The Business of Philanthropy: “Exit Interviews” with Former and Departing Foundation CEOs

Thursday, June 30, 2011

By Richard Smith, President, The Pinkerton Foundation

How has the increasing influence of the tools and techniques of business affected the world of philanthropy? That was just one of the themes of a panel I had the privilege of moderating recently at Philanthropy New York. Entitled “Exit Interviews,” the panel included three genuine leaders in the field: Susan Berresford, the former head of the Ford Foundation, and two current CEOs, Lance Lindblom of the Nathan Cummings Foundation and Chris DeVita of The Wallace Foundation, both of whom have announced plans to step down later in the year. As a recent migrant from the land of commerce myself, I’ve been especially curious about the similarities—and differences—between business and philanthropy. The panel helped clarify the picture—although I hasten to add that the views expressed here are my own and do not necessarily reflect a consensus of all the panelists.

With the growing dominance of businesspeople on philanthropic boards and the rise of new institutions fueled by hedge fund, private equity, and technology fortunes, the trend toward a business mindset in foundation management seems undeniable. “Venture capital” grantmaking has captured the imagination of some in philanthropy, and even more broadly, relentless measurement and rigorous outcomes assessments—complete with quarterly dashboards dotted with Key Performance Indicators—have become routine features of the funder’s landscape.

But does a total embrace of a culture so reliant on numbers make us better? Measurement, by itself, is neither good nor bad, and any tool that emphasizes and enhances effectiveness is a plus. Performance indicators can track finite progress in certain areas—vaccinations administered, GED test score trends, the increase in homes with broadband access and the like. On occasion, a powerful set of numbers can help generate excitement among donors. Still, there are limits. Multiple, inconsistent demands for data from a range of funders can be an enormous burden on even the largest nonprofits. In the case of some smaller ones, voracious requests for numbers can swamp the very organizations a funder is trying to help. Then there’s the matter of relevance. As Lance Lindblom pointed out, some things that can be measured aren’t very important, and some that can’t are absolutely critical. Whether it’s in a business or a foundation, understanding the difference—in other words, reaching clarity on what you’re trying to achieve and on what and why you’re measuring—is the most important step of all.

Complex social problems are, by definition, not easily susceptible to narrow quantitative analysis, much less quarterly performance reports. If, as Susan Berresford noted, the goal of a foundation is to end apartheid or promote some other fundamental social change, taking your temperature every five minutes has little meaning. After years on the board of The Pinkerton Foundation and now six months as its president, I’m still struck by how daunting the social problems that we’re engaged with really are—and, as Chris DeVita also put it, how long it takes to make significant progress in dealing with them. Philanthropy occupies a unique and important space in our society. We have the privilege—and the challenge—of dealing with tough issues on a time horizon far beyond the strategic planning cycles of almost any business, and the luxury—and the responsibility—to take chances on people and programs that may, over that glacial time frame, produce dramatic social change.

Fortunately, one of the greatest strengths of philanthropy is its extraordinary diversity. There’s more than enough room for foundations supporting medical and academic research and ambitious programs aimed at encouraging sweeping changes in society, as well as nurturing local cultural institutions and highly targeted direct service efforts at the community level. The tools available to the leaders of philanthropy are every bit as diverse, ranging all the way from highly sophisticated research and business modeling to the educated gut feeling of an experienced funder that a dedicated community group or a dynamic individual leader can make a profound impact on the people they serve.

Therein lies a particular challenge for the foundation CEO: to work with the board to establish a clear vision for his or her organization and to then translate that vision into action. It is up to “management” to choose the tools and approaches that are likely to be the most effective. Opening a candid conversation with grantees about how they measure success—and with the foundation’s board about what is reasonable to expect in terms of research and data mining—is a critical part of the process. For a CEO working with a board steeped in business, a key element of leadership is, as Chris DeVita put it, to help interpret the world of philanthropy for the board and to clarify which tools of the marketplace work—and which do not—in getting the job done.

Rick Smith was appointed President of The Pinkerton Foundation in January 2011. He was formerly Editor-in-Chief and CEO of Newsweek magazine.

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