Can Lean Foundations Do Smart Grantmaking? Here's a Study That Says "Yes"

Last week, I wrote about how the Ford Foundation has spent more than a billion dollars on operating expenses over the past decadenot because it's a unique creature of excess, but because its grantmaking model is so staff-intensive. 

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

A question raised by that post was whether there's any evidence that the Ford model—one that hinges on lots of program grants and is embraced by many legacy foundations—actually produces more impact than other approaches. Do you need lots of staff to do smart grantmaking? 

No, in fact, you don't. At least that's the conclusion of a report published not long ago by Exponent Philanthropy.

This group used to be known as the Association of Small Foundations. But it ditched that name last year and brilliantly transformed itself from a dreary trade group to, well, a movement—one that's bringing together funders who:

choose to give big by staying small, working with few or no staff to make the most of their resources. Their style of giving is unique—it’s lean, agile, responsive, passionate, personal... We empower philanthropists to leverage their resources and amplify their impact.

If a team of consultants dreamed up that makeover, they deserve a major gold star.

Anyway, the study directly addresses the question of grantmaking and capacity, based on survey responses from 777 members of Exponent Philanthropy. It asked about how foundations with little or no staff operate day-to-day, pointing out that such small outfits actually comprise the biggest part of the philanthropic community. 

Board members often play a very hands-on role in these foundations. Are they able to do most of the stuff we associate with smart grantmaking—like bring in outside experts to inform grantmaking strategies, collaborate with other funders, go to conferences, gather feedback from grantees, and so on?

Yup. 

And are they able to manage their endowments to produce nice returns, even though they don't have a team of highly paid finance people working in house?

Yup. 

To be sure, these lean foundations do have operating costs. But those costs are way lower than foundations with lots of staff—as you'd expect. Does this low overhead mean that more money is available for grantmaking?

Yup. 

The bottom line of the study is that lean foundations are getting the job done on a shoestring. The report says about such funders, "These philanthropists are achieving outsized impact in communities across the country and around the world." 

In fact, though, if you dig into the study, you'll find that it doesn't actually provide any evidence that the lean foundation model "works" in terms of impact. The study focuses on the inputs of grantmaking—time and money spent to do it—not the outputs, like making the world a better place. 

So while useful, the study doesn't answer the question that I raised in my Ford Foundation piece: Does more staff equal more impact? 

I've taken the position that a staff-intensive model that consumes lots of resources and revolves around program support is likely to produce less impact overall. But it would be great to hear a strong case made for the opposite view—especially if that case were grounded in research that shows a link between capacity and impact. Drop me a line if you'd like to write a guest blog post making that case or if you've seen a relevant study.

One last point: Some might dismiss the study by Exponent Philanthropy as irrelevant, because most of the funders surveyed give away much smaller amounts of money than the big foundations. Yet as I've written often, a number of large new funders also operate with very lean infrastructures. In my Ford piece, for example, I noted that the two foundations controlled by Susie Buffett gave away as much money in 2013 as Ford while spending less than a tenth as much on operating expenses. 

Legacy foundations either need to make a convincing case for their operating model or start downsizing.

(Actually, that's not true. These foundations don't "need" to do anything since they're basically accountable to nobody and can be as inefficient as they wantwhich just maybe explains the problem here.) 

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