How do you give? Do you write a check or are you an active participant in solving complex social problems? In the forthcoming book Do More Than Give: The Six Practices of Donors Who Change the World, Leslie Crutchfield, John Kania and Mark Kramer explore how different donors, from individuals to the largest of foundations, have played a more transformational role in solving social issues – beyond writing a check.
One of the ways to be more transformational is to invest for impact – through your votes and cash. Traditionally, funders have maintained a fairly straightforward and inflexible relationship between their assets and their giving. Investment decisions often are made in the context of maximizing returns, resulting in more dollars and larger checks. However, as the authors of Do More Than Give point out, there are a number of other ways for donors to “invest” to achieve the social change they desire.
Using Your Vote
Take the case of The Nathan Cummings Foundation, a family foundation established by the founder of the Sara Lee Corporation, which transformed shareholder advocacy efforts among foundations in the United States. The Cummings family, who had a long-standing commitment to protecting the environment, was quite surprised one day to learn that their investment portfolio contained 32,000 shares of stock in one of the largest pork processing plants (and largest polluters) in the United States. Instead of following their initial reaction to divest the stock, they took a different and more powerful approach: they leveraged their role as a major shareholder to create a resolution for the company to disclose more information on the environmental effects of its practices. After several years, and several more resolutions, the Foundation was able to convince other shareholders to join in, ultimately leading the company to increase its transparency on pollution.
Using Your Cash
Foundations can also use their cash in more imaginative ways to create social impact. The F.B. Heron Foundation and Meyer Memorial Trust are two examples of foundations leveraging their capital to make social change. Meyer Memorial Trust, based in Portland, Oregon, has used program-related investments (PRIs) to offer accessible, nimble capital, such as low-interest bridge loans, to partners in their affordable housing initiative. The Heron Foundation, another leader in the field, has leveraged more than a third of its corpus through equity investments and loans (many of which deliver market-rate returns) to pursue its mission to help people overcome poverty.
Recent Investing for Impact Ideas in Action
We are also starting to see foundations leveraging their capital to support “proof of concept” social program pilots through social impact bonds. These investments would be repaid by the government, assuming agreed-upon indicators show the program is effective. A New York Times article last week highlighted the critical role foundations are playing in supporting these efforts, along with how the concept is being tested by David Cameron’s government in the UK. The idea is this: many government programs fail but are never properly evaluated. As a result, most policymakers remain in the dark about which programs are failing and why. They continue to invest in the same programs year after year because there is limited appetite and capital to invest in the development of new, more innovative programming. But foundations can break this cycle by playing the role of venture capitalists.
The Rockefeller Foundation is one player doing just that. By investing in new ideas, the Foundations hopes to see programming that will: more effectively address social problems, result in getting the loan paid back so that it can be redeployed, attract for-profit investors to increase the total amount of capital put towards a social issue, and reduce the taxpayer’s burden for paying for ineffective or unproven programs.
How have you seen donors invest for impact with their votes or their cash? What new ideas and approaches are most promising?
Upcoming discussions: We’d love to see you at one of our gatherings after the March 28th release of Do More Than Give to hear both your reactions to the book as well as examples of donors you know who are playing a catalytic role in addressing challenging social problems – check back soon to the FSG website for details and dates. Do More Than Give is the result of a collaboration between FSG Managing Directors John Kania and Mark Kramer (author of Catalytic Philanthropy and The Power of Strategic Mission Investing), and Leslie Crutchfield, the co-author of the book Forces for Good: The Six Practices of High-Impact Nonprofits.