Do Donors Care About Evidence of Impact? Yes, But Not As Much As You'd Think

If you want to bring in the big bucks for your nonprofit, it helps to show hard evidence that your group is having an impact. Right?

Well, yes and no. 

There have been a number of studies lately on just how much such evidence matters to donors. The results are surprising, since they suggest that "proving" what a good job your group is doing doesn't necessarily convince people to support that work. 

Caroline Fiennes analyzed the results of some recent studies for Third Sector. Here are a couple of highlights from the piece: 

A paper published last year reported on an experiment at a US charity, Freedom From Hunger. It divided its donor list into two random groups. Those in one group received a conventional solicitation with an emotional appeal and a personal story of a beneficiary, with a final paragraph suggesting that FFH had helped that beneficiary. Those in the other group received a letter identical in all respects – except that the final paragraph stated (truthfully) that "rigorous scientific methodologies" had shown the positive impact of FFH's work.

Donations were barely affected. The mention or omission of scientific rigour had no effect at all on whether someone donated. It also had only a tiny effect on the total amount raised. People who had supported that charity infrequently were not swayed. However, people who had previously given a lot – more than $100 – were prompted by the material on effectiveness to increase their gifts by an average of $12.98 more than those in the control group.

The last point is key: Evidence of impact has an affirming effect for existing donors, this study suggests, getting them to expand their giving. We see this all the time in our reporting: Donors will make an initial investment, see how it goes, and then give at a higher level if they think their money is being well spent. And many do want to see evidence. 

Fiennes next moves on to ratings:

A separate study in Kentucky looked at whether donors give more when there is an independent assessment of the charity's quality. Donors were each approached about one charity from a list; each charity had been given a three or four-star rating (out of four) by the information company Charity Navigator. Half the donors were shown the rating; the other half weren't. The presence of the ratings made no meaningful difference to their responses.

Well, that's interesting, and hardly what the folks at Charity Navigator might want to hear. But then Fiennes mentions a third study:

It was a multi-arm, randomised, controlled test in which a large number of US donors each received appeals from one charity out of a set of charities that had various Charity Navigator ratings. Half of the appeals included the charity's rating; the other half did not.

The overall effect of presenting the information was to reduce donations. Showing the ratings brought no more benefit to the high-rated charities than not showing them. For charities with a rating of less than four stars, showing the rating reduced donations; and the lower the rating, the more it reduced donations.

So it looks like those ratings do matter after all. But they matter more like those letter ratings restaurants from the department of health. An "A" rating is not going to lure you in to a restaurant, but a "B" may well keep you away. Fiennes says:

Donors appeared to use evidence of effectiveness as they would a hygiene factor: they seemed to expect all charities to have four-star ratings, and reduced donations when they were disappointed – but never increased them because they were never positively surprised.

Looking at the Impact of Funders In 2014

As 2014 came to a close, I set out to identify where philanthropy had impact during the previous year. It was an interesting exercise. Obviously, this wasn't the kind of rigorous analysis that a place like MRDC might undertake. Rather, it was a search for spots where the fingerprints of funders could be clearly seen on some important event. 

Here's the piece: Philanthropy's Greatest Hits, 2014

One key takeaway of this effort is that philanthropy had the most impact when it invested in a big way in urgent efforts to deal with fast-moving events, including rescuing Detroit, saving Obamacare from failure, and containing Ebola. 

As I wrote: "some of the most notable successes of philanthropy in 2014 did not involve traditional grantmaking. Funders should take heed of that fact and get more used to whipping out the checkbook in the face of urgent crises, even if it means ignoring carefully crafted annual grant budgets."

In other cases, though, traditional grantmaking did yield results, particularly in regard to medical research and policy advocacy. 

Check out the article

Pete Peterson's Giving: Focus, and the Power of Experts

Whether you agree with his views or not, the billionaire Pete Peterson is a great example of a philanthropist who is highly focused, disciplined, and understands the leverage that comes from investing in experts working in specific niches. 

Peterson has been engaged for many years in an effort to bring attention to America's fiscal challenges and recently extended his philanthropy to the area of healthcare, bankrolling a new center that will look at how to improve the quality and efficiency of the U.S. healthcare system, while lowering costs. Peterson also gave a huge gift to the (subsequently renamed) Peterson Institute for International Economics, the leading policy shop in Washington focused on U.S. global economic policy. 

Now, here's the thing: It's not easy to pinpoint the actual impact of Peterson's giving. The federal budget deficit remains a third-tier issue for most voters, and it's not clear what role Peterson money played in moving this issue briefly to Washington's front burner in 2010 and 2011, even if records do show that his money has supported a great deal of high-profile work in this area. Likewise, it's hard to isolate the role of Peterson funds in accounting for the influence of the Peterson Institute for International Economic Policy, much less measure that influence to begin with.  

But this is often the case when it comes to funding policy work. It may be hard to say what your money is buying, even after years of spending. 

What can be said with more certainty, though, is that Peterson has made himself a big fish in several ponds that are indisputably important. And while it's hard to gauge actual impact on deficit issues, you can see how Peterson-supported experts have been major voices helping shape that debate. Ditto on global economic policy.

My guess is that Peterson's "initial" $200 million investment in a new center for healthcare will prove to be his best bet yet, because here he has chosen an area where there's already a lot of momentum behind reform efforts. Of course, efforts to contain healthcare costs dovetail with his broader fiscal push, since such costs are a main driver of long-term deficits. All very smart. 

Related:

High Impact Philanthropy: Lessons From the Right

We all have our favorite examples of high-impact philanthropy. My own favorite is how conservative funders helped to pull U.S. public policy to the right over a period of several decades by pumping money into think tanks, legal groups, journals, and leadership training institutes. 

I wrote yesterday in a post on Richard Mellon Scaife, and the bequests he recently made to his three foundations:

These outfits, like many on the right, didn't have very large endowments or grantmaking budgets. But Scaife and likeminded funders were able to run circles around places like Ford by banding together and focusing laser-like on leveraging their resources in the intellectual and public policy spheres.

While conservative philanthropy is on my mind, I thought it'd be helpful to distill a few lessons from looking at the accomplishments of these funders.

1. Ideas Are Extremely Powerful Levers

Funders like Scaife, along with the Bradley and Olin foundations, invested heavily in ideas and policy work with the goal of redirecting the overall narrative of political debates and also expanding the range of acceptable alternatives considered by policymakers. They sought to move ideas on the fringe, like privatizing Social Security or eliminating the federal welfare entitlement, into the mainstream. This work, including financing Charles Murray's research on safety net programs, succeeded exactly as planned, legitimizing ideas once seen as radical.  

2. Be Patient Money

Back in the late 1970s and early 1980s, conservative funders were under no illusions that they would topple the liberal order overnight and roll back the key achievements of the New Deal and Great Society anytime soon. Rather, they saw themselves as playing a multi-decade game, and they settled in for the long haul. So, for example, it wasn't until 2005 that partial privatization of Social Security was championed by a sitting president, nearly three decades after groups like Cato first started working on this issue. Funders like Scaife and the Kochs hung in all along the way. 

3. Train Your Own People and Offer Them Career Security

Because academia was seen as hostile territory, conservative funders of intellectual work set out to build their own cadre of thinkers from scratch and, as importantly, created a clear career track for these people. That track started with paid internships at conservative policy shops, writing gigs at well-funded conservative journals, graduate fellowships to snag a Ph.D., and then securing jobs as policy wonks or senior fellows or editors at journals. 

4. Offer General Support to Key Institutions

Most of the grants given out by Scaife's foundations take the form of large chunks of general operating support, and many other conservative funders operate the same way. By and large, these grants get renewed year after yearand often, decade after decade. This strategy ensures that the right's favorite intellectuals aren't spending too much time chasing those annoying program grants that many foundations favor, much less writing detailed grant reports. And conservative foundations are able to keep their administrative expenses low because they don't need legions of program officers to micro-manage grantees. And predictable funding streams allow conservative think tanks to invest in long-term work without worrying about losing the grants for that work. 

5. Don't Be Discouraged by Failure

After George W. Bush's plan to partially privatize Social Security went down in flames, did conservative funders give up? Nope. They've kept funding this work, waiting for the window to open again. And, judging by the perseverance of these funders, that will likely happen. 

Grantmakers for Effective Organizations

It's the same old problem: Our charities need to get bigger. The problems they are attacking are huge. But charities struggle with growth and infrastrucutre. What's working? Who is funding the best work?

Grantmakers for Effective Organizations (GEO) appears to be doing some solid work in the capacity building space. There's a good page here that summarizes the current state of thinking in the field. And here's an excellent summary of the current literature.

They work with 500 or so foundations, and I'll be reaching out to them to find specific success stories, get the inside story on what is actually working.  

In the meantime, gratitude to GEO for doing much needed work to get foundations to focus on the business and infrastructure of charities, without which nothing good happens. 

Do Less, Better. Thoughts on Focus and Impact

The conversation about philanthropy and impact is awfully sophisticated these days, with fevered debates about "strategic" vs. "emergent" approaches to grantmaking and best practices for evaluation. 

Less discussed, though, is the simpler question of how much foundations should try to do in the first place. Which is weird, since many big foundations are arguably trying to do way too much and that's one reason they often fall short of having as much impact as they'd like. 

That's certainly the case for the Ford Foundation, and inspired my recent piece calling for Darren Walker to go as far as he can in streamlining the place. 

One could give the same advice to the MacArthur Foundation's next president, since that place is another example of philanthropic sprawl. But there are plenty of other funders who would also do well to embrace the slogan: Do Less, Better. 

The Nathan Cummings Foundation is one place that did recently try to narrow its agenda, casting aside four program areas to focus just on climate change and inequality. Alas, that didn't work out so well, with its president Simon Greer leaving after conflict over implementing the strategic plan, as I discussed here

Doing less, better, is a great idea. But it's not easy to pull off. 

Care About Economic Equity? Then You Should Love Perpetuity

I've been digging into the philanthropy of Howard G. Buffett, who's yet another funder who plans to spend down and then close his foundation's doors. In his case, he's looking to blow through three billion bucks of Warren's money by 2045. 

This article, as well as my recent piece on Atlantic Philanthropies, has gotten me thinking about the old spend-down vs. perpetuity debate. And I guess, ultimately, I'm a fan of perpetuity, for the following reason: My top pet issue is economic equity in the U.S., and I've noticed that most of the funders laying out for work on jobs, fiscal issues, social insurance, and economic policy research are legacy foundations piloted by professional staff.

Very few living billionaires seem much worried that the U.S. economy isn't working for, oh, the bottom two-thirds of Americans. Capitalism has worked grandly for these folks, after all, and anyway their focus is on other issues, like climate change and conquering dread diseases. You know, "Great Man" legacy stuff. 

The big living donors who do care about equity tend to put their money into education, despite the limits to this approach at a time when the majority of jobs created in the U.S. don't require a college degree and no one quite knows how to bring back the mid-skilled jobs that created yesterday's middle class. 

There are exceptions, like Herb Sandler and George Soros. Of course, also, Chuck Feeney and Atlantic Philanthropies have prioritized health equity.

Mainly, though, the heavy lifting of trying to create an equitable economy, a stronger safety net, and fairer fiscal policies is funded by legacy foundations like Ford, Mott, Kellogg, and Rockefeller, as well as many community foundations and various smaller outfits—some of which, like the Russell Sage Foundation, have been around for a century. 

I could go into a long discussion about why professional philanthropoids are more attuned to the structural economic challenges facing ordinary people and the poor, but let's just cut to the chase: The nonprofit lifers spending philanthropic wealth are more liberal than the capitalists who pile it up.

Close Scrutiny of Foundation Investments Will Become the New Normal

Some years from now, we will look back on a conversation around foundations and their endowments that followed this arc:

Phase One: Nobody pays much attention to what foundations are investing in even as a few pioneers take up the cause of program-related investments. 

Phase Two: Deploying endowment capital for "impact investments" becomes hot, but the scale of such investments remains small. Meanwhile, talk of "disinvesting" in bad companies is only just getting going and foundations are only occasionally criticized for investing in companies that work at cross-purpose with their grantmaking. 

Phase Three: Foundation portfolios are routinely put under a magnifying glass and foundation leaders find themselves loudly and publicly criticized if they're investing in socially irresponsible companies. Meanwhile, foundations that don't engage in significant impact investing are seen as backwater operations that are underperforming as a matter of course. 

Phase Four: Most large foundations are mainly invested in socially responsible companies and engage in significant impact investing, meeting standards in both areas set by an outside body. Outliers face peer pressure and stigma, and even sanctions of some kind.  

By my reckoning, we're now in Phase Two, but heading toward Phase Three. And I'd bet money that we'll see Phase Four in the next ten or twenty years.

A new article in The Nation magazine criticizing the Gates Foundation for investing in rogue companies is part of a rising tide of such scrutiny, while 17 foundations recently pledged to disinvest from fossil fuel companies. As for impact investing, we all know how hot that's getting. 

So my question for foundations everywhere is this: Do you want to be behind this curve or ahead of it? 

Here's a Great Capacity Funding Story

In the post below, Donald Summers calls for examples where funders have "made smart, targeted investments in a charity's infrastructure."

I've got one!

A few years back, Demos (the think tank I co-founded) was approached by a small family foundation that loved our work and wanted to help us grow. But in contrast to many of the big funders we dealt with, this family outfit didn't have endless resources to bankroll groups for years on end. It wanted to make a big, short-term, and targeted investment in Demos that could get the organization to the next level. 

The family members were anxious that their funds would be well used, and they pushed us in a friendly way to engage in some planning. That actually led to a full-fledged strategic planning process that took a year. And, in contrast, to many such exercises, this one was a home run that led the organization to fundamentally revise its operating strategy and programs. We jettisoned some work, and doubled down in other areas. 

The general operating support from the foundation gave us breathing room as we turned things upside down. The result was a much stronger, more focused organization that increased its impact and also improved its fundraising as it made a more compelling pitch for its unique value proposition. 

The family foundation didn't renew their big funding after the first several years, but the money they did give Demos, and the way they gave it, made all the difference in the world. 

Capacity Funders That Do It Right

The figure, put out by Bridgespan and popularized by the Stanford Social Innovation Review some years back, deserves repeating: Since 1970, fewer that 150 nonprofits have grown past $50 million in annual revenue (while 65,000 for-profits have).  

This is the challenge at the core of the social sector: We’ve got great programs and promising solutions out there, but so few are reaching the necessary scale. For example, of the tens—hundreds?—of thousands of education support programs, why have so few, grown big enough, like the Harlem Children’s Zone?

Funders have long recognized this and have been pursuing “capacity building” for decades.  

But there’s not much consensus on what “capacity” means. And there's even less agreement on what works. Making matters worse, the writing I’ve seen on this essential topic is so dry, lengthy and abstract, it’s pretty much impossible to figure out the key takeaways for executives and boards struggling to fund and grow their programs.   

So here’s what I’m looking for: Examples in which a funder has made smart, targeted investments in a charity’s infrastructure that has successfully catalyzed program growth—the type of program growth we need if we are going to tackle the enormous challenges before us.

They are out there. They need a big, bright spotlight. And clear, no-nonsense analysis, so we can truly understand the core elements of what works.

So I propose to use this space to kick off a dialogue. A dialogue of discovery and debate, a happy celebration of what really works. Maybe we can actually help some small, promising nonprofits find their ways to sustainability and scale.  

There are funders out there doing the unsexy but desperately needed work of helping nonprofits get to scale. I’ve come across a few terrific ones and will be profiling them in future posts.  And if anyone can point to some good examples of their own, I’d love to hear about them.

Philanthropy's Most "Patient Capital"

Foundations have a reputation for going after the low-hanging fruit, in terms of impact, and for skipping from fad to fad. 

And, sure, I see plenty of that in covering this world. But I'm equally struck by the number of funders who stick with issues for the long haul. For instance, when I interviewed Larry Kramer, the CEO of the Hewlett Foundation, about its new work on democracy, he said his time frame for having impact was "twenty or thirty years." And, in fact, I can think of any number of large foundations who've stayed on issues for that long. 

What's really striking, though, is how patient the funders in the science research area are. Why? Because many of the research efforts they're backing are quite theoretical and they are fully aware that it could be decades before this research translates into tangible results. Or never, if researchers are going down the wrong path. 

That point struck me in posting Tate Williams' most recent piece on the Simons Foundation, which is among the nation's largest funders of math and science research. 

Much Ado About a One-Off Crowd Thing

The Ice Bucket Challlenge story is getting overheated, with lots of analysis of what this means for the sector. I guess I'm not sure it means much of anything, since this sort of phenomenon is so hard to replicate.

It's not like a new strategy has been invented that anyone can grab off the shelf.

It all reminds me of the ruckus kicked up by the Kony video.

A one-off is a one-off. Can't we just leave it there?

On the other hand, I was intrigued by why the tech sector was so involved in the Challenge, and my colleague Michael Gentilucci wrote an interesting story on that angle for our tech philanthropy blog. 

Thumbs Up for Atlantic's End Game

It was pretty interesting to dig into the strategy that's guiding Atlantic's final two years recently

And while I didn't say this outright in my piece, I think the strategy of stepping back and operating differently to make grants for "transformative, systemic change" is pretty cool: big, bold, imaginative.

I think a lot of people have tuned out the Atlantic story at this point, thinking they know what's going on. But now's really the time to be paying attention.  

A Funders' Collaborative Tries to Shake Things Up

The appointment of a new director of a funders' collaborative that's focused on nuclear security is not exactly big news. But I was intrigued to dig into this story because the collaborative in question found somebody from totally out in right field to take the job. 

It seems like we're seeing more of that these days: The hiring of grantmakers who don't have expertise in the area in which they'll be funding, but who are experts in methodology and strategy.

Of  course, the private sector has long been doing this, and as as more thinking from that sector penetrates philanthropy, it's no surprise that we're seeing more of that. 

Here's my story:

Want to Shake Up a Stody Field? Hand the Checkbook Over to a Total Outsider