The Ford Foundation is getting into impact investing in a big way, committing over $1 billion to this area over the next decade. Ford’s CEO, Darren Walker, unveiled the plan Wednesday in a compelling blog post that lays out why the foundation is harnessing a slice of its $12 billion endowment to social investing.
The logic behind the move is hardly rocket science—of course foundations should put their endowments more fully to work on behalf of their missions, assuming this can be done prudently. The only wonder (or scandal) is that so few have yet to do so beyond a handful of well-known pioneers in this space like MacArthur, Rockefeller, Gates, Heron and Kresge. Most foundations haven’t even carefully explored the idea.
Which brings us to the more interesting questions, here: Now that the mighty Ford Foundation is venturing into impact investing on a large scale, will more foundations follow? Has Darren Walker’s blog post already hit the inboxes of trustees and chief investment officers throughout foundation land? And is it only a matter of time before the dominoes start to fall, as Ford’s move further legitimizes the once-radical idea of tapping into the “other 95 percent” and creates a snowball effect?
In truth, I don’t have a clue. But addressing these questions offers a chance to think about how trends catch fire in the foundation world, and why. It also offers a chance to ponder Ford’s historically unique leadership role in this ecosystem.
First, let’s consider the matter of trends. Foundations, we often hear, have a reputation for moving in a herd-like fashion. They supposedly jump on bandwagons and embrace fads en masse. Once a few foundations decide the water's safe, others wade in. Or so go the clichés.
Whether any of this is empirically true is hard to say. Lockstep movement by funders might seem unlikely, since, if ever there were institutions that are free to march to their own drummer, it’s private foundations.
But looking back over decades of philanthropy, it does seem that foundations do often move in collective fashion. You can see many instances of trends that catch on among funders and then spread quickly, for better or worse. This can happen for various reasons and peer learning is an important factor, with funders paying attention to the strategies others are using and then emulating those that work. Every grantmaker wants to be more effective (or so we hope) and approaches that promise to deliver more punch can rapidly attract followers, especially if there’s solid evidence behind them.
Impact investing has steadily drawn more interest and endowment dollars in exactly this way—although it’s been a long slog. As Darren Walker points out in his blog post, Ford’s history of making program-related investments goes back to 1968. MacArthur got into this game in the mid-1980s. Rockefeller started making PRIs in the 1990s. Kresge began its social investing in 2007 and Gates rolled out a large PRI pilot program in 2009. Gates is now the biggest impact investor among foundations by far, with $1.5 billion in capital deployed in dozens of PRIs.
As these early movers found success, they spread the word, writing reports and giving conference presentations. In 2012, the Mission Investors Exchange was formed to accelerate the spread of impact investing among foundations. Since then, momentum has continued. McKnight made a big move into impact investing in 2014, putting aside 10 percent of its endowment for this purpose. Kresge dramatically increased such investing in 2015. And let’s not forget about F.B. Heron, which embarked on a plan a few years ago to harness all its assets to its mission, and is now well along in that effort, as we’ve reported. If impact investing has a Joan of Arc, it’s Heron’s leader, Clara Miller.
Yet while impact investing has grown steadily among foundations, and the pace of change has lately increased, we’re still far from a tipping point on this front. Beyond Heron, even the foundations that embrace impact investing have been quite cautious, and most foundations still don’t do any impact investing at all. A survey of foundation CEOs last year by the Center for Effective Philanthropy found that just 30 percent of them agreed that impact investing was a practice that held a “lot of promise.” No doubt this view has more traction among foundation executives than a few years ago, but it underscores how slowly impact investing is moving. There’s still no expectation or norm that a modern American foundation should tap more than five percent of its financial assets to advance its mission.
That’s why this major move by the Ford Foundation is so important. Ford is the largest and most iconic of all legacy foundations. While it’s no longer the same 900-pound gorilla it once was—not after King Kong showed up in Seattle—it’s still enormously influential, thanks to its size and brand identity. Through its storied history, Ford has often played a role in moving institutional philanthropy in new directions—such as when it embraced advocacy on poverty and race issues in the 1960s and 1970s, or when it put its weight behind community development and asset building strategies, and many funders followed its lead.
Most recently, under Walker’s leadership, the Ford Foundation moved inequality to the center of philanthropy conversations. In that CEP survey, nearly two-thirds of foundation leaders named wealth and inequality as the most pressing issue of coming decades—ahead of any other issue. It seems likely that Ford helped legitimize this concern among some CEOs who might otherwise have been skittish about discussing inequality.
It’s human nature to keep an eye on those at the top of the pecking order, and to at least consider following their lead. And if enough players start to move in a given direction, the dynamic can quickly change: Those not moving in the same direction start worrying about being left behind. No one wants to be the laggard behind the curve who doesn’t “get it" when everyone else does.
Is this how things might go with impact investing in coming years? Will Ford’s leadership shift the dynamic? It’s hard to say, and one unknown, here, is how fast and successfully the foundation moves with its investing. In a call on Monday with a robust corps of journalists who cover philanthropy—all four of us—Darren Walker said this work would unfold carefully, with Ford learning as it goes and stepping things up as it gains confidence. He didn’t rule out an expansion of the foundation’s financial commitment in this area should things go well.
If Ford quickly finds a groove with this work, showing strong results, you can bet that other foundation presidents will be taking that news back to their boards and CIOs. In fact, I’d bet this week’s move by Ford is already changing the conversation at some top foundations.
A while back, Alberto Ibargüen, the longtime CEO of the Knight Foundation, told me he thought that Darren Walker “was the most important person in philanthropy.” I’m not sure about that. When it comes to Walker, it’s not always easy to separate the hype from the actual heft—and he himself would probably advise both his fans and his critics to check back in five or 10 years, since that’s how long it can take to know whether a foundation CEO is really succeeding.
Still, Walker has once again shown that he’s driven to make the most of what may be Ford’s greatest asset of all: Its vaunted leadership position.