New (and improved) Thinking

I recently read something very promising in an online post by Darren Walker.

… our aim is to ask not, ‘How do we make this grant successful? but rather, How do we help make this organization successful?’”

Mr. Walker is the President of the Ford Foundation, and his post was a big announcement, at least in the world of philanthropy. The reason it was a big announcement requires some insider’s perspective that I will try to explain here.

Foundations, non-profits, charities, etc. have certain privileges. Most notably, the income they generate from their well-invested endowments or from donations, are exempt from taxes. The underlying rationale is that these organizations are doing good things for society in furtherance of their charitable purpose; namely the reason for which they exist.

In the case of private foundations, most of them are born from the economic success of an entrepreneur and their desire (referred to as donor intent) to provide or fund specific activities. For example, Jeff Skoll established the Skoll Foundation to pursue his vision of a sustainable world of peace and prosperity. And most people know of the Bill and Melinda Gates Foundation, funded by Bill Gates’ success with Microsoft, for doing great work all over the world.

In both of these examples, donor intent is clear because the donor is still alive and can articulate for themselves what they want done in their name. For older foundations however, established by the largesse of deceased benefactors, divining donor intent is the responsibility of the Board and senior staff. They are also charged with the fiduciary oversight to deploy the resources of the Foundation effectively and efficiently. And this is where it has become mirky for some.

Under the auspice of fiscal responsibility, grant makers have increasingly subjected would-be grantees to a litany of requirements (some very significant and absolutely appropriate) that sometimes spawn unintended consequences.

One such consequence originates from a preference of foundations to fund new things. New things are preferred by some foundations so they can be the first (or only) to attach their name to an effort, and later reap the intellectual adulation for the eventual success. But this forces grantees in some cases to abandon successful programs in favor of launching (relaunching) something ‘new’ simply to qualify for the funding upon which they are dependent.

Another challenge, addressed specifically in Mr. Walker’s post, has been the practice to disallow funding for general operating expenses. This practice grows in popularity when the stories of charitable malfeasance are exposed in the media. Rather than invest time to perform due diligence on the grantee’s finances and operational practices, the work around has become to simply restrict the funding to specific tasks; as if this might provide some magical wall preventing the potential misuse of funds. This is, of course, flawed logic.

The significance of Ford’s new position is that they are exposing the flaw in this thinking and shifting the focus from grant specific concerns to organizational success. Presumably, if the organization is successful, they will be good stewards of the foundation’s resources, and therefore fulfill their grant obligations. And since it is one of the biggest foundations in the world, often held out as an exemplar, others take note.

Equally notable was the process they followed to come to this new thinking. They risked reputation and egos to crowd source feedback about themselves from the masses. Mr. Walker writes that he received over 2,000 candid responses, some of which not flattering to the foundation and not easy to hear. But that demonstrates courage, which is a value found in great leadership.

And that courage was rewarded with insight that is informing how the Ford Foundation will commit up to $1 billion dollars over the next five years. This entrepreneurial approach is a fitting homage to their founder and a great example for others. Let us hope that the philanthropic community is paying attention and others will be inspired to likewise share learning and best practices. Doing so will ultimately better serve the public interest while honoring donor intent.

About the author …

Thom Ruhe currently serves as CEO of the Entrepreneurial Learning Initiative. Prior to joining ELI, he was the Vice President of Entrepreneurship (and program officer) for the Kauffman Foundation, where he made and managed grants to organizations that advanced economic independence through entrepreneurship education and experiential training.