Nonprofit Chronicles

Journalism about nonprofit organizations and their impact

Thousands of donors visited Charity Navigator in the wake of hurricanes Harvey and Irma, looking for charities to support. They got some help, but not enough–the Harvey page of the Charity Navigator website lists about 50 organizations, the Irma page another 25 or so. They include the American Kidney Fund, to help dialysis patients in distress, First Book, which is shipping books to affected children, and the much-maligned American Red Cross. Huh?

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Michael Thatcher

People ask Michael Thatcher, who runs Charity Navigator, where to give. “How can you answer that?” he wonders. The fact is, you can’t, you can’t even know which organizations are effective and which are not, and that’s a problem: A list of 50 choices is only marginally better than no list at all.

This week, though, Charity Navigator, which is the most popular charity evaluator in the US, and GuideStar, which is the world’s largest database about nonprofits, said that they will work together for the first time to share more information about nonprofits and their effectiveness. It’s a small step in the right direction for both organizations.

Who knows? Maybe the two organizations, whose missions are aligned, will merge someday. It’s been discussed, Thatcher and Jacob Harold, the CEO of GuideStar, told me, although nothing is imminent, they say.

Here’s how the new collaboration will work: Beginning on Giving Tuesday in November, Charity Navigator (CN) will publish information about goals, progress and results that charities have provided to GuideStar. It will also note whether charities have achieved Gold or Platinum status on GuideStar; charities achieve status by providing qualitative or quantitative information about their outcomes. This moves CN closer to reporting on what matters about nonprofits: their impact.

If nothing else, the new information should put another small dent in the overhead myth — the misbegotten notion that nonprofits should be judged by how much they spend on programs versus overhead.

Charity Navigator now regrets its longstanding focus on overhead. Thatcher says: “Let’s stop talking about overhead ratios and let’s start talking about outcomes.”

Of course, that’s easier said than done. Charities can achieve Platinum and Gold status by reporting on their goals and results, but they decide for themselves what to measure and how to measure it. The value of that is more than zero, but not a whole lot more. [See my 2016 blogpost, Polite applause for GuideStar Platinum.]

What’s more, because GuideStar and Charity Navigator measure different things, the information they provide doesn’t necessarily align. The American Red Cross, for example, has achieved Platinum status on GuideStar and gets three out of four stars from Charity Navigator, despite its well-documented problems. The American Kidney Fund has not reported on its impact to GuideStar, so it hasn’t achieved Platinum or Gold status, but it gets four stars on Charity Navigator. Lately, I’ve been hearing great things about a nonprofit called Team Rubicon that has put veterans to work on hurricane relief, but it’s evidently too new to get a rating from Charity Navigator.

Pity the donor who wants to make sense of all this.

Still, collaborations like this one are clearly the future for both organizations, and for others that care about improving the performance of nonprofits.

With a budget of about $3m, Charity Navigator can’t deliver thorough evaluations of nonprofits by itself, so it has chosen to leverage results information gathered by others. Recently, it put a spotlight on charities that are top contenders for the MacArthur Foundation’s 100 & Change competition for a $100m grant to solve a critical global program. The attention helped drive donations to those charities, Thatcher told me.

GuideStar’s most recent attempt at information-sharing ended less happily. In a laudable effort to steer charitable donations away from groups that promote hate, GuideStar adding warning labels to charities identified as hate groups by the Southern Poverty Law Center. It later reversed itself, and with good reason. (See this from Megan McArdle at Bloomberg and this from Politico which says that the authority of the Southern Poverty Law Center “to police the boundaries of American political discourse is facing its greatest challenge yet.”) Of the experience with the Southern Poverty Law Center, Harold says: “It reminded us of how important it is to be thoughtful about how we pick our partners and how we share information.”

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Jacob Harold

Harold and Thatcher say their new partnership will help donors make more informed decisions, and that it could lead to further collaboration. “This is a toe in the water, in terms of how our two organizations might work together,” Harold says.

For now, GuideStar’s Platinum and Gold charities should benefit by having their status showcased on Charity Navigator, the go-to site for individual donors. More charities will have the incentive to report on their goals and outcomes. And, eventually, GuideStar will look for ways to improve and standardize the data it is collecting.

In the long run, if all goes well, these efforts will move us to closer to an information marketplace about nonprofits, roughly akin to a Yelp or a TripAdvisor, where donors, potential employees or others can learn more about nonprofits.

For such a marketplace to work, it will need good information about nonprofits– collected from their newly-digitized IRS Form 990s, from the nonprofits themselves and, perhaps, from beneficiaries, employees or, dare we say it, from foundations that have troves of evaluation reports about their grantees. Importantly, it will also need donors who are willing to do more research and give more wisely.

That may sound like a pipe dream but remember that Charity Navigator launched in 2001 and GuideStar isn’t much older. More recently, they have joined by others who want to improve the performance of the nonprofits, among them GiveWell, Feedback Labs, The Fund for Shared Insight, The Life You Can Save, the Center for High Impact Philanthropy, Impact Matters and Giving Compass. The Hewlett, Gates and Raikes foundations are all working on improving philanthropy.

All this counts as progress. Slow progress, to be sure, but progress nonetheless.

Central Carolina Community Foundation is in most ways a typical community foundation: Based in Columbia, SC, it supports social service organizations, colleges, churches and arts groups in the midlands of South Carolina.

In one important way, though, Central Carolina foundation stands apart: It invests most of its investable assets, which are worth about $94m, in low-cost index funds from Vanguard that track the markets, rejecting, for the most part, the lure of Wall Street asset managers who claim they can do better.

This iconoclastic behavior has proven to be good for the endowment, and thus for the citizens of central Carolina served by the foundation. Central Carolina Community Foundation’s investment performance is superior to the average performance of other community foundations, of small and mid-sized private foundations and even of private foundations with $500m or more in assets, most of which turn to well-paid chief investment officers, consultants, hedge fund operators and investment banks to manage their money.

This should not come as a surprise. Numerous studies — here’s one from mutual-fund tracker Morningstar — demonstrate that actively-managed funds, taken together, lag index funds that track a market benchmark. This is because index funds typically charge lower fees than their actively-managed counterparts, and because most stock-pickers can’t consistently beat the markets or, for that matter, monkeys that throw darts at the stock pages.

“The only thing you can control with your investment is its cost,” JoAnn Turnquist, the president and CEO of the Central Carolina Community Foundation, told me by phone the other day.

At that job, Turnquist has done very well: When she joined the Central Carolina foundation as its CEO in 2009, its investments costs added up to about 0.29 percent of its assets; today, its all-in Vanguard fees are less 0.17 percent. 

It’s all but impossible to know what the typical foundation pays in fees, but you can be sure that their investments costs are substantially higher. What’s more, taken together, the people who manage foundation endowments have failed to beat the markets as I’ve reported on this blog, here and here

That’s quite a combination: Higher costs for mediocre performance.

It’s no wonder that, in his annual letter to Berkshire Hathaway shareholders earlier this year, Warren Buffett wrote:

When trillions of dollars are managed by Wall Streeters charging high fees, it will usually be the managers who reap outsized profits, not the clients. Both large and small investors should stick with low-cost index funds.

Central Carolina Community Foundation, unlike most private foundations, discloses its endowment returns. As of Dec 31, 2016, net of fees, its annual returns were 7.37 percent for one year, 4.99 over three years, 9.06 percent over five years, and 5.06 over 10 years. Those returns beat the comparable returns for community foundations, private foundations and private foundations with $500m or more in assets, as reported by the 2016 Council on Foundations–Commonfund Study of Investment of Endowments for Private and Community Foundations®. 

Here, with apologies for my limited skills in data visualization, is a chart comparing the performance of the Carolina foundation to its peers:

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Again, this should not be a surprise. What’s surprising is that so many foundations continue to play the fool’s game of chasing returns. And they do so at a high cost.

The Ford Foundation, David and Lucille Packard Foundation,  Robert Wood Johnson Foundation, William and Flora Hewlett Foundation, Gordon and Betty Moore Foundation, and the MacArthur Foundation all pay their chief investment officers more than their top executives. Some make in excess of $1m per year. They also pay substantial fees to outside money managers.

MacArthur, Packard and Kellogg, to their credit, disclose their returns. Ford says it will do so soon. The rest won’t say whether their investment officers and their outside asset managers are delivering market-beating performance.

To be sure, there’s an argument that a handful of the biggest foundations might be able to beat the markets, even after paying outsized fees to investment bankers and hedge fund managers. By virtue of their size, foundations such as Ford, the Gates Foundation and Bloomberg Philanthropies may get access to investment opportunities not available to other managers. We can’t say because, again, they won’t say.

Soon, though, that could change. Increasingly, data provided by foundations on their IRS Form 990s is becoming open, digital, free and machine-readable, as Brad Smith of the Foundation Center explains on its Glasspockets blog. This will make endowment returns available to anyone with the requisite math skills and computing power.

As it happens, a startup company called Foundation Financial Research is compiling that data on endowments. It intends to make it available for free to foundation trustees and to sell the data to asset managers.

John Seitz, the firm’s founder, who formerly worked as an asset manager, tells me that he started the company because he believes that foundations and nonprofits are not paying as much attention to their endowment performance as they should. By making data about their returns public, he hopes to create pressures on them to improve.

On a website called Foundation Mark, Seitz has published some of his aggregate data. Drawn from data on 40,000 foundations, it indicates that their average returns trailed a plain-vanilla index of 60 percent stocks and 40 percent bonds. 

“I was appalled at how little the trustees really thought about their investments,” Seitz says, referring in particular to small and mid-sized foundations. “This is less about the hundred foundations that are over $1 billion (in assets) than about the 40,000 that are not.”

 “The end goal is to have foundations with more money in their pocket to give away,” he says. “The way to do that is to increase transparency and provoke discussion.”

Turnquist, JoAnnThat’s why I was pleased by JoAnn Turnquist’s willingness to share Central Carolina Community Foundation’s monthly performance results from Vanguard with me. Those results are, of course, regularly shared with the foundation’s trustees, who meet annually in Columbia with representatives from Vanguard to review the endowment performance.

What’s most important about Central Carolina Community Foundation’s superior performance is that it has more money to invest in its community. The foundation made grants of about $16m last year, with about 92 percent of those grants remaining in the region and close to 97 percent staying in South Carolina. It manages money for about 400 funds as well as for its own endowment, and it works in collaboration with other funders, including the John S. and James L. Knight Foundation.

Last spring, for example, the community foundation made $448,500 in grants to 12 local nonprofits as part of an initiative called Connected Communities that aims to answer the questions,  “What makes residents love where they live?” and “What draws them in and keeps them there?” They supported arts groups, libraries and historic preservation. In an effort to insure that Columbia and its environs are welcoming to all, the foundation has also supported a museum exhibit on race, a playground that’s accessible to disabled users, a Jewish heritage program and Latino artistry.

Whatever you think of those programs, and they sound pretty good to me, they are surely better than sending more foundation dollars to overpaid Wall Street money managers in exchange for subpar returns.

Racial+Justice+Actions+for+White+FolksYou’d think that nonprofits would lead the way when it comes to diversity. After all, many serve the downtrodden, including people of color, immigrants and the poor.

But no.

A new survey of more than 1,500 nonprofits found that 90 percent of their chief executives, 90 percent of their board chairs, and 84 percent of their board members identify as white. Some 27 percent of boards identify as all white. The survey, published in a report called Leading with Intent by a group called BoardSource, found that boards are less diverse than they were in 2015, when the research group conducted a similar survey.

These is nonprofits, mind you, not foundations. But foundations, it appears, do little better. A recent Chronicle of Philanthropy analysis of the 20 wealthiest national foundations found that 72 percent of trustees are white. Non-Hispanic whites account for about 61 percent of the US population.

Does this matter? Absolutely, says Doug Stamm, the chief executive of the Meyer Memorial Trust, which lately has been engaged in what it calls an equity journey. It has put the issues of diversity and inclusion front and center for the Meyer trust and, increasingly, for the nonprofits that it supports.

“It is not an overstatement to say that delving into equity profoundly changed me and Meyer’s direction,” Stamm says. Continue reading

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Texas national guardsmen rescuing a woman from her home. Source: US Dept of Defense

The devastation in Houston was terribly sad.

So, in its own way, was the philanthropic response, particularly from business.

Big brands including Amazon, Apple, Google, Starbucks, Walmart and many more are making donations to the American Red Cross, and encouraging their customers to do the same.

Former President Obama retweeted:

It’s understandable. People see TV images. They want to help. That’s wonderful.

But the American Red Cross? Can’t we do better? The question answers itself. Continue reading

Uganda has about 30 psychiatrists. New York City and its suburbs have about 41,000. So depression in Uganda can’t be treated the way it is in New York.

Turns out, that may be a good thing.

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StrongMinds, a fledgling nonprofit founded in 2013, organizes self-help groups to treat depression among poor women in Uganda. Its approach costs about $48 a person, which buys 20 minutes with a shrink in Manhattan, if that. Yet its self-evaluations find that more than two-thirds of the women report being free of depression, when surveyed 18 to 24 months after their treatment. Those are impressive results–better, in fact, than the outcomes reported for antidepressants or talk therapy in the US.

“We have simple, proven effective solutions for mental illness,” says Sean Mayberry, the founder and executive director of StrongMinds,

Of course, self-evaluations are….self-evaluations. What seems to work in Uganda may not work in the US. That said, StrongMinds appears to be alleviating suffering at a low cost in a place where the needs are great.

“Africa is the last place on earth you want to be a depressed man, woman or child,” Mayberry said in a 2015 TedX talk.

To learn more about StrongMinds, I called Mayberry last week. He told me that, to the best of his knowledge, neither big NGOs, nor major foundations, nor governments are paying much heed to the mental health needs of Africans. “There’s just no money for it,” Mayberry told me.

This, despite the terrible cost of the disease. In a 2014 editorial, the scientific journal Nature wrote: “Measure by the years that people spend disabled, depression is the biggest blight on human society — bar none.”

So how did Mayberry get StrongMinds off the ground? Importantly, which funders took the risk of supporting an unproven startup? Continue reading

Charitable-Giving-Estate-PlanThis is not the time to be holding onto money that will eventually go to charity.

Needs are urgent: Globally, about one in 10 people remain extremely poor. In the US, the environment, immigrants, civil rights, reproductive freedoms and democracy itself face threats from the Trump administration. Meantime, it’s not hard to identify standout nonprofits.

Yet an estimated $78 billion –$78 billion! — sits in donor-advised funds, which are tax-advantaged accounts designated to be used, someday, for charity. The National Philanthropic Trust reports that in 2016 there were 269,180 DAFs in the US and that the average DAF holds $235,727.

Most Americans are likely unaware of donor-advised funds, which are the fastest-growing sector of philanthropy. The biggest “charity” in the US last year, according to the Chronicle of Philanthropy, was not the United Way or the Salvation Army but Fidelity Charitable, the not-for-profit arm of the mutual fund company, where about 150,000 donors have DAFs.

DAFs are also the single biggest reason for the explosive growth of the Silicon Valley Community Foundation, which is holding billions of dollars, mostly for well-to-do techies. I’ve written a long profile of the foundation that was published last week by the Stanford Social Innovation Review.

Here’s how my story begins:

Silicon Valley technology has been unkind to traditional middlemen. Streaming music punished the record industry. Netflix killed video stores. Life has become harder for intermediaries such as travel agents and stockbrokers.

So it is perplexing that when it comes to philanthropy, Silicon Valley has given birth to an intermediary that has rapidly grown into one of the world’s biggest foundations. The Silicon Valley Community Foundation (SVCF), which was formed 10 years ago by the merger of two smaller community foundations, connects the region’s wealthy donors to nonprofit organizations that they want to support, around the corner and around the world.

With assets under management of more than $8.2 billion, the Silicon Valley Community Foundation last year made more than 108,000 grants valued at $1.3 billion, pushing more money out the door than the Ford, Rockefeller, Hewlett, or Packard foundations—more, indeed, than any foundation in the United States, except for the Bill & Melinda Gates Foundation.

The numbers are eye-popping. But if you read the story (and, of course, I hope you will), you will learn that there is less to the Silicon Valley Community Foundation (SVCF) than meets the eye. Of that $1.3bn in grants, only $19.2m came out of the foundation’s own coffers. The rest came from DAFs.

A bit of explanation about donor-advised funds, for the untutored. DAFS function as a rest stop for charity dollars that depend upon a well-understood legal fiction: By law, they are controlled by the foundation, but in practice, donors decide how and when to give the money to charity.  Continue reading

4166734True to its name, Unorthodox Philanthropy got started with an out-of-the-ordinary proposition.

In 2010, on a crowdsourcing website called Innocentive, the funder announced that it was seeking “novel, unorthodox opportunities for philanthropic investment with the potential to generate extraordinary returns to society.” It promised a prize of at least $10,000 to the best idea.

Nearly 300 people or organizations submitted proposals. The winner was GiveDirectly, a nonprofit that had just been formed by four graduate students to give direct cash grants to the very poor. It was awarded the $10,000 prize,and a $100,000 grant.

That first grant to GiveDirectly was “a watershed moment,” says Paul Niehaus, one of the founders, because it signalled that thoughtful donors would embrace the idea of giving money, with no strings attached, to the poor. Since then, GiveDirectly has distributed about $65m in unconditional cash transfers to poor people in east Africa. [It’s my favorite charity, as I’ve written here and here.]

Unorthodox Philanthropy is the inspiration of Mark Lampert, who is the founder and president of BVF Partners, a private investment firm in San Francisco that specializes in biotechnology companies. Lampert, who is 57, has been investing since 1993, and he sees some parallels between venture investing and philanthropy.

At BVF, he says, “we look for interesting, undiscovered companies and we give them money and we try to help them. A little bit of money married to a really big idea can have a dramatic impact.” His hope in philanthropy is to likewise unearth new and exciting ideas that deserve funding.

On its website, Unorthodox Philanthropy says:

We tend to be contrarians, believing that the opportunities with the greatest potential exist where others aren’t looking. Otherwise, we are sector- and geography-agnostic.

Unorthodox Philanthropy believes great opportunities should drive our funding decisions, not a predefined funding agenda. We seek to foster a system that enables great ideas to flow upwards toward capital, rather than allocating funding downwards from specific issues or causes.

In this regard, Unorthodox Philanthropy differs radically from most foundations, which typically identify and attack specific problems or serve local geographies. The very biggest staffed foundations like to devise grand strategies to curb climate change, or challenge inequality, or promote resilient cities. Some of those approaches work, many don’t, and one problem with philanthropy is that only occasionally do we learn which did which. (Here’s an exception, a smart look back at a seven-year, $32m initiative to improve Detroit’s schools that failed to deliver.) Family foundations are also sector- or cause-specific, as a rule. What made Unorthodox Philanthropy so, er, unorthodox? Continue reading