“Foundation Effectiveness: Reputation Matters as Much as Money,” An Address by Jonathan Fanton to the Foundation Impact Research Seminar at the Terry Sanford Institute of Public Policy
January 24, 2007 | Speech

As you have just heard, Joel and I have been friends for a long time – over forty years, in fact, since we first worked together at Yale.  My very first introduction to major foundations came through Joel, editing his proposals to Ford, meeting people like Maggie Mahoney of Carnegie and Arthur Singer of Sloan.  I remember he and I joined Kingman Brewster in calling on Rockefeller in search of funds for programs to open opportunity for people of color in higher education.  Through the years Joel has been a loyal friend, a patient mentor, a constructive critic, and a courageous source of optimism that committed and competent people can make a difference.

So I take special pleasure in reading Joel’s book, which brings together a lifetime of learning in a clear and compelling story about the role of philanthropy – a seamless blend of theory and practical wisdom.

And I am very glad to participate in this seminar because it is an opportunity to have a good conversation about craft and substance at one of the leading centers of inquiry into the art and science of philanthropy and its meaning for democratic societies.

I want to confess up front that I do not speak or write about craft very often, so I take comfort in the seminar format and look forward to the give and take after some opening thoughts.

MacArthur is best known for its Fellows Program, known to many as genius grants and for supporting public television and radio.  But we do a lot more – too many things the critics say.

We work in sixty countries around the world, with offices in Russia, India, Mexico, Nigeria and soon China.  Our international program includes conservation, population and reproductive health, peace and security, principally reducing weapons of mass destruction, and human rights and international justice.  An emerging initiative looks at migration and mobility. 

In the United States we focus on community and economic development, affordable rental housing preservation, juvenile justice reform, and education.  We have added a new dimension to our education grant-making: digital media.  We want to know how digital media influences ways in which young people learn – in and outside of school. 

We also have a general program which considers ideas that do not fit anywhere else.  It is the R&D Center for the Foundation, sometimes incubating initiatives that later emerge into full-blown programs.

For example, we are interested in the question of how people are getting their news, how they deal with information overload, and assess the credibility of information they get over the Internet.

Our endowment has been growing, so our grantmaking will increase to $225 million this year and $250 million next.  We also have a portfolio of nearly $200 million in program related investments.

Knowing something of the range of issues covered in this seminar, it is a challenge to come up with a fresh topic.  I thought about some obvious areas, like foundations and public policy, how foundations judge the value added of their work, how foundations decide to enter, exit, or change fields of work, and more.  All would be fair game for the conversation that follows.

I want to share with you a process of reflection underway within the MacArthur Board and talk about an aspect of foundations our new trustees are learning about.  Reputation.   Why is reputation important to foundations?  What are the elements of reputation?  How can a good reputation add value to our work?

MacArthur has essentially a new Board.  We have added a group of broad, enage people who understand private foundations exist to serve the public interest.

But smart, good people do not start out with a nuanced understanding of philanthropy. Nor does a Board culture take shape instantly.

So we are spending intensive time on what foundations are, where their comparative advantage lies, how they decide where to work, what to do, and how they know they are having an impact.

In the wake of Gates-Buffett, trustees naturally ask: How can MacArthur be in so many fields and places, with so little money, and still hope to be effective?  They have read papers on venture philanthropy and know a lot of attention is being paid to measuring impact.

The MacArthur Board has embarked on a year-long seminar on philanthropy, which Joel kicked off at our June Board meeting. 

I think the trustees are learning that philanthropy is very different from their own professions – easy analogies to the investment and business world or professions like law are elusive.  They are beginning to appreciate the sheer size and variety of the foundation world and understand that pluralism is a strong virtue in American philanthropy.  They feel the joys and burdens of responsibility that derive from light accountability and freedom of action, especially in our case, where no donor intent is evident.  And they are coming to understand that as important as metrics and measurements are, they have the duty to reach a collective judgment on how best to deploy the foundation’s assets.

And that leads to a major insight – new to most of the trustees.  A new trustee often focuses on the money – how we grow the endowment, where do we spend it, and how do we know we have had impact.  No question these are the main issues.

But foundations have two baskets of assets: money and reputation.  And the second can be as valuable as the first and must be protected and deployed strategically.

What are some elements of reputational assets?  Let me mention a few.

1) Integrity is important.  A foundation must operate in the public interest and earn the public trust.  That means honest accounting, appropriate compensation practices for Board and staff, a clear and respected conflict of interest policy, fair and transparent procedures for choosing areas of work, making individual grant decisions, and evaluating the foundation’s performance.

 Joel makes a strong case in his book for increased transparency and I think that is essential to a foundation’s reputation.  More on this later.

2) Objectivity.  While thoughtful people disagree, I think the large public trust foundations like MacArthur should place a premium on evidence-based action, not ideology.  We do not like to be defined on a right or left political spectrum, even when politely labeled as progressive.  Words like objective, fair, evidence-based are what we believe most accurately characterize MacArthur.  When a research finding comes from a MacArthur-supported project, we hope the association with MacArthur adds to its credibility.

3) Good judgment in selecting people and institutions to support is a key element in building reputational assets.  And that means due diligence on the front end when a selection is made and thoughtful tracking of outcomes against promised deliverables.

 We did a study of the impact of our MacArthur Fellows program on the Fellows and were pleased with the conclusions.  An outside observer interviewed a cross section of 40 Fellows and concluded that: “Many reported that the Fellowship’s financial support was pivotal to their subsequent efforts. Others particularly noted the leverage provided by the visibility; the money and recognition often worked in concert to provide a powerful platform for creative work.” 

Elouise Cobell chartered Blackfeet National Bank in Montana and is working to recover billions the Bureau of Indian Affairs owes to Native Americans. She said that MacArthur’s reputation helped clear obstacles to her work: “The government was coming down really hard on me; [it was] saying that I wasn’t a smart person.  I don’t have a college degree, so when I won the MacArthur Grant, it was like someone sprinkled holy water all over me – all of a sudden [the government] backed off of me.”   In 2001, four years after she won the Grant, a court of Appeals opinion called the Interior Department incapable of managing the Indian Trust Fund, a significant milestone in her efforts to win back money from the government. 

 Our experience with individual awards encouraged us to start a new recognition program for small but promising institutions.  We call it the MacArthur Award for Creative and Effective Institutions.  The unrestricted grants of up to $500,000 are certainly helpful in buying buildings, starting endowments, expanding programs – but the recognition that comes with the MacArthur association may be even more valuable.  For example, SEARCH (Society for Education, Action and Research in Community Health), which delivers health programs to poor women and their families in India is getting government support to scale up its work.  And the CLEEN Foundation (Center for Law Enforcement Education in Nigeria), which aims to reduce police abuse in Nigeria relies on its good reputation to build partnerships with government officials.

4) The final element I want to talk about here is impact.  Our reputation depends on being able to demonstrate that our support – financial and other – makes a difference.  So we set very specific, measurable goals for each field – reduced maternal mortality in Mexico, economic development in Chicago neighborhoods, acres of land conserved in Bhutan, numbers of affordable housing units preserved across America– and we monitor them.  And we often document an initiative so we know why it works or how it fails.

And that brings me back to transparency.  The level of public trust in MacArthur will be higher if we disclose how we are doing with both successes and failures.  No one believes any person or institution always succeeds.

Disclosure can be painful, as it was for us most recently when The Learning Partnership, a demonstration project for urban school reform, failed and was discontinued.

We, like other foundations, have a ways to go in making information about our operations, our program results, and the knowledge derived from research we support readily available.  The MacArthur Board is working on what we call a knowledge policy – first getting on record our commitment to transparency and proactive dissemination of substantive knowledge and then following through.

The policy will commit the Foundation to be transparent about its own organization, how it makes decisions about fields of interests, strategies and individual grants, goals it sets for each program and how it is doing.  We see this as an affirmative obligation to get information out without waiting to be asked. 

In April we will add a Lessons Learned element to our website which will share evaluations of our work, starting with the failed Learning Partnership.

A lot of the information shared will be about the substance of what we and our grantees learn as we seek to use modern technology to build communities of practice. 

Let me close with two examples of where MacArthur’s reputational assets have added value beyond money.  MacArthur has the reputation for making long-term commitments to a field independent of the President of the moment or current trustee enthusiasms.  Our staff is stable; our program officers have substantive expertise in their fields.  And, I hope, we are seen as advancing the long-term public good, sometimes working with government and at the same time funding organizations that are critical of it.

Those qualities can lead to a role beyond giving money.  We are careful in our choices about where to step in and play an active role.  We understand the risks and thus we do so only on rare occasions when we are clear that we can add value to a program goal. 

If a Foundation has a reputation as an honest broker, fair, open-minded, willing to listen and learn, prepared to question its own working hypotheses, it can bring people with opposing views together to talk about contentious issues.  This is what we call the convening power, the capacity to create a safe haven for real conversation.  Here are two examples.

MacArthur has had a deep interest in the creation of the new International Criminal Court.  We have been involved since 1996, two years before the Rome Conference of 1998, which produced the treaty creating the court.  We gave major support to the coalition of over 2,000 non-governmental organizations working around the world to speed ratification by the requisite 60 countries –104 have ratified to date.  At the same time, we helped organizations like Human Rights Watch and Global Rights to gather evidence leading to the first cases in Uganda, Eastern Congo and Darfur.

The ICC is the most important new international institution since the creation of the U.N. and it must succeed.  But how it handles its first cases will be critical and, as we have learned, complicated. 

Just last year, the ICC’s first-ever arrest warrants were issued in northern Uganda.  The long-running civil war waged by the Lord’s Resistance Army has claimed tens of thousands of lives and displaced a million and a half civilians in 18 years of conflict.  In 2005, and again right now, an on-again, off-again peace process has raised hopes for a resolution.  The Court’s natural allies in civil society questioned whether the indictments should go forward.  They feared that ICC-action might undermine the intermittent peace talks.

Because of MacArthur’s work with the Court, and our worldwide ties to NGOs, the Chief Prosecutor, Luis Moreno Ocampo, asked me to convene a meeting with leading humanitarian organizations working in Northern Uganda.

The conversation helped the NGOs understand that the Prosecutor was only targeting the leaders.  Moreno Ocampo made it clear that the ICC would support national and traditional courts for the balance of the justice and reconciliation process.  I think it also helped the Prosecutor appreciate the complexities of pursuing justice and peace simultaneously, and made him more sensitive to the need to communicate clearly with local parties about the ICC and its actions.

Following on that meeting, the Prosecutor asked me to convene a similar gathering of NGOs offering humanitarian aid in Darfur.  The issue was how to make it clear that their staffs were not eyes and ears for the ICC – a perception that would increase the risk to aid workers in conflict zones.   It was a vigorous discussion, which helped the Prosecutor find careful language to make it clear that humanitarian organizations were not agents of the Court.

The second example is local to Chicago.  In 2000, Mayor Daley embarked on an ambitious plan to tear down Chicago’s high-rise public housing ghettos and replace them with new mixed income communities.  A good plan, but what about the 25,000 families and seniors who would be required to move?  What would happen to them, what were their rights?  With the background of decades of suspicion between tenant advocates and the Housing Authority, there was a moment when it looked as if another round of legal challenges would delay – perhaps derail – the housing transformation plans.

MacArthur staff convened a roundtable with the leaders of the Housing Authority, tenant advocates, tenant leaders, and local, community-based organizations essential to the relocation process.  The roundtable hammered out a relocation rights contract that guaranteed each family – living in public housing in October 1999 – the right to return to new – or rehabbed – apartments. 

The contract has held.  In all, 22,000 households have moved so far.  4,000 of them are currently on Section 8 and many will stay.  12,500 others have moved back (or soon will) to the new mixed-income communities and (mostly elderly) to renovated CHA units.  Others are on waiting lists for units yet to be completed, but their prospects are good if they meet the requirements of holding steady employment or going to vocational school.

It is, I think, heartening to see how much in demand foundations are to join commissions, convene meetings, endorse projects.  You can say it is all about money – softening us up, flattering us and all the rest.  And there is surely an ample amount of all that, but the deeper meaning is that the public really does trust foundations to pursue the public interest.

And that trust depends on the strength of our reputational assets.

And so one important lesson new trustees have learned is that the MacArthur Foundation is about more than giving away money.  It is a hub for a global network of experts, policy analysis, leaders of the public, private and NGO sectors committed to work for a more just and humane world at peace.  It has a role to play as trusted source of information and ideas for confronting persistent problems and seizing hopeful opportunities.  And its good offices can put like-minded people in touch to make common cause and convene those who disagree to seek common ground.  A solid reputation is an essential asset to be guarded and nourished with the same vigor as the endowment.

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