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Friday
Apr102015

Ford Sinks Over $1 Billion a Decade Into Overhead. Is That Money Well Spent?

What does it cost to have offices around the world, a huge headquarters in midtown Manhattan, and hundreds of staff?

Over a billion dollars a decade. 

Now, before saying another word about the Ford Foundation's operating expenses, let's make one thing clear: Ford is not some unique creature of excess. I've been to the Ford cafeteria. It's not like the food is free or they're serving caviar. In fact, Ford's overhead level is fairly typical among big legacy foundations.

But because Ford is so large, these numbers add up in a pretty shocking way, and dramatically illustrate a point that we make often at Inside Philanthropy: A staff-intensive grantmaking model that hinges on doling out innumerable program grants doesn't just drive nonprofits nuts, it costs a fortunemoney that could be better spent. 

I'll explain why there's a smarter way to do things in a moment. First, though, let's take a closer look at how Ford's operating expenses break down.

Looking at 2013, Ford had total expenses of $685.5 million dollars and spent $146.4 million on operating and administrative costsor just over 20 percent. (Again, that figure is not unusual among legacy foundations.) Of those expenses, nearly $80 million went to compensate personnelmainly staff, but also board members and consultants. Another $20 million or so went to pay for office space, travel and meetings. 

Okay, so let's just stop right there and consider this: A philanthropic entity dedicated in large part to helping the world's downtrodden is spending $100 million a year on people who are not among the downtrodden. 

Anyone have a problem with that? 

I do, but not because I think Ford staffers are overpaid or that the foundation is wasteful in terms of how it operationalizes its grantmaking model. The problem is the model itself. 

Related - Hey, Darren: Swing That Ax Hard at Ford's Bloat

First, though, on the subject of Ford's salaries: Luis Ubiñas, Ford's last president, was making $2 million in total compensation before he left, after five years on the job. But Darren Walker, who just started, is only making around $600,000which is a lot less than Ford's chief investment officer. (It's often the finance people managing the endowments who make the biggest money at foundations.) On the program side, two recently departed Ford vice presidents were pulling in over a half million dollars in compensation in 2013, but most salaries for Ford's senior people are well below that. One of the foundation's newer VPs came in at a salary just a tad higher than $200,000.

None of this seems out of line if you think that top people in the nonprofit sector deserve to be well compensated. 

The problem at Ford is not that its staff are overpaid. It's that there are too many of them. And there's a reason for that: When foundations put themselves in the driver's seat of the nonprofit sector, they need a lot of hands on the steering wheel. 

Related - Control: Why So Many Funders Fear General Support and Can't Stop Micromanaging

Most of Ford's grants take the form of program support, and many hundreds of these grants are made every year. You can't do that without a large organization. As I've written elsewhere, program grants are one way that foundation staff aggregate influence and leadership for themselves:

Program grants are the precision-guided munitions of philanthropy: You get to decide to fund this study or that pilot program or this special initiative, as opposed to just writing a check and ceding those decisions, and the power that goes with them, to somebody else. 

Foundation staff are no more power hungry than anyone else, and probably less so: Most do see their role as empowering others. But philanthropoids also have various incentives to exercise a lot of control over how grant dollars are spent, and the clumsy ones exude a "we-know-better" attitude, leading to the frequent complaint among grantseekers that these folks act like "it's their money." 

Here's a more systemic way to see things: Big legacy foundations have, over time, turned themselves into major power centersas opposed to mere facilitators of work done by others. And while many of these foundations are working to reduce disparities in society, their models replicate these gaps in a basic way. The people controlling the money call the shots. 

This is hardly a novel critique, but the costs of the foundation power grab are now getting more attention as new funders come online that give away a lot of money without a lot of staff. 

Related - Philanthrosaurus Rex: Why the Age of Big Foundations Is Almost Over

I've written a ton about these "lean" funders, so I'll skip the whole spiel. Instead, let's focus on a grantmaking operation that's financially comparable to Ford: the two foundations that Susie Buffett controls. 

In 2013, the Susan Thompson Buffett Foundation (named after Susie's mother and Warren's wife) gave out $450 million in grants. The Sherwood Foundation, also controlled by Buffett, made $102 million in grants. How much did both these foundations, together, spend on operating expenses to give away $552 million? 

Around $11.5 million, or around 2 percent overhead. 

Why can Susie Buffett and her teams give away a fortune at a fraction of the cost that Ford incurs to move the same money? Because they have a different funding model. They support fewer organizations with much larger grants. And you don't need an army of staff to do that. 

There's an obvious line of defense for the staff-intensive foundation with both hands on the steering wheel: Namely, that this model has the most impact. Or, to put the point differently, we should want philanthropoids to aggregate power to themselves because they use it wisely. 

Ford could be seen as a great example of that leadership in action, as a foundation that's helped choreograph any number of key societal advances over the decades. My favorite current example of a big foundation playing a crucial leadership role is Robert Wood Johnson, which spends even more on operating expenses than Ford to pursue its grand vision of re-engineering America for better health.  

Still, how do we know whether this kind of leadership is worth the cost? 

We don't. For all numbers crunching on operating expenses, there's been little rigorous analysis of whether it's a good thing for foundations to turn themselves into heavily staffed command posts within civil society.

It's not easy to compare the impact of different grantmaking models. But I can think think of at least three good reasons for places like Ford to change how they do business and slim down in a major way. 

First, when a fifth of a foundation's annual budget doesn't reach the people it's supposed to help, that can't help but water down its impactno matter how wisely the other funds are spent by all the smart philanthropoids making six-figure salaries. There has to be a more efficient way to do things. 

Second, a major drawback of the staff-intensive model is that grantmaking budgets tend to get spread too thinly over too many issues and organizations to have maximum impact. Why is that? In part, it's because all those staffers have favorite issues and causes, and also offer more inroads for grantseekers. The more people you have giving away money, the harder it is to say "no." 

Many of the legacy foundations don't just spend a fortune on operating expenses, they also spread funds across many issuestoo many. These two facts are related.

Ford is a perfect example of an overstretched foundation. MacArthur is another example, as I wrote recently. And reforming places like this is hard, because it means battling internally against a lot people who'll defend each and every foundation priority. 

Related - Julia Stasch Atop MacArthur: Change or More of the Same? Maybe Both

A final reason foundations shouldn't grab power for themselves is that, arguably, those closer to the ground are in a better position to call the shots in civil society than a cadre of elites who are famously insulated from any candid feedback about their actions. Some might say this is the best reason that foundations—much smaller and less costly foundations—should mainly write checks and get out of the way. 

One nonprofit leader, Nancy Lublin of Do Something, went so far as to give this advice to Ford: Sell that fancy midtown building, fire most of the staff, and move to a loft in Newark to "live your values." 

I'm not sure I would go that far, but it's a thought experiment worth engaging. 

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