over a longer or shorter period. You may choose to have your foundation’s doors close soon after you enter the Pearly Gates or allow your children or grandchildren to continue to make grants.

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Two of the strongest statements against perpetuity come from extraordinarily successful businessmen who devoted much of their fortunes to philanthropy. In 1929, Julius Rosenwald, president of Sears, Roebuck & Co., whose philanthropy focused on educating African American children, expressed in no uncertain terms his thoughts on this matter: I am opposed to the principle of storing up large sums of money for philanthropic uses centuries hence for two reasons. First, it directly implies a certain lack of confidence with regard to the future, which I do not share. I feel confident that the generations that will follow us will be every bit as humane and enlightened, energetic and able, as we are, and that the needs of the future can safely be left to be met by the generations of the future. Second, I am against any program that would inject the great fortunes of today into the affairs of the nation five hundred or a thousand years hence.3

About eighty years later, Warren Buffett noted: “There are certain dynamics that take over in terms of behavior, and one of those forces is usually the drive to perpetuate institutions. . . . That dynamic—though undoubtedly subconscious—sometimes takes precedence over considering what might be best for society.”4 Buffett gave much of his fortune to the Bill & Melinda Gates Foundation, which plans to spend down its assets within fifty years of the death of its last trustee—though given Bill’s and Melinda’s ages, this should be quite a long time off. But the pronouncements of these two thoughtful men hardly end the discussion. We do not land on one or the other side of the spend-now versus spend-later debate but instead offer several considerations to help guide funders on the crucial question of spending rates. Consider these against your own priorities.

The Needs of the Present versus Those of the Future If you believe that the problems of the future will be greater than those today or that there will be less flexible wealth to deal with

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tomorrow’s problems than there is today, then it makes sense to husband resources to at least some extent. This is an attitude that many of us have with respect to our personal finances. We like to put aside funds for a rainy day or to give more options to our children and grandchildren. But does the same logic follow for a foundation? Rosenwald answered no. He thought that the world’s economic growth would continue over time and that philanthropy would grow with it. Looking back over the last two hundred years, this seems right. And looking forward, the dollars devoted to philanthropy are predicted to increase tremendously with the coming generations of wealth transfers, as well as with the accretion of new wealth.5 We suggest, however, that the time horizon of your giving should be mainly guided by the more fundamental question of the expected return on a philanthropic investment (discussed in Chapter 6) now and sometime in the future. This in effect takes into account how much your unspent endowment can earn through investments and how much social value it can create, which in turn depends on the nature of the problem you’re addressing and its potential solution.6

The Growth Rate of Your Financial Assets versus the Escalation of the Problem You Seek to Address Support for family planning and mitigating climate change, on the one hand, and for reducing homelessness, on the other, offers polar examples of the nature of the problem you’re addressing. Absent people’s ability to control fertility, population would grow exponentially, straining resources and environmental systems as well as the well-being of families. A dollar spent to facilitate family planning today provides much greater benefits than a dollar spent in a year, let alone in ten or a hundred years. Global warming presents a similar problem—irreversible loses of biodiversity and a point of no return for sea-level rise and pos-

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sible catastrophic climate change. In explaining why the Richard and Rhoda Goldman Fund pays out 10 percent of its assets each year, Goldman explained: “For the environment .  .  . the ‘rainy day’ is upon us. . . . I believe that now is the time to address the climate change issue head on, simply because the opportunity will never come again. If we do not act now, we will impose untold harm on future generations, and there will be nothing they can do to remedy the situation. This single issue has the potential to exacerbate nearly all other environmental and social problems.”7 Services for homeless individuals lie at the other end of the spectrum. A dollar spent today alleviates their misery but has a negligible effect on future generations. In many cases, the timevalue of your grants is not as starkly obvious. Does improving elementary and secondary education for today’s inner-city children or eradicating malaria for today’s residents of Africa provide more value than doing the same for tomorrow’s populations? Your answer may depend on whether you believe that addressing the problems now will prevent their transmission across time. All other things being equal, for many of the big problems that philanthropy seeks to address—problems that lie in the big cube discussed in Chapter 7—our hunch is that a philanthropic dollar spent today is worth more than the comparable amount spent tomorrow. But let’s look at some ways that other things may not be equal.

The Existence of a Strong Actionable Theory of Change versus the Likelihood of a Better Strategy in the Future We just talked about the nature of the problem, but the possibility of solutions also matters. In Chapter 3, we discussed the necessity of having a strong and actionable theory of change. There are important cases, such as family planning, where knowledge of what works is strong enough to justify scaling up a strategy through philanthropy or advocating for government support.

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What about global warming? If, contrary to virtually unanimous scientific opinion, global warming were beyond human control and we could do nothing to stop it, then adaptation would be the only response. (Like education, adaptation may lie between the poles of our spectrum.) But we know that the human generation of carbon dioxide and other greenhouse gases is a major contributor to the problem, and we know how to reduce emissions. Even so, some people believe that current approaches, such as improving energy efficiency and increasing renewable sources of energy, are too costly and that radically better solutions, such as geoengineering, lie just over the horizon. If you share this belief, then you might husband your grant monies (to the extent permissible) to accelerate nascent technologies when they appear—but you also might decide to invest today in research to develop those solutions. The New York–based Aaron Diamond Foundation decided to invest in research in the early years of the AIDS epidemic. In the mid-1980s, knowledge about how to stop or control the AIDS virus was minimal. After considering alternative strategies, the foundation decided to support basic research so that scientists could develop enough results to justify follow-on federal funding in curing AIDS. In 1989, the staff and board created an independent, worldclass laboratory staffed by some of the most capable researchers in the land. The foundation poured resources into this effort, planning on spending down its full endowment in ten years. By 1996, the Diamond Center’s work led to the development of the antiviral “cocktail” that marked a turning point in the effort to control the virus. After ten years of action and $220 million in grants, having helped make the AIDS cocktail possible, the foundation went out of business.8 It is clear that the Diamond Foundation’s commitment saved hundreds of thousands of lives and equally clear that it could never have achieved this without committing all of its assets over a ten-year period. Spending 5 percent per year would have failed. Its approach was heroic—and successful. It could not have worked with only an IV drip of funding.

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Jump-Starting versus Sustaining Fields and Movements In Chapter 15, we mentioned the John M. Olin Foundation’s support for the development of the field of law and economics before closing its doors, as the founder stipulated, a generation after his death. The Whitaker Foundation had supported biomedical engineering since its founding in 1975. In 1991, its governing committee recognized it had reached a crossroads and concluded that the best use of the foundation’s assets would be to establish and strengthen newly formed biomedical engineering departments in universities. The foundation decided to devote all of its assets to this cause and to spend down the entire corpus in fifteen years.9 By the time the Whitaker Foundation closed its doors in 2006, it had put more than $800 million into biomedical engineering.10 The money was used for research, education programs, fellowships, internships, curriculum development, conferences, leadership development, faculty hiring, building construction, collaborations with government and industry, support of professional societies, and international grants and scholarships.11 Whitaker’s investment invigorated this field, transforming biomedical engineering from a fledgling enterprise to a mature field with eighty departments in US universities.12 The Olin and Whitaker Foundations’ concentrated infusion of grants surely had more impact on their objectives than had they spent 5 percent of their endowment annually on these projects. By contrast, the Packard and Hewlett Foundations have sustained the population and environment movements for many decades while maintaining the value of their endowments. The world’s myriad problems are not susceptible to a one-size-fits-all approach.

Perpetuating Institutional Knowledge versus Stagnation Granted that organizations rise and fall and reemerge in different forms, imagine the loss of valuable organizational structure

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and knowledge if one were to arbitrarily shut down General Electric or Toyota, the Boy Scouts or CARE, Harvard or MIT. Institutions like these have indefinite time horizons and tend to be concerned about the future and engage in long-term projects. On the business side, consider GE’s many decades of work on turbine engines, which power jet aircraft and natural gas power plants. Such technologies cannot be developed and brought to market in a decade or even two but require longer-term commitments. Long time horizons and field expertise have contributed to philanthropic successes as well. In Putting Wealth to Work, Joel Fleishman writes: The fact is that the institutional and individual philanthropists who are most effective in achieving beneficial impacts are those who possess a great deal of knowledge about the problem area they wish to tackle. . . . Often they must acquire it by extensive consultation, research, travel, and learning. . . . Those who lack such knowledge and experience tend to be easily swayed to part with their dollars by smooth-talking, charismatic leaders who promise greatly but are able to deliver little.13

Fleishman’s point is nicely illustrated by the Rockefeller Foundation’s pursuit of the Green Revolution, which required deep knowledge of plant science and of farming practices and cultures in dozens of countries. No quick spend down could have gotten there. Nor could it had achieved the Mellon Foundation’s contributions to higher education and culture or the Robert Wood Johnson Foundation’s contributions to health. It also takes time to build an institution’s reputation, which can be a tremendous asset. When the Rockefeller Foundation makes a grant overseas, it sends not only money but also credibility, because the Rockefeller name comes with a de facto mark of quality. So too for the Carnegie Corporation’s grants in international peace and security and MacArthur Foundation’s grants in human rights. The work of these foundations and others described in the

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preceding pages seems to belie the suggestion that perpetual foundations lose their potency and become stagnant over time as leadership passes from entrepreneurial founders to later generations or to directors unrelated to the founder.14 Foundations’ striking lack of accountability—especially when compared to corporations, nonprofits, and universities, which are accountable to investors, donors, students, and others—has, if anything, contributed to their successes. But our examples were not chosen randomly from the approximately ninety thousand US foundations currently in existence. To be blunt, most of these have no institutional knowledge or potency to lose. And though reputations can be local as well as international, most of these foundations deservedly have no reputations. Nor do they expect to, since they are essentially tax-efficient structures for writing personal checks.

Trusting Future Generations versus Binding Them to Your Views You may believe that civilization is in constant danger of backsliding from hard-gained rights and liberties, whether individual autonomy or LGBT rights; or you may believe that cultural traditions, such as Western classical music, are in constant danger of extinction. A permanent foundation supported by a substantial endowment can act as a bulwark to protect these values. But predicting, let alone controlling, the future is an impossible task. The more precisely you specify the foundation’s mission, the more likely it is to be irrelevant in the future. Benjamin Franklin’s will set up a loan fund for married apprentices seeking to establish their own businesses. Girard College was founded in 1833 “for the education of poor white orphan boys.” And a trust established in 1861 was intended “for the benefit of fugitive slaves” and to “put an end to negro slavery in this country.”15 The more broadly you describe the mission, the more leeway future trustees will have to apply its principles in the light of their

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own time and not yours. The conservative commentator Heather Hitchens observes that the trustees of a foundation committed to strengthening the United States might at one time believe that the mission would be served by encouraging immigration and, at another, conclude that it would be served by restricting immigration.16 If you are willing to state a general intention and leave such decisions to the future, then you can rest at least somewhat easy. But the more specific your intentions, the better it may be to spend down your charitable assets in the foreseeable future.

Personal Concerns The factors just mentioned all involve your impact on society. But other factors may also weigh in your decision. Do you want to defer spending down your endowment to permit your children and grandchildren to enjoy the benefits of engaging in philanthropy— and perhaps to hold the family together? If so, for how many generations is this plausible? How do you balance enjoying the act of giving and the attendant acclaim while you’re alive against the hope of being remembered as generous and great when you’re gone? The answers to these questions differ for different individuals, families, sizes of endowments, and other circumstances. Our main point is that spending decisions have personal as well as strategic consequences. Finally, while we have focused on a donor’s decisions when establishing a foundation, the discussion also has implications for the trustees of a foundation whose lifespan was left undefined by its founders. The responsibilities of stewardship do not make perpetuity the default. Rather, a trustee’s duty is to use the donor’s resources wisely to achieve his or her philanthropic goals, and one can violate that duty as readily by failing to spend down the endowment as by protecting it for some future day. The essential lesson of this chapter is that neither spending down nor planning for perpetuity is axiomatically the right answer. The choice should be shaped by your goals and the char-

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acter of the problems you seek to address. If the problem is not growing over time, does not have well-tested solutions, or requires many decades of steady work to affect it, or if you simply have not accumulated the expertise and relationships to be confident in your success, then set a long-term steady payout rate. If the problem is growing exponentially, if there are known solutions, and if you have faith in your decision-making ability, then get the money out in the field now.

Application to Your Philanthropy Given your philanthropic goals and approaches and other interests, what seems the best plan for your philanthropic assets: spending them during your lifetime or conserving them for the future?

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Afterword

THE RESPONSIBILITIES OF STRATEGIC PHILANTHROPY

The brilliant scholar and judge Richard Posner observed, “A perpetual charitable foundation . . . is a completely irresponsible institution, answerable to nobody. It competes neither in capital markets nor in product markets . . . and, unlike a hereditary monarch whom such a foundation otherwise resembles, it is subject to no political controls either.”1 Various justifications have been offered for the broad discretion and tax advantages accorded philanthropy. For example, Kenneth Prewitt and Rob Reich argue that philanthropy promotes pluralism.2 But it is at least odd to rely on a small number of very wealthy people to foster nationwide, let alone global, pluralism. It is likewise odd to ask those who benefit most from the status quo—and let’s face it, that describes most philanthropists—to challenge the status quo. We hope that this book encourages you to be ambitious and risk taking. But your ambitions should be tempered by acknowledgment of the essentially unaccountable power that philanthropists—especially but not only ultra-high-net-worth donors and their foundations—wield in a democratic society.3 Unconstrained political advocacy of the sort exemplified in the case study of Tim Gill and Art Pope in Chapter 15 may seem to pose particular problems.4 But efforts to transform the provi-

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sion of services, for example, by restructuring public school systems,5 also can disrupt existing institutions without providing better alternatives—and the philanthropist can walk away from the damage without bearing the consequences of the Pottery Barn rule: “You break it, you own it.” The eighteenth-century English statesman and philosopher Edmund Burke cautioned that society consists of enormously complex networks of institutions, practices, and relationships beyond the grasp of politicians and policy makers and that heroic efforts to improve matters can have disastrous unanticipated consequences.6 Though you wouldn’t expect the authors of a book on strategic philanthropy to be Burkean conservatives—and we’re not—it would be an error to ignore his insights. Philanthropy has supported some of the nation’s most important—and divisive— social changes, from the civil rights movement to the conservative antiregulatory agenda, from abortion rights to the right to bear arms. The conservative scholar William A. Schambra, a Tocqevillian,7 argues that philanthropy should eschew getting at “root causes” in favor of supporting grassroots community organizations—finding the “unsung community leaders who have particular, concrete ideas about how the neighborhood can be improved, and who can do a great deal with a small grant at a particularly critical time and place.”8 As we have emphasized, however, the distinction between root causes and charity is a false one. Although Schambra’s prescription is sound for some issues or projects, it is wholly inappropriate for others. What matters is impact—achieving your charitable objectives effectively. Sometimes this calls for grassroots work, sometimes for national or global action, sometimes a combination of the two. All of this said, we believe that the extraordinary freedom enjoyed by philanthropists comes with certain responsibilities. We propose four principles. The first two reiterate principles of effective philanthropy discussed throughout the book. The second two are of a different nature. We believe that they are especially crucial at a time when the United States and many other countries

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are highly ideologically polarized. They are born of the belief that contributing to polarization, even when an unavoidable by-product of desirable social change, is harmful to society. First, we cannot overstate the importance of continually listening to your grantees, intended beneficiaries, and other stakeholders to understand their needs and the effects of your philanthropy for better or worse. Second, strategies should be based on the best evidence available and should be updated based on continual feedback. Third, and related, philanthropists and their grantees should be fair and accurate in their public pronouncements. Advocacy inevitably oversimplifies complex matters. As you can tell from this book, we are advocates of advocacy. But we also believe that its arguments should be subjected to a “smell test:” Could you make the claim to an expert’s face without embarrassment? Finally, within reasonable bounds, philanthropists should listen empathetically to those who disagree with their goals and means for achieving them and temper their righteousness with a modicum of humility. If these are the responsibilities of policy makers and even ordinary citizens in a democracy, they are especially important for philanthropists because of the enormous power of their purses, which sometimes match the resources of governments but which are not subject to the constraints that make governments accountable. In sum, philanthropists should not shy away from seeking major social change. But they should undertake their work with appreciation of its empirical uncertainties and complexities, with mindfulness of the potential for collateral damage, and with respect for those on the other side of the issue. That is strategic philanthropy at its best.

Application to Your Philanthropy Do your philanthropic goals or your approaches to achieving them have possible negative consequences for society, and, if so, how should you take them into account?

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ACKNOWLEDGMENTS

We are grateful to the following people for their contributions to the second edition: Bianca Crivellini Eger for multiple edits of various chapters; T. J. Bliss and Cable Green for help on the case study of Open Educational Resources; Christy Chin, Julie Petersen, and Stacey Childress for help on venture philanthropy; Erin Rogers for writing a draft of the study of hydrofluorocarbons; Dean Karlan and Mary Ann Bates for help on evaluation; Mark Kramer for help on collective impact; Elijah Goldberg for help on ImpactMatters; Tim McFlynn for his help on policy litigation; and Emeka Nwosu and Christian Taylor for their work as research assistants. Finally, our sincere thanks for Iris Brest, who commented on, edited, and argued about successive drafts of the manuscript. The Stanford Social Innovation Review and the Chronicle of Philanthropy kindly permitted us to reuse material from these articles: Paul Brest and Kelly Born, “When Can Impact Investing Create Real Impact?”;1 Paul Brest, Ronald Gilson, and Mark Wolfson, “How Investors Can (and Can’t) Create Social Value”;2 Paul Brest, “Up for Debate: Strategic Philanthropy and Its Discontents”;3 and Hal Harvey, “Why I Regret Pushing Strategic Philanthropy.”4 We also note the considerable overlap between Part 2 and Paul Brest’s podcast on “Essentials of Nonprofit Strategy” for Philanthropy University, which were developed at the same time. 5

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NOTES

Preface to the Second Edition 1. Wikipedia contributors, “The Giving Pledge,” Wikipedia: The Free Encyclopedia, last modified October, 20, 2017, https://en.wikipedia.org/wiki /The_Giving_Pledge. 2. “Top Funder: Top 100 U.S. Foundations by Asset Size,” Foundation Center, accessed September 29, 2017, http://www.fcpubhub.net/find funders/topfunders/top100assets.html; “Foundation Source Releases 2017 Report on Grantmaking,” press release, July 2017, https://www.foundation source.com/resources/press-releases/2017-report-on-grantmaking/; Reina Mukai (Foundation Center), e-mail message to Paul Brest, September 15, 2017.

Introduction 1. See Peter Frumkin, Strategic Giving: The Art and Science of Philanthropy (Chicago: University of Chicago Press, 2006). 2. Peter Singer, “What Should a Billionaire Give—and What Should You?,” New York Times Magazine, December 17, 2006.

Chapter 1 1. See, e.g., William MacAskill, Doing Good Better: How Effective Altruism Can Help You Make a Difference (New York: Avery, 2015). 2. “The Giving Code: Silicon Valley Nonprofits and Philanthropy,” Open Impact, accessed September 11, 2017, https://www.openimpact.io /giving-code. 3. For a description of the Giving Pledge, see “A Commitment to Philanthropy,” The Giving Pledge, accessed September 18, 2017, https://giving pledge.org/. The following paragraphs are based on Laura ArrillagaAndreessen and Sarah Murray, “Good Ventures: The Power of Informed Decisions” (Case SI—124, Stanford Graduate School of Business, revised October 3, 2015), https://www.gsb.stanford.edu/gsb-cmis/gsb-cmis-download -auth/389386.

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4. “A Commitment to Philanthropy.” 5. “About Us,” Good Ventures, accessed September 11, 2017, http:// www.goodventures.org/about-us. 6. Cari Tuna, “Key Questions for Every New Donor,” Give & Learn (blog), March 11, 2013, http://www.goodventures.org/research-and-ideas /blog/key-questions-for-every-new-donor (emphasis added). 7. Ibid. 8. Arrillaga-Andreessen and Murray, “Good Ventures.” 9. Joel L. Fleishman, J. Scott Kohler, and Steven Schindler, Casebook for the Foundation: A Great American Secret (New York: PublicAffairs, 2007). 10. David Callahan, The Givers: Wealth, Power, and Philanthropy in a New Gilded Age (New York: Knopf Doubleday, 2017), 21. 11. Benjamin Soskis, Open Philanthropy Project History of Philanthropy Case Study: The Founding of the Center for Global Development (San Francisco: Open Philanthropy Project, 2016), http://files.openphilanthropy.org/files /History_of_Philanthropy/CGD/Case_Study_CGD_Founding.pdf. 12. Kathrine Lorenz, “It’s Time for Grantmakers to Embrace Failure,” Family Giving News (blog), National Center for Family Philanthropy, October 5, 2012, https://www.ncfp.org/blog/2016/sep-embrace-failure. 13. D-Rev, accessed December 22, 2017, http://d-rev.org/. 14. Krista Donaldson, “Failure, Design & Impact,” Design, Entrepreneurship, Product Management, Social Impact (blog), LinkedIn, September 10, 2015, https://www.linkedin.com/pulse/failure-design-impact-krista-donaldson. 15. Quoted in Kathleen Kelly Janus, Social Startup Success: How the Best Nonprofits Launch, Scale Up, and Make a Difference (New York: Da Capo Lifelong Books, 2018), 41. 16. “History of Philanthropy,” Open Philanthropy Project, accessed September 13, 2017, http://www.openphilanthropy.org/research/history-of -philanthropy. 17. This section is based largely on information from Alnoor Ebrahim and Catherine Ross, “The Robin Hood Foundation” (Case 9-310-031, Harvard Business School, January 5, 2012); and Michael Weinstein and Ralph Bradburd, The Robin Hood Rules for Smart Giving (New York: Columbia University Press, 2013). 18. Weinstein and Bradburd, The Robin Hood Rules for Smart Giving. 19. Ibid., 86–87. 20. See Paul Brest, “Strategic Philanthropy and Its Discontents,” Stanford Social Innovation Review, April 27, 2015, https://ssir.org/up_for_debate /article/strategic_philanthropy_and_its_discontents. One might worry, however, that even with Robin Hood’s acknowledgment of the margins of

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error in its benefit/cost calculations, the numbers may carry more weight than is justified. 21. One might be concerned with inequality more broadly, citywide poverty rates, or savings to government programs. 22. The Robin Hood Foundation, Metrics Equations, September 2014, https://robinhoodorg-production.s3.amazonaws.com/uploads/2017/04 /Metrics-Equations-for-Website_Sept-2014.pdf. 23. William LaTouche and Antonia Sunderland, Fighting Back: Community Initiatives to Reduce Demand for Illegal Drugs and Alcohol (Princeton, NJ: Robert Wood Johnson Foundation, 2002), http://www.rwjf.org/content /dam/farm/reports/program_results_reports/2007/rwjf69789. This report was last modified on May 1, 2007. 24. Ibid., 2. 25. This section relies heavily on Benjamin Soskis, BJS Tobacco Report (San Francisco: Open Philanthropy, 2013), http://www.givewell.org/files /DWDA%202009/Tobacco%20Report%20v2.docx. The report is also available at “History of Philanthropy,” Open Philanthropy Project, accessed September 14, 2017, http://www.openphilanthropy.org/research/history-of -philanthropy. 26. Quoted in ibid. 27. “Master Settlement Agreement,” Public Health Law Center, June 2017, http://www.publichealthlawcenter.org/topics/tobacco-control /tobacco-control-litigation/master-settlement-agreement. 28. Robert Wood Johnson Foundation, The Tobacco Campaigns, RWJF Retrospective Series, April 2011, http://www.rwjf.org/content/dam/farm /reports/evaluations/2011/rwjf70005. Paragraphs have been rearranged. 29. “Surgeon General’s Reports on Smoking and Tobacco Use,” Centers for Disease Control and Prevention, last updated December 8, 2016, https://www.cdc.gov/tobacco/data_statistics/sgr/index.htm. 30. Soskis, BJS Tobacco Report. 31. John J. Miller, Strategic Investment in Ideas: How Two Foundations Reshaped America (Washington, DC: Philanthropy Roundtable, 2003), 40–49. 32. Rick Cohen, Strategic Grantmaking: Foundations and the School Privatization Movement (Washington, DC: National Committee for Responsive Philanthropy, 2007), https://www.issuelab.org/resource/strategic-grantmaking -foundations-and-the-school-privatization-movement.html. 33. John E. Chubb and Terry M. Moe, Politics, Markets, and America’s Schools (Washington, DC: Brookings Institution Press, 1990), https://www .brookings.edu/book/politics-markets-and-americas-schools/. 34. Zelman v. Simmons-Harris, 536 U.S. 639 (2002).

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35. Cohen, Strategic Grantmaking, 15. 36. Ibid. 37. Daniel Bice, “Report: Bradley Foundation Has Given $31 Million to School Voucher Backers,” Journal Sentinel, April 19, 2013, http://archive .jsonline.com/newswatch/203790281.html. 38. Paul Perry, “Choice Is Not Enough: What Walton Foundation Is Up to with Its New K–12 Funding Strategy,” Inside Philanthropy, March 27, 2017, https://www.insidephilanthropy.com/home/2017/3/27/walton-family -foundation-k-12-grantmaking. 39. Walton Family Foundation, 2020 K–12 Education Strategic Plan, 4, http://www.waltonfamilyfoundation.org/~/media/documents/k12-strate gic-plan-overview-4222016.pdf?la=en. 40. “Priority Giving Areas,” The Lynde and Harry Bradley Foundation, accessed September 15, 2017, http://www.bradleyfdn.org/What-We-Do /Program-Interests. 41. “Who We Are,” Walton Family Foundation, accessed December 22, 2017, http://www.waltonfamilyfoundation.org/who-we-are. 42. “The Next Stage for School Choice: Supplying the Demand for High-Quality Private Options,” Philanthropy Roundtable, November 15, 2016, http://www.philanthropyroundtable.org/annual/2016_annual_meet ing_preconference. 43. See, e.g., “Understanding the Impact of KIPP as It Scales,” Mathematica 2015 Report, KIPP, http://www.kipp.org/results/independent-reports /#mathematica-2015-report. 44. Wikipedia contributors, “Open Education Resources,” Wikipedia: The Free Encyclopedia, last modified November 13, 2017, https://en.wikipedia .org/wiki/Open_educational_resources. 45. This section draws significantly on T. J. Bliss and Marshall Smith, “A Brief History of Open Educational Resources,” in Open: The Philosophy and Practices That Are Revolutionizing Education and Science, ed. Rajiv Jhangiani and Robert Biswas-Diener (London: Ubiquity Press, 2017), 9–27, https:// doi.org/10.5334/bbc. 46. “Mission and Vision,” Creative Commons, accessed September 15, 2017, https://creativecommons.org/about/mission-and-vision/. 47. “What We Do,” Creative Commons, accessed September 15, 2017, https://creativecommons.org/about/. Paul Brest is a member of the CC board of directors. 48. “Attribution 2.0 Generic (CC BY 2.0),” Creative Commons, accessed September 15, 2017, https://creativecommons.org/licenses/by/2.0/. 49. “Public Access: Frequently Asked Questions,” National Science

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Foundation, accessed September 15, 2017, https://www.nsf.gov/pubs/2016 /nsf16009/nsf16009.jsp#q1l. 50. Bliss and Smith, “A Brief History of Open Educational Resources.” 51. “Open Licensing Resources for Foundations,” Creative Commons, accessed September 15, 2017, https://creativecommons.org/about /program-areas/legal-tools-licenses/legal-tools-licenses-resources /foundations/. 52. Kevin Bolduc, Ellie Buteau, Greg Laughlin, Ron Ragin, and Judith  A. Ross, Beyond the Rhetoric: Foundation Strategy (Cambridge, MA: The Center for Effective Philanthropy, 2007), https://www.issuelab.org /resources/715/715.pdf.

Chapter 2 1. John Dewey, Logic: The Theory of Inquiry (Austin, TX: Holt, Rinehart and Winston, 1938). 2. Charles H. Kepner and Benjamin B. Tregoe, The New Rational Manager (Princeton, NJ: Princeton Research Press, 1981), viii; Gerald P. Lopez, “Lay Lawyering,” UCLA Law Review 32 (1984): 1–2; Allen Newell and Herbert A. Simon, Human Problem Solving (Englewood Cliffs, NJ: Prentice Hall, 1972). 3. Ralph Keeney, Value-Focused Thinking: A Path to Creative Decision Making (Cambridge, MA: Harvard University Press, 1992), 66. 4. Varda Liberman, Steven M. Samuels, and Lee Ross, “The Name of the Game: Predictive Power of Reputations versus Situational Labels in Determining Prisoner’s Dilemma Game Moves,” Personality and Social Psychology Bulletin 30, no. 9 (2004): 1175. 5. “Goal 2: Achieve Universal Primary Education, “ United Nations, September 25, 2008, http://www.un.org/millenniumgoals/2008highlevel /pdf/newsroom/Goal%202%20FINAL.pdf. 6. “Sustainable Development Goals: Goal 4,” United Nations, accessed August 22, 2017, http://www.un.org/sustainabledevelopment/education/. 7. “Number of HIV/AIDS Cases in Sub-Saharan Africa Expected to Greatly Outpace Treatment Resources by 2020,” The National Academies, November 29, 2010, http://www8.nationalacademies.org/onpinews/news item.aspx?RecordID=12991. 8. Wikipedia contributors, “Identifiable Victim Effect,” Wikipedia: The Free Encyclopedia, last modified November 4, 2017, https://en.wikipedia.org /wiki/Identifiable_victim_effect. 9. Center for Effective Philanthropy, “CEO Reflections on the Future of Foundation Philanthropy,” December 2016, 17, http://research.cep.org

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/ceo-reflections-on-the-future-of-foundation-philanthropy?portalId=1615 425&hsFormKey=36317ad009d4d8b1e4f5da29ebeaa531&submissionGuid =3198c7bb-5a47-4829-a957-c697a8887a3f#module_14774085226752127. 10. “Infectious Disease Rates Are High among Homeless People,” News-Medical.net, August 20, 2012, http://www.news-medical.net/news /20120820/Infectious-disease-rates-are-high-among-homeless-people .aspx. 11. James Wright, Beth Rubin, and Joel Levine, Beside the Golden Door: Policy Politics and the Homeless (New York: Aldine de Gruyter, 1998), 164. 12. Wikipedia contributors, “John Snow,” Wikipedia: The Free Encyclopedia, last modified October 15, 2017, https://en.wikipedia.org/wiki/John _Snow.

Chapter 3 1. Ellen Langer, Mindfulness (Boston: Addison Wesley, 1992), 23. 2. Mihaly Csikszentmihalyi, Creativity: Flow and the Psychology of Discovery and Invention (New York: Harper Perennial, 1996), 88. 3. Joel L. Fleishman, J. Scott Kohler, and Steven Schindler, Casebook for the Foundation: A Great American Secret (New York: PublicAffairs, 2007), passim. 4. “Housing First in Permanent Supportive Housing Brief,” Department of Housing and Urban Development, 2014, https://www.hudexchange .info/resources/documents/Housing-First-Permanent-Supportive-Housing -Brief.pdf. 5. What we call an “aspirational outcome” is sometimes called “impact,” but it’s preferable to reserve the term “impact” to mean “making a difference.” 6. Debra J. Rog, Tina Marshall, Richard H. Dougherty, Preethy George, Allen S. Daniels, Sushmita Shoma Ghose, and Miriam E. Delphin- Rittmon, “Permanent Supportive Housing: Assessing the Evidence,” Psychiatric Services 65, no. 3 (2013): 287–94, https://www.coloradocoalition.org/sites /default/files/2017-01/287.pdf. 7. “Madison Initiative,” Hewlett Foundation, accessed December 22, 2017, http://www.hewlett.org/programs/special-projects/madison-initiative. 8. John Kania, Mark Kramer, and Patty Russell, “Strategic Philanthropy for a Complex World,” Stanford Social Innovation Review, Summer 2014, https://ssir.org/up_for_debate/article/strategic_philanthropy. 9. See, e.g., Alnoor Ebrahim, Measuring Social Change: Designing Metrics That Matter (Stanford CA: Stanford University Press, 2018.)

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Chapter 4 1. Human Centered Design Toolkit, 2nd ed. (Palo Alto, CA: IDEO, 2006), 47.

Chapter 5 1. Susan M. Love, “Preventive Medicine, Properly Practiced,” New York Times, July 16, 2002. 2. It may be most appropriate to compare the stability of the fifty existing residents before and after the provision of wrap-around services rather than include the fifty new residents in the “after” group. 3. Mary Kay Gugerty and Dean Karlan, The Goldilocks Challenge: Right Fit Evidence for the Social Sector (New York: Oxford University Press, 2018). 4. Mary Ann Bates and Rachel Glennerster, “The Generalizability Puzzle,” Stanford Social Innovation Review, Summer 2017, https://ssir.org/articles /entry/the_generalizability_puzzle. The vaccination example that follows borrows heavily from their text. 5. Dean Karlan and Jacob Appel, Failing in the Field: What We Can Learn When Field Research Goes Wrong (Princeton, NJ: Princeton University Press, 2016). 6. Abhijit V. Banerjee and Esther Duflo,  Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty (New York: PublicAffairs, 2011). 7. Dean Karlan and Jacob Appel, More Than Good Intentions: How a New Economics Is Helping to Solve Global Poverty (Boston: Dutton Press, 2011). 8. “Nurse-Family Partnership—Top Tier,” Coalition for Evidence-Based Policy, updated June 2014, http://evidencebasedprograms.org/1366-2 /nurse-family-partnership. 9. Katherine Baicker, Mary Ann Bates, Margaret McConnell, Michelle Woodford, and Annetta Zhou, “The Impact of a Nurse Home Visiting Program on Maternal and Child Health Outcomes in the United States,” J-PAL, accessed August 25, 2017, https://www.povertyactionlab .org/evaluation/impact-nurse-home-visiting-program-maternal-and-child -health-outcomes-united-states. 10. David L. Olds, JoAnn Robinson, Ruth O’Brien, Dennis W. Luckey, Lisa M. Pettitt, Charles R. Henderson Jr., Rosanna K. Ng, et al., “Home Visiting by Paraprofessionals and Nurses: A Randomized, Controlled Trial,” Pediatrics 110, no. 3 (2002): 486–96, http://pediatrics.aappublications.org /content/110/3/486.short. 11. Christopher Trenholm, Barbara Devaney, Ken Fortson, Lisa Quay, Justin Wheeler, and Melissa Clark, Impacts of Four Title V, Section 510 Absti-

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nence Education Programs: Final Report (Princeton, NJ: Mathematica Policy Research, 2007). 12. Scott Swenson, “Burying Release of Abstinence Only Report on Friday the 13th Seems Fitting,” Rewire, April 13, 2007, https://rewire.news /article/2007/04/13/burying-release-of-abstinence-only-report-on-friday -the-13th-seems-fitting/. 13. Cheryl L. Perry, Kelli A. Komro, Sara Veblen-Mortenson, Linda M. Bosma, Kian Farbakhsh, Karen A. Munson, Melissa H. Stigler, and Leslie A. Lytle, “A Randomized Controlled Trial of the Middle and Junior High School D.A.R.E. and D.A.R.E. Plus Programs,” Archives of Pediatric and Adolescent Medicine 157 (February 2003): 178–84. 14. Douglas Martin, “Joan McCord, Who Evaluated Anticrime Efforts, Dies at 73,” New York Times, March 1, 2004, http://www.nytimes.com/2004 /03/01/nyregion/joan-mccord-who-evaluated-anticrime-efforts-dies-at-73 .html. 15. Daniel P. Mayer, Paul E . Peterson, David E. Myers, Christina Clark Tuttle, and William G. Howell, School Choice in New York City after Three Years: An Evaluation of the School Choice Scholarships Program (Washington, DC: Mathematica Policy Research, 2002). 16. Note that not every family that was offered vouchers used them. This study, like many social science studies, looks at the effect of the program as a whole, and therefore includes in the treatment group students who were offered vouchers but declined to use them. 17. See Alan Krueger and Pei Zhu, “Another Look at the New York City School Voucher Experiment,” American Behavioral Scientist 47, no. 5 (2003): 658–99; Patrick Wolf, Babette Gutmann, Westat Michael Puma, Lou Rizzo, and Westat Nada Eissa, Evaluation of the DC Opportunity Scholarship Program: Impacts after One Year, Institute of Education Sciences, June 2007, https://ies .ed.gov/ncee/pdf/20074009.pdf. 18. Paul T. Decker, Daniel P. Mayer, and Steven Glazerman, The Effect of Teach for America on Students: Findings from a National Evaluation (Princeton, NJ: Mathematica Policy Research Institute, 2004), https://www.math ematica-mpr.com/our-publications-and-fi ndings/publications/the-effects -of-teach-for-america-on-students-findings-from-a-national-evaluation. 19. Mark Dynarski, Ning Rui, Westat Ann Webber, and Westat Babette Gutmann, Evaluation of the DC Opportunity Scholarship Program: Impacts after One Year, Institute of Education Sciences, June 2017, https://ies.ed.gov /ncee/pubs/20174022/pdf/20174022.pdf. 20. Phillip Gleason, Melissa Clark, Christina Clark Tuttle, and Emily Dwoyer, The Evaluation of Charter School Impacts, an executive summary pre-

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pared for the Institute of Education Sciences, June 2010, https://ies.ed.gov /ncee/pubs/20104029/pdf/20104030.pdf. 21. Center for Research on Educational Outcomes, Urban Charter School Study Report in 41 Regions 2015, accessed August 27, 2017, http://urban charters.stanford.edu/download/Urban%20Charter%20School%20Study %20Report%20on%2041%20Regions.pdf; Karl Zinsmeister, From Promising to Proven: A Wise Giver’s Guide to Expanding on the Success of Charter Schools, Philanthropy Roundtable, accessed December 23, 2017, http://www .philanthropyroundtable.org/guidebook/from_promising_to_proven. 22. Abdul Latif Jameel Poverty Action Lab, “What Can We Learn from Charter School Lotteries in the United States?,” J-PAL Policy Bulletin, May 2017, https://www.povertyactionlab.org/sites/default/fi les/publications /what-can-we-learn-from-charter-school-lotteries.pdf.

Chapter 6 1. “Our Criteria for Top Charities,” GiveWell, accessed August 25, 2017, https://www.givewell.org/how-we-work/criteria. The four criteria are from this source. 2. Wikipedia contributors, “Disability—Adjusted Life Year,” Wikipedia: The Free Encyclopedia, last modified August 17, 2017, https://en.wikipedia .org/wiki/Disability-adjusted_life_year. The DALY is a measure of overall disease burden, expressed as the number of years lost due to ill health, disability, or early death. It was developed in the 1990s as a way of comparing the overall health and life expectancy of people in different countries. The DALY is becoming increasingly common in the field of public health and health impact assessment (HIA). It “extends the concept of potential years of life lost due to premature death . . . to include equivalent years of healthy life lost by virtue of being in states of poor health or disability.” In so doing, mortality and morbidity are combined into a single, common metric. WHO Methods and Data Sources for Global Burden of Disease Estimates 2000–2011, Department of Health Statistics and Information Systems, WHO, Global Health Estimates Technical Paper WHO/HIS/HIS/GHE/2013.4, November 2013, http://www.who.int/healthinfo/statistics/GlobalDALYmethods _2000_2011.pdf. 3. “Our Criteria for Top Charities.” 4. Abhijit V. Banerjee and Esther Duflo, Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty (New York: PublicAffairs, 2011); and other critics. 5. ImpactMatters, accessed December 23, 2017, https://www.impactm .org/. Paul Brest is on the organization’s board of directors.

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6. Michael M. Weinstein, “Measuring Success: How the Robin Hood Foundation Estimates the Impact of Grants,” draft report, Robin Hood Foundation, November 12, 2017, http://readynation.s3.amazonaws.com /docs/ivk/iikmeeting_slides200711weinstein.pdf. 7. Robin Hood’s actual procedures for developing and applying the metrics are much more complex and nuanced than outlined in the text. See Michael Weinstein and Ralph Bradburd, The Robin Hood Rules for Smart Giving (New York: Columbia Business School, 2013). 8. Although the general rubric for this approach is called “cost/benefit analysis,” Robin Hood’s formulation as a “benefit/cost” ratio appropriately places the cost component in the denominator. 9. Alnoor Ebrahim and Catherine Ross, “The Robin Hood Foundation” (Case 9-310-031, Harvard Business School, revised January 5, 2012). 10. “Funding FAQ,” Robin Hood Foundation, accessed August 30, 2017, https://www.robinhood.org/programs/receive-funding/faq/. 11. The William and Flora Hewlett Foundation, Performing Arts Program: Strategic Framework 2012–2017, October 2012, http://www.hewlett.org /uploads/documents/Performing_Arts_Strategic_Framework_October _2012.pdf. 12. The following discussion is based on an unpublished manuscript: Suzanne Adatto and Paul Brest, “The Government Official’s Guide to Payfor-Success Contracting” (2018). These programs are sometimes initially financed by foundations and commercial banks, which provide working capital to the service providers. The investors are repaid by the government to the extent that providers achieve agreed-upon social outcomes. We defer discussing the financing of PFS programs to Chapter 10. 13. State of New York, Center for Employment Opportunities, and Social Finance, “Investing in What Works: ‘Pay for Success’ in New York State: Increasing Employment and Improving Public Safety,” March 2014, http:// socialfinance.org/content/uploads/2015/12/PFSProjectSummary_0314 .pdf. 14. Maryland Department of Legislative Services, Office of Policy Analysis, Evaluating Social Impact Bonds as a New Entry Financing Mechanism: A Case Study on Reentry Programming in Maryland, January 2013, http://mgaleg .maryland.gov/Pubs/BudgetFiscal/2013-Evaluating-Social-Impact-Bonds .pdf. 15. Mathew Eldridge, “How the U.K. Pays for Success,” PFS Perspectives (blog), Urban Institute, May 23, 2016, http://pfs.urban.org/pay-success/pfs -perspectives/how-uk-pays-success. 16. Ivan Barkhorn, Nathan Huttner, and Jason Blau, “Assessing Advo-

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cacy,” Stanford Social Innovation Review, Spring 2013, https://ssir.org/articles /entry/assessing_advocacy. Politicians, their parties, and lobbyists have estimated the odds of success for centuries. 17. Bruce Sievers, “Philanthropy’s Blindspots,” in Just Money: A Critique of Contemporary American Philanthropy, ed. H. Peter Karoff (Boston: TPI Editions, 2004), 132. 18. Ibid., 131–33. 19. Ibid., 133. Along similar lines, and around the same time, Dennis Collins, who had recently retired as president of the James Irvine Foundation, wrote: “‘Hyperrationalism’ and ‘managerialism’ .  .  . appear to be crowding out a more values-driven, mission-centered approach to philanthropy and replacing it with a technically based, efficiency-driven, outcomecentered process. In short, supplanting arts with a pseudoscience that imagines metrics and matrices are reality rather than a set of useful but limited tools.” Dennis Collins, “Art of Philanthropy,” in Karoff, Just Money, 64.

Chapter 7 1. See Wikipedia contributors, “Green Revolution,” Wikipedia: The Free Encyclopedia, last modified August 2, 2017, https://en.wikipedia.org/wiki /Green_Revolution#Political_impact. 2. Martin Morse Wooster, Great Philanthropic Mistakes (Washington, DC: Hudson Institute, 2010). 3. David E. Bloom and Jeffery G. Williamson, “Demographic Transitions and Economic Miracles in Emerging Asia,” World Bank Economic Review 12, no. 3 (1998): 419–55, http://documents.worldbank.org/curated/en /934291468206034843/Demographic-transitions-and-economic-miracles -in-emerging-Asia. 4. Our History,” The Edna McConnell Clark Foundation, accessed September 1, 2017, http://www.emcf.org/about-us/our-history/. 5. “Our Mission,” Gordon and Betty Moore Foundation, accessed September 1, 2017, https://www.moore.org/.

Chapter 8 1. See “What Should Be Included in a Letter of Inquiry?,” Grantspace, accessed September 3, 2017, http://grantspace.org/tools/knowledge-base /Funding-Research/proposal-writing/letters-of-inquiry. 2. These are very similar to the “Charting Impact” questions, discussed in Chapter 16. See Welcome to Charting Impact, GuideStar, accessed September 4, 2017, https://learn.guidestar.org/update-nonprofit-report /charting-impact#questions.

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3. Amy Smith, “Fuel from the Fields Alternative Charcoal,” in Summary of Finalist Proposals—2007 Development Marketplaces (World Bank Group, 2007), 33, http://siteresources.worldbank.org/DEVMARKETPLACE/Re sources/finalistsbook.final.pdf. 4. Ibid. Sentences rearranged. 5. Debra E. Blum, “Checking the Dashboard,” Chronicle of Philanthropy, October 12, 2006. 6. See Building an Organization to Last: Reflections and Lessons Learned from SeaChange, W. K. Kellogg Foundation, July 2003, http://btw.informing change.com/uploads/2009/11/Building-an-Organization-to-Last-Reflec tions-and-Lessons-Learned-from-SeaChange.pdf. Other funders also participated, including the Echoing Green Foundation, the Ewing Marion Kauffman Foundation, and a number of private social investors. 7. Ibid., 8. 8. Edna McConnell Clark Foundation, “Assessing an Organization’s Evidence of Effectiveness,” accessed December 24, 2017, http://www.emcf .org/fileadmin/media/PDFs/emcf_levelsofeffectiveness.pdf. Although the text focuses on the robustness of the organization’s strategy, EMCF’s evolutionary perspective applies to all aspects of the organization. 9. For the practical details of grantmaking, see Barbara Kibbe, Fred Setterberg, and Colburn S. Wilbur, Grantmaking Basics: A Field Guide for Funders (Washington, DC: The Council on Foundations, 2005); Liza Culick, Kristen Godard, and Natasha Terk, The Due Diligence Tool for Use in Pre-grant Assessment (Washington, DC: Grantmakers for Effective Organizations, 2004), https://secf.memberclicks.net/assets/1-Website_Index/4-Resources/Docs /due_diligence_tool_for_grant.pdf. 10. Fay Twersky, Phil Buchanan, and Valerie Threlfall, “Listening to Those Who Matter Most, the Beneficiaries,” Stanford Social Innovation Review, Spring 2013, 40–45, https://ssir.org/articles/entry/listening_to_those _who_matter_most_the_beneficiaries. 11. Funds for Shared Insight, accessed December 24, 2017, http://www .fundforsharedinsight.org/. 12. Threlfall Consulting, Perceptual Feedback: What’s It All About?, Fund for Shared Insight, February 2017, https://static1.squarespace.com /static/53e04ef0e4b0093fa184835b/t/58be3b8d3e00be1c14afd370/14888 62098119/PerceptualFeedback-20170306.pdf. 13. Bill Gates, 2009 Annual Letter from Bill Gates, Bill & Melinda Gates Foundation, January 2009, 11, https://docs.gatesfoundation.org /Documents/2009-bill-gates-annual-letter.pdf. 14. David Marshak, “Why Did the Gates Small-High-School Pro-

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gram Fail?,” Education Week, February 19, 2017, http://www.edweek.org/ew /articles/2010/02/17/22marshak.h29.html. 15. Diane Ravitch, “I Am Puzzled by the Gates Foundation,” Diane Ravitch’s Blog, July 5, 2012, https://dianeravitch.net/2012/07/05/i-am-puzzled-by-the -gates-foundation/. 16. Marshak, “Why Did the Gates Small-High-School Program Fail?” 17. Dale Russakoff, The Prize: Who’s in Charge of America’s Schools? (Boston: Houghton Mifflin Harcourt, 2015). 18. Dale Russakoff, “Schooled,” New Yorker, May 19, 2014, http://www .newyorker.com/magazine/2014/05/19/schooled. 19. Ibid. 20. Andrew Simmons, “Mishandling The Prize,” The Atlantic, September 22, 2015, https://www.theatlantic.com/education/archive/2015/09/the -prize-book-review/406579/. 21. Gates, 2009 Annual Letter, 11. 22. Mark Zuckerberg, “Today Priscilla and I Are Announcing a $120 Million Commitment to Support High Quality Public Schools for Underserved Communities in the Bay Area,” Facebook, May 29, 2014, https://www .facebook.com/zuck/posts/10101450121376931. 23. “Grantee and Applicant Perception Reports,” Center for Effective Philanthropy, accessed September 9, 2017, http://cep.org/assessments /grantee-and-applicant-perception-reports/.

Chapter 9 1. Nancy Roob, e-mail message to Paul Brest, January 22, 2008. During the period discussed in the text, Michael Bailin was president of EMCF. 2. Laura Arrillaga-Andreessen and Victoria Chang, “Thomas and Stacey Sieble Foundation and the Meth Project” (Case SI-114, Graduate School of Business, Stanford University, October 2, 2009), https://www.gsb .stanford.edu/gsb-cmis/gsb-cmis-download-auth/353851. 3. Ed Kemmick, “Montana Meth Project’s Claims under Scrutiny,” Missoulian, July 5, 2009, http://missoulian.com/news/local/montana-meth -project-s-claims-under-scrutiny/article_82ca9616-7326-5296-9aff-211b2bd 6bfda.html; Lucy Tompkins, “Evaluating the Effectiveness of the Montana Meth Project,” Montana Kaimin, November 16, 2016, http://www.montana kaimin.com/news/evaluating-the-effectiveness-of-the-montana-meth -project/article_39f61954-ac5a-11e6-b695-bfd686efc470.html. 4. The F. B. Heron Foundation: Core Support, 2006, https://www.issuelab .org/resources/5716/5716.pdf. 5. Paul Nieuwenhuis, “How This Clean Air NGO Caught Volkswagen

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Cheating Emissions Test,” Fortune, September 23, 2015, http://fortune.com /2015/09/23/volkswagen-carbon-emissions-scandal/. 6. What Is General Operating Support and Why Is It Important?, Grantmakers for Effective Organizations, May 29, 2014, 4, https://www.geofunders.org /resources/what-is-general-operating-support-and-why-is-it-important-678. 7. Institute for Nonprofit Organization Management–University of San Francisco, General Operating Support: Research on Grantmaker Policies and Practices (San Francisco: Institute for Nonprofit Organization Management, 2006), 16. 8. Judy Huang, Phil Buchanan, and Ellie Buteau, In Search of Impact: Practices and Perceptions in Foundations’ Provision of Program and Operating Grants to Nonprofits (Cambridge, MA: Center for Effective Philanthropy, 2006), 15. 9. GEO Action Guide, “Leading Change: Transforming Grantmaker Practices for Improved Nonprofit Results,” draft report, Grantmakers for Effective Organizations, Washington DC, October 8, 2007. 10. Huang, Buchanan, and Buteau, In Search of Impact, 19. 11. Heron Foundation, Core Support. 12. Neil F. Carlson, “Making Evaluation Work,” Youth Development Fund Learning Series #2 (New York: Edna McConnell Clark Foundation, January 2003), http://gife.issuelab.org/resource/making-evaluation-work.html. 13. Ann Goggins Gregory and Don Howard, “The Nonprofit Starvation Cycle,” Stanford Social Innovation Review, Fall 2009, https://ssir.org/articles /entry/the_nonprofit_starvation_cycle. 14. Jeri Eckhart-Queenan, Michael Etzel, and Sridhar Prasad, “PayWhat-It-Takes Philanthropy,” Stanford Social Innovation Review, Summer 2016, https://ssir.org/up_for_debate/article/pay_what_it_takes_philanthropy. 15. Ibid. 16. Darren Walker, “Moving the Ford Foundation Forward,” Equals Change Blog, Ford Foundation, November 8, 2015, https://www.fordfoundation.org /ideas/equals-change-blog/posts/moving-the-ford-foundation-forward/. 17. The Overhead Myth, accessed September 8, 2017, http://overhead myth.com/; “Independent Sector Releases Guidelines For Funding of Nonprofits,” Philanthropy News Digest, April 12, 2004, http://philanthropynews digest.org/news/independent-sector-releases-guidelines-for-funding-of -nonprofits. 18. Charity Navigator, accessed September 8, 2017, https://www.charity navigator.org/. 19. “How Do We Rate Charities’ Financial Health?,” Charity Navigator, last modified June 1, 2016, https://www.charitynavigator.org/index.cfm ?bay=content.view&cpid=35.

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20. Uri Gneezy, Elizabeth A. Keenan, and Ayelet Gneezy, “Avoiding the Overhead Aversion in Charity,” Science 346, no. 6209 (2014): 632–35, http:// rady.ucsd.edu/docs/Science-2014-Gneezy-632-5.pdf. 21. “The 100% Model,” Charity: Water, accessed September 8, 2017, https://www.charitywater.org/our-approach/100-percent-model/. 22. Niki Jagpal and Kevin Laskowski, The State of General Operating Support (Washington, DC: National Committee for Responsive Philanthropy, 2012), https://www.ncrp.org/wp-content/uploads/2016/11/Philanthropic Landscape-StateofGeneralOperatingSupport.pdf.

Chapter 10 1. Paul Brest and Kelly Born, “Unpacking the Impact in Impact Investing,” Stanford Social Innovation Review, August 14, 2013, https://ssir.org /articles/entry/unpacking_the_impact_in_impact_investing. 2. Kiva, accessed December 25, 2017, https://www.kiva.org/. Kiva does not charge interest, and when the borrower repays a loan, the lender gets back only the principal. Kiva does not charge any fees, and 100 percent of the funds lent on Kiva go to funding loans. 3. Michael McCreless, “Toward the Efficient Impact Frontier,” Stanford Social Innovation Review, Winter 2017, 49–53, https://ssir.org/articles/entry /toward_the_efficient_impact_frontier. 4. Matt Bannick and Paula Goldman, “Do No Harm: Subsidies and Impact Investing,” Stanford Social Innovation Review, September 28, 2012, https:// ssir.org/articles/entry/do_no_harm_subsidies_and_impact_investing. 5. “Program-Related Investments,” IRS, last updated September 19, 2017, https://www.irs.gov/charities-non-profits/private-foundations/program -related-investments. 6. Any principal returned from a PRI must be regranted within a year; any income is treated in the same manner as income from regular investments. 7. Wikipedia contributors, “Bottom of the Pyramid,” Wikipedia: The Free Encyclopedia, last modified August 24, 2017, https://en.wikipedia.org /wiki/Bottom_of_the_pyramid. The bottom of the pyramid, bottom of the wealth pyramid, or income pyramid is the largest but poorest socioeconomic group. In global terms, this includes the 2.7 billion people who live on less than $2.50 a day. 8. Paul Brest, “Investing for Impact with Program-Related Investments,” Stanford Social Innovation Review, Summer 2016, 19–27, https://ssir.org /articles/entry/investing_for_impact_with_program_related_investments. 9. Dennis Price, “Banking on the Poor,” Stanford Social Innovation Review, Summer 2016, https://ssir.org/articles/entry/banking_on_the_poor.

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10. Bridges Fund Management, “Our Thematic Approach Drives Value throughout the Investment Cycle,” accessed December 25, 2017, http:// www.bridgesfundmanagement.com/us/our-approach/. 11. IRIS (Impact Reporting and Investments Standards), accessed December 25, 2017, https://iris.thegiin.org/. 12. IRIS (Impact Reporting and Investment Standards), factsheet, accessed September 8, 2017, https://iris.thegiin.org/assets/files/IRIS%20 Factsheet%20August%202014.pdf. 13. “GIIRS Funds,” B Analytics, accessed September 8, 2017, http:// b-analytics.net/giirs-funds. 14. V. Kasturi Rangan and Sarah Appleby, “Bridges Ventures” (Case 514001-PDF-ENG, Harvard Business School, Harvard University, June 14, 2014). 15. Ibid. (emphasis added). 16. As distinguished from redounding to the benefit of other equity shareholders. 17. See also Paul Brest, Ronald Gilson, and Mark Wolfson, “How Investors Can (and Can’t) Create Social Value,” Stanford Social Innovation Review, December 8, 2016, https://ssir.org/up_for_debate/article/how_investors _can_and_cant_create_social_value. 18. Under special circumstances, one might achieve investment impact by purchasing stock directly from a company. See, e.g., David Bank and Dennis Price, “Returns on Investment,” Stanford Social Innovation Review, Summer 2016, https://ssir.org/articles/entry/returns_on_investment. 19. Brest, Gilson and Wolfson, “How Investors Can (and Can’t) Create Social Value.” 20. Charles Ewald, Heidi Patel, and Jackie Foroughi, “The F. B. Heron Foundation: All Investing Has Impact” (Stanford GSB Case, 2018). 21. Matt Bannick, Paula Goldman, Michael Kubzansky, and Yasemin Saltuk, “Across the Returns Continuum,” Stanford Social Innovation Review, Winter 2017, https://ssir.org/articles/entry/across_the_returns_continuum. 22. Skopos Impact Fund and Bridges Impact +, More Than Measurement: A Practitioner’s Journey to Impact Measurement, October 2016, http://www .bridgesfundmanagement.com/wp-content/uploads/2017/02/Bridges -Skopos-More-than-Measurement-screen-view.pdf. 23. The following analysis is based on Michael McCreless, “Toward the Efficient Impact Frontier,” Stanford Social Innovation Review, Winter 2017, 49– 53, https://ssir.org/articles/entry/toward_the_efficient_impact_frontier. 24. See Generation, accessed September 11, 2017, https://www.genera tionim.com/.

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25. Sustainability Accounting Standards Board (SASB), accessed September 8, 2017, https://www.sasb.org/. 26. Ceres, accessed September 8, 2017, https://www.ceres.org/. 27. George Serafeim and Sakis Kotsantonis, “ExxonMobil’s Shareholder Vote Is a Tipping Point for Climate Issues,” Harvard Business Review, June 7, 2017, https://hbr.org/2017/06/exxonmobils-shareholder-vote-is-a-tipping -point-for-climate-issues. 28. Jyothika Grewal, George Serafeim, and Aroon Yoon, “Shareholder Activism on Sustainability Issues,” Harvard Business School Working Paper, No. 17-003, July 2016, https://dash.harvard.edu/handle/1/27864360; see also Cheryl Phillips, “Sarah Soule: How Corporate Activism Alters Companies,” Insights by Stanford Business, January 5, 2015, https://www.gsb.stanford .edu/insights/sarah-soule-how-corporate-activism-alters-companies. 29. Bain Capital made its first Double Impact investments in July 2017. It invested in Living Earth, the largest commercial recycler of organic landscaping materials in Texas, and in Impact Fitness, an enterprise pursuing a mission-driven approach to promoting healthy lifestyles in underserved communities. “Vision,” The Rise Fund, accessed September 9, 2017, http:// therisefund.com/. 30. Brest, Gilson, and Wolfson, “How Investors Can (and Can’t) Create Social Value.” 31. See, e.g., Accountability Counsel, https://www.accountabilitycounsel .org/. Accessed February 10, 2018; Morgan Simon, Real Impact: The New Economics of Social Change (New York: Nation Books, 2017)

Chapter 11 1. Lucy Bernholz, Creating Philanthropic Markets: The Deliberate Evolution (New York: Wiley, 2004). 2. “Blue Meridian Partners,” The Edna McConnell Clark Foundation, accessed September 17, 2017, http://www.emcf.org/our-strategies/blue -meridian-partners/. 3. “Structure: How We Work,” Bright Funds Foundation, accessed September 17, 2017, https://www.brightfundsfoundation.org/structure. Paul Brest is on the foundation’s advisory board. 4. SVP International (Social Venture Partners), accessed September 17, 2017, http://www.socialventurepartners.org/. 5. “Warren Buffett: The Gift,” Charlie Rose, July 7, 2006, https://charlie rose.com/videos/18066. 6. “Donor Partners,” Draper Richards Kaplan, accessed September 17, 2017, http://www.drkfoundation.org/about/donor-partners/.

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7. “Our Work,” The Philadelphia Foundation, accessed September 19, 2017, https://www.philafound.org/OurWork/Overview.aspx. 8. Hawai‘i Community Foundation, accessed September 19, 2017, https://www.hawaiicommunityfoundation.org/home17. 9. We are grateful to Erin Rogers, program officer in environment at the William and Flora Hewlett Foundation, for this description. The collaborating funders are Laura and John Arnold, Barr Foundation, Josh and Anita Bekenstein, Children’s Investment Fund Foundation, ClimateWorks Foundation, John and Ann Doerr, Bill Gates, Heising-Simons Foundation, Hewlett Foundation, MacArthur Foundation, Oak Foundation, Open Philanthropy Project, Packard Foundation, Pisces Foundation, Sandler Foundation, Seachange Foundation, Tom Steyer, and Wyss Foundation. In addition, Jamshyd Godrej, chair of the Shakti Sustainable Energy Foundation, pledged $1 million to be spent in India. 10. John Kania and Mark Kramer, “Collective Impact,” Stanford Social Innovation Review, Winter 2011, 36–41, http://www.ssireview.org/articles /entry/collective_impact. 11. Strive Partnership, “2011 Partnership Report,” accessed December  25, 2017, http://www.strivepartnership.org/sites/default/files/2011 StrivePartnershipReportCard.pdf. 12. Meg Long, Equal Measure.org., e-mail message to Paul Brest, August 26, 2017. 13. The Magnolia Community Initiative, intended to improve children’s well-being in a poor Los Angeles community, provides a sad example of an inadequate collective-impact strategy. See Paul Brest and Debra Schifrin, “Magnolia Community Initiative: A Network Approach to Population-Level Change” (Case SM 226, Stanford Graduate School of Business, March  12, 2014), https://www.gsb.stanford.edu/faculty-research /case-studies/magnolia-community-initiative-network-approach-popula tion-level-change. 14. See, e.g., “Initiative Directory,” Collective Impact Forum, accessed December 25, 2017, https://www.collectiveimpactforum.org/initiatives; see also Michele Jolin, Paul Schmitz, and Willa Seldon, “Needle-Moving Community Collaboratives: A Promising Approach to Addressing America’s Biggest Challenges,” Insights (blog), The Bridgespan Group, February 6, 2012, https://www.bridgespan.org/insights/initiatives/transformative-scale /needle-moving-community-collaborative-s-a-promisin. 15. Larry Kramer, “Collaborative and ‘Diffuse Reciprocity,’” Stanford Social Innovation Review, April 25, 2014, https://ssir.org/articles/entry /collaboration_and_diffuse_reciprocity. 16. Prudence Brown and Leila Fiester, Hard Lessons about Philan-

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thropy & Community Change from the Neighborhood Improvement Initiative (Menlo Park, CA: William and Flora Hewlett Foundation, March 2007), http://w w w.hewlett.org/NR/rdonlyres/6D05A0B4 -D15E- 47FA-B62E -917741BB9E72/0/HewlettNIIReport.pdf. Paul Brest was president of the foundation during much of the period covered. 17. Ibid., 13, 11. 18. The Peninsula Community Foundation has since merged with Community Foundation Silicon Valley to become the Silicon Valley Community Foundation. 19. Brown and Fiester, Hard Lessons. 20. Kerry A. Dolan, “Big Bet Philanthropy: How More Givers Are Spending Big and Taking Risks to Solve Society’s Problems,” Forbes, November 30, 2016, https://www.forbes.com/sites/kerryadolan/2016/11/30 /big-bet-philanthropy-solving-social-problems/#2b16af5379c5. 21. The underlying research for the articles is being conducted by the Bridgespan Group, whose initial article on the topic was published in the Stanford Social Innovation Review. Williams Foster, Gail Perreault, Alison Powel, and Chris Addy, “Making Big Bets for Social Change,” Stanford Social Innovation Review, Winter 2016, 26–35, https://ssir.org/articles/entry /making_big_bets_for_social_change. 22. Larry Kramer, “Against ‘Big Bets,’” Stanford Social Innovation Review, Summer 2017, https://ssir.org/articles/entry/against_big_bets. 23. Ibid. 24. Ibid. 25. Marla M. Capozzi, Stephanie M. Lowell, and Les Silverman, “Knowledge Management Comes to Philanthropy,” McKinsey Quarterly, June 2003, http://ictkm.cgiar.org/Newsletter/McKinsey%20Quarterly.htm. 26. Ibid. 27. Ellie Buteau, Jennifer Glickman, Mathew Leiwent, and Chris Loh, Sharing What Matters: Foundation Transparency (Cambridge, MA: Center for Effective Philanthropy, 2016), http://research.effectivephilanthropy.org /sharing-what-matters-foundation-transparency. 28. “Program Results Report,” Robert Wood Johnson Foundation, accessed December 25, 2017, https://www.rwjf.org/en/library/collections /program-results-reports.html. 29. “How We Work,” Robert Wood Johnson Foundation, accessed December 25, 2017, http://www.rwjf.org/pr. 30. “How Can We Accomplish as Much Good as Possible?,” Open Philanthropy Project, accessed September 19, 2017, http://www.openphilanthropy .org/. 31. Glasspockets, accessed December 25, 2017, http://glasspockets.org/.

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32. This section draws significantly on Paul Brest, “A Decade of Outcome- Oriented Philanthropy,” Stanford Social Innovation Review, Spring 2012, 42–47, https://ssir.org/articles/entry/a_decade_of_outcome _oriented_philanthropy. 33. Paul Brest is a faculty co-director of Stanford PACS, which publishes Stanford Social Innovation Review. 34. HistPhil, accessed December 25, 2017, https://histphil.org/. 35. Paul Brest is one of the center’s faculty co-directors. 36. Paul Brest is a board member of ImpactMatters.

Chapter 12 1. See “Understanding Impact-Driven Philanthropy,” accessed December 25,2017, https://cdn.givingcompass.org/wp-content/uploads/2017/10 /21160854/Impact-driven-Philanthropy.pdf. The Impact-Driven Philanthropy Principles and Practices, 2017, are published under a CC0 license; see “Public Domain Dedication,” Creative Commons, accessed December 25, 2017, https://creativecommons.org/publicdomain/zero/1.0/. Some headings have been omitted and stylistic changes made.

Part 4 1. See Everett M. Rogers, Diffusion of Innovations, 5th ed. (New York: Free Press, 2003).

Chapter 13 1. Everett M. Rogers, Diffusion of Innovations, 5th ed. (New York: Free Press, 2003). 2. Science, December 10, 1886, 543, quoted by Henry John Stephen Smith, as documented in Fred Shapiro, Yale Book of Quotations (New Haven, CT: Yale University Press, 2006), 715, https://books.google.com/books ?id=ck6bXqt5shkC&pg=PA715&lpg=PA715&dq=mathematical+society+of +england+toast&source=bl&ots=oD8aTBna1j&sig=H5tHKY8Lj4aKkZvqa 0m-1rZZF_A&hl=en&sa=X&ved=0ahUKEwjOspn5qLf WAhUqqlQKHY0 NAPsQ6AEIKDA A#v=onepage&q=mathematical%20society%20of%20 england%20toast&f=false. 3. Note that indeterminate outcomes do not inevitably entail indeterminate strategies. For example, academia has a set of procedures—including academic freedom, sabbaticals, tenure, and peer review—designed to foster creativity and assess the value of its outcomes, even though no one can specify those outcomes in advance. 4. One could tell similar stories about universities outside the United States, which tend to rely more on government support than private philan-

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thropy: for example, Amartya Sen’s work on development economics; Albert Fert’s and Peter Gruenberg’s basic research on magnetoresistance (for which they won the 2007 Nobel Prize in Physics), which led to technologies for putting large amounts of information on the small hard drives used in laptops and iPods; and work leading up to the discovery of DNA. See Tore Frängsmyr, ed., “Amartya Sen: Biography,” in Les Prix Nobel: The Nobel Prizes 1998 (Stockholm: Nobel Foundation, 1999), http://nobelprize.org/nobel _prizes/economics/laureates/1998/sen-autobio.html; John Johnson Jr., “Europeans Share Nobel in Physics,” SFGate, October 10, 2007, http://www .sfgate.com/science/article/Europeans-share-Nobel-2536098.php. Most of the research conducted on DNA over the years occurred at universities, from the teams of James Watson and Francis Crick and Rosalind Franklin and Maurice Wilkins at Cambridge to Linus Pauling at Caltech. See Ralf Dahm, “Discovering DNA: Friedrich Miescher and the Early Years of Nucleic Acid Research,” Human Genetics 122, no. 6 (2008): 565–81, http:// www.ncbi.nlm.nih.gov/sites/entrez?Db=pubmed&Cmd=ShowDetailView &TermToSearch=17901982&ordinalpos=1&itool=EntrezSystem2.PEntrez .Pubmed.Pubmed_ResultsPanel.Pubmed_RVAbstractPlus. 5. “MIT Professor Claude Shannon Dies; Was Founder of Digital Communications,” MIT News Office, February 27, 2001, http://web.mit.edu/news office/2001/shannon.html. 6. Elizabeth Fee and Theodore M. Brown, “Michael S. Gottlieb and the Identification of AIDS,” American Journal of Public Health 96, no. 6 (2006): 982–83, http://www.ajph.org/cgi/content/extract/96/6/982. 7. Abraham Flexner, The Usefulness of Useless Knowledge (Princeton, NJ: Princeton University Press, 2017). This reprinted a 1938 essay with the same title from Harper’s Magazine. 8. “Our Mission,” Science Philanthropy Alliance, accessed September 22, 2017, http://www.sciencephilanthropyalliance.org/our-mission/. 9. Through at least the mid-nineteenth century, support came from the church and from patrons (who did not get tax deductions—or, for that matter, pay taxes) ranging from the Medici family to Prince Esterhazy, in whose castle Franz Joseph Haydn composed. While the artists had responsibilities to meet—Bach had to write a cantata for each Sunday’s church service— and often had specific commissions, their patrons left them plenty of time to follow their own inspirations. 10. Kristopher Monroe, “ProPublica Seeks to Diversify Its Funding Sources,” Inside Philanthropy, September 27, 2013, https://www.inside philanthropy.com/journalism/2013/9/27/propublica-seeks-to-diversify-its -funding-sources.html?rq=propublica. 11. Lucy Westcott, “The Stoves Used by Millions in Emerging Countries

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Are a Silent Killer,” Newsweek, November 20, 2014, http://www.newsweek .com/stoves-used-millions-developing-countries-are-silent-killer-285969. 12. “The Clean Cooking Catalog: Product and Performance Data for the Cookstove Sector,” Global Alliance for Clean Cookstoves, accessed September 22, 2017, http://catalog.cleancookstoves.org/. 13. A philanthropist interested in making a smaller investment in research will do well to align herself with a larger funder who has a peerreview process in place. If the larger funder has already made the investment to understand critical-path research requirements, it can share that information at little or no cost and with great benefit. 14. “About,” Global Alliance For Clean Cookstoves, accessed September 22, 2017, http://cleancookstoves.org/about/. 15. Global Alliance for Clean Cookstoves and D-lab, Handbook for Biomass Cookstove Research, Design and Development, July 25, 2017, http://clean cookstoves.org/resources/517.html. 16. The following discussion of human-centered design draws on Paul Brest, Nadia Roumani, and Jason Bade, Problem Solving, Human-Centered Design, and Strategic Processes (Stanford, CA: Stanford Center on Philanthropy and Civil Society, 2015), https://pacscenter.stanford.edu/2015/09 /problem-solving-human-centered-design-and-strategic-processes/. 17. In the context of HCD, “empathy” means cognitive empathy—knowing how a stakeholder feels, thinks, behaves, and perceives the world—as distinguished from compassionate empathy. 18. See Michael Callen, Adnan Khan, Asim I. Khwaja, Asad Liaqat, and Emily Myers, “These 3 Barriers Make It Hard for Policymakers to Use the Evidence That Development Researchers Produce,” Washington Post, August  13, 2017, https://www.washingtonpost.com/news/monkey-cage/wp /2017/08/13/these-3-barriers-make-it-hard-for-policymakers-to-use-the -evidence-that-development-researchers-produce/?utm_term=.4cd5634d0 912&wpisrc=nl_cage&wpmm=1. 19. Richard H. Thaler and Cass R. Sunstein, Nudge: Improving Decisions about Health, Wealth, and Happiness (New Haven, CT: Yale University Press, 2008). 20. The Diva Centres, “This Manicure Might Just Save Her Life,” IDEO. org, accessed September 22, 2017, https://www.ideo.org/project/diva -centres; “Divine Divas,” accessed January 8, 2018, http://award.designto improvelife.dk/nomination/762. 21. The IDEO.org team also gave each of the contraceptive methods a personality type (e.g., the Pill for the Perfectionist, IUD for the Superwomen, etc.), based on the insight that young women in urban Zambia en-

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joy taking personality quizzes in teen magazines and might better relate to the contraceptive products if framed in this way. See “This Manicure Might Just Save Her Life,” accessed January 10, 2018, https://www.ideo.org /project/diva-centres. 22. Paul Brest, Nadia Roumani, and Jason Bade, Problem Solving, Human-Centered Design, and Strategic Processes, Stanford PACS, October 19, 2015, https://pacscenter.stanford.edu/publication/problem-solving-human -centered-design-and-strategic-processes/. IDEO also prototyped a party, where girls played a game that taught them about birth control, and group workshops that depended on peer-to-peer engagement. 23. See Dava Sobel, Longitude: The True Story of a Lone Genius Who Solved the Greatest Scientific Problem of His Time (New York: Walker, 1996). 24. “Feynman Grand Prize,” Foresight Institute, accessed December 24, 2017, http://www.foresight.org/GrandPrize.1.html; “The New Wave of Energy Efficient Refrigerator,” Ecomall, accessed December 24, 2017, http:// www.ecomall.com/greenshopping/icebox2.htm. 25. XPRIZE, accessed September 23, 2017, http://www.xprize.org. 26. “Search Results—Competitions,” Ashoka, accessed September 23, 2017, https://www.ashoka.org/en/search/competition. 27. “Digital Media and Learning Competition Awards 11 Projects,” MacArthur Foundation, September 13, 2016, https://www.macfound.org/press /from-field/digital-media-and-learning-competition-awards-11-projects/. 28. Much of this discussion is drawn from Thomas Kalil, “Prizes for Technological Innovation,” Brookings Institution, December 2006. http://209.240.81.218/fi les/downloads_and_links/Prizes_for_Technologi cal_Innovation.pdf. 29. The Goldman Environmental Prize, accessed September 23, 2017, http://www.goldmanprize.org. 30. To be tax deductible, a prize must be administered through a foundation or through a grant to a school or other nonprofit organization. If you do it through a foundation, the procedure must be approved in advance by the Treasury as meeting the IRS requirements for making grants to individuals, which include running objective nominations and selections processes. See Internal Revenue Service, Instruction for Guide Sheet for Advance Approval of Individual Grant Procedure, accessed December 24, 2017, http://www.irs.gov/pub/irs-tege/4945_g__guide_sheet_instructions .pdf. 31. Elisabeth Bumiller, “Research Groups Boom in Washington,” New York Times, January 30, 2008, http://www.nytimes.com/2008/01/30 /washington/30tank.html?_r=2&ref=us&oref=slogin&oref=slogin.

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32. See, e.g., David Callahan, The Givers: Wealth, Power and Philanthropy in a New Gilded Age (New York: Knopf Borzoi Books, 2017). 33. The Heritage Foundation, accessed September 23, 2017, http:// www.heritage.org/. 34. Center for American Progress Action Fund, accessed September 23, 2017, https://www.americanprogressaction.org/; Wikipedia contributors, “Heritage Action,” Wikipedia: The Free Encyclopedia, last modified November 13, 2017, https://en.wikipedia.org/wiki/Heritage_Action. 35. See Phil Cubeta, “Philanthropy as a Field of Practice,” Gift Hub (blog), November 23, 2015, http://www.gifthub.org/2005/11/philanthropy _as.html; Howard Gardner, Mihaly Csikszentmihalyi, and William Damon, Good Work: When Excellence and Ethics Meet (New York: Basic Books, 2001). 36. “Some Case Studies in Early Field Growth,” Open Philanthropy, updated August 2017, http://www.openphilanthropy.org/research/history-of -philanthropy/some-case-studies-early-field-growth. 37. For more information on St. Christopher’s Hospice, see http://www .stchristophers.org.uk/. 38. “The Hospice Experiment: Florence Ward,” American RadioWorks, accessed September 23, 2017, http://americanradioworks.publicradio.org /features/hospice/a4.html. 39. Scott Kohler, “Hospice Care Movement: The Commonwealth Fund 1974,” in Casebook for the Foundation: A Great American, by Joel Fleishman, J.  Scott Kohler, and Steven Schindler (New York: PublicAffairs, 2007), http://cspcs.sanford.duke.edu/sites/default/files/descriptive/hospice_care _movement.pdf. 40. Wikipedia contributors, “Florence Wald,” Wikipedia: The Free Encyclopedia, last edited December 17, 2017, https://en.wikipedia.org/wiki /Florence_Wald. 41. Kohler, “Hospice Care Movement.” 42. Ibid. 43. Wikipedia contributors, “Florence Wald.” 44. For more information, see the Commonwealth Fund, accessed December 24, 2017, http://www.commonwealthfund.org. 45. Scott Kohler, “Care at the End of Life,” in Fleishman, Kohler, and Schindler, Casebook for the Foundation, http://cspcs.sanford.duke.edu/sites /default/files/descriptive/care_at_the_end_of_life.pdf. 46. Ibid. 47. See Matthew Connelly, Fatal Misconception: The Struggle to Control World Population (Cambridge, MA: Harvard University Press, 2008).

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Chapter 14 1. Fiona Lambe, Marie Junisoo, Carrie Lee, and Oliver Johnson, “Can Carbon Finance Transform Household Energy Markets? A Review of Cookstove Projects and Programs in Kenya,” Energy Research & Social Science 5 (January 2015): 55–66, http://www.sciencedirect.com/science/article/pii /S2214629614001467. 2. Everett M. Rogers, Diffusions of Innovation, 5th ed. (New York: Free Press, 2003), 1–5. 3. Ibid., 107–9. 4. Ibid., 380. 5. Much of this section is based on Jason Bade, Paul Brest, and Piyush Tantia, “Behavioral Strategies to Improve People’s Lives” (manuscript in progress). 6. R. J. Reynolds Tobacco Co. v. FDA , 696 F.3d 1205 (D.C. Cir. 2012). 7. Richard H. Thaler and Case R. Sunstein, Nudge (New York: Penguin Books, 2009). 8. See stickK.com, accessed September 26, 2017, https://www.stickk .com/. 9. Quoted in Richard H. Thaler, Misbehaving: The Making of Behavioural Economics (New York: W. W. Norton, 2015). 10. Hunt Allcott and Sendhil Mullainathan, “Behavior and Energy Policy,” Science 327, no. 5970 (2010): 1204; Paul J. Ferrarro and Michael K. Price, “Using Non-pecuniary Strategies to Influence Behavior: Evidence from a Large Scale Experiment,” National Bureau of Economic Research Working Paper No. 17189, 2011, http://www.nber.org/papers/w17189. 11. Kevin A. Volpp, Andrea B. Troxel, Mark V. Pauly, Henry A. Glick, Andrea Puig, David A. Asch, Robert Galvin, et al., “A Randomized, Controlled Trial of Financial Incentives for Smoking Cessation,” New England Journal of Medicine 360 (2009): 699–709. 12. See Uri Gneezy and Aldo Rustichini, “A Fine Is a Price,” Journal of Legal Studies 29, no. 1 (2000): 1–17. 13. Kyle  Rozema  and  Nicolas R.  Ziebarth, “Taxing Consumption and the Take-Up of Public Assistance: The Case of Cigarette Taxes and Food Stamps,” Journal of Law and Economics  60, no.  1 (2017): 1–27, https://doi .org/10.1086/692072. 14. Best for Babes, accessed December 24, 2017, http://www.bestfor babes.org/. 15. Wikipedia contributors, “Don’t Mess with Texas,” Wikipedia: The Free Encyclopedia, last modified September 27, 2017, http://en.wikipedia.org /wiki/Don’t_Mess_with_Texas.

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16. B. L. Philipp, A. Merewood, L. W. Miller, N. Chawla, M. M. MurphySmith, J. S. Gomes, S. Cimo, and J. T. Cook, “Baby-Friendly Hospital Initiative Improves Breastfeeding Initiation Rates in a US Hospital Setting,” Pediatrics 108, no. 3 (2001): 766–81; also see New York City Health and Hospital Corporation, “NYC Public Hospitals Eliminate Baby Formula Giveaways, Ban Promo Materials in Labor Units to Encourage Breastfeeding,” press release no. 20070731, July 31, 2007, http://www.nyc.gov/html/hhc/html /pressroom/press-release-20070731.shtml. This URL no longer links to the press release, but its details can be accessed via HipMama.com, accessed December 24, 2017, http://hipmama.com/blog/node/ny-no-longer-giving -free-formula-samples-hospitals. 17. Naomi Oreskes and Erik M. Conway, Merchants of Doubt: How a Handful of Scientists Obscured the Truth on Issues from Tobacco Smoke to Global Warming (New York: Bloomsbury Press, 2010). 18. Marion Nestle, “Coca-Cola Says Its Drinks Don’t Cause Obesity. Science Says Otherwise,” The Guardian, August 11, 2015, https://www.theguard ian.com/commentisfree/2015/aug/11/coca-cola-obesity-health-studies. 19. Eliza Barclay, “Charity vs. Capitalism in Africa,” Business Week, January 2, 2008, https://www.bloomberg.com/news/articles/2008-01-02 /charity-vs-dot-capitalism-in-africabusinessweek-business-news-stock -market-and-financial-advice. 20. Jessica Cohen and Pascaline Dupas, “Free Distribution or CostSharing? Evidence from a Randomized Malaria Prevention Experiment,” Quarterly Journal of Economics 125, no. 1 (2010): 1–45, https://doi.org/10 .1162/q jec.2010.125.1.1. 21. Eliza Barclay, “Caught in a Tangle: Mosquito Nets versus Malaria,” Spiegel Online, January 3, 2008, http://www.spiegel.de/international/busi ness/caught-in-a-tangle-mosquito-nets-versus-malaria-a-526379.html. 22. For example, US subsidies to American corn farmers for ethanol, together with tariffs on imported ethanol, have prevented the entry of cleaner Brazilian ethanol, which is made from sugar rather than maize, and have contributed to the poverty of Brazilian farmers. See Gerrit Buntrock, “Cheap No More,” The Economist, December 6, 2007. 23. Toms, accessed December 24, 2017, http://www.toms.com/. 24. Bruce Wydick, Elizabeth Katz, Flor Calvo, Felipe Gutierrez, and Brendan Janet, “Shoeing the Children: The Impact of the TOMS Shoe Donation Program in Rural El Salvador,” Policy Research Working Paper 7822, World Bank Group, September 2016, http://documents.worldbank .org/curated/en/960091473863696457/pdf/WPS7822.pdf. 25. Leslie Grant and Heather M. Crutchfield, Forces for Good: The Six Practices of High Impact Nonprofits (San Francisco: Jossey-Bass Books, 2008).

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26. Joseph A. Schumpeter, Capitalism, Socialism, and Democracy (New York: Harper, 1975), 82–85. 27. See Paul C. Light, The Search for Social Entrepreneurship (Washington, DC: Brookings Institution, 2008); David Bornstein, How to Change the World: Social Entrepreneurs and the Power of New Ideas (New York: Oxford University Press, 2004). 28. William Drayton, “Everyone a Changemaker,” Peer Review 7 (2005): 8–12, quoted in Light, The Search for Social Entrepreneurship, 4. 29. Roger L. Martin and Sally Osberg, “Social Entrepreneurship: The Case for Definition,” Stanford Social Innovation Review, Spring 2007, 29–39, https://ssir.org/articles/entry/social_entrepreneurship_the_case_for_def inition. Roger Martin is dean of the Joseph L. Rotman School of Management at the University of Toronto; Sally Osberg is president of the Skoll Foundation. 30. KickStart, accessed September 27, 2017, http://kickstart.org. 31. “David Green,” Schwab Foundation for Social Entrepreneurship, accessed September 27, 2017, http://www.schwabfound.org/content/david -green. 32. Room to Read, accessed September 27, 2017, https://www.room toread.org/. 33. David Bornstein, “When Families Lead Themselves out of Poverty,” New York Times, August 15, 2017, https://www.nytimes.com/2017/08/15 /opinion/poverty-family-independence-initiative.html?smprod=nytcoreipad&smid=nytcore-ipad-share&_r=0. For an excellent survey of social entrepreneurs, see Kathleen Kelly Janus, Social Startup Success: How the Best Nonprofits Launch, Scale Up, and Make a Difference (Boston: Da Capo Lifelong Books, 2018). 34. Light, The Search for Social Entrepreneurship. 35. Julie Petersen, telephone conversation with Paul Brest, January 23, 2008. 36. “About,” Draper, Richards, Kaplan, accessed December 24, 2017, http://www.drkfoundation.org/about/. DRK was founded by two venture capitalists, William Draper III and Robin Richards Donohoe, and later joined by Robert Kaplan, former vice chairman of Goldman Sachs and a professor at Harvard Business School. 37. Living Goods, accessed September 27, 2017, https://livinggoods .org/. 38. “Free 24/7 Support for People In Crisis,” Crisis Text Line, accessed September 27, 2017, https://www.crisistextline.org/. 39. “What We Do,” Social Venture Partners International, accessed September 27, 2017, http://www.socialventurepartners.org/what-we-do/.

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40. See Paul Connolly and Carol Lukas, Strengthening Nonprofit Performance: A Funder’s Guide to Capacity Building (St. Paul, MN: Amherst H. Wilder Foundation, 2002); C. R. Hibbs, Integrating Capacity and Strategy (Stanford, CA: Stanford Center on Philanthropy and Social Society, 2014), https:// pacscenter.stanford.edu/2015/09/integrating-capacity-and-strategy-a -handbook-for-next-generation-grantmakers-and-grantees/. 41. Jennifer Henderson-Frakes, Castle Sinicrope, Lydia Nash, and Hanh Cao Lu, Evaluation of the William and Flora Hewlett Foundation’s Organizational Effectiveness Program, Social Policy Research Associates, November 21, 2015, http://www.hewlett.org/wp-content/uploads/2016/10/Evalu ation-of-OE-Program-November-2015.pdf.

Chapter 15 1. Joseph Califano, High Society: How Substance Abuse Ravages America and What to Do about It (New York: PublicAffairs, 2007). 2. Ben Soskis, “The Impact of Philanthropy on the Passage of the Affordable Care Act,” (case study prepared for the History of Philanthropy Project, Open Philanthropy Project, September 2015), http://files.givewell .org/fi les/HofP/The_Impact_of_Philanthropy_on_the_Passage_of_the _Affordable_Care_Act.pdf. The following case study of the advocacy leading up to the passage of the ACA is based on this case study. As done with other studies on the website, Soskis continually weights the evidence about the impact of particular activities. 3. Bolder Advocacy, “Public Charities Can Lobby: Guidelines for 501(c)(3) Public Charities,” Alliance for Justice, 2017, https://www.bolder advocacy.org/wp-content/uploads/2012/06/Public_Charities_Can_Lobby .pdf. 4. Quoted in Soskis, “Impact of Philanthropy,” 51. 5. Ibid., 51–52. 6. Ibid., 64. 7. Ibid. 8. Ibid., 71. 9. HCAN is not a section 501(c)(3) public charity but is organized under section 501(c)(4) of the Internal Revenue Code. “About HCAN,” Health Care for America Now!, accessed September 27, 2017, http://healthcarefor americanow.org/about. 10. John W. Kingdon, Agendas, Alternatives, and Public Policies (New York: Addison-Wesley, 2006). 11. Steven M. Teles, The Rise of the Conservative Legal Movement: The Battle for Control of the Law (Princeton, NJ: Princeton University Press, 2008).

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12. Quoted in Soskis, “Impact of Philanthropy,” 16. 13. Mark MacLeod, “What Is the “Safety Valve?,” Environmental Defense Fund, June 5, 2017, http://blogs.edf.org/climate411/2007/06/05 /what-is-the-safety-valve/. 14. Kim Severson, “Effort to Limit Junk Food in Schools Faces Hurdles,” New York Times, December 2, 2007. 15. “Cases We Have Commissioned,” Open Philanthropy Project, accessed December 24, 2017, http://www.openphilanthropy.org/research /history-of-philanthropy#Case_studies_weve_commissioned. 16. Steven Teles and Mark Schmitt, “The Elusive Craft of Evaluating Advocacy,” Stanford Social Innovation Review, Summer 2011, 37–43, https:// ssir.org/articles/entry/the_elusive_craft_of_evaluating_advocacy. 17. Citizens United v. Federal Election Comm’n, 558 U.S. 310 (2010). 18. The US Internal Revenue Code treats different kinds of organizations differently. The 501(c)(3) “public charities” (conventional nonprofit organizations) may engage in limited political advocacy; 501(c)(4) “social welfare organizations” are permitted to lobby; and 527 organizations may influence appointment or election of candidates to federal, state, or local public office. While the income of all three organizations is exempt from taxation, only contributions to 501(c)(3) organizations are tax deductible. 19. Jim Hopkins, “Quark Founder Becomes Philanthropist,” USA Today, August 15, 2001, http://usatoday30.usatoday.com/tech/techinvestor/2001 -08-15-quark-founder.htm. 20. The law was overturned in Romer v. Evans, 517 U.S. 620 (1996). 21. Andy Kroll, “Meet the Megadonor behind the LGBTQ Rights Movement,”  Rolling Stone, June 23, 2017, http://www.rollingstone.com/politics /features/meet-tim-gill-megadonor-behind-lgbtq-rights-movement-wins -w489213. 22. Wikipedia contributors, “Gill Foundation,” Wikipedia: The Free Encyclopedia, last modified February 21, 2017, https://en.wikipedia.org/wiki /Gill_Foundation. 23. Adam Schrager and Rob Witwer, “How the Dems Won Colorado,”  Denver Post, April 8, 2010, http://www.denverpost.com/2010/04/08 /how-the-dems-won-colorado/. 24. Jeff Brady, “Colorado Springs a Mecca for Evangelical Christians,”  NPR, January 17, 2005, http://www.npr.org/templates/story/story .php?storyId=4287106. 25. Wikipedia contributors, “Christian Right,” Wikipedia: The Free Encyclopedia, last modified September 7, 2017, https://en.wikipedia.org/wiki /Christian_right.

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26. Joel Dyer, Matt Cortina, and Elizabeth Miller, “Who Killed the Vote on Fracking?,” Boulder Weekly, October 2, 2014, http://www.boulderweekly .com/news/who-killed-the-vote-on-fracking/. 27. “Colorado Democracy Alliance,” Ballotpedia, accessed August 27, 2017, https://ballotpedia.org/Colorado_Democracy_Alliance. Some indication of its effectiveness is suggested by a critic’s documentary, Rocky Mountain Heist, which (in the filmmaker’s words) “illustrates how the Gang of Four coordinated their campaign targets and spending behind closed doors .  .  . [and] traces how the liberal scions and their ‘Colorado Democracy Alliance’ captured the governor’s mansion, the state legislature, and two Senate seats.” Michelle Malkin, “Who’s Afraid of ‘Rocky Mountain Heist?,’” October 17, 2014, http://michellemalkin.com/2014/10 /17/whos-afraid-of-rocky-mountain-heist/, cited in “Colorado Democracy Alliance.” 28. Kroll, “Meet the Megadonor.” 29. Ibid. 30. Wikipedia contributors, “Gill Action Fund,” Wikipedia: The Free Encyclopedia, last modified March 7, 2017, https://en.wikipedia.org/wiki/Gill _Action_Fund. 31. “501(c)(4),” Ballotpedia, accessed December 24, 2017, https://ballot pedia.org/501(c)(4). 32. Joshua Green, “They Won’t Know What Hit Them,”  The Atlantic, March 2007, https://www.theatlantic.com/magazine/archive/2007/03 /they-won-t-know-what-hit-them/305619/. 33. Ben Smith and Byron Tau, “Gay Rights Takes Center Stage in NY,”  Politico, December 14, 2010, http://www.politico.com/story/2010/12 /gay-rights-take-center-stage-in-ny-046327?o=2. 34. Ibid. 35. Ibid. 36. Jeremy W. Peters, “Campaign Goes After Opponents of Gay Marriage,”  New York Times, February 24, 2010, http://www.nytimes.com/2010 /02/25/nyregion/25gay.html. 37. Wikipedia contributors, “Same-Sex Marriage in New York,” Wikipedia: The Free Encyclopedia, last updated December 2, 2017, https://en .wikipedia.org/wiki/Same-sex_marriage_in_New_York. 38. Kroll, “Meet the Megadonor.” 39. Bradford Richardson, “Gay Megadonor on Going After Christians: ‘We’re Going to Punish the Wicked,’” Washington Times, July 19, 2017, http:// www.washingtontimes.com/news/2017/jul/19/gay-megadonor-going-after -christians-punish-wicked/.

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40. Jane Mayer, “State for Sale,” New Yorker, October 10, 2011, http:// www.newyorker.com/magazine/2011/10/10/state-for-sale. 41. Ibid. 42. “Policy Positions,” John Locke Foundation, accessed September 27, 2017, https://www.johnlocke.org/policy-positions/#budget-taxation-and-the -economy. 43. “Research Reports: David Roland,” John Locke Foundation, accessed December 24, 2017, http://www.johnlocke.org/research/?p2p_author =16274. 44. “North Carolina Family Policy Council,” WRAL.com, posted February 27, 2013, updated January 12, 2015, http://www.wral.com/north -carolina-family-policy-council-/12158371/. 45. Bob Geary, “The Vanishing Voter,” Indy Week, August 16, 2006, https:// www.indyweek.com/indyweek/the-vanishing-voter/Content?oid=1198653. 46. Bob Geary, “Miner Falls Victim to the Far Right,” Indy Week, July 28, 2004, https://www.indyweek.com/indyweek/miner-falls-victim-to-the-far-right /Content?oid=1192684. 47. Ibid. 48. Mayer, “State for Sale.” 49. “Civitas Institute,” SourceWatch, accessed August 28, 2017, http:// www.sourcewatch.org/index.php/Civitas_Institute. 50. Jane Mayer, “The Shellacking: Dark Money’s Midterm Debut, 2010,” in Dark Money: The Hidden History of Billionaires behind the Rise of the Radical Right, by Jane Mayer (New York: Doubleday, 2016), 321. 51. Mayer, “State for Sale.” 52. Dan Balz, “The Republican Takeover in the States,” Washington Post, November 14, 2010, http://www.washingtonpost.com/wp-dyn/content /article/2010/11/13/AR2010111304276.html. 53. “Pat McCrory,” Ballotpedia, accessed August 28, 2017, https:// ballotpedia.org/Pat_McCrory. 54. Jane Mayer, “The States: Gaining Ground,” in Dark Money, 414. 55. The law, supported by North Carolina Family Policy Council, was eventually watered down in the face of a large-scale business boycott of North Carolina. See Anita Douglas, “National LGBT Group Is Running an Anti-HB2 Campaign as NC Early Voting Starts,” News & Observer, October 20, 2016, http://www.newsobserver.com/news/politics-government /article109417342.html; Mark Price, “NC’s HB2 Compromise Called ‘Fake Repeal,’ Angers Liberals and Conservatives Alike,” Charlotte Observer, March  30, 2017, http://www.charlotteobserver.com/news/local/article 141638439.html.

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56. Mayer, “The States,” 414. 57. Mayer, Dark Money. 58. Paul Brest, “What Are Foundations For?,” Boston Review, March 1, 2013, http://bostonreview.net/forum/what-are-foundations/policy-advocates. 59. This discussion is based entirely on Lewis Bollard, “Why Are the US Corporate Cage-Free Campaigns Succeeding?”  (blog), Open Philanthropy Project, April 11, 2017, http://www.openphilanthropy.org/blog/why -are-us-corporate-cage-free-campaigns-succeeding. 60. Wikipedia contributors, “Ag-gag,” Wikipedia: The Free Encyclopedia, last modified October 4, 2017, https://en.wikipedia.org/wiki/Ag-gag. 61. See Lewis Bollard, “Initial Grants to Support Corporate Cage-Free Re forms” (blog), Open Philanthropy, March 31, 2016, http://www.openphilan thropy.org/blog/initial-grants-support-corporate-cage-free-reforms. 62. See Paul Brest, “Reconciling Corporate Social Responsibility and Profitability: Guidelines for the Conscientious Manager,” in Philanthropy in Democratic Societies, ed. Rob Reich, Chiara Cordelli, and Lucy Bernholz (Chicago: University of Chicago Press, 2016), 123–56. 63. Eric Nee, “15 Minutes with Hannah Jones,” Stanford Social Innovation Review, Fall 2007, 29–31, https://ssir.org/articles/entry/15_minutes_with _hannah_jones. 64. Obergefell v. Hodges, 135 S. Ct. 2584 (2015). 65. Wikipedia contributors, “Category: Government Watchdog Groups in the United States,” Wikipedia: The Free Encyclopedia, last edited July 28, 2014, https://en.wikipedia.org/wiki/Category:Government_watchdog_groups _in_the_United_States. 66. Angus Burgin, Great Persuasion: Reinventing Free Markets since the Depression (Cambridge, MA: Harvard University Press, 2012). 67. Sally Covington, Moving a Public Policy Agenda: The Strategic Philanthropy of Conservative Foundations (Washington, DC: National Committee for Responsive Philanthropy, 1997). 68. John J. Miller, “Economics to Lawyers?,” in A Gift of Freedom: How the John M. Olin Foundation Changed America (San Francisco: Encounter Books, 2006). 69. Ibid., 74. 70. Quoted in ibid., 70. 71. Ibid., 71. 72. Teles, The Rise of the Conservative Legal Movement, 277. 73. Ibid. 279. 74. Susan Berresford, “Women’s Rights, Women’s Lives,” in “A Special

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Issue on Women: Now It’s a Global Movement,” special issue, Ford Foundation Report, 31, no. 1 (2000): 4. 75. Ibid. 76. Jenna, “50 Years after the Civil Rights Act, the Four Key Foundations Who Funded the Movement” (blog), Resource Generation, July 1, 2014, http://resourcegeneration.org/2014/07/50-years-after-the-civil-rights-act -the-four-key-foundations-who-funded-the-movement/. 77. “LGBT—Funders,” Inside Philanthropy, accessed August 30, 2017, https://www.insidephilanthropy.com/fundraising-for-lgbt. 78. H. L. A. Hart, The Concept of Law, 2nd ed. (Oxford: Oxford University Press, 1994), 128.

Chapter 16 1. “Supporting Organizations,” Silicon Valley Community Foundation, accessed September 28, 2017, https://www.siliconvalleycf.org/supporting -organizations. 2. As mentioned in Chapter 10, any principal returned from a PRI must be regranted within a year; any income is treated in the same manner as income from regular investments. 3. Bolder Advocacy, “Public Charities Can Lobby: Guidelines for 501(c)(3) Public Charities,” Alliance for Justice, 2017, https://www.bolder advocacy.org/wp-content/uploads/2012/06/Public_Charities_Can_Lobby .pdf. 4. As long as they can be deemed “reasonable and necessary .  .  . to accomplish one or more exempt purposes” (IRC Section 4942). “Typically these are costs associated with grants, direct charitable activities and program related investments, and include salaries, rent, travel, training, photocopying, etc. Expenses which cannot be included are those related to ongoing investment management, such as investment consultant fees, custodial fees, attending investment conferences, etc. . . . Foundations should also exclude the portion of salaries and other administrative expenses that are related to ongoing investment management.” 5. “Welcome to Charting Impact,” GuideStar, accessed Sept  4, 2017, https://learn.guidestar.org/update-nonprofit-report/charting-impact #questions. 6. Wikipedia contributors, “Philanthropedia,” Wikipedia: The Free Encyclopedia, last modified March 14, 2017, https://en.wikipedia.org/wiki /Philanthropedia#cite_note-3. 7. “How Do We Rate Charities,” Charity Navigator, accessed Septem-

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ber  28, 2017, https://www.charitynavigator.org/index.cfm?bay=content .view&cpid=1284. 8. Wikipedia contributors, “Federal Election Campaign Act,” Wikipedia: The Free Encyclopedia, last modified October 11, 2017, https://en.wikipedia .org/wiki/Federal_Election_Campaign_Act. 9. The Chan Zuckerberg Initiative, accessed December 25, 2017, https:// chanzuckerberg.com/. 10. Emerson Collective, accessed December 25, 2017, http://www .emersoncollective.com/. 11. Omidyar Network, accessed December 25, 2017, http://www .omidyar.com/. 12. Ellis Carter, “LLCs as Philanthropic Vehicles,” Charity Lawyer (blog), December 15, 2015, http://charitylawyerblog.com/2015/12/15/llcs -as-philanthropic-vehicles/. 13. Thomas A. Humphreys, Limited Liability Companies and Limited Liability Partnerships, §4.01 (New York: Law Journal Seminars Press, 2016), 640. 14. “Will the Chan Zuckerberg Initiative Change Philanthropy?,” Wharton, University of Pennsylvania, December 16, 2015, http://knowledge .wharton.upenn.edu/article/will-the-chan-zuckerberg-initiative-change -how-we-invest-in-social-good/. 15. Carter, “LLCs as Philanthropic Vehicles.” 16. “Schwab Charitable,” Charles Schwab, accessed September 29, 2017, http://www.schwab.com/public/schwab/investing/accounts_products /accounts/trust_estate/donor_advised_fund. 17. For example, Tides is openly very progressive, so if you want to make gifts to a conservative organization, it is best that you choose a different DAF. See Tides, accessed December 25, 2017, http://tides.org/. 18. “Comparison to Private Foundations,” National Philanthropic Trust, accessed December 25, 2017, https://www.nptrust.org/daf-report /giving-vehicle-comparison.html. 19. “Growth in Recent Years,” National Philanthropic Trust, accessed September 29, 2017, https://www.nptrust.org/daf-report/recent-growth .html. 20. Cash is deductible up to 30 percent of adjusted taxable income, and public stock, real estate, and other appreciated property are deductible up to 20 percent in the aggregate. 21. It is considered a good practice for a foundation to have at least three to five directors. Although many states require this, California does not. Independent Sector recommends a statutory minimum of five directors for charity boards, stating, “The board should have enough members

Notes to Chapter 17

355

to allow for full deliberation and diversity of thinking on governance and other organizational matters. Except for very small organizations, this generally means that the board should have at least five members.” “Principles of Good Governance and Ethical Practice,” Independent Sector, accessed September 29, 2017, https://www.independentsector.org/programs /principles-for-good-governance-and-ethical-practice/. 22. Gene Takagi, “Number of Directors—What’s the Best Practice?,” NonProfit Law Blog, NEO Law Group, May 26, 2009, http://www.nonprofit lawblog.com/number-of-directors-whats-the-best-practice/. 23. The 990-PF form breaks out expenses based on executive, board, and staff compensation; pension and employee benefits; occupancy costs; professional, legal, and accounting fees; printing and publication costs; travel; excise taxes; and other expenses. Forum of Regional Association of Grantmakers, A Closer Look at Foundation Administrative Expenses: Benchmarking & Reporting Expenses amid Growing Public Scrutiny (Washington, DC: Forum of Regional Association of Grantmakers, 2007), https://philanthropy nw.org/sites/default/fi les/resources/A%2520Closer%2520Look%2520at %2520Foundation%2520Administrative%2520Expenses.pdf. 24. “Foundation Source Releases 2017 Annual Report on Grantmaking,” Foundation Source press release, July 2017, https://www.foundation source.com/resources/press-releases/2017-report-on-grantmaking/. 25. Adviser compensation counts toward the 5 percent minimum distribution requirement if the advice relates to the foundation’s charitable purpose. It does not count toward the 5 percent requirement if the advice is sought in connection to the foundation’s investment management. See “5 Percent Distribution Requirement.”

Chapter 17 1. Claude N. Rosenberg, Wealthy and Wise: How You and America Can Get the Most out of Your Giving (Boston: Little, Brown, 1994). 2. For the purposes of this conversation, we include administrative costs in the term “payout,” as does the IRS. 3. Julius Rosenwald, “The Burden of Wealth,” Saturday Evening Post, 1929, quoted in Diane Granat, “America’s ‘Give While You Live’ Philanthropist,” The Alicia Patterson Foundation, accessed December 25, 2017, http://aliciapatterson.org/stories/americas-give-while-you-live-philanthro pist. See generally Steven Schindler, “Building Schools for Rural African Americans,” in Casebook for the Foundation: A Great American Secret: How Private Wealth Is Changing the World, by Joel Fleishman, J. Scott Kohler, and Steven Schindler (New York: PublicAffairs, 2007), 27–40.

356

Notes to Chapter 17

4. Stephanie Strom, “How Long Should Gifts Just Grow?,” New York Times, November 12, 2007, http://www.nytimes.com/2007/11/12/giving/12 money.html. 5. David Callahan, The Givers: Wealth, Power, and Philanthropy in a New Gilded Age (New York: Knopf Doubleday, 2017). 6. While a complete expected return analysis would in principle involve financial discounting, we should note that it is inappropriate to discount future lives: the present value of the lives of people living in even the distant future is no different from the value of those living today. See Michael Klausner, “When Time Isn’t Money,” Stanford Social Innovation Review, Spring 2003, 51–59, https://ssir.org/articles/entry/when_time_isnt _money; Richard Revesz and Matthew Shahabian, “Climatic Change and Future Generations,” New York University Law and Economics Working Paper 232, 2011, http://lsr.nellco.org/nyu_lewp/232/. 7. Klausner, “When Time Isn’t Money,” 56. 8. Marina Dundjerski, “Not All Diamonds Are Forever,” Chronicle of Philanthropy, December 12, 1996, https://www.philanthropy.com/article/Not -All-Diamonds-Are-Forever/168315. 9. Heidi Waleson, “Beyond Five Percent: The New Foundation Payout Menu,” Northern California Grantmakers, the New York Regional Association of Grantmakers, and the French American Charitable Trust, 2007, http://www.beldon.org/beyond5_report.pdf. 10. Ibid. 11. To learn more about the Whitaker Foundation’s grantmaking in biomedical engineering, see the online archive of Whitaker’s work maintained by the Biomedical Engineering Society as a public resource: http:// archive.is/bluestream.wustl.edu. 12. Waleson, “Beyond Five Percent.” 13. Joel Fleishman, Putting Wealth to Work: Philanthropy for Today or Investing in Tomorrow (New York: PublicAffairs, 2017). 14. “The Centenarians Square Up,” The Economist, June 9, 2011, http:// www.economist.com/node/18802844. 15. Walter Isaacsson, Benjamin Franklin: An American Life (New York: Simon and Schuster, 2004), 474; Wikipedia contributors, “Girard College,” Wikipedia: The Free Encyclopedia, last modified November 24, 2017, http:// en.wikipedia.org/wiki/Girard_College; Lawrence M. Friedman, Dead Hands: A Social History of Wills, Trusts and Inheritance Law (Stanford, CA: Stanford Law Books, 2009). 16. Heather R. Hitchens, “The Case for Limiting the Lives of Foundations,” in Should Foundations Exist in Perpetuity?, ed. Heather R. Higgins and Michael S. Joyce (Indianapolis, IN: The Philanthropy Roundtable, 2006).

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Afterword 1. Richard Posner, “Charitable Foundations—Posner’s Comment,” The Becker-Posner Blog, December 31, 2006, http://www.becker-posner-blog .com/2006/12/charitable-foundations—posners-comment.html. 2. Kenneth Prewitt, “The Importance of Foundations in an Open Society,” in The Future of Foundations in an Open Society, ed. D. Feddersen and Bertelsmann Foundation (Gutersloh, Germany: Bertelsmann Stiftung, 1999), 17–29; Wikipedia contributors, “Polyarchy,” Wikipedia: The Free Encyclopedia, last edited December 1, 2017, http://en.wikipedia.org/wiki/Polyarchy. 3. Rob Reich, “On the Role of Foundations in Democracies,” in Philanthropy in Democratic States, ed. Rob Reich, Chiara Cordelli, and Lucy Bernholz (Chicago: University of Chicago Press, 2016), 64–81; Rob Reich, “What Are Foundations For?,” Boston Review, March 1, 2013, http://bostonreview .net/forum/foundations-philanthropy-democracy; David Callahan, The Givers: Wealth, Power and Philanthropy in a New Gilded Age (New York: Alfred Knopf, 2017). 4. David Callahan, “Second Thoughts: Why I Changed My Mind about Philanthropy and Public Policy,” Inside Philanthropy, accessed September 24, 2017, https://www.insidephilanthropy.com/home/2017/5/3/philanthropy -and-public-policy. 5. See Megan Tomkins-Stange, Policy Patrons: Philanthropy, Education Reform, and the Politics of Influence (Cambridge, MA: Harvard Education Press, 2016). 6. Edmund Burke, Reflections on the Revolution in France (London: James Dodsley, 1790). 7. Alexis de Tocqueville was a French statesman and political theorist who described the important role of local institutions in democracy in the United States. See Alexis de Tocqueville, Democracy in America, vol. 1, chap. 17, trans. Henry Reeves (Charlottesville: University of Virginia, 1899). 8. William A. Schambra, “Augusts in New Hampshire,” comments delivered at Grantmakers for Effective Organizations 2008 National Conference Session “Back to the Future: The ‘New’ New Philanthropy,” Palace Hotel, San Francisco, March 10, 2008, https://www.hudson.org/content/research attachments/attachment/630/2008_03_10_geo_conference_schambra _remarks.pdf.

Acknowledgments 1. Paul Brest and Kelly Born, “When Can Impact Investing Create Real Impact?,” Stanford Social Innovation Review 11, no. 4 (2013): 22–31, https:// ssir.org/up_for_debate/article/impact_investing. 2. Paul Brest, Ronald Gilson, and Mark Wolfson, “How Investors Can

358

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(and Can’t) Create Social Value,” Stanford Social Innovation Review, December 8, 2016, https://ssir.org/up_for_debate/article/how_investors_can_and _cant_create_social_value. 3. Paul Brest, “Up for Debate: Strategic Philanthropy and Its Discontents,” Stanford Social Innovation Review, April 27, 2015, https://ssir.org /articles/entry/strategic_philanthropy_and_its_discontents. 4. Hal Harvey, “Why I Regret Pushing Strategic Philanthropy,” Chronicle of Philanthropy, April 4, 2016, https://www.philanthropy.com/article /Opinion-Why-I-Regret-Pushing/235924. 5. Philanthropy University, accessed September 27, 2017, http://philan thropyu.org/.

INDEX

Page numbers in italic indicate material in figures. A1 and A2 investments, 179–80 Aaron Diamond Foundation, 308 Abdul Latif Jameel Poverty Action Lab (J-PAL), 84, 88, 208 Abode Services, 103 abortion, 31–32, 269, 276 abstinence-only programs, 89 ACA (Affordable Care Act), 262– 70, 289, 348n2 Ackerman, Bruce, 285 action plan, 61–70, 74–75, 133–35, 138–39 activities/outputs, 54, 54, 60, 62– 63, 63, 74 administrative costs, 160, 296–99, 301, 353n4 advisory firms, 206 advocacy strategies, 11, 19–21, 106– 9, 123, 134–35, 270, 317 Afaxys, 168 Affordable Care Act (ACA), 262– 70, 289, 348n2 “agents,” grantees as, 37 “ag-gag” laws, 278 aggregating capital through funds, 189–90 agro-charcoal, 133

AIDS, 25–26, 40, 42, 116, 121, 124, 226, 246, 308 Alliance for Health Reform, 265 allocation of tasks, 195 alternative solutions, developing, 50–53 Altman, Drew, 265 Amazon rain forest, 117 American Association for Cancer Research, 149 American Cancer Society, 18 American Enterprise Institute, 234, 282 American Federation of Hospitals, 263 American Heart Society, 18 American Medical Association, 18, 263 American Nurses Association, 263 American Political Science Association, 222 Americans for Prosperity, 275 America’s Second Harvest, 250 Andrew W. Mellon Foundation, 21, 120, 310 Annie E. Casey Foundation, 17, 204 anonymity, 295

360

Index

“apparent effectiveness,” 140 Appel, Jacob, 88 Apple Street unit, 78, 80 applied practical knowledge, supporting, 222–31 Arabella Advisors, 206 Archimedes, 109 architects, 221 Arcus Foundation, 288 Ashoka, 151, 232, 252, 254 “aspirational outcomes,” 54 Aspire charter schools, 90 assessing success, 71–74 Atlantic Philanthropies, 263, 266, 269 austerity measures, effects of, 10 Bailin, Michael, 126–27 Bain Capital, 185, 337n29 Banerjee, Abhijit V., 88 Barefoot College, 253 Bascom Avenue, 78, 87 Bates, Mary Ann, 84 bathroom bills, 276 battery cage ban, 278 BBB Wise Giving Alliance, 296 B/C ratio, 99, 103 bed nets (ITNs), 43, 45, 66–68 (68), 96–97, 228, 248–49 before/after (pre/post) technique, 78–79 behavior, influencing, 239–46 behavioral conditions, 85–86 behavioral strategies, 240–43 beneficiaries: behavior of, 65–68 (68); feedback from, 71; identifying, 39–40 Berkshire Hathaway, 191 Berresford, Susan, 286–87 Best for Babes, 244–45

“big bets” (Forbes), 202 big cube programs, 120–23 Bipartisan Policy Center, 265 bKash, 167, 174, 177, 180, 249 Blue Meridian Partners, 189–90, 258–59 Bob’s Jobs, 98–99 Bollard, Lewis, 279 Booker, Cory, 144 boycotts, protests, 281 Bradley Foundation, Lynde and Harry, 19–20 breastfeeding, 244–45 Brest, Paul (Stanford Law School dean, Hewlett Foundation President), 146 Bridges Fund Management, 168– 70, 175–76, 179–81 Bridgespan Group, 142, 152, 202, 206, 207 Bright Funds Foundation, 190 British Parliament longitude prize, 231 Brookings Institution, 234 Brown v. Board of Education, 282, 289 Buchanan, Phil, 141–42 Budapest Open Access Initiative, 21 Buffet, Warren, 4, 191, 305, ix Bumiller, Elisabeth, 234 Bundy, McGeorge, 286–87 Burke, Edmund, 316 “business model” of philanthropy, 109–10 cage-free eggs, 277–82, 289 California coastline, 132–35, 137, 145 California Wellness Foundation, 17

Index

campaign finance reform, 58 campaign strategy and mentality, 270–71 Canada, Geoffrey, 152 CAP (Center for American Progress), 234 Capitalism, Socialism, and Democracy (Schumpeter), 251 care for the dying, 235–37 Carnegie Endowment for International Peace, 234, 310 Carter, Jimmy, 263 CART principles, 83 “Casa”: action plan, 62–64 (62), 69; developing targets, 73; evaluating impact, 76–80, 82, 174; Green Meadows model, 84–87; impact of, 171; intended ultimate outcome, 53–54; replicability, generalizability of, 84–87; theory of change, 54–58 (55), 64, 69. See also Gordon, Peggy and Fred cash donations, 354n20 Catholic Health Association of the United States, 263 CATO Institute, 234 causal links, 55–57, 76, 83 causation versus correlation, 77 causes, understanding, 42–45 CBA (cost-benefit analysis), 92–94, 106 CC (Creative Commons), 22 CDA (Colorado Democracy Alliance), 273, 350n27 CDFIs (community development financial institutions), 171 CEA (cost-effectiveness analysis), 92–93 celebrities, 280

361

Center for American Progress (CAP), 234 Center for Effective Philanthropy (CEP), 146-147, 204, 205 Center for Employment Opportunity (CEO), 101–2 Center for Global Development, 9–10, 234 Center for High Impact Philanthropy, 208 Center for Individual Rights, 283 Center for Law and Religious Freedoms, 283 Center for Open and Sustainable Learning, 21 Center for Public Program Evaluation, 17–18 Center for Science in the Public Interest, 271 Center for Strategic and International Studies, 234 Center Philanthropy and Civil Society, 208 CEO (Center for Employment Opportunity), 101–2 Ceres, 184 CFCs (chlorofluorocarbons), 192 CFWShops, 248 chain of causation, 55 Chan, Priscilla, 145, ix changed social norms and mores, 218 Changemakers (Ashoka), 232 changing the behavior of corporations, 277–82 Chan Zuckerberg Initiative LLC, 299, ix charcoal in Haiti issue, 132–35, 137 charities: Charity Navigator, 161,

362

Index

208, 297; Charity: Water, 162; public, 294–95 Charles Schwab, 299–300 charter schools, 90–91 Charting Impact questions, 296–97 checkbook donations, 294 childhood immunizations in India, 84–85 children in adult jails, 283 China, 135 chlorofluorocarbons (CFCs), 192 choice of philanthropic goals, 7, 115–19, 126–28 cholera, 43–44, 44 choosing causes, criteria for, 9 Christie, Chris, 144 cigarette taxes, 262 Citizens United v. Federal Election Commission, 272–73, 277 civil rights goals, 288 Civitas Institute/Civitas Action, 275–76 clarity, 269 Clark, Edna McConnell, 139–40, 190 classical music audiences, 39–40 Clauswitz, Carl von, 272 clean-energy technologies, 223 clear, sustained focus (in IDP), 211 climate change/global warming, 43–44, 223, 269, 271, 306–8 Clinton, Bill, 263 coalition building, 17, 154, 202, 266, 270 cofunding and collaborating, 188–203 Cohen, Jessica, 248 Cohen, Rick, 19 collaboration, 202–3; aggregation of resources, 189–90; engaged

collaboration, 192–94; example of failed, 198–202; exiting, 198; giving circles, 190–91; giving to foundations, 191–92; in intermediary organizations, 194; processes of, 196–98 collaborative grantmaking, 124–25, 196–97 “collective impact,” 194 Collins, Dennis, 331n19 Colorado and gay rights, 273, 350n27 Colorado Democracy Alliance (CDA), 273, 350n27 commercial markets, 227–28 Commonwealth Fund, 9, 235–36, 265, 270 community development financial institutions (CDFIs), 171 comparing grantees, 98–100 competition for funds, 157 complexity, 58 composers, 221 concessionary and nonconcessionary impact investments, 165–71, 177–80, 183–85 confidence, 60 conservative legal movement, 284– 86 consultants, 296 consumer boycotts, protests, 281 continuous collaboration and learning (in IDP), 211 contraceptive counseling at nail salons, 229–31 contraceptives to developing areas, 51 control of assets, 295 Conway, Erik, 246 cookstoves project, 222–29, 239–40

Index

“core” (general) operating support, 148–51 (150) corporate practices, 218 corporate social responsibility (CSR) movement, 277, 280–81 corporations, changing the behavior of, 277–82 correlation versus causation, 77 corruption, 232 cost-benefit analysis (CBA), 92–94, 106 cost-effectiveness analysis (CEA), 92–93 Council on Foreign Relations, 234 Council on Foundations, 207 “counterfactual,” 12, 76 Covering America Project, 263–64 “Cover the Uninsured” campaign, 263–64 Creative Commons (CC), 22 creativity, 51 credibility, 269–70 Crisis Text Line (CTL), 258 crowdedness criterion, 9 CSR (corporate social responsibility) movement, 277, 280–81 CTL (Crisis Text Line), 258 cubes, small and large, 118–25 (118) Cuomo, Andrew, 101 “customers,” grantees as, 36–37 DAF (donor-advised funds), 295, 299–300, 302 Dailyhunt app, 169 DALYs (disability-adjusted lifeyears), 94–95, 97, 329n2 DARE (Drug Abuse Resistance Education) program, 89 Dark Money (Mayer), 276

363

dashboard web tools, 136–37 David and Lucile Packard Foundation, 120, 168, 260 Davis, Karen, 265–66 “death panels,” 270 defining the problem, 225 deliverables, 63, 74 Democratic Party (US), 273–74 Democratic Republic of the Congo, 182 “demonstrated effectiveness,” 140 demonstration project, 227 DEN (Donor Education Network), 210 Department of Corrections and Community Supervision (DOCCS), 101–2 describe a social problem, 46 designing an action plan, 74–75 Designing a Theory of Change, 59–60 design process for teen pregnancy in Zambia, 229–31 design-testing, 228–29 developing alternative solutions, 50–53 developing a strategy, 29–30 DeVos, Betsy, 20 Dewey, John, 31 diabetes and obesity, 240 diarrhea, oral rehydration therapy for, 240 DiD (difference-in-differences) technique, 81 “diffuse reciprocity,” 198 Diffusion of Innovations (Rogers), 219 Dining for Women, 191 directors, number of, 354–55n21 direct services approach, 49

364

Index

disability-adjusted life-years (DALYs), 94–95, 97, 329n2 disseminating knowledge, 203–6, 219–22 divestment, 179, 184 DOCCS (Department of Corrections and Community Supervision), 101–2 Doctors Without Borders, 253 Doerr, John and Ann, 24 domestic violence, 232 Donaldson, Krista, 11 donated revenues, 249–50 donor-advised funds (DAF), 295, 299–300, 302 Donor Education Network (DEN), 210 donor education programs, 207 Double Impact Fund (Bain Capital), 185, 337n29 Drayton, Bill, 252, 253 D-Rev, 11, 97 drinking water, boiling to purify, 240 DRK (Draper Richard Kaplan Foundation), 192, 258 Drug Abuse Resistance Education (DARE) program, 89 d.school, 225 Duflo, Esther, 88 Duke’s Center for Strategic Philanthropy and Civil Society, 208 Dupas, Pascaline, 248 dying, care for the, 235–37 earned media, 245 earned revenues, 249–50 Earth Justice, 282 East Asia, 120 East Palo Alto, CA, 199–202

Echoing Green, 151 ECO (Efficiency Cooling Office), 193 Economic and Social Research Institute, 263–64 EdLOC (Education Leaders of Color), 256 Edna McConnell Clark Foundation (EMCF), 126–27, 139–40,151– 53, 158, 190, 258 education, 226, 305 effective altruism, 7, 96 effective problem statement elements, 38–42 Egypt, 240 Einstein, Albert, 50, 65 Elusive Craft of Evaluating Advocacy, The (Teles and Schmidt), 271–72 EMCF (Edna McConnell Clark Foundation), 126–27, 139–40, 151–53, 158, 190, 258 Emerson Collective, ix empathy, 67 empirical assumptions, 41–42 Energy Foundation, 194 engaged collaboration, 192–94 Enterprise Corporation of the Delta, 155 enterprise impact, 172–73, 182–83 Environmental Defense Fund, 271 EPA (Environmental Protection Agency), 154, 282 ESG (environmental, social, and governance), 168, 184 ethnographic analyses, 6 evaluations, 87–91 evaluation shops, 208 Evelyn and Walter Haas Jr. Fund, 288

Index

EverFi, 185 “evidence-based,” 56 Exit, Voice, and Loyalty (Hirschman), 150 exit strategies for venture capital, 257 expectations, establishing, 280, 306 expected return estimation, 100 expected value/return, 93 “experiment” versus “quasi experiment,” 82–83 Exponent Philanthropy, 207 “external validity”/”generalizability,” 84 Facebook, 8, 144, 280 failed planning and collaboration, 198–202 Failing in the Field (Karlan), 87 failures: learning from, 16, 88–89; preparing for, 226 Families USA, 263 family planning, 237 F. B. Heron Foundation, 155, 158, 178–79 federal abstinence education initiatives, 89 Federal Election Campaign Act (1971), 298 Federalist Society, 245, 285 Feeney, Chuck, 266 Fidelity, 299–300 fields: building, 235–37, 284; fieldmaking/field-damaging power, 197 Fight Back New York, 274 Fighting Back initiative (RWJF), 15–17 final intermediate outcome, 60

365

financial discounting, 356n6 First Amendment, 277 First Nations, 154 fish analogy, 250–51 Fisher, Martin, 253 501(c)(3) tax status, 192, 272, 302, 349n18 501(c)(4) tax status, 275, 295, 349n18 “fi x-it” mentality, 40 FLE (Foundation for Learning Equality), 23 Fleishman, Joel, 310 flexibility: in processes, 197–98; in structures, 294–95 Flexner, Abraham, 221 Flores Foundation, 130 focus, 34 Focus on the Family, 273 Food and Drug Administration, 241 food banks, 93, 123 Ford, Gerald, 263 Ford Foundation, 41, 120, 161, 208, 237, 286–87 Form 990-PF (IRS), 301, 355n23 for-profit financial service providers, 299–300 Foundation Center, 204, 206 Foundation for Learning Equality (FLE), 23 Foundation Review, 207 foundations: and tax law, 295; and transparency, 204–6 foundation spending policies, 304–13 framing the issue, 36 Franklin, Benjamin, 311 Freshwater Trust, 168 Friedman, Milton, 19, 284

366

Index

FSG Social Impact Advisors, 194, 206 fundamental approaches to problem solving, 48–50 Fund for Shared Insight, 142, 194, 206–7 funding goods and services, 246–51 Furaha coffee cooperative (Root loan recipient), 166, 182–83 future generations, trust in, 311–12 Ganju, Erin, 253 Gates (Bill & Melinda) Foundation, 143–45, 191; bKash, 177, 180, 249; exposure to African poverty, 9; investment impact, 174– 75; recruiting philanthropists, ix; supporting OER, 24; using PRIs, 167, 174; and Warren Buffett, 305 gay rights, 273–74 General Electric (GE), 310 “generalizability”/”external validity,” 84, 88 general operating support (GOS), 148–51 (150), 155–59, 162–63, 259–61. See also negotiated general operating support Generation Investment Management, 184 genetically modified organisms (GMOs), 232 GEO (Grantmakers for Effective Organizations), 156, 207 George Mason University Law School, 284 Georgetown Law Center, 265 GIIRS (Global Impact Investment Rating System), 172–73

Gill, Tim/Gill Action, 273–75, 315 Gill Foundation, 288 Girard College, 311 GiveWell, 8, 93, 94–96, 99, 103, 206, 208, 297 giving circles, 190–91 Giving Pledge, 8, 321n3 Glasspockets initiative (Foundation Center), 206 Glennerster, Rachel, 84 Global Alliance for Clean Cookstoves (UN), 224 Global Impact Investing Network, 172 global warming, 43–44, 223, 269, 271, 306–8 GMOs (genetically modified organisms), 232 goals, choosing, 7, 115–19, 126–28 Goldberg, Rube, 64–65 (64) Goldilocks Challenge, The (Gugerty & Karlan), 83 Goldman Environmental Prize, 233 goods and services, funding, 246–51 Good Ventures Foundation, ix, 8–9, 206 #GoOpen campaign, 22 Gordon, Peggy and Fred: problem framing, 33–36; effective problem statement, 38–42; understanding problem causes, 45– 46; choosing course of action, 49–50, 52; supporting Casa, 53; setting ultimate outcome, 53– 54; theory of change, 54–57 (54); gauging success, 76–78, 86, 174; more problem framing, 86–87. See also “Casa”

Index

Gordon and Betty Moore Foundation, 128, 168 GOS (general operating support), 148–51 (150), 155–59, 162–63, 259–61 Gosling, Ryan, 280 Gottlieb, Michael, 220 government policy and support, 218 government programs and policies, 228 Grameen Bank, 253 Grantcraft, 204 Grantee Perception Reports, 146– 47, 204, 205 grant guidelines, 130 Grantmakers for Effective Philanthropy (GEO), 156, 207 grantmaking, 11, 113, 129–32, 196 grassroots organizing, 270, 280, 316 “grasstops,” 270 Great Bear Rainforest, 154, 189 Green, David, 253 greenhouse gas emissions, 43–44 Green Meadows, 84–87 Green Revolution, 120, 189, 310 group decision making, 196 groupthink, 197 growth rate of assets, 306–7 Gruber, Jonathan, 264–65 Gugerty, Mary Kay, 83 GuideStar USA, 208, 296–97 gun ownership, 31–32 Gym, The, 170–72, 175, 180–81 Haas, Richard, 234 Habitat for Humanity, 250 Haiti, 132–35, 137 hammer and nail analogy, 41

367

Hart, H. L. A., 288 Harvard’s Hauser Center for Nonprofit Organizations, 208 Hasso Plattner Institute of Design, 225 Hawaii Community Foundation, 192 Haydn, Franz Joseph, 341n9 Hayek, Friedrich, 275, 284 HCAN (Health Care for America Now!), 266 HCD (human-centered design), 225 HCZ (Harlem Children’s Zone), 152 health-care reform, 262–68 Health Insurance Association of America, 263 HealthStore Foundation, 248 heart of problem, get at, 46–47 Heinz Endowments, 156 Helmsley Trust, 24 Helping Hand Orphanage, 117 hepatitis C, 42 Heritage Foundation, 234, 282 heroin addiction, 86, 240 Heron Foundation, F. B., 155, 158, 178–79 Hewlett (William and Flora) Foundation, 309; conservation in American West, 125; and family planning, 120, 237; heavy-duty construction pollution, 153– 54; lack of criticism from grantees, 146; Larry Kramer on, 202– 3; Madison Initiative, 58; NII (Neighborhood Improvement Initiative), 198–202; no mission statement, 128; OE program, 260; Performing Arts Program,

368

Index

Hewlett (William and Flora) Foundation (continued) 99; spending strategy, 309; supporting Creative Commons, 22; supporting OCW, 21; supporting OER, 23; Water Funders Initiative, 49; “worst grant” contest, 11, 138–39 HFCs (hydrofluorocarbons), 192–93 high-risk philanthropy, 106–9 highway shoulder markings, 52 Hirschman, Albert O., 150 History of Philanthropy (Open Philanthropy Project), 235 HistPhil, 207 Hitchens, Heather, 312 HIV/AIDS, 25–26, 40, 42, 116, 121, 124, 226, 246, 308 homelessness: action plan for, 62; activities/outcomes, 63; alternative approaches to, 55; framing of, 34–36, 38–42, 45; housingfirst programs, 53; permanent supportive housing program, 56–58; recidivism in, 104; Santa Clara County, CA, 102–3 (103); theory of change, 55–58; timevalue of grants for, 307; wraparound support services for, 53. See also “Casa” hospice care, 52, 206 Hospice Incorporated, 236 housing-first programs, 53 how might we? questions, 51 HRT (hormone replacement therapy), 77 human-centered design (HCD), 225 Humane League, 278

Humane Society of the United States, 278 “hundred flowers” strategy, 286 hurdle rate, 183 Hurricane Katrina, 155 hybrid approaches, 164–65 hydrofluorocarbons (HFCs), 192–93 “hyperrationalism,” 331n19 ICCT (International Council on Clean Transportation), 156 ideal, defining the, 32, 45 Ideas42 group, 240 ideation, 225 “idée fi xe,” 40 “identifiable victim effect,” 40 IDEO.org, 67, 225, 229–30, 342– 43n21 impact, 50, 76, 93, 171–77 Impact Driven Philanthropy (IDP) Principles, 210–14 Impact Fitness, 337n29 impact investments, 185–87, 303; concessionary and nonconcessionary, 165–71, 177–80, 183– 85; criteria for “impact,” 171–77, 185–87; path of, 180–81 impact investor, 174 ImpactMatters, 94, 97, 208, 297 implementing, preparing to, 71–74 importance criterion, 9 improving individual lives approach, 49 impure altruism, 162 Independent Sector, 207, 296 India childhood immunizations, 84–85 indicators or measures of success, 71–74

Index

indirect cost payments, 160–61 inducement prizes, 231–32 industry periodical advertising, 279 influencing behavior, 239–46 influencing policy makers, businesses approach, 49 information about nonprofit organizations, 208 information deficits, 241 infrastructure, 204 inner-city school children problem statements, 41 “innovation,” 52 innovation curve, 216–18 (217) Innovations for Poverty Action, 88, 208 institutional knowledge versus stagnation, 309–11 insulin, 51 intended ultimate outcome, 53–54 intermediary regranting organizations, 194 intermediate outcomes, 55, 62, 74 International Conference on Population and Development (UN, 1994), 237 International Council on Clean Transportation (ICCT), 156 International Monetary Fund, 10 inverse correlation, 77 investee enterprises, 171–72 investment impact, 174–75, 182 investor relations, 279, 280 IRIS (Impact Reporting and Investment Standards), 172–73 IRS 990 tax returns, 297, 301 ITNs (insecticide-treated nets), 43, 45, 66–68 (68), 96–97, 228, 248–49

369

James Irvine Foundation, 331n19 Jane Austen Society of North America, 222 Jobs, Laurene Powell, 298, ix job-training program, 123–24 John Locke Foundation, 275 John M. Olin Foundation, 284, 309 J-PAL (Abdul Latif Jameel Poverty Action Lab), 84, 88, 208 J. Paul Getty Trust, 302 jump-starting versus sustaining, 309 junk food in public schools, 271 “ just say no” drug education program, 90 KaBOOM!, 136 Kaiser Family Foundation, 265, 270 Kania, John, 58, 194 Karlan, Dean, 83, 87–88 K-CEP (Kigali Cooling Efficiency Program), 193–94 Kelley, David, 225 Kellogg, W. K., 139 Kenya, 248–49 Khan Academy, 22–24 Kickstart, 253 “Kigali Progress Tracker,” 194 Kingdon, John, 268 KIPP charter schools, 90 Kirsch, Vanessa, 11 Kiva, 165, 174, 180, 335n2 knowledge, developing and disseminating, 203–6 Koch brothers, 24, 275, 276 Kouchner, Bernard, 253 Kramer, Larry, 58, 198, 202–3, x Kramer, Mark, 58, 194 Kresge Foundation, 168 Kroc, Joan, 222

370

Index

LaMarche, Gara, 266 Lambda Legal, 282 large-cap publicly traded companies, 178–79 Latino Giving Circle, 191 Laura and John Arnold Foundation, 24, 48 Lavizzo-Mourey, Risa, 263 leading horse to water analogy, 63 legacy, 295 Legal Defense Fund, NAACP, 289 Lessig, Larry, 22 LGBTQ issues, 191, 273–74, 288 Light, Paul, 253 likelihood of success (LOS), 107 limited liability companies (LLCs), 294–95, 298–99 listening, 41–42, 141–42 “Listening to Those Who Matter Most, the Beneficiaries” (Twersky, Buchanan, Threlfall), 141–43 litigation strategies, 282–83 “livable wage” campaign, 123–24 Living Earth, 337n29 Living Goods, 258 LLCs (limited liability companies), 294–95, 298–99 local conditions, 86 local ethnography, 6 local implementation, 85–86 “logic model,” 61 LOI (letter of inquiry), 130–31 London School of Economics, 208 longitude prize, 231 long-term support, 148–51 (150), 155–59, 162–63, 259–61 LOS (likelihood of success), 107 Lynde and Harry Bradley Foundation, 19–20

MacArthur Foundation, 194, 232, 237, 310 “Madison Initiative,” 58–59 Magnolia Community Initiative, 338n13 Malawi, 37 “managerialism,” 331n19 Manne, Henry, 284 Mao Zedong, 286 Marie Stopes International, 229 market adoption, 218 markets, commercial, 227–28 market versus nonmarket-based solutions, 246–49 marriage equality, 273–74 Marshall Institute for Philanthropy and Social Entrepreneurship, 208 Martin, Roger, 252 Maryland, State of, 104 Massive Open Online Courses (MOOCs), 22 matching technique, 79–82 materiality, 140 Mathematica, 89, 208 Mathematical Society of England, 219 mature organizations, supporting, 259–61 maturity stage of innovation, 218 maximizing expected social return, 24–27 Mayer, Jane, 276 McCord, Joan, 89 McCrory, Pat, 276 MDRC, 208 media coverage, 245–46, 270 membership organizations, 207 Merchants of Doubt (Orestes and Conway), 246

Index

methamphetamine addiction, 86, 154–55 MicroEnsure, 166 microfinance, 253 Miller, Jane, 249 Miller, John, 285 Miller, Mauricio Lim, 253 mind-set of strategic philanthropy, 24–27 Miner, David, 275 mission-related investments (MRIs), 168, 183–84, 295 mission statements, 127–29 M-KOPA, 167, 171 Molina, Mario, 221 monitoring process, 136–38 Montessori, Maria, 252 Montreal Protocol, 192–94, 221 MOOCs (Massive Open Online Courses), 22 Moon, Nick, 253 Moore Foundation, 128, 168 More Than Good Intentions (Karlan and Appel), 88 Morse, David, 264 Moscowitz, Dustin, 8–10 malaria and bed nets, 43, 45, 66– 68 (68), 96–97, 228, 248–49 Moyers, Bill, 236 MRIs (mission-related investments), 168, 183–84, 295 Muehlhauser, Luke, 235 multiple perspectives, 51 multiple programs, organizations with, 140–41 museumgoers, 119–20 Moskowitz, Dustin, ix NAACP Legal Defense Fund, 289 NARAL Pro-Choice America, 282

371

Nashville, Tennessee, 256 Nathan Cummings Foundation, 236 National Academy of Social Insurance, 265 National Campaign to Reduce Teen and Unplanned Pregnancy, 269 National Cancer Institute, 236 National Center for Family Philanthropy, 207 National Center for Responsive Philanthropy, 207 National Commission on Energy Policy, 271 National Public Radio, 222 Natural Resources Defense Council, 282 needle-sharing, 42 NEETs (“Not in Education, Employment, or Training”), 169 negative correlation, 77 negotiated general operating support, 151 Neighborhood Improvement Initiative (NII), 198–99, 201–2 neoliberalism, 284 net value (expected value/return), 93 Newark, New Jersey public education, 144–45 New Life Church, 273 New Profit, 11 NewSchools Venture Fund, 255–59 New York City Voucher Experiment, 90. See also Robin Hood Foundation NFP (Nurse-Family Partnership), 88, 190 Nightingale, Florence, 252

372

Index

NII (Neighborhood Improvement Initiative), 198–99, 201–2 Nike, 281 911 phone emergency line, 52 Nobel Prize, 220–21, 232–33, 252, 341n4 nonconcessionary investments, 165, 168–71, 178–85 North Carolina Family Policy Council, 275, 351n55 novelty, 52 NSF (National Science Foundation), 21 “nudges,” 240–43 Nurse-Family Partnership (NFP), 88, 190 nurse-practitioner, 52 Obamacare, 262–69 obesity, 41, 215–16, 240 OCW (OpenCourseWare), 21–22 OE (organizational effectiveness) grants, 259–61 OEPA (One East Palo Alto), 199–200 OER (open educational resources), 21–24 Olin Foundation, 285 Oliphant, Grant, 156 Omidyar, Pierre, 298 ON (Omidyar Network), 166, 168– 69, 179–80 ongoing support, 148–51 online videos, 280 On Our Own Terms (Moyers), 236 OpenCourseWare (OCW), 21–22 open educational resources (OER), 21–24 Open Philanthropy Project, 8, 12, 206, 235, 278–79

Open Society Foundations, 24, 288 Open Society Institute, 236 opioid addiction, 106, 110–11, 240 opportunity gap, 232 Opportunity Scholarship Program (OSP), 90 oral rehydration therapy, 240 Orestes, Naomi, 246 organizational cultures, 197 organizational structures, 293, 297–303; “checkbook philanthropy,” 297–98; factors in selecting, 293–97; LLCs (limited liability companies), 298–99 organizations with multiple programs, 140–41 Osberg, Sally, 252 OSP (Opportunity Scholarship Program), 90 outcome data, 92–94; rating charities on, 94–97; valuation of, 106 outcomes, 53–56 (54, 55), 59–63 (62, 63), 71–75, 93, 136–137, 172 outputs, 62–63 (63), 74 overdependence, 157 “overhead aversion,” 161–62 “overhead-free donations,” 162 overpopulation, 237 Pacific Legal Foundation, 283 Packard Foundation, 120, 168, 237, 309 PACs (political action committees), 295 “Pareto in the Pines,” 284 “partners,” grantees as, 36–37 passion, 10–11 patient-centered care, 9 Pay-for-Success (PFS), 100–106, 170 payouts, foundation, 304–5

Index

PCF (Peninsula Community Foundation), 199–200 “peanut butter philanthropy,” 127 peer-to-peer microfinance, 165 pencil sharpener (Rube Goldberg), 64–65 (64) “perceptual feedback,” 142–43 permanent supportive housing, 62 “Permanent Supportive Housing: Assessing the Evidence” (Rog et al.), 57–58 perpetuity foundations, 295, 304–5 personal concerns in spending decisions, 312–13 Peru, 240 Petersen, Julie, 257–58 Pew Charitable Trusts, 194 PFS (Pay for Success) contract, 100–106, 170 Philadelphia Foundation, 192 philanthropy: active role, 153–55; versus charity, 250–51; highimpact, 145–47; high-risk, 106– 9; organizational structures, 293, 297–303; as problem or opportunity, 31 Philanthropy Roundtable, 21, 207 Philanthropy Workshop, 208, 210 Picker, Harvey, 9 pilot programs, 229 Pitt, Brad, 280 playgrounds in poor neighborhoods, 136 PLOS (Public Library of Science), 21 pluralism, philanthropy promoting, 315 Podesta, John, 234 Podolny, Joel, 11 points of view, 31

373

policy advocacy, 49, 108, 268–77 policy research institutions, 234 political action committees (PACs), 295 political and social movements, 283–89 political contributions, 303 political weight, 269–70 pollution, 117 Poor Economics (Banerjee and Duflo), 88 Pope, James Arthur (“Art”), 275– 76, 315 population field, 237 Population Services International, 51 Population Services International (PSI), 248 pop-up nail salons, 229–31 Posner, Richard, 315 Pottery Barn rule, 316 premature solutions, 40–41 premortem, performing a, 68–70, 74–75 preparing for failure, 226 preparing for success, 227–28 preparing to implementing, 71–74 pre/post (before/after) technique, 78–79 present versus future needs, 305–6 Prewitt, Kenneth, 315 principles, authors’ proposed, 316–17 PRIs (program-related investments), 167, 295 prisoner’s dilemma game, 36 private-equity investments, 179–80 private grantmaking foundations, 300–302 private operating foundations, 302

374

Index

Prize, The (Russakoff), 144 prize money, 231–32 problem: 3, 29, analysis, 31–32, 46– 47; framing, 32–33, 37–38; understanding problem causes, 42–45; “Why is that a problem?” exercise, 34–36. See also defining the problem, scope of problem, problem causes, problem description, problem solving approaches, problem statements, “wicked” problems problem causes, identifying, 47 problem description, writing a, 47 problem, scope of, 117–19 problem solving approaches, 48–50 problem statements, 38–39; avoiding premature solutions, 40–41; examining empirical assumptions, 41–42; identifying intended beneficiaries, 39–40 professional staff fees or salaries, 296 program evaluations, 87–91 program officers, 205 progress, measuring, 14 Project Impact, 253 Project Welcome Home, 102 promoting knowledge approach, 48–49. See also Chapter 13 [why not page numbers?] proposals, soliciting and evaluating, 130–32 ProPublica, 222 prototyping and testing, 225, 230–31 “proven effectiveness,” 140 PSI (Population Services International), 248 psychological “nudges,” 240–43

public charities, 294–95 public-interest litigation, 109 public libraries, 51 Public Library of Science (PLOS), 21 Pulitzer Prize, 233 “pulling plug on grandma,” 270 Putting Wealth to Work (Fleishman), 310 QALYs (quality-adjusted life-years), 93 “quasi experiment,” 83 Queer Youth Fund, 191 questioning objectives, 33 Rabi, I. I., 220 RAGS (regional associations of grantmakers), 207 Raikes Foundation, 208, 210 Rand, Ayn, 275 rate cards, 105–6 Randomized controlled trials (RCTs), 82–84, 89, 94, 101, 105 recidivism, 101–2, 104 recognition prizes, 232–33 redistricting plans, 276 Redstone Strategy Group, 206 regranting organizations, 293 Reich, Rob, 315 relationship building, 279 release on own recognizance, 52 reliable support, 156 religious freedom laws, 274–75 Republican Legislative Majority, 275 Republican Party (US), 273–75 reputation management, 281 research, 223–29

Index

“Research Groups Boom in Washington” (Bumiller), 234 research-informed strategy (in IDP), 211 research institutions, 234 “return on investment,” 108, 109 reviewing strategies, 135–36 Richard and Rhoda Goldman Fund, 307 Rise Fund, 185 Rise of the Conservative Legal Movement, The (Teles), 285–86 risk and growth capital, 151–53 Robert Wood Johnson Foundation (RWJF), 310; and Affordable Care Act, 262–66; end-oflife palliative care, 236; Fighting Back initiative, 15–16; knowledge sharing, 202; reducing tobacco use, 17–19; transparency practices, 205–6 Robin Hood Foundation, 13–15, 93, 98–99, 103, 162 Rockefeller Brothers Fund, 184 Rockefeller Foundation, 120, 194, 237, 310 Rockefeller Philanthropic Advisors, 206 Rogers, Everett M., 219 Roob, Nancy, 127, 190 room for more funding, 95 Room to Read, 253 Root Capital, 166, 181–83 root causes, 43–45, 96, 316 Rosenberg, Claude, 304 Rosenwald, Julius, 305 Roy, Bunker, 253 Rube Goldberg pencil sharpener, 64–65 (64) Rubicon Programs, 249

375

Ruma, 169 Russakoff, Dale, 144 Russell, Patty, 58 RWJF. See Robert Wood Johnson Foundation (RWJF) Sacramento, California, 283 Safaricom, 178 salmon depletion problem, 43 Sandler, Herbert and Marion, 222 Santa Clara County, CA, 102–3 (103), 105, 170 SASB (Sustainability Accounting Standards Board), 184 Saunders, Cicely, 235 scaling organizations, 251–59 “Scared Straight” program, 90 Schambra, William A., 316 Schmidt, Mark, 271–72 school vouchers, 19–20, 52, 90, 328n16 “school-within-a-school” academies, 143 Schroeder, Steve, 17 Schumpeter, Joseph, 251 Schwab Foundation for Social Entrepreneurship, 254 Science Philanthropy Alliance, 221 scope of problem, 117–19 Scott, Ed, 9–10 Sears, Roebuck & Co., 305 second-track diplomacy, 109 selection bias, 81, 82 Self-Help, 250 “sellers,” grantees as, 37 service delivery, 13–14, 49, 107, 137 Service Employees International Union, 263 Sesame Street, 51 Shannon, Claude, 220

376

Index

shareholder activism, 184, 281 Siebel, Thomas and Stacey, 154–55 Sievers, Bruce, 108, 109–10 Silicon Valley Social Venture Fund (SV2), 190–91 single issue focus, 279 Skoll Foundation, 254 Skopos Investment Fund, 181 small cube programs, 119–20 SMART metrics, 72–73, 75, 133, 136–38 “smell test,” 317 smoking cessation: behavioral strategies, 240–43; changing cultural norms, 243; cigarette taxes and, 262; industry working against, 246; prohibitions in public spaces, 18, 262; RWJF–tobacco agreement, 271; “SmokeLess States programs,” 17 Snow, John, 43, 276 social and political movements, 283–89 social entrepreneurship, 251–54 Social Finance, 101 socially responsible investments (SRIs), 168, 183–84, 295 “social marketing,” 51 social media, 280 social mission, 176 social motivation, 164 social neutrality, 164 “social return on investment” (SROI), 109–10 social value: creating, 175–79; measuring, 181–83 Social Venture Partners, 210 solar-powered lighting, 167 solutions: to behavioral barriers,

68; range of, 43–45; to the right problem, 223 Soskis, Benjamin, 18, 264, 266, 348n2 South Carolina, 88 spaghetti against the wall solutions, 58 spending, magnitude of, 294 “spread betting,” 286 SRIs (socially responsible investments), 168, 183–84, 295 SROI (“social return on investment”), 109–10 staff, 296 stage of development, 139–40 stakeholders, identifying, 74 Stanford Center on Philanthropy and Civil Society, 210 Stanford Social Innovation Review, 207 Stanford University, 208, 225 starting and scaling organizations, 251–59 statistical significance, 81–82 St. Christopher’s Hospice, 235 Stid, Daniel, 142 “Strange Bedfellows” Coalition, 263, 270 strategic philanthropy: defined, 5; mind-set of, 24–27 “Strategic Philanthropy for a Complex World” (Kania, Kramer, Russell), 58 strategy: assistance in, 296–97; necessity of, 10–11 Strive Partnership/StriveTogether, 195 structures. See organizational structures success: “a lousy learning environ-

Index

ment,” 11; assessing, 71–74; counterfactual, 12; how to measure, 10; preparing for, 227–28 succession, 295 supporting organizations, 293 Sustainability Accounting Standards Board (SASB), 184 Sustainable Growth Fund, 175 sustainable philanthropic support, 218 sustaining versus jump-starting, 309 SV2, 208 SVPI (Social Ventures Partners International), 190, 208 targeted advertising, 280 targets, 71–74 task allocation, 195 taxes and charitable activities, 294, 298–302 technical support, 279 teen obesity, 123 teen pregnancy problems, 43, 132, 133–34, 229–31, 240 teen smoking, 123 Teles, Steven, 271–72, 285–86 Templeton Foundation, 208 TESSA (Teacher Education in SubSaharan Africa), 23 testing the design, 228–29 Texas Department of Transportation anti-litter campaign, 245 theory of change, 54–58 (54), 61, 63, 85–86, 307–9 think tanks, 234 Third Sector Capital, 102 Thomas, Franklin, 287 Thomas and Stacey Siebel Foundation Meth Project, 154–55

377

Threlfall, Valerie, 141–42 timing, 268–69 tobacco companies, 241, 271 Tocqueville, Alexis de, 316, 357n7 Tom’s Shoes, 249 TPG, 185 tracking progress, 71–74 tractability criterion, 9 Transcend Education, 256 transparency, 95 transparency, philanthropic, 204–6 trial and error, 58 Trojan condoms, 246 troubled youth programs, 89–90 Trump, Donald, 20 tuberculosis and homelessness, 42 Tuna, Cari, 8–10, 206, ix Twersky, Fay, 141–42 UCC (Uganda Cocoa & Commodities), 183 ultimate outcomes, 55, 59, 62, 71, 74 unanticipated consequences, 70–71 undercover investigations, 278 underfunding of grants, 159–63 UNICEF, 246 United Nations: Millennium Development Goals, 37–38; Sustainable Development Goal, 38 United States Chamber of Commerce, 263 university-based research centers, 208 University of Miami, 284 “unrestricted” (general) operating support, 148–51 (150) unwanted pregnancies, 240 US Department of Labor (DOL), 101

378

Index

Usefulness of Useless Knowledge, The (Flexner), 221 vaccination programs, 26, 85, 109, 224 Valor Academies, 256–57 Vanguard, 299–300 venture philanthropy, 254–59 venues, 269 Victor (Kiva loan recipient), 165, 174, 180 violence against women, 287 Volkswagen cheating scandal, 156 voter ID laws, 276 Voucher Experiment (New York City), 90 Wagoner, James, 89 Wald, Florence, 235–36 Walker, Darren, 41, 161 Walmart, 179, 278 Walter and Elise Haas Fund, 108 Washington, DC Opportunity Scholarship Program, 90 watchdog organizations, 207 Water Funders Initiative, 49 Wealthy and Wise (Rosenberg), 304 Weinstein, Michael, 13–15 WFF (Walton Family Foundation), 19–20 whack-a-mole solutions, 58 What Color Is Your Parachute? approach, 8

Whitaker Foundation, 309 “why?” exercise, 32–33 “wicked” problems, 58–59 Wikipedia, 21–22 Wiley, David, 21 William and Flora Hewlett Foundation. See Hewlett (William and Flora) Foundation W. K. Kellogg Foundation, 139 women’s movement, 286–89 Wood, John, 253 word choice, 245 World Bank, 10 World Health Organization, 95 “worst grant” contest, 11, 138–39 wrap-around support services, 53, 54, 73, 76–80 “Write an Effective Problem Description,” 47, 59 Writers and poets, 221 XPRIZE Foundation, 232 Youth Villages, 190 YouTube, 280 Yunus, Muhammad, 252 Zambia, teen pregnancy in, 229–31 Zen philosophy, 32 Zuckerberg, Mark, 144–45, 298– 99, ix