What was almost unimaginable a year ago — frozen credit markets, collapsing home prices, rising unemployment, a deepening recession — is all too real today. From Rust Belt cities to California exurbs, from Main Street to Wall Street, the whirlwind unleashed by the bursting of the biggest credit bubble in a century has wreaked havoc on the markets, on the economy, and on the hopes and dreams of ordinary Americans.
Nonprofits find themselves in an especially vulnerable position, squeezed by declining revenues, growing demand for their services, and a public sector whose ability to meet its obligations looks shakier by the day. At a summit in New York recently, Paul Light, professor of public service at New York University, predicted that at least 100,000 nonprofits nationwide would be forced to shut their doors by the economic crisis over the next two years and called on foundations to do more to create a safety net for social service groups.
The debate over what philanthropy can or should do to address human suffering and the great problems of our time is as old as philanthropy itself. As Paul Brest, president of the William and Flora Hewlett Foundation, one of the nation's largest private foundations, writes in his new book, Money Well Spent — A Strategic Plan for Smart Philanthropy: "...the history of philanthropic efforts to improve the world — from reducing drug addiction to ameliorating global disease and poverty — demonstrates how difficult it is to actually make a difference."
In October, Philanthropy News Digest spoke with Brest about the impact of the economic crisis on Hewlett and other foundations, the importance of a strategic approach in philanthropic work, the key elements of such an approach, and why the stakes have never been higher.
Before joining the Hewlett Foundation, Brest was a professor at Stanford Law School, where he served as dean from 1987 to 1999. He teaches a course on Judgment and Decision-Making in the Public Policy Program at Stanford and is co-author of a forthcoming book on Problem Solving, Decision Making, and Professional Judgment.
Philanthropy News Digest: So, here we are fourteen months into what some are calling the worst financial crisis since the Great Depression. How has the Hewlett Foundation been affected by the turmoil in the markets? And should we expect to see the foundation's overall grantmaking decline in 2009?
Our grants budget for next year will be down a little bit, but we feel we'll be able to keep the reductions manageable....
Paul Brest: The value of our endowment has declined significantly. One difficulty that many endowments have is trying to value alternative assets; if you have them, it's a little bit harder to get an accurate valuation. But there's no question that it's down. Nevertheless, we plan to make good on all of our existing commitments. Our grants budget for next year will be down a little bit, but we feel we'll be able to keep the reductions manageable. We have a range for our payout, and we'll probably be paying out closer to the high end of that range. We have also been working over the last couple of weeks on reducing our administrative costs in a way that does not impact the strategic nature of our grantmaking.
PND: Based on your conversations with colleagues and friends, are other foundations — in the Bay Area and around the country — in the same boat?
PB: Everybody is in the same boat with respect to the decline of their endowments. But I have not heard of a major foundation that has said it is not going to keep its commitments in 2009. And my guess is that most foundations are going to look to reduce their administrative costs.
PND: In a conversation I had last month with Matthew Bishop, the New York bureau chief of The Economist and co-author of a new book about philanthrocapitalism, Bishop suggested that this is precisely the moment when wealthy donors and foundations need to step up and extend themselves on behalf of their grantees and the nonprofit sector. Do you agree?
PB: I would put it differently. This is a moment when individuals and foundations need to be very focused and intentional in what they do. If ever there were a time when strategy and clarity about goals was important, this is the time. In terms of foundations stretching themselves, that goes to the fundamental question, which we address in the book, of whether foundations should exist in perpetuity or should spend themselves down over a fixed period of time. Especially for foundations not committed to perpetuity, this may indeed be a time to stretch.
PND: Is this a time for foundations to be raising their risk profile?
PB: The risks a foundation takes have to do with what it expects the social return on its investments to be at any given time. I'm not sure that the current financial situation changes that in any significant way.
PND: A few days ago, I learned that Changemakers, a ten-year-old nonprofit in your region that worked to raise awareness of social justice issues, was shutting its doors, a victim of the economic downturn. Can we expect to see more of that as the economic crisis drags on? And is that necessarily a bad thing?
Times of crisis provide opportunities as well as challenges....
PB: We're going to see more organizations struggling to survive, and I agree with the implication of your question. Times of crisis provide opportunities as well as challenges, including opportunities for consolidation among weaker organizations that otherwise might have to shut their doors. The difficulty is when a strong organization ends up having to shut its doors, not necessarily because of a lack of efficacy, but because its donors, for whatever reason, are not there for it when it needs them. Foundations that care about organizations in a particular field should pay particular attention to those kinds of situations.
PND: What is your view of mergers in the nonprofit sector?
PB: My view is that there is not enough pressure for mergers in our sector, and a time like this is an opportunity to look for good mergers, if circumstances warrant it.
PND: Can you give us an example of a good merger?
PB: Well, I would mention the merger that we and a number of other Bay Area foundations helped facilitate between two large community foundations in our region, the Peninsula Community Foundation and the Community Foundation Silicon Valley. The idea for the merger did not come from us; in fact, one thing I've learned in almost nine years of philanthropy is that ideas of that sort have to come from the organizations themselves. So, we supported the merger, but we did not press for it.
PND: Has it been a success?
PB: It was a complicated merger of two different cultures and things are on the right track, though it's probably too early to say definitively that it has been a success.
PND: In addition to maintaining their grantmaking commitments, what else can foundations do to help grantees survive these tough economic times?
PB: Providing funding to help grantees achieve shared goals is what foundations do best. But sometimes we're also able to provide technical assistance. Some funders even specialize in providing technical assistance, and this is a time when foundations that do that, or have the ability to do that, should really be thinking about it.
PND: You've written a book with Hal Harvey, a former Hewlett Foundation colleague, called Money Well Spent - A Strategic Plan for Smart Philanthropy. Why did you and Hal write the book?
PB: We wrote the book because our intuition told us that this was a field — and we've both been in the field for a while — in which a lot of money was spent in a relatively unfocused way. By that I mean, not focused on achieving the goals that philanthropists or foundations had set for themselves. Our goal in writing the book was to do something to change that.
PND: On the Web site created to support the book, you've posted a piece by a noted expert in the field that talks about a looming paradigm shift in philanthropy. Do you believe the field is on the threshold of a paradigm shift? And, if so, what are its characteristics?
PB: "Paradigm shift" is a capacious concept, but we are seeing real change. Indeed, there has been significant change in the field in the short period that I've been in the sector and much of it has to do with moving in the direction of being more intentional and adopting strategies that are outcome- and solution-focused. That's not really new. John D. Rockefeller was very problem- and outcome-oriented, but a lot of philanthropy today is not. I've heard a lot more talk over the nine years that I've been in philanthropy about those concepts, and action is beginning to follow the talk.
PND: You spend a good deal of time in the book laying out a framework for philanthropists who want to work strategically. That framework has a number of elements, including the need for clearly defined goals and a theory of change, the importance of tracking outcomes and making mid-course corrections, and publicly stating and sharing your findings as well as failures. Can you briefly explain why each of those is important?
Clarity of definition is the starting point, and strategy follows from that....
PB: It starts with goals, because if you don't know where you're going, there is little possibility of focusing your resources. Given the limited resources that any foundation has, we make the argument that doing too many things will strain those resources. In other words, you're probably better off doing a few things well than spreading yourself too thin. But regardless of how many goals you have, each one needs to be clearly articulated. If they are not, then it's hard to know where the money is going or whether you've succeeded in achieving the change you want. Clarity of definition is the starting point, and strategy follows from that.
PND: I think there's some confusion in the field about theories of change. What are they? And how do they relate to goals and outcomes?
PB: A theory of change is an empirically based set of causal links that lays out how you plan to get from point A — the way the world is right now — to point C or D, the world you want. Take climate change as an example. You might believe that CO2 emissions contribute to global warming, in which case your theory of change would hold that reducing CO2 emissions will reduce the rate of global warming. But without a theory, you wouldn't know where to begin to slow global warming. Of course, the next step, in the case of climate change, is to figure out how you're going to actually reduce CO2 emissions. You could support advocacy efforts aimed at reducing the number of coal-fired power plants in operation, or efforts designed to induce individuals and businesses to change their behavior with respect to their energy choices, or efforts to develop a carbon cap-and-trade system, or something else entirely. The point is, without a theory of change, you don't have a basis for a strategy. Now, theories of change are often intuitive, and intuitions are often wrong, so having a theory of change that is supported by facts will greatly improve your chances of success.
PND: You also stress the importance of tracking outcomes. But you suggest that outcome tracking should be a process rather than a one-time event that marks the end of a grant.
PND: Given the costs involved, should foundations fund that work, or is it the responsibility of the nonprofit doing the work?
PB: It probably should be a shared responsibility. But the reason you can't wait until the end of the grant is pretty straightforward. Let me use a navigation analogy to illustrate it. If you want to sail from New York to London, you're going to need daily, if not hourly, readings to tell you where you are, and you're going to need to make corrections to stay on course; if you don't, you could end up in Lisbon instead of London. Social change of the sort philanthropy tends to be involved in is a great deal more complex than navigating by GPS, but the principle is the same. You have to know your destination, you have to plot a course toward that destination, you have to check your progress against that course, and you have to make adjustments if you stray off course.
PND: Sounds logical. But, as we both know, there has been a fair amount of pushback over the last decade to the idea of outcomes tracking, particularly as it relates to social change work. Do you think the field is becoming more accepting of the value of outcomes tracking? And can you give us an example of a social change organization that is doing a good job of thinking about metrics?
PB: There are two sources for the pushback in this area, so let me mention those first before I answer the second part of your question. One is the worry that putting a focus on outcomes measurement means that foundations will only engage in activities that have clear, quantitative metrics, and I do think that it is a legitimate concern, a sort of teaching to the test and only worrying about test scores approach. But there are plenty of qualitative outcome measures as well, including areas such as the performing arts. And those kinds of measures allow you to learn things while a program or initiative is in progress, even when quantitative measures are not readily available.
The other source of pushback has to do with the amount of thought required at the beginning of a grant in order to establish clear, well-articulated goals, a theory of change, and so on. Philanthropy is a field that embraces a fair amount of fuzzy thinking, and a focus on outcomes measurement pushes both philanthropists and nonprofits to be clearer about their goals, about their indicators of success, and about their thinking in general.
That said, there is an increasing amount of philanthropically supported work in which outcomes are tracked. Almost all serious funders of education, whether it's public education, charter schools, or vouchers, look for indications that their theory of change is valid and has the potential to make a difference. Take something like the KIPP program, which was started by Mike Feinberg and David Levin, two alumni of Teach for America, in the mid-1990s. One of their theories of change is that a longer school day contributes to better outcomes for disadvantaged kids, and they've been evaluating whether that's the case as the program has grown from a handful of schools to more than sixty. In the last few years, a number of foundations, including the Hewlett Foundation, have also supported randomized controlled studies that test whether that theory is correct. Obviously, there are other factors that may or may not contribute to better outcomes for disadvantaged kids, but without some way of testing what works, you have no basis for selecting one over another.
PND: The final building block of the framework you describe in the book has to do with the importance of communication, from articulating your goals and theory of change up front, to sharing the reasons behind any course corrections, to reporting final outcomes to a variety of audiences. We both know that many foundations tend to be reticent when it comes to talking about their work, for a variety of reasons. What would you say to your colleagues who are reluctant to communicate publicly about their work? And why might that be an especially important thing to do at this point in time?
Talking about what has and hasn't worked is how others learn whether they should follow a particular approach or not....
PB: The reason for talking about what has and hasn't worked beyond the discussions you have with your grantees is simple: that's how other foundations and philanthropists learn whether they should follow a particular approach or not. Imagine what the state of natural or social science would be if there were no discussions, no publications outlining one's successes and failures. Every field makes advances through the sharing of knowledge and subjecting that knowledge to peer review and criticism.
PND: Do you think the book gives short shrift to philanthropy as an altruistic enterprise, as some have claimed?
PB: That particular criticism misses the point of the book. Altruism is what motivates a philanthropist to make the world a better place, while the book is our attempt to help philanthropists and would-be philanthropists think about the kinds of goals they might have, how ambitious and risk-taking they want to be in pursuit of those goals, and then how best to achieve them. Once you decide you want to work to make the world a better place, which is what philanthropy is all about, that's the point at which strategy kicks in, or should kick in. Strategy doesn't tell you what goals to pursue, it doesn't tell you what your heart feels. But once your heart has decided that it cares about the arts or about poverty in Africa or disadvantaged kids in the United States, then you want to use your money as effectively as possible to accomplish that end.
PND: Is that another way of saying that individual philanthropists and foundations need to become a little more tough-minded in the way they approach their work?
PB: That's right. The real dichotomy between strategy and something else does not have to do with altruism, or the lack thereof. It might be what some people call "expressive philanthropy," where what you're trying to do is express yourself through philanthropy. Again, Hal's and my view is that the best way to express yourself is by having a clearly articulated goal and achieving it as effectively as possible with the resources at your disposal.
PND: We live in a time of great, transnational challenges, one of which is the threat posed by climate change. How is Hewlett working strategically to address the climate change issue?
PB: Regardless of the area of interest, most grantmaking foundations work to find strong organizations that have an effective strategy based on a sound theory of change. We're no different. In the climate change area, we've been working for many years with an organization called the Energy Foundation that Hal Harvey actually was the founder of. To give you just one example of the good work they do, the Energy Foundation has worked with the Chinese government to help design and implement auto emission and energy efficiency standards. In fact, a great deal of the work in climate change we're supporting involves using our resources to leverage government action, whether it's in the regulatory sphere or the spending area.
PND: Given the urgency of the climate change issue, would the Hewlett Foundation ever consider dipping into its corpus, as a few foundations have, to advance its work in that area?
|"...Because climate change could undermine achieving almost all other philanthropic and humanitarian goals, that's reason enough to spend now...."|
PB: Yes. And this goes back to the point I made earlier about spending money now rather than waiting. I'll admit, I was skeptical whether the eruption of a financial crisis, as such, was reason enough for dipping into our endowment. It may or may not be. But because climate change could undermine achieving almost all other philanthropic and humanitarian goals, that's reason enough to spend now. So we have made, as have other foundations, a number of large commitments in the climate change area that we're prepared to stay with no matter what happens to our endowment.
PND: As a grantmaker involved in the issue, how do you get beyond the fact that, whether we succeed or fail as a society to address climate change, we probably won't know the outcome for at least a hundred years?
PB: Well, this goes back to our discussion of tracking progress and having a sound theory of change. Now, with respect to climate change, those theories may differ from foundation to foundation. But the stronger your theory of change, the more tested it is and the more willing you and others are to get feedback and make course corrections, the more likely it is you will see results. You're absolutely right; we won't know for a century, maybe not even then, whether the Hewlett Foundation's work on climate change made a difference. But if we are rigorous and disciplined in our approach, we have a chance. That's the most we can say at this point.
PND: What is the biggest concern for philanthropy in the United States at this juncture?
PB: To go back to our motivation for writing this book, I would say that Hal's and my biggest concern, which can also be seen as an opportunity, is that there are too many philanthropic resources not being used in as focused a way as they could be to achieve intended goals. We're agnostic about goals. We don't say do climate change instead of land conservation, or education instead of health care. The premise of the book is that the resources of our field are not well-focused, and making sure those resources are allocated in a more focused way is important and a huge challenge.
PND: And if philanthropy rises to the challenge and allocates its resources more effectively over the next ten to fifteen years, what might be the result?
PB: We would see a noticeable improvement in educational outcomes for disadvantaged kids. We would see real progress in the fight against global warming. The results would vary sector by sector, and foundation by foundation, of course. But the world would be a better place, that I'm sure of.
PND: Well, thanks very much for your time, Paul.
PB: Thank you. It's been a pleasure talking with you.
PND editorial director Mitch Nauffts spoke with Paul Brest in October. For more information on the Newsmakers series, contact Mitch at email@example.com.