Rethinking the Foundation's Role in Social Innovation

Rethinking the Foundation’s Role in Social Innovation

Alex Hiam

Social innovation is the pursuit of new and better solutions for society’s needs, and is in theory going on in the nonprofit sector, just as it does in the for-profit sector. However, there is apparently a great deal less innovation on the social (or charitable) side than the for-profit side. A recent review of the topic finds that, “Surprisingly little is known about social innovation compared to the vast amount of research into innovation in business and science.” (Geoff Mulgan, Social Innovation: What It Is, Why It Matters and How It Can Be Accelerated, Oxford SAID Business School, 2007, The Young Foundation). The big picture is, quite simply, that business as usual, using traditional models and methods, won’t solve all our problems, and that we need to encourage new and better ideas and approaches.

As a foundation trustee who votes for and against grant proposals regularly, I have been thinking about what role foundations play in stimulating productive social innovation. I think, by and large, that giving tends to be conservative in nature, and not innovative.

‘Safe’ Giving: But Is It Smart?

Both individuals and foundations feel good about ‘safe’ gifts in which they know the organization is established and has a clear history of success. Organizations that have done the same thing, more or less, for many years, and have a long track record of above-board financial management and a reputable list of trustees and donors, look like safe bets. Many, if not most, foundations actually have policies preventing them from ‘investing’ in early stage nonprofits. For example, at my foundation, we have a long-standing policy of not wanting to provide more than 10% of the annual budget, which means we are blocked from seed funding for new organizations, unless we decide to make a rare exception to our policy. Other foundations may have policies requiring several years worth of demonstration of a program or model before they fund it.

What if 100% Success is a Sign of Failure?

I can say with some certainty that foundation trustees are nearly opposite to venture capitalists in their approach. We trustees do not want to invest in a portfolio of grants where only one or two in ten succeed, and the rest are failures. I’m not even sure we could maintain our IRS tax status if we routinely gave grants to startup nonprofits, the bulk of which then went out of business. But that is precisely what VC does. Innovative business plans are highly risky, and most new businesses will stumble and die in a ditch within the first five years of life. I cannot think of a single instance in which my foundation made a grant to an organization that then went out of business. It would be seen as a major embarrassment and a grant-making failure, that’s for sure! And yet, innovation requires risk. If we don’t make grants to risky ventures, we won’t be wrong, but neither will we ever be right about innovative new models that might benefit society were we to fund them. I am going to raise the question, at our next board meeting, of whether we ought to be pursuing, say, a 90% success rate, rather than 100%, in order to allow us to make some riskier, more innovative, grants.

Should We Break Out Our Grantmaking In New Ways?

Quickly, now, what percent of charitable giving goes to innovations, versus more established, on-going, or (to be honest) non-innovative charities and programs? Is it 1%? 10% What should it be? Actually, I don’t believe anyone really knows. I’m not even sure  what the percentage is for the foundation where I serve as trustee. The reason I don’t know is that we’ve never sliced the grant deck that way. We, like, well, every foundation and almost every report on philanthropy every published, break out giving by sector or type of organization. Nationally, for example, we know that about a third to a half of philanthropic dollars (and volunteer hours) go to religious organizations. Education comes in a distant second, at about 16%, followed by human services at 12% (stats are from a 2013 report by the National Philanthropic Trust; an older study by Boston College gave these stats for 2002: Religion 53%, education 10%, human services 8%, youth development 6%, health 6%, arts & culture 3%, environment and animal welfare 3%). The details are hard to nail down nationally and vary depending on source and method, but generally speaking, there is agreement that religion gets the biggest slice of the philanthropic pie, followed by education and human services.

At our foundation, we don’t give to religion, although we occasionally give to religious organizations (i.e., to fund a youth center, or to help rebuild an African American church that was burned down). Our breakout emphasizes categories like medical research, the arts, education, and social services. We give to educational institutions (more often at the college or university level than below), to museums, to research institutes, to local and regional charities targeting at-risk youth, etc. etc.

In 2014, our grants totaled $1,672,500, spread across 69 organizations, for an average gift of $24,239 per organization. The largest grant was $50,000 to the Schepens Eye Research Institute in Boston (we are Boston based and Mass.-focused). Examples of relatively small, $10,000 grants include Mass. Audubon Society, the Hitchcock Center for the Environment, and Kestrel Land Trust (all three being in the environmental sector, but the first being long-established, and the second and third representing relatively innovative programs that are emerging as new models in the sector, rather than being older and fully established). We are, at under $2 mil/year, a small foundation (the Bill & Melinda Gates Foundation gave many individual grants that were larger than our total grants for the year, just to put us into perspective). However, I would hazard an educated guess, based on talking with other trustees over the years and reading annual reports from their foundations, that our reporting practices are very similar to larger foundations, with a general breakout of gifts by sector being the main strategic statistic in most reports.

Rethinking Foundation Reporting & Self-Analysis

If the main challenge of a foundation board is to decide whether they ought to shift more resources from, say, the arts to the environment, then the traditional approach to reporting is great. But what if the goal is to begin making a conscious effort to support social innovation? Then we need another kind of statistic. To help me understand this challenge, I’ve put together some examples of organizations we support at the Edwin S. Webster Foundation, based on whether the grants aim at innovation or not.

Examples of Grants Supporting Ongoing Activity (Non-Innovative):

Boys & Girls Clubs of Boston, general operations

Mass. General Hospital, general operations

New York Botanical Garden, general operations

Hospice of North Shore & Greater Boston

The Boston Symphony Orchestra

Examples of Grants Supporting New Activity with Explanations (Innovative):

Establishment of mentoring program for minority students at MIT

Designed to address health and retention problems observed at the college; appears to be a successful new program.

Support for operations of MIT’s CoLab (Community Innovators Lab, run by the  Dept. of Urban Studies and Planning

“CoLab supports the development and use of knowledge from excluded communities” and “facilitates the interchange of knowledge and resources between MIT and community organizations” because “community knowledge can drive powerful innovation and can help make markets an arena for supporting social justice.” [Quotes from colab.mit.edu/about, 2/23/2015]

Support for expansion of Boston Medical’s SPARK Center

SPARK stands for Supporting Parents And Resilient Kids. The organization’s Web site describes it as “a model childcare program offering comprehensive, integrated, state-of-the-art services for children and families whose lives are affected by medical, emotional and/or behavioral challenges.  The program serves Boston's highest-risk children, ages infant through 5 year olds:  those living with complicated medical conditions (including neuro-developmental challenges, failure to thrive and HIV/AIDS); as well as children who are involved with the Massachusetts Department of Children and Families due to significant family and social concerns (including child abuse and neglect, domestic violence, adult substance abuse).  A new group of fragile children now attend SPARK.  These are 'very low birth weight' babies who were born too early and too small, and need our specialized care and attention.” [Quoted from www.bmc.org/pediatrics-sparkcenter.htm, 2/23/2015]

Startup funding for a Research Training Pipeline at Amherst College

Provided funding toward post-doc positions in an advanced chemistry lab, intended for groups underrepresented in STEM in the past. Intent is to help faculty create STEM opportunities that may guide women/minorities into advanced science careers.

In each of these instances, the trustees have decided to support something innovative that seems to address a need in a new way, or to address a new or emerging need (i.e., Kestrel Trust is preserving farmland within driving distance of Boston, a concept that wasn’t on anyone’s agenda until relatively recently). These grants seem to take a lot more discussion time, and to need more research and explanation, as well as to be somewhat difficult to monitor in follow-up, than non-innovative grants. However, they can be rewarding, in the sense that the trustees may feel, in hindsight, that they contributed to the development or spread of a good new approach or idea.

I notice that my foundation’s grants for innovation are, by and large, given to an innovative program nested within a well-established, and less innovative, nonprofit. MIT is a huge institution, and its fundamental business model is conservative and safe. You won’t be criticized for a grant to MIT because it suddenly went out of business and lost the money. In fact, all the above examples of innovative grant-making take advantage of the safety of a large umbrella organization that is not itself new or highly innovative in form. We may be sheltering ourselves unduly from risk by only pursuing innovations that are packaged in the relative safety of mature, well established nonprofits. I would guess that this bias might be found in many foundations and in individual giving as well.

I only find one example in recent years or what might be considered a pure investment in social innovation on the part of my foundation. For several years, starting near its founding, we have made grants to Full Frame Initiative (Greenfield MA), which studies government and nonprofit programs in order to find the most effective models and share them. In language from its Web site, “FFI works to break cycles of poverty and violence through systems change.” It’s been an interesting organization to support, partly because we at the foundation often find ourselves a bit puzzled about what it’s doing in its effort to “remove systemic barriers.” It’s simple to say, for instance, that an organization “runs soup kitchens.” It’s harder to assess one that uses new language and concepts to describe its work. But of course that is going to be part and parcel of really innovative organizations, and so we at foundations must be prepared to think harder and be more open minded, even to the extent of acquiring new vocabulary and learning new methodologies in order to understand the grant proposals we receive. 

Here is a new way to slice the deck on our foundation’s giving (with my rough estimates by category).

Category based on Degree of Social Innovation                                 Historic Target

Low: Support for established nonprofits (non-innovative)                       85%          ?

Medium: Support for innovative initiatives in established nonprofits       14%   ?

High: Seed or early stage support for innovative new nonprofits               1%          ?

Setting New Targets

I am going to propose to my fellow trustees that we set some targets to increase our investment in social innovation. Perhaps we could aim for a 50/40/10 pattern over time, for example. If we embraced that goal, how would we go about pursing it?

For one thing, we would need to begin categorizing applications based on their degree of social innovation. That’s not a requisite section in our on-line application form, but it is often addressed in the narrative of an application, where a new initiative and its intended benefits may be described. For us (as perhaps for many smaller foundations, as well as individual donors), there is no research department to analyze the proposal, so we have to take time to do site visits, ask questions, look for comparisons, and so forth, before we feel ready to vote on a proposal.

An innovative program is exciting, but harder to evaluate, and may need a longer lead time for preparation before it can be voted on. What could we as a foundation do to innovate our way around this challenge? One idea would be to ask for innovative proposals at an earlier date, giving us, say, an extra month for their evaluation. Another would be to develop some guidelines for presenting innovations that do some of our homework for us. Applicants could provide references to new terms, methods or models, as well as comps or examples where similar ideas have been rolled out (there may be a benchmark elsewhere in the nation that we, as a regional foundation, are unaware of).

Doing Things Differently

Some foundations have posed of themselves the question, “What major innovation would we like to see someone develop?” Then they put it out to there that they want proposals on the topic. for instance, RTI International (a nonprofit research institute) targeted the toilet as in need of innovation (because flush toilets are impractical in many parts of the world, where the related infrastructure is not present). The Gates Foundation got behind the goal with a $1.2 million grant to help develop a free-standing, flushless toilet design.

We could, at our foundation, put a similar goal out there and request proposals on it. For instance, despite the great work of organizations like Habitat for Humanity, low cost, comfortable residences are very hard to build or buy, and modern building codes (in our state and many others) add to their costs. We could challenge nonprofits to come up with less expensive forms of housing that can realistically be permitted and built in our state. Certainly we cannot expect to receive many proposals on the topic unless we state that we are interested in it.

Kendal Charitable Funds (a Pennsylvania nonprofit that does grant-making) has set up a Promising Innovations Selection Committee whose focus is to make grants in social innovation. To improve its efficiency and effectiveness, the committee selects a topic (otherwise, the committee might feel daunted by the challenge of understanding a diverse range of applications). The 2013-14 grant topic was elder abuse, and a grant of $25,000 was made to Bet Tzedek Legal Services to pilot an elder abuse prevention program within religious communities. Perhaps every foundation, even small and midsized ones, needs a promising innovations committee, made of people who are willing and qualified to "PIC" innovative proposals.

How Much Impact Can Foundations Have?

In the U.S. today, foundations account for only 15% of giving (according to the National Philanthropic Report, 2013), while individuals and households account for 72%, bequests make up 8%, and corporations contribute 5% of total giving. Still, that 15% amounts to $50.28 billion a year, not an insignificant sum. And foundations, by virtue of their structure and practice, are more likely to be able to be thoughtfully analytical in the pursuit, selection, and monitoring of social innovations than individuals or corporations. I think that foundations, with their in-place systems for formal proposal and review, are already reasonably well set up to evaluate innovative proposals. By making some small changes in how we set and track our giving goals, and by innovating to some degree in the ways in which we recruit and evaluate proposals, we could step up to take the lead in stimulating social innovation nationally.

(Alex Hiam is a trustee at the Edwin S. Webster Foundation, Boston, Mass., and a writer and teacher interested innovation and creativity.)

The Myth of Social Entrepreneurship

Joseph Schumpeter, the Austrian economist who became famous for recognizing that economic growth depends on innovation, wrote about entrepreneurship after making and loosing a small fortune in private banking. I doubt that Professor Schumpeter held a romantic view of entrepreneurship, having struggled to avoid lawsuits and repay lost loans and investments himself. Nor should we allow ourselves to romanticize the topic, especially in its latest incarnation, social entrepreneurship.

Most entrepreneurs toil mightily for modest reward, in small to mid-sized entities that may never grow large enough to sustain themselves beyond the working lifespan of their founder. Is this a bad thing? Well, it does remind us that society idealizes entrepreneurs but fails to really support them. What it also reminds us is that the rewards actually achieved by the majority of entrepreneurs are the ones that plausibly motivate all of them: more autonomy, creativity, achievement opportunity and personal growth than in the jobs they left behind. These are the things that induce people to leave canned jobs and try to create their own. These and, sometimes, necessity, although (counter-intuitively) new business formation goes down with a down economic cycle, not up, so it’s not necessity, but means, that induces most would-be entrepreneurs to take the plunge.

The romance gets laid on thick as frosting when it comes to socially-minded entrepreneurs. These do-gooders, with the ready support of friendly grant-makers and donors, easily create new organizations to address all our urgent problems, from world hunger and disease to global warming. The rest of us need but to blunder along as usual, digging ourselves ever deeper into contaminated soil, but no matter: Social entrepreneurs, our modern knights in ethical armor, are thundering our way, just in time to bail us out again. Or so one might think by the coverage of the topic. A high-profile Social Enterprise Conference is taking place next month in Cambridge (MA), the promotional cross-fertilization of Harvard Business School and Harvard’s Kennedy School of Government. Forbes lauds thirty under-thirty-year-old social entrepreneurs. And the Schwab Foundation lauds  the top twenty social entrepreneurs of the year in its annual competition. (Founded in 1998, this foundation took center stage in its branding: It’s full name is the Schwab Foundation for Social Entrepreneurship. Other foundations may wonder what they’ve been funding for all those decades past; is a worthy proposal from a non-profit not social entrepreneurship unless you’re new and hip and good at branding?)

A syndicated PBS story (originating with Oregon Public Broadcasting) captured the flavor best, I think, with its title: The New Heroes. Who are they? The official definition according to PBS is really quite the a jaw-dropper for its scope and ambition: “A social entrepreneur identifies and solves social problems on a large scale. Just as business entrepreneurs create and transform whole industries, social entrepreneurs act as the change agents for society, seizing opportunities others miss in order to improve systems, invent and disseminate new approaches and advance sustainable solutions that create social value.” (Quote is © Copyright 2005, Oregon Public Broadcasting. Underscores added.) How would you like to be someone who, on a large scale (read fame, fortune and Forbes), acts as the change agent for society! Wow. Print me up some business cards with that as my title and a map of the continent, no, make that the entire globe, for my logo! It’s a tough job, being a social superhero, but someone’s got to do it.

The thing is, lots of people are already doing it. Have been all along. I’m mystified as to why this myth of the super-change-agent-do-good-entrepreneurial-whiz-kid has recently flooded the zeitgeist. Just the latest rescuer myth, I suppose, but one that deftly weaves threads from Internet entrepreneurship, global warming, economic crises, and crippled central governments to give us, ta da, the brilliant young outsiders, oh, say, a few dozen of them should do, who, locked out of conventional federal, state and local funding, with limited access to traditional grants and philanthropy, but with a state of the art laptop or tablet under their arm and a gleam in their eye, solve the intractable social and environmental problems left over from their parents’ generation. Look at them go! It’s like a Marvel action movie, but better. They really exist. Or do they? I’m not so sure.

People have been working hard on social problems for a long time, in state-funded entities, in nonprofits, in NGOs, through their churches and local community groups, and through their giving. Millions of people. It’s an entire, major, sector of our economy. (The Center for Civil Society Studies at Johns Hopkins University estimates more than 10 million people are employed by nonprofits in the U.S., for example.) Many of these people work on a very small scale, quite locally or with a narrow focus on one issue, because that is often the most realistic option. Others may, on occasion, find their work growing to larger scale, but the thing is, even those who head large social enterprises are not, generally speaking, social superheroes. Many are just hard-working people who care enough about their work that they’d rather be a relatively low paid nonprofit exec (for example) than take a less meaningful but more lucrative job in the private sector. I’m all for meaningful work, and I love the opportunities I get to consult with nonprofit boards or help raise grants for charitable organizations. It’s much more rewarding, and much less lucrative, than the consulting and writing I’ve done with for-profit firms. But in a couple decades plus of working with nonprofits, I’ve yet to bump into any superheroes. I’m not so sure they even exist.

Innovation is certainly important to society as a whole, and just as important in social-benefit endeavors as anywhere else. And like all entrepreneurship, it is hard—Schumpeter’s banking failures proved that point early on. But social entrepreneurship is not a new thing, nor is it confined to a handful of media darlings who’ve done something flashy enough to win a moment in the limelight. We need to recognize the entire sector and all those who work in it. And we need to encourage their innovative spirit broadly, not only by holding events to laud the wunderkinds of social innovation, but more importantly, by offering our help, funding, and other resources as generously and broadly as possible. The for-good sector is perennially underfunded compared to the for-profit sector. As long as we remain dazzled by the social-entrepreneurship myth, we will continue to underfund and under-appreciate the bulk of those who work for social good, while idolizing the media-ready few.

Alex Hiam

Author, Business Innovation For Dummies

Amherst, Mass., January 2015