Tactical Philanthropy

• Further Thoughts on Unitus/SKS : Philanthropy Action Tim Ogden, who guest posted on Tactical Philanthropy yesterday, clarifies some of his thoughts. (tags: philanthropy)
• REDF Leverages First Social Innovation Fund Grant | Stanford Social Innovation Review Carla Javit, the head of Social Innovation Fund grantee REDF, reflects on the importance of the Fund and why it signals a break from "business as usual". (tags: philanthropy)

Stephanie Strom of the New York Times is out with an overview of the Unitus/SKS story. Her story focuses on the interrelations between the two organizations and the IPO proceeds that Unitus will be receiving. For the first time, Muhammad Yunus, the father of microfinance and critic of for-profit microfinance approaches, weighs in on the Unitus situation.

From the story:

“The other nonprofit ensnared in controversy is a Seattle-based group called Unitus, which holds a stake in SKS that will be worth millions after the I.P.O. The group’s board shocked the nonprofit community this month by saying that all of the organization’s 40-person staff would be laid off and that Unitus would no longer be involved in microfinance activities.

…“If Unitus is closing down, that shows what is the real result of this I.P.O.,” said Muhammad Yunus, an economics professor who is considered the father of microfinance and has been critical of the SKS stock offering. “You are now encouraging the profit-maximizing part, and the nonprofits are closing down.”

…Omidyar Network [a big Unitus donor] had been concerned enough about the structure of the Unitus board that last autumn it paid for a study by a management consultant. According to two former Unitus executives, the study concluded that some directors had too many nonprofit and for-profit roles with Unitus — particularly one, Geoffrey Woolley, who was chairman of the investment fund running Unitus’s profit-making investments and was an investor in those funds and in SKS.

Mr. Woolley resigned from the board last fall, but Mr. Grenny said he would now be brought back to help plan Unitus’s future beyond microfinance. Mr. Woolley declined to comment.

…The unwinding of Unitus stands in contrast to the way Acción, another nonprofit group that focuses on microfinance, handled a $140 million windfall from the 2007 public offering of the Mexican microlender Compartamos. Acción, which still holds a 9 percent stake in the Compartamos, has used the money to expand its microfinance operations, and its executives and directors had no investments in the operation.”

You can read the full story here. A graphic showing the history of the SKS and Unitus is here. A graphic showing where the IPO money is going is here.

As I announced yesterday, I spoke with Geoff and he will be writing a guest post here at Tactical Philanthropy describing Unitus’ side of the story and his plans for the Unitus to tackle a new area of “maximum social impact”.

• Philanthrocapitalism » Betting on the Poor Matthew Bishop of the Economist weighs in on the SKS/Unitus story. (tags: philanthropy)
• With Credit Tight, Microlending Blossoms – NYTimes.com Microlending to US borrowers is on the rise. (tags: philanthropy)

I just got a call from Geoff Woolley, the person named to lead “Unitus 2.0” as they redirect their efforts away from microfinance and towards a new area of “maximum social impact”. Given certain legal issues around the SKS IPO, Geoff is unable to immediately take me up on my offer to have him guest post here on Tactical Philanthropy (an invitation I sent the day I first wrote about the story). However, Geoff very much wants to tell his side of the story (he’s been involved with Unitus since the very beginning) and is talking with his team about when he can send me his guest post.

I’ve talked to a lot of people about the Unitus situation. Everyone that I’ve talked to thinks the world of the Unitus team, including the founding board members. I continue to withhold any judgment because so much of this story is murky. I did reiterate to Geoff my opinion that Unitus blew an opportunity to really claim victory for completing their mission of “accelerating microfinance” and instead left many people with questions about Unitus and the field of microfinance which they are leaving behind.

As much as I urge philanthropy to work to move faster, I also greatly appreciate that unlike areas like finance and politics, philanthropy is able to avoid the 24-hour news cycle and let stories play out in full before passing judgment. I look forward to hearing more about this story and most importantly trying to figure out what we can learn from it.

This is a guest post from Tim Ogden. Tim is Editor-in-Chief of Philanthropy Action, a journal for donors, and Executive Partner of Sona Partners, a thought-leadership communications firm. Follow him on Twitter: @philaction and @timothyogden.

By Tim Ogden

Today, the world’s second microfinance IPO happened: SKS shares went on the market in India. All expectations are for a highly successful IPO similar to the blockbuster IPO of Compartamos in Mexico two years ago. Strangely tied into the SKS IPO is the demise of Unitus, a non-profit founded to help MFIs improve operations, grow faster and attract commercial capital. A few weeks ago, the board of Unitus declared “Mission Accomplished,“ announced it would be laying off its staff and examining a future direction for the organization focused on other poverty interventions. Unitus was a significant donor to and investor in SKS with both charitable and for-profit dollars.

The SKS IPO has produced largely the same rhetoric as the Compartamos IPO: Mohammed Yunus complains about profiting from the poor while polishing his halo and a few other experts point out that meeting the financial needs of the global poor requires access to commercial capital markets.

But that discussion is well worn and a distraction from the real issues that are raised by the SKS IPO and the Unitus shutdown. In the two organizations we are for the first time, I believe, seeing what the endgame for social entrepreneurship can look like.

Both SKS and Unitus majored on social entrepreneurship language: they explicitly targeted using commercial capital to meet social goals. This is somewhat distinct from Compartamos, whose founders tended to speak about pursuing commercial goals for their own sake, not primarily as a means to a social end. Just as important both organizations used the standard social entrepreneurship playbook, founding a nonprofit organization and funding themselves initially at least with charitable donations.

These charitable donations into the risky venture of microfinance have succeeded by most reasonable measures. SKS makes quality financial services available to a huge number of clients, while charging very reasonable interest rates given the cost of serving the clients it targets. Unitus was one of the first organizations to invest in MFIs to help them access commercial capital and to evangelize microfinance investments to the commercial capital markets. As the Unitus board noted in the announcement of its shutdown, a huge amount of commercial capital is now flowing to microfinance, some would argue too much.

That success in turn, as contemplated in the dreams of social entrepreneurs, has made it possible for the founders of Unitus and SKS to do well because they did good. But that’s where the story begins to get murky. That murkiness is based in a number of transactions that were necessary for SKS to take commercial capital and for Unitus to prove the commercial capital model. Along the way, the clients who owned 40 percent of SKS, have had their share diluted without it being clear exactly how they will benefit. Unitus, the non-profit, spun off the Unitus Equity Fund, a for-profit private equity fund, and seems to have given the for-profit some share of its investment in SKS. Members of the Unitus board who approved the creation of the for-profit fund spun out of the non-profit are almost certainly (though its difficult to determine for sure) investors in the Unitus Equity Fund who now stand to benefit from the SKS IPO.

Adding significantly to the murkiness is the strange tale of the Unitus shutdown. Seemingly announced in a way as to minimize attention, the story has gotten very convoluted. Apparently most donors and staff were utterly surprised by the move. The chairman of the Unitus board issued a statement trying to answer some of the very reasonable questions; several of his answers were almost immediately refuted by reporting done by Clay Holtzmann of the Puget Sound Business Journal.

That brings us to some big questions, that to date, many social entrepreneurs have been able to ignore. While we were all talking in theory about social entrepreneurship and using market mechanisms for social ends, and bringing capital and scale to poverty alleviation and other worthy goals, we could blithely ignore some thorny issues. After all, why worry about about the “doing well” part when no one had yet “done well?“ It’s happening now, though, and that’s why social entrepreneurs, their funders and policy makers need to be paying attention.

The three big questions that haven’t yet been answered in the SKS/Unitus situation are relevant to everyone in the space:

1) Who ultimately does well here?

2) What role did nonprofit funds have in enabling the people doing well to do so very very well?

3) And the biggest question of all: What responsibility do the people who took charitable funds have once they start personally doing well?

The social entrepreneurship space is still the wild west—everyone is making it up as they go along. I suspect that is going to change as the details about SKS and Unitus slowly trickle out.

To help you follow along, I’ve created this round-up of articles about the two organizations: A Guide to the Unitus/SKS Story.

• California Plan Your Giving Day California has officially declared October 1 "Plan Your Giving Day". The effort looks to build on the Gates/Buffett Giving Pledge. (tags: philanthropy)
• Prof Yunus to star in The Simpsons: The Daily Star This is hands down the best headline I've seen in a long time. Microfinance pioneer Muhammad Yunus is going to guest star in The Simpsons. (tags: philanthropy)
• Boy’s Latest Charitable Act Is Long Walk With Mom – NYTimes.com What an unusual and fantastic story. A 12-year-old "do-gooder prodigy". His mom's quote: "He’s just like every other kid, except he likes to do community service work for some odd reason. He likes doing it. It’s weird." (tags: philanthropy)
• The Case for $320,000 Kindergarten Teachers – NYTimes.com A reader recently argued that measuring nonprofit results wasn't as hard as picking what to measure. In this NY Times article, the author argues that test scores are the wrong outcomes to look at when measuring teaching results. Instead, we need to look at adult life outcomes and the data shows that better teaching leads to higher adult income for students. (tags: philanthropy)

I’ve gotten a ton of feedback and suggestions regarding the new Audacious Ideas guest blog series (you can read the first post in the series by Jim Canales here). I think this concept has legs, but I’ve also been convinced that it needs some changes. I’d like to get your ideas and help in deciding where to go from here.

First off, I think we need to establish a small Audacious review board. I’ve been deluged with inquires from people who want to submit an entry to the series. Frankly, my interest is in running truly audacious ideas. My thought here is to have interested parties send a short summary of their concept, maybe three bullet points and a paragraph of narrative, which the review board would then give a thumbs up or down.

Do readers agree with this approach? If so, who is audacious enough to be a member of the review board? I’d love your nominations.

Secondly, we need a new name. It turns out that there is an interesting blog called Audacious Ideas run by the Soros Foundation’s Open Society Institute in Baltimore. The blog runs weekly “audacious” guest posts with the goal of stimulating ideas and discussions about ways to improve the city of Baltimore. The Open Society Institute has asked that I changed the name of my series and I’ve agreed.

So I need your help on this too. What should the series be called?

• SIF Awards – Public Info Adin Miller is working on a public spreadsheet with info on the Social Innovation Fund grantees. (tags: philanthropy)
• Analysis of Social Innovation Fund Results | Adin Miller Consulting Excellent analysis of the Social Innovation Fund grants from a former employee of the Corporation for National & Community Service (which runs the SIF). (tags: philanthropy)

A few weeks ago, I wrote a post titled Getting Results: Outputs, Outcomes & Impact, in which I explained the “jargon” of tracking results in the social sector and argued that these metrics were critically important. In a follow up post, I argued that tracking results in this way should not be seen as “finger wagging campaign by the funding side of the table,” but instead was the key to a nonprofit becoming a high performance organization.

One of the comments on the first post (which generated a lively discussion in the comments section) came from Isaac Castillo, head of evaluation at Latin American Youth Center. LAYC is known for their diligent efforts to track their performance (they even consult for other nonprofits) and was recently announced as one of the few pre-selected subgrantees of the Social Innovation Fund. Isaac wrote:

“I actually think measuring outputs, outcomes, and impact is fairly easy and straightforward. The truly difficult part is getting nonprofits to identify the specific things they want to track.”

This of course flies in the face of a lot of thinking about measuring results in the social sector. While I do think that measuring results conclusively can be difficult, it is possible to take a “fairly easy and straightforward” approach to results measurement.

So today I want to rerun a piece on measuring impact from the Mulago Foundation. When I first published this piece, Paul Brest, head of the Hewlett Foundation left a comment saying, “This is excellent. Should be bottled and distributed.” The piece popped up recently when it randomly re-circulated via Twitter.

The Mulago Foundation: how we think about impact

We measure impact because it’s the only way to know whether our money is doing any good. In fact, we don’t invest in organizations that don’t measure impact – they’re flying blind and we would be too. Those organizations that do measure impact perform better and evolve faster, and discussions around measuring impact almost always lead to new ideas about effectiveness and efficiency.

Everyone’s got their own definition of impact and here’s ours: Impact is a change in the state of the world brought about by an intervention. It’s the final result of behaviors (outcomes) that are generated by activities (outputs) that are driven by resources (inputs).

We’re a small shop, so we needed to develop an approach with enough rigor to be believable, but simple enough to be doable. When we work with organizations, we use these five steps to determine impact and calculate bang for the donor buck:

1. Figure out what you’re trying to accomplish: the real mission.

You can’t think about impact until you know what you’re setting out accomplish. Most mission statements don’t help that much. We re-formulate the mission in a phrase of ~8 words or less that includes 1) a target population (or setting), 2) a verb, and 3) an ultimate outcome that implies something to measure – like this:

• getting African one-acre farmers out of poverty
• preventing HIV infection in Brazil

If we can’t we can’t get to this kind of concise statement, we don’t go any further- either because they don’t really know what they’re trying to do or because we simply wouldn’t be able to know if they’re doing it.

2. Pick the right indicator

Try this: figure out the single best indicator that would demonstrate mission accomplished. Ignore the howls of protest, it’s a really useful exercise. Here’s some examples relating to the missions shown above:

• Change in farm income
• Decrease in HIV infection rates

Sometimes that best indicator is doable, and that’s great. Other times you might need to capture it with a carefully chosen – and minimal – combination of indicators. When there is a behavior with a well-documented connection to impact – like children sleeping under mosquito nets – you can measure that and use it as a proxy for impact. Projects that can’t at least identify a behavior to measure are too gauzy for us to consider. Notice that while things like “awareness” or “empowerment” might be critical to the process that drives behaviors, we’re interested in measuring the change that results from that behavior.

We don’t pretend that this method captures all of the useful impacts and accomplishments of a given organization and their intervention. What it does do for us as philanthropic investors is answer the most critical question: did they fulfill the mission?

3. Get real numbers

You need to 1) show a change and 2) have confidence that it’s real. This means that

• You got a baseline and measured again at the right interval, and
• You sampled enough of the right people (or trees, or whatever) in the right way.

There are two parts to figuring this out: the logical side and the technical side. With an adequate knowledge of the setting, you can do a lot by just eyeballing the evaluation plan – looking carefully at the methods to be used to see if they make sense. Most bad schemes have an obvious flaw on close examination: they didn’t get good baseline data, they’re asking the dads when they ought to ask the moms, they’re asking in a culturally inappropriate way. The technical part has mostly to do with sample size, and a competent statistician can easily help you figure what is adequate.

4. Make the case for attribution

If you have real numbers that show impact, you need to make the case that it was your efforts that caused the change. This is the hardest part of measuring impact, because it asks you to be able to say what would have happened without you. When real numbers show there has been a change, a useful thing to ask is “what else could possibly explain the impact we observed?”

There are three levels – in ascending order of cost and complexity – of demonstrating attribution:

1. Narrative attribution: You’ve got before-and-after data showing a change and airtight story that shows that it is very unlikely that the change was from something else. This approach is vastly overused, but it can be valid when the change is big, tightly coupled with the intervention, involves few variables (factors that might have influenced the change), and you’ve got a deep knowledge of the setting.
2. Matched controls: At the outset of your work, you identified settings or populations similar enough to ones you work with to serve as valid comparisons. This works when there aren’t too many other variables, you can find good matches, and you can watch the process closely enough to know that significant unforeseen factors didn’t arise during the intervention period. This is rarely perfect; it’s often good enough.
3. Randomized controlled trials: RCT’s are the gold standard in most cases and are needed when the stakes are high and there are too many variables to be able to confidently say that your comparison groups are similar enough to show attribution.

5. Calculate bang-for-the-buck

Now that you know you’ve got real impact, you need to know what it cost. You can always generate impact by spending a ton of money, but it won’t give good value for the philanthropic dollar and it won’t be scalable (and it probably won’t last). Stick with the key impact you’ve chosen; don’t get sucked into the current trend of trying to monetize every social impact you can think of.

The easiest – and arguably most valid – way to calculate bang-for-the-buck is to divide the total donor money spent by the total impact. In organizations that do more than one kind of project, it is often possible to split out what they spent for their various impacts. Remember that start-ups are expensive and don’t worry so much about their current figures, but do see if their projections for steady-state operations make sense and assume (as we learned the hard way) that they are usually at the way-optimistic end of the scale.

In the end, though, the key to figuring out real impact is an honest, curious, and constructive skepticism. A healthy dose of skepticism – not cynicism – is a gift to doers, funders and the social sector as a whole.

• Pictures and video from the Social Innovation Fund announcement in Washington, DC « Fuel for the Field Carla Javits, the head of REDF, a Social Innovation Fund grantee, shares photos and video from her trip to Washington. (tags: philanthropy)
• WINDING DOWN the ATLANTIC PHILANTHROPIES A new report authored by Tony Proscio for Duke University looks at the Atlantic Philanthropies decision to spend down their endowment. Interesting look at how the concept works in reality. (tags: philanthropy)

On Friday afternoon, Nathaniel Whittemore of the Social Entrepreneurship blog sent me an email questioning the enthusiasm in my recent post about the Social Innovation Fund (SIF). Nathaniel is someone whose opinion I greatly respect and his points of contention were very valid. So I sent him back a detailed response, which (with his permission) I’ve decided to republish here.

Nathaniel’s email to me made the following points:

• Nathaniel argued that the SIF grants were run of the mill, writing “The government just gave College Summit $3 million more dollars, about 20% of their annual budget. Big whoop.”
• He argued that the SIF did not do anything unique and different.
• He asked why I was focused on the intermediaries funded by the SIF rather than the subgrantees who would ultimately receive the grants.

In response I wrote:

When you write “the interesting thing about your argument is almost more about who were the intermediaries (and their approach to philanthropy) rather than who they’ll ultimately fund.” That IS exactly the whole point.

First, a quick pair of definitions (these are from a paper titled Building is not Buying by George Overholser):

• Builder: A donor who provides money to a nonprofit organization with the intent that the money be used to build the nonprofit organization.
• Buyer: A donor who provides money to a nonprofit organization with the intent that the money be used by the nonprofit to deliver products and services to the nonprofit’s beneficiaries.

(These roles are similar to the for-profit roles of investors and customers where Builder=Investor and Buyer=Customer, with the one difference being that Buyer’s buy goods and services that are delivered to other people rather than Customers who stuff for themselves).

The government has historically almost always played the role of Buyer. That makes sense. They are spending tax payer dollars so that products and services can be delivered to people who need them and thereby enhance the “public good.”

But the Social Innovation Fund is different. It very explicitly does not give money to nonprofits. It gives money to other funders. It has said it will select those funders based on their demonstrated “track record of success at identifying and growing high-performing nonprofit organizations.”

This means the SIF is the government trying to  be a Builder rather than a Buyer. BUT, the SIF was designed with the idea that the government probably isn’t the best entity to play the Builder role. So instead, the SIF is charged with identifying and funding other funders who have a demonstrated track record of being excellent Builders.

Why does this matter? Because today we are faced with a nonprofit sector that is populated with undercapitalized, underperforming nonprofits. Nonprofit quite literally live in a “starvation cycle” whereby they are constantly asked by Buyers to deliver products and services, but rarely are supported by Builders who will provide the resources they need to build and enhance their organization. What this means is that Buyers, including the government, don’t get nearly as much as they should for their money.

Imagine a for-profit sector that had customers, but no investors. You go to buy a cup of coffee, but the local shop uses a really old machine and sources only halfway decent beans. They also don’t spend much on training their baristas, so even though the people who work at the coffee shop are hard working, nice people, they simply haven’t been given the tools they need to succeed.

To make matters worse, in the nonprofit sector Buyers actually have the ability to restrict their gifts and tell the nonprofit that they simply are not allowed to use any part of the money the Buyer gives them to improve their organization. Local coffee shops can often succeed without a significant investor by devoting a portion of the revenue they receive from customers to buying better equipment, better beans and training their employees. But in the nonprofit sector, the customer/Buyer actually dictates what the nonprofit organization can use their money for! The typical donor actually wants the nonprofit to spend as little as possible on equipment, training, supplies, etc and instead just pump out as much of the halfway decent coffee (to jump back to the local coffee shop) as they can with existing infrastructure.

The SIF attempts to change all that. The SIF is the government saying that Builders are needed too. But the SIF faces a serious challenge because MOST funders in the philanthropic sector also refuse to play the role of Builder. MOST funders act as Buyers and restrict their grants so that the nonprofits they “support” can use little to none of their grant dollars to invest in their organizational infrastructure.

And then we have the gall to wonder why nonprofits aren’t more effective. What a joke.

But the SIF seems to have correctly diagnosed the problem. While funders who explicitly focus on playing the role of Builder are rare, the SIF has properly identified and chosen them as the funders best positioned to help the government finally play a Builder role.

While I’m not familiar with the approaches of every grantee (intermediary funder) of the SIF, I do know that the SIF says they want to fund Builder type funders (those who  have a “track record of success at identifying and growing high-performing nonprofit organizations”). And each of the four organizations I do know, New Profit, Edna McConnell Clark, Venture Philanthropy Partners and REDF (which collectively received 44% of all the SIF funds) all rank as some of the leading practitioners of the Builder approach to philanthropy! So the SIF didn’t just get the concept right, they executed correctly!

In your email you say “The government just gave College Summit $3 million more dollars, about 20% of their annual budget. Big whoop.” But that’s not at all what happened. The SIF gave a Builder funder a chunk of cash and that Builder chose College Summit to fund. Not just to pay them, as a Buyer would, to deliver more of their programs, but to invest in Building the strength of the College Summit organization.

This means College Summit can get better at what they do. Not just do more of what they already do, but improve and grow so they can do exponentially more of what they do and do it better.

While College Summit and a few other subgrantees were “preselected,” the SIF actually had the guts to really follow through on the idea that the grantees (the intermediary funders) were the best ones to select which nonprofits are best positioned to receive Builder grants. The majority of the SIFs grants were distributed based on the SIF’s analysis of the grantees (intermediary funders) ability to identify and grow great nonprofits, not on the SIF’s assessment of each potential subgrantee (which have yet to be chosen by the intermediary funders).

If we had a better capitalized nonprofit sector, a philanthropic sector that included a far greater proportion of Builder funders, then Buyer funders – and importantly the government, given the Buyer role it typically plays –  would have more robust, higher performing nonprofit organizations from which they could Buy social good.

Using the coffee shop analogy, this would mean that Buyer/Customers could finally have access to coffee shops that used top of the line equipment, fresh roasted, top quality beans and were served by well trained baristas.

As far as I’m concerned, the SIF hit the ball out of the park today. They did NOT simply shovel Buyer money at some cool nonprofits. They did NOT simply allocate the money based on a bureaucratic earmark process. They actually executed on their mission of providing Builder funds. When we talk about their $50 million being small, it is because we are measuring it against all donated dollars. But when we measure it as a proportion of total Builder dollars, $50 million is serious cash.

• Wise Picks? Commentators Weigh In on the Social Innovation Fund Grants – Give and Take – The Chronicle of Philanthropy- Connecting the nonprofit world with news, jobs, and ideas The Chronicle of Philanthropy rounds up the different opinions on the grant decisions of the Social Innovation Fund. (tags: philanthropy)
• The inefficient nonprofit marketplace « Sasha Dichter’s Blog Sasha Dichter wonders if the idea that resources are allocated less than optimally in the nonprofit sector is wrongheaded. (tags: philanthropy)
• Unitus fund to cash out on Indian IPO – Puget Sound Business Journal (Seattle) The Puget Sound Business Journal reporter covering the Unitus story has published a blog post linking to his source documents. (tags: philanthropy)
• Unitus fund to profit on India investment – Puget Sound Business Journal (Seattle) Clay Holtzman, the reporter who broke the Unitus news, is still digging on the story. (tags: philanthropy)
• Rejecting False Dichotomies | The Center for Effective Philanthropy Phil Buchanan urges philanthropy to reject false dichotomies. In a comment, I agree but also warn of philanthropy's tendency to reject all recognition of the real tensions between different approaches. (tags: philanthropy)
• CEP | More Truth-Telling and Candor? | The Center for Effective Philanthropy Linda Wood writes about candor in funder-grantee relationships and the notion of "radical transparency" as demonstrated by the group Forge. (tags: philanthropy)
• Calling All Billionaires: Fund Organizations, Not Projects | Philanthropy Central Kathleen Enright, head of Grantmakers for Effective Organizations, calls on the Giving Pledge billionaires to fund organizations, not just their projects. (tags: philanthropy)
• Ken's Commentary: Charity Navigator Expands Rating Methodology Charity Navigator has begun rolling out their new rating methodology. I'll write more about this soon. (Disclosure: I am a member of their rating methodology advisory board.) (tags: philanthropy)
• The Social Innovation Fund Grants Focus on "What Works" | Social Entrepreneurship | Change.org Nathaniel Whittemore talks about the tension between innovation and effectiveness in the Social Innovation Fund and wishes the fund had made different choices. (tags: philanthropy)

I’m thrilled with the Social Innovation Fund’s newly announced list of grantees. In many ways, the results read like my personal wish list for how I thought they should approach their decision.

The Fund has announced 11 intermediary grantees, who will select subgrantees to receive the final funding. The full list is here.

In the official comment that I submitted to the Fund back in January, I offered a number of recommendations including:

• The Fund was overestimating the availability of conclusive evidence in the nonprofit sector and should not restrict funding to organizations that already have such evidence.
• The goal of the fund should be to fund and build the evidence base of the next Nurse Family Partnership (a nonprofit widely seen as being a model of an organization that has conclusive evidence of effectiveness).
• That the debate over whether the Fund should support “innovation” or “effectiveness” was a false dichotomy because an approach to philanthropy which focuses on providing growth capital and funds for building a nonprofit’s evidence base is itself a little used and innovative approach.

So I was thrilled to see that in the press release announcing the grants that while most of the subgrantees have yet to be selected by the intermediaries, the Fund says that the eight pre-selected grantees “have evidence of effectiveness along a continuum of preliminary, to moderate, to strong.”

In addition, the largest grant, fully 20% of the total funding, went to the Edna McConnell Clark Foundation, the funder which is most closely associated with providing the support to help grow Nurse Family Partnership. If any funder is going to focus on funding and building the evidence base of the next Nurse Family Partnership, it is Edna McConnell Clark.

Finally, the Fund seems to have rejected calls for them to fund truly early stage “innovation” and recognized that effective organizations that are building their evidence base are themselves innovative. The Fund’s grants also do not seem to reflect a traditional, government bureaucracy driven effort to “earmark” funds for preferred contractors, as some pessimists have worried. And the grants did not go to “business as usual” grantmakers and nonprofits.

While the list of intermediaries may be familiar to philanthropy insiders, grantees like Edna McConnell Clark, New Profit and Venture Philanthropy Partners (who collectively were awarded almost 40% of the total funds!) each appeared on a very short list of of organizations I wrote about early last year who “invest in nonprofits” and see their role as funder as identifying great and potentially great organizations and providing them the funds they need to grow and thrive. So I was thrilled once again to see the Fund describe their grantees as funders who, “share a track record of success at identifying and growing high-performing nonprofit organizations.”

Since the grants are only going to intermediaries (funders) at this point and the final grantees will only be announced later, we can only use the eight pre-selected grantees to get a glimpse at the sort of organizations who will eventually get the money and represent what the Fund must see as their “model subgrantee”.

Those pre-selected grantees include College Summit, Year Up, Latin American Youth Center and KIPP. While these subgrantees will be familiar to philanthropy insiders, they are in fact disruptive innovators who are seeking to apply innovative solutions to solve social problems while focusing heavily on building their evidence base around what works and what does not.

In my comment to the Fund, I wrote that while the nonprofit field today lacks a large number of organizations who have conclusive evidence of impact, the Fund could help set an example of evidence-base building that other funders may replicate. I argued that this process could help create a nonprofit sector teaming with organizations deploying proven effective solutions.

While philanthropy insiders may debate the relative conclusiveness of the evidence base of the subgrantees I list above, they represent the vanguard of organizations who believe that measuring their effectiveness and deploying their resources into the programs that they know work is the best approach to achieving impact. If the social sector was teaming with organizations like these subgrantees, we would live in a significantly different and better world.

No single project, least of all the Social Innovation Fund, will single handedly change the world. But if the Fund’s approach leads to more funders following the approaches of groups like Edna McConnell Clark, New Profit and Venture Philanthropy Partners, I do believe that philanthropy will change for the better. Their tactical approach to investing in nonprofits is by no means the only way that philanthropy should approach social change. But it is currently a deeply underappreciated key to the development of a far more robust and effective nonprofit field.

(On a more personal note, I’d also like to congratulate the group REDF, led by my friend Carla Javits, for receiving one of the 11 grants. Like all of the intermediaries, REDF clearly believes that their role is to identify and invest in effective nonprofits.)

• What’s Next in Social Enterprise? We Want to Know Your Ideas | Triple Pundit: People, Planet, Profit The Social Capital Markets conference is partnering with Triple Pundit to run a contest to find the next big think in social enterprise. (tags: philanthropy)

I owe the Ford Foundation an apology.

As I’ve written about the distinction between tactical and strategic philanthropy over the last couple of years, I’ve always refrained from labeling any specific foundation as being strategic or non-tactical. This is because I realize that most foundations pursue a mix of approaches in their grantmaking and unless I’m prepared to do an in depth review of a foundation’s activities, it is inappropriate for me to label their activity from afar.

In my post from last week about the Ford Foundation’s excellent new website, I talked about the way that Ford’s “grantmaking visualizations” presented a strikingly different approach to grantmaking than did the “portfolio of current investments” that New Profit uses to present their approach. I stand by my opinion that Ford’s presentation of their grantmaking depicts a world view that seems to me to represent a strategic rather than a tactical approach to grantmaking. However, I should have limited my comments to my interpretation of the grantmaking visualizations and not gone so far as to label Ford’s actual approach to grantmaking.

Ford’s vice president of communications Marta Tellado, left the following comment on the post:

“It’s great to get this kind of feedback about our new Web site Sean. We’re delighted that it delivers more transparency to visitors about our grant making. As I recently wrote in the Chronicle of Philanthropy, clarity and transparency are our guiding goals, and we labored to help our audiences grasp the rationale driving our grants. We’re very pleased at the response we’re getting to this effort thus far.

I am not so sure however, that your interpretation of strategy versus tactics at Ford is on the mark. For a philanthropy of Ford’s scope and scale, this presents a false dichotomy. Over our nearly 75 years, we’ve had a long tradition of tactical innovations, seminal early funding to grow new organizations, solutions and strategies to address some of the most intractable social problems worldwide. Our tactical funding has yielded exceptional results, and we applaud the philanthropic partners and organizations we have worked with and continue to work with at this level. However, given our scale we believe we don’t have to make the tradeoff between strategic innovation and tactical action. We can do both in our efforts to foster positive social change…”

To be quite frank, I’ve never reviewed Ford’s 75 year history of grantmaking and I do know that Ford has indeed offered “seminal early funding to grow new organizations.” By labeling certain foundation’s as “tactical” and other’s as “strategic” I think I do a disservice by oversimplifying the complex approaches deployed by large foundations and encourage unneeded division in the field.

That being said, there are important distinctions between a tactical approach that focuses on providing growth capital to high performing nonprofits and a strategic approach which focuses on executing a foundation devised attempt at solving a problem. But in highlighting Ford’s and New Profit’s divergent approaches to presenting their grantmaking, I ended up painting an overly black and white picture.

I appreciate Ford’s willingness to engage me on this subject and I apologize for labeling their approach to grantmaking in an overly broad way.

This guest post from Jim Canales, CEO of the James Irvine Foundation, is part of the ongoing Audacious Ideas series.

By Jim Canales

Bill and Melinda Gates along with Warren Buffett recently announced their commitment to devote the majority of their wealth to philanthropy. Perhaps more notably, they are encouraging other billionaires to pledge a similar commitment, and a new website, www.givingpledge.org, has been launched to encourage their peers to follow suit and to document these pledges.

This is certainly audacious. And it got me thinking about what similar “pledges” those of us privileged enough to work within organized philanthropy should be thinking about. Obviously, each of our foundations effectively makes a pledge by deciding where to focus our grants, whether on issues of education, health, economic development, the environment or the arts.

But, I’d suggest there are other commitments we should consider related to how we as foundations engage in our work in addition to what we do with our resources. The big-dollar pledges that foundations can make are certainly compelling, but the ways in which we engage with our grantees deserve as much attention as what we fund. Our ability to create positive social impact through our grantmaking is directly related to our capacity to be effective and thoughtful partners with the organizations we are privileged to support.

Much has been written about the tenuous nature of a grantor-grantee relationship and how it is influenced by the inherent power differential and complexity. Let’s lean into that complexity and commit to specific actions that can deepen these relationships, and enhance trust in ways that will further our collective social impact.

So, with a focus on how we might improve and enhance that working relationship, my audacious idea is to suggest—even implore—foundations to make commitments that address the following:

–Transparency: What specific action or actions will your foundation take to increase its openness and render its processes and approaches less opaque and more transparent?

–Accountability: To what specific measures should your grantee partners hold the foundation accountable, and what will be the foundation’s mechanism for reporting publicly on your progress?

–Authenticity: What specific steps will your foundation take to enhance its relations with grantees and grantseekers and create greater authenticity in them, rooted in respect for our partners? What mechanisms will you put in place to ensure that you are listening and learning from your grantees as much as you expect them to listen and learn from your foundation?

If the largest 250 foundations in this country agreed to even one tangible, specific and measureable improvement in one of these areas each year, the quality of our relationships with our partners could be improved significantly, and the power differential that often impedes an effective working relationship could be reduced greatly.

At the Irvine Foundation, we have tried hard to uphold our commitments to transparency, accountability and authenticity, but we are under no illusion that our work is done. We are committed to finding additional authentic mechanisms to listen and learn from our grantees. Our next opportunity will be later this year, when we receive the results of our Grantee Perception Report. As we have done in the past, and as others now do routinely, we will post the results of that report on our website, along with a letter describing what we have learned from our grantees and how that will influence our practices going forward.

Some might rightly question how audacious it really is to commit to principles that ought to be at the heart of exercising effective philanthropy. I agree. But, as a field, we have much more progress to make in this regard, and I know that improving the nature and authenticity of our relationships with grantees can be one of the most effective ways we can enhance our capacity to create positive social impact. With that authenticity, grantees are more likely to be honest about the challenges and risks in their work, and grantees and grantmakers are more likely to forge effective strategies to overcome those challenges. Without such authentic relationships, we are far less likely to have the kind of impact that our missions articulate and our communities deserve.

Has the time come for a more visible and cohesive movement in organized philanthropy to express our collective commitment to principles of transparency, accountability and authenticity? If not now, when?

• Unitus donors seeking answers about switch – Puget Sound Business Journal Clay Holtzman, who broke the Unitus story, has interesting new details about reactions to Unitus' decision to exit microfinance. At least one board member has resigned because of the decision and some donors are asking for their money back. (tags: philanthropy)
• Microsoft Co-Founder to Give Away Half of His Fortune to Philanthropy – NYTimes.com The Buffett/Gates Giving Pledge is working… (tags: philanthropy)
• Happiness for a Lifetime | Greater Good Research shows that the single best way to make yourself happy is to help others. This is the sort of research that dovetails with the idea that humans are self-interested while also destroying the assumption that self interest makes us selfish. (tags: philanthropy)
• Where Social Media Doesn’t Matter – Full Contact Philanthropy Full Contact Philanthropy author Dan Elitzer discusses the need for nonprofits to market their services to their beneficiaries. Dan makes a fantastic point that I've never seen raised before. Even if you give a service away for free, how you market it can dramatically affect the outcome. This issue was addressed in the excellent behavioral finance book Nudge in which the authors looked at how school children chose much healthier school lunches if healthy food choices were marketed well. (tags: philanthropy)
• Philanthrocapitalism » Giving Gates C Minus The Philanthrocapitalism blog reflects on the recent somewhat negative "Grantee Perception Report" that the Gates Foundation publicly released. (tags: philanthropy)

I’m a member of the Alliance for Effective Social Investing. The Alliance is conducting a survey of people who care about effective social investment. If you’re interested, we love to have you take the survey below.

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The Alliance for Effective Social Investment is collecting feedback from current members and other stakeholders in effective social investment to better define the Alliance’s strategic priorities and membership policy. Please take a few minutes to share your thoughts and help shape the way ahead for the Alliance for Effective Social Investment.

All you need to do is follow this link that will take you right to the survey. Please take 10-15 minutes to fill in the survey before Friday, July 23. The findings will be discussed at the upcoming Alliance meeting at the end of July and acted on by current members.

Starting on Monday, we’re launching a new series on the Tactical Philanthropy blog called Audacious Ideas. The series will consist of regular guest posts from leading thinkers in philanthropy who are willing to step forward and propose an Audacious Idea… and sometimes announce an Audacious Action.

We’ll be publishing the first Audacious Idea on Monday from Jim Canales, the CEO of the James Irvine Foundation.

I do hope you like the series and encourage you to leave comments on each Audacious Idea post suggesting ways to improve it… or challenging it.

Have a great weekend!

Unitus has sent out an email to supporter that helps clarify their reasons for exiting microfinance. I may have more to say about the topic later, but today I want to give Unitus the opportunity to tell their side of the story.

Dear Unitus Donors:
 
On July 2, having accomplished our initial core mission, Unitus announced a major change in strategic direction. A decade ago, Unitus established two interrelated primary goals: (1) to bring commercial funding into the worldwide microfinance marketplace, thus greatly increasing the amount of money available for loans; and (2) help demonstrate on three continents that microfinance organizations can be scaled to serve hundreds of thousands of clients at the bottom of the economic pyramid.

Now, with $50 billion of microfinance capital available to more than 150 million of the world’s working poor—and a large and a growing community of philanthropic and (now primarily) commercial microfinance institutions serving this previously greatly underserved market—we feel the time is right for Unitus to seek out other transformative fields of endeavor.

Accordingly, going forward Unitus will no longer initiate new microfinance partnerships. We will honor all existing obligations and commitments to existing MFI partners, then move on to new high-value activities. With many fine organizations now serving this space, we are confident that MFIs will continue to increase and improve their activities of making capital available for microloans.

Unitus is not a conventional charitable organization. Our goal from the outset has been to identify promising young ideas (such as microfinance) and help them rapidly demonstrate their full potential. The Unitus board and many of our donors support this creative, innovative and risk-taking approach to improving our world. When we started ten years ago, microcredit was still somewhat of an experiment.

Today the commercial microfinance model has been validated and—as we envisioned—powerful commercial players are doing far more to expand access than Unitus ever could.
Because of this unusual approach and our recent announcement, we know many of you have questions. It’s our intent to be completely open and transparent with you. We also always appreciate your input, ideas and feedback as it helps us sharpen and refine our focus.

Is Unitus shutting its doors?

No. We are redirecting our efforts from our focus on accelerating microfinance to new areas where we hope to make new transformational impacts on reducing global poverty, in areas we are currently exploring. As a result, we are winding down our current organization, which was built to support dramatically accelerating access to microfinance. After completing our existing microfinance-related obligations, we will refocus Unitus in one or more exciting new directions.

Is charitable/philanthropic involvement in microfinance no longer relevant?

There are still many people in the developing world who would like access to microfinance services, especially where the commercial case has not yet been made. In these areas, donor dollars may still be required to demonstrate viability. And there are now many high-quality permanent players in this field. Some examples include ACCION, Opportunity International and Grameen. We are confident that these and other organizations, along with the influx of funds from the capital markets, will successfully fill this role within the next decade. This enables Unitus to shift our focus to addressing other pressing needs of the global poor that have received far less attention and require creative and innovative approaches that we are uniquely suited to provide.

Why was this change so abrupt? How long has Unitus’ board been considering this decision?

The announcement may seem abrupt, but Unitus leadership has been considering strategic options for a number of months as it became clear that our original goal of attracting commercial capital to microfinance was reaching a tipping point. In the end, the path we took and our timing represented something of a balancing act. On the one hand, we wanted to wait until we had a high level of confidence that we have done what we needed to do in order to ensure that our strategic partners were on a solid footing. On the other hand, once we had arrived at a definitive decision, we felt a fiduciary responsibility to right-size our expenditure of donor capital while ensuring that we had met our legal, financial and moral obligations to our partners and employees. The reality is that significant changes like this always feel abrupt when they are announced. We are sorry that we could not make this announcement feel less abrupt.

When was this decision made by Unitus board? Was it unanimous?

Our ultimate decision was made in the final weeks before our announcement. All members of the board agreed that this was the right decision.

Who did Unitus board consult before making this decision?

We have consulted with many Unitus stakeholders—friends, founders, investors and donors—about possible future directions. This decision incorporates the many diverse views generated by these conversations.

Is there a problem with microfinance—a financial bubble or something?

We don’t focus most of our energy and efforts on prognostication. However, we (in consonance with the reasoned analysis in The Economist and that of many other credible observers) do not see signs of a global bubble brewing in microfinance—notwithstanding the unavoidable individual anecdotal cases of over-borrowing and over-lending. That said, we and our partners have always strived to follow sound fiscal policy and due diligence processes, which we feel should be incumbent upon all lenders—not only for their own sake but also that of their borrowers. Most of our partners, and many more MFIs in the industry, are following sound lending practices (such as those outlined by the SMART Campaign).

Why are you letting go of the Unitus team? Aren’t there at least some people who make sense to keep on for Unitus 2.0?

The board’s view is that the directions we are exploring will not require an organization of the current size and shape. This downsizing has been without question the most painful decision we have made. Our employees are extraordinary, which doubles the pain. The fundamental reality is that the outgoing Unitus staff—bright, talented and passionate—was built for our focus on accelerating access to microfinance.

We are trying to balance what we feel is our moral obligations to our staff with what we see as our fiduciary responsibility to preserve as many resources as possible for new strategic initiatives that will have the greatest impact toward sustainably reducing global poverty. All employees are offered severance pay commensurate with their job and the length of time they’ve been with Unitus. Going forward, we feel that the most responsible thing to do is to gauge our human resource needs as the strategic direction of Unitus 2.0 evolves, and fill them on a case by case basis with the best possible people for that direction—whether or not those individuals are former Unitus employees.

Will Unitus be involved in accelerating financial services for the poor or something else? Will Unitus continue to work in India? Africa? Other places?

Our core underlying purpose of improving opportunity and quality of life for the world’s working poor remains unchanged. The Unitus Board is currently considering a variety of strategic opportunities throughout the developing world, including India, Africa and other important areas. Our primary goal/mission is still to maximize the socio-economic impact for those currently not being served by current solutions in the marketplace. As we solidify our direction, we will be providing further updates and announcements.

How will the remaining Unitus charitable resources be used/spent?

100 percent of monies donated to Unitus will be used for our charitable mission of reducing global poverty and enabling economic self-reliance. In the short-term, some resources will be used to complete our obligations to microfinance partners and to efficiently wind down the microfinance-related operations of Unitus. The remaining funds will be allocated to new philanthropic strategic initiatives determined by the board in keeping with our mission of reducing global poverty. As always, we will continue to be completely transparent in the ultimate uses of the dollars our donors have entrusted to us.

Who is helping create the new vision for Unitus?

We are fortunate to have strong founding board members and current or former board members deeply involved in this process: Joseph Grenny (board chair), Mike Murray (former board chair), Bob Gay, Tim Stay and Dave Richards. Geoff Woolley—a former board member who has been instrumental in much of the innovative work Unitus has done—has agreed to be actively involved. In addition, we are partnering with senior members of the Unitus team—and with many of you.

Please know that it has been a tremendous honor for us to collaborate with you in working to empower and improve the lives of so many working poor individuals and families through microfinance. We are inspired by your generosity and enlightened good will, and deeply committed to maximizing the effect for good of your contributions. As we envision Unitus 2.0, we welcome your insights and would be honored to continue to work with you.

All the best,
Joseph Grenny
Chairman of the Board
Unitus