I have to admit, June was a busy month for me with lots of travel and events, so I was less tuned into social media. Thus, I am offering a far from definitive list of the best reads from the month. But here goes…
New data on charitable giving and social fundraising, and a new effort to create a system to classify philanthropic activity made for some exciting developments. And because it wouldn’t be a great month in the world of social innovation without lots of debate, there is also plenty of criticism of philanthropists, philanthropic consultants, and business theory. It all made for a great month in the world of social innovation.
Below are my 10 favorite reads from the last month. But this month, more than ever, please add what I missed to the comments. And if you want to see a longer list of great reads, follow me on Twitter, Facebook, LinkedIn or Google+.
And you can see past months’ 10 Great Reads lists here.
- Good news for charitable giving, it looks like total US donations will go back to their 2007 peak of $350 billion sooner than originally thought. The post-recession rebound will happen sometime this year or early next, according to new data.
- And adding to the data about giving, the Nonprofit Tech for Good blog shares some great statistics about fundraising, social media and mobile.
- The Foundation Center has embarked on a bold project to create a robust classification system for philanthropy. They have created a draft “Philanthropy Classification System,” which is a “structure for describing the work of philanthropy consisting of subjects, population groups, transaction types, and approaches (support strategies)” and opened it to public comment. Their goal is to “unleash the ability of foundations to work far more efficiently with each other and with other sectors to achieve the kind of scale that can drive real change in the world.” It’s fascinating. Take a look and give them your thoughts.
- The Packard Foundation is one of the great examples of foundations that understand and support nonprofit organization building. They have created a great wiki on “Organizational Effectiveness” with resources for other grantmakers interested in supporting nonprofit organization building. And my favorite resource on the list is the article from Linda Baker, a Packard Foundation program officer, urging foundations to “be the duct tape” for nonprofit grantees. Ah, if only more philanthropists thought this way!
- But not all philanthropy news is good news. A report on the Walton family shows that the second generation heirs to the Walmart fortune have given almost none of their personal fortune to philanthropy, despite being the richest family in America. The report and the Forbes article about it raise some interesting questions about wealth and the obligation of philanthropy.
- One of the newest and most talked about ways to channel money to social change is the social impact bond. But what are we learning as the pay for success movement gains steam? Gordon Berlin from MRDC shares some insights from the New York City social impact bond and demonstrates how incredibly complicated this new financing tool really is. As he says, “The future of the Pay for Success movement rests on building on the lessons learned from the first efforts to implement these new and potentially transformative financing structures.” So we need to get beyond the hype and understand if this new financial vehicle really can work.
- And speaking of questioning hype, Jill Lepore, writing in The New Yorker, pens a scathing critique of Clayton Christensen’s Innovator’s Dilemma. She illuminates the danger of an omnipotent theory that allows no analysis or critique. She takes Christensen’s ubiquitous business theory of “disruptive innovation” to task, arguing, “Disruptive innovation is a theory about why businesses fail. It’s not more than that. It doesn’t explain change. It’s not a law of nature. It’s an artifact of history, an idea, forged in time; it’s the manufacture of a moment of upsetting and edgy uncertainty. Transfixed by change, it’s blind to continuity. It makes a very poor prophet.”
- Another writer peeling away the curtain on theory that holds no weight, Phil Buchanan admonishes consulting firm FSG and the Stanford Social Innovation Review for 1) not recognizing sooner that urging foundations to create individual institutional strategies around their unique positioning and activities is flawed, and 2) failing to acknowledge that many other thought leaders have been discussing that flawed strategy for years.
- As an introvert myself, I loved Frank Bruni’s piece in The New York Times urging politicians to take more time alone to reflect before barreling forward. As he puts it, “Some of the boldest strokes of lightning happen in isolation, where all the competing advice can be processed, where the meaningful strands come together and the debris falls away.” Amen!
- If you want a visual that will blow your mind, check out Ezra Klein and Susannah Locke’s 40 Maps that Explain Food in America. Access to food is a core social challenge, and these maps lay it all bare.
Photo Credit: Spirit-Fire
In addition to the Social Impact Exchange conference I mentioned earlier, I will be traveling a lot this summer connecting with nonprofit and philanthropic leaders. I’ll be blogging about what I learn in my travels and conversations. And, I’m really excited to announce, that I have an amazing group of guest bloggers who will be posting throughout the summer as well.
These guest bloggers are people who really make me think and will offer some really interesting perspectives. I’ve invited them each to take over one Social Velocity blog post sometime during the summer.
Below is the guest blogger lineup with some background on each of them. Their posts will begin in late June. And I will continue to post throughout the summer as well.
Social Velocity Summer Guest Bloggers
Robert is the founder of DC Central Kitchen and LA Kitchen, as well as the nonprofit sector advocacy group, CForward. Robert was included in the Non Profit Times list of the “50 Most Powerful and Influential” nonprofit leaders from 2006-2009, and speaks throughout the country and internationally on the subjects of hunger, sustainability, nonprofit political engagement and social enterprise. He is a tireless advocate for the nonprofit sector, encouraging nonprofits to take their rightful seat at the table. He is always pushing us to think bigger and smarter about social change. You can read my past interview with him here and my post about CForward here.
David is the founder of Idealistics, a former social sector consulting firm that helped organizations increase outcomes, demonstrate results, and organize information. He has worked in the social sector for the last decade providing direct services to low-income and unhoused adults and families, operating a non-profit organization, and consulting with various social sector organizations and foundations. David’s professional focus is on improving the way social sector organizations use information to address poverty. He writes his own blog, Full Contact Philanthropy, which I highly recommend. He will make your head hurt, but in a really good way. You can read my interview with him here and watch the Google Hangout he and I did about Using Real Performance Data to Raise Money.
Jessamyn is Executive Director of the Peery Foundation, a family foundation based in Palo Alto, California. The Peery Foundation invests in and serves social entrepreneurs and leading organizations in the San Francisco Bay Area and around the world. Jessamyn helps shape the foundation’s strategy, develops programs, strengthens the foundation’s portfolio, and supports existing grantees. Her experience as part of the founding Ashoka U team has given her the perspective and skill-set to help the foundation develop new methods to support and build the field of social entrepreneurship. You can read my interview with her here.
Adin is Senior Director of Community Impact and Innovations at the Jewish Community Federation and Endowment Fund. In this role, he develops new strategies and programs to bring about change and impact within JCF’s mission. Adin focuses on defining metrics to document impact, maximizing measurable impact and increasing the visibility of the organization. Prior to JCF, Adin was a nonprofit consultant and had his own blog, Working in White Space, which was phenomenal. You can read my past interview with him here.
Laura is a network developer at the Council on Foundations, where she tracks philanthropic trends and builds relationships with leaders advancing the common good across sectors. She also leads an impact investing initiative and regularly interacts with those interested in the changing landscape of social good. Previously as manager of public-philanthropic partnerships, she built the capacities of federal agencies interested in partnering with foundations. Before joining the Council, she worked at Grantmakers for Effective Organizations and at the Central New York Community Foundation. Laura has been named a Global Shaper by the World Economic Forum. She is also a StartingBloc Fellow and writes for UnSectored, serving on advisory boards for both organizations. You can read my interview with her here.
So there you have it. A summer guest blogging lineup that I am thrilled about. I can’t wait to read what they all have to say. Stay tuned!
Photo Credit: Holger.Ellgaard
In order to maintain their legal status, foundations are required to distribute 5% of their earnings each year to nonprofit organizations. This 5% is determined by a 2-5 year rolling average of earnings. In years like these when earnings are very low foundations have less to distribute, which makes ideas like mission-related investing more appealing. Mission-related investing is when a foundation uses part of it’s corpus (the 95%) to invest in social enterprises that are related to the foundation’s mission. For example, a foundation interested in the environment could invest part of their 95% in wind farms, thereby receiving a social return in addition to a financial return and extending the reach of their mission despite an economic downturn.
Scott Collier, Managing Director of Triton Ventures, has thought a lot about mission-related investing, and I’ve asked him to do a guest blog on the topic. Scott has been a venture capital investor since 1991. He has experience in all aspects of venture capital fund formation and management and the associated growth, financing and exit strategies for a diverse range of companies. Scott serves on the board of the Entrepreneurs Foundation of Central Texas and is an active participant in microfinance and social enterprise initiatives, primarily focused on financing for social business. Here is his post:
From the largest foundation to the smallest donor-advised fund, the philanthropic world tends to manage assets in a way designed to preserve fund corpus while generating enough growth and/or income to achieve the 5% grant level necessary to maintain tax-free status. However, what has evolved from this mindset is a bifurcated structure where grant programs are expected to be the sole means of performing the mission while the asset management function focuses on optimizing returns. In fact, people speak of a firewall between these two activities. Unfortunately, this leaves much of the talent (and operating expense) dedicated to investment work that does nothing to further the organization’s mission.
More problematic, asset managers can and do end up making investments that generate a good rate of return but support companies that happen to work at cross purposes to the mission. This sort of problem was brought to light a couple of years ago when the LA Times questioned why the Gates Foundation would invest hundreds of millions of dollars in companies generating toxic pollution blamed for sickening people living in communities receiving tens of millions in Gates-funded medical aid. Setting aside the moral implications of this situation, it’s irrational to allow the two parts of any organization to work at such obvious cross purposes.
What seems to make sense is a holistic view of foundation management that considers all investing to be mission related investing with the result that all cash outflows balance risk, return and mission impact. This approach implies five categories of investment along the continuum of philanthropy:
- Program Grants: Currently maintained at a nominal 5% of total assets, these investments are absolutely certain to produce a negative 100% financial return. So perhaps it would make sense to take this allocation to a lower percentage to make room for other investments that carry better returns (you can’t do any worse after all) and a different type of impact. Perhaps even a more lasting and healthy impact.
- Program Related Investments: Nell had an excellent post on this topic. Deployed as loans at below-market yields, the risk-adjusted returns over time might be zero or negative but still better than the negative 100% generated by Program Grants. Structured correctly, a PRI is counted by the IRS in the required 5% and if it were taken to a level of just 10 or 20 percent of the Program Grant spend it could transform the relationship that foundations have with their investees. After all, in the right situation, a loan to support a move to self-sufficiency can be healthier for the recipient than a handout that creates a cycle of dependency.
- Mission Related Investments: This category comprises mission-directed investments that fall outside the limits of what can be considered part of a foundation’s 5% qualifying distributions. In aggregate these MRIs would target, on a risk-adjusted basis, just a return of capital or perhaps a small return beyond that, but still a below market return in exchange for driving a substantial mission impact. Investments in this category could provide a tremendous boost to the nascent social business space.
- Mission Aligned Investments: After evaluating for ROI potential, investments would get priority in this segment given the degree to which they enhance the mission. A good corporate citizen in a country where the foundation does work might be enough to tip the balance in favor of investment. Over time this could become a significant percentage of the income-producing portfolio and given the magnitude of dollars involved it could encourage corporate behavior to move in positive directions.
- Mission Neutral Investments: The lowest social standard of the five, investments in this category would be held after ensuring that a reasonably sound “doing no harm” standard is upheld. Verification of the standard would of course be subjective and based on limited insight into the business, but perhaps even such a sniff test is better than no test at all.
So consider a typical foundation that during the course of a year has 95% of its assets spread among the usual allocation of bonds, equities, and a smattering of alternative assets, leaving 5% to be distributed as grants. If this allocation produced a 9% blended return on the investment portfolio, then net of Program Grants the overall annual rate of return would be 3.55%.
Now consider what happens if this foundation makes 2 small changes:
- Program Grants are reduced to 4% with 1% going to PRIs that generate a negative 10% annual rate of return, and
- 2% of the 95% portfolio goes into MRIs that only return capital. The remaining 93% remains allocated in the same proportions as the 95% was before with the same 9% rate of return. These changes produce a 4.27% rate of return: an overall improvement of about 70 basis points.
Starting with a $10 million foundation and compounding this difference over 10 years, this new allocation would mean the foundation would end up about $1 million larger than if it had stuck with the traditional 95/5 split. More importantly, such a foundation would have been deploying 7% of its assets in mission-focused work instead of 5%, a $3 million aggregate difference over 10 years. About 40% of that money would have been in the form of loans which, properly chosen and structured, enable local ownership and sustainable employment capable of going beyond where charity too often ends. Replicated gradually across the trillions of dollars locked up in philanthropic corpus, such a rethinking of foundation asset management and mission investing could produce dramatic results.
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