Foundations Are Free to Innovate

This essay is adapted from remarks delivered to university development officers in 2008.

Good evening, and thank you for this invitation to reflect with you all on a vocation of some 20 years in philanthropy, first with a medium-sized, family-run foundation, then with a major grant maker, Carnegie Corporation of New York. I had the good fortune to become engaged in a number of diverse programs in the course of this career, from the arts and culture to international peace and security—the trade that I currently ply at the John F. Kennedy School of Government at Harvard and at a New York–based think tank, the Carnegie Council for Ethics in International Affairs.

Uniquely Privileged Institutions

I would like this to be a conversation among us, and let me stimulate that conversation by making a few observations derived from personal experience.

First, foundations are uniquely privileged institutions. They are endowed, in perpetuity, unless they decide to "spend down" their assets over a defined, limited period of grantmaking. They do not have to engage in public relations or in marketing themselves to any "customer"—on the contrary, the "customer" (the grant seeker) has to market himself to the foundation. They do not, by definition, have to show a profit, and so are only financially "responsible" in terms of a 5 percent payout from assets (and even here, with the "rolling" payout situation under IRS provisions, they can fall below that figure in any given year if circumstances dictate). They cannot be voted out of office by any electorate, shareholder, or indeed any constituency.

Paraphrasing Alan Pifer, a former President of Carnegie Corporation, foundations are among the freest of all institutions in our society.

Second, foundations are hybrid public-private institutions. They are private in the sense that they are incorporated as a special category under nonprofit tax regulations. They are created from private wealth and enterprise, and they are self-generating and self-perpetuating. Foundations are public in the sense that, once given tax-exempt status, they exist for public benefit. They no longer "belong" to a private individual, family, or business entity, and must be administered with this broad public interest in mind.

Third, foundation resources—and this will sound almost sanctimonious—are a uniquely precious resource for society at large. Not, in general, by dint of their size, because most philanthropies are not of the Bill Gates or Ford Foundation scale—they tend to be quite small in terms of assets. Nor can they be seen as a replacement for the federal purse in paying for social programs. Their enormous value lies in the versatility and adaptability of their use.

When I was at Carnegie Corporation, organizations such as the International Research and Exchanges Board raised large sums from government agencies such as USIA and USAID, but they testified to the value of lesser amounts from Carnegie Corporation because the foundation placed far fewer restrictions and conditions on use of funds, and the application and reporting processes were less demanding on the receiving organizations. I am an unabashed advocate of general support grants to institutions the foundation has faith in and whose core missions it wishes to sustain.

There is, simply, no area of social funding quite like foundations—not individuals (the largest category of funders by far in the United States), not government, not the corporate sector.

Where "Venture Capital" Philanthropy Falls Short

So that's the good news: Foundations are agile beasts, creative in their conception and purpose. The less good news in actuality is that while foundations should therefore be risk takers, "venture capitalists," courageous in their vision and willing to accept "failure" in their grant making, the truth is that, while paying lip service to these principles, they all too often fall short.

I have recommended to foundation colleagues in the past a wonderful essay written more than 50 years ago, by Abraham Flexner, then a fellow at the Institute for Advanced Study at Princeton. It is titled "The Usefulness of Useless Knowledge." In it, Flexner extols the virtue of a creative mind, allowed to roam free, with often unforeseen consequential benefits. His point amounts to saying Isaac Newton did not sit under an apple tree with the intention of "inventing" the law of gravity!

This perhaps fanciful reference to Flexner nonetheless underscores what I believe foundations can do, almost uniquely so, but do all too infrequently: Invest in the best and the brightest, with no up-front "measurable outcomes" of what the "return" should be.

To take this one stage farther: Foundations, in their increasing preoccupation with "impact" and "outcomes," create a self-imposed dilemma that constrains their very philanthropic purpose, their essence. Think of the distinction that Andrew Carnegie himself made between philanthropy and charity. The fact is, I would argue, that much of what is cavalierly described today as philanthropy, for example the Gates Foundation's approach to curing AIDS in sub-Saharan Africa, is the highest, most urgent form of charitable activity. So too are homeless shelters and the like, and the distinctive advantage of such charities is that their "impact" is measurable, and immediate: One can report at the end of the day how many indigent citizens have been fed or sheltered.

Philanthropy is something else, and, most important, something almost always not immediately measurable. This is nowhere more true than in the area in which I am engaged, foreign policy and international peace and security. Indeed, at Carnegie Corporation we reflected wryly that our goal was not to make things happen, but to prevent them from happening (In the early 1990s the title of my program was "Avoiding Nuclear War"—and mission, so far, accomplished!) Put another way, to cite my all-time favorite foreign policy quote: When Chinese Premier Chou En-Lai was asked, circa 1962, by an eager young reporter what he saw as the most important lesson of the French Revolution, he responded, "It's too soon to tell."

To come back to my original point: The unavoidable and unpalatable fact is that foundations have become embroiled, to a quite unnecessary degree, in "results," "impacts," or, to use the term of choice, "evaluation" (both on the part of grantees and of themselves—they spend quite unconscionable amounts of money and staff time on self-evaluation).

Gara Lamarche, the new head of Atlantic Philanthropies, recently wrote a salutary and thought-provoking piece in the Financial Times, titled "Philanthropy can be made to measure." In it, he defends the central role of evaluation in foundation work, but within reasonable limits. I commend the whole article to you, but will offer here one excerpt that seems very germane:

Evaluation should measure only what is important. Data should never be collected for the sake of it. The "metrics" obsession that has overtaken some funders has not always recognized this. Funders should never make grantees jump through hoops, distracting them from their core mission and costing valuable staff time, for reporting on trivial things. And there is nothing more demoralizing, from the grantee's perspective, than doing all this paperwork, only to have it ignored. … Both funders and the organizations they support need more humility about cause and effect. Organizations working for social change should understand that no significant change was brought about by one organization working alone. Funders should acknowledge that the tendency of organizations to claim disproportionate credit for some policy advance has a lot to do with their need to impress funders.

I hope this foundation head means what he says, and is listened to by his peers!

Again to relate this to Carnegie Corporation days, we encouraged modesty and moderation on the part of grantees in assessing policy impact. And we sought to lead by example, by imposing the same restraint on ourselves. At most, in such assessment, we could discern what a colleague of mine termed "trace elements" of our work in advancing policy options. And we were always mindful of the familiar and helpful adage that one can achieve a lot in Washington if one is prepared not to seek credit!

Personality, Staffing, and Leadership

Finally, a word on staffing, and especially leadership, of foundations. To quote Alan Pifer again, as he reflected on some 30 years of empirical wisdom gained in philanthropy:

Often one talks about foundations in abstract terms, almost as if they were invested with a sentience and personality of their own, quite independent of the people who manage their affairs. Thus, one might hear that the "X" foundation is "imaginative," and the "Y" foundation is "liberal" or "conservative" and the "Z" foundation "stuffy," when in fact the speaker is referring to the characteristics of people in [foundations].

That is to say, leadership is all-important, as in any branch of human activity. And as to foundation leadership—realizing that this has a particular relevance to this group of university leadership individuals—at least a half dozen of the major foundations, in their last transition of authority, appointed former university presidents as their heads. In some ways, this makes good sense; the president of a university rules a complex, dynamic organism that provides, prima facie, a logical segue to running a foundation. But the transition is also a challenge, in that it brings a shift from what one foundation head described to me as a "culture of thrift," of shepherding valuable resources, to one of moving funds out the door.

At the program officer level, there is a discernible move away from the generalist to the specialist (This has always been an issue for foundations.). There is a self-evident logic to the specialist hire, given their "fit" to existing program priorities. But do they not inevitably come with preconceptions inherent in their very specialization that may unduly constrain the scope of what the foundation may do? And what if priorities change? Does one then fire the population expert, willy nilly, and hire a climate change expert? All this is to make a plea for the invaluable role of the well-rounded, liberal-education-endowed individual in philanthropy.

What do these perhaps random thoughts mean, in the end, for you grant seekers? They mean, of course, that grunt work must be done, guidelines followed, foundation "culture" understood, and evaluation reports faithfully submitted. It means that the personalities and profiles of foundation officers and leaders are hardly irrelevant to your strategies in approaching them. But, to come back to Abraham Flexner, I do so hope that you might, courageously, continue to engage the philanthropic community in a discussion of the "usefulness of useless knowledge." If not, I fear they will miss opportunities that are singularly theirs for the taking.