Douglas McWhirter
09/01/2004
Eli Broad approaches philanthropy with the same capitalistic zeal that enabled this son of Lithuanian immigrants and graduate of Detroit’s public school system to build two Fortune 500 companies and “retire” a multibillionaire. With his foundation’s $1.2 billion in total unrestricted assets, Broad and a full-time staff of 45 philanthropic professionals do not simply make grants—they “invest” in such areas as public education, science and civic initiatives, much the same way that a venture capitalist would invest in promising business start-ups. Not content with traditional no-strings giving, Broad wants a measurable return on his philanthropic investment, and places as much importance on the strength of a potential grantee’s management team and business plan as he does on the worthiness of its cause. This no-nonsense approach to giving has enabled The Broad Foundations to work successfully with the nonprofit sector—even with government agencies. Broad offers a leading example of “venture philanthropy” for those of us who want our charitable dollars to make a difference.
Philanthropies and foundations can benefit by adopting certain business
principles adhered to by venture capitalists, such as risk management, fiduciary
accountability and decision-making based on a project’s potential return on
investment.I believe that foundations and philanthropies in general should not think they are just giving away money: They are investing money for the public good. They are not simply writing a check and forgetting about it. It involves getting a proposal and a business plan, believing in the people you are investing in—that they are truly going to make a difference, that they are truly change agents—and looking for a return.
Philanthropic success can be measured in dollars and cents.
It is not like a business where you are going to have a financial P&L, but you can measure it. For example, with the Broad Center for School System Management, we measure success by counting the number of program graduates who now have jobs in urban school districts and determining if those school districts improved. We ask ourselves: Are we improving student achievement? Are we closing the gap between income and ethnic groups? In other areas we give scholarships, and we track how those students who received them have done. We review and measure, and if we invest money in a program and we do not see a return, that is the end of our investment in that program.
Noble goals are not enough. To succeed, charities and nonprofits need strong business plans.
You could fill a building with conference reports and studies, but what you really need are business plans and leadership that is tough and determined to get the job done. Just like in business, you have to find leaders you believe in, who are change agents. You work with them to create a plan, you measure results, and then hold them accountable by pouring financial and human resources where you are getting results and withdrawing them where you are not.
In the absence of competition and market pressures, nonprofits, governmental social services agencies and philanthropies will never operate as efficiently as the for-profit sector.
That may be so, but if you have a foundation like ours or like the Gates Foundation, we have good trustees who hold management accountable. They want to see results for their money rather than just listing that they give so much here and so much there. So, you do not have an income statement every year, you do not have graphs to show sales, profitability and margins, but there are other measurements.
Business principles are not consistent with the philanthropic sector’s core values.
In both business and philanthropy, we do not do things to maintain the status quo—we do them to make a difference. We invest in things that need improvement, or that do not exist before we invest in them. This is like creating needed products that no one has imagined before.
The ultimate objective of philanthropy is to enable grantees to sustain themselves as they work to achieve their goals.
There are all sorts of grantees out there. Certainly in education, we want grantees to be able to use the funds they have—public or otherwise—more efficiently. They have to sustain themselves and become more efficient because there is no way that philanthropists are just going to throw money at public organizations. Some grantees just need help getting started. We have invested money in young scientists around the world who are decoding the human genome, but who are not ready for grants from the National Institutes of Health (NIH). When they make progress, they will get grants, and we have done our job by getting them the seed capital they needed to start their work. They are the farm team, and we want them to get to the big leagues, which is NIH money and other federal money. We provide the venture capital to start.
Foundations and other private grant-making organizations can partner
successfully with government to bring about social change.
You can partner successfully with government to do things it does not have
the funds for or, more importantly, it does not have the entrepreneurial energy
to make happen. If government is doing things well, we ask, “What contribution
can we make?” On the other hand, if we think there are things it is not doing,
or if there are things it can do to become more efficient, we want to be a
partner in helping it get there. For example, one of the many things sorely
lacking today in education is usable information. Everyone has opinions in
education, and there is massive data on numerous topics, but parents and policy
makers do not know how to use it, or even access it. To help solve this problem,
we created a partnership with the U.S. Department of Education to create a
website to make this information available to all.
In partnering with
government agencies, the first thing we want to know is why they cannot get
public money. Our job is not to be a substitute for public money. Rather it is
to be there before public money can get into the equation, or to fill voids
where public money is just not available.
Donors must strike a balance with grantees between oversight and
partnership.
It varies. If it is something you believe in and it has a good plan, you
invest the money and oversight is enough. I would actually prefer to find the
change agent, make the investment, have oversight and measure results—that is
easy. Partnerships are more demanding of our time and energy. I would rather do
things where we did not have to stay involved, but if no one else is going to do
it, we will step up to the plate.
Philanthropy, like business, always involves risk.
Absolutely. We are risk takers. We are not sitting there like people in
government or grant officers at the grand old foundations who are worried about
making a mistake. Some of the grants you give, you are going to be very unhappy
with: People are going to dip their hand into the till or they are not going to
succeed. Do not make a cause célèbre about it. One of the reasons government
cannot seem to address many of the challenges our country faces today is because
some people working in government do not want to read about problems in the
paper, so they will not take risks. I do not worry about that because I do not
have to worry about getting fired.
In applying business principles and goals to philanthropy and to the
nonprofit sector, The Broad Foundations have succeeded where others have
failed.
There is no magic formula for success. You just set the goals, develop a
measurement system and hold people accountable. Consider it a portfolio of
venture capital. Let us say you invest in 20 companies. I will guarantee you
that any venture capitalist who says all 20 will succeed is lying to you. Some
will succeed and some will not. You keep monitoring them. You give more
resources to those that are making progress, and write off those that are not
getting anywhere. You have to do the same thing in philanthropy.
Also, you
have to actively seek out causes to support. You can sit around and wait for
requests to come in and decide once a year which to give money to. We do not do
that. Our people are out on the road visiting school districts, seeing where
change is taking place; they are trying to find leaders and change agents who
can make a difference.
“Social entrepreneurship” is a full-time career.
Well, for me it is. It is very demanding and the schedules are crazy.
Sometimes I think I am doing more than I should be doing. These are longer days
than I ever had as a CEO of a Fortune 500 company. You have to go out looking
for ideas to support and organizations and causes to back. Everyone will want
your money, but you should not just sit around waiting for people to come to
you. We fund 10 percent of the requests we get, but more often than not, we do
not have a request [for the causes] we support—we find them. We go out there
looking for something to do, and it is hard work. It is not something that a lot
of others are going to want to do, especially in retirement. Many people have
made a lot of money and say, “I want to do right, but I want to go to Hawaii and
sit on my yacht.” They do not want to spend the time or energy. Philanthropy is
an activity that, to do right, consumes a lot of both time and energy.
Photograph by Gary Moss.