Foundations, Heal Thyselves

Pressures on foundations to become more accountable and to demonstrate their value to the public are mounting in the wake of news reports about misconduct and increased Congressional scrutiny of all nonprofit organizations.

Despite those pressures, many foundations are not evaluating the performance of their organizations — even though in recent years, more and more foundations have started to require their grantees to conduct rigorous assessments of their own performance. Nor have many foundations made an institutional commitment to scrutinizing whether their practices match their stated beliefs. Those sobering findings, based on a survey of 1,192 foundation leaders and in-depth interviews with 61 of them, offer a starting point for thinking about ways to enhance foundation performance and accountability: Foundations must both institutionalize a process to define effectiveness and regularly assess themselves in relation to those standards.

Foundations often say they do not assess their own performance because no quantitative measures to do so are available. While quantitative measures can be helpful, the current focus on such measures can obscure a more fundamental problem — namely, that too few foundations have clarified what they mean by effectiveness. Without a clear conception of effectiveness, foundations cannot assess, quantitatively or otherwise, how close they are to the mark — and risk adopting measures first and then adjusting their conceptions of success to fit the measures.

Foundations typically define effectiveness in highly general terms, according to a study conducted by me and my colleagues at the Urban Institute. The imprecise definitions they use suggest that many have not really thought through what effectiveness means for their own institutions.

Grant makers have considerably different conceptions of what effectiveness means. Indeed, no one definition is shared by even half the foundations that were interviewed. However, 25 percent or more mention good grant making, attaining foundation goals, achieving a solid financial performance, having an impact, and helping a particular community. Smaller numbers mention other factors, such as a strong infrastructure, a good reputation, adhering to donor wishes, and scope of grant making (narrow for some, broad for others).

The most common method used by the surveyed foundations to assess their effectiveness is to require grantee reports, though the information they request varies considerably from basic financial accounting to measuring results. Site visits, investment performance, surveys of grantees, board feedback, and evaluations are also mentioned by a handful of foundations.

Most grant makers do not assess their effectiveness formally and rely on anecdotal evidence, impressions, and informal feedback. For instance, one small family foundation characterizes its method as “seat of the pants,” a medium-size independent foundation describes its self-assessment as largely impressionistic (though it is starting to do evaluations), and a large community foundation says that apart from grantee reports, it relies on informal impressions. The trouble with relying on anecdotal or impressionistic information, though, is that such data and perceptions come from a limited network of people and are likely to be positive.

Private foundations are uniquely buffered from external cues or consequences about their effectiveness; they generate their own funds, and their boards are typically self-perpetuating. Thus, to get a detached or external perspective, private foundations need to seek it out. But few do so.

Foundations will not be effective if they can’t or won’t ask of themselves what they demand from grantees. One unusual chief executive says that his foundation makes grants only to groups that demonstrate that they have a strong governance system in place, but acknowledges, “It seemed a little hypocritical to pass judgment on others, when our board maybe isn’t the most efficient and effective.”

In fact, many foundations say that they would be more effective if they changed in some way. More than a quarter of the grant makers we interviewed say they need to improve their grant-application and review procedures. Small numbers mention other improvements such as doing more to monitor their grants and measure whether they are making a difference.

As for obstacles to making those changes, other priorities often get in the way of focusing on effectiveness. For instance, one corporate foundation says it would be more effective to make fewer and larger grants, but does not because, as a regulated utility, it feels that it must support many community institutions.

Of course, foundations are not monoliths, and sometimes staff members want to make changes that some or all of the board members do not. For instance, one chief executive of a private foundation says his institution does not know if it is achieving its goals and needs an evaluation, but the chairman of the foundation’s board has raised questions about the value of an outside evaluation. One chairman of a family foundation believes adding nonfamily members to the board would strengthen the foundation, but other family members worry that outsiders would not honor the founder’s wishes.

One promising finding was that in spite of the lack of emphasis on evaluation, many foundations have taken actions to strengthen themselves. Sometimes they made a substantial overhaul of their operations, but in many cases they made small changes that yielded considerable benefits.

For instance, multiple foundations shifted from accepting grants throughout the year to setting deadlines with fixed review schedules. By reviewing groups of applications together, one foundation says it believes it is making more informed choices and is fairer to applicants — and no longer finds itself at the year’s end without enough money to support a strong applicant.

Another foundation realizes that its policy of getting actively involved in working with nonprofit groups to carry out a grant was inappropriate, so now it supports — but no longer tries to change — local organizations. Many foundations say they are working harder to understand important needs in the fields that capture a large percentage of their grant-making dollars and to find the best organizations working on those needs.

A diversity of missions, values, and approaches characterizes philanthropy. However, the failure to institutionalize a process for setting standards and evaluating themselves is pervasive. But no matter what the mission of foundations, as government officials and others demand a greater sense of accountability, foundations may no longer have the luxury of avoiding self-evaluation.

Adopting processes that make foundations more effective requires a clear commitment from trustees and staff members that translates into a specific set of evaluation processes and standards that become a regular part of foundation operations. Many of these processes and measures are well-known. Among the key steps that would help foundations, regardless of size or type, to assess themselves, are:

• Develop a clear and specific mission statement.
• Establish a clear method to evaluate whether the foundation is carrying out its mission.
• Be on guard for the tendency for inertia to set in and undermine the foundation’s commitment to self-assessment.

  Establish a consensus of the board and of the staff to evaluate the foundation’s effectiveness. Every board member should be expected to commit to the evaluation process and support efforts to help staff members feel the same commitment.

• Be prepared, at any time, to produce for the foundation or others a statement of how the foundation is performing relative to its mission — one that can be substantiated in terms of concrete evidence and not simply the foundation’s own impressions.

Foundations cannot satisfy the obligation to develop self-evaluation standards and processes solely by requiring their grantees to demonstrate that they are operating effectively. Instead, perhaps the best thing any foundation can do is imagine that it is the one that must ask for money and prove that it is an effective organization.

Francie Ostrower is a senior research associate at the Center on Nonprofits and Philanthropy at the Urban Institute, in Washington. A report on her study, “Foundation Effectiveness: Definitions and Challenges,” is available online at http://www.urban.org.