Promoting Strategic Philanthropy to achieve greater social impact. The Effective Philanthropy Group at The William and Flora Hewlett Foundation

With assets of $9 billion and over $400 million of grants awarded in 2015, The William and Flora Hewlett Foundation is one of the largest foundations in the world. The Effective Philanthropy Group was created in 2012, with a two-fold purpose: to support and strengthen the Hewlett Foundation’s own grantmaking and to help strengthen all foundations to achieve their goals and advance the common good. With over $35 million awarded in these years, the Effective Philanthropy Group has been funding and promoting knowledge for better philanthropy and is one of the driving forces behind the new and exciting funder collaborative, Fund for Shared Insight.

In the 50^th anniversary of the Hewlett Foundation, we explore its work and cast light on some of US philanthropic trends with Fay Twersky, Director of the Effective Philanthropy Group and Leap Ambassador.

Let’s start exploring The Hewlett Foundations’ approach to grantmaking and its Outcome-Focused model. How would you describe the Foundation’s grantmaking in terms of goals, duration and size?

We have 5 major areas of giving: environment, including climate change, global development and population, education, performing arts, and support to effective philanthropy. Our approach to philanthropy is outcome-focused and characterized by a strategy life cycle. Our areas of giving are set by the values of the donors – William and Flora. Within the respective areas of giving, we begin by considering the problems we want to contribute to solving. We try to understand the nature of the specific problem – what has been done, what could be done, what are the practices likely to be effective. Then we set a clear goal and define pathways we will use for our grants in pursuit of that goal. We measure our progress over time to see if we are proceeding as expected and we adapt accordingly. Most of our grants are in the form of general operating support and we try to give as much long-term large operating grants as we can. Our largest grant ever was $500 million to the Climate Works Foundation, but each program is different with our typical grants ranging in size from $100.000 to many millions.

How does the Foundation select its grantees to make sure its resources are used in an effective way?

We tend to stay with our grantees over a long period of time, so we get to know them quite well. We try to find organizations whose work aligns with our goals so we are able to understand their Theory of Change. We find organizations that are committed to measuring their work – and we support their evaluations – and who agree to participate in evaluation studies of our own strategies. Every year, as part of our annual budget process, we critically review our strategies and consider refinements to our approach. Every 4-5 years we engage in a strategic refresh, looking at our “big-picture” assumptions, and have third-party evaluators review our work in-depth. Occasionally, we exit strategies. For example, a few years ago, when I entered the Foundation: we assessed our Non profit Marketplace Initiative, determined that it was not achieving its goals and ended it. In that instance as in others, we share lessons openly so that others may learn from our failures as well as our successes.

“We support organizations whose Theory of Change we are able to understand and that are committed to measure their work”

Taking into consideration the use of the endowment, do you think impact investing could become an active line for the Foundation?

Maybe in the future. We are looking at impact investing to understand the field and see what the opportunities are – but at this point we are not actively engaging in it. We are a leanly staffed foundation and are always seeking to continuously improve our grantmaking.

Moving specifically to the work of the Effective Philanthropy Group that you lead, your activities go toward improving the practice of philanthropy. How do you work to achieve that and what are your priorities after the re-thinking phase in 2013?

The Effective Philanthropy Group is a hybrid team, comprised of five pillars. We work both internally, to help shape the choices of the Hewlett Foundation, and externally by making grants to the field. The way I like to describe it is: we support a strong Foundation and a strong sector. Within the Foundation we provide guidance, advice and support in the areas of strategy, evaluation, and organizational learning.

In the sector we provide Organizational-Effectiveness Grants to nonprofits in our program areas, to help them be stronger and resilient organizations. Through these grants we cover costs that many grantmakers don’t like to pay for, such as fixing financial systems, strategic planning, developing performance management systems, and so forth — things that are essential for high performing organizations but that many funders don’t want to support.

Our most external pillar of work is Philanthropy Grantmaking, with two strategies: the first is the Knowledge for Better Philanthropy. This program supports a group of about 14 organizations who produce or disseminate high-quality independent research-based information about how to do philanthropy well. For example, we are long-time supporters of knowledge producers like the Center for Effective Philanthropy or Grantmakers for Effective Organizations. We are also long-time and inaugural supporters of the Stanford Social Innovation Review). The second strategy is the Fund for Shared Insight, a relatively new effort we are pursuing, in collaboration with many other funders. The purpose of the Fund is to build a strong philanthropic field by supporting the creation of a more open sector in two ways – 1) for funders to be more transparent about our goals, grantmaking and lessons – both the successes and failures; and 2) for funders to be more receptive to new ideas and perspectives, especially from those we hear from the least — the ultimate intended beneficiaries themselves — the students, farmers, community members.

“We support a strong Foundation and a strong sector. Through our Organizational-Effectiveness Grants we cover those costs that many grantmakers don’t like to pay for but are essential for high performing functioning organizations”

In this perspective of openness you must focus on creating a collaborative and transparent relationship with your grantees. How you manage that and how can you overcome grantees’ fear that the data they share will not be used in a punitive way?

I do believe that developing open relationships with grantees is pivotal. This includes clear communication from the funder on goals and strategies and a lot of active listening. Basically, we have to make the relationship more like a partnership rather than a contracting relationship; I think that when funders treat grantees like contractors no trust can be created and oftentimes it ends up like a transaction with the grantees fearing to be fully transparent.

One thing I would add is that our Organizational Effectiveness Grants help very much in this regard. We have data from our Grantees Perception Report – a survey that the Center for Effective Philanthropy conducts every 2 years with our grantees – suggesting that grants given to make organizations stronger help reinforce the relationship. That is because when a grantee comes forward saying, for example, “I have a challenge with my financial system” instead of being punished, it can be rewarded with an extra-grant to solve that problem.

“I do believe that developing open relationships with grantees is pivotal. We have to make the relationship more like a partnership rather than a contracting relationship. When funders treat grantees like contractors no trust can be created”

A related question, about the culture of failure. Sharing failures is becoming an accepted part of business activities, a necessary moment for the innovation process. However often there’s still a stigma on this topic in the social sector. What is your position and how do you face failure in your work?

I agree that we must become much better at talking about failure and what did not work. We have a history of doing that at The Hewlett Foundation: every couple of months we have what we call “In Town Weeks” where we gather together to learn on shared topics of interest. Each year, we organize at least one in-town week dedicated to discussing failure –what did not go well in our programs, where we made mistakes, where we thought certain changes or opportunities would materialize and didn’t. We share with each other openly in a way that is engaging and useful for our future work. We also do that with the larger field, as we did with our Non Profit Marketplace Initiative I mentioned earlier, where we shared our lessons and rationale with the general public.

And that’s part of the goal of the Fund for Shared Insight too, fostering on increasing openness. We aim to show both what does and does not work, so that everyone can benefit from our lessons. That enables smart risk taking and is part of the essence of strategic philanthropy.

“We must become much better at talking about failure. We aim to show both what does and what does not work, so that everyone can benefit from our lessons. That enables smart risk taking and is part of the essence of strategic philanthropy.”

Moving to the general drivers that you are experiencing from your observatory, what are the main trends that are defining the US philanthropic sector nowadays?

Philanthropy has grown tremendously in the United States. We don’t just have many more foundations but also bigger foundations, because of the huge wealth that has been created. In the last two decades the number of Foundations in the US has tripled: we now have over 100.000 foundations and many larger foundations. I think there are currently 88 foundations with at least $1 billion in assets. 50 years ago, when the Hewlett Foundation was founded, there were 8.

Along with that, many more people are philanthropically-oriented, especially earlier in their lives and careers and are interested in exploring new forms of giving. Some are creating foundations, others exploring new paths such as impact investing, giving grants to individual leaders or more explicit political giving through different vehicles.

I also think that many donors are also becoming more sophisticated about nonprofit effectiveness. The focus on overhead rates has been an unfortunate concern for too many years: because there were so few common measures donors could look at, they concentrated on overhead as if it was a meaningful measure. Sometimes it is, sometimes it has no relevance. Surely it is not the most important indicator to assess effectiveness. I think many donors are shifting from a pure focus on what Jacob Harold calls the “overhead myth” to what are the actual outcomes: if an organization has a higher overhead rate but is much more effective in delivering its social results, then that’s a much better investment than one that has a low overhead rate but lousy outcomes.

“I think that many donors are shifting from a pure focus on the ‘overhead myth’ to what are the actual outcomes”

We hear a lot about huge philanthropic initiatives, just consider the Giving Pledge or new millionaires willing to allocate most of their fortune to create social change, as Zuckerberg’s recent announcement. Still it has to be seen whether they will be able to accomplish truly remarkable social outcomes. What would be your most important recommendation to a new philanthropist willing to engage in the social sector?

Great question. A few years ago I did some research on foundation CEOs and among those I interviewed was Patty Stonesifer, the first CEO of the Bill and Melinda Gates Foundation. I asked her a similar question and I remember in particular one thing she said: Stonesifer reflected on the organizational culture at the Gates Foundation, saying it is important for a CEO to be surrounded by wise people – not just smart people. She offers, “In software, it helps you to be smart about bits and bytes. Wisdom didn’t get you that far in technology. But, in this work, where you are setting out to solve large complex social problems, it is important to be surrounded by wise people—those who have both intellectual knowledge and actual experience.” I think that would be a key piece of advice to a new philanthropist. As you are starting off, bring on wise advisers that have been around the block. Warren Buffett is famous for saying: “In business you look for the easy things to do, the easy places to make money. In philanthropy you specifically look for hardest problems. It is a much tougher game.” It is much harder to make social change. Bring on experienced people and don’t expect you will change the world overnight. To really create social impact you need just the right blend of wisdom, patience and urgency.

“Bring on wise advisers that have been around and don’t expect you will change the world overnight. That’s a key piece of advice to a new philanthropist”

For more info: http://www.hewlett.org/