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Family Philanthropy – How to Respond in the Economic Downturn

Imagine yourself a trustee of a charitable foundation. It is your job to collaborate with 11 other trustees to decide how to distribute charitable funds to organizations that have requested your support. In a typical year you would have $1 million to distribute but the requests this year amount to $2.5 million. All the organizations have proven themselves to be effective in contributing to the social and financial well being of some of the poorest citizens.  Your job is to choose how to distribute those dollars.

Your decisions will be informed by written analysis provided by competent program officers who have conducted all the “due diligence” on the organizations making sure the administration is solid, that the board is contributing to the operational expenses and that the financials are in order.

The meeting begins and you are informed that due to the economic collapse, the money you have to give out is reduced from $1 million this quarter, to a mere $350,000. You know that some of these organizations and the great programs they deliver will receive much less funding from you than in prior years. Other organizations will not likely survive because your past grants gave a credibility to them that enabled them to leverage funds from other foundations and some governments.

Included on the list are: The Second Harvest Food Bank (read their intro page)

Also, there  are several requests to support alternatives to failing public schools like those described in my favorite HBO series The Wire.

Given the crisis in education in public schools and knowing that each year thousands of  young people are lost, do you consider the request from  schools like those of the  Cristo-Rey network that are transforming the lives of children and families in inner city neighborhoods.   These schools like other faith-based receive no State support and will not survive without private individuals and  foundation support.  The total requested from four of these schools is $125,000.

In the Health and Social Services areas, there is  a request from  Providence House that provides a shelter for homeless women and their infants. They need a new roof on the building which costs $150,000.

Then there is the Youth Arts Program for schools.  Without the support of the foundation they will have to cut their artist in residency programs in schools.  Children in seven targeted  public schools will NOT get any exposure to art curriculum unless they get at least $50,000.

There is the Free Clinic, serving the needs of the ever-expanding number of medically uninsured and underinsured.   They have asked for $50,000 to assist with a pharmacy respository that will provide desparately needed medicines to those in need, especially the alarming number of uninsured patients with clinical mental illness.

Their counterpart, the Federally Funded Community Health Center lost out on a $700,000 federal grant they hoped to secure and must now ask for $250,000 to help them get through a cash flow challenge.

There are many other worthy organizations on the list.

So, how do you make your decisions?

Direct all money to the Second Harvest Food Bank that will provide another six months of food to hungry families? What about that great faith-based schools which over the past ten years accepted children from failing public schools and in one year provides remediation that gets them to grade-level reading and math. Ninety-eight percent of their children go to college whereas their friends who remain in the public schools drop out or fail to graduate and never get to college.

Do you direct all money to the free clincs to help the unisured.  What happens next year when they ask again but at increased levels?

Trustees at the foundation I work with will be faced with very similar situations when we meet. This will not be the first time difficult decisions are to be made, but the current economic climate has made it even more difficult.

Family foundations function under a  set of rules established by the Federal government and the Internal Revenue Service.  The States Attorney General has the duty to make sure the charitable institutions are registered and that they are complying with the federal regulations.  The State Attorney General has the power to revoke the charitable status of an organization.  If you are interested in the federal rules and regulations on foundations and nonprofits Marion Freemont-Smith’s book, Governing Nonprofit Organizations: Federal and State Law and Regulation,is by far the most comprehensive.

Briefly, the  government allows families of wealth to establish foundations as charitable entities .  Instead of going to the government as taxes, this money is invested in with managers and typically include a mixed portfolio that inclues equities (stocks) and fixed income (bonds).  Whereas taxes would collect the dollars and direct them to general funds for immediate needs, foundation dollars are invested with the hope that they would earn between 10 and 17% interest on the principal.  Rather than congressional representatives appropriating laws that will spend tax dollars, family foundations are overseen by  citizens who serve as stewards of these funds.  They are charged with allocating those funds, just as congressional representatives approve laws that allocate funds for many projects, including bridges to nowhere 🙂

The IRS is very specific about how these foundation funds must be directed.  For the most part only agencies that IRS determines to be charitable entieis are eligible recipients of foundation dollars.  There are exceptions for individuals but in all cases, the funds must be used for charitable purposed or to benefit the community at large.

As stewards the trustees must abide by the government rule that requires of minimum of 5% of the interest earnings on the endowment must be “paid-out” for the benefit of the community.  So, a family foundation with $100 million dollars must pay out an  minimum of $5 million year on a rolling average of three years.   Ninety-nine and 44/100% of family foundations I know take their job VERY seriously.  Distributing $5 million responsibly to worthy institutions is a complicated endeavor.  Doing it well requires time, research analysis.  There are a few stories of foolish and/or ignorant foundation trustees that misappropriated funds for their own enrichment.  The press loved those stories which resulted in an expensive and public witch hunt against foundations and people of wealth headed by a federal bureaucrat named Dean Zerby serving as  Sancho Panza to the quixotic and self-aggrandizing  Sen. Chuck Grassley.  Fortunately most legislators have realized the value philanthropy plays in this country and the punitive legislative responses by Sen. Grassley have subsided for the moment.

One useful way to understand how philanthropic decisions can be made by trustees of family foundations or by individuals for that matter is the Philanthropy Toolbox which I believe was developed out the Center on Philanthropy at University of Indiana.   The toolbox is really a spectrum of philanthropy that categorizes types of philanthropic giving.  I used the following slide show to demonstrate the types of giving.

Philanthropy Toolbox

View SlideShare presentation or Upload your own. (tags: civicfabric philanthropy)

The categories serve as headers and we “plot” all grant requests under each of the categories to get a sense of where the family is directing its giving.   This exercise allows the trustees to see where they have concentrated their giving over periods of time.  Of the organizations I described above, think of where you would place them among the categories within the toolbox.  The try to determine which request and category on the spectrum would give one organization priority over another.  Now you have entered the world of a family foundation trustee.

All the requests that come to the trustees for consideration are organizations that are doing great work and having positive impact on the lives of people they serve.   Decisions as to where to allocate funds and why can be personal and vary from one individual to another.  What makes foundations exciting places to work is that each person shares his or or reason for making the decisions they do.  the others listen to their points . Some agree and some don’t.  Debate is likely to ensue.  At the end of the meetings decisions are arrived not by secret ballot but by consensus.  On other occasions, I have described board meetings to be similar to deliberations by congressional delegations either federal or state.  Trustees are usually people of varying backgrounds and even level of wealth.  They range on the political spectrum and have deeply held passions.  Representatives from one generation often have points of view and interests that differ from their parents; so in many ways their portraits reflect the diversity of opinion, character and even race that one sees among citizens serving in elected office.  The image of foundation trustees as a homogeneous club of bow-ties and boiled wool is simply not true.  It is a miniature version of any civic organization gathered to enhance the common good.

The economic crisis is placing pressure on State, Federal and local governments budgets that have not been seen since the early 20th Century.  Scarce resources may place pressure on family foundations in the cross-hairs of government and question whether they and their endowments should continue to exist.  This is a challenging question that was discussed recently at a conference at the National Center for Family Philanthropy.  One of the sessions addressed the role of family philanthropy in a democratic society.  It is worth listening to the panel moderated by my colleague Lance Lindblom, Director of the Nathan Cummings Foundation.

If you were to be part of the decisionmaking on the board, you would be reminded that the Federal government requires a minimum payout of 5%.  You and board could make a decision to pay well beyond the 5% minimum to meet the needs of the community in times of economic distress.  Of course one would need to balance generosity with prudence.  Anyone who creates a foundation must be an optimist by nature.  Doing so assumes that a carefully managed endowment will grow and will remain as an asset to draw upon to help those in need and, at times, support innovative and creative programs that challenge the status quo.  The two brothers Eric and Evan Nord who established the Nord Family Foundation were men of profound optimism and faith in the community.  They were known to say on many occasions, when the times are difficult the foundation has a responsibility to make sure it does not cut back on grantmaking, but be extra careful about directing funds that will have the greatest impact on the community.  Most importantly, the funding should challenge the larger community to give what they can – personal giving – that will help their neighbors.  With that in mind, I anticipate some of our grantmaking in the future will be challenge grants that will require others to give of themselves in either money or time.

Your decision to choose one group over the other is neither right nor wrong. Just the fact you bothered to read this far into the blog reflects your own interest in philanthropy and giving. Your thoughts of giving to benefit the lives of others honors not only those you consider, but yourself.  I leave you with a quote by Thomas Jefferson

The good opinion of mankind, like the lever of Archimedes, with the given fulcrum, moves the world.

Philanthropy and the Games We Play – virtue redux

A few years ago I met with a school superintendent of one of the districts in the county.  We had lunch at a now defunct Friday’s located on the periphery of a dying mall in Elyria, Ohio.  It must have been in the early spring because the school year was coming to an end and the results of the State standardized tests were revealed.   As we talked about potential funding projects within the district  we were interrupted with greetings from a group of about five other men who had just finished their meal and were on their way out.  The men were superintendents from other districts and of course knew the man I was with.  The greetings were hearty and the topic immediately focused on the test scores. ” How’d you do Larry,” said one of the guys.   The guys were comparing the scores.  They were talking the same way they would about a national football, baseball or basketball championship.  The guy with the poorest results  withstood the jousting.  It was all good fun ending with chortles and high-fives.  The guys left the restaurant.  Larry looked at me and said, “John, these tests are just a big game but we have to play it if we want to survive.”  The comment struck me as tragic.  Here was a talented creative man stuck in a system he knew was not serving its purpose and yet – there he was.  More tragic was the thought of  individual children who are the afterthought in this  system that makes fetish of statistics and numbers.

That was my first glimpse into the public school system which, like many of our public institutions,  has a disproportional number of people suffering cynicism and an overall loss of virtue. In college, I  took it upon myself to read all of John Updike’s novels. Fast forward thirty years and in that restaurant in Elyria; over my “calorie conscious” club chicken salad,  it occurred to me I was living an Updike chapter.  Wikipedia tells us that Updike describes his subject as “the American small town, Protestant middle class.”    Joyce Carol Oats says,

JOHN UPDIKE’S GENIUS is best excited by the lyric possibilities of tragic events that, failing to justify themselves as tragedy, turn unaccountably into comedies. Perhaps it is out of a general sense of doom, of American expansion and decay, of American subreligions that spring up so effortlessly everywhere, that Updike works, or perhaps it is something more personal, which his extraordinarily professional art can disguise: the constant transformation of what would be “suffering” into works of art.

Suffering was  my sense in the restaurant that day.  I knew instinctively I was experiencing the first of many Updike-ian experiences in Ohio.  Too many good teachers and their students suffer because we are stuck in a game that is about quantifying learning in ways that are totally incapable of capturing that elusive topic.  Yet in an effort to please authorities and follow the law, people get stuck in a looping game.  No wonder the entire teaching profession is suffers from a malaise. Unlike the novels, I cannot find the comic relief in reality so I turn to film to find it.

We all play games.  In philanthropy, the game with grantees goes something like this.  “Last year we asked for $50,000  but the foundation gave us $35,000.  This year we really need the $50,000 so should we ask for $65,000?  It has been my experience that when we get into the game, we loose sense of our values and loose the ability to have honest conversation.  If we play that game too long, we risk loosing our moral compass.

I am writing about the games we play having just spent the holidays watching the entire five seasons of the HBO Series, The Wire.  I  would make this required viewing for anyone intending to engage in charitable work in any urban area of the United States.  This incredibly well-written and acted series validates the analysis of Dr. Kuserow which I published. in a previous post “Philanthropy and Class- What are We Thinking.”   The Wire provides a glimpse into the workings of urban drug rings, police homicide and drug units, the venality of city government and the cynicism and hopelessness of urban public schools.  The series hired local people to act in the film with the leads carried by professional actors.  The result is a more violent but realistic  portrayal on film of what Updike conveys in literature – “…the general sense of doom of American expansion and decay.”  If Bach had put this series to music, the recitative would be, “It’s all in the Game.”

Let’s look at the first group – the  police department.  The Baltimore Chief of Police has gotten word from the Mayor to reduce the alarmingly high crime statistics.  The high numbers of homicides and felonies in particular jeopardize the Mayor’s ambitions to win the upcoming Gubernatorial election.  The Chief and his Deputy Chief for Operations are good bureaucrats and realize that their fealty to the  Mayor will position them for promotion.  Their own ambition increases the pressure on their subordinates – the district directors and the cops on the street to make the crime stats go down.  The cops and their officers realize the futility of the strategies used to combat the drug wars in the city.  They know their tactics of arresting street pushers is pointless since the suppliers and kingpins elude arrest.  People are murdered with impunity.  The Mayor demands a decrease in the stats, the Chief and the Superintendents know their orders and tell the cops  they must comply.  The cops play a game to keep their jobs.  The “game” devolves into a cynical game of beat the chumps.  Authority looses all respect.  The cops change the  stats and the “system” appears to improve.  The game is called jukin’ the stats.  Check out the meaning of Jukin’ to understand the depths of cynicism.  On the ground, nothing changes.  In  the third this episode of the series only one cop has the courage to stand up and tell the leaders the truth.  This is how that session goes – beware, the language is strong!:

A British friend of mine once stated, “In the U.S. when your legislators make a law they think the whole affair is ‘done and dusted’ ” once it is signed.   The Urban Dictionary defines the term thus –

When something is “done and dusted”, it’s not merely created or accomplished, it’s also polished and cleaned up after. Nothing else is needed, so it can be considered “case closed”.

In our case, the Feds made the law (No Child Left Behind) and case is closed.  The Congress wrote the law, the President signed it.  People were reelected.  The States were left with implementation.  With no money.  The result has been a system that demeans professional teachers, opens the doors to venal and ambitious personalities that will use reporting to gain recognition, access and ultimately rewards in terms of professional promotion.

In series three of The Wire one of the sharpest police officers leaves policing to become a teacher in the Baltimore public schools.  There he is faced with kids from the same corners he busted their older siblings.  He learns quickly bring the attitude of the corner into the classroom.  The game is how to get around real learning, to test authority and ultimately assert oneself in a world of chaos.   Check out this clip –  I love these kids. I don’t know how many times I have seen classes just like this in my travels around the country.

B-5 “And I’m an Audi 5000!

Eventually the teacher “Mr. Prezbo” figures out these kids are not going to learn seated  in rows  reading from outdated and used textbooks.   He senses that and realizes they can learn the material but he needs to do that by opening the learning process from their experiences.   The superintendent pressures him to teach to the text. He argues they are not learning. He is told that if he wants to keep his job he must use the text. He figures out that these “corner” kids live a life of gambling and play dice in the streets. Using their experience of the game he find out they understand probability. Here is a great scene.

But save the best to last. Now into the semester, with progress made, the first-year teacher is called to a general meeting with the school principal. She describes the terms in which teaching will take place during the remaining weeks of the semester.  Compare this dynamic with the first scene in the police headquarters.

Anyone I know who has seen The Wire agrees that the directors capture the reality of  public education in most schools in urban areas in the U.S.  It is a portrait not only of Baltimore, but New York, Cleveland, Boston….the list goes on. It is a sad and tragic case that the system is allowed to go on. Clearly there are successful classrooms and good students. The reality is those successes take place because of dedicated teachers and typically have nothing to do with the added “rigor” the legislators and designers of NCLB intended. What we have created is a sense of doom in our public schools.

I think it is the role of philanthropy to speak out against the games. Funding programs we know work. Finding and supporting teachers who are making a difference in classrooms despite the system – not because of it – remain the challenge.  It is interesting to me that Al Sharpton and Joel Klein wrote and article for the January 12, 2009 Wall Street Journal entitled “Charter Schools Can Close the Education Gap – it is not acceptable for minority students to be four grades behind.” They tell us, “Genuine school reform, you stated during the campaign, “will require leaders in Washington who are willing to learn from students and teachers . . . about what actually works.”

Much like the cops on the corner or the teachers that work with the kids day in and day out, the truth will come only if we are humble enough to listen and open to learning.  Doing so can open individuals to virtue.

I am happy to report that my superintendent friend retired from the system leaving behind one of the most dynamic schools in the county. The project we discussed involved implementation of the Universal Design for Learining UDL developed at the Center for Applied Special Technologies (CAST) in Winchester, Massachusetts. The foundation provided the support and worked closely in fostering healthy relations between the colleagues in Massachusetts and Ohio.   He made UDL the required approach to learning for all teachers in every building in the district.   By focusing on UDL and linking UDL, with Co-Teaching and appropriate use of technology, this district has had an excited teaching core and children of all abilities engaged in learining. Incidentally their test scores have gone up too.

Foundation Support for Independent Schools – new opportunities for public school education

The publicity about the Obama’s choice of the Sidwell Friends School shed light on the apparent contradiction of those who support public schools but elect to send their children to private schools.  I am sure this fact makes the Obama’s and others like them feel a bit defensive when attending parties.  In Oberlin, Ohio where I live, people who send their children to the independent school are literally shunned by those who keep their children in the public system.

One of the great challenges facing Independent schools, and the foundations that support them is how to make the excellent quality of education available to those outside the walls of these relatively small institutions.  The winter 2006 edition of Independent School, published by the National Association of Independent Schools gave voice to a growing number of members who struggle with perception that independent schools are institutions only for the elite. In an environment where the gap between wealthy families and poorer families grows, fewer middle class families are able to afford private school education. The quality of Independent School education, such as the institution I send my children (Lake Ridge Academy) can not be disputed. In fact trustees of  foundations tpically send their children to independent schools places like:   Noble and Greenough School, Heathwood Hall, Buckinham, Browne and Nicols and others of pedigree based on a history of quality education. Read the mission statments of any of them and compare that aspiration to those of public schools.  This reality presents an unease because these same trustees approve grants that try to improve the quality of public school education.  We all know that undertaking can have pockets of success but due to the enormity of the task of reform  rewards are elusive.

Faith-based schools such as Epiphany School, Nativity Prep, Arrupe Prep as well as non-denominational charter  KIPP schools. supported by the foundation I serve, offer the quality education that rivals the atmosphere, academic dicipline and values of  higher priced independent schools.  However these schools are expensive to maintain and require constant funding from private sources.  The State simply will not fund these entities.  In the case of KIPP and Charter Schools, the national discussion is typically met with a vitrol accompanied by public policies that keep State funding to a minimum.  Tacitly, the policy carries a hope  that charters will fail and, like apostates, will someday realize the waywardness of their action and return to the public school system as we know it.    That system of course is failing millions of children in the U.S. daily, but there remains no strategy to address that reality.

How can one make the quality of Independent School education available to families of the middle class and even children of low-income families has remained elusive.  D. Scott Looney, Head of Hawken School in Cleveland  suggested, “The benefits of having the broadest possible exposure to students with other backgrounds, races, ideas, and experience must be part of that education, and must include children from families in the bottom 50 percent of the socioeconomic tier.”

How can an independent schools do that when the availability of scholarship monies is limited? Technology provides answers.

Independent Schools can make better use of web-based technology to break down the walls of their institutions and make their curriculum available to a larger number of students.

The Harvard Crimson reported an innovative adaptation of SecondLife™ at Harvard University in 2006 whereby students at the Harvard Law School will co-learn with students at the Harvard Extension School – linking a divergent student body in a cooperative learning process.  Independent Schools can and should do the same thing with outreach to public schools.  Foundations can support these activites.

SecondLife offers very tremendously exciting  opportunities to explore how the quality of independent school education may be open to others who cannot afford a typical four-year education.  What can that look like? Check out the site that explains how Secondlife works for educators.

Independent schools can and should explore the possiblity of creating their schools in Secondlife and inviting their professors and other educators to work with selected students in a virtual envorinment.  This is particularly true of the children in the lower 50% of the economic tier Mr. Lowney mentions.

Phillips Exeter Academy is known for the Harkness Table.  This seminar-styled approach to high school education was developed in 1931 and invites young people to share thought together in a collaborative learning experience.  Why not re-create a Harnkess Table in Secondlife whereby children from schools across the country could benefit from this educational style and interact with students who typically will not have access to these inistitutions of privilidge.

The Burton D. Morgan Foundation in Hudson, Ohio funded one of the first business/entrepreneurship programs at the high school level to Lakeridge Academy.  The teachers developed a very fine curriculum which serves the 20 or so students in that program.  I can imagine a very interesting project where, for example students from the business/entrepreneurship at Lakeridge Academy participated in SecondLife with students from the E-City program and the related Entrpreneurship Academy or E-Prep in Cleveland. (E-Prep received a start-up grant from The Nord Family Foundation and continues to receive yearly operating support s0 I disclose my interest and passion for this great school). A project of this type would expand the number of people who share in the curriculum and widen the perspectives on what entrepreneurship means in the suburbs and what it means on “corners” in Cleveland.

Foundation should consider funding these types of projects as a means of opening quality education they can (and often do) provide their own children and to talented and able children attending failing public schools.

I have had the priviledge to get to know some of the people at The Center for Institutional Technology and Academic Computing (ITAC) .  This institution is currently supporing several innovative uses of Secondlife in the educational settings including pioneering work in the high school curriculum.

Although SecondLife has been tremendously successful in higher education, the potential for its use in high school settings has been thwarted because SecondLife restricts its users to a minimum age of 18.  Students under that age are pointed The Teen Grid.  It is the hope of many educators that someday soon, SecondLife and its creators at Linden Lab will  allow for less restrictive use by high school teachers.

Another very interesting organization to watch for application for Independent schools is the work of the remarkable Aaron Walsh at MediaGrid at Boston College.  This organizations provides high quality virtual environments that rival those of expensive interactive games.

Foundations that restrict themselves only to supporting projects in public education are selling themselves short by not opening themselves to exploring these new ways to blend independent school and public school education.  It is my experience that most independent school faculty would welcome this innovation to expand their educational mission to those outside their walls.

It is time the philanthropic sector open itself to this important discussion with colleagues from Independent and Public Schools.  For those unsure about all this, may I suggest reading a report published by the MacArthur Foundation’s and the Digial Youth Resesarch at U.Cal. Berkeley.  Great reading!