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Public Management Program

 

Public Management Initiative (PMI)

Investing In Social Change (1999-0)

The philanthropic market is a huge, but poorly understood force. Philanthropy impacts almost every single person's life—in the United States and around the world. With over $143 billion in 1998 donations and several hundred billion more in foundation, university, and nonprofit endowments, philanthropy forms a powerful, largely hidden market. From disaster relief in Honduras to children's day care programs and the YMCA, from the opera and public libraries to shelters and international development programs, philanthropy touches millions of people throughout the world—as both recipients and donors.

Yet, despite widespread agreement on the efficiency of the private capital markets, few people consider this "philanthropic capital" in the same light. There is no market to allocate philanthropic investments and information is variable and highly scattered. Moreover, donors are increasingly asking questions about the effectiveness and accountability of the organizations that they contribute to.

Why a Focus on Philanthropic Investing?

Three forces are reshaping the nature of philanthropy—each will have a major impact on our communities and society.

  • New Wealth
    The dramatic rise in the stock market and incredible entrepreneurial digital economy have created vast amounts of new wealth, much of it concentrated in younger, new givers. Whether these wealthy individuals give and how they choose to give will have an enormous impact on the charitable sector.
  • New Approaches to Giving
    Related to the dramatic rise in new wealth is the rise in demands for accountability and outcome-based approaches to giving. New entrepreneurial approaches to giving such as "venture philanthropy" and calls for greater accountability are changing the traditional relations between donor and donee—whole new forms of nonprofit organizations and new dynamics in the sector.
  • Transfer of Wealth
    Over a $1 trillion in wealth will transfer from the depression era generation to their baby boomer sons and daughters. This wealth transfer could enable massive philanthropic investments.

We believe that new tools, analysis, and a rigorous investment approach to giving will help donors allocate their philanthropic investments more efficiently—the effectiveness and amount of these investments. The Public Management Initiative (PMI) will engage members of the Public Management Program and the entire GSB community in a yearlong series of events, discussions, activities, and projects to learn from innovators in the field and actively test these ideas.

Scope of this Year's PMI

While surveying the broad topic of philanthropy, this year's Public Management Initiative will focus primarily on four main areas:

  • Models for investing in social change
  • Measuring the return from investments in social change
  • Philanthropic investing in a global context
  • Public policy issues surrounding philanthropic investments

In addition, the PMI will also attempt to leverage both the human and financial resources of students and alumni to launch our own investment fund for social change: the GSB Social Venture Fund.

Models for Investing in Social Change
How are new sources of funding and new business models changing the field of philanthropy? What is the best way to allocate philanthropic investments?

  • The current models of philanthropy
  • The "Venture Capital" approach to philanthropy
  • Harnessing new sources of funding: new wealth created by high tech boom; transfer of wealth from the baby boomer generation
  • Strategic corporate giving: does philanthropy provide a truly sustainable competitive advantage
  • Leveraging philanthropic investments: cause—related marketing, employee satisfaction, networks with other NPOs
  • Operating vs. project funding
  • Investment of human capital and managerial resources
  • Use of technology to cultivate and manage new donors, to build capabilities of social change organizations

Measuring the Return from Investments in Social Change
How do you measure the effectiveness and outcomes of a social investment? Implications of a measurement-based approach to giving?

  • Is it possible to create a set of metrics objective enough to be truly useful?
  • Are different metrics needed for different social change "industries"? i.e. Can we use the same metrics to measure results of job training programs and homeless advocacy programs?
  • How do measurement metrics drive programs? How to provide the right incentives? Short-term vs. long-term objectives?
  • Non-profit performance measurement: balanced scorecards, social return on investment calculations
  • How to determine effectiveness in specific issue areas (education, social services, the environment, etc.)
  • Management and HR Issues arising from use of metrics
  • Economic/social development and cultural change (is culture an asset eroded by economic development for some communities?)

Philanthropic Investing in a Global Context

  • International power issues (governments vs. NGOs vs. individuals): do outside financial resources pose a threat to national sovereignty?
  • What is the best way to have an impact: by focusing on infrastructure or specific issues?
  • What have been the costs and benefits of existing programs: MBAid, PeaceCorps
  • New approaches to international investment in social change
  • International competition for funds
  • The Internet as a global medium and world-wide access

Public Policy Issues Surrounding Philanthropic Investments
When you change the funding mix, how does that change how services are provided, and who controls them? How do business people and business money influence the public agenda? How do changing funding sources (more generally, "the changing resource mix" which includes people) affect nonprofits? Implications for the nonprofit sector?

  • Examples of control issues arising from the switch from public to private funding (i.e.: school privatization, public space)
  • Policy implications
  • Winners vs. losers: Which issue areas and which organizations are best positioned to benefit from these changes?
  • The use of tax dollars to fund personal interests
  • Defining a public agenda, e.g., the Technology Network
  • Strategic choices in funding (public vs. private, domestic vs. global, etc.)

GSB Social Venture Fund

Investing for Social Change in the media.

Rosabeth Moss Kanter of the Harvard Business School characterizes the attitude of the new givers like this: "We fixed American business; now we need to fix charity." These budding "social entrepreneurs", as this new breed of philanthropists like to call themselves, are keen to give away their money themselves (rather than create foundations to do it). They want to solve specific problems in a specific way (rather than just earmark money for some vaguely benevolent purpose). They focus on performance. And they try to make projects self-sustaining (so the recipients do not keep coming back for more)."
—Economist, May 30, 1998

As government devolves, as nonprofits adapt to more entrepreneurial models, and as business reinvigorates its role in social development, philanthropy is also incorporating new approaches for social investment and the creation of social capital. Belief in the value of wealth creation in addressing social change along with the principles of venture capital investment is influencing the practice of emerging philanthropists among the new wealth creators as well as women's, youth, and diverse ethnic groups' new philanthropy ventures. The practices of these new philanthropists are challenging more experienced leaders in philanthropy to think about changing roles and relationships with grantee partners, using new tools and approaches that stretch philanthropy beyond traditional grant making and into more opportunistic and market-based models.
—W.K. Kellogg Foundation, January 1999 Report

Many new philanthropists bypass traditional charitable vehicles and instead channel money to favored causes through their own start-up foundations. The number of grant making foundations in the U.S. has climbed to more than 40,000, double what it was in 1980. Meanwhile, as philanthropy becomes more strategic, the old human-services standbys—hospitals, homeless shelters and soup kitchens—-have had to scramble for support. The Jenjo Foundation, created and run by actor Alan Alda's family, focuses specifically on nonprofits that work with poor women and children. "We tend to fund organizations that will help people get on their feet," says Elizabeth Alda O'Heaney, 38, the family's second daughter, "rather than just give someone a handout for a meal."
—Time Magazine, December 21, 1998

During the 1980s a huge amount of wealth came off the tax rolls and went into foundations. The assets of those foundations were invested, to a large extent, in the stock market—as the stock market has soared, so have the foundation portfolios. As foundations have grown and government money has shrunk, the private philanthropic sector has replaced the public sector as the source of funding for many political and cultural organizations—the foundations have started using that immense power to control the political agenda.
—San Francisco Bay Guardian, October 8, 1997