Performance Measurement in Philanthropic Foundations

The Ambiguity of Success and Failure

Helmut Anheier, Diana Leat

• Publisher: Routledge
• Year: 2018
• eBook ISBN: 9781351665896
• Topic: Business
• Subtopic: Business General
• Index: Business

The growth of philanthropic foundations in numbers and significance raises two immediate questions. First, what makes for success and failure of foundations' projects and activities? Second, what yardsticks or benchmarks are used to measure performance and track goal attainment? The purpose of this book is to delve deeper into the complex set of issues that lie behind the performance and wider impact of philanthropy.

Performance Measurement in Philanthropic Foundations looks at the strengths and weaknesses of philanthropic foundations, which are independent of both the market and ballot box and yet open to signal and incentive deficiencies. The authors use in-depth case studies from different countries to illustrate the problems and challenge much of the conventional wisdom on foundation "success" and "failure." The book also outlines the main contours of a proactive governance and management style to address those problems.

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The Performance Enigma of Philanthropic Foundations

Introduction

This book is about the performance of one particular kind of institution, the philanthropic foundation – understood as an independent, private endowment dedicated to serving a public purpose by making grants to recipient organizations and individuals.¹ We try to advance a central argument, which we lay out in more detail here and illustrate with a range of case studies: philanthropic foundations are among the freest institutions of modern, democratic society. They are beholden neither to market expectations nor to the ballot box. This dual independence, combined with the governance structure of foundations, is a source of relative strength. At the same time, however, the unparalleled self-sufficiency and autonomy of foundations expose them to chronic signal and incentive deficiencies. We label these deficiencies the benign fallibility syndrome, based on Seibel’s seminal diagnosis of a similar phenomenon among nonprofit organizations generally.²

Why is it important to explore the benign fallibility syndrome of philanthropic foundations? After all, as some would suggest, foundations committed to charity and the public good can do no wrong. Are they not voluntarily making private funds available to charitable purposes of many kinds? So why worry about their performance? Such views are increasingly at odds with reality and for three reasons. First, in most advanced countries, foundations enjoy significant tax privileges, so that the wealth they command includes, to some considerable degree, public monies as tax forgone (Simon et al. 2006). Second, foundations have substantially increased in numbers and wealth since the 1990s and constitute a growing field of considerable potential, both nationally and internationally. Third, foundations are not about charity only. They are much more: many address complex social, cultural, and economic problems (see Hammack and Anheier 2013) and seek creative solutions to seemingly intractable challenges. Yet compared to business, government, and nonprofit organizations, they constitute a set of institutions about which we know relatively little, in particular in terms of their performance and contributions.

What is more, we see the benign fallibility syndrome not as the exclusive enclave of philanthropic foundations – although, given their governance structure, they represent the clearest case of organizations exposed to weak signals and weak incentives. There are other types of organizations that share at least some of the characteristics that we associate with this syndrome, including nonprofit organizations, quasi-governmental organizations and specialized public agencies, employee-owned corporations, and cooperatives. While these are not explicitly covered in what follows, we nonetheless hold that the lessons we can draw from examining foundations bear at least some relevance to other organizational forms as well.

On performance

Therefore, in this book, we seek to add to our understanding of foundation performance and the wider contributions they make to society. In this context, we regard the benign fallibility syndrome as a key to understanding what could be called the performance enigma of philanthropic foundations: many foundation projects achieve ambiguous results even though they may have been well-intentioned, carefully planned and executed, and assessed against agreed-upon performance standards. By ambiguous results, we mean projects or programs with neither clear success nor failure records. Instead, they end up somewhere in between, being both while not sure which is which – a gray area of “yes, but” and “no, however.” While these projects have clear beginnings in terms of goals, plans, and resources, they often are without precise endings, attribution, and sustainability.

Such inconclusive outcomes seem puzzling, given the significant financial resources many foundations have available, the often-careful development and implementation of project activities, and the long-term investments in financial and human capital made. Put differently, the cases we examined do not reveal serious miscalculations, mismanagement, or negligence, let alone malfeasance of any kind. To the contrary, and for reasons we try to fathom in this book, foundations were well-intentioned and doing the right things – yet their projects somehow tend to yield results that are rarely clear successes or failures but somewhere in between with frequently ambiguous and sometimes indeterminate outcomes.

Examples reviewed in this book (see Appendix) include the Robert Wood Johnson Foundation (RWJF) in the US, seeking to reduce tobacco use by children and young people only to remain uncertain whether millions of grant dollars spent actually made a difference; the King Baudouin Foundation (KBF) in Brussels, wanting to improve understanding of Islam in the country and to enhance the integration of Muslim communities into Belgian society, only to be left puzzling over what they had actually achieved; or the Joseph Rowntree Charitable Trust (JRCT) in England, wanting to inf luence the British government to introduce the Freedom of Information Act, frequently feeling unsure about what turned out to be a protracted process with no clear ending.

These, and the other cases we examine, have in common that they seek to address a complex problem or set of issues in furtherance of their deed or mission. RWJF is charged with helping to “raise the health of everyone in the US to the level that a great nation deserves, by placing well-being at the center of every aspect of life” (rwjf.org). KBF’s mission is to contribute to a “better society” and to be an “actor for change and innovation, serving the public interest and increasing social cohesion in Belgium and Europe …” (kbf-frb.be). Finally, for JRCT, the mission is to “engage in philanthropy which challenges the existing power imbalances in society to effect real change” (jrct.org.uk). Thus, all three foundations have hugely ambitious missions, pursuing goals at the very heart of social policy and involving enormously complex tangles of inter-related problems. And all three foundations ended up achieving ambiguous results or outcomes.

Arriving at ambiguous outcomes involves a significant degree of what economists call “satisficing,” a behavior that searches for acceptable results when what is optimal is not only difficult to achieve but also hard to define. In his Nobel laureate speech, Herbert Simon (1979) put the dilemma clearly: decision-makers can seek to satisfice in two ways: either by finding optimum solutions for a simplified world view based on assumptions that may not be proven or by finding satisfactory solutions for a more realistic world view in which expectations as to outcomes have been adjusted. Could it be that the performance enigma of foundations is a product of a pronounced tendency to engage in both ways of satisficing under conditions of uncertainty when results are not only hard to achieve but hard to define and measure in the first place?

Similarly, sociologists suggest that decision-makers and managers, becoming aware of the discrepancy between set and achieved goals, show a typical response pattern: goal displacement. Sometimes openly but often in subtle ways, they substitute goals that seem difficult with ones assumed easier to achieve. To maintain legitimacy, they use explanations they believe acceptable to main stakeholders and thus rationalize suboptimal outcomes. Over time, such legitimatizing accounts become an ongoing framing process of routinized myth-building justifying suboptimal outcomes and the organizational behaviors involved (Meyer and Rowan 1977). Powell and DiMaggio (1991) propose that such processes can affect entire groups of organizations to create, through collective acts of goal adjustments, an acceptable framework for suboptimal performance. Could it be that, in the face of uncertainty, the performance enigma of foundations is the result of their proneness to mythmaking and legitimacy framing?

In psychology, ambiguity refers to the perceptions of objects, such as abstract paintings, that allow for two or more different interpretations; likewise, a sentence or a word can project inconclusiveness as to its meaning, or behaviors and indeed organizational performance can be comprehended in different ways and lead to different conclusions (McLain et al. 2015). Ambiguity thus allows for different interpretations and leaves a certain vagueness of information. Put differently, what some stakeholders might see as a successful outcome of a foundation project, others view more as a failure, even though we are dealing with the same set of activities, albeit judged differently. Such differences are more likely when the problem or issue addressed is complex, as is the case with all three foundations mentioned earlier. Could it be that the performance enigma of foundations is essentially a product of ambiguous interpretations of complexity?

Interpretations that wield power and enjoy legitimacy are more likely to prevail in situations of ambiguity (Meyer and Rowan 1977). Not surprisingly, the term is also used in diplomacy as a tacit play of power and legitimacy in seeking consensus: constructive ambiguity. The term refers to the deliberate use of imprecise language in the drafting of agreements or statements on sensitive issues in the hope of securing approval among conflicting parties or at least avoiding negative repercussions through the very phrasing of the document. Berridge and James (2003) use the UN Security Council’s Resolution 242 of November 1967 on the Six-Day Arab – Israeli War as an example: the resolution required the “[w]ithdrawal of Israeli armed forces from territories occupied in the recent conflict.” It did not demand withdrawal from the territories occupied in the recent conflict and “thereby left unclear the question of whether Israel was obliged to engage in a complete or only partial withdrawal” (2003:51).

Could it be that foundations, too, engage in constructive ambiguity in trying to convince stakeholders about their intended goals and realized achievements? We see constructive ambiguity closely related to the benign fallibility syndrome and as part of creating and enacting a legitimating framework around inconclusive outcomes. Good examples can be gleaned from president’s messages of annual reports or prominent places on website portals. The following comes from the Robert Wood Johnson Foundation:

In our practice of philanthropy, this is where the “Kilimanjaro Effect” comes into play. Step by step we progress onward. We may have to “discover the new terrain” and new ways to traverse it. It may take us a generation, or two or three, but we have the will and the means to hang in there until momentum occurs, progress is secured, and evidence confirms that the change we seek is producing positive results. If it is not – well, we have learned the hard way to know our limits, when to step, when to pause, when to stop, suspending the climb for a better route on a better day. Ours is a spirit of resilience and resolve our founder and namesake built into our philanthropic DNA from the very start.

(Lavizzo-Mourey 2012)

Another indication is the frequent use of verbs such as enhance, enrich, augment, develop, advance, and amplify in foundation project descriptions and internal reports,³ all of which leave much room for interpretation. In a wider context, foundation executives like the president of the Silicon Valley Community Foundation, Emmett Carson, explains, “The reality is, very few evaluations, under the best of circumstances, are unambiguous … There’s always some failure and there’s always some success” (Plummer and Forti 2013).

Toepler offers a good example of how the constructive ambiguity of foundations’ performance could be invited by the organizational field they operate in, in this case arts and culture in the US:

[F]oundations are finding themselves in an ever-expanding free philanthropic market…. However, the market is not (yet) sending clear signals, and information about where resources are best deployed to maximize impacts is diffuse and hard to come by.

(2010: 303)

DiMaggio (1986) also points to the information problem facing foundations in this field and sees the cost of obtaining and evaluating information as a substantial constraint. In response, foundations may have an incentive to engage in constructive ambiguity as a cost avoidance strategy.

The benign fallibility syndrome of foundations, which makes them prone to satisficing,⁴ myth-creation, and constructive ambiguity is rooted in their basic governance structure. By this, we mean the relationships among, and role responsibilities of, boards, management, staff, and grant recipients. The syndrome, as we will follow up on later, is ultimately about the principal-agent structure⁵ of foundations. It also speaks to central tenets of organizational theory, especially as relating to the behavior of organizations under conditions of high complexity, volatility, and varying degrees of politicization.

By performance, we mean less its quantitative measurement through indicators and benchmarking – a practice that has become standard for corporations and public agencies – but something more fundamental: how can we judge the success or failure of projects that operate in highly complex, fast-changing, and often contested fields; that address problems that are ill understood, riddled with externalities, and involve implications of many kinds that may not be anticipated; where declaring success or failure depends as much on normative preferences as on facts, inviting further contestation; and where, over time, assessments of performance factors and outcomes vary ex post as well as ex ante (“moving goal post”)? Tackling social problems to improve society is at the root of all three foundations’ missions. Their deeds invite – even require – them to engage with, and operate in, precisely such complex problem and task environments.

In this respect, the foundation faces two challenges in judging its performance: first, to assess how its program or project is performing relative to set objectives, and second, to ascertain whether measured improvements can in fact be attributed to the foundation’s interventions. For example, both health behavior and substance abuse are complex physical, psychological, social, economic, and cultural phenomena, involving multiple laws and regulations, numerous stakeholders, and thousands of agencies, corporations, and nonprofits as well as diverse population groups. How would the trustees and program managers of RWJF know that their activities in particular have indeed had a measurable effect on teen tobacco use? By what calculus would they know that their expenditures in terms of grants and operations had paid off, and based on what measures, especially because teen smoking rates were declining already and continued to do so throughout the program? What part of the success achieved...

Table of contents

• Cover
• Title
• Copyright
• CONTENTS
• List of figures
• List of tables
• List of boxes
• Acknowledgments
• 1 The performance enigma of philanthropic foundations
• 2 Taking a closer look: fallibility and ambiguity in philanthropy
• 3 Case studies of benign fallibility, with Olivia Knodt and Charlotte Koyro
• 4 Implications: living with benign fallibility
• Appendices
• Index