What Is an Effective Foundation?

By Phil Buchanan and Kathleen Enright

Assessing and achieving effectiveness is a topic of much discussion among foundations. Increasing attention from lawmakers and the news media, Warren Buffett's high-profile contribution to the Bill & Melinda Gates Foundation, and the arrival on the philanthropic scene of a new cast of more results-focused donors have brought the issues front and center.

But what is effectiveness for foundations?

It's not a simple question to answer. In the business world, an organization could measure profitability or stock appreciation. Other nonprofit organizations at least get a sense of their effectiveness through interviews with clients and from their fund-raising success (or failure). But foundation officials rarely hear any criticism because they are surrounded almost entirely by grantees or aspiring grantees.

While some foundations may revel in not knowing whether they are making a difference, many other grant makers are uncomfortable. They want, as most of us do, to know that their work means something.

High-performing philanthropy can take many forms, but our research — as well as hundreds of conversations with senior grant makers, trustees, and chief executives — tells us that some elements are key for all grant makers.

As more foundations consider what they need to know to determine whether they are effective, it is important to dispense with some myths.

The most common one is that foundation effectiveness can be boiled down to a single measurement.

Many people talk of "social return on investment" — basically measuring the amount spent and what results were achieved — as the ultimate foundation performance measure. There's just one problem: It is nearly impossible to calculate.

No common unit of measurement can feasibly compare the return of, say, grant making that increases high-school graduation rates in New York City by 5 percent with grant making that results in the preservation of a rain forest in Central America.

Moreover, most grants are too small, as a proportion of a project or organization budget, for foundations to be able to claim a causal connection between the grant they made and what an organization achieved. And few grants are awarded for the long haul, making it harder to measure the ultimate impact.

What's more, results often depend on many factors outside of the foundation's control, such as changes in leadership at grantee organizations, shifts in public policy, and innovations in technology.

The second myth is that foundations would be more effective if they started acting like businesses. But the problems that nonprofit organizations and foundations try to solve have often already defied both "intellect and money," in Mr. Buffett's words. The work of foundations is harder than generating a profit, and there are no bonus points for degree of difficulty.

Foundations are free to take on issues that other people and organizations ignore because there is no incentive for them not to. What's more, as the business guru Jim Collins has noted, most businesses are mediocre. Why, he asks in his book on nonprofit organizations, would anybody want to emulate the mediocre?

Myths aside, the question of effectiveness requires a focus on the following:

• Specific goals. This seems painfully obvious — how can you achieve something if you don't know what you are trying to achieve? — but a surprising number of foundations have a difficult time articulating goals with any specificity.

  Specific goals can come in a variety of forms. Sometimes they relate to a particular result, such as eliminating the world's top 20 diseases.

  Other times the goals might relate simply to helping grant recipients achieve the goals they have defined through, say, a combination of grant making and management advice. Either type of goal is legitimate. But it needs to be articulated clearly and consistently throughout the foundation, and our research and experience suggests that it often is not.
  

• Strategy — a set of grant-making and other activities that are intended to lead to the achievement of goals. This, too, seems obvious. How can you achieve a goal without a plan to do so? Whether we call this a strategy, a theory of change, or something else entirely, foundations need a logical approach by which they believe they can achieve their goals.

  Although many foundations can articulate clear strategies, too many — for all kinds of both understandable and not-so-understandable reasons — cannot.
  

• Measurable indicators of effectiveness that relate to goals and strategy. What good are goals and plans without information to know whether execution is effective — and to inform course corrections along the way?

  Indicators should include comparative data, to allow foundations to understand how they fare compared with other foundations. Grant makers can develop indicators that let them know if they are on the right path and a number of foundations, including the James Irvine Foundation, the Lumina Foundation for Education, the Rockefeller Brothers Fund, and the Robert Wood Johnson Foundation, are doing just that, and are continually re-evaluating their chosen indicators to ensure they are the right ones.

• Leaders who make the goals, strategy, and indicators real, holding individuals responsible and confronting performance issues. What good are indicators if they don't connect to performance by staff members and grantees? Foundation leaders should conduct regular reviews of the people they manage — and those reviews should be informed by confidentially collected interviews that ask questions that will provide comparable data.

This is tough stuff, but it's essential to effectiveness. This focus on individual performance shouldn't apply just to program officers, either. Boards need to hold chief executives to the same standard, using performance indicators as a means to hold CEO's accountable.

Grant makers are only successful when their grantees achieve meaningful results. How can foundations be effective in their grant making if they don't pay attention to how their work affects grantees?

These approaches may seem simple, but they are not easy. A growing number of foundations are taking all or some of these steps, but too many still do not.

As the charitable assets controlled by foundations continue to grow, grant makers must do all they can to ensure they are making a difference. A good start would be to begin with some simple changes.

Phil Buchanan is executive director of the Center for Effective Philanthropy, in Cambridge, Mass. Kathleen Enright is executive director of Grantmakers for Effective Organizations, in Washington.

Reprinted with the permission of The Chronicle of Philanthropy, http://philanthropy.com.