The State of the Philanthropic Union
A speech before the Better Business Bureau Symposiumby Lorie A. Slutsky, 2/26/09I have been asked to speak about the state of the philanthropic union. Here is a flash—it is not great and it will probably be worse next year. Dramatic declines in the stock market and a shaken economy mean less money for everything, including nonprofits. And because many foundations’ grants budgets are based on a percentage of average assets over several years, 2009 is not good, but 2010 is likely to be worse as it will include two years of really bad investment performance. Much of the recent growth in philanthropy has been fueled by Wall Street and technology titans, and most of them have suffered along with the economic downturn. And I do not have to tell any of you that the demand on all of us is growing.
On the other hand, we have just elected a community organizer as president. So I am hopeful. More and more Americans are now seeing the value—indeed the necessity— of our work. And in New York, we know that those who have the means will dig deeper, but the reality is that there are fewer who have the means.
We know what we have to do; the prescription is not new to us. Trim our budgets where we can. Look at each of our services and decide what we can do without. Get more efficient. Keep asking our donors to support us.
And show results. Not just the heartwarming storytelling that we have learned to do. It is the metrics—or at least, that is what some of the “new” philanthropists will tell you.
Although it is recently become the subject of philanthropy blogs, the clash of new versus old philanthropy is not really new anymore: One of its earliest practitioners, the Robin Hood Foundation, was started 20 years ago, and since then the old versus new debate goes something like the following.
Old philanthropy is usually found seriously wanting. Old philanthropists are hidebound, keep throwing money at the same problems, are unable to measure either their own work or the work of the nonprofits they fund, and put all kinds of strings on their grants, often leaving the grantees without the core support they need to carry out their projects.
New philanthropists, on the other hand, are far more ambitious, tackling huge, and often global, issues. They are far more strategic and hands-on, bringing the skills they acquired making millions of dollars to nonprofit ventures. They insist on benchmarks—and then hold their grantees accountable. And more recently, they have begun to talk about social capital markets, which would somehow turn donors into investors and grants into investments that produce a healthy SROI—social return on investment.
The debate, while it may appear to be academic, is not. It can affect what and who gets funded and for how much. The social capital market folks and groups such as Givingwell.org talk about supporting only groups that have proven their efficiency and can provide concrete results. Other new philanthropists take the venture capitalist or private equity approach—they roll up their sleeves, insist on board seats, decide which management consultants to hire, and generally move in so that they can take the organization from “good to great,” the title, tellingly, of a book originally written for business that the author, Jim Collins, rewrote for nonprofits. Incidentally, Mr. Collins does NOT believe that business models work for nonprofits.
What, you might ask, happens to the many small nonprofits that provide essential services in poor neighborhoods, many on shoestring budgets that do not include a bookkeeper, much less money for evaluations? What about advocacy organizations that have spent years trying to persuade politicians to do something about climate change? What about the music, dance, and visual arts groups, so vital to our City’s culture and prosperity, which always scramble for support? And what about those that deal with domestic violence, immigrants, hunger, drug abuse, juvenile crime, and other problems that most people do not want to even think about?
And, you might ask, what about other issues that take years and years of work with no guarantee of success? Almost 30 years ago, as a young program officer at The New York Community Trust, I made a grant to study the state’s Byzantine formula for financing public schools. The formula clearly discriminated against the City, giving us far less than we paid in state taxes, and completely ignored the fact that we had the highest proportion of English language learners, poor students, kids with only one parent, kids who are disabled, and those who live in shelters. Over the years, we supported a number of projects related to school financing, all of which diagnosed the problem correctly, and none of which found a solution. The first litigation we supported in the mid-80s argued that the formula was unjust and unconstitutional to discriminate based on property values. The court found that it was unfair—but it was not unconstitutional. When a group, the Campaign for Fiscal Equity, came together in 1993 to sue the State on the basis that the formula violated the State Constitution’s mandate guaranteeing a sound basic education to all New York kids, we made its first grant. We not only supported the litigation, but we also funded activities that brought upstate and downstate representatives—who rarely have anything in common—together to come up with remedies that would benefit all students. After several failed efforts, the State’s highest court mandated an additional 5 billion dollars for the City’s schools. Although the money has yet to be fully allocated, we are still involved, supporting the Campaign’s continuing push to realize the fruits of its victory—a better education for our kids.
By all accounts, our grants for this issue would surely have been judged failures at the 1-, 3-, 5-, or even 10-year benchmarks used by Wall Street. But we believed it was necessary and the right thing to do, even had the Campaign not scored such a stunning victory. The moral of the story: Correcting injustice is hard work with unpredictable paths to success.
I would also like to tell you about Sat Bhattacharya, who is a research scientist at Memorial Sloan Kettering. Dr. Sat, as his students call him, had decided to do something about the underrepresentation of minority and immigrant students in the sciences. In 2001, he got colleagues at several of the City’s prestigious research institutions to take motivated low-income students from schools in poor neighborhoods into their labs for the summer. When Dr. Sat applied to The Trust in 2003, the Harlem Children Society, as he called the program, had 17 students and 2 research institutes. He had paid the students stipends with a modest grant from the American Chemical Society and his own money. He was the lone, and unpaid, staff member. Now he was proposing to enroll 40 additional students in more labs, organize the first annual Harlem Science Fair, and rent office space. It was not a situation that inspired confidence but it was addressing an issue of prime concern to us. Maybe it was the underlinings, exclamation points, and exotic fonts in the proposal. Maybe it was Dr. Sat’s tag line: The purpose of souls is to assist one another. One of our program officers decided to investigate, and we made our first grant that year for $60,000. We are still funding Dr. Sat and there are now 199 students in 75 research institutions studying a host of topics I do not understand. The program is now year-round. Ninety-seven percent of the students are minorities, and fully 65 percent are young women. Graduates have gone on to great universities.
Would a venture philanthropist have stuck with school finance reform? I think not! Or funded a fledgling organization? I doubt it. Scalability does not happen instantly. All organizations start somewhere—and need capital to do it.
The reality is that old philanthropy has always been ambitious. We have always been concerned with a grantee’s ability to operate efficiently and have made grants to help improve operations. We have always expected results. We have always tried to get to the heart of the problem, and not just treat the symptoms. And we have always funded emerging issues and new ways to respond to old ones.
So new philanthropy may not be so new. And many of the venture philanthropy foundations that have been around for a bit are starting to sound more like traditional funders. Some have discovered that tackling huge and complex projects, even with lots and lots of money, takes time and involves failure. They are beginning to understand that results are hard to measure because many of the issues we support have multiple causes, and the impact of a particular grant, or set of grants, simply cannot be isolated.
Michael Edwards, who works at the Ford Foundation, wrote a book called Just Another Emperor: The Myths and Realities of Philanthrocapitalism. He believes that despite its great potential, new philanthropy “is flawed in both its proposed means and its promised ends. It sees business methods as the answer to social problems, but offers little rigorous evidence or analysis to support this claim, and ignores strong evidence pointing in the opposite direction.” He cites projects that have run into problems when they try to scale up, or that suffer mission-drift, reducing advocacy efforts, weeding out hard-to-serve clients, and focusing on revenue-generating activities.
And Bill Gates concurs. In his first annual letter this January, he wrote that “foundations are not needed in areas which capitalistic market signals work well and the poorest are not left out.”
Surely the new philanthropists have pushed old philanthropists to be bolder, and to pursue more vigorously the often-illusive goal of quantifying results. They have brought good ideas and much-needed attention to long-neglected problems. They have definitely brought a new vocabulary to the field.
But many of them are setting up their foundations to close down after a period of time. They cite the need to tackle today’s pressing needs now. They question the wisdom of old philanthropy, which historically sets up foundations to last forever. They say that tomorrow’s donors will take care of tomorrow’s problems. But where would we be this year and next if we depended largely on living donors and non-endowed foundations?
As the president of a community foundation whose discretionary grantmaking program is supported almost entirely by funds set up by will that were expressly left to help solve the unanticipated problems of future generations, I can tell you emphatically that we think both are necessary. We value the New Yorkers who give today and those who have ensured that our successors will have money that is not contingent on “irrational exuberance” in all markets and not restricted to today’s problems. We value foundations that have set themselves a goal and a timeframe in which to accomplish it. And we value foundations, such as Ford and Rockefeller, old philanthropists who have been ambitious, bold, and successful, and are in for the long haul. Pluralism is the core of American democracy. It demands that we respect difference and accommodate it. I believe that the current debate will fade as we all adopt and adapt to what works. But for the moment, I think that nonprofits have to pay careful attention to which kind of philanthropists they are asking for money and appeal to them in the language they understand and with the information they want. And make no mistake: even old-timers are looking for better measures of impact. It simply is not enough to tell us that 50 kids attended the after-school program or that you referred 50 families for housing counseling to prevent foreclosure. We all need to know what happened to those children and those families.
More immediate is another debate going on in foundations: do we change our grantmaking to respond to the pain, or do we stay focused on our long-term goals. Some of the large, national foundations have decided to stick with their existing programs and chosen not to make emergency grants. For a community foundation, the exercise is somewhat academic—our mandate is to improve the quality of life in New York City. The New York Community Trust’s board recently approved $10 million in grants, $7 million for “safety net” grants to nonprofits that provide food and shelter, and to legal services groups to help people with predatory debt collectors and a range of civil legal issues. To put it in perspective, we awarded $3 million last February. This also means that we will have less money to spend during the year, from a budget that has a bit less money than it did last year.
Some philanthropy commentators have said that the economic crisis presents us with opportunity. We are, after all, coming out of a decade of unprecedented abundance, which, while never enough, encouraged us to act as department stores used to stocking that “in” dress, and a lot more that were not popular, in every size and every color. So, too, foundations made grants to many groups for advocacy on the same issue, to add services to basic programs, and open satellites in every neighborhood. And we tried to make grants to every racial and ethnic group so that they could provide services in their own communities. These were all good things to do.
But the stores are now stocking only selected items, and relying on other locations to supply what they do not have. And though the comparison may seem to trivialize our efforts, for the department stores it is a matter of survival rather than opportunity.
I would submit it is no different for us. In tight times we all need to make better use of our resources. When the staff of my organization presented grant recommendations to our board earlier this month, we discussed what we would NOT be doing this year. We would not be funding new organizations. We would not be funding new programs. We would not be funding advocacy that pits one essential sector against another. We would not be funding important, but nonessential, services, nor would we support what we used to call Cadillac programs.
What we would be doing is trying to balance the need to help New Yorkers hit hardest by the recession with our commitments to long-terms goals. We would first focus on making sure that people stay in their homes and have enough to eat. We would fund nonprofits with proven track records so they can meet increasing demand. We would help nonprofits operate more efficiently through shared services and management improvements. And we would also continue to press for better health care for all New Yorkers, and ensure adequate funding for our public schools.
We need to remember the role foundations play in overall nonprofit funding—and in total charitable giving. I think that The Trust is not alone in our long-held policy of not making grants to replace government money. And because so many nonprofits get the bulk of their funding from government, that is where the major threat to the state of the philanthropic union lies. We hope that our grantees will see the wisdom of advocating collectively. We know from our experience that cooperative efforts can be fruitful, but they are challenging and they cannot be forced. So we will support joint projects that come to us, but not require them. We are also helping nonprofits get in early on discussions about how the federal stimulus package will be spent in the City.
You and I both know that this crisis is a way of life for far too many New Yorkers, who now face destitution. The good news—and maybe it is the only good news—is that, over the years, strong nonprofits have built networks of services and advocacy. That infrastructure has helped us weather fiscal crises in the past, including the period after September 11th.
This one is certainly different and uncertainty abounds. But given what the American people did in this last presidential election added to the legions of stalwart nonprofit professionals, we have good reason to believe that change will come.