Doing Better, Not Just Good

_"Philanthropy’s New Agenda: Creating Value" by Michael E. Porter and Mark R. Kramer, in Harvard Business Review (Nov.–Dec. 1999), 60 Harvard Way, Boston, Mass. 02163._

Seeking to improve education, but limited by its small size, the Philanthropic Ventures Foundation (PVF), of Oakland, California, gives thousands of schoolteachers in its region modest ($500) grants every year for badly needed classroom materials. And it doesn’t burden them with paperwork: teachers simply fax their requests, and get an answer within an hour, and a check within 24. Though the foundation is tempted to try to do good in many other ways, it resolutely sticks to its self-defined mission.

That makes PVF "a perfect example," assert Porter, a Harvard Business School professor, and Kramer, president of a capital management firm and a founder of the recently formed Center for Effective Philanthropy, of what a charitable foundation can do when it sets clear goals and strategies. Sound obvious? Most of America’s 44,000 foundations don’t do it, the authors say, instead contenting themselves with giving out grants for assorted worthy purposes, spreading their resources too thin, and, worst of all, failing to try seriously to measure how much social bang for the buck they are getting. Nor, despite much rhetoric, Porter and Kramer contend, do foundations give much support to potentially high-impact research. In the late 1950s and early 1960s, the Ford and Rockefeller foundations jointly sponsored research that led to development of new strains of wheat and rice—and millions of the world’s poor benefited. The Pew Charitable Trusts recently created a center to study global warming. But less than nine percent of foundation grants go for research, and most are in basic science and medicine.

Foundations have seen their assets mushroom in recent decades, to more than $330 billion, but they annually give, on average, only 5.5 percent to charity—just half a percentage point above the legal minimum. They invest the rest for financial returns—and, presumably, future benefit to society.

Because foundations are largely free of the political pressures at work on government, and have the time and expertise that private individuals usually lack, the authors argue, they could produce more social benefit. But the foundations "fall far short of their potential," say Porter and Kramer.

They scatter money among worthy causes: "Fewer than nine percent of foundations make 75 percent or more of their grants in a single field," the authors note. They fail to measure the results of their giving.

If foundations did have evidence of success, the authors point out, they could leverage successes by encouraging other donors, via matching grants or in other ways, to support the more effective recipients. But today, matching grants account for only four percent of all foundation grants. More leverage could be gained by becoming "fully engaged" partners with grant recipients. The David and Lucile Packard Foundation, for instance, spends $12 million a year aiding nonprofits in "management, planning, restructuring, and staff development."

Until foundations "meet their obligation to create value," Porter and Kramer maintain, they will continue to exist "in a world where they cannot fail . . . [and] also cannot truly succeed."