10 Key Takeaways

1. Accept that you cannot control everything, and that failure is an ever-present risk.
2. Decide on the level of uncertainty you can tolerate.
3. Be wary of trying to control individual behavior and instead seek to shape its context.
4. Build in redundancy and be ambidextrous.
5. Invest in high-quality, in-depth political and economic intelligence.
6. Take unforeseen events in stride.
7. Pay attention to diverse stakeholders and their signals.
8. Develop relationships and regular communication channels with applicants, grantees, and beneficiaries
9. Create feedback loops and adaptive mechanisms.
10. Be prepared to seize opportunities.

Introduction

In times of disaster, people look to philanthropic foundations as important sources of additional support, beyond both the government and nonprofit sectors. This was the case after 9/11 and the global financial crisis of 2009, and it is the case now as we move into the adaptation and recovery phase of the COVID-19 pandemic.

Foundations not only have a lot of money but can act quickly, flexibly, and creatively. And many of the larger foundations like Rockefeller, Mott, and Surdna are stepping up during this time of increased need, as are many of the smaller players at the local level.

Philanthropic foundations—understood as independent, private endowments that make grants to organizations and individuals dedicated to serving a public purpose—are beholden to neither market expectations nor to voters, thus making them one of the freest types of institution in modern democratic society. This dual independence, combined with their governance structure, is a source of both strength and weakness. To wit, foundations have unparalleled independence to act as they choose, to take risks, and to fail with no terminal consequences.

Yet do foundations live up to the promise they hold? What makes them successful, and what makes them fall short of their potential? Given the growing controversy over the real value of philanthropic foundations,^1,2 the authors attempted to answer these questions through the presentation of detailed case studies from their book, The Ambiguity of Success: On the Performance of Philanthropic Foundations. This Corporate Citizenship Matters article provides a preview of the authors’ work in this area.

Inherent Tensions

Standing on the edge of the fields they fund, foundations suffer from chronic signal deficiencies. This is because they are heavily dependent on what stakeholders, and grantees in particular, choose to tell them. Those seeking funding have a strong self-interest in presenting a picture best suited to their purposes. Foundations thus typically hear stories of dire need during proposals for amazing solutions that are within reach if only sufficient funding were available.

Built-in and underlying tensions in foundations’ governance structures produce significant incentive deficiencies as well. In brief, foundations are governed by a donor as silent principal and trustees as acting principal. The first tension stems from the interaction between original donor intent, board interpretations of that intent, and change in intent over time. If the deed is broad, there is little guidance in matching purpose with activities, and foundations run the risk of appearing to be headless nomadic organizations. If the deed is tight, trustees’ options for interpretation are constrained and the foundation risks obsolescence, and, critically in the current COVID-19 situation, are unable to react to an unforeseen event or crisis.

The second area of tension is in the relationship between trustees and management, including program officers. This relationship is complicated by the disjunction between law and reality; in law, trustees are all powerful; in reality, managers have the upper hand insofar as they are selected and paid for their expertise. They work as professionals and control the flow of information. In addition, managers serve an intermediary role between interpretation of the deed by trustees as principals and grantees as ultimate agents. Managers simultaneously act as agents for trustees and principals for grantees, thus resulting in a conflict of interest. Furthermore, it is not in the interest of any of the party to admit failure: managers want to be seen as performing well, and trustees want to hear good news because they are ultimately responsible. Consequently, there is no de facto principal to threaten sanctions such as bankruptcy or loss of office.

A third area of tension is the relationship between managers and grantees. It is riddled with tensions, information asymmetries, adverse selection, and moral hazards among other complicating factors. Foundations also face sunk cost problems in that while grants provide some semblance of a deal, typically they are actually more akin to unilateral transfers than a fee for service arrangement insofar as reports of success are mediated through grantee reports and third parties. On top of these issues, foundations work in complex and changing environments and on problems that are not well defined and difficult to measure to the satisfaction of all stakeholders.

The Benign Fallibility Syndrome

The net result of these characteristics is that foundations suffer from what we term the benign fallibility syndrome, which in turn creates a tendency toward ambiguous outcomes: foundation projects and programs tend not to succeed or fail, they just move on to another program. Another project. Another grant. Although projects may have clear initial goals, plans, and resources they often lack precise endings, attribution, and sustainability. Moreover, foundations’ performance tends to be expressed in qualified fashion, such as “yes, but” and “no, however.” Similarly, use of terms like “enhance,” “enrich,” “augment,” “develop,” “amplify,” and “advance,” exemplify the typically imprecise manner in which foundations’ report performance. Yet another issue typical of foundations is to engage in “satisficing,” a term economists use to denote behavior that searches for acceptable results when what is optimal is difficult to achieve and not well defined. Satisficing can be done in two ways: 1) finding optimum solutions for a simplified world view; and 2) finding satisfactory solutions for a more realistic world view in which outcome expectations have been adjusted down.

The Cases

Starting with 100 foundation programs as likely examples of “success,” we narrowed them down to 20 for detailed study and then looked at nine of the 20 in even greater detail. The nine cases we chose to focus on illustrate varying degrees of ambiguity and offer different perspectives, especially in terms of the insights they offer for understanding foundations. The cases varied in political sensitivity, complexity, and the dynamism of the environments in which they operated. Covering issues ranging from tobacco use to community development to housing to Islam’s role in society, they were all relatively long-term projects, typically of five years or more, and involved several grants and grantees, as part of a larger foundation program. Similarly, they took place in a wide range of areas including the USA, the United Kingdom, Italy, Germany, Belgium, and Bosnia Herzegovina.

In summary, our case studies highlight the value of:

• Considering the level of complexity and dynamism in the field of work and the associated implications for required resources, time scales, conflict, criticism, and likelihood of success; remembering that levels of complexity and dynamism may change over time
• Being willing to change styles; if necessary, shifting from cooperation to confrontation and vice versa
• Focusing on and learning from what happens during implementation rather than relying on strategies as linear, causal, and certain, thus avoiding the autopilot effect and indicator blindness³
• Sufficiently valuing incremental improvements rather than wholesale, headline grabbing “innovation,” while at the same time, however, being aware of satisficing tendencies
• Using independence and freedom from short-term pressure for demonstrable success to take the long view

Described below, the cases fall into two groups. In every case though, “success” was ambiguous, depending in large part on when the judgement was made, whose viewpoint was taken, and which criteria and goals were used. The degree of ambiguity was further intensified by consideration of what might have happened anyway and how much of the outcome could be attributed to the foundation’s intervention.

Group I

Group one comprises five of the nine cases. In different ways, each is about creating or recreating an institution to improve existing conditions, either in a market context or civil society. To varying degrees, these projects also sought to reform existing education, employment, housing market, and neighborhood social infrastructure systems.

Walton Family Foundation (Walton)

Calling attention to the way in which a foundation can adapt as a project proceeds, Walton provided financial and other support for the promotion and establishment of charter schools in selected areas in the US. It is interesting to note how the qualities of the “public good” were contested with the result that although a foundation may be effective in achieving its goals, it can still be subject to criticism for the nature and effects of those goals.

The William and Flora Hewlett Foundation (Hewlett)

This case recounts Hewlett’s attempt to initiate, support, and convene a large program that sought to achieve community-wide changes in three economically depressed and underserved cities. The wider program was based on a new and still poorly understood conceptual approach to community regeneration that included managing a wide array of actors without a clear theory of change or explicit goals.

The Mozaik Foundation (Mozaik)

Mozaik, a relatively new foundation, working in a conflict-ridden society set out to create a social enterprise, EkoMozaik, with the triple goal of: 1) providing employment opportunities in an economically depressed region; 2) bringing together people from different ethnic communities; and 3) creating a financially sufficient, self-sustaining business.

Fondazione Cariplo (Cariplo)

This Milan-based foundation with origins in banking designed and supported a complex, multifaceted program which involved the creation of an ethical investment fund as well as the design and promotion of social housing programs to meet the needs of people ineligible for public housing but too poor to afford private market rents. The case highlights the importance of context-specific networks and governance structures, particularly in gaining financial support for a social investment and acceptance of several innovative concepts straddling the public, private, and nonprofit sectors.

Eberhard von Kuenheim Foundation (EVKF)

This case is unusual in that EVKF stepped into a role that straddled government and the for-profit, corporate sector—saving a factory and jobs in an economically depressed area. They initiated and supported the creation of a group of funders across sectors to revive a famous crystal glass factory. They leveraged their independence and neutrality in an attempt to establish trust and confidence among a group of potential backers.

Group II

The second group of cases focuses on projects that attempted to change existing attitudes and behaviors, such as overcoming government inertia and opposition, fighting powerful industry and government lobbies, and addressing public ignorance and prejudice. These are cases where a foundation did something very unlikely to be undertaken by government or business not least because the different issues were, in varying degrees, politically contentious. All four cases risked failure and reputational damage.

King Baudouin Foundation (KBF)

This case relates the account of an established and highly respected foundation’s initiation, convening, and support of an investigation into the training of imams as part of a wider program designed to promote integration of Muslims in Belgian society. This was a highly sensitive, controversial issue in which politicians were reluctant to become involved. To their credit, KBF recognized that its independence and neutrality gave it the freedom to step in. The case highlights the way in which external factors may undermine a foundation’s history of achievement.

Pew Charitable Trusts (Pew)

Initiated and supported by Pew over several years, the program was designed to stimulate federal legislation to address climate change; later on, the program focused on select US states and on encouraging investment in renewable energy. The case illustrates the complex interactions and adaptations of a foundation working on a poorly understood and easily politicized issue in a changing policy environment.

Joseph Rowntree Charitable Trust (JRCT)

Illustrating the importance of strong and enduring grantor-grantee relationships when a foundation supports a project with variable and sometimes volatile political support, this project sought to provide long-term financial and other support for a campaign to promote Freedom of Information legislation in the UK.

Robert Wood Johnson Foundation (RWJF)

In this case, the foundation worked to promote and financially maintain various initiatives designed to reduce teen tobacco use in selected states. In addition to the policy environment changing, the power and degree of opposition of a well-connected industry lobby remained constant. In addition to illustrating the power of cross sector coalitions, the case highlights the need for regular adaptation vis-à-vis changing circumstances and lessons learned from prior successes and failures.

Takeaways for Boards and Management

Our book focused on philanthropic foundations. While some of our key takeaways are primarily applicable to them, others are relevant for anyone managing complex projects in uncertain environments.

As the financial assets of foundations are generally very small when set against the enormity of the issues and institutions they seek to change, we emphasize the importance of thinking beyond money. Foundations have other potential assets to rely on including, knowledge, neutrality, networks, and independence—arguably their greatest.

The fact that foundations are financially independent and politically unaligned, existing on the margins of the corporate, government, and nonprofit sectors, means that they are in an ideal position to build trust and reciprocity.

We also urge endowed foundations to resist letting a focus on measurable outcomes direct what they choose to do; as unlike government and business foundations they can afford to try and to fail. And before engaging in evaluation and performance measurement always ask why and for what purpose the results will be used.

More generally, we suggest that foundations (and others) consider the benefits of:

Accepting that you cannot control everything, and that failure is an ever-present risk. For example, RWJF accepted that addressing teen tobacco use was very risky and involved taking on powerful lobbies. Although it certainly could not control the lobbies, it was aware that its independence enabled it to take this risk. RWJF was aware of its inherent independence and addressed its weaknesses with thorough research, adapting and adopting multiple approaches, and collaborating with others. In the same vein, JRCT having confidence in the talents of their grantee, took a hands-off approach, accepting that failure can be part of the process.

Deciding on the level of uncertainty you can tolerate. If the risk of failure is too uncomfortable, consider working as a service provider in more stable, nonpolitical, and less complex environments.

Being wary of trying to control individual behavior and instead seek to shape its context. In the early stages of RWJF’s program, they sought to explore links between the price of tobacco and levels of its use, thus shaping the context through the use of pricing and tax mechanisms. Unlike government, foundations do not have the legitimacy or the tools to control individual behavior, but they may have the resources and the voice to advocate for changes in contexts. For example, Walton realized that its attempt to transpose its model for school reform onto communities was too simplistic to result in meaningful change, so they changed their strategy accordingly.

Building in redundancy and being ambidextrous. Cariplo, Pew, RWJF, and KBF all adapted as they went along and worked on different fronts concurrently and consecutively. By contrast, Walton displayed a resistance to supporting alternative approaches to school reform. The independence of foundations means that their strengths include the capacity to take the long view, to back several horses simultaneously and to be “inconsistent” in ways governments typically find difficult. This is also where their disjointed governance structure can be an advantage.

Investing in high-quality, in-depth political and economic intelligence. Remember that macro and micro events matter. For example, JRCT was well aware of the political positioning before and after a key election and its potential implications for the program. And Pew seized the opportunity of an administration that was open to climate change legislation to gain bi-partisan support for a bill that made it to the floor of the US House of Representatives.

Taking unforeseen events in stride. Expect the unexpected, reduce uncertainty, collect and process signals, imagine “what if?” and take precautionary action. For example, RWJF and Pew worked on a range of concurrent projects; and, rather differently, Walton changed its approach when things became politically contentious. Mozaik’s lack of foresight with regard to severe weather conditions led to several costly setbacks.

Paying attention to diverse stakeholders and their signals. The tendency of foundations to suffer from weak signals means that they must be constantly attentive to both the similarities and differences between projects and locations over time. Arguably, at times, yet in different ways, Hewlett and Walton failed to pay sufficient attention to the differences between their projects.

Developing relationships and regular communication channels with applicants, grantees, and beneficiaries. Beware of tokenism (e.g., “We have two young people on the board”) and false confidence (e.g., “We know what’s going on—we talk to all of our 300 grantees”). Talk to nongrantees and nonapplicants as they are likely to be the source of the foundation’s very weakest signals, its unknown unknowns.

Creating feedback loops and adaptive mechanisms. Foundations can potentially reduce the danger and damage of weak signals by deliberately building and nurturing good feedback channels and adaptive capacity. Cariplo and KBF both illustrate these qualities particularly well; both designed their programs to explore, experiment, and adapt as they learned from previous iterations.

Being prepared to seize opportunities. Foundations’ independence and relative lack of accountability mean that, in theory, they can be flexible and opportunistic.

These suggestions will require significant changes in current assumptions, thinking, and practice. We call attention to several below; each posing a challenge to foundation governance and management:

• The current assumption is that more and better planning leads to better outcomes, whereas the suggestions above indicate that ambiguity is certain, and control is an illusion.
• Current reliance on due diligence prior to the grant and emphasis on the “right” application as one that has a clear and feasible plan runs contrary to expecting the unexpected, collecting signals, and imagining “what if?”
• The current focus on a small number of carefully defined priorities and approaches is the converse of cultivating adaptation and ambidexterity, hedging bets, having several pots on the boil, and being prepared to seize opportunities.
• The current culture of lean, mean, and efficient is at odds with an emphasis on built-in redundancy and investment in social, political, and economic intelligence.
• The current tendency to treat feedback as a routine matter of minimum accountability clashes with the idea of feedback as a genuine learning opportunity and in-the-moment intelligence.
• The current common practice of focusing attention on relationships with existing grantees is not compatible with fostering trust and reciprocity with a wide range of organizations.

Conclusion

If foundations are to thrive in the new post COVID-19 world, they will need to adapt to a changed and no doubt volatile political economic and social environment. They will need robust, up-to-date intelligence to understand who is doing what, where, when, and on what terms. They will need to adjust to new responsibilities and relationships, new sources of power and new obstacles, as well as new areas of inequality and injustice. And they will likely need to do all this in the face of increased demand from cash-strapped nonprofit organizations on the brink of potential failure as well as their own reduced revenue from endowment incomes.

Foundations have, of course, done some of this before. Taking time to ask, “What did we do during the Spanish Flu pandemic and the Great Depression?” may be a few hours well spent.⁴ Revisiting how foundations responded to some more recent challenges could also be instructive. For example, after the 1994 riots in Los Angeles, local foundations pooled resources to create LA Urban Funders and jointly responded to community needs. History may not tell us what to do but it often gives salutary warnings of what to beware.

  ¹ Anand Giridharadas, Winners Take All: The Elite Charade of Changing the World (New York: Alfred A. Knopf, 2018).

  ² Rob Reich, Just Giving: Why Philanthropy Is Failing Democracy and How It Can Do Better (New Jersey: Princeton University Press, 2018).

  ³ Patricia Patrizi, Elizabeth Heid Thompson, Julia Coffman, Tanya Beer, “Eyes Wide Open: Learning as Strategy under Conditions of Complexity and Uncertainty,” The Foundation Review 5, no. 3 (October–November 2013): 50–65.

  ⁴ For instance, see Candid’s Issue Lab at www.rockarch.issuelab.org.