Historical judgments, like beauty, are a matter of opinion. Even jaded observers, however, are likely to concede that ours is an age of profound disparities and challenges. From climate change and resource constraints to rising inequality, the problems we face are large, complex, and increasingly global.
In such an environment, says Tom Tierney, chairman and co-founder of the , a nonprofit consulting group that helps nonprofit and philanthropic leaders build organizations that inspire and accelerate social change, every donor wants his or her money to make a difference, and nobody wants to see hard-earned wealth go to waste. And yet, says Tierney, philanthropy's natural state is underperformance — a condition in which the tendency of grantmakers to accept things as they are and avoid hard questions about what is or isn't working too often leads to disappointing results.
Recently, Philanthropy News Digest spoke with Tierney, whose new book , outlines a "rigorous process of inquiry" for donors and grantmakers who want to boost the impact of their philanthropic investments, about the tendency of philanthropy to underperform, the reasons for that underperformance, and whether he thinks philanthropy takes enough risks. Tierney also had some interesting things to say about NCRP's and ended the conversation with a look at three "mega-trends" that give him reason for hope.
A recognized leader in the nonprofit sector, Tierney joined Bain & Company in 1980 following his graduation from Harvard Business School. From 1987 to 1992, he served as managing director of Bain's San Francisco office, and in 1992 he became Bain's chief executive. He stepped down from that position in 2000 to concentrate on Bridgespan-related activities, and in 2003 he led the development of Bridgestar, an initiative of the Bridgespan Group dedicated to enhancing and increasing leadership talent for the nonprofit sector.
A native of California, Tierney is a director of eBay, Inc. and also serves on a number of nonprofit boards and advisory groups, including the national board of the , the , and the .
Philanthropy News Digest: In your new book, you suggest that the philanthropy of the industrial era, the philanthropy of Carnegie and Rockefeller, was not all that different from the philanthropy of today. What are some of the similarities between the two and what's the biggest difference?
Tom Tierney: The basic premise behind the book is that there must be ideas relevant to philanthropy that have been proven over time, ideas that were as useful to as they are to . One of the reasons [co-author] Joel [Fleishman] and I teamed up was that he has done extensive research on twentieth-century philanthropy, a lot of which he used in . And , which has been around since 2000, has deep experience in twenty-first-century philanthropy. So by collaborating, Joel and I were hoping to identify timeless truths, if you will, that would be useful for philanthropists ten or twenty years from now. And I think we did.
The charitable act...is a deeply personal decision about what you do with and hope to accomplish by giving your time and money....
First and foremost, we learned that philanthropy is personal. The charitable act, which has been around for as long as mankind has been around, is a deeply personal decision about what you do with and hope to accomplish by giving your time and money. And what Carnegie has in common with Gates is a focus on results. That's not always the case. I've had philanthropists tell me that the act of giving in and of itself provides enormous satisfaction. But focusing on the act of giving is different than focusing on what one hopes to achieve through his or her giving.
What hasn't changed? Well, there are philanthropists out there — more than ever, I'd suggest — who not only want to achieve results with their giving but are committed to using their time and their influence to drive change. That hasn't changed. Other things haven't changed. Philanthropists still enter into public-private partnerships, as they did in Carnegie's day. They still look to fund innovation and experimentation. And they are doing it in many of the same fields that attracted earlier generations of philanthropists — education, the environment, health and human services, and the like. So the basic motives haven't changed, and many of the fundamental practices haven't changed.
What has changed are the context and the tools. The context has changed because the social sector is now dramatically larger than it was even a decade or two ago. There are more organizations from which to learn. The boundaries between for-profit and nonprofit are blurring. And people are getting involved at an earlier age. You have people in their twenties engaging in philanthropy — witness Mark Zuckerberg and his huge gift to Newark public schools. It's not simply an avocation for wealthy retired people. It's something all of us can do, all the time.
Knowledge also has changed. Think about all the information we have today about things that worked and things that didn't work. Look at the . It wasn't around in Carnegie's day. People are learning more and experimenting more. And the scale of that learning and experimentation is greater than ever, which means the momentum behind philanthropy is greater than ever. But the basics, one human being voluntarily giving his or her money to achieve a social end, haven't changed.
PND: You write in the book that "the natural state of philanthropy today is underperformance." What do you mean by that?
TT: We actually say that the natural state is "satisfactory" underperformance. The "satisfactory" is important because it means that in the past you gave away a portion of your wealth, people appreciated the money they received, and that was it. The notion of "satisfactory underperformance" implies that the money was used but perhaps not as well or as effectively as it could have been.
What drives satisfactory underperformance? Many things. First, as I just mentioned, is the fact that giving often is viewed as an end in itself. So the first thing a philanthropist needs to do to combat satisfactory underperformance is to decide that his or her money will achieve results. And that's hard.
As you know, Joel and I structured the book around six questions, questions like, What are my values and beliefs? What is success? What can I do in terms of my philanthropy that would merit a grade of A? What am I personally going to be accountable for? Hard questions. Depending on the context, the amount of money involved, and what you are trying to achieve, you might be able to answer some of them in an hour; in other contexts, it might take a year. But the fact remains: successful philanthropy and successful philanthropists invariably make a decision to address those questions.
Lastly, satisfactory underperformance is a consequence of the absence of what folks in the business world call market feedback. If you own a restaurant and put something on the menu, you're going to know in pretty short order whether customers like it or not. If you're a for-profit business and don't make your earnings numbers, the feedback from your shareholders in terms of the stock price is instantaneous. In most for-profit activities, you're exposed to feedback all the time. And that feedback, whether from your customers or your competitors, helps you figure out pretty quickly how you're doing — and how to change what you're doing to make it better. If you don't, you're toast.
In philanthropy, the only feedback is distorted feedback....
In some ways, business is a game of trial-and-error; as long as you're making relatively thoughtful moves and responding to feedback, you will improve and be successful. In philanthropy, on the other hand, the only feedback is distorted feedback. By that I mean when someone gives money away, people tend to say, "Thank you" and leave it at that. Nobody says, "You know that grant you gave me? We really wasted it; don't give me any more money." That's not how the world of philanthropy works. And the consequence of that is simple but profound: Philanthropists have to impose excellence on themselves. It's like saying, "I'm going to stay in shape; I'm going to exercise for half an hour a day, four days a week." Busy people have a hard time exercising; it's not a natural act. Which is why sticking to an exercise routine is an example of excellence being self-imposed. And why satisfactory underperformance in philanthropy is the result of personal choice, the choice not to bother with tough questions or worry overmuch about results.
PND: A focus on results implies a certain reliance on data to demonstrate whether the results you're after have been achieved. Many would argue that there is something intrinsic to the act of giving that defies quantification, measurement, logic models, and so on. What are critics of a more data-driven approach to philanthropy missing?
TT: I'm not sure they're missing anything. I think this is a question of "and," not "or." For most of us money is hard to come by. In fact, the notion that people are willing to give away their hard-earned money still amazes me. Inherited wealth is a different story, but for people who made their own money and then make a voluntary decision to give it away, well, that's pretty remarkable. Of course, philanthropy in this country carries certain tax advantages, but if wealthy philanthropists wanted to, they could pay their taxes and still keep most of their wealth or pass it on to their kids. Yet, in many cases, they decide to give away large amounts of their wealth. That's a personal act, a voluntary act, a fulfilling act.
So I completely agree with folks who argue that a large component of what philanthropy is about has to do with the heart. That's important. That's why the first question in the book is, "What are your values and beliefs?" Because it is your values and beliefs, values and beliefs that are unique to you, to your family, to your foundation, that should guide your philanthropic decisions downstream.
That said, it is our belief that the best results are achieved through a combination of the heart and the head. Successful philanthropy is heartfelt philanthropy tempered by tough questions like "What do we mean by success?" Successful philanthropy avoids the trap of wishful thinking. It's not enough to say, "If I just give money to these three or four organizations, the high school dropout rate in Detroit will decline." How do you know that? What are the assumptions underlying that statement?
Don't get me wrong. It's not just about measuring results; it's more about evaluating progress. There are lots of types of philanthropy that defy measurement. If you're investing in advocacy it's hard to know whether your money really made a difference. Lots of people and foundations invested in advocacy around climate change and cap-and-trade legislation, which ultimately failed to make it through Congress. Does that mean their investments were for naught? Others invested money in advocating around healthcare reform. Does that mean their efforts were smarter or better? It's a hard thing to measure. On the other hand, you can evaluate progress. You can determine whether something worked. Thoughtful, rational people can say this worked, whatever the "this" is, while this other stuff didn't. So yes, there is a time and place for measurement. There are times and places when the use of randomized control tests to prove or disprove the efficacy of a particular social intervention is appropriate. But in other situations, it is enough to evaluate progress, to figure out what's working and what isn't, and that's where the combination of heart and head comes in.
PND: In an era of widening budget deficits and growing constraints on public resources, can we, as a society, afford to subsidize giving that's largely driven by personal choice?
TT: There are probably some values embedded in that question, but if I stepped back and tried to be values neutral, I would say, first of all, that because the act of charity is a voluntary act, we don't have to subsidize it because people don't have to give their money away; they choose to give it away. And if one chooses to give away his or her money, the question then becomes, "Would it be better for the government to have those resources and make the decisions about how they're spent, or is individual choice, widely distributed, a better way to go?" Now, I'm no expert on this, but I would suggest that most decisions made in the public sector have a political overlay. For example, you don't see government effectively reallocating resources from programs that don't work well to programs that do. In fact, you hardly ever see government shutting down a program that doesn't work, or see it doubling down on a program that does. Instead, resources tend to be spread among the good, bad, and mediocre, which means that when budgets are growing everybody gets more, and when they're shrinking everybody gets less. That probably isn't the most effective way to allocate resources. In contrast, philanthropists that are actively pursuing results are much more likely to exit programs that aren't working and to double down on others that do seem to be working.
Take somebody like , the founders of the Gap. They decided that the had enormous potential to change the world, and they supported the program for years, not just with money but with their influence, their connections, and their time. Don was a frequent visitor in KIPP classrooms, and he and Doris helped build the program into what it is today. Would government have been able to innovate that way? Would it have been as persistent or committed? I'm not sure. The incentives are different. The incentives in individual philanthropy are pretty robust. When people give money to causes and organizations and places they really care about, they have a large incentive to try to have that money make a difference.
If society wants results, then it seems to me that engaging individuals on the front lines to help achieve those results is a pretty smart way of going about it....
But to your question: Can society afford philanthropy driven by personal choice? There are a lot of things society cannot afford right now. If I look through the lens of results, however, I'd say that the more we invest in nonprofits serving the people we are trying to help, the better our chances of success. Take and the . Geoff knows more about what goes on in Harlem than a government agency knows about what goes on in Harlem. And his organization, which is on the front lines in that community, is in a better position than any government agency to make decisions that reinforce what is working in Harlem and to experiment and try to fix what isn't working. If society wants results, then it seems to me that engaging individuals on the front lines to help achieve those results is a pretty smart way of going about it.
PND: Is there a role in philanthropy for a like the one put forward by the ?
TT: It strikes me that NCRP's a point of view about "" is almost an advocacy perspective. As such, some people may agree that awarding more grant dollars to low-income communities and communities of color is the proper of view. Others, however, might say that it's the developing world that needs our attention, because that's where population growth is greatest, that's where the most challenging public health and education problems are, and that's where, if we don't solve those problems, the challenging problems we face today are going to be disastrous problems in a few decades. Still others might say we really need to get moving on climate change.
My point, as I've already emphasized, is that philanthropy is voluntary and personal. Each one of us is an advocate for the causes and organizations we believe in. Look at me: I've been involved in conservation activities for twenty-five-plus years and serve on the board of the . I care a lot about and am an advocate for conservation. Or look at Bridgespan, which focuses on serving disadvantaged populations by building the capacity of human service-type organizations. We're advocates for disadvantaged populations. These are choices that all of us who work in philanthropy and the nonprofit sector have to make.
So do I think a framework like NCRP's "Philanthropy at Its Best" is useful, even if only to challenge our thinking or our assumptions? Absolutely. I also happen to think there are almost as many perspectives on what "Philanthropy at Its Best" looks like as there are individual philanthropists. At the end of the day, how you choose to give away your money is a matter of personal choice.
By the way, it's also a personal choice as to how you choose to spend your time. One of the patterns we teased out of the research for the book was that time seems to matter more than money, in that committed philanthropists can do so many things. They can help raise more money for an organization, or coach its executives, or help formulate its strategies. They can advocate for the organization's cause and add value in other ways. Indeed, how philanthropists choose to spend their time and money involves an almost limitless number of tradeoffs. The key is to focus on the things you really want to pursue. And that goes back to the first question Joel and I ask in the book: What are the values and beliefs that drive your philanthropy? What do you really care about? It's personal engagement that leads to focus.
PND: Okay, I need your help. I've just inherited a sizeable sum of money and am eager to start giving some of it to charitable causes and organizations. What's the first mistake I'm likely to make? And how can I avoid it?
TT: First of all, congratulations.
At the risk of sounding like a broken record, your first mistake is likely to be that you ignore question one: What are my values and beliefs? A great illustration of this is , who learned in 2006 that Peter's father, Warren Buffett, was giving their foundation a billion dollars. Now, Peter and Jennifer could have rushed out and said, "You know what, we have to begin giving away five percent a year," and started responding to requests — of which, one could imagine, there were thousands — right away. But they didn't. What they did instead was to say, "We've got to figure out what our values are. What do we really care about? What is in-bounds and what is out-of-bounds?" Because, in their position, almost everything has to be out-of-bounds. Even if you've just been given a billion dollars, you can't spread it like peanut butter across every cause known to man. You have to anchor your philanthropy. And that's what they did. They spent the better part of two years trying to figure out the answer to that question. And it has guided their philanthropy ever since.
Too many people have the idea that success is achieved by writing checks. That's part of it, but it's not the only thing....
The moral here is that you have to go slow to go fast. If you inherit a large sum of money, don't rush to get the money out the door as quickly as you can. Think about what it is you're trying to accomplish with that money, about the things you most care about, about how you define success. Too many people have the idea that success is achieved by writing checks. That's part of it, but it's not the only thing. Success is achieved by being clear-minded about how you're going to achieve what it is you want to accomplish, and then spending your money and time and influence accordingly.
PND: What do you mean when you write in the book that the cost of capital imposed by philanthropists on grantees too often is excessive?
TT: This is an enormously important dimension of philanthropy. For most philanthropists, the results they achieve are dependent on the results of the organizations they give money to. Philanthropists are donors, not owners. As Yogi Berra once said, "When you give it away, you don't have it anymore." Similarly, when you give money to a nonprofit organization, it is no longer your money. It doesn't give you equity or an ownership stake. It's money, and you chose to give it away.
Now, it's incumbent on the recipient organization to make good use of that money. But it can be complicated, because in many cases the donor will want to exert some influence on how that money is spent. He might sit on the organization's board or be actively involved with the organization in some other way. The question then of how the donor relates to or does not relate to the organization he decides to support ends up being a question with disproportionate consequences.
Now, the "excessive" part of the equation comes into it when a donor imposes an invisible or hidden cost on a grantee that undermines the results the organization is striving to achieve. And that invisible or hidden cost can take many forms. It could be the donor saying, "You know what, I really don't have much experience in K-12 education, but I've got a strategy and I must be pretty smart because I've made a lot of money. Therefore, you need to follow my strategy." We refer to that in the book as strategic disruption. The grantee organization may have tons of experience and really know what it is doing, but the donor claims he knows best, and all of a sudden what was a high-quality strategy at the grantee level is disrupted by a donor that wants to do something else. That's a cost of capital.
A more insidious cost of capital relates to time. How many times have we heard about a foundation office where there are binders and binders full of reports turned in by grantees? And you ask the program officer, "Have you read them, and if you've read them, what were the consequences? What decisions were made by you or your grantees as a consequence of all those reports?" Truth be told, most of the time these reports aren't read, and when they are read they almost never have real consequences. But they do come with a cost. The grantee had to spend precious time — time taken away from programs, or management, or fundraising — to produce the report. That's yet another cost of capital.
On the other hand, the cost of capital can be reduced if a donor provides benefits to a grantee beyond money. If you ask grantees what they most want from a donor, they'll often say, "I'd love some strategic help that's constructive and helps me get better, as opposed to imposes an external strategy on me and my organization." Or, "I'd love help developing my board. I'd love help with fundraising. I'd love some executive coaching. I'd love some technical assistance. I'd love some new laptops." There are all kinds of things that nonprofit organizations consider to be benefits that not only reduce the cost of capital but, net net, add value to the original grant.
PND: You suggest in the book that because individual philanthropists and foundations don't have to worry about the bottom line, because they don't have to answer to shareholders or the voting public, they have a unique freedom to take risks. Does philanthropy take enough risks?
TT: I'm not sure whether philanthropy takes enough risks, but I am pretty sure it doesn't take enough smart risks. By that I mean it's very easy to throw money at a problem. Philanthropists do it. Government does it. But it's much harder to ask what works and how do I use my money to help solve real problems, whether it's in K-12 education, the environment, food security, or any other area. What our book concentrates on are philanthropic initiatives that are generating outstanding results. Most of them, at some point, were considered risky. What Joel and I mean by "giving smart" is taking smart philanthropic risks that have a reasonable probability of generating results, as opposed to just giving money away. It loops back to the idea of satisfactory underperformance. Victory isn't declared when money goes out the door. Victory is declared when social problems are addressed effectively.
PND: The book makes a strong case for the idea that smart philanthropy is a process that can be taught and learned. What kind of changes in philanthropic practice do you think we'll see over the next decade?
TT: Joel and I see three mega-trends that give us great confidence and, frankly, were the reason we put years of effort into the book.
Never, at least in recent history, have there been so many people who have been so engaged in trying to make their communities and the world a better place....
First, and the most important, is what we call the talent transfer. By that mean we mean the growing number of people who are spending time trying to help solve social problems, whether it's young people in their twenties or seniors looking for an encore career. It's not just about giving money away. It's also about volunteering and giving time and the benefit of one's experience. Never, at least in recent history, have there been so many people who have been so engaged in trying to make their communities and the world a better place. Yes, that can create a lot of friction. But the fact is, more and more people are engaging, and that's a profoundly good thing.
The second trend, which has been written about a lot, is the so-called intergenerational transfer of wealth. By making some basic assumptions and running some numbers, we can reasonably conclude that the first half of the twenty-first century will see ten times the amount of money going into philanthropy as went into foundation-type vehicles in the twentieth century. Ten times. An enormous amount of money. But even so, it would not be as profound a trend if that transfer of wealth was not also happening at a time when people are living longer and becoming involved in philanthropy at ever-younger ages.
And then, perhaps the most important mega-trend of all, you've got a knowledge transfer. Look at the Foundation Center. It's a knowledge enabler. This interview is enabling knowledge, and some of it may be useful to someone in ways we can never imagine. The Web has turbocharged this knowledge transfer, but it's not the only driver of it. There is just more activity in the social sector, more philanthropy, more nonprofits. We're seeing more blurring of the lines between the for-profit and nonprofit sectors. There's more experimentation, risk taking, innovation — not just in this country, by the way, but in other places as well. And whereas, say, fifty years ago an academic would have had to do a research study to tease out what was working and what wasn't in a particular area, that's not the case today.
So we have three mega trends, like three streams converging. And these three things together are creating an opportunity to achieve significant social results in our time, which in turn gives us an opportunity to dramatically increase the impact of philanthropy.
So what do I hope for? I hope that every philanthropist asks him or herself one question on a regular basis, and that is, "How can I double my impact with the time, money, and influence at my disposal?" Indeed, the very act of asking that question will force him or her to ask a bunch of other questions. Questions like, "What is the impact I'm trying to achieve? What does success look like? How am I going to get there?" And then I want to see them apply whatever it is they come up with to whatever it is they care about — whether it's the dropout crisis, or biodiversity, or access to healthcare.
If every philanthropist does that — and not every philanthropist will — and, as a result, we boost the results achieved by philanthropy by ten percent, can you imagine? Americans give something like $300 billion to charitable causes every year. So a ten percent improvement on that would be equivalent to $30 billion more a year being devoted to a wide range of social issues and problems. And, by the way, if we only boost our results by seven percent a year, but do it consistently over ten years, we will have doubled our impact at the end of that decade. That's like adding hundreds of billions of dollars of new philanthropy — smarter philanthropy — that achieves better results for our communities and our country. That would be a legacy to be proud of.
PND's publisher/editorial director spoke with Tierney in March. For more information on the Newsmakers series, contact Mitch at [email protected].