Money Well Spent: A Strategic Plan for Smart Philanthropy
by Paul Brest and Hal Harvey
Bloomberg Press, 2008
288 pp., $27.95
Cicero was right when he said “not every mistake is a foolish one.” Sadly, the philanthropic sector has been reluctant to acknowledge anything except success over the years, which makes Money Well Spent such a refreshing change. From the first page of this thoughtful and comprehensive how-to guide to effective giving, Paul Brest and Hal Harvey learn from philanthropic failures as well as triumphs. It should come as no surprise. The William and Flora Hewlett Foundation—where Brest and Harvey worked together—still holds an annual contest for “the worst grant from which you learned the most.” The title is fiercely contested, apparently.
There are two important things about failure, say the authors. First, if philanthropy is really society’s risk capital, then “some promising philanthropic investments do not succeed and should not succeed if philanthropy is taking appropriate risks.” If you do not have failures, you are not doing your job.
Second, how you fail matters. The Robert Wood Johnson Foundation’s (RWJF) $90 million, 15-year Fighting Back initiative—which ultimately did little to tackle drug and alcohol abuse—is, they say, a smart failure because the foundation evaluated the program, learned, and shared the knowledge. In contrast, the authors offer up the $500 million Annenberg Challenge, which started out with the wrong assumptions and kept plowing ahead regardless. Critics might argue that these are both easy targets. RWJF, as the authors acknowledge, is that rare bird, a foundation that readily admits mistakes in public; Annenberg has become the conventional whipping boy within the sector. (Indeed, a defense of the Annenberg Challenge would be a radical, contrarian book to write—the fact that it got Barack Obama interested in education reform a good starting point.)
Later in the book, the authors carry out a particularly forensic dissection of a philanthropic program that exposes “failure in the grantmaking process from the beginning to almost the end.” The case study shows what happens when you do not have: a clear goal, supported by a theory of change, with clear indicators; a way to manage organizational as well as strategic risks; an understanding of the complexities of collaboration; and, crucially, a good evaluation system. The foundation behind this disaster? Hewlett—and on Brest and Harvey’s watch as well, it seems. These guys really walk the talk of owning up to mistakes. This comes as no surprise, since Brest has made owning up to and learning from mistakes part of Hewlett’s ethos since he became its president in 1999, after stepping down as dean of Stanford Law School. Harvey, who ran Hewlett’s well-regarded environment program, is now president of ClimateWorks Foundation.
Yet the book is not some kind of Hewlett self-flagellation exercise. Brest and Harvey illustrate success as well as failure, with examples from different sectors and organizations of different sizes, and plenty of pointers on where to find out more. The use of case studies and handy summaries of takeaway points for each chapter show that this is a practical, hands-on guide.
Brest and Harvey are also perceptive and thoughtful commentators on important issues in philanthropy. When it comes to measurement and metrics, they are fans of the Social Return on Investment (SROI), giving examples from New York’s hedge fund-driven Robin Hood Foundation and from the Acumen Fund, which invests philanthropic dollars in for-profit firms in the developing world, to illustrate how this approach can be applied in practice.
Within the nonprofit sector, there is still a lot of pushback against this approach, which some critics feel borrows too heavily from the business world and does not take into account the complexities and richness of philanthropy. Brest and Harvey are alive to the critique, even quoting Einstein to the effect that, “not everything that counts can be counted and not everything that can be counted counts.” Yet, as they say, too often complaining about the difficulty of measurement is just an easy cop out, and they demonstrate how the SROI “attitude” can be applied to something as intangible as an accountability program in Nigeria. If your analysis is unable to produce meaningful measures of success “it may well be worth the effort to gather more information or to design redundant strategies.” Those critics who think that an SROI approach leads to a strategic focus only on the concrete would do well to look at Hewlett’s innovative program to commit $100 million to think tanks in Africa. Visionary and risky, it is winning a lot of plaudits from African commentators.
The authors also take on the “civil society” lobby and its protests about arrogant philanthropists telling them what to do. Certainly, they concede, arrogance is an easy trap for foundation staff to fall into. Brest talks about his own experience moving from the university world where “a day hardly went by when students, faculty, or alumni didn’t tell him what he was doing was wrong” to the foundation world, where he “underwent a personal transformation and, by all external signals, achieved perfection.” Controlling the purse strings counts: As the old saw goes, when you become a philanthropist you never again eat a bad meal or tell a bad joke.
Building effective and respectful relationships is important, but it is not the goal of philanthropy—which is why philanthropists in the end have to lay down the law to those they fund. “The real customers,” the authors argue, “are the individuals and communities whose lives the grantee and grantor seek to make better. And it is this fact that not only justifies but also demands that due diligence be duly done.” To pinch a phrase—it’s the impact, stupid.
This focus on impact underpins their clear-sighted and somewhat skeptical analysis of the increasingly fashionable practice of screening “negative” investments out of a foundation’s portfolio as part of Socially Responsible Investing strategy. Advocates of this strategy have been using it to bash the Bill & Melinda Gates Foundation in recent years, with critics crying hypocrisy at the foundation’s investments in pharmaceutical, consumer-finance, and energy companies which, they say, undermine the very things that the foundation is trying to achieve.
Yet Brest and Harvey are surely right when they observe that the divestment practices of individual institutions “are unlikely to affect the stock price of a company.. . . Absent concerted action by a large number of investors, refusing to own stock in a business is an attenuated lever for influencing change.” Foundation portfolios have taken a horrible beating in the past year. Unless foundations can demonstrate that screening policies are really making a difference, perhaps they should be abandoned as an unnecessary luxury of a bygone gilded era when returns were easier to come by. On the other hand, conventional investment strategies have not proved much good either, so perhaps some fresh thinking is needed across the board.
Given the authors’ ability to offer sharp, practical insights, there are two areas that the book glosses over too easily. The first is what they call “Hybrid Philanthropy,” where organizations blend grantmaking with mission-related for-profit investment, as practiced by the Omidyar Network and Google.org. While both these organizations are mentioned, the authors say that it would “seem premature to make generalized judgments.” That may be how they feel, but it is nonetheless a shame that they don’t even offer a provisional assessment of the pros and cons of what Larry Brilliant, the first head of Google.org, calls “playing with all the keys on the keyboard.”
Some reflection on Google.org would have been particularly helpful, not least since one of the key advisors to President Obama on social innovation is Sonal Shah, a senior executive from that organization. The new Presidential Office of Social Innovation in the White House will try to draw on the best of philanthropy and social entrepreneurship as it reforms government. The Education Secretary, Arne Duncan, worked closely with the Eli & Edythe Broad and Gates Foundations in his previous role, overseeing the transformation of Chicago’s schools, not least by encouraging the philanthropically funded charter schools which Obama says he wants to see proliferate nationwide.
A government that wants to work with philanthropy begs important questions about how to do this most effectively. Innovative partnerships—like those pioneered by Mayor Michael Bloomberg in New York and Mayor Cory Booker in Newark, New Jersey—unfortunately do not get a mention in the book. This is a shame, because some pointers on the division of labor and rules of engagement between government and philanthropy from two such insightful practitioners would be especially invaluable at this time. We certainly hope they will be added in the paperback edition. Until then, for anyone involved in running a philanthropic foundation, or working with one, there is already more than enough in this fine book to make it essential reading.
Matthew Bishop and Michael Green are co-authors of Philanthrocapitalism: How the Rich Can Save the World and blog regularly at philanthrocapitalism.net.