5 Tips for Running an Effective Charitable Foundation

Note from the Author:

Many family owners relish the opportunity to support causes they care about through a charitable foundation. But having good intentions doesn’t always translate to creating an effective foundation. The family owners I’ve worked with over the years that do this well tend to focus on getting a few key things right. Here’s what they do.

–Josh Baron

It is very hard to give well. As the Greek philosopher Aristotle described the challenge: “To give away money is an easy matter and in any man’s power. But to decide to whom to give it and how large and when, and for what purpose and how, is neither in every man’s power nor an easy matter.”

Today, more than 2000 years after Aristotle wrote this, more and more charitable foundations are taking up the challenge that he identified. Here are five tips for those who are looking to increase the effectiveness of their foundation:

1. Identify the “Return on Investment”

When philanthropists invest in a company that does not use their money wisely, they ultimately pay a real price in that their wealth will decline. One barrier to making foundations more effective is that the price of failure is not obvious, since almost anything a foundation does will create some benefit for society.

The first step in increasing effectiveness, therefore, is to raise the bar and make it about more than doing good (See: Is Doing Good “Good Enough”?). An important part of this is thinking more specifically about the social impact that a foundation wishes to have. But it goes beyond that. Foundations offer benefits beyond the good feeling that comes from being altruistic, for example, improving the family’s reputation in the community. Although it can feel uncomfortable to think about the non-altruistic rewards of giving, doing so is ultimately beneficial for society since in general foundations have to be more effective to achieve their goals. Identifying the foundation’s potential return on investment creates a powerful motivation for giving effectively.

2. Find your sweet spot

Effectiveness in philanthropy means having a good strategy. Resources are limited, even for the wealthiest, and the challenges are often limitless. So charitable organizations must be thoughtful about how they use those scarce resources and be careful to focus them for greatest effectiveness.

It’s also important for charitable organizations to think beyond just donating money. Philanthropists have other forms of capital (human, political, relationship) and the most successful foundations find ways to leverage all of these. That’s one reason why it is so essential for philanthropists to find a personal connection to their giving. It makes their efforts more sustainable and more impactful, both of which are central to effectiveness.

In developing their strategy, I encourage philanthropists to consider three main factors:

• Passion: What issues do you care most about addressing?
• Opportunity: What are the biggest unmet needs in the sectors you care about?
• Assets: What are your distinctive capabilities and strengths?

Each of these elements is important, and a foundation’s “sweet spot” is found at the intersection of all three.

3. Build good governance

Almost all foundations are family enterprises. Oftentimes the wealth that funds the foundation comes from one member of a family, but others are involved in giving it away. Family enterprises are very different from non-family ones. On the positive side, they can bring a long-lasting commitment and sense of pride that can be a tremendous asset in producing results. On the flip side, these enterprises can carry family dynamics over to the foundation, thereby producing divisive conflict or disengagement.

In order to productively manage the dynamics of the family, foundations require governance structures and processes, such as a well-defined board of directors that ultimately has outside members. In the early stages of a foundation there can be much benefit in remaining informal, since it allows for experimentation, flexibility, and responsiveness. As the foundation’s strategic direction becomes more crystallized, however, it is essential to put governance in place to facilitate productive decision-making and to control conflict.

4. Measure what matters

It is impossible for a foundation to know if it is effective without some evidence to assess the impact of its efforts. However, most social problems have interlocking causes, and multiple groups are often acting on the same problem simultaneously. It is, therefore, hard to isolate one’s own contribution to solving a social problem, and evaluations are costly and time consuming even when they are possible.

The difficulty of measuring effectiveness can be one of the greatest frustrations that many philanthropists face. Though there is no single solution, one key is to get a clearer understanding of the steps that will need to take place between the foundation’s programs and their ultimate impact, and to identify metrics that indicate whether the work is on the right track.

For example, a foundation may be focused on transforming the educational system and may believe that improving teacher quality is the key lever to doing it. Rather then relying only on the top-line measures like graduation rates, it can identify interim ones like the level of teacher attrition or the perception of students regarding the quality of their teachers.

5. Don’t go it alone

For many charitable organizations, philanthropy is not a gentlemen’s game. A lot of that has to do with competing for limited resources, but even more importantly, people are fighting for things that they believe in to the core of their beings and, for that reason, they can sometimes be less collaborative than one might expect. This can be a real pity because there are many reasons to work together with other charitable organizations and/or government agencies that are focusing on the same problem.

Partnering reduces the risk that beneficiaries become too reliant on just one funder. More important, working with others provides the opportunity to learn from another’s successes and failures and to leverage each other’s strengths. Finding a peer group also has deep personal rewards. Philanthropy is often isolating, and cooperation can lead to greater satisfaction, which is essential to making it through tough times.

Giving well takes hard work. Following these five tips can help get your foundation started on the path towards greater effectiveness. The results will be more than worth it.

Originally published in the Philanthropy Journal, 15 July 2013.