tag:blogger.com,1999:blog-1418318677775668902024-03-21T18:10:59.433-04:00billions of drops dot comdyspeptic discursions on philanthropy and the social sectorSteve Goldberghttp://www.blogger.com/profile/06106824600318886347noreply@blogger.comBlogger21125tag:blogger.com,1999:blog-141831867777566890.post-81370568045143878412014-02-18T12:23:00.001-05:002014-02-18T12:23:10.422-05:00A Center of Greg’s Own<div class="MsoNormal">
<span style="font-family: Georgia, Times New Roman, serif;">I can’t add much to the many moving tributes paid to Greg
Dees at the <a href="http://posthope.org/greg-dees/update/124578/duke-memorial-events-summary">memorial
event</a> held on February 11<sup>th</sup> at his beloved Center for the Advancement
of Social Entrepreneurship. I've watched
much of the video, read many of the blog posts, written my own, and remembered
the sweet and brilliant man I knew far less well than so many others.</span></div>
<div class="MsoNormal">
<span style="font-family: Georgia, 'Times New Roman', serif;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: Georgia, 'Times New Roman', serif;">I do, however, have one question:</span><span style="font-family: Georgia, 'Times New Roman', serif;"> </span><span style="font-family: Georgia, 'Times New Roman', serif;">What would it take to name CASE in his honor?</span><span style="font-family: Georgia, 'Times New Roman', serif;"> </span></div>
<div class="MsoNormal">
<span style="font-family: Georgia, 'Times New Roman', serif;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: Georgia, 'Times New Roman', serif;">Speaking for absolutely no one but myself, I ask this for two reasons.</span><span style="font-family: Georgia, 'Times New Roman', serif;"> </span><span style="font-family: Georgia, 'Times New Roman', serif;">First, and most obviously, because it was
Greg’s labor of love and genius.</span><span style="font-family: Georgia, 'Times New Roman', serif;"> </span><span style="font-family: Georgia, 'Times New Roman', serif;">Second,
because I am indebted every day to the extraordinary work that emerges from his
descendants.</span></div>
<div class="MsoNormal">
<span style="font-family: Georgia, 'Times New Roman', serif;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: Georgia, 'Times New Roman', serif;">I’ve had the great privilege and tremendous fun of
guest-teaching Cathy Clark’s class in social entrepreneurship, and I’ve gotten
to know many of her gifted colleagues.</span><span style="font-family: Georgia, 'Times New Roman', serif;">
</span><span style="font-family: Georgia, 'Times New Roman', serif;">But as someone who makes a substantial part of his living keeping up
with the prodigious scholarship in the field, I can attest to the singular
brilliance of the work coming out of CASE.</span><span style="font-family: Georgia, 'Times New Roman', serif;">
</span><span style="font-family: Georgia, 'Times New Roman', serif;">To mention just two of many examples, their work on </span><a href="http://www.caseatduke.org/knowledge/scalingsocialimpact/index.html" style="font-family: Georgia, 'Times New Roman', serif;">scaling
social impact</a><span style="font-family: Georgia, 'Times New Roman', serif;"> is second to none, and their </span><a href="http://www.pacificcommunityventures.org/reports-and-publications/the-impact-investor-a-market-emerges-the-six-dynamics-of-impact-investing/" style="font-family: Georgia, 'Times New Roman', serif;">“Impact
Investor”</a><span style="font-family: Georgia, 'Times New Roman', serif;"> collaboration with Pacific Community Venture’s InSight (Ben
Thornley) and ImpactAssets (Jed Emerson) is nothing less than seismic.</span></div>
<div class="MsoNormal">
<span style="font-family: Georgia, 'Times New Roman', serif;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: Georgia, 'Times New Roman', serif;">None of this would have happened without Greg.</span><span style="font-family: Georgia, 'Times New Roman', serif;"> </span><span style="font-family: Georgia, 'Times New Roman', serif;">Now, </span><a href="https://www.dropbox.com/s/6hs9oyjuezndxar/Greg%27s%20Eulogy%2C%202-11-14_Skloot.pdf" style="font-family: Georgia, 'Times New Roman', serif;">Ed
Skloot</a><span style="font-family: Georgia, 'Times New Roman', serif;"> might be right that social entrepreneurship itself “is the legacy he
left which we now can assume.”</span><span style="font-family: Georgia, 'Times New Roman', serif;"> </span><span style="font-family: Georgia, 'Times New Roman', serif;">But I’m
not so confident that we’ll always remember how we got here.</span><span style="font-family: Georgia, 'Times New Roman', serif;"> </span></div>
<div class="MsoNormal">
<span style="font-family: Georgia, 'Times New Roman', serif;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: Georgia, 'Times New Roman', serif;">And so I ask, could we have the J. Gregory Dees Center for the
Advancement of Social Entrepreneurship at Duke University’s Fuqua School of
Business, in deserved honor of the man who really was the better angel of our
nature?</span></div>
<div class="MsoNormal">
<o:p></o:p></div>
Steve Goldberghttp://www.blogger.com/profile/06106824600318886347noreply@blogger.com0tag:blogger.com,1999:blog-141831867777566890.post-7687146158515169482013-07-17T12:11:00.000-04:002013-07-17T12:11:37.988-04:00Do SIBs qualify for the Community Reinvestment Act? Oh, yeah.<span style="font-weight: normal;"><i><span style="font-family: Arial, Helvetica, sans-serif;"><span class="s1">[This post was originally published in <a href="https://www.dropbox.com/s/aogiiaqtp0jk71x/SIB%20Trib%20No.%202.pdf">SIB Trib No. 2</a>. I'm republishing it here to respond to the <a href="http://philanthropy.com/article/Social-Service-Groups-Won-t/140225/?cid=pt">fine article by </a></span><a href="http://philanthropy.com/article/Social-Service-Groups-Won-t/140225/?cid=pt">Diana Aviv and Antony Bugg-Levine</a>, "Social-Service Groups Won’t Survive Without New Sources of Revenue," published in the Chronicle of Philanthropy. Among other sound recommendations, the authors make the following proposal: </span></i></span><br />
<span style="font-weight: normal;"><i><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></i></span>
<blockquote class="tr_bq">
<span style="font-weight: normal;"><i><span style="font-family: Arial, Helvetica, sans-serif;"><span class="s1">"</span>Expand the Community Reinvestment Act. For more than 35 years, the act has prompted banks to lend in underserved markets and spurred the creation of the community-finance industry. Expanding the law to facilitate easier investment in a wider range of organizations could make billions of dollars available to social-service organizations."</span></i></span></blockquote>
<br />
<span style="font-weight: normal;"><i><span style="font-family: Arial, Helvetica, sans-serif;"><br /></span></i></span><span style="font-family: Arial, Helvetica, sans-serif; font-weight: normal;"><i>As sensible as this might be, modernizing any federal legislation, particularly one with fiscal implications, is exceptionally these days. I'm not a bona fide CRA lawyer, but I believe the act already covers SIBs. If so, a simple interpretive letter from federal regulators might do the trick. I'd welcome comments from CRA attorneys who actually know what they're talking about.]</i></span><br />
<div class="p1">
<span class="s1"><span style="font-family: Verdana, sans-serif;"><br /></span></span></div>
<div class="p1">
<span class="s1"><span style="font-family: Verdana, sans-serif;">Wouldn’t it be handy if there were some relatively painless way to attract commercial investment in SIBs that didn’t require all that messy business about outcomes and savings? Something that didn’t involve financial modeling, risk management or counterfactuals? Some incentive that was simple and pure, easy to fathom, but with a kick like moonshine whiskey?</span></span></div>
<div class="p1">
<span class="s1"><span style="font-family: Verdana, sans-serif;"><br /></span></span></div>
<div class="p1">
<span class="s1"><span style="font-family: Verdana, sans-serif;">Many have wondered if the federal Community Reinvestment Act might fit the bill. Godeke and Resner think that “CRA capital may be a bridge between the first philanthropically-funded PFS financings and other investors.” Social Finance US says that CRA qualification “would open up a new pool of institutional liquidity for SIBs within the banking community.” <i> Institutional Investor </i>reports that Goldman Sachs intends to pursue CRA credit. </span></span></div>
<div class="p1">
<span class="s1"><span style="font-family: Verdana, sans-serif;"><br /></span></span></div>
<div class="p1">
<span class="s1"><span style="font-family: Verdana, sans-serif;">So can SIBs take a page out of the Low Income Housing Tax Credit’s book? “Many nonprofit executives spend a good chunk of their time trying to talk corporate executives into giving them money. And companies big and small often respond generously. But social entrepreneurs should also consider a less well-known technique for generating new revenues: lobbying for changes in government tax policy. Such changes can yield an enormous outpouring of new resources for the social sector.” Doug Guthrie, “An Accidental Good,” <i>Stanford Social Innovation Review</i>, Fall 2004. And with CRA, there’s no lobbying required.</span></span></div>
<div class="p1">
<span class="s1"><span style="font-family: Verdana, sans-serif;"><br /></span></span></div>
<div class="p1">
<span class="s1"><span style="font-family: Verdana, sans-serif;">Now, I’m an experienced regulatory lawyer, but I’ve never worked with CRA before. The statute has more than a few technical hoops to jump through that keep bank legal departments plenty busy. The statute is short, but the regulations are long, and the regulatory examination process is exacting. </span></span></div>
<div class="p1">
<span class="s1"><span style="font-family: Verdana, sans-serif;"><br /></span></span></div>
<div class="p1">
<span class="s1"><span style="font-family: Verdana, sans-serif;">All that being said, however, the question of whether SIBs are eligible for CRA credit seems to be a fairly straightforward. Subject to the particulars of specific transactions, SIBs are just the kinds of investments that the CRA wants banks to make.</span></span></div>
<div class="p1">
<span class="s1"><span style="font-family: Verdana, sans-serif;"><br /></span></span></div>
<div class="p1">
<span class="s1"><span style="font-family: Verdana, sans-serif;">Section 802 of CRA provides as follows:</span></span></div>
<div class="p1">
<span class="s1"><span style="font-family: Verdana, sans-serif;"><br /></span></span></div>
<div class="p1">
<span class="s1"><span style="font-family: Verdana, sans-serif;">“(a) The Congress finds that – (1) regulated financial institutions are required by law to demonstrate that their deposit facilities serve the convenience and needs of the communities in which they are chartered to do business; (2) the convenience and needs of communities include the need for credit services as well as deposit services; and (3) regulated financial institutions have a continuing and affirmative obligation to help meet the credit needs of the local communities in which they are chartered.</span></span></div>
<div class="p1">
<span class="s1"><span style="font-family: Verdana, sans-serif;"><br /></span></span></div>
<div class="p1">
<span class="s1"><span style="font-family: Verdana, sans-serif;">(b) It is the purpose of this title to require each appropriate Federal financial supervisory agency to use its authority when examining financial institutions, to encourage such institutions to help meet the credit needs of the local communities in which they are chartered consistent with the safe and sound operation of such institutions.”</span></span></div>
<div class="p1">
<span class="s1"><span style="font-family: Verdana, sans-serif;"><br /></span></span></div>
<div class="p1">
<span class="s1"><span style="font-family: Verdana, sans-serif;">Please allow me to translate: The CRA requires banks and other regulated financial institutions to meet the credit needs of all of the communities in which they’re authorized to conduct business, rich and poor alike, and federal financial regulators can use their examination authority to enforce that requirement.</span></span></div>
<div class="p1">
<span class="s1"><span style="font-family: Verdana, sans-serif;"><br /></span></span></div>
<div class="p1">
<span class="s1"><span style="font-family: Verdana, sans-serif;">Section 804(a) prescribes, in very broad terms, how regulators are to use that examination authority:</span></span></div>
<div class="p1">
<span class="s1"><span style="font-family: Verdana, sans-serif;"><br /></span></span></div>
<div class="p1">
<span class="s1"><span style="font-family: Verdana, sans-serif;">“In connection with its examination of a financial institution, the appropriate Federal financial supervisory agency shall – (1) assess the institution’s record of meeting the credit needs of its entire community, including low- and moderate-income neighborhoods, consistent with the safe and sound operation of such institution; and (2) take such record into account in its evaluation of an application for a deposit facility by such institution.”</span></span></div>
<div class="p1">
<span class="s1"><span style="font-family: Verdana, sans-serif;"><br /></span></span></div>
<div class="p1">
<span class="s1"><span style="font-family: Verdana, sans-serif;">Again, in plain English, whenever a regulated financial institution applies for permission to open a new branch – something that hyper-competitive big banks do all the time – regulators must check to see if they’re making loans to low- and moderate-income customers in their host communities. If not, the regulators can deny the application, which is an exceedingly strong incentive for banks to lend money to customers in those neighborhoods. A bank that wants to take deposits from a certain community must also make loans to that community.</span></span></div>
<div class="p1">
<span class="s1"><span style="font-family: Verdana, sans-serif;"><br /></span></span></div>
<div class="p1">
<span class="s1"><span style="font-family: Verdana, sans-serif;">The obvious follow-up question is: what kinds of lending activities count toward a bank’s “record of meeting the credit needs of its entire community”? The answer is found in a “Questions and Answers” document jointly published in the Federal Register by all of the federal financial regulators, which provides official “guidance for use by agency personnel, financial institutions, and the public.” </span></span><i><span style="font-family: Verdana, sans-serif;">[Editor’s note: This is a 40-page, single-spaced, 3-columned document with about 8-point type. I read this stuff so you don’t have to. You’re welcome.]</span></i></div>
<div class="p1">
<span class="s1"><span style="font-family: Verdana, sans-serif;"><br /></span></span></div>
<div class="p1">
<span class="s1"><span style="font-family: Verdana, sans-serif;">First, what counts? To make a very long story as short as humanly possible, the CRA regulations and Q&A document broadly define a qualified investment as any lawful investment, deposit, membership share, or grant that has as its primary purpose “community development” to support the following endeavors: (1) affordable housing; (2) community services targeting low- and moderate income individuals; (3) activities that promote economic development by financing small farms and small businesses; and (4) activities that revitalize or stabilize low- and moderate-income geographies.</span></span></div>
<div class="p2">
<span class="s1"><span style="font-family: Verdana, sans-serif;"> </span></span></div>
<div class="p1">
<span class="s1"><span style="font-family: Verdana, sans-serif;">Second, how’s the counting carried out? When federal regulators consider a bank’s application, they evaluate the performance of its qualified investments based on: (1) the dollar amount of qualified investments; (2) the innovativeness or complexity of qualified investments; (3) the responsiveness of qualified investments to credit and community development needs; and (4) the degree to which the qualified investments are not routinely provided by private investors.</span></span></div>
<div class="p1">
<span class="s1"><span style="font-family: Verdana, sans-serif;"><br /></span></span></div>
<div class="p1">
<span class="s1"><span style="font-family: Verdana, sans-serif;">We can already see encouraging signs for SIBs. Community development loans for affordable housing, community services, economic development, and revitalization all qualify for CRA credit. Banks gets points for the amount and innovativeness of loans, as well as for making loans when other private investment isn’t available. Sounds a lot like SIBs.</span></span></div>
<div class="p1">
<span class="s1"><span style="font-family: Verdana, sans-serif;"><br /></span></span></div>
<div class="p1">
<span class="s1"><span style="font-family: Verdana, sans-serif;">But all qualified investments are not created equal: “Examiners will consider the responsiveness to credit and community development needs, as well as the innovativeness and complexity, if applicable, of an institution’s community development lending, qualified investments, and community development services. These criteria include consideration of the degree to which they serve as a catalyst for other community development activities.” </span></span></div>
<div class="p1">
<span class="s1"><span style="font-family: Verdana, sans-serif;"><br /></span></span></div>
<div class="p1">
<span class="s1"><span style="font-family: Verdana, sans-serif;">In fact, banks get points for applying “special expertise and effort on the part of the institution [that] provide a benefit to the community that would not otherwise be possible.” So SIBs are likely to receive <i>extra</i> credit “when they augment the success and effectiveness of the institution’s lending under its community development loan programs,” including “a technical assistance program under which the institution, directly or through third parties, provides affordable housing developers and other loan recipients with financial consulting services.” </span></span><span style="font-family: Verdana, sans-serif;">It would seem that banks that use SIBs creatively to expand the range of loan products, combined with advice about how to enhance their “success and effectiveness,” would be furthering the objectives of the CRA.</span></div>
<div class="p1">
<span class="s1"><span style="font-family: Verdana, sans-serif;"><br /></span></span></div>
<div class="p1">
<span class="s1"><span style="font-family: Verdana, sans-serif;">E</span></span><span style="font-family: Verdana, sans-serif;">ven better, the Q&A provides specific examples of loans that are similar to SIBs.</span><span style="font-family: Verdana, sans-serif;"> </span><span style="font-family: Verdana, sans-serif;">Thus, “community development” includes “community- or tribal-based child care, educational, health, or social services targeted to low- or moderate-income persons, affordable housing for low- or moderate- income individuals, and activities that revitalize or stabilize low- or moderate- income areas, designated disaster areas, or underserved or distressed nonmetropolitan middle-income geographies.”</span><span style="font-family: Verdana, sans-serif;"> </span><span style="font-family: Verdana, sans-serif;">Revitalization and stabilization activities include “creating, retaining, or improving jobs for low- or moderate- income persons.”</span></div>
<div class="p1">
<span class="s1"><span style="font-family: Verdana, sans-serif;"><br /></span></span></div>
<div class="p1">
<span class="s1"><span style="font-family: Verdana, sans-serif;">Qualified technical assistance activities provided to community development organizations include “assisting in fund raising, including soliciting or arranging investments.” “[M]unicipal bonds designed primarily to finance community development generally are qualified investments.” Qualified investments also include “investments ... in ... [f]acilities that promote community development by providing community services for low- and moderate-income individuals, such as youth programs, homeless centers, soup kitchens, health care facilities, battered women’s centers, and alcohol and drug recovery centers,” as well as “job training programs that enable low- or moderate-income individuals to work.” </span></span></div>
<div class="p1">
<span class="s1"><span style="font-family: Verdana, sans-serif;"><br /></span></span></div>
<div class="p1">
<span class="s1"><span style="font-family: Verdana, sans-serif;">Investments in community development “funds,” including “nationwide funds,” also count for CRA credit. “[I]nstitutions may exercise a range of investment strategies, including short-term investments, long-term investments, investments that are immediately funded, and investments with a binding, up-front commitment that are funded over a period of time.”</span></span></div>
<div class="p1">
<br /></div>
<div class="p1">
<span class="s1"><span style="font-family: Verdana, sans-serif;">I’ll refrain from pummeling the deceased equine: SIBs are indistinguishable from the kinds of traditional and not-so-traditional lending activities that expressly qualify for credit under CRA. The services they invest in, the reasons for issuing SIBs, the nature of the instrument itself, and the ways they are created all comprise “community development activities” within the meaning of CRA.</span></span></div>
<div class="p1">
<span class="s1"><span style="font-family: Verdana, sans-serif;"><br /></span></span></div>
<div class="p1">
<span class="s1"><span style="font-family: Verdana, sans-serif;">But, wait, you say. What about that pesky language in sections 802 and 804 about “consistent with the safe and sound operation of such institutions”? Does this mean that, in addition to geographic and income-related requirements, there’s a “safety and soundness” test that SIBs must pass? If so, do banks need an official interpretation from regulators before they can claim CRA credit for these new-fangled “social investments” in “social innovation” by “social entrepreneurs” that are still completely experimental? How can something be considered safe and sound if no one has ever done it before, successfully or otherwise? </span></span></div>
<div class="p1">
<span class="s1"><span style="font-family: Verdana, sans-serif;"><br /></span></span></div>
<div class="p1">
<span class="s1"><span style="font-family: Verdana, sans-serif;">At least some risk-averse banks have questions. As Godeke and Resner report, “[b]anks would like to have their CRA regulators signal that PFS financings would earn CRA credit before committing time and resources to specific transactions.... PFS financings are subject to the same investment committee ‘safety and soundness’ underwriting standards as other bank investments. Underwriting social service intervention based on social science research is difficult and will require the banks to assess new risks. ‘This is new work for the banks,’ was a common theme at a recent meeting of financial institutions to discuss SIB opportunities.”</span></span></div>
<div class="p1">
<span class="s1"><span style="font-family: Verdana, sans-serif;"><br /></span></span></div>
<div class="p1">
<span class="s1"><span style="font-family: Verdana, sans-serif;">The implication is that SIBs don’t count because they’re too new and risky. But I think this reflects a fundamental misinterpretation of the language. First, as we’ve already seen, CRA specifically encourages banks to make innovative and complex loans. </span></span></div>
<div class="p1">
<span class="s1"><span style="font-family: Verdana, sans-serif;"><br /></span></span></div>
<div class="p1">
<span class="s1"><span style="font-family: Verdana, sans-serif;">Second, and more impor</span></span><span style="font-family: Verdana, sans-serif;">tant, the safe-and-sound language doesn’t restrict banks, it protects them from overzealous regulators who might want them to engage in reckless lending practices.</span><span style="font-family: Verdana, sans-serif;"> </span><span style="font-family: Verdana, sans-serif;">It’s not a criteria that individual loans must satisfy.</span></div>
<div class="p1">
<span style="font-family: Verdana, sans-serif;"><br /></span></div>
<div class="p1">
<span class="s1"><span style="font-family: Verdana, sans-serif;">Banks had long used phony creditworthiness arguments to take deposits from customers in poor communities and invest them in only in wealthier communities, an unlawful practice known as redlining. The legislative history of CRA leaves no doubt that the statute was enacted because “of amply documented cases of redlining, in which local lenders export savings despite sound local lending opportunities.” To expose this flimsy excuse, the Senate sponsor emphasized that “[t]he bill is not intended to force financial institutions into making high-risk loans that would jeopardize their safety.” </span></span></div>
<div class="p1">
<br /></div>
<div class="p1">
<span class="s1"><span style="font-family: Verdana, sans-serif;">Thus, the purpose of the “safety and soundness” language is simply to make clear that CRA didn’t require banks to make irresponsible loans in order to fulfill its community development obligations. It means exactly the same thing as if the law read, “nothing in this act requires financial institutions to engage in unsound or unsafe lending practices.” It’s a limitation on the CRA mandate, not an expansion.</span></span></div>
<div class="p1">
<span class="s1"><span style="font-family: Verdana, sans-serif;"><br /></span></span></div>
<div class="p1">
<span class="s1"><span style="font-family: Verdana, sans-serif;">Nonetheless, some politicians have tried to blame CRA for the 2008 financial crisis. A November, 2008 staff analysis submitted to the Federal Reserve Board of Governors refuted critics who contended that “the law pushed banking institutions to undertake high risk mortgage lending.” Rather than mandating reckless loans, the analysts said, “[t]he CRA emphasizes that banking institutions fulfill their CRA obligations within the framework of safe and sound operation.”</span></span></div>
<div class="p1">
<span class="s1"><span style="font-family: Verdana, sans-serif;"><br /></span></span></div>
<div class="p1">
<span class="s1"><span style="font-family: Verdana, sans-serif;">Safety and soundness simply isn’t a loan-by-loan determination. Rather, according to the regulations, “[a] bank’s performance need not fit each aspect of a particular rating profile in order to receive that rating, and exceptionally strong performance with respect to some aspects may compensate for weak performance in others.” Safe lending practices are examined in the context of a bank’s entire operations, not for each and every loan, which would be impossible to carry out. Instead, “[t]he bank's overall performance ... must be consistent with safe and sound banking practices and generally with the appropriate rating profile ...” </span></span></div>
<div class="p1">
<span class="s1"><span style="font-family: Verdana, sans-serif;"><br /></span></span></div>
<div class="p1">
<span class="s1"><span style="font-family: Verdana, sans-serif;">In other words, an otherwise safe-and-sound bank is perfectly free to invest in a SIB that raises all kinds of new and challenging questions. Needless to say, it’s highly unlikely that even a basketful of dubious SIBs could disturb a bank’s business. For example, even without the Bloomberg Philanthropy guarantee, the complete and total bust of the $9.6 million SIB investment Goldman Sachs made in New York City, or even an investment 10 times the size, would be completely inconsequential to a financial institution that, in the words of <i>Time</i> magazine, “only made [a] $1 billion profit last quarter.” If JP Morgan Chase could suffer a $6.2 billion loss from bad trades and still earn a record $21.3 billion in 2012, it could probably invest a few hundred million in SIBs and not lose much sleep. </span></span></div>
<div class="p1">
<span class="s1"><span style="font-family: Verdana, sans-serif;"><br /></span></span></div>
<div class="p1">
<span class="s1"><span style="font-family: Verdana, sans-serif;">To be sure, the CRA is a complex statute with a rich regulatory nimbus, and the compliance requirements for SIBs are no less tricky than for other community investments. Consult a lawyer, your mileage may vary, and so on. But assuming that banks continue to apply the same basic compliance standards they already follow, and nothing more, the question of whether SIBs can already be considered qualified CRA “community development” investments without further guidance from federal financial regulators does not appear particularly iffy. </span></span></div>
<div class="p1">
<span class="s1"><span style="font-family: Verdana, sans-serif;"><br /></span></span></div>
<div class="p1">
<span class="s1"><span style="font-family: Verdana, sans-serif;">They can.</span></span></div>
<div class="p2">
<span style="font-family: Verdana, sans-serif;"><span class="s1"></span><br /></span></div>
<div class="p1">
</div>
<div class="p3">
<span class="s2"><b></b></span><br /></div>
Steve Goldberghttp://www.blogger.com/profile/06106824600318886347noreply@blogger.com2tag:blogger.com,1999:blog-141831867777566890.post-47578558808201435852013-04-05T09:12:00.000-04:002013-04-08T20:03:31.040-04:00“SCALE FINANCE”<br />
<h2>
<span style="color: #073763; font-size: large;"><span style="font-family: Georgia, Times New Roman, serif;">Giving meaning to </span><span style="font-family: Georgia, 'Times New Roman', serif;">“</span><span style="font-family: Georgia, 'Times New Roman', serif;">scale</span><span style="font-family: Georgia, 'Times New Roman', serif;">”</span><span style="font-family: Georgia, 'Times New Roman', serif;"> and making progress to its achievement</span></span></h2>
<div>
<i style="background-color: #fefdfa; font-family: Georgia, 'Times New Roman', serif; font-size: 16px; line-height: 22px;">[Published originally in <a href="https://www.box.com/shared/static/b6na69t0bkmd4afsa9sq.pdf">SIB Trib No. 3</a>. </i><i style="font-family: Georgia, 'Times New Roman', serif;">Of course, I don't speak for any of the organizations mentioned below.]</i></div>
<div>
<i style="background-color: #fefdfa; font-family: Georgia, 'Times New Roman', serif; font-size: 16px; line-height: 22px;"><br /></i></div>
<div class="p3">
<span style="font-family: Georgia, 'Times New Roman', serif;">“Scale” just might be the most reviled buzzword in the social sector lexicon. An innocent victim of indiscriminate usage, scale has come to mean both everything and nothing, something that is desperately needed and hopelessly unattainable. Virtually every visionary social entrepreneur ardently hopes his or her program will scale, while every level-headed executive director knows the safe answer to the question, “When will your program reach scale?” is, “At least twenty years from now.”</span></div>
<div class="p4">
<span class="s1"><span style="font-family: Georgia, Times New Roman, serif;"><br /></span></span></div>
<div class="p5">
<span class="s1"><span style="font-family: Georgia, Times New Roman, serif;">We’ve got to stop thinking of scale as something abstract and diaphanous. If we continue to view scale as akin to chasing smoke, it will never be achieved. Scale refers to something specific and important that can be measured and assessed. If we set a proper benchmark, we can devise an approach that is fit for that purpose, and we can tell whether we’re on course within five to ten years’ time. </span></span></div>
<div class="p5">
<span class="s1"><span style="font-family: Georgia, Times New Roman, serif;"><br /></span></span></div>
<div class="p5">
<span style="font-family: Georgia, Times New Roman, serif;"><span class="s1">While it remains to be seen whether meaningful scale can really be achieved within such a time horizon, I’m convinced not only that it can, but that the time to try has definitely arrived. Herewith, some thoughts on how to get started, an approach I’m calling “scale finance.”<br />
</span></span><b><span style="font-family: Georgia, Times New Roman, serif;"><br /></span></b></div>
<h2>
<span style="color: #073763; font-family: Georgia, Times New Roman, serif; font-size: large;">OUR GLASS IS LESS THAN 5% FULL</span></h2>
<div class="p4">
<span class="s1"><span style="font-family: Georgia, Times New Roman, serif;">After more than two decades of development, it is fair to say that the once-disputed experiment known as “social entrepreneurship” has proved the skeptics wrong. Social entrepreneurship has amply demonstrated its ability to produce innovative solutions to crippling social problems that have transformative potential. Thanks to the sustained efforts of venture philanthropists and their grantees, we now know — albeit at varying levels of confidence — how to dependably prevent or materially reduce such long-standing social problems as premature births and problem pregnancies, child abuse and neglect, lagging early educational progress, acute asthma attacks, unnecessary and protracted foster care placements, high-school truancy, youth disengagement, juvenile incarceration, prisoner recidivism, and chronic homelessness.</span></span></div>
<div class="p4">
<span class="s1"><span style="font-family: Georgia, Times New Roman, serif;"><br /></span></span></div>
<div class="p4">
<span class="s1"><span style="font-family: Georgia, Times New Roman, serif;">This may come as something of a surprise, however, since every one of those problems remains as pervasive as ever. As I lay out in my book, even the most effective social innovations have not become available to more than a very small portion of the people who need them. Effective programs don’t scale and, generally speaking, scaled (governmental) programs aren’t nearly as effective as we’d like. So while we know how to produce social innovations that “work,” we certainly don’t know how to “scale what works” to produce systemic change. </span></span></div>
<div class="p4">
<span style="font-family: Georgia, Times New Roman, serif;"><span class="s1"><br /></span></span></div>
<div class="p4">
<span style="font-family: Georgia, Times New Roman, serif;"><span class="s1">All sides of the political spectrum are frustrated by our inability to scale. EARN’s Ben Mangan complains in the Stanford Social Innovation Review about “rationalized mediocrity” and “stifling incrementalism” that allow nonprofits to </span><span class="s4">“declare success despite the fact that our impact is embarrassingly small compared to the size of the problems we are trying to solve.”</span></span></div>
<div class="p7">
<span style="font-family: Georgia, Times New Roman, serif;"><span class="s5"><br /></span></span></div>
<div class="p7">
<span style="font-family: Georgia, Times New Roman, serif;"><span class="s5">Over at Bloomberg.com, Charles Murray of the American Enterprise Institute responds soberly to President Obama’s call for universal “high-quality preschool” with this hard truth: </span><span class="s1">“As of 2013, no one knows how to use government programs to provide large numbers of small children who are not flourishing with what they need. It’s not a matter of money. We just don’t know how.”</span></span></div>
<div class="p4">
<span style="font-family: Georgia, Times New Roman, serif;"><span class="s1"><br /></span></span></div>
<div class="p4">
<span style="font-family: Georgia, Times New Roman, serif;"><span class="s1">For all the tremendous progress social entrepreneurship has made, we still find ourselves at the very lowest end of the adoption curve. </span><span class="s4">I can’t find an effective social innovation developed in the last two or three decades that’s available to more than 5% of the eligible population. </span><span class="s1"> And, with very few exceptions, almost none of the exemplary nonprofits that have developed these effective programs have realistic plans for “crossing the chasm” and reaching even 20% of the total need.</span></span></div>
<div class="p4">
<span style="font-family: Georgia, Times New Roman, serif;"><span class="s1"><br /></span></span></div>
<div class="p4">
</div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj8efMisi7aHW6AjqAxUpMIeoGSIypOL823zlM-x-p7ARX917Eaeq5QC4kzH0OzpS5cSSROEzRqoAo73HYWnG-XB7I8sncgvLZlOlp3BeMJlvrKkYLV8HmjAsOJgVs6fGQVpuuS6b80fvE/s1600/Slide1.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="300" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj8efMisi7aHW6AjqAxUpMIeoGSIypOL823zlM-x-p7ARX917Eaeq5QC4kzH0OzpS5cSSROEzRqoAo73HYWnG-XB7I8sncgvLZlOlp3BeMJlvrKkYLV8HmjAsOJgVs6fGQVpuuS6b80fvE/s400/Slide1.jpg" width="400" /></a></div>
<div class="p4">
<span class="s1"><span style="font-family: Georgia, Times New Roman, serif;"><br /></span></span></div>
<div class="p4">
<span class="s1"><span style="font-family: Georgia, Times New Roman, serif;">When we treat scale as a moving target that’s always receding over the horizon, we can’t devise realistic ways of getting there. So what’s an achievable definition of scale, and how can social investment help us pursue it in a deliberate way?</span></span></div>
<div class="p3">
<span style="font-family: Georgia, Times New Roman, serif;"><span class="s1"></span><br /></span></div>
<h2>
<span style="color: #073763; font-size: large;"><span class="s3"><b><span style="font-family: Georgia, Times New Roman, serif;">“SCALE</span></b></span><b><span style="font-family: Georgia, Times New Roman, serif;">” IS THE PROGRESSIVE DISSEMINATION OF SOCIAL INNOVATION FOR SYSTEMIC TRANSFORMATION</span></b></span></h2>
<span class="s1" style="font-family: Georgia, 'Times New Roman', serif;"><br /></span>
<span class="s1" style="font-family: Georgia, 'Times New Roman', serif;">“Scaling” is the explicit and active pursuit of systemic social change. It comprises a set of activities designed to eliminate the gap between the demand for and the supply of effective social programs. </span><span class="s5" style="font-family: Georgia, 'Times New Roman', serif;"> It has two essential elements, both of which are expressed in relative terms: size and time.</span><br />
<div class="p4">
<span class="s1"><span style="font-family: Georgia, Times New Roman, serif;"><br /></span></span></div>
<div class="p4">
<span class="s1"><span style="font-family: Georgia, Times New Roman, serif;">By themselves, efforts to merely “grow,” “expand” or “replicate” programs are not scaling, unless the success of those efforts is measured against the total need. If you’re trying, for example, to double in size or grow by 20% a year, that’s not scaling, unless the explicit target is to get as close to 100% as humanly possible within a reasonable period of time. </span></span></div>
<div class="p4">
<span class="s1"><span style="font-family: Georgia, Times New Roman, serif;"><br /></span></span></div>
<div class="p4">
<span class="s1"><span style="font-family: Georgia, Times New Roman, serif;">Once we adopt that (more or less) objective benchmark, it becomes possible to develop and assess scaling strategies. If your goal is to gain substantially universal adoption, then strategies like “creating a movement,” “government takeover,” “reaching a tipping point,” and “going viral” can’t work because they can’t be measured or assessed relative to an essentially fixed destination. Almost always, these kinds of terms refer not to scaling but to something magical, like saying “and then a miracle happens.” </span></span></div>
<div class="p4">
<span class="s1"><span style="font-family: Georgia, Times New Roman, serif;"><br /></span></span></div>
<div class="p4">
<span class="s1"><span style="font-family: Georgia, Times New Roman, serif;">Now, I am not wading into the endless debate about whether organizations themselves need to grow to achieve scale or entrepreneurs should expand innovation through knowledge sharing and the like. Any approach that works is fine with me, as long as the actual objective is systemic change within a time horizon sooner than “someday.”</span></span></div>
<div class="p4">
<span class="s1"><span style="font-family: Georgia, Times New Roman, serif;"><br /></span></span></div>
<div class="p4">
<span class="s1"><span style="font-family: Georgia, Times New Roman, serif;">Scale poses the question, are you trying to substitute your effective approach for the ineffective way that most people are served now? Are you actively working under a well-developed plan to accomplish systemic change on a time horizon that transforms the lives of the current generation of beneficiaries? Do you consider yourself unsuccessful to the extent the glass is not yet full?</span></span></div>
<div class="p4">
<span class="s1"><span style="font-family: Georgia, Times New Roman, serif;"><br /></span></span></div>
<div class="p4">
<span class="s1"><span style="font-family: Georgia, Times New Roman, serif;">Now I may be a scale junkie, but I’m not a scale snob. Scale isn’t imperative for every program. More effective approaches to serious social problems are always a good thing, no matter how many people they reach. Trying to grow by 20% a year is an admirable and worthwhile endeavor, and capable organizations should be encouraged to measure their performance against such accountable goals. The social sector would be vastly more productive if many more nonprofits increased their impact using those kinds of yardsticks. (Two masterful books explain how: <a href="http://www.vppartners.org/leapofreason/workingwellbook">David Hunter’s <i>Working Hard & Working Well</i></a>, and <a href="http://www.amazon.com/Nonprofit-Outcomes-Toolbox-Effectiveness-Performance/dp/1118004507">Bob Penna’s <i>The Nonprofit Outcomes Toolbox</i></a>.)</span></span></div>
<div class="p4">
<span style="font-family: Georgia, Times New Roman, serif;"><span class="s1"><br /></span></span></div>
<div class="p4">
<span style="font-family: Georgia, Times New Roman, serif;"><span class="s1">But for a highly select group of organizations, growth alone — whether steady, rapid or accelerating — is not enough. It will not lead to the kind of systemic change of which they just might be capable and which could bring a preventable or manageable social problem under control. </span><span class="s4">For a few programs that are demonstrably superior to the status quo and addresses such devastating social needs that it would be unconscionable not to make it universally available, we have to be willing to say that the time has come to really scale, and to be dissatisfied until we do. </span><span class="s1"> In those cases, we must acknowledge that the sector is failing its most important goal.</span></span></div>
<div class="p4">
<span style="font-family: Georgia, Times New Roman, serif;"><span class="s1"><br /></span></span></div>
<div class="p4">
<span class="s1"><span style="font-family: Georgia, Times New Roman, serif;">You’ll have noticed, no doubt, that I’m conspicuously avoiding exactitude. What’s so objective and measurable, you might well ask, about “more or less,” “substantially” and “essentially”? For all my loft aims, I’m staunchly realistic. I know we’re never going to completely prevent child abuse or house every single homeless person. Not only can’t we solve pervasive and long-standing social problems entirely, we can’t identify every single person facing such problems or even those that could benefit from an effective intervention. </span></span></div>
<div class="p4">
<span class="s1"><span style="font-family: Georgia, Times New Roman, serif;"><br /></span></span></div>
<div class="p4">
<span style="font-family: Georgia, Times New Roman, serif;"><span class="s1">But precision is not the point. </span><span class="s4">Because we know how to respond to some of these problems to an extent that we never could before, we must now ask how can we disseminate those innovations that “work” to the greatest extent possible. </span><span class="s1"> Before we can know how to fill the glass, we must first have some idea of just how big and how empty the glass is now. Whether we count the volume exactly or supply 100% of the water needed isn’t important. Right now, we don’t even ask how big the gap is, nor do we try to fill it, because we find the task overwhelming, and not without reason. </span></span></div>
<div class="p4">
<span style="font-family: Georgia, Times New Roman, serif;"><span class="s1"><br /></span></span></div>
<div class="p4">
<span style="font-family: Georgia, Times New Roman, serif;"><span class="s4">Scale is a relative term that is roughly measured by how far you have left to go, as opposed to various ways of talking about growth that just ask how far you’ve come. </span><span class="s1"> Again, trying to go farther than you have is always commendable. But if you have the means to climb the mountain, then you should ask how tall it is, how close you are, and what and how long will it take to reach the summit. When you’re less than 5% of the way there, as we are now, just going farther isn’t good enough if you’re capable of getting to the top, or even nearly so.</span></span></div>
<div class="p3">
<span style="font-family: Georgia, Times New Roman, serif;"><span class="s1"></span><br /></span></div>
<h2>
<span class="s3"><b><span style="color: #073763; font-family: Georgia, Times New Roman, serif; font-size: large;">SCALING IN PRACTICE</span></b></span></h2>
<div class="p9">
<span class="s1"><span style="font-family: Georgia, Times New Roman, serif;">Few nonprofits not only commit themselves to solving massive social problems, but actually develop plausible strategies and plans for doing so to which they hold themselves publicly accountable. Here are some examples:</span></span></div>
<div class="p9">
<span class="s1"><span style="font-family: Georgia, Times New Roman, serif;"><br /></span></span></div>
<h3>
<span class="s1"><b><span style="color: #073763; font-family: Georgia, Times New Roman, serif;">National Center on Time and Learning</span></b></span></h3>
<div class="p4">
<span class="s1"><span style="font-family: Georgia, Times New Roman, serif;">On October 2, 2007, NCTL announced a goal that “in ten years at least one million children in high poverty communities will attend schools that have redesigned their school day to expand learning time and a majority of schools with this new school design will cut the achievement gap at least in half.” In 2011, I published a paper in the <i>Philadelphia Social Innovations Journal</i> that assessed the feasibility of this worthy goal. I believed (and still do) that NCTL could reach that many students, but not in the way it seemed to be going about it. Looking at their existing growth rate (line 1), I didn’t see any realistic way to increase their incremental growth (lines 2, 3 and 4) to reach the goal in time. </span></span></div>
<div class="p4">
<span class="s1"><span style="font-family: Georgia, Times New Roman, serif;"><br /></span></span></div>
<div class="p4">
<span class="s1"><span style="font-family: Georgia, Times New Roman, serif;">The only way to do so, I concluded, was by changing their strategy from incremental growth (handfuls of schools at a time) to step-change growth (at the district or metropolitan level), as in line 5. This would be similar to the sector-based growth that the Omidyar Network’s Matt Bannick and Paula Goldman have proposed. (See <i>SIB Trib No. 1</i>) </span></span><span style="font-family: Georgia, 'Times New Roman', serif;">I didn’t realize it at the time, but now I see that “scale finance” could enable that kind of exponential growth.</span><span style="font-family: Georgia, 'Times New Roman', serif;"> </span></div>
<div class="p11">
<span style="font-family: Georgia, Times New Roman, serif;"><span class="s1"></span><br /></span></div>
<div class="separator" style="clear: both; text-align: center;">
</div>
<div class="separator" style="clear: both; text-align: center;">
</div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi3aTr0XwZACMJCZTiBByyXDrf_G6Jokl4N20ztLaF1tl_tfGnSCBO7KPq4_S_-HlgIWN9WsuIrjQ9Awue_NBdiMrN1v0n2zrYE45Fy-XKdbN-VC8GZC2VtM94Jnran2AMoPkSCSnKozf8/s1600/Slide1.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="240" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi3aTr0XwZACMJCZTiBByyXDrf_G6Jokl4N20ztLaF1tl_tfGnSCBO7KPq4_S_-HlgIWN9WsuIrjQ9Awue_NBdiMrN1v0n2zrYE45Fy-XKdbN-VC8GZC2VtM94Jnran2AMoPkSCSnKozf8/s320/Slide1.jpg" width="320" /></a></div>
<h3>
<b><span style="font-family: Georgia, Times New Roman, serif;"><br /></span></b></h3>
<h3>
<b><span style="font-family: Georgia, Times New Roman, serif;"><span style="color: #073763;">Year Up</span> </span></b></h3>
<div class="p4">
<span style="font-family: Georgia, Times New Roman, serif;"><span class="s1">Year Up’s mission is to close the opportunity divide for disengaged urban youth. In June, 2011, it published a prospectus for an “Opportunity Campaign” to raise $55 million “to increase Year Up’s capacity to close the Opportunity Divide on a national scale.” Part of its strategy is to develop a “Million-Person Model” “that can grow rapidly to serve many more young adults across the United States ..., with a focus on innovations that allow for greater scale.” </span><span class="s4">The prospectus notes parenthetically that “serving all 1.4 million young adults in our target population would require us to raise $11.2 billion in private philanthropy each year.” Lest anyone think that Year Up had taken leave of its senses, the prospectus characterizes that as “an infeasible fundraising burden.” </span><span class="s1"> </span></span></div>
<div class="p11">
<span style="font-family: Georgia, Times New Roman, serif;"><span class="s1"></span><br /></span></div>
<h3>
<span class="s1"><b><span style="color: #073763; font-family: Georgia, Times New Roman, serif;">Nurse-Family Partnership</span></b></span></h3>
<div class="p12">
<span class="s1"><span style="font-family: Georgia, Times New Roman, serif;">In August, 2010, NFP published a “State Needs Assessment” document that is notable for its candor about what it will take to move the needle for Medicaid-eligible young women who are pregnant with their first child:</span></span></div>
<div class="p12">
<span class="s1"><span style="font-family: Georgia, Times New Roman, serif;"><br /></span></span></div>
<div class="p13">
<span class="s1"><span style="font-family: Georgia, Times New Roman, serif;">“In NFP’s experience, improving public health outcomes on a population basis depends on making home visiting and other effective programs and services widely available to a particular community in need. Small scale implementations rarely result in measurable public health improvements at a community level; States should aim over time to offer Nurse-Family Partnership to the majority of eligible women and families who are most at risk in order to achieve measurable improvements in their health, development, education, and well-being.”</span></span></div>
<div class="p3">
<span style="font-family: Georgia, Times New Roman, serif;"><span class="s1"></span><br /></span></div>
<div class="p4">
<span class="s1"><span style="font-family: Georgia, Times New Roman, serif;">Stepping away from vague generalities, NFP provides a detailed table comparing “the [estimated] total NFP-eligible population by States (first-time low income mothers), and ... the current service capacity of all established NFP programs in that States.” It proposes that “the gap between current capacity and Statewide eligible population provides a broad target for multi-year, incremental, Statewide expansion of NFP services.” The table shows what it would take to grow each of its current states to reach 50% of the eligible population (versus what I estimate to be its current reach of about 3% nationwide).</span></span></div>
<div class="p11">
<br /></div>
<h3>
<span class="s1"><b><span style="font-family: Georgia, Times New Roman, serif;"><span style="color: #073763;">Lumina Foundation</span> </span></b></span></h3>
<div class="p14">
<span class="s1"><span style="font-family: Georgia, Times New Roman, serif;">On February 3, 2103, the Lumina Foundation published its 2013-2016 strategic plan for “Goal 2025.” The new document updated its 2009 strategic plan which was “based on the goal that 60% of Americans obtain a high-quality postsecondary degree or credential by 2025.” Lumina described the 2009 goal as “audacious but attainable,” and it reiterated in 2013 that “the goal has always been more than a vision statement—we believe it must be attained, and we believe it can be attained.” The revised plan advances eight actionable strategies to help produce an <i>additional 23 million</i> degrees, certificates and other high-quality credentials: </span></span></div>
<div class="p14">
<span class="s1"><span style="font-family: Georgia, Times New Roman, serif;"><br /></span></span></div>
<div class="p13">
<span class="s1"><span style="font-family: Georgia, Times New Roman, serif;">“Between 2009 and 2025 lie 16 years. Our first strategic plan covered the first quarter—the first four years—and this strategic plan will take us halfway to 2025. We have set the stage for reaching the goal, but we believe over the next four years we must do two things: develop a clear understanding of what we must do to create a system of higher education that can reach much higher levels of attainment, and make real progress toward the 60% goal.” </span></span></div>
<div class="p3">
<span style="font-family: Georgia, Times New Roman, serif;"><span class="s1"></span><br /></span></div>
<h2>
<span class="s3"><b><span style="color: #073763; font-family: Georgia, Times New Roman, serif; font-size: large;">CAN SIBS ENABLE SCALE?</span></b></span></h2>
<div class="p4">
<span class="s1"><span style="font-family: Georgia, Times New Roman, serif;">A few big thinkers have started to connect impact investing to true scale. In their fine book, <i>Impact Investing: Transforming How We Make Money While Making a Difference</i>, Antony Bugg-Levine and Jed Emerson play out a metaphor first proposed by Jessica Freireich and Katherine Fulton in the Monitor Institute’s seminal report, <i>Investing for Social and Environmental Impact</i>. They remind us that the 1980 Initial Public Offering of what was then called the Apple Computer Company “transformed the trajectory of a previously unheralded financial innovation” to such an extent that “what was previously viewed as a crazy approach is now a standard component of investment portfolios, known as the very mainstream concept of venture capital.” So, they ask, “What Will Be Our ‘Apple IPO’?”:</span></span></div>
<div class="p4">
<span class="s1"><span style="font-family: Georgia, Times New Roman, serif;"><br /></span></span></div>
<div class="p15">
<span class="s1"><span style="font-family: Georgia, Times New Roman, serif;">“What will be impact investing’s Apple IPO? In what geography or sector will the concept of impact investing for blended value find a success so compelling that it commands attention, overcomes the skeptics, and propels us into the mainstream? ... This ‘IPO’ will occur when we can point to a compelling social or environmental challenge that impact investment-backed enterprises solved at a level that would not have been possible for government or mainstream markets alone.”</span></span></div>
<div class="p15">
<span class="s1"><span style="font-family: Georgia, Times New Roman, serif;"><br /></span></span></div>
<div class="p7">
<span class="s1"><span style="font-family: Georgia, Times New Roman, serif;">Could scale finance develop the social-sector equivalent of the Apple IPO? Could such funding expand our best social innovations to reach at least 20% of the eligible population in a defined geographical area over five to ten years, while maintaining established levels of effectiveness? </span></span></div>
<div class="p7">
<span class="s1"><span style="font-family: Georgia, Times New Roman, serif;"><br /></span></span></div>
<div class="p4">
<span class="s1"><span style="font-family: Georgia, Times New Roman, serif;">I can’t pretend to know whether this can be accomplished until we try, but I do believe there are two basic steps to getting started: selecting the right programs and designing the right transactions in ways that satisfy the following eight conditions: </span></span></div>
<div class="p4">
<span class="s1"><span style="font-family: Georgia, Times New Roman, serif;"><br /></span></span></div>
<div class="separator" style="clear: both; text-align: center;">
</div>
<div class="separator" style="clear: both; text-align: center;">
</div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiidTERtgQQFsesOAIrT2K_tWCks0sxVl1Nbscd5ccqODa9i53rze9V7XRKxK0Iaw81YzqX9JKjxUaNdMxUqHwyd7BHg9HkMDIQFQL1lGx1w7YqvIvg9R_T35VU6LSs8x89Q4dGuw8j2Yc/s1600/Slide1.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="240" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiidTERtgQQFsesOAIrT2K_tWCks0sxVl1Nbscd5ccqODa9i53rze9V7XRKxK0Iaw81YzqX9JKjxUaNdMxUqHwyd7BHg9HkMDIQFQL1lGx1w7YqvIvg9R_T35VU6LSs8x89Q4dGuw8j2Yc/s320/Slide1.jpg" width="320" /></a></div>
<h3>
<b><span style="font-family: Georgia, Times New Roman, serif;"><br /></span></b></h3>
<h3>
<b><span style="color: #073763; font-family: Georgia, Times New Roman, serif; font-size: large;">Program Selection</span></b></h3>
<div>
<b><span style="font-family: Georgia, Times New Roman, serif;"><br /></span></b></div>
<div class="p4">
<span style="font-family: Georgia, Times New Roman, serif;"><span class="s4"><i><b>1. Evidence.</b></i> </span><span class="s1"> The intervention must have a “top-tier” evidence-base such that fundamental questions about effect sizes and attribution have already been answered to an extent that all stakeholders consider sufficient for this purpose. These questions would not be revisited as part of any pilot project.</span></span></div>
<div class="p4">
<span style="font-family: Georgia, Times New Roman, serif;"><span class="s1"><br /></span></span></div>
<div class="p4">
<span style="font-family: Georgia, Times New Roman, serif;"><span class="s4"><b><i>2. Fidelity.</i></b> </span><span class="s1"> There must be a reliable framework for implementing the innovation in substantial compliance with all key performance indicators. Fidelity to the model would be a primary consideration in assessing project success, since the evidence base adequately demonstrates what the outcomes will be when the program is delivered properly.</span></span></div>
<div class="p4">
<span style="font-family: Georgia, Times New Roman, serif;"><span class="s1"><br /></span></span></div>
<div class="p4">
<span style="font-family: Georgia, Times New Roman, serif;"><span class="s4"><b><i>3. Capacity.</i></b> </span><span class="s1"> Scale finance would be reserved for mature programs with clear potential for exponential growth. The service providers must have “growth-ready” leadership, finances, operations, and performance-management capabilities. It must also have a robust delivery network of significant scope that reliably provides the innovation at high levels of effectiveness at the current scale of operations. </span></span></div>
<div class="p4">
<span style="font-family: Georgia, Times New Roman, serif;"><span class="s1"><br /></span></span></div>
<div class="p4">
<span style="font-family: Georgia, Times New Roman, serif;"><span class="s4"><b><i>4. Data.</i></b> </span><span class="s1"> Robust and comprehensive data must be available on the affected population, existing services, costs, and social impairments, as well as on the outcomes, impact, cost, and potential savings of the innovations. While pilots cannot proceed if there are major gaps in the data, they can and should integrate and analyze disparate data that have not been aggregated fully.</span></span></div>
<div class="p4">
<span style="font-family: Georgia, Times New Roman, serif;"><span class="s1"><br /></span></span></div>
<div class="p9">
<span style="font-family: Georgia, Times New Roman, serif;"><span class="s4"><b><i>5. Savings.</i></b> </span><span class="s1"> Rigorous cost-benefit analysis must demonstrate that the innovation “math” has the potential to be financially self-sustaining at scale. Again, the reliable results about cost, impacts and savings from existing research would be incorporated as givens and not be reconsidered as part of any pilot project.</span></span></div>
<div class="p9">
<span style="font-family: Georgia, Times New Roman, serif;"><span class="s1"><br /></span></span></div>
<h3>
<span class="s1"><b><span style="color: #073763; font-family: Georgia, Times New Roman, serif;">Designing the Transaction</span></b></span></h3>
<div>
<span class="s1"><b><span style="font-family: Georgia, Times New Roman, serif;"><br /></span></b></span></div>
<div class="p4">
<span style="font-family: Georgia, Times New Roman, serif;"><span class="s4"><b><i>6. Origination.</i></b> </span><span class="s1"> Alongside these exceptional providers, investors, advisors and intermediaries would be full and active participants from day one. Government engagement can wait until social entrepreneurs and investors confirm that the proposed transactions are financeable, with specific funding sources and structures identified. They would then originate financeable transactions with low operational risk for consideration by governmental and non-governmental payers.</span></span></div>
<div class="p4">
<span style="font-family: Georgia, Times New Roman, serif;"><span class="s1"><br /></span></span></div>
<div class="p4">
<span style="font-family: Georgia, Times New Roman, serif;"><span class="s4"><b><i>7. Size.</i></b> </span><span class="s1"> Transaction sizes must be large enough (north of $50M) to (a) amply cover all direct service costs, as well as necessary working capital for infrastructure, intermediation, performance and risk management, and course corrections, and (b) pay investors > 5% return. Those fixed costs kill the ROI for smaller deals.</span></span></div>
<div class="p4">
<span style="font-family: Georgia, Times New Roman, serif;"><span class="s1"><br /></span></span></div>
<div class="p4">
<span style="font-family: Georgia, Times New Roman, serif;"><span class="s4"><b><i>8. Governance.</i></b> </span><span class="s1"> The project must have effective cross-sector governance and payment mechanisms that avoid unnecessary legal or technical requirements that undermine the social and financial objectives of the project itself. The formation of the project and its legal and financial structure would be developed “on a clean sheet of paper” and not by reference to governmental procurement processes or standard terms and conditions for public service delivery contracts. Of course, any contract would have to comply with all applicable legal requirements, subject to any modifications the legislature might enact in SIB enabling legislation.</span></span></div>
<div class="p4">
<span style="font-family: Georgia, Times New Roman, serif;"><span class="s1"><br /></span></span></div>
<div class="p4">
<span style="font-family: Georgia, Times New Roman, serif;"><span class="s1">In order to shift gears from growth to scale, we should begin by asking highly successfully social entrepreneurs to come up with their </span><span class="s4">“maximum feasible growth rates”: the percentage of need they could realistically meet within a time horizon that investors would accept and without compromising their results if money were not the primary limiting factor. </span><span class="s1"> Scaling these exceptional programs isn’t just a matter of adding money. Read Gerald Chertavian’s wonderful book, <i>A Year Up: How a Pioneering Program Teaches Young Adults Real Skills for Real Jobs-With Real Success</i>, to see what it takes Year Up to place urban youth on career paths to the middle class. Read Lumina’s eight strategies or NFP’s detailed manuals on “Implementation Overview & Planning,” “Guidance for Implementation and Quality of the Nurse-Family Partnership Program” or “Expanded Data Collection, Reporting and Quality Improvement Strategies.” Try out NCTL’s frameworks for assessing teacher collaboration and enrichment programming, or its classroom time analysis tool.</span></span></div>
<div class="p4">
<span style="font-family: Georgia, Times New Roman, serif;"><span class="s1"><br /></span></span></div>
<div class="p4">
<span class="s1"><span style="font-family: Georgia, Times New Roman, serif;">If you asked these social entrepreneurs, “if money were no object, how big and how fast could you grow over five to ten years and maintain the same results you get now?”, I think they’d be happy to come up with an answer. I’m fairly confident the answer would not be large enough to reach anywhere near half of the population-in-need, but it might be 10 or 20% in two or three states, which would far exceed anything they’re actively working on now.</span></span></div>
<div class="p3">
<span style="font-family: Georgia, Times New Roman, serif;"><span class="s1"></span><br /></span></div>
<h2>
<span class="s3"><b><span style="color: #073763; font-family: Georgia, Times New Roman, serif; font-size: large;">HOW MUCH WOULD SCALING COST?</span></b></span></h2>
<div class="p4">
<span style="font-family: Georgia, Times New Roman, serif;"><span class="s4">Ah, the hardest question of them all. Based on the very few scaling plans available, it would unquestionably cost billions of dollars per year to fully scale each one of these rare programs. </span><span class="s1"> Even I accept that SIBs and pay-for-success financing won’t have that kind of capacity any time soon, even though there’s clear evidence that several of these programs produce short- and medium-term savings that exceed their costs. </span></span></div>
<div class="p4">
<span style="font-family: Georgia, Times New Roman, serif;"><span class="s1"><br /></span></span></div>
<div class="p7">
<span style="font-family: Georgia, Times New Roman, serif;"><span class="s5">But didn’t JP Morgan say that the emerging — and much broader — “asset class” of “impact investments” “offers the potential over the next 10 years for invested capital of $400bn–$1 trillion and profit of $183–$667bn” within just five global sectors: housing, rural water delivery, maternal health, primary education and financial services? </span><span class="s1">For SIBs, it’s not premature to ask if we even have visibility to our first billion. Can scale finance get there anytime soon? For the strict parameters I’ve defined for scale-ready programs, could the answer to the maximum feasible growth question be expansion that costs hundreds of millions per year now? Could an “Apple IPO” get us there? </span></span></div>
<div class="p7">
<span style="font-family: Georgia, Times New Roman, serif;"><span class="s1"><br /></span></span></div>
<div class="p4">
<span class="s1"><span style="font-family: Georgia, Times New Roman, serif;">Andrea Phillips doesn’t think so. Andrea was on the team at the Goldman Sachs Urban Investment Group that closed the $9.4 million SIB with New York City, the first and so far only SIB in the US. She offered an estimate of the potential size of the SIB marketplace at a January 16, 2013 panel discussion entitled, “SIBling Revelry: Are Social Impact Bonds the Next Big Thing?” hosted by the Hudson Institute’s Bradley Center for Philanthropy and Civic Renewal: </span></span></div>
<div class="p4">
<span class="s1"><span style="font-family: Georgia, Times New Roman, serif;"><br /></span></span></div>
<div class="p15">
<span class="s1"><span style="font-family: Georgia, Times New Roman, serif;">“So in closing, a couple words about whether this is scalable or replicable. What I would say is I am cautiously optimistic. I don’t think three years from now we are going to have a $500 million dollar bond market that’s tradable in Social Impact Bonds, but I do think five years from now there will be a sort of healthy marketplace where financial institutions like Goldman Sachs are providing the capital for these types of initiatives. And it will be a growing market and a scaling market. Right now, $10 million is probably a good size for one of these deals. I hope five years from now they’re $100 million dollars.”</span></span></div>
<div class="p15">
<span class="s1"><span style="font-family: Georgia, Times New Roman, serif;"><br /></span></span></div>
<div class="p4">
<span class="s1"><span style="font-family: Georgia, Times New Roman, serif;">Keep in mind that she’s talking about the <i>entire SIB marketplace</i>: $100 million in five years. On that trajectory, when could $100 million grow to even $1 billion, let alone the several billion that a handful of our best organizations could deploy each year? I suspect Andrea’s answer might well be, “At least twenty years from now.”</span></span></div>
<div class="p4">
<span class="s1"><span style="font-family: Georgia, Times New Roman, serif;"><br /></span></span></div>
<div class="p4">
<span class="s1"><span style="font-family: Georgia, Times New Roman, serif;">Now, Andrea works at Goldman Sachs and I work in my basement, so if I were you, I’d listen to her. But since I’m not you, I can think differently. </span></span></div>
<div class="p4">
<span class="s1"><span style="font-family: Georgia, Times New Roman, serif;"><br /></span></span></div>
<div class="p4">
<span class="s1"><span style="font-family: Georgia, Times New Roman, serif;">Two words, my friends: “scale finance.”</span></span></div>
<div class="p4">
<br /></div>
<div class="p3">
<span class="s1"></span><br /></div>
Steve Goldberghttp://www.blogger.com/profile/06106824600318886347noreply@blogger.com0tag:blogger.com,1999:blog-141831867777566890.post-18556241137363763152013-02-11T10:17:00.000-05:002013-02-11T11:52:40.056-05:00Knocking Down Strawmen<br />
<span style="font-family: Georgia, Times New Roman, serif;"><b>Let's debate about real -- not pretend -- issues.</b></span><br />
<span style="font-family: Georgia, Times New Roman, serif;"><b><br /></b></span>
<br />
<div class="MsoNormal">
<span style="font-family: Georgia, 'Times New Roman', serif;">You can tell that Social Impact Bonds are making headway by the increasing criticisms being lobbed in their direction.</span><span style="font-family: Georgia, 'Times New Roman', serif;"> </span><span style="font-family: Georgia, 'Times New Roman', serif;">I responded to one recent salvo <a href="http://billionsofdrops.blogspot.com/2013/01/0-0-1-2183-12446-social-finance-inc.html">here</a>, and this post offers a response to a guest blog from Jon Pratt, Executive Director, Minnesota Council of Nonprofits, entitled “<a href="http://thegoodcounsel.com/2013/02/01/flaws-in-the-social-impact-bond-craze/">Flaws in the Social Impact Bond Craze.</a>”</span></div>
<div class="MsoNormal">
<span style="font-family: Georgia, 'Times New Roman', serif;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: Georgia, Times New Roman, serif;">My reason for writing is to try to shift the debate from knocking down arguments that no one is making – strawmen – to legitimate issues about which reasonable and well-informed people can disagree, <a href="http://www.americanprogress.org/issues/economy/report/2012/12/05/46934/frequently-asked-questions-social-impact-bonds/">of which there are many</a>. I don’t know Mr. Pratt, but I have had some exposure to the Minnesota nonprofit sector, and I’ve long considered it to be more robust and effective than most. (Here's <a href="http://www.mapfornonprofits.org/index.asp?Type=B_DIR&SEC=%7B12B7A864-549D-48F9-BED0-DE4162BEB281%7D&DE=%7B563B5458-000B-4268-8118-3F63F7E545A2%7D">an example</a>.) If Minnesotans decide not to pursue SIBs and other kinds of impact investments, that’s certainly their prerogative. I would just invite them to consider the matter on real rather than imaginary grounds.<o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: Georgia, Times New Roman, serif;">Mr. Pratt implies that the reason for the supposed “craze” is that “an extraordinary amount of enthusiasm is building among consultants, foundations and financial services firms.” He calls this “the foundation/consultant enthusiasm stage of SIBs.” He warns that, “[h]owever fast growing the Social Impact Bond promotion” may be, everyone should keep an eye on the “big money and very well-known supporters” behind the curtain.<o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: Georgia, Times New Roman, serif;">Before we dismiss SIBs as “admirable but dreamy” and “almost too good to be true!”, as Mr. Pratt would have us do, let’s be honest and clear about the real reason for SIBs. As one of the founding fathers of social investing, Sir Ronald Cohen, has put it, “Government is out of money and out of breath.” We are enmeshed in a long-term fiscal and economic crisis that will increase the need, but decrease the funding, for effective social services long after unemployment returns to normal levels. This is a “new normal” of government retrenchment, rising inequality and decreasing social mobility to which we have not yet adjusted. The safety net ain’t what it used to be, plus we can’t afford it.<o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: Georgia, Times New Roman, serif;">While there are many encouraging trends in social sector innovation, as well as room for improvement, beleaguered nonprofits are in no position to take up the slack left by an eroding public sector. They don’t just, as Mr. Pratt puts it, “frequently feel under-compensated, need more resources, and blame their limited success on lack of funding,” they <i>are</i> under-compensated, in need of more resources and held back by a chronic and worsening lack of funding. Nonprofits are fighting a holding action that they can’t win over the long term. They, too, haven’t figured out how to cope with the new normal.<o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: Georgia, Times New Roman, serif;">Mr. Pratt dismisses the notion that SIBs will attract “more resources” by setting up and then knocking down another strawman. SIBs, he says, are “based on the idea that legislative bodies will appropriate additional funds based on a projection of future savings.” But, apparently, this is just a sleight of hand:<o:p></o:p></span></div>
<blockquote class="tr_bq">
<span style="font-family: Georgia, Times New Roman, serif;">“If your organization’s services reduce repeat trips to prison, saving government money, your organization (and its financiers) deserve to be rewarded with extra payments — made possible by the reduced expenditures required of government in housing these prisoners. </span><span style="font-family: Georgia, Times New Roman, serif;"><br /></span><span style="font-family: Georgia, Times New Roman, serif;">The argument is a good one, certainly, which is why it is used constantly in every legislative and appropriation process — that this particular expenditure for (early childhood education/crime prevention/sanitary sewers/vaccinations, etc.) is better spent to prevent a problem than to try to remediate it later. </span><span style="font-family: Georgia, 'Times New Roman', serif;">Legislative bodies understand this, and often agree — and these intended savings across all of these areas are already taken into account in the overall appropriation process.</span></blockquote>
<blockquote class="tr_bq">
<span style="font-family: Georgia, Times New Roman, serif;">You can certainly make the case that your particular service is special and new, and has a superior claim to savings, but your ability to get legislative approval is almost certainly a displacement from other funding — not an actual specific addition to total expenditures.”</span></blockquote>
<div class="MsoNormal">
<span style="font-family: Georgia, Times New Roman, serif;">SIBs are most definitely not “based on the idea that legislative bodies will appropriate additional funds based on a projection of future savings.” It’s precisely the opposite: we don’t ask legislatures to appropriate additional spending, we ask them to agree now to share savings that SIBs produce in the future, but only if those savings actually materialize and only if they’re sufficient to pay investors back. <o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: Georgia, Times New Roman, serif;">Even if SIBs succeed, we’re not proposing that nonprofits “be rewarded with extra payments.” The financial benefits of SIBs for nonprofits is that they’ll know in advance that they’ll receive reliable and adequate funding over the entire five-year or longer duration of the SIB project, something that is rarely the case with grants or government contracts. <o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: Georgia, Times New Roman, serif;">As every nonprofit can attest, it’s not just the amount of money that holds them back, it’s also the unpredictability and tenuousness of the funding. When a social enterprise has a one-year grant or contract, it can’t make long-term plans and can’t attract and train the talent it needs to accomplish big things. Five grants or contracts of, say, $50,000 each, that have to be applied for and won each year, can’t accomplish as much as one $250,000 SIB for the same period of time. This is especially true when the nonprofit is empowered to decide how to spend the $250,000 because the SIB investors know that’s the best chance they have of achieving the social outcomes upon which their financial returns depend under the outcomes-based contract with the state. <o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: Georgia, Times New Roman, serif;">Nothing could be further from the truth that “these intended savings across all of these areas are already taken into account in the overall appropriation process.” Again, the reality is precisely the opposite: government is forced to cut spending on prevention programs because they don’t even have enough money for emergency services. We’re exploring SIBs because we find ourselves stuck in a downward spiral where funding for more expensive and less effective programs crowds out taxpayer funding for early intervention programs that have been shown to prevent people from becoming homeless or going back to prison, which then requires us to build more emergency shelters and prison capacity that takes more money from prevention, and on and on.<o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: Georgia, Times New Roman, serif;">You don’t have to take my word for it. A 2010 study funded by The Boston Foundation on “Adopting Effective Probation Practice” confirms our collective dilemma:</span></div>
<blockquote class="tr_bq">
<span style="font-family: Georgia, Times New Roman, serif;">“The budget crisis has come at a time when the DOC, Parole and many sheriffs have begun to make progress in re-shaping agencies and focusing their resources on efforts that enhance public safety. Some of these agencies have made significant strides in implementing evidence-based practices, those proven to reduce recidivism, and have begun to show lower recidivism rates. Leaders of these agencies have focused on changing offender behavior in order to reduce the risk of re-offense rather than simply warehousing offenders and releasing them after the sentence is served. <i>Because of the massive fixed costs in the corrections system, corrections officials have few budget reduction options other than eliminating the critical programs and services that change offender behavior and, in turn, improve public safety.</i>”</span></blockquote>
<span style="font-family: Georgia, Times New Roman, serif;">Here's a February 8th story from the Londonist about a local government council spending more than £2m to house homeless families in hotels "because housing benefit cuts and a shortage of suitable properties have left them with nowhere else to go." </span><br />
<blockquote class="tr_bq">
<span style="font-family: Georgia, 'Times New Roman', serif;">“</span><span style="font-family: Georgia, Times New Roman, serif;">Westminster isn’t the only council placing families in B&B accommodation. In December we saw that several boroughs were breaking the law that’s supposed to limit these temporary placements to six weeks – but what else are they supposed to do? Councils have a statutory duty to house anyone who turns up and is homeless; benefit cuts have led to more people becoming homeless and councils are struggling to find anywhere else families can afford. And that’s leading to councils spending more on hotels than they were on housing benefit. This may be the very definition of a false economy.</span><span style="font-family: Georgia, 'Times New Roman', serif;">”</span></blockquote>
<div class="MsoNormal">
<span style="font-family: Georgia, Times New Roman, serif;">Massachusetts faces the <a href="http://www.boston.com/news/local/massachusetts/2013/01/02/mass-stop-housing-homeless-families-hotels/mfbCklBvfvwylSGt0MZ7BO/story.html">identical problem</a>.</span></div>
<div class="MsoNormal">
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: Georgia, 'Times New Roman', serif;">SIBs don’t displace government funding or foundation grants.</span><span style="font-family: Georgia, 'Times New Roman', serif;"> </span><span style="font-family: Georgia, 'Times New Roman', serif;">They raise new money from new sources – private investors – who will only invest if they believe that prevention programs the government can’t afford will work, and produce the savings from which government can pay them back <i>without additional appropriations</i>.</span></div>
<div class="MsoNormal">
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: Georgia, Times New Roman, serif;">It certainly remains to be seen whether social investing can be part of a more effective response to the new reality. Mr. Pratt is correct when he says we have no results yet from any SIB project. But, to be fair, the reasons we don’t are, first, they’re just getting underway, and, second, SIBs aren’t quick fixes for little problems. Rather, they’re designed to scale what works over a long period of time. <o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: Georgia, Times New Roman, serif;">Which brings me to my second quarrel with Mr. Pratt’s imagined SIB “craze.” He says that “the biggest SIB innovation is the transaction itself, and accompanying financial instruments and intermediaries, <i>not the service method.</i>” In other words, there’s no there there:</span></div>
<blockquote class="tr_bq">
<span style="font-family: Georgia, Times New Roman, serif;">“There are no proposed special service innovations for the work supported by the SIBs (they are understood to apply effective methods considered best practice in their field), but will get improved results through enhanced discipline by virtue of their participation in the SIB process and its restriction to only pay for results. This high stakes carrot and stick approach is not unlike the expectations of results in the “No Child Left Behind” legislation, which had its own unintended consequences (including cheating scandals by pressured school administrators).”</span></blockquote>
<div class="MsoNormal">
<span style="font-family: Georgia, Times New Roman, serif;">Again, it’s perfectly fair to be skeptical about whether SIBs will produce better outcomes, but it's not fair to dismiss them by mischaracterizing how they work. SIBs don’t just include “a dose of business incentive” that gullible funders who “view business managers as inherently more effective than nonprofit managers” accept as an article of faith. I can assure Mr. Pratt that no one working to develop the new and still untested field of impact investing thinks, “after all – how hard can it be to run a nonprofit?” <o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: Georgia, Times New Roman, serif;">To the contrary, risk-averse investors are very conscious of the difficulty in running a social enterprise dependent on funding sources that <a href="http://philanthropy.blogspot.com/2010/12/predictions-and-strategy.html">Lucy Bernholz</a> has described as “episodic, donor directed, temporal, fragmented, decentralized and disaggregated.” Before social investors will buy SIBs, they want to know if, unlike philanthropy, their money is invested in a way that is steady, controlled by nonprofits, reliable, integrated, consolidated, and aggregated, will it enhance what nonprofits accomplish? And the obvious answer to that question is: not necessarily. If we just add money without materially changing “the service method,” as Mr. Pratt claims, we’re unlikely to see better results.<o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: Georgia, Times New Roman, serif;">Social investors know this and they don’t engage in wishful thinking that SIBs will magically work “through enhanced discipline by virtue of their participation in the SIB process and its restriction to only pay for results.” The “market discipline” that we hope will come from private investment isn’t based on an ideological belief in the natural superiority of business. Instead, the service innovations that we hope SIBs will engender (whose existence Mr. Pratt denies) is a direct result of the financial innovation that SIBs enable. Why do I say that?<o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: Georgia, Times New Roman, serif;">The business case for SIBs is that investors can accomplish their twin objectives of increasing the benefits of social programs and earning a modest financial return if and only if they apply the same due diligence to their social investments that they apply to their financial investments. SIB investors won’t give us their money unless we convince them, using credible data, that the prevention programs work and can save government enough money to pay them back. If not, the experiment ends.<o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: Georgia, 'Times New Roman', serif;">Mr. Pratt makes the mistake of assuming that, because SIBs look for "evidence-based" programs delivered by nonprofits with track records of effective service delivery, they don't need any operational improvements. As decades of research shows, programs that work well in some places at certain levels of operations often don't work nearly as well when they're transported to new places or expanded to reach more people. When SIBs try to "scale what works," that's a very tall order requiring more than just adding money.</span></div>
<div class="MsoNormal">
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: Georgia, Times New Roman, serif;">So, even if we can persuade investors to buy SIBs, they will watch how we use it very carefully, just as they do with their long-term financial investments. Interim performance metrics, such as enrollment rates, compliance with eligibility criteria and fidelity to the critical success factors of the intervention model, will be reported on a regular basis. If the numbers don’t look right, the SIB intermediaries have time to make course corrections, and investors will expect them to do so. All stakeholders, including the service providers, the intermediaries, the government agencies, and the measurement experts, will meet regularly to analyze progress and, through a collaborative governing process established in advance, decide how to get back on track. <o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: Georgia, Times New Roman, serif;">This is not the way most social services are delivered today. Diligent selection of effective interventions and growth-ready providers, investing in managerial and organizational capacity, careful articulation of measurable outcomes, long-term planning, robust data collection with quality control, ongoing performance reviews, collaborative oversight, and independent verification of results might not be glamorous, but they are indeed “special service innovations for the work supported by the SIBs.” </span></div>
<div class="MsoNormal">
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: Georgia, Times New Roman, serif;">These kinds of best practices, some of which many nonprofits follow today as best they can with limited and unreliable funding, are indispensable with SIBs. Without them, investors won't invest and the projects won't succeed. There's a cause-and-effect relationship between the kind of money SIBs are designed to attract and the kinds of operational improvements needed under results-based contracts.<o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: Georgia, 'Times New Roman', serif;">Mr. Pratt cites Donald T. Campbell for the “law” that “[t]he more any quantitative social indicator is used for social decision-making, the more subject it will be to corruption pressures and the more apt it will be to distort and corrupt the social processes it is intended to monitor.” Campbell’s Law is certainly sound and counsels caution and humility in performance-based contracting. </span></div>
<div class="MsoNormal">
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: Georgia, Times New Roman, serif;">But Professor Campbell was not saying, as Mr. Pratt seems to argue, that performance measurement is a fool’s errand. The professor wrote a paper in 1976 called, “<a href="https://www.globalhivmeinfo.org/CapacityBuilding/Occasional%20Papers/08%20Assessing%20the%20Impact%20of%20Planned%20Social%20Change.pdf">Assessing the Impact of Planned Social Change</a>,” which offered an observation to which all of us trying to advance social change can relate: “It is a special characteristic of all modern societies that we consciously decide on and plan projects designed to improve our social systems. It is our universal predicament that our projects do not always have their intended effects. Very probably we all share in the experience that often we cannot tell whether the project had any impact at all, so complex is the flux of historical changes that would have been going anyway, and so many are the other projects that might be expected to modify the same indicators.”<o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: Georgia, Times New Roman, serif;">In other words, impact assessment is absolutely essential but diabolically difficult. It is neither a waste of time nor a sham designed to enrich investors.<o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: Georgia, 'Times New Roman', serif;">Those of us working on social investment don’t think we’re smarter than those who aren’t, but we’re not selling snake oil, either. We are well aware that impact investment would not be possible without the decades of social innovation that was nourished by philanthropy and sustained by taxpayers. It is no criticism of either to acknowledge that we now face systemic challenges that traditional approaches haven't been able to overcome. We have no intention of abandoning the vital work of the organizations that brought us this far, but we are exploring new approaches that might be able to pick up where they left off. We don’t know if they’ll work yet, but we do know they'll fail without the help of organizations like Mr. Pratt's. We understand there are risks inherent in bringing private capital into the mix, and we’re thinking hard about ways to manage those risks. We expect to be judged by our performance.</span></div>
<div class="MsoNormal">
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: Georgia, Times New Roman, serif;">SIBs are neither a quick fix nor a panacea. There's nothing magical about them. These are ideas worth considering and developing further, and healthy skepticism will force us to wrestle honestly with difficult questions. Mr. Pratt says we should “closely examine and question the claims made for SIBs.” Let’s do that.</span></div>
Steve Goldberghttp://www.blogger.com/profile/06106824600318886347noreply@blogger.com0tag:blogger.com,1999:blog-141831867777566890.post-34601942416851692582013-02-04T12:24:00.000-05:002013-02-05T22:54:52.604-05:00Private Finance, Public Good: The Future for Children Bond<span style="font-family: Georgia, Times New Roman, serif;"><i>[You can download a PDF of this post <a href="https://www.dropbox.com/s/z3kxkt675gjh5tu/Future%20for%20Children%20Bond.pdf">here</a>.]</i></span><br />
<span style="font-family: Georgia, 'Times New Roman', serif;"><br /></span>
<span style="font-family: Georgia, 'Times New Roman', serif;">At a time when we’re still suffering from the predations and gluttony of many on Wall Street, it can be hard to remember there was a time when financiers actually did something socially useful. But we would not have the bounty most of us take for granted in technology, health care and energy without the foresight and courage of those who discovered those embryonic opportunities and raised the money to sustain and grow them. The economic vitality of the United States since World War II would not have been possible without our singularly robust capital markets.</span><br />
<span style="font-family: Georgia, 'Times New Roman', serif;"><br /></span>
<span style="font-family: Georgia, Times New Roman, serif;">Still, much of the financial sector clearly lost its way, and the rest of us are still paying the price. Nor have we really learned from our mistakes. So while “financial engineering” isn’t intrinsically evil, it’s clearly capable of being grievously misused. </span><br />
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span>
<span style="font-family: Georgia, Times New Roman, serif;">Many reasonable people fear that “social investment” (also called impact investment) will take us down the same road. For example, after the Alberta College of Social Workers passed a motion on January 18th to oppose the use of social impact bonds in Alberta, Canada, spokeswoman Lori Sigurdson told the Edmonton Journal, “We don’t want some people to profit from the misery of others.”</span><br />
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span>
<span style="font-family: Georgia, Times New Roman, serif;">This isn’t an illegitimate or trivial concern. I happen to agree with Ms. Sigurdson that “[t]he primary responsibility of government is to be supporting vulnerable and marginalized people.” Of course, the problem today is that government doesn’t fulfill that responsibility, and (as I write about in my book) hasn’t really done so for the last several decades. The once-gloried social compact has become something of a bad news/bad news tale: the safety net doesn’t work, and we can’t afford it.</span><br />
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span>
<span style="font-family: Georgia, Times New Roman, serif;">The emergence of impact investing does not herald the selling out of the social sector. I won’t say there aren’t risks we have to guard against. The evolution of the microfinance industry, for example, provides a cautionary tale. But this is truly a case where we don’t want to become so intransigent that we preemptively deny social entrepreneurs the means to grow that only private capital might be able to provide. </span><br />
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span>
<span style="font-family: Georgia, Times New Roman, serif;">A case in point is the <a href="http://futureforchildren.allia.org.uk/">Future for Children Bond</a>, announced today by Allia, an English charitable organization that describes itself as “The Social Profit Society.” The Future for Children Bond is “the first public offering of a Social Impact Bond to retail investors.” What does that mean and why is it a very big deal?</span><br />
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span>
<span style="font-family: Georgia, Times New Roman, serif;">As Allia explains, social investment is simply “the provision of finance with the objective of achieving specific social outcomes and the expectation of receiving back at least the original amount invested.” The words “objective” and “expectation” signal that uncertainty is involved, while “at least” suggests the prospect of a positive reward beyond merely breaking even.</span><br />
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span>
<span style="font-family: Georgia, Times New Roman, serif;">Readers of this blog know what a Social Impact Bond (SIB) is, and newcomers can find a great <a href="http://www.nytimes.com/2012/11/09/giving/investors-profit-by-giving-through-social-impact-bonds.html?pagewanted=all&_r=0">New York Times article here</a>. Inherent in most formulations of the SIB concept is the possibility that investors could lose some or all of their initial investment, an unwelcome prospect known as “loss of principal.” </span><br />
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span>
<span style="font-family: Georgia, Times New Roman, serif;">Like all social investors, SIB investors hope that won’t happen, and that the worst outcome would be that they “only” get their money back. In the basic SIB model, investors break even if the project they support hits the agreed social outcome target (say, a 10% reduction if prisoner recidivism), and they earn a profit (“a return”) if they exceed the target. If they fall short, they stand to lose some or all of their principal depending on how the SIB contract is written and how close they get to the agreed results. The idea is to encourage social investors to support innovative programs that might produce superior results, and to accept a certain amount of risk that they might not.</span><br />
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span>
<span style="font-family: Georgia, Times New Roman, serif;">Of course, most impact investors are also philanthropists. They give money away with no expectation of getting any of it back. But the supply of philanthropy isn’t unlimited. If we want civic-minded affluent people to make a lot more money available for social purposes, they need to know they’ll eventually get it back. Philanthropy is disposable, social investment is recyclable.</span><br />
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span>
<span style="font-family: Georgia, Times New Roman, serif;">Finance is socially useful when it supercharges economic output, which is why it’s entirely reasonable for conservatives to say that “the best social program is a job.” While the nonprofit sector does produce millions of jobs and generates billions of dollars of economic value, philanthropy is designed, in large measure, to address market failure. Finance is designed to amplify market success.</span><br />
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span>
<span style="font-family: Georgia, Times New Roman, serif;">The Future for Children Bond exemplifies financial innovation for social good at its best. If offers some inspired improvements over the simple SIB model that should make it much more attractive to investors and, therefore, a potentially much more powerful way to expand social programs that clearly work and that children and families desperately need. </span><br />
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span>
<span style="font-family: Georgia, Times New Roman, serif;">I’m going to explain in some detail what makes them more attractive and why they have greater growth potential. You might want to get yourself a nice cup of hot chocolate and a comfy chair. This will take a while.</span><br />
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span>
<br />
<h4>
<span style="font-family: Georgia, Times New Roman, serif;">Why Future for Children Bonds Are Attractive Social Investments, Part I: “Security Trumps Returns”</span></h4>
<div>
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span></div>
<span style="font-family: Georgia, Times New Roman, serif;">No one’s going to get rich investing in SIBs. At this point, we don’t even know if they work, and, if they do, the returns are likely to be modest. (Another lame SIB joke: “The risks are high, but at least the returns are lousy.”) SIBs won’t get your blood racing unless you’re an investor who’s motivated by the possibility of producing much better social outcomes. As Cathy Clark, Jed Emerson and Ben Thornley <a href="http://www.pacificcommunityventures.org/reports-and-publications/the-impact-investor-best-practices-in-impact-investing/">recently wrote</a>, social investors might well consider “low single-digit financial returns with clear social outcomes” to be “[e]xceptional returns.” We’re lucky to have such civic-minded investors.</span><br />
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span>
<span style="font-family: Georgia, Times New Roman, serif;">The really challenging part of getting SIBs right is managing the risks, or, in financial lingo, “reducing the downside.” Social investors aren’t looking for huge profits, they’re looking for modest profits they think they will actually see. As Steve Godeke and Lyel Resner <a href="http://www.rockefellerfoundation.org/news/publications/building-healthy-sustainable-social">recently observed</a>, “security trumps returns.” <a href="http://www.cityoflondon.gov.uk/business/economic-research-and-information/research-publications/Pages/investor-perspectives-on-social-enterprise-financing.aspx">Katie Hill</a>, an advisor to the City of London Corporation agrees: “protection of the downside is more important than potentially high upside.”</span><br />
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span>
<span style="font-family: Georgia, Times New Roman, serif;">SIBs have downside risk because investors get their principal back only if they invest in charities that achieve results established in the SIB contract with government. In the world’s first SIB, recidivism rates for Peterborough prison must be at least 7.5% lower than rates for comparable ex-offenders released from ten other English prisons. In the first US SIB, juvenile recidivism at Rikers Island jail must be reduced by at least 10%. If Peterborough rates are only 7.4% lower, the investors lose their entire principal. If Rikers Island recidivism falls by at least 8.5%, investors lose half of their principal; if not, they lose everything.</span><br />
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span>
<span style="font-family: Georgia, Times New Roman, serif;">That’s a lot of downside risk. As I explained in the latest issue of the <a href="http://payforsuccess.org/sites/default/files/sib_trib_no._2.pdf">Social Impact Bond Tribune</a>, SIB developers are exploring a variety of ways to try to reduce that risk. In the case of the Future for Children Bond, Allia has come up with a particularly clever approach.</span><br />
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span>
<br />
<h4>
<span style="font-family: Georgia, Times New Roman, serif;">How The Future for Children Bond Works</span></h4>
<div>
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span></div>
<span style="font-family: Georgia, 'Times New Roman', serif;">When you buy a Future for Children Bond, you’re actually making two social investments at once, with very different levels of risk. The first one is an honest-to-goodness bond, a fixed-rate loan to Places for People Homes, “a Moody’s Aa rated housing provider that builds, sells and rents homes and provides services and support to those who live in them.” Moody’s Investors Service says “[o]bligations rated Aa are judged to be of high quality and are subject to very low credit risk.”</span><br />
<span style="font-family: Georgia, 'Times New Roman', serif;"><br /></span>
<span style="font-family: Georgia, Times New Roman, serif;">The second part of the Future for Children Bond is a SIB offered by the Essex County Council to provide services to troubled families whose children are considered to be “at risk” of being placed “in care,” that is, removed from their homes to protect them from potential child abuse and neglect. (In the US, we call these “child welfare” services.) </span><br />
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span>
<span style="font-family: Georgia, Times New Roman, serif;">Essex County is a study in contrasts, with some of England’s wealthiest and poorest communities. All but one of its 18 Members of Parliament belong to the Conservative Party. When it comes to children in care, Essex faces some formidable challenges:</span><br />
<br />
<ul>
<li><span style="font-family: Georgia, 'Times New Roman', serif;">“High numbers of children in care;</span></li>
<li><span style="font-family: Georgia, 'Times New Roman', serif;">Predominance of high cost residential placements;</span></li>
<li><span style="font-family: Georgia, 'Times New Roman', serif;">Higher proportion of older adolescents with behavioural issues;</span></li>
<li><span style="font-family: Georgia, 'Times New Roman', serif;">Poor parenting support in particular around managing behaviour;</span></li>
<li><span style="font-family: Georgia, 'Times New Roman', serif;">Under developed early intervention and family support services;</span></li>
<li><span style="font-family: Georgia, 'Times New Roman', serif;">Lack of higher level intensive interventions and limited resources to establish them; and</span></li>
<li><span style="font-family: Georgia, 'Times New Roman', serif;">Vicious circle, wrong service offer, young people in care unnecessarily, pressure on budgets, reducing available investment.”</span></li>
</ul>
<br />
<span style="font-family: Georgia, 'Times New Roman', serif;">Roger Bullen, the Head of Joint Working at Essex County Council, has a simple goal for changing the system for children on the edge of care: “Fix it, and fix it forever.”</span><br />
<span style="font-family: Georgia, 'Times New Roman', serif;"><br /></span>
<span style="font-family: Georgia, Times New Roman, serif;">The Future for Children Bond funds two social investments in order to separate the risk and return features of the bond: the loan to Places for People Homes protects the principal amount and the Essex County SIB provides the potential return. For every £1,000 invested in the Future for Children Bond, £780 goes to Places for People Homes, £200 goes to the Essex County SIB, and £20 (2%) goes to Allia to cover its costs.</span><br />
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span>
<span style="font-family: Georgia, Times New Roman, serif;">At the end of the eight-year term of the Bond, Places for People Homes will repay £1,000 for the £780 loan, an interest rate of 3.2%. As this is a very safe loan, the likelihood that investors will get back their entire principal is extremely high. So the worst expected financial outcome for the Future for Children Bond is that the investors break even (leaving aside inflation and the time value of money). Allia’s statement that the “[m]inimum return to investors will be 100% of funds invested” is not one that most SIBs can make. </span><br />
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span>
<span style="font-family: Georgia, Times New Roman, serif;">A “not-for-dividend” organization, Places for People, is “one of the largest property management, development and regeneration companies in the UK.” It manages more than 83,000 homes and has “a long track record of successful development, from large-scale regeneration projects to the creation of whole new communities and manage[s] these projects so they remain sustainable into the future.” In 2012, Places for People earned a Platinum award in the Corporate Responsibility Index, recognizing it as one of the most ethical businesses in the UK.</span><br />
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span>
<span style="font-family: Georgia, Times New Roman, serif;">That’s the first part of what makes Future for Children Bonds so attractive. The odds of losing any of the principal are negligible, and the loan proceeds are put to very good use for eight years. For social investors who just need to make sure they get their original investment back and do some good along the way, the Bond should be a no-brainer.</span><br />
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span>
<br />
<h4>
<span style="font-family: Georgia, Times New Roman, serif;">Why Future for Children Bonds Are Attractive Social Investments, Part II: Getting More Than Just Your Money Back</span></h4>
<div>
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span></div>
<span style="font-family: Georgia, Times New Roman, serif;">But there are two more features that make the Bond an attractive social investment. The first is the possibility of making a modest profit on the investment. The second is the possibility of making really effective social services much more widely available to kids who really need them. Let’s get the profit part out of the way first.</span><br />
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span>
<span style="font-family: Georgia, Times New Roman, serif;">Like most SIBs, the underlying concept is that “an ounce of prevention is worth a pound of cure.” As Allia explains, “[t]he Essex SIB will fund a programme of ... intensive support to approximately 380 children and their families. The target is to divert around 100 young people from entering care by providing support to them in their home. The success of the SIB will be measured by the reduction in days spent in care by these children, as well as improved school outcomes, wellbeing and reduced reoffending. If the programme is successful in reducing the amount of time children need to spend in care, it will result in cost savings for Essex County Council, which can be used to provide a return to the investors in the SIB.”</span><br />
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span>
<span style="font-family: Georgia, Times New Roman, serif;">This might be a good time to replenish your cocoa, as I’m going to take a rather deep look at this simple explanation. The parties behind the Future for Children Bond have tapped into something truly significant.</span><br />
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span>
<span style="font-family: Georgia, Times New Roman, serif;">Taking children at risk of abuse and neglect away from their families is an emergency measure that, unfortunately, produces its own adverse consequences. “When it is clearly unsafe for a child to remain in his or her home, foster care provides a temporary safe haven. However, for too many children, foster care becomes long-term and unstable. Research demonstrates that children who have been in foster care for lengthy periods of time do not fare as well as their peers, especially in the areas of education, employment, mental health and teen pregnancy. Factors such as the number of changes in foster families, changes in schools and separation from siblings often harm a child’s behavioral and social functioning.” Casey Family Programs, “Ensuring Safe, Nurturing and Permanent Families for Children” (May 2010).</span><br />
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span>
<span style="font-family: Georgia, Times New Roman, serif;">In the US, about one-quarter of the 424,000 children currently in foster care have been there for more than three years. That’s far too long. In the UK, there are currently more than 67,000 children in care, with around 1,500 children in Essex County. The SIB targets one particular group:</span><br />
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span>
<span style="font-family: Georgia, Times New Roman, serif;">“The largest group being looked after is adolescents. They often enter care because of multiple and complex behaviour problems which lead to aggression, antisocial behaviour, parental loss of control, family breakdown, and ultimately an inability or lack of desire to continue living with their birth family. Young people who enter care in their teenage years are likely to spend more than 80% of their remaining childhood in care. The life chances of these children are typically bleak: half of looked after children obtain fewer than five GCSEs [a UK academic qualification] or equivalent compared to the national figure of 10%; one in three previously looked after children is not in education, employment or training at age 19; one in four of all prisoners has been in care, compared with 2% of the population overall.”</span><br />
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span>
<span style="font-family: Georgia, Times New Roman, serif;">Beyond the traumatic social impacts of children languishing in foster care or residential placements, “[s]tate care is also expensive, costing up to £180,000 [about $283,000] a year for a child in residential care.” Total <a href="http://www.lboro.ac.uk/research/ccfr/Publications/update_cost_foster_care.pdf">projected spending in the UK</a> for foster care alone is about £2.4 billion (about $3.8 billion) per year, and the US spends about $29.4 billion (about £18.7 billion) per year for <a href="http://www.childtrends.org/Files/Child_Trends-2012_06_20_FR_CaseyCWFinancing.pdf">child welfare programs</a>. </span><br />
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span>
<span style="font-family: Georgia, Times New Roman, serif;">That’s a lot of money. </span><br />
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span>
<span style="font-family: Georgia, Times New Roman, serif;">But child abuse and neglect is also a problem we know how to prevent to a much greater extent than we currently do. The funds raised by the Essex SIB will be used to provide <a href="http://www.mstservices.com/">Multi-Systemic Therapy</a> (MST), a comprehensive approach that “blends the best clinical treatments—cognitive behavioral therapy, behavior management training, family therapies and community psychology.” For anyone worried that SIBs will favor investors by avoiding hard cases, MST works with “the toughest offenders ages 12 through 17 who have a very long history of arrests.” </span><br />
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span>
<span style="font-family: Georgia, Times New Roman, serif;">Dr. Scott Henggeler developed MST in the mid-1970s when he was getting his Ph.D. at the University of Virginia. After working with some of the state’s most antisocial teenagers and making little progress, he decided to visit the adolescents in their homes. “It took me 15 to 20 seconds to realize how incredibly stupid my brilliant treatment plans were.” </span><br />
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span>
<span style="font-family: Georgia, Times New Roman, serif;">MST is “an intensive family- and community-based treatment program that focuses on addressing all environmental systems that impact chronic and violent juvenile offenders – their homes and families, schools and teachers, neighborhoods and friends. MST recognizes that each system plays a critical role in a youth’s world and each system requires attention when effective change is needed to improve the quality of life for youth and their families.” </span><br />
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span>
<span style="font-family: Georgia, Times New Roman, serif;">Now, MST is not your average social program. It’s used in 34 states and 14 countries to treat more than 23,000 youth and their families every year. Rigorous research involving more than 5,200 families, including 20 randomized control trials, shows that MST reduces out-of-home placements by 47-64%. A 14-year follow-up study by the Missouri Delinquency Project showed youths who received MST had up to 54% fewer re-arrests, 57% fewer days of incarceration, 68% fewer drug-related arrests, and 43% fewer days on adult probation. </span><br />
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span>
<span style="font-family: Georgia, Times New Roman, serif;">In fact, MST has consistently demonstrated positive outcomes with chronic juvenile offenders for more than 30 years. It has been endorsed by Blueprints for Violence Prevention, the Office of the Surgeon General, the Coalition for Evidence-Based Policy, SAMHSA's National Registry of Evidence-based Programs and Practices (NREPP), and the Washington State Institute for Public Policy, among others. </span><br />
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span>
<span style="font-family: Georgia, Times New Roman, serif;">In order to achieve these results, MST Services, Inc. was founded to disseminate the intervention in compliance with a long list of specific practices that are critical to its success. In 1996, the Medical University of South Carolina licensed MST Services to train therapists and provide them and their supervisors with support, resources and ongoing coaching, including budgeting and business planning, hiring, record-keeping, reducing staff attrition, quality assurance, and marketing and public relations. You can’t provide “MST®” – and that’s the only kind of MST there is – without signing up for the complete package.</span><br />
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span>
<span style="font-family: Georgia, Times New Roman, serif;">This is why the Essex County Council knows that MST will work. And the Council knows it will save money because MST has also been the subject of exceptionally thorough cost-benefit analysis. The Washington State Institute for Public Policy estimates the net direct cost of MST to be about $4,743 (a little more than £3,000) per participant, and found that “taxpayers gain approximately $31,661 [just over £20,000] in subsequent criminal justice cost savings for each program participant.” Every dollar spent on MST saves $6.68, and every pound saves £4.25. </span><br />
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span>
<span style="font-family: Georgia, Times New Roman, serif;">In short: the current governmental response to reports of child abuse and neglect is ineffectual and prohibitively expensive. With MST, we have a highly-effective, low-cost way to prevent an array of devastating social problems afflicting one of our most vulnerable populations, older teenagers at risk of being placed in long-term foster care or residential facilities. </span><br />
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span>
<span style="font-family: Georgia, Times New Roman, serif;">At about this point, you’re probably wondering why government doesn’t just pay for MST directly. There are a number of messy and confusing explanations, but the short answer is there’s little or nothing left for MST after government pays for emergency care and residential placements. Even though government could provide better care at lower cost using MST, it can’t take money away from acute care to pay for prevention because prevention takes time to work and, in any event, it won’t completely eliminate the need for emergency services and out-of-home placements. </span><br />
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span>
<span style="font-family: Georgia, Times New Roman, serif;">As the US Department of Health and Human Services said in 2011, “there is often a struggle encountered with successfully scaling up selected evidence based interventions while converting the old services array to new evidence-supported services.” Government can’t pay for both at the same time, so it needs to use someone else’s money to bridge the gap. That’s where private investors come into the picture. Let’s turn next to what gives the Future for Children Bond much greater power to expand MST.</span><br />
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span>
<br />
<h4>
<span style="font-family: Georgia, Times New Roman, serif;">Why Private Investment in Future for Children Bonds Can </span><span style="font-family: Georgia, 'Times New Roman', serif;">Expand MST in Ways That Government Spending and </span><span style="font-family: Georgia, 'Times New Roman', serif;">Philanthropy Can’t</span></h4>
<span style="font-family: Georgia, 'Times New Roman', serif;"><br /></span>
<span style="font-family: Georgia, 'Times New Roman', serif;">Allia calls the Future for Children Bond a “capital plus” bond which “combines a low-risk ethical investment into affordable housing (Places for People Homes) to provide the funds to repay capital to investors, with a high-risk investment into the social impact bond with the aim of delivering a high social impact and providing an additional variable return.” Allia is starting out rather modestly, seeking to raise just £3.1 million, but once this gets rolling, I think the demand will outstrip the supply.</span><br />
<blockquote class="tr_bq">
<span style="font-family: Georgia, Times New Roman, serif;"><i>Would this be an opportune time for me to mention that I don’t make any money from Future for Children Bonds?</i></span></blockquote>
<span style="font-family: Georgia, Times New Roman, serif;">I have to begin with some tedious terminology that will sound crass and cynical to many ears. Please bear with me while I try to convince you that they have the potential to accomplish things that nicer-sounding words like “grant” and “social compact” can’t. </span><br />
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span>
<span style="font-family: Georgia, Times New Roman, serif;">“Monetization” means extracting a financial benefit from a nonfinancial activity. When preventing a problem saves money, the savings become available for other uses. So SIBs monetize future government savings (we hope) by reducing the demand for more expensive government programs. </span><br />
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span>
<span style="font-family: Georgia, Times New Roman, serif;">“Financialization” means, at least in this case, making the opportunity to monetize an activity into something that others can invest in. So a SIB isn’t just a way to pay for prevention programs, it’s a financial instrument that investors can buy so they can share in any returns that result from monetizing future government savings.</span><br />
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span>
<span style="font-family: Georgia, Times New Roman, serif;">So the first step in raising more money for MST (or, indeed, for any SIB), monetization, is making something that doesn’t have financial value into something that does, and the second step, financialization (or securitization), involves creating an investment vehicle that can raise capital from lots of investors who want to fund the monetizing activity.</span><br />
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span>
<span style="font-family: Georgia, Times New Roman, serif;">It’s common for reasonable and dedicated people involved in charity to think that this turns an activity that shouldn’t be about money – helping children at risk – into something that’s just about money – investing. But SIBs and other social investments don’t make money more important than helping people. Instead, the only way they make any money for investors at all is if they do help people. If they don’t, the investors won’t get paid and that’ll be the end of this grand experiment.</span><br />
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span>
<span style="font-family: Georgia, Times New Roman, serif;">Social investing will definitely be a major change in how we fund social programs, and there’s no question it rubs some people the wrong way. All I can say is that the way we used to address these kinds of problems no longer works, and the problems are only getting bigger and uglier. Impact investment might work a lot better.</span><br />
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span>
<span style="font-family: Georgia, Times New Roman, serif;">Future for Children Bonds provide a small financial incentive for investors to pay for more MST, which could reduce the number of children taken from their homes and save government a lot of money. Monetization creates an entirely new source of funding that doesn’t compete with limited government budgets or donations. </span><br />
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span>
<span style="font-family: Georgia, Times New Roman, serif;">The 380 kids who will benefit from the initial £3.1M bond sale represents a good start on the 1,500 children-in-care in Essex County, but it barely scratches the surface of the 67,000 in the UK. If the Essex County SIB works, there’s no reason why other bonds couldn’t be offered in other counties. By financializing the investment opportunity, MST can be expanded, and there’s an enormous untapped supply of capital available for low-risk investments that produce reliable social benefits.</span><br />
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span>
<br />
<h4>
<span style="font-family: Georgia, Times New Roman, serif;">When Paying Retail is a Good Thing</span></h4>
<span style="font-family: Georgia, 'Times New Roman', serif;"><br /></span>
<span style="font-family: Georgia, 'Times New Roman', serif;">Allia’s bond has one more trick up its sleeve, and it’s a beaut. </span><br />
<span style="font-family: Georgia, 'Times New Roman', serif;"><br /></span>
<span style="font-family: Georgia, 'Times New Roman', serif;">As we’ve learned the hard way, securities can be dangerous, so they need to be regulated. Different kinds of securities need different levels of regulations, which have the general purpose of informing investors of the risks inherent in any particular instrument, known as “disclosure.” Different kinds of investors need different kinds and amounts of disclosure, often based on how sophisticated the prospective investors are likely to be. Professional investors need less disclosure because they have other sources of information; the general public needs more disclosure because they can’t understand and don’t even read fine print. Some investments are simply too complicated to explain to amateurs, so they can’t be sold to the public.</span><br />
<span style="font-family: Georgia, 'Times New Roman', serif;"><br /></span>
<span style="font-family: Georgia, Times New Roman, serif;">SIBs are an untested and unconventional financial instrument with uncertainty and risk at every link in the value chain: private investment => prevention => government savings => repayment of principal plus return. At this point, they’re essentially unregulated, so only professional investors can buy them, which limits their growth potential. If and when we understand the risks better, SIBs should be able to be sold with adequate disclosures so they can raise more money to expand more programs like MST, which will take <i>billions of dollars</i> to serve every family that needs it.</span><br />
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span>
<span style="font-family: Georgia, Times New Roman, serif;">But Allia took this dilemma head on. First, recall that 78% of the proceeds from the Future for Children Bond is invested in a very safe and very ordinary bond, which is used to repay investors 100% of their principal. Second, the SIB only gets 20% of the proceeds (Allia gets 2%), which goes toward profit if and only if the MST services save Essex County an agreed amount of money. Allia tells investors up front they might get absolutely no return from the SIB portion of the bond. </span><br />
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span>
<span style="font-family: Georgia, Times New Roman, serif;"><i>Voilà</i>: investors now understand their risks.</span><br />
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span>
<span style="font-family: Georgia, Times New Roman, serif;">Allia adds one more feature: Future for Children Bonds can only be purchased through financial advisors licensed by the British Financial Services Authority, the counterpart of the US Securities and Exchange Commission. These registered advisors now have a financial incentive to tell their clients about these Bonds. Taken together, these three features make the Future for Children Bond the first SIB that can be sold to “retail,” i.e., nonprofessional investors like you and me. </span><br />
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span>
<span style="font-family: Georgia, Times New Roman, serif;">Well, not me, because the minimum investment size is £15,000, or $23,578.50, which I don’t happen to have on me at the moment. (Would you take a post-dated, third-party check? Doesn’t matter. I don’t have one of those either.)</span><br />
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span>
<span style="font-family: Georgia, Times New Roman, serif;">But £15,000 is way below the minimum “subscription” amount for securities that can only be purchased by “accredited” investors, which run into the hundreds of thousands or even millions of dollars. The SEC defines an accredited investor as an individual with an income of more than $200,000 per year, or a couple with joint income of $300,000, in each of the last two years, or anyone with a net worth exceeding $1 million. </span><br />
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span>
<span style="font-family: Georgia, Times New Roman, serif;">By designing the Future for Children Bond as a retail investment product, Allia is opening a completely new frontier for social investment. If things go as planned, someday investments like this will become something that virtually anyone can invest in as part of your regular portfolio or your retirement account at work. Mutual funds, pension funds and even foundation endowments could include SIBs. That’s why impact investment has the potential to raise tens or hundreds of billions of new money for effective social innovations like MST.</span><br />
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span>
<span style="font-family: Georgia, Times New Roman, serif;">Okay, we’re almost done. I’ve tried here to explain the Future for Children Bond and its significance in terms that anyone can understand. If I’ve been successful in simplifying something pretty arcane, I hope that no one draws the conclusion that there’s no rocket science in this particular innovation. I have a Master’s degree in economics and a law degree, I’ve worked in government, business and nonprofits, and I could never have invented this thing. </span><br />
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span>
<span style="font-family: Georgia, Times New Roman, serif;">With apologies in advance to everyone I’m leaving out, many of the brilliant people who did come up with this hale from the very same financial services industry and related corporate enterprises that brought the world to its knees beginning in late 2008:</span><br />
<br />
<ul>
<li><span style="font-family: Georgia, 'Times New Roman', serif;">Tim Jones, CEO, Allia: “Tim’s 35-year career spans financial services, SME start-up and social entrepreneurship. He has worked in North America, the Gulf and Europe – posts included Head of Marketing at FTSE Top 30 company Royal Insurance, and Managing Director, Europe, at Direct Marketing Corporation of America. He subsequently spent 12 years building, and successfully exiting, two enterprise start-ups – Fraser-Milne and STD Belgrade – before taking on Allia in 2002.”</span></li>
<li><span style="font-family: Georgia, 'Times New Roman', serif;">David Hutchison, CEO, Social Finance, Ltd. (UK): “This follows a 25 year career at Dresdner Kleinwort where he was most recently Head of UK Investment Banking and a member of the Global Banking Operating Committee, coordinating the bank’s activities in the UK across the full range of investment banking products, M&A, debt and equity raising and derivatives marketing.”</span></li>
<li><span style="font-family: Georgia, 'Times New Roman', serif;">David Cowans, Group Chief Executive, Places for People: “David has led the transformation of Places for People from a traditional Housing Association into a diverse business [with assets in excess of £3.1 billion] which provides a range of products and services to build and manage communities that can prosper and be sustainable in the long term. This includes regeneration services, financial services, affordable childcare, care and support services and a range of options to enable people to access a home whether through outright sale, affordable rent or sale or market rent.”</span></li>
</ul>
<br />
<span style="font-family: Georgia, 'Times New Roman', serif;">Of course, not everyone involved is a former banker or business executive:</span><br />
<br />
<ul>
<li><span style="font-family: Georgia, 'Times New Roman', serif;">Children’s Support Services Limited (CSSL) is a newly-formed company set up by Social Finance to manage the outcomes contract with Essex County Council. One of CSSL’s Directors, Lisa Barclay, is a Director at Social Finance who started her career as a public policy advisor focusing on Treasury, Transport and Employment policy areas and was a Special Advisor at the Department for Education and Employment.</span></li>
<li><span style="font-family: Georgia, 'Times New Roman', serif;">Tom Jefford, another CSSL Director, is the Head of Youth Support Services at Cambridgeshire County Council and has worked with MST Services for the last 10 years and is in the third year of a 4-year trial of MST for child abuse and neglect.</span></li>
<li><span style="font-family: Georgia, 'Times New Roman', serif;">The primary service provider is Action for Children, a charity that dates back to 1869 and is the largest single voluntary sector provider of services for looked-after children in the UK. Clare Tickell, chief executive of Action for Children, whom Third Sector voted the “Most Admired Chief Executive” in 2008, “joined the charity in January 2005 after 16 years leading voluntary sector organisations.”</span></li>
</ul>
<br />
<span style="font-family: Georgia, Times New Roman, serif;">Not exactly Gordon Gekko.</span><br />
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span>
<span style="font-family: Georgia, Times New Roman, serif;">I’ll close (finally!) with a personal observation. On May 14, 2012, the Administration on Children, Youth and Families of the U.S. Department of Health and Human Services issued an “information memorandum” on “Child Welfare Waiver Demonstration Projects.” The objective was essentially the same as the Future for Children Bond: “there is a growing body of evidence suggesting that there are promising and effective approaches to improve outcomes for children and families in which abuse and/or neglect has taken place or is likely to take place. However, such approaches are utilized too rarely by many child welfare agencies. Our goal in facilitating innovation and experimentation in child welfare programs through waiver demonstrations is to improve outcomes for children and, thus, we encourage States to consider whether funding flexibility and improvements in the service strategies for children both at risk of foster care placement and those already placed outside the home could lead to better outcomes for children.”</span><br />
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span>
<span style="font-family: Georgia, Times New Roman, serif;">With commendable prodding and support from the Office of Management and Budget, HHS included SIBs as one of the flexible funding mechanisms it wanted to promote: “The proposed arrangements could take many forms and utilizing funding from non-Federal sources, including the philanthropic community and social impact bonds, is encouraged. For example, a state could condition provider payments, or bonuses paid from a foundation partner, on measurable improvement in child well-being outcomes or increased numbers of successful adoptions among the longest waiting children in foster care.”</span><br />
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span>
<span style="font-family: Georgia, Times New Roman, serif;">As far as I know (and for reasons that I won’t go into here), no states applied to HHS for a spending waiver to use SIBs to keep at-risk kids from being taken away from their families. Now that the UK has once again led the way by developing this brilliant social investment strategy as a promising approach for expanding proven prevention programs like MST, it’s time for government, foundations, social service agencies, and advocates in the US to take a close look. This is one kind of financial engineering that can do an awful lot of public good.</span><br />
<div>
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span></div>
<br />Steve Goldberghttp://www.blogger.com/profile/06106824600318886347noreply@blogger.com5tag:blogger.com,1999:blog-141831867777566890.post-17108865118079659832013-01-03T11:07:00.000-05:002013-01-03T16:28:06.154-05:00Worried About Change<!--[if gte mso 9]><xml>
<o:DocumentProperties>
<o:Revision>0</o:Revision>
<o:TotalTime>0</o:TotalTime>
<o:Pages>1</o:Pages>
<o:Words>2183</o:Words>
<o:Characters>12446</o:Characters>
<o:Company>Social Finance, Inc.</o:Company>
<o:Lines>103</o:Lines>
<o:Paragraphs>29</o:Paragraphs>
<o:CharactersWithSpaces>14600</o:CharactersWithSpaces>
<o:Version>14.0</o:Version>
</o:DocumentProperties>
<o:OfficeDocumentSettings>
<o:AllowPNG/>
</o:OfficeDocumentSettings>
</xml><![endif]-->
<!--[if gte mso 9]><xml>
<w:WordDocument>
<w:View>Normal</w:View>
<w:Zoom>0</w:Zoom>
<w:TrackMoves/>
<w:TrackFormatting/>
<w:PunctuationKerning/>
<w:ValidateAgainstSchemas/>
<w:SaveIfXMLInvalid>false</w:SaveIfXMLInvalid>
<w:IgnoreMixedContent>false</w:IgnoreMixedContent>
<w:AlwaysShowPlaceholderText>false</w:AlwaysShowPlaceholderText>
<w:DoNotPromoteQF/>
<w:LidThemeOther>EN-US</w:LidThemeOther>
<w:LidThemeAsian>JA</w:LidThemeAsian>
<w:LidThemeComplexScript>X-NONE</w:LidThemeComplexScript>
<w:Compatibility>
<w:BreakWrappedTables/>
<w:SnapToGridInCell/>
<w:WrapTextWithPunct/>
<w:UseAsianBreakRules/>
<w:DontGrowAutofit/>
<w:SplitPgBreakAndParaMark/>
<w:EnableOpenTypeKerning/>
<w:DontFlipMirrorIndents/>
<w:OverrideTableStyleHps/>
<w:UseFELayout/>
</w:Compatibility>
<m:mathPr>
<m:mathFont m:val="Cambria Math"/>
<m:brkBin m:val="before"/>
<m:brkBinSub m:val="--"/>
<m:smallFrac m:val="off"/>
<m:dispDef/>
<m:lMargin m:val="0"/>
<m:rMargin m:val="0"/>
<m:defJc m:val="centerGroup"/>
<m:wrapIndent m:val="1440"/>
<m:intLim m:val="subSup"/>
<m:naryLim m:val="undOvr"/>
</m:mathPr></w:WordDocument>
</xml><![endif]--><!--[if gte mso 9]><xml>
<w:LatentStyles DefLockedState="false" DefUnhideWhenUsed="true"
DefSemiHidden="true" DefQFormat="false" DefPriority="99"
LatentStyleCount="276">
<w:LsdException Locked="false" Priority="0" SemiHidden="false"
UnhideWhenUsed="false" QFormat="true" Name="Normal"/>
<w:LsdException Locked="false" Priority="9" SemiHidden="false"
UnhideWhenUsed="false" QFormat="true" Name="heading 1"/>
<w:LsdException Locked="false" Priority="9" QFormat="true" Name="heading 2"/>
<w:LsdException Locked="false" Priority="9" QFormat="true" Name="heading 3"/>
<w:LsdException Locked="false" Priority="9" QFormat="true" Name="heading 4"/>
<w:LsdException Locked="false" Priority="9" QFormat="true" Name="heading 5"/>
<w:LsdException Locked="false" Priority="9" QFormat="true" Name="heading 6"/>
<w:LsdException Locked="false" Priority="9" QFormat="true" Name="heading 7"/>
<w:LsdException Locked="false" Priority="9" QFormat="true" Name="heading 8"/>
<w:LsdException Locked="false" Priority="9" QFormat="true" Name="heading 9"/>
<w:LsdException Locked="false" Priority="39" Name="toc 1"/>
<w:LsdException Locked="false" Priority="39" Name="toc 2"/>
<w:LsdException Locked="false" Priority="39" Name="toc 3"/>
<w:LsdException Locked="false" Priority="39" Name="toc 4"/>
<w:LsdException Locked="false" Priority="39" Name="toc 5"/>
<w:LsdException Locked="false" Priority="39" Name="toc 6"/>
<w:LsdException Locked="false" Priority="39" Name="toc 7"/>
<w:LsdException Locked="false" Priority="39" Name="toc 8"/>
<w:LsdException Locked="false" Priority="39" Name="toc 9"/>
<w:LsdException Locked="false" Priority="35" QFormat="true" Name="caption"/>
<w:LsdException Locked="false" Priority="10" SemiHidden="false"
UnhideWhenUsed="false" QFormat="true" Name="Title"/>
<w:LsdException Locked="false" Priority="1" Name="Default Paragraph Font"/>
<w:LsdException Locked="false" Priority="11" SemiHidden="false"
UnhideWhenUsed="false" QFormat="true" Name="Subtitle"/>
<w:LsdException Locked="false" Priority="22" SemiHidden="false"
UnhideWhenUsed="false" QFormat="true" Name="Strong"/>
<w:LsdException Locked="false" Priority="20" SemiHidden="false"
UnhideWhenUsed="false" QFormat="true" Name="Emphasis"/>
<w:LsdException Locked="false" Priority="59" SemiHidden="false"
UnhideWhenUsed="false" Name="Table Grid"/>
<w:LsdException Locked="false" UnhideWhenUsed="false" Name="Placeholder Text"/>
<w:LsdException Locked="false" Priority="1" SemiHidden="false"
UnhideWhenUsed="false" QFormat="true" Name="No Spacing"/>
<w:LsdException Locked="false" Priority="60" SemiHidden="false"
UnhideWhenUsed="false" Name="Light Shading"/>
<w:LsdException Locked="false" Priority="61" SemiHidden="false"
UnhideWhenUsed="false" Name="Light List"/>
<w:LsdException Locked="false" Priority="62" SemiHidden="false"
UnhideWhenUsed="false" Name="Light Grid"/>
<w:LsdException Locked="false" Priority="63" SemiHidden="false"
UnhideWhenUsed="false" Name="Medium Shading 1"/>
<w:LsdException Locked="false" Priority="64" SemiHidden="false"
UnhideWhenUsed="false" Name="Medium Shading 2"/>
<w:LsdException Locked="false" Priority="65" SemiHidden="false"
UnhideWhenUsed="false" Name="Medium List 1"/>
<w:LsdException Locked="false" Priority="66" SemiHidden="false"
UnhideWhenUsed="false" Name="Medium List 2"/>
<w:LsdException Locked="false" Priority="67" SemiHidden="false"
UnhideWhenUsed="false" Name="Medium Grid 1"/>
<w:LsdException Locked="false" Priority="68" SemiHidden="false"
UnhideWhenUsed="false" Name="Medium Grid 2"/>
<w:LsdException Locked="false" Priority="69" SemiHidden="false"
UnhideWhenUsed="false" Name="Medium Grid 3"/>
<w:LsdException Locked="false" Priority="70" SemiHidden="false"
UnhideWhenUsed="false" Name="Dark List"/>
<w:LsdException Locked="false" Priority="71" SemiHidden="false"
UnhideWhenUsed="false" Name="Colorful Shading"/>
<w:LsdException Locked="false" Priority="72" SemiHidden="false"
UnhideWhenUsed="false" Name="Colorful List"/>
<w:LsdException Locked="false" Priority="73" SemiHidden="false"
UnhideWhenUsed="false" Name="Colorful Grid"/>
<w:LsdException Locked="false" Priority="60" SemiHidden="false"
UnhideWhenUsed="false" Name="Light Shading Accent 1"/>
<w:LsdException Locked="false" Priority="61" SemiHidden="false"
UnhideWhenUsed="false" Name="Light List Accent 1"/>
<w:LsdException Locked="false" Priority="62" SemiHidden="false"
UnhideWhenUsed="false" Name="Light Grid Accent 1"/>
<w:LsdException Locked="false" Priority="63" SemiHidden="false"
UnhideWhenUsed="false" Name="Medium Shading 1 Accent 1"/>
<w:LsdException Locked="false" Priority="64" SemiHidden="false"
UnhideWhenUsed="false" Name="Medium Shading 2 Accent 1"/>
<w:LsdException Locked="false" Priority="65" SemiHidden="false"
UnhideWhenUsed="false" Name="Medium List 1 Accent 1"/>
<w:LsdException Locked="false" UnhideWhenUsed="false" Name="Revision"/>
<w:LsdException Locked="false" Priority="34" SemiHidden="false"
UnhideWhenUsed="false" QFormat="true" Name="List Paragraph"/>
<w:LsdException Locked="false" Priority="29" SemiHidden="false"
UnhideWhenUsed="false" QFormat="true" Name="Quote"/>
<w:LsdException Locked="false" Priority="30" SemiHidden="false"
UnhideWhenUsed="false" QFormat="true" Name="Intense Quote"/>
<w:LsdException Locked="false" Priority="66" SemiHidden="false"
UnhideWhenUsed="false" Name="Medium List 2 Accent 1"/>
<w:LsdException Locked="false" Priority="67" SemiHidden="false"
UnhideWhenUsed="false" Name="Medium Grid 1 Accent 1"/>
<w:LsdException Locked="false" Priority="68" SemiHidden="false"
UnhideWhenUsed="false" Name="Medium Grid 2 Accent 1"/>
<w:LsdException Locked="false" Priority="69" SemiHidden="false"
UnhideWhenUsed="false" Name="Medium Grid 3 Accent 1"/>
<w:LsdException Locked="false" Priority="70" SemiHidden="false"
UnhideWhenUsed="false" Name="Dark List Accent 1"/>
<w:LsdException Locked="false" Priority="71" SemiHidden="false"
UnhideWhenUsed="false" Name="Colorful Shading Accent 1"/>
<w:LsdException Locked="false" Priority="72" SemiHidden="false"
UnhideWhenUsed="false" Name="Colorful List Accent 1"/>
<w:LsdException Locked="false" Priority="73" SemiHidden="false"
UnhideWhenUsed="false" Name="Colorful Grid Accent 1"/>
<w:LsdException Locked="false" Priority="60" SemiHidden="false"
UnhideWhenUsed="false" Name="Light Shading Accent 2"/>
<w:LsdException Locked="false" Priority="61" SemiHidden="false"
UnhideWhenUsed="false" Name="Light List Accent 2"/>
<w:LsdException Locked="false" Priority="62" SemiHidden="false"
UnhideWhenUsed="false" Name="Light Grid Accent 2"/>
<w:LsdException Locked="false" Priority="63" SemiHidden="false"
UnhideWhenUsed="false" Name="Medium Shading 1 Accent 2"/>
<w:LsdException Locked="false" Priority="64" SemiHidden="false"
UnhideWhenUsed="false" Name="Medium Shading 2 Accent 2"/>
<w:LsdException Locked="false" Priority="65" SemiHidden="false"
UnhideWhenUsed="false" Name="Medium List 1 Accent 2"/>
<w:LsdException Locked="false" Priority="66" SemiHidden="false"
UnhideWhenUsed="false" Name="Medium List 2 Accent 2"/>
<w:LsdException Locked="false" Priority="67" SemiHidden="false"
UnhideWhenUsed="false" Name="Medium Grid 1 Accent 2"/>
<w:LsdException Locked="false" Priority="68" SemiHidden="false"
UnhideWhenUsed="false" Name="Medium Grid 2 Accent 2"/>
<w:LsdException Locked="false" Priority="69" SemiHidden="false"
UnhideWhenUsed="false" Name="Medium Grid 3 Accent 2"/>
<w:LsdException Locked="false" Priority="70" SemiHidden="false"
UnhideWhenUsed="false" Name="Dark List Accent 2"/>
<w:LsdException Locked="false" Priority="71" SemiHidden="false"
UnhideWhenUsed="false" Name="Colorful Shading Accent 2"/>
<w:LsdException Locked="false" Priority="72" SemiHidden="false"
UnhideWhenUsed="false" Name="Colorful List Accent 2"/>
<w:LsdException Locked="false" Priority="73" SemiHidden="false"
UnhideWhenUsed="false" Name="Colorful Grid Accent 2"/>
<w:LsdException Locked="false" Priority="60" SemiHidden="false"
UnhideWhenUsed="false" Name="Light Shading Accent 3"/>
<w:LsdException Locked="false" Priority="61" SemiHidden="false"
UnhideWhenUsed="false" Name="Light List Accent 3"/>
<w:LsdException Locked="false" Priority="62" SemiHidden="false"
UnhideWhenUsed="false" Name="Light Grid Accent 3"/>
<w:LsdException Locked="false" Priority="63" SemiHidden="false"
UnhideWhenUsed="false" Name="Medium Shading 1 Accent 3"/>
<w:LsdException Locked="false" Priority="64" SemiHidden="false"
UnhideWhenUsed="false" Name="Medium Shading 2 Accent 3"/>
<w:LsdException Locked="false" Priority="65" SemiHidden="false"
UnhideWhenUsed="false" Name="Medium List 1 Accent 3"/>
<w:LsdException Locked="false" Priority="66" SemiHidden="false"
UnhideWhenUsed="false" Name="Medium List 2 Accent 3"/>
<w:LsdException Locked="false" Priority="67" SemiHidden="false"
UnhideWhenUsed="false" Name="Medium Grid 1 Accent 3"/>
<w:LsdException Locked="false" Priority="68" SemiHidden="false"
UnhideWhenUsed="false" Name="Medium Grid 2 Accent 3"/>
<w:LsdException Locked="false" Priority="69" SemiHidden="false"
UnhideWhenUsed="false" Name="Medium Grid 3 Accent 3"/>
<w:LsdException Locked="false" Priority="70" SemiHidden="false"
UnhideWhenUsed="false" Name="Dark List Accent 3"/>
<w:LsdException Locked="false" Priority="71" SemiHidden="false"
UnhideWhenUsed="false" Name="Colorful Shading Accent 3"/>
<w:LsdException Locked="false" Priority="72" SemiHidden="false"
UnhideWhenUsed="false" Name="Colorful List Accent 3"/>
<w:LsdException Locked="false" Priority="73" SemiHidden="false"
UnhideWhenUsed="false" Name="Colorful Grid Accent 3"/>
<w:LsdException Locked="false" Priority="60" SemiHidden="false"
UnhideWhenUsed="false" Name="Light Shading Accent 4"/>
<w:LsdException Locked="false" Priority="61" SemiHidden="false"
UnhideWhenUsed="false" Name="Light List Accent 4"/>
<w:LsdException Locked="false" Priority="62" SemiHidden="false"
UnhideWhenUsed="false" Name="Light Grid Accent 4"/>
<w:LsdException Locked="false" Priority="63" SemiHidden="false"
UnhideWhenUsed="false" Name="Medium Shading 1 Accent 4"/>
<w:LsdException Locked="false" Priority="64" SemiHidden="false"
UnhideWhenUsed="false" Name="Medium Shading 2 Accent 4"/>
<w:LsdException Locked="false" Priority="65" SemiHidden="false"
UnhideWhenUsed="false" Name="Medium List 1 Accent 4"/>
<w:LsdException Locked="false" Priority="66" SemiHidden="false"
UnhideWhenUsed="false" Name="Medium List 2 Accent 4"/>
<w:LsdException Locked="false" Priority="67" SemiHidden="false"
UnhideWhenUsed="false" Name="Medium Grid 1 Accent 4"/>
<w:LsdException Locked="false" Priority="68" SemiHidden="false"
UnhideWhenUsed="false" Name="Medium Grid 2 Accent 4"/>
<w:LsdException Locked="false" Priority="69" SemiHidden="false"
UnhideWhenUsed="false" Name="Medium Grid 3 Accent 4"/>
<w:LsdException Locked="false" Priority="70" SemiHidden="false"
UnhideWhenUsed="false" Name="Dark List Accent 4"/>
<w:LsdException Locked="false" Priority="71" SemiHidden="false"
UnhideWhenUsed="false" Name="Colorful Shading Accent 4"/>
<w:LsdException Locked="false" Priority="72" SemiHidden="false"
UnhideWhenUsed="false" Name="Colorful List Accent 4"/>
<w:LsdException Locked="false" Priority="73" SemiHidden="false"
UnhideWhenUsed="false" Name="Colorful Grid Accent 4"/>
<w:LsdException Locked="false" Priority="60" SemiHidden="false"
UnhideWhenUsed="false" Name="Light Shading Accent 5"/>
<w:LsdException Locked="false" Priority="61" SemiHidden="false"
UnhideWhenUsed="false" Name="Light List Accent 5"/>
<w:LsdException Locked="false" Priority="62" SemiHidden="false"
UnhideWhenUsed="false" Name="Light Grid Accent 5"/>
<w:LsdException Locked="false" Priority="63" SemiHidden="false"
UnhideWhenUsed="false" Name="Medium Shading 1 Accent 5"/>
<w:LsdException Locked="false" Priority="64" SemiHidden="false"
UnhideWhenUsed="false" Name="Medium Shading 2 Accent 5"/>
<w:LsdException Locked="false" Priority="65" SemiHidden="false"
UnhideWhenUsed="false" Name="Medium List 1 Accent 5"/>
<w:LsdException Locked="false" Priority="66" SemiHidden="false"
UnhideWhenUsed="false" Name="Medium List 2 Accent 5"/>
<w:LsdException Locked="false" Priority="67" SemiHidden="false"
UnhideWhenUsed="false" Name="Medium Grid 1 Accent 5"/>
<w:LsdException Locked="false" Priority="68" SemiHidden="false"
UnhideWhenUsed="false" Name="Medium Grid 2 Accent 5"/>
<w:LsdException Locked="false" Priority="69" SemiHidden="false"
UnhideWhenUsed="false" Name="Medium Grid 3 Accent 5"/>
<w:LsdException Locked="false" Priority="70" SemiHidden="false"
UnhideWhenUsed="false" Name="Dark List Accent 5"/>
<w:LsdException Locked="false" Priority="71" SemiHidden="false"
UnhideWhenUsed="false" Name="Colorful Shading Accent 5"/>
<w:LsdException Locked="false" Priority="72" SemiHidden="false"
UnhideWhenUsed="false" Name="Colorful List Accent 5"/>
<w:LsdException Locked="false" Priority="73" SemiHidden="false"
UnhideWhenUsed="false" Name="Colorful Grid Accent 5"/>
<w:LsdException Locked="false" Priority="60" SemiHidden="false"
UnhideWhenUsed="false" Name="Light Shading Accent 6"/>
<w:LsdException Locked="false" Priority="61" SemiHidden="false"
UnhideWhenUsed="false" Name="Light List Accent 6"/>
<w:LsdException Locked="false" Priority="62" SemiHidden="false"
UnhideWhenUsed="false" Name="Light Grid Accent 6"/>
<w:LsdException Locked="false" Priority="63" SemiHidden="false"
UnhideWhenUsed="false" Name="Medium Shading 1 Accent 6"/>
<w:LsdException Locked="false" Priority="64" SemiHidden="false"
UnhideWhenUsed="false" Name="Medium Shading 2 Accent 6"/>
<w:LsdException Locked="false" Priority="65" SemiHidden="false"
UnhideWhenUsed="false" Name="Medium List 1 Accent 6"/>
<w:LsdException Locked="false" Priority="66" SemiHidden="false"
UnhideWhenUsed="false" Name="Medium List 2 Accent 6"/>
<w:LsdException Locked="false" Priority="67" SemiHidden="false"
UnhideWhenUsed="false" Name="Medium Grid 1 Accent 6"/>
<w:LsdException Locked="false" Priority="68" SemiHidden="false"
UnhideWhenUsed="false" Name="Medium Grid 2 Accent 6"/>
<w:LsdException Locked="false" Priority="69" SemiHidden="false"
UnhideWhenUsed="false" Name="Medium Grid 3 Accent 6"/>
<w:LsdException Locked="false" Priority="70" SemiHidden="false"
UnhideWhenUsed="false" Name="Dark List Accent 6"/>
<w:LsdException Locked="false" Priority="71" SemiHidden="false"
UnhideWhenUsed="false" Name="Colorful Shading Accent 6"/>
<w:LsdException Locked="false" Priority="72" SemiHidden="false"
UnhideWhenUsed="false" Name="Colorful List Accent 6"/>
<w:LsdException Locked="false" Priority="73" SemiHidden="false"
UnhideWhenUsed="false" Name="Colorful Grid Accent 6"/>
<w:LsdException Locked="false" Priority="19" SemiHidden="false"
UnhideWhenUsed="false" QFormat="true" Name="Subtle Emphasis"/>
<w:LsdException Locked="false" Priority="21" SemiHidden="false"
UnhideWhenUsed="false" QFormat="true" Name="Intense Emphasis"/>
<w:LsdException Locked="false" Priority="31" SemiHidden="false"
UnhideWhenUsed="false" QFormat="true" Name="Subtle Reference"/>
<w:LsdException Locked="false" Priority="32" SemiHidden="false"
UnhideWhenUsed="false" QFormat="true" Name="Intense Reference"/>
<w:LsdException Locked="false" Priority="33" SemiHidden="false"
UnhideWhenUsed="false" QFormat="true" Name="Book Title"/>
<w:LsdException Locked="false" Priority="37" Name="Bibliography"/>
<w:LsdException Locked="false" Priority="39" QFormat="true" Name="TOC Heading"/>
</w:LatentStyles>
</xml><![endif]-->
<!--[if gte mso 10]>
<style>
/* Style Definitions */
table.MsoNormalTable
{mso-style-name:"Table Normal";
mso-tstyle-rowband-size:0;
mso-tstyle-colband-size:0;
mso-style-noshow:yes;
mso-style-priority:99;
mso-style-parent:"";
mso-padding-alt:0in 5.4pt 0in 5.4pt;
mso-para-margin:0in;
mso-para-margin-bottom:.0001pt;
mso-pagination:widow-orphan;
font-size:12.0pt;
font-family:Garamond;
mso-fareast-language:JA;}
</style>
<![endif]-->
<!--StartFragment-->
<br />
<div class="MsoNormal">
These are tough days to be in the public sector and it’s not
going to get much better any time soon. This
isn’t a time for sugar-coating the situation in which we find ourselves. Sir Ronald Cohen, Chairman of Big Society
Capital in London, pretty much captures it when he says, “Government is out of
money and out of breath.” Social needs
are rising and government can’t keep up.
Civil society is coarsening, poverty has become intergenerational and
the tools of social mobility are calcifying.</div>
<div class="MsoNormal">
<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
As someone who has spent nearly 40 years working in and
around government, and believes deeply in the social compact, I talk to a lot
of public officials and employees who are frustrated and discouraged, but
soldier on nonetheless. These front-line
troops know things have to change.<o:p></o:p></div>
<div class="MsoNormal">
<br />
I’ve been working full-time on Social Impact Bonds for two
years now because I think they have real potential to transform anti-poverty
programs like nothing we’ve seen since Lyndon Johnson’s Great Society (which
I’m old enough to remember first-hand).
But I’ll be the first to admit that raising money from private investors
is an extremely unorthodox way to pay for innovative social programs.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
James Clancy, the President of the National Union of Public
and General Employees (NUPGE), has expressed his indignation about SIBs in a commentary
entitled, <a href="http://www.nupge.ca/content/5494/presidents-commentary-top-10-reasons-be-worried-about-social-impact-bonds">“Top 10 reasons to be worried about Social Impact Bonds.”</a> Here’s his main argument:<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
“Like other privatization schemes, they are intended to help
governments shift costs off their balance sheets. They try to do that by
allowing the private sector to run services to make profits for investors.”<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
First off, SIBs don’t privatize anything. They fund nonprofit prevention programs that
the government doesn’t provide because their budgets are exhausted by
safety-net, emergency response, acute care, and other remediation
programs. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
But Mr. Clancy is not the first and won’t be the last detractor
to weigh in against SIBs. I’ll give him
this: his long list does a pretty good
job of collecting virtually all criticisms of SIBs in one convenient
place. Having been involved in a many
controversial government programs in my time, I’ve known all along that those
of us promoting SIBs would have to address these concerns at some point. Every one of his “reasons” are fair subjects
for debate, so let me respond briefly to each.
This is a discussion we’ll be having for a long time to come.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<b>“10. There’s no proof they even work.”<o:p></o:p></b></div>
<div class="MsoNormal">
<b><br /></b></div>
<div class="MsoNormal">
Quite true, although that’s hardly a reason not to try. But there’s considerable irony in the fact
that SIB investors don’t get paid unless they can prove that they do work. I don’t need to unfairly condemn government
programs to say that one thing we don’t have much of is evidence of their
effectiveness. <o:p></o:p><br />
<br /></div>
<div class="MsoNormal">
Much of the impetus behind SIBs comes from the fact that we
either know many government-funded programs don’t work or we have no idea
whether they work. Worse, some nonprofit
programs that have been proven to work reach only a tiny fraction of the people
who need them, in large part due to a lack of sustainable funding. Those of us working on SIBs are fully
prepared to be judged by our performance.<o:p></o:p><br />
<br /></div>
<div class="MsoNormal">
“<b>9. They allow governments to hide debt and pass costs
onto future generations.”</b><o:p></o:p><br />
<b><br /></b></div>
<div class="MsoNormal">
SIBs are not government debt. Private intermediaries issue SIBs to raise
capital from private investors. The
government agrees to pay the investors back, with interest, only if and when
they achieve contractually-agreed results that save government money by
reducing the need for expensive safety net programs like uncompensated
emergency care, prison cells and homeless shelters. If they don’t, the government has no
financial obligations. In fact, the
whole point of SIBs is to transfer the financial risk of expanding nonprofit
prevention programs from taxpayers to private investors. That’s the bet investors make: if the programs they invest in don’t work,
they lose their money.<o:p></o:p><br />
<br /></div>
<div class="MsoNormal">
<b>“8. Setting up Social
Impact Bonds is complex and costly.”<o:p></o:p></b><br />
<b><br /></b></div>
<div class="MsoNormal">
It is, but the current system of responding after the fact to
preventable social problems is much more so.
For example, it costs well over $40,000 a year to send someone back to
prison after they’ve been released because they couldn’t find a job, a decent
place to live and a drug treatment program, all of which cost less than half as
much. States pay upwards of $33,000 per
person per year to provide emergency shelter, acute medical and mental health
care, and countless other safety-net services to hundreds of thousands of
chronically-homeless adults, many of whom can be so much safer and healthier in
permanent supportive housing that costs about $24,000.<o:p></o:p></div>
<div class="MsoNormal">
<br />
What’s complex and costly about SIBs isn’t so much the
programs they fund, but the difficulty of shifting from an ineffective
emergency response system funded by taxpayers to a privately-funded system that
focuses on prevention. The status quo
isn’t based on contingent contracts that obligate states to repay investors if
specific outcomes are achieved, investors aren’t familiar with how effective
nonprofit programs work, and data about current costs and potential savings
often isn’t available or reliable. We’re
in the process of trying to fill those gaps, and it is too soon to say whether
we’ll pull it off. <o:p></o:p><br />
<br /></div>
<div class="MsoNormal">
With the help of some innovative foundations and intrepid
government leaders, we’re working hard to expand proven prevention programs
using someone else’s money. We have to
convince investors that these programs work, we have to convince nonprofits to
consider a whole new way of doing business, and we have to convince government
to commit public funds based on avoiding unnecessary government
expenditures. Stay tuned.<o:p></o:p><br />
<br /></div>
<div class="MsoNormal">
<b>“7. Governments end up paying no matter what.”</b><o:p></o:p><br />
<b><br /></b></div>
<div class="MsoNormal">
This is just flat wrong.
All of the SIB contracts under development are being written as “pay-for-success”
agreements, which means exactly what it says.
In fact, SIBs set the bar especially high because success has to be
verified by an independent assessor before investors can be paid. Investors know full well this is what they’re
signing up for, and most won’t have any interest in SIBs because the financial
returns are likely to be much lower than conventional investments that are much
safer. <o:p></o:p><br />
<br /></div>
<div class="MsoNormal">
The “social investors” who are eagerly exploring SIBs are
primarily foundations and other philanthropists who will recycle their
investments if they get paid back from successful programs. No one’s going to get rich from investing in
SIBs, but it could be an attractive alternative to just giving money away in
the form of donations and grants. The
fact that investors hope to get their money back with a small profit means
they’ll be more selective about which programs they back and keep a watchful
eye on the intermediaries and nonprofits spending their funds. If governments paid “no matter what,” there
wouldn’t be any point. None of us is
interested in wasting our time.<o:p></o:p><br />
<br /></div>
<div class="MsoNormal">
<b>“6. They undermine community agencies and
charities.”</b><o:p></o:p><br />
<b><br /></b></div>
<div class="MsoNormal">
To the contrary, SIBs provide local nonprofits with
predictable, long-term funding without the strings and red tape that come with
government contracts. Can we have a show
of hands for those who agree with Mr. Clancy that human services contracts
provide “community agencies and charities ... some flexibility to innovate or
deliver services that best meet the needs of vulnerable families and
communities”?<o:p></o:p><br />
<br /></div>
<div class="MsoNormal">
The only way SIB investors get paid is by finding nonprofits
that can produce the outcomes required under the government contract. Why in the world would an investor, or an
intermediary for that matter, want to tell an effective nonprofit with a strong
track record working on difficult social problems like homelessness, recidivism
or troubled families how to do their jobs?<br />
<br />
SIBs have a good chance to produce better results precisely because the
investors have strong incentives to find the best nonprofits with the most
effective innovations, and the investors, nonprofits and intermediaries all
have aligned interests to make sure that the pay-for-success contract won’t allow
the government to micromanage decisions by nonprofit leaders who need the
flexibility to adapt to real-world developments over a long period of time. By focusing on results rather than the
complicated and unpredictable steps involved in reaching those results, SIBs
give nonprofits more control about how they work with clients.<o:p></o:p><br />
<br /></div>
<div class="MsoNormal">
<b>“5. They provide a smoke screen for cuts to
public services.”</b><o:p></o:p><br />
<b><br /></b></div>
<div class="MsoNormal">
Actually, no.
Draconian cuts to public services are taking places whether or not SIBs
gain traction due to overwhelming economic and political forces against which
SIBs are, at this point, nothing. SIBs
don’t aid and abet budget cuts, but they offer a small glimmer of hope for
ameliorating the worst effects of the fiscal crisis by providing independent
funding to expand more effective programs.
Far from trying to “hide the fact that cuts to social services are
leaving vulnerable people with nowhere to go for help,” we’re trying to light a
candle rather than curse the darkness.<o:p></o:p><br />
<br /></div>
<div class="MsoNormal">
<b>“4. Investor profits and extra bureaucracy push
up costs.”</b><o:p></o:p><br />
<b><br /></b></div>
<div class="MsoNormal">
It costs money to shift from ineffective safety-net programs
to performance-based prevention programs.
We have to conduct detailed financial analysis to show potential
savings, convince social investors to absorb financial risks that have
virtually no track record, negotiate outcomes-based contracts that provide
greater flexibility for innovative service delivery while maintaining
government oversight, establish performance measurement and evaluation systems
that will capture trustworthy data about program results, and implement
prevention programs with fidelity to proven models under unconventional
collaborative governance mechanisms. <o:p></o:p><br />
<br /></div>
<div class="MsoNormal">
If SIBs can’t pay for all of this and <u>still</u> save
government money, they just won’t happen.
We can justify incurring the additional costs only if we create
demonstrably greater value by doing so.
Mr. Clancy’s right that “these are costs we don’t have to pay when
services are publicly provided,” but we don’t get the results, either. SIBs have to prove you get what you pay
for. If we don’t, no one will buy them.<o:p></o:p><br />
<br /></div>
<div class="MsoNormal">
<b>“3. Services are no
longer accountable or transparent to the public.”</b><o:p></o:p><br />
<b><br /></b></div>
<div class="MsoNormal">
SIBs shift public accountability from focusing on
meaningless short-term inputs (e.g., how many people enrolled in training) to
meaningful long-term results (e.g., how many people got a job). The question of “how services are being run”
is far less important than whether they’re working. In exchange for telling investors they’ll
only get paid back years down the road and only if they reduce the demand for
emergency services, the government agrees to let smart nonprofits figure out
the best ways to help their clients. The
contracts will preserve government oversight but eliminate micromanagement.<o:p></o:p><br />
<br /></div>
<div class="MsoNormal">
Intermediary organizations don’t “have a legal obligation to
put investors’ interests first.” The
terms of the investment will clearly establish that both intermediaries and
investees will focus first and foremost on accomplishing the results, and that
investors’ rights are entirely contingent on success in doing so. If that’s not acceptable, they won’t invest.<o:p></o:p><br />
<br /></div>
<div class="MsoNormal">
<b>“2. Quality and
continuity of services suffer.”</b><o:p></o:p><br />
<b><br /></b></div>
<div class="MsoNormal">
SIBs don’t depend on “kindly corporations,” but on social
investors who act in their enlightened self interest, which is what smart
investors do. With SIBs, there isn’t a
tradeoff between “helping those in need” and “making money.” The latter won’t happen without the
former. That’s the point.<o:p></o:p></div>
<div class="MsoNormal">
<br />
And, yes, SIBs are “usually a 5-year commitment,” which is 4
more years than most public spending, a crucial difference that is likely to
enhance the quality and continuity of services.<br />
<br />
If a SIB doesn’t work and investors lose their money, we’re no worse off
than we started, with inadequate government funding of ineffective remedial
services. But if a SIB works and
investors get their money back with interest, a new and larger group will be
ready to sign up. Rather than the
downward spiral of budget cuts driven by unsustainable safety-net costs, we
have an opportunity to create a virtuous cycle in which effective nonprofits
will be rewarded by successful investors taking smart risks.<o:p></o:p><br />
<br /></div>
<div class="MsoNormal">
<b>“1. Investor profits are incompatible with
universal programs that provide a safety net for all.”</b><o:p></o:p></div>
<div class="MsoNormal">
<br />
SIBs can’t and won’t replace the social safety net. They only have potential to work in the small
percentage of cases where effective prevention programs can pay for themselves
by generating offsetting savings. But
that small percentage of programs affects millions of vulnerable, poor,
disabled, and discarded people, and costs taxpayers hundreds of billions of
dollars for the safety-net treadmill.
The safety net ain’t what it used to be and it’s bankrupting us. We need more effective and less expensive
alternatives, and SIBs might just fit the bill.<o:p></o:p><br />
<br /></div>
<div class="MsoNormal">
Mr. Clancy repeats the canard that “people who are deemed
too difficult and expensive to help (some of the most vulnerable people in our
communities) will be excluded from Social Impact Bond projects and will get no
help at all.” In fact, the opposite is
true. The greatest potential savings
from SIBs comes from preventing problems facing people with the most complex
needs that cost society the most. <o:p></o:p><br />
<br /></div>
<div class="MsoNormal">
SIBs fund innovative prevention programs that brilliant
social entrepreneurs have tested and refined for decades and which have the
best chance of avoiding a lot of wasteful public spending. Examples include permanent supportive housing
for chronically homeless people, transitional employment services for
ex-offenders with high recidivism rates, family reunification services for kids
stuck for years in foster care or out-of-home placements, and aging-in-place programs
to keep low-income seniors from prematurely entering and languishing for years
in expensive nursing homes. We need these
exceptional programs to grow exponentially, but there’s no – repeat, no – government
funding to scale them. Private investors
just might.<o:p></o:p><br />
<br /></div>
<div class="MsoNormal">
SIBs are a “disruptive innovation” in both senses of the
term. They’re designed to significantly
transform the way we respond to massive social problems. Inevitably, transformation changes business
as usual, which is an understandable source of concern to those habituated to
the status quo. We get why Mr. Clancy
thinks people should be worried, but progress isn’t possible without trying new
approaches that might or might not work.
I like our chances, but we’ll
have to keep on our toes to prove him wrong.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<!--EndFragment-->Steve Goldberghttp://www.blogger.com/profile/06106824600318886347noreply@blogger.com1tag:blogger.com,1999:blog-141831867777566890.post-6659505606104732192012-11-07T09:18:00.002-05:002012-11-07T09:18:48.281-05:00Priming the Pump for Impact Investing
<br />
<h2>
<span style="font-family: Verdana, sans-serif; font-size: small; font-weight: normal;">The Omidyar Network makes a compelling case for a </span><span class="s2" style="font-family: Verdana, sans-serif; font-size: small; font-weight: normal;">sector-based approach to impact investing<i>.</i></span></h2>
<h3>
<i><br /></i></h3>
<div class="p3">
<i>Originally published in the <a href="https://www.box.com/shared/static/gjoid6ojzbwu47ia5p01.pdf">Social Impact Bond Tribune</a>.</i></div>
<div class="p1">
<span class="s1"><br /></span></div>
<div class="p1">
<span class="s1">Alongside leviathan public foundations like Rockefeller, Ford and Robert Wood Johnson, a crop of private upstarts has emerged much more recently founded by highly-engaged billionaire entrepreneurs like Bill and Melinda Gates, Jeff Skoll, Michael and Susan Dell, and Laura and John Arnold, many of whom bring the same market-based orientation to their philanthropy. In 2004, eBay founder Pierre Omidyar and his wife Pam founded the Omidyar Network (a funder of Social Finance US, and affectionately referred to as “ON”), which describes itself as a “philanthropic investment firm dedicated to harnessing the power of markets to create opportunity for people to improve their lives.”</span></div>
<div class="p1">
<span class="s1"><br /></span></div>
<div class="p1">
<span class="s1">It’s fair to say that the jury is still out on whether this younger generation of philanthropists will prove more innovative or nimble than their elders that comprise the foundation establishment. But this is an auspicious time for new models. One momentous example is the announcement on April 12, 2012, by the redoubtable Clara Miller, who became President of the F.B. Heron Foundation on the very first day of that same month, that “we will invest the full spectrum of our capital (100 percent of our endowment) through a single capital deployment office, removing the traditional foundation's operating distinction between investments and grantmaking.” </span></div>
<div class="p1">
<span class="s1"><br /></span></div>
<div class="p1">
<span class="s1">Another is the publication of “Priming the Pump: The Case for a Sector-Based Approach to Impact Investing,” a six-part series by ON’s Matt Bannick and Paula Goldman (with assistance from Jayant Sinha and Amy Klement, an observer of Social Finance US’s board) in the <a href="http://www.ssireview.org/blog/entry/sectors_not_just_firms"><span class="s2">September 25, 2012 issue</span></a> of the <i>Stanford Social Innovation Review</i>. The articles are important not only for the insights they provide about what it will take to realize the full potential of impact investing, but what they portend about ON as a new kind of foundation.</span></div>
<div class="p1">
<span class="s1"><br /></span></div>
<div class="p2">
<span class="s1">Herewith, a brief summary with editorial comments.</span></div>
<div class="p2">
<span class="s1"><br /></span></div>
<div class="p3">
<span class="s1"><b>Part 1</b></span></div>
<div class="p4">
<span class="s3"><b>Sectors, Not Just Firms</b></span></div>
<div class="p5">
<span class="s1"></span><br /></div>
<div class="p1">
<span class="s1">The authors begin by setting the audacious “goal of scaling entire industry sectors, in addition to individual firms,” asserting that “impact investors can massively increase the number of lives they touch by concentrating investments in specific industry sectors in specific geographies.” Recognizing that impact investing is not an incremental game, they point to a fundamental disconnection between the weapon and its target: </span></div>
<div class="p5">
<span class="s1"></span><br /></div>
<div class="p1">
<span class="s1">“The paucity of financial and human capital available for high-risk, early-stage ventures (what we call ‘innovators’) and for sector-specific industry infrastructure poses a massive impediment to the healthy growth of the impact investing sector. Everyone loves to invest in the occasional impact investing ‘homerun’ that promises strong financial and social returns—and these homeruns have an important demonstration effect for the viability of the industry as a whole. Unfortunately, relatively few appear willing to step up to the hard and uncertain work of sparking and nurturing the innovations that ultimately generate a robust flow of investable, high-return impact investments. It is as if impact investors are lined up around the proverbial water pump waiting for the flood of deals, while no one is actually priming the pump!”</span></div>
<div class="p5">
<span class="s1"></span><br /></div>
<div class="p2">
<span class="s1">Concerned about the lack of adequate deal flow, ON saw the need to think about the “gray space” between grants and investments that provide risk-adjusted returns. The authors realized that insisting on the latter as the only alternative to grant-making would cause ON “to systematically under-invest in creating the conditions under which innovations, and entire new sectors, could be sparked and scaled.”</span></div>
<div class="p2">
<span class="s1"><br /></span></div>
<div class="p3">
<span class="s1"><b>Part 2</b></span></div>
<div class="p4">
<span class="s3"><b>Embracing the Full Investment Continuum</b></span></div>
<div class="p6">
<span class="s1"></span><br /></div>
<div class="p1">
<span class="s1">Bannick and Goldman drew three key insights from their analysis. First, “social impact needs to be measured at the SECTOR as well as the firm level.” Combining <i>direct</i> firm impact with <i>sector-level</i> impact yields a new measure of the value of impact investment, “total social impact of a firm.” </span></div>
<div class="p1">
<span class="s1"><br /></span></div>
<div class="p1">
<span class="s1">Second, they identify three categories of actors “meant to apply to the development of for-profit markets for social impact,” rather than those served primarily by grant-making. The “market innovators” believe in a product or service before its profit-making potential has become obvious. Their job is “derisking the generic model of an innovation or product,” so it shouldn’t be surprising that these “high beta” firms have the greatest unmet need for patient impact investment. </span></div>
<div class="p1">
<span class="s1"><br /></span></div>
<div class="p1">
<span class="s1">The “market scalers” follow the innovators “to refine and enhance the generic model.” The disruptive tension between old and new approaches noticeably increases because “many market scalers DO earn risk-adjusted returns,” which “may threaten entrenched economic interests” and “raise concerns among politicians who ... may be uncomfortable with private sector approaches to social problems.”</span></div>
<div class="p1">
<span class="s1"><br /></span></div>
<div class="p1">
<span class="s1">The last group of players develop the “market infrastructure” without which a supportive ecosystem cannot take root (as our British visitors have realized). As we know all too well, these essential contributors often face the toughest sledding in terms of viable business models, but the authors look reality in the eye when they observe that “LACK of infrastructure can disrupt an otherwise burgeoning sector ...”</span></div>
<div class="p1">
<span class="s1"><br /></span></div>
<div class="p2">
<span class="s1">Third, “investments in all these different vehicles and return profiles are necessary to move a sector.”</span></div>
<div class="p2">
<span class="s1"><br /></span></div>
<div class="p3">
<span class="s1"><b>Part 3</b></span></div>
<div class="p4">
<span class="s3"><b>Gaps in the Impact Investing Capital Curve</b></span></div>
<div class="p6">
<span class="s1"></span><br /></div>
<div class="p1">
<span class="s1">The sector faces “yawning gaps in the capital curve” for early-stage innovators and infrastructure developers, neither of which offer the kinds of risk-adjusted, market-rate returns that attract commercial capital. The authors are not sanguine that traditional foundations will make a “dramatic mindset shift—from seeing philanthropy’s primary role as addressing market failures to also embracing its potential to <i>catalyze</i> markets.”</span></div>
<div class="p1">
<span class="s1"><br /></span></div>
<div class="p1">
<span class="s1">Instead, they “see the increased involvement of high net worth individuals in impact investing as potentially catalytic to the sector. Individuals such as Pierre Omidyar, Vinod Khosla, Steve Case, Jeff Skoll, Sir Ronald Cohen, and others have deep entrepreneurial backgrounds. They not only embrace innovation and have a high risk tolerance; they are also quite willing to experiment with market-based and for-profit approaches to achieving social impact. We believe that individuals with similar approaches could have a transformative effect on the impact investing industry by investing in early-stage, high-growth ventures, and by funding industry-specific infrastructure to support these.”</span></div>
<div class="p2">
<span class="s1"><br /></span></div>
<div class="p2">
<span class="s1">This analysis moves beyond the anecdotal experience of many in the impact investing space to a compelling argument for a fundamentally different rationale for the new generation of entrepreneurial foundations. More than just a call to action by their peers, the “Priming the Pump” framework reveals why the emergence of a robust impact investing marketplace cannot be assumed, but instead won’t take off unless it is nurtured by a new cadre of funders who see capital market innovation itself as a strategic objective.</span></div>
<div class="p2">
<span class="s1"><br /></span></div>
<div class="p3">
<span class="s1"><b>Part 4</b></span></div>
<div class="p4">
<span class="s3"><b>Do No Harm: Subsidies and Impact Investing</b></span></div>
<div class="p6">
<span class="s1"></span><br /></div>
<div class="p1">
<span class="s1">Here, the authors address a surpassingly important question, “When, and in what circumstances, is subsidy appropriate?” They thoughtfully compare the risks of firm subsidy—preventing a level-playing field for competition; subsidizing firms with limited scaling potential are an “inefficient use of capital”; and compromising the promise of the impact investing industry; with its positive uses—spurring market development; catalyzing other models of scale, and creating a pipeline for the impact investing industry.</span></div>
<div class="p1">
<span class="s1"><br /></span></div>
<div class="p1">
<span class="s1">This part of the article acknowledges that “in certain markets, there may be no chance of making impact investing a high returns business without first using subsidies to prime the innovation pump.” They offer the example of microfinance, which “benefitted from more than a billion dollars of subsidy before reaching commercial viability.”</span></div>
<div class="p1">
<span class="s1"><br /></span></div>
<div class="p2">
<span class="s1">Eschewing sweeping generalizations, they conclude “there really is no simplistic ‘yes’ or ‘no’ answer, but rather a complicated and nuanced set of conditions under which different types of investments can play a complementary role in sparking sectors.” The authors concede they are “reticent to invest in low returns businesses, lest that lead us down the path toward limited scale, sloppy investing, diminished expectations, and potential market distortion,” and simply acknowledge that “the biggest determinants of whether we will consider below market returns tends to be the income level and size of the market that the entrepreneur is trying to serve.” </span></div>
<div class="p2">
<span class="s1"><br /></span></div>
<div class="p3">
<span class="s1"><b>Part 5</b></span></div>
<div class="p4">
<span class="s3"><b>Government Matters</b></span></div>
<div class="p6">
<span class="s1"></span><br /></div>
<div class="p1">
<span class="s1">If there is one place the authors fall a bit short, it would be the installment that considers the role of government. While they appreciate the “urgent need ... to align interests between those who are trying to serve disadvantaged populations from a business perspective and those in government who feel they represent the disadvantaged,” they don’t quite achieve the same level of insight they displayed in analyzing the role of different types of foundations.</span></div>
<div class="p1">
<span class="s1"><br /></span></div>
<div class="p1">
<span class="s1">They start off on the right foot: “Impact investors cannot afford to ignore critical political considerations. Enlightened politicians and policymakers have the potential to dramatically speed up the rate at which an industry can scale to responsibly serve hundreds of millions.” And they are not wrong when they say that “the most important policy imperatives are: ensuring fair and robust competition; establishing appropriate regulation; and promoting entrepreneurship.”</span></div>
<div class="p1">
<span class="s1"><br /></span></div>
<div class="p1">
<span class="s1">What they fail to come grips with is the need to segment the government sector (just like the foundation sector) into those actors who have the capacity and inclination to foster impact investing and those who probably don’t. Instead, they settle for the unhelpful observation that, “ultimately, success is best achieved when supportive politicians and policies are married with entrepreneurs and a diverse set of investors who are deeply committed to innovation and sector level change.”</span></div>
<div class="p1">
<span class="s1"><br /></span></div>
<div class="p1">
<span class="s1">Just as we need more enlightened foundations to make below-market-rate investments in innovators and infrastructure firms, we need to identify the factors that make government officials and their positions truly “supportive” of impact investing at scale. In fact, there are attributes on both sides of the political aisle that lend themselves to fostering a more conducive environment for impact investing at the sectoral level, so there will be an opportunity to supplement Bannick’s and Goldman’s model. </span></div>
<div class="p1">
<span class="s1"><br /></span></div>
<div class="p1">
<span class="s1">I’ll offer just one observation now. The authors link to what is indeed “an excellent overview on the ways in which government can help drive a more entrepreneurial environment,” by Daniel J. Isenberg, a professor of management practice at Babson College and executive director of the Babson Entrepreneurship Ecosystem Project. But Professor Isenberg’s worthy objective is to distill practices that “help build a vibrant business sector.” Although business growth can certainly help reduce poverty, the advent of impact investing has been spurred by the need for more than just traditional enterprise. </span></div>
<div class="p1">
<span class="s1"><br /></span></div>
<div class="p2">
<span class="s1">Part of the reason that much of social investment lives in the “gray space” between grants and market-rate investments is that we need to scale innovations, like prisoner reentry programs and permanent supportive housing, that span the public and private sectors. Government needs to support impact investing not to help business or even nonprofits grow, but to improve the effectiveness of government itself. We need to look for new structural models that are conducive to impact investing, perhaps along the lines set by Stephen Goldsmith and William D. Eggers in their seminal book, <span class="s2"><i><a href="http://www.brookings.edu/research/books/2004/governingbynetwork">Governing by Network: The New Shape of the Public Sector.</a></i></span></span></div>
<div class="p2">
<span class="s1"><span class="s2"><br /></span></span></div>
<div class="p3">
<span class="s1"><b>Part 6</b></span></div>
<div class="p4">
<span class="s3"><b>Achieving Takeoff</b></span></div>
<div class="p6">
<span class="s1"></span><br /></div>
<div class="p1">
<span class="s1">Coming full circle, the authors reassert that “we must ask ourselves how we can create more innovations that achieve the kind of breadth and rapid expansion” needed to serve most customers, unlike, say, microfinance, which, after three decades, “still reaches a modest percentage of those in need.” They settle on the idea that, in the developing world, using impact investment for the purpose of “accelerating the rate of adoption [of new innovation], even by a small amount, can yield extraordinary leverage in terms of the number of lives impacted.” They propose focusing on “the emergence of sectors that have a strong chance of beating the typical ‘lazy S-curve’,” markets that aren’t unavoidably constrained by “limited scale and very slow adoption of a new product.” </span></div>
<div class="p1">
<span class="s1"><br /></span></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg9miQJCyBW8bzhxygUadu1Sn2h98Yc05u1rd9bb8px-hjeqz4Bpb1vj6cCEt_OTPCb5H8mK62VLudxmBv6iYHKu0tVQGR7GfWEul1D7t60sy1iQSHdm342dSePI_QH5ezf4BId49FDNVk/s1600/S+Curve.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="173" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg9miQJCyBW8bzhxygUadu1Sn2h98Yc05u1rd9bb8px-hjeqz4Bpb1vj6cCEt_OTPCb5H8mK62VLudxmBv6iYHKu0tVQGR7GfWEul1D7t60sy1iQSHdm342dSePI_QH5ezf4BId49FDNVk/s320/S+Curve.png" width="320" /></a></div>
<div class="p1">
<span class="s1"><br /></span></div>
<div class="p1">
<span class="s1"><br /></span></div>
<div class="p7">
<span class="s1">SOURCE: Matt Bannick & Paula Goldman, “Priming the Pump for Impact Investing: Part VI: Achieving Takeoff,” <i>Stanford Social Innovation Review</i> (Oct. 2, 2012).</span></div>
<div class="p5">
<span class="s1"></span><br /></div>
<div class="p1">
<span class="s1">Now that’s a prescription I can endorse. In fact, I offered a similar approach in my book for using performance-based philanthropy to scale growth-ready nonprofits. In both cases, there are well understood models for exponentially increasing market adoption of disruptive innovations, of which the social sector and their funders are largely unaware. </span></div>
<div class="p1">
<span class="s1"><br /></span></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgIslIPJsJfe1bnj44EIglb7AC1jh39r83tpq1mC6vxlmP2JkykdSVE77t6usZYrFHCbIPFESs3GnsjCYo2zJqCKwjtOg9oBuxAt13AkfLDYTXOuuzG1ZLPjxj5G9n7Wb_egT8WWm-2Y0Y/s1600/Exhibit+3.9.tiff" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="222" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgIslIPJsJfe1bnj44EIglb7AC1jh39r83tpq1mC6vxlmP2JkykdSVE77t6usZYrFHCbIPFESs3GnsjCYo2zJqCKwjtOg9oBuxAt13AkfLDYTXOuuzG1ZLPjxj5G9n7Wb_egT8WWm-2Y0Y/s320/Exhibit+3.9.tiff" width="320" /></a></div>
<div class="p1">
<br /></div>
<div class="p1">
<br /></div>
<div class="p1">
SOURCE: Steven H. Goldberg, <i>Billions of Drops in Millions of Buckets: Why Philanthropy Doesn’t Social Progress, </i>Exhibit 3.9, p. 108 (Wiley 2009).</div>
<div class="p6">
<span class="s1"></span><br /></div>
<div class="p1">
<span class="s1">I’ll confess to a certain amount of ambivalence when proponents of impact investing look to foundations as some kind of <i>deus ex machina</i>. Bannick and Goldman don’t indulge in wishful thinking. Instead, by identifying a special role for a specific class of foundations whose experienced teams should appreciate the insights and analysis of “Priming the Pump,” ON just might be leading the impact investing market exactly where it needs to go.</span></div>
Steve Goldberghttp://www.blogger.com/profile/06106824600318886347noreply@blogger.com0tag:blogger.com,1999:blog-141831867777566890.post-1407182695289446612012-01-10T17:32:00.000-05:002012-01-10T17:32:07.663-05:00Observations on the World’s First RFP for Social Impact Bonds<span style="line-height: 130%; text-align: left;"><span style="font-family: Verdana, sans-serif;"><b>BIG NEWS FROM DOWN UNDER</b></span></span><br />
<div class="MsoNormal" style="line-height: 115%;"><span style="font-family: Verdana, sans-serif;"><span style="line-height: 115%;"><br />
</span></span><br />
<span style="font-family: Verdana, sans-serif;"><span style="line-height: 115%;">The Treasury Department of New South Wales (NSW), Australia, recently issued the world’s first </span><a href="https://tenders.nsw.gov.au/?event=public.rft.show&RFTUUID=B2567E4F-E1D9-2CBC-4B2198AFDC30AC36"><span style="line-height: 115%;">Request For Proposals</span></a><span style="line-height: 115%;"> for a “Social Benefits Bonds Trial.” “SBB” is the latest entry in the continuing search for a commonly-accepted name for Social Impact Bonds (SIB), otherwise referred to (primarily by the U.S. and some state governments) as Pay-for-Success (PFS) Bonds or Contracts. (Thankfully, I won’t be wading into that debate and will use “SIB” here.) </span><span style="line-height: 115%;">As a former government lawyer who has litigated more than $2 billion in public procurement and contracting disputes, I’m happy to report that the NSW Treasury has drafted an excellent RFP that deserves wide consideration. </span></span><span style="font-family: Georgia, 'Times New Roman', serif; line-height: 115%;"> </span><br />
<a name='more'></a><br />
<span style="font-family: Georgia, 'Times New Roman', serif; line-height: 115%;"><br />
</span><br />
<span style="font-family: Georgia, 'Times New Roman', serif; line-height: 115%;">The RFP offers an incisive approach to structuring the relationships with the SIB intermediary and nonprofit providers, phasing the contract negotiations, setting the general parameters for evaluation of SIB outcomes, and avoiding unintended consequences such as favoring programs that serve “easier” populations and displacing existing funding sources. NSW appreciates the critical differences between traditional government contracts and SIB partnership agreements, and formulates a deliberate and collaborative process for developing promising pilot projects.</span></div><div class="MsoNormal" style="line-height: 115%;"><span style="line-height: 115%;"><span style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span><br />
<span style="line-height: 115%;"><span style="font-family: Georgia, 'Times New Roman', serif;">(For the benefit of the uninitiated, “procurement” refers to the formal process for soliciting contract proposals and “contracting” refers to the negotiation, drafting and execution of an agreement that results from the procurement process. An RFP is often referred to as a “competitive solicitation.”)<br />
<br />
<o:p></o:p></span></span></div><h2 style="line-height: 115%;"><span style="line-height: 115%;"><span style="font-family: Georgia, 'Times New Roman', serif; font-size: small;">AN OVERVIEW OF THE NSW RFP<o:p></o:p></span></span></h2><div class="MsoNormal" style="line-height: 115%;"><span style="line-height: 115%;"><span style="font-family: Georgia, 'Times New Roman', serif;">As the Treasury Department explains in the RFP, an SBB, just like an SIB, “is a new financial instrument that pays a return to private investors based on the achievement of agreed social outcomes. Under a SBB, an investor provides upfront funds to a partner (non-governmental organisation (NGO) or intermediary) to provide services that will, if successful, reduce future costs to Government. Part of the Government savings are used to repay this investment and provide a reward payment commensurate with the outcomes achieved.” <o:p></o:p></span></span><br />
<span style="line-height: 115%;"><span style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div><div class="MsoNormal" style="line-height: 115%;"><span style="line-height: 115%;"><span style="font-family: Georgia, 'Times New Roman', serif;">Like SIBs, “SBBs aim to provide an expanded source of private upfront funding for early intervention and prevention services that mitigate the escalation of social problems,” and that “directly rewards outcomes rather than specifying how they are delivered.” Both instruments assume the benefits of market discipline: “It is expected that investors will require some review of the evidence behind any proposed intervention as well as ongoing monitoring of performance, increasing the likelihood of positive social outcomes.”</span></span><br />
<span style="line-height: 115%;"><span style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span><br />
<span style="font-family: Georgia, 'Times New Roman', serif; line-height: 115%;">Importantly, SBBs and SIBs are also designed to enhance governmental performance management and accountability: “Because SBBs require a sound performance management framework to be established to measure outcomes prior to payments being released, agencies and service providers will need to develop and enhance methodologies and skill sets in program design and outcomes tracking ...” (For additional SIB tools and resources, see the </span><a href="http://nffsib.org/" style="font-family: Georgia, 'Times New Roman', serif; line-height: 115%;"><span style="line-height: 115%;">Social Impact Bond Learning Hub</span></a><span style="font-family: Georgia, 'Times New Roman', serif; line-height: 115%;"> hosted by the Nonprofit Finance Fund.)</span></div><div class="MsoNormal" style="line-height: 115%;"><span style="font-family: Georgia, 'Times New Roman', serif;"><span style="line-height: 115%;"><br />
</span></span><br />
<span style="font-family: Georgia, 'Times New Roman', serif;"><span style="line-height: 115%;">One central issue the RFP handles well is the role of what NSW calls the “Social Benefit Partner” (SBP), which Harvard Kennedy School Professor </span><a href="http://www.google.com/url?sa=t&rct=j&q=jeffrey%20liebman%20social%20impact%20bonds&source=web&cd=1&sqi=2&ved=0CB8QFjAA&url=http%3A%2F%2Fwww.americanprogress.org%2Fissues%2F2011%2F02%2Fsocial_impact_bonds.html&ei=kTa4TsDoFrCI0QGR9qS4Dg&usg=AFQjCNHPYyND-C7aGziCD7PKuMdEuLVPaA&sig2=2CW7BGgeRSPEUn_D5fzM3g"><span style="line-height: 115%;">Jeffrey Liebman</span></a><span style="line-height: 115%;"> calls the “Social Impact Bond Issuing Organization,” or SIBIO. The RFP defines SBP as: <o:p></o:p></span></span><br />
<span style="font-family: Georgia, 'Times New Roman', serif;"><span style="line-height: 115%;"><br />
</span></span></div><div class="MsoNormal" style="line-height: 115%; margin-left: .25in;"><span style="line-height: 115%;"><span style="font-family: Georgia, 'Times New Roman', serif;">“The organisation that is [1] responsible for the improvement of the outcome for the intervention cohort, [2] holds an agreement with Government by which they are paid upon measurement of this improvement and [3] issues social benefit bonds to investors.”<o:p></o:p></span></span></div><div class="MsoNormal" style="line-height: 115%;"><span style="line-height: 115%;"><span style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span><br />
<span style="line-height: 115%;"><span style="font-family: Georgia, 'Times New Roman', serif;">Since the SBP is the sole party responsible for the outcomes, holds the contract with the government and issues the SIBs, it follows that the SBP must hire and manage the nonprofit service providers directly:<o:p></o:p></span></span></div><div class="MsoNormal" style="line-height: 115%; margin-left: .25in;"><span style="line-height: 115%;"><span style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span><br />
<span style="line-height: 115%;"><span style="font-family: Georgia, 'Times New Roman', serif;">“The Government intends to sign a SBB Implementation Agreement with the SBP for each pilot. The Government will not have any contractual arrangements with investors or with the service providers (if different [from] the SBP) as part of the pilots. Such arrangements would need to be concluded separately between the SBP and its investors and providers (as relevant), although the Government may assist in the negotiation process as reasonably determined by all the parties and set out in the SBB Development Agreement.”<o:p></o:p></span></span><br />
<span style="line-height: 115%;"><span style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div><div class="MsoNormal" style="line-height: 115%;"><span style="line-height: 115%;"><span style="font-family: Georgia, 'Times New Roman', serif;">The RFP also successfully addresses three other concerns often expressed about SIBs. First, the RFP guards against cream-skimming:<o:p></o:p></span></span><br />
<span style="line-height: 115%;"><span style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div><div class="MsoNormal" style="line-height: 115%; margin-left: .25in;"><span style="line-height: 115%;"><span style="font-family: Georgia, 'Times New Roman', serif;">“The Government is interested in developing measures that encourage providers to work with the most challenging clients, and avoid perverse incentives. One way this will be done is through measuring performance with regard to all clients who are referred to the intervention, not simply those who engage with the services offered. This removes the incentive for providers to work only with the most motivated clients and avoids measurement bias due to self-selection.”<o:p></o:p></span></span><br />
<span style="line-height: 115%;"><span style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div><div class="MsoNormal" style="line-height: 115%;"><span style="line-height: 115%;"><span style="font-family: Georgia, 'Times New Roman', serif;">Second, private investment may not be used to offset current government budgets for social programs:<o:p></o:p></span></span><br />
<span style="line-height: 115%;"><span style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div><div class="MsoNormal" style="line-height: 115%; margin-left: .25in;"><span style="line-height: 115%;"><span style="font-family: Georgia, 'Times New Roman', serif;">“SBBs are intended to attract new resources to the delivery of public services. While successful SBBs should reduce the need for future public spending on acute services, SBBs are not intended to replace existing upfront government expenditure.”<o:p></o:p></span></span><br />
<span style="line-height: 115%;"><span style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div><div class="MsoNormal" style="line-height: 115%;"><span style="line-height: 115%;"><span style="font-family: Georgia, 'Times New Roman', serif;">Third, while small nonprofits will likely find it difficult to handle the substantial performance demands that SIBs impose, NSW tries to facilitate their participation:<o:p></o:p></span></span><br />
<span style="line-height: 115%;"><span style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div><div class="MsoNormal" style="line-height: 115%; margin-left: .25in;"><span style="line-height: 115%;"><span style="font-family: Georgia, 'Times New Roman', serif;">“The Government acknowledges that smaller service delivery contractors may not be able to submit a proposal and the Government is therefore open to a larger organisation or consortium submitting a proposal in relation to these contracts collectively. Any such proposal, however, would need to demonstrate that all affected service delivery contractors support the proposal and that there is no impact on overall service levels.”<o:p></o:p></span></span></div><h2 align="left" style="text-align: left;"><span style="font-family: Georgia, 'Times New Roman', serif; font-size: small;"><br />
KEY PRINCIPLES OF GOVERNMENT PROCUREMENT AND CONTRACTING</span></h2><div class="MsoNormal" style="line-height: 115%;"><span style="line-height: 115%;"><span style="font-family: Georgia, 'Times New Roman', serif;">Procurement law is designed to promote two general policies: (1) fairness to organizations competing for the contract opportunity and (2) value to taxpayers. The first policy is served by creating a “level playing field” on which all potential responders can compete for the same contract on the same terms. For example, except in special cases, an RFP should not be written to favor a particular organization or an approach used by a particular organization, if the solicitation can be written on more inclusive terms. The second policy is served by encouraging cost-efficient, innovative proposals from capable organizations.<o:p></o:p></span></span><br />
<span style="line-height: 115%;"><span style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div><div class="MsoNormal" style="line-height: 115%;"><span style="line-height: 115%;"><span style="font-family: Georgia, 'Times New Roman', serif;">At times, these two policies can be in conflict. Historically, procurement law was very strict about setting an absolutely level playing field, so RFPs were required to set out all the terms of engagement in exhaustive detail, with bidders competing exclusively on the price of the good or service offered. This approach often failed to produce much taxpayer value. (The shortcomings were memorably expressed by the oil-driller “Rockhound” [played by Steve Buscemi] in the movie, <i>Armageddon</i>, as he and his fellow would-be astronauts sat on the launch pad waiting to lift off to keep an asteroid the size of Texas from hitting the Earth: “You know we’re sitting on four million pounds of fuel, one nuclear weapon and a thing that has 270,000 moving parts built by the lowest bidder. Makes you feel good, doesn't it?”) <o:p></o:p></span></span><br />
<span style="line-height: 115%;"><span style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div><div class="MsoNormal" style="line-height: 115%;"><span style="line-height: 115%;"><span style="font-family: Georgia, 'Times New Roman', serif;">Over time, the “lowest responsible and eligible bidder” requirement has been considerably liberalized so that firms could offer innovative approaches that the government could not define in detail on its own. But there are limits on how far this more enlightened approach can go without undermining the fairness criterion. For example, procurement law probably would not allow an agency to issue an RFP that said, in effect, “We want to contract with nonprofit organizations to help poor people. Please tell us how you would do that,” as there would be difficult to compare proposals in such a wide-open, apples-to-oranges “competition.”<o:p></o:p></span></span></div><div class="MsoNormal" style="line-height: 115%;"><span style="line-height: 115%;"><span style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span><br />
<span style="line-height: 115%;"><span style="font-family: Georgia, 'Times New Roman', serif;">There’s a lot of room between the two extremes of no flexibility and total flexibility, and the NSW RFP strikes a fair balance between creating a level playing field and inviting innovative approaches to developing SIB pilots.<o:p></o:p></span></span></div><h2 style="line-height: 115%;"><span style="line-height: 115%;"><span style="font-family: Georgia, 'Times New Roman', serif; font-size: small;"><br />
A PHASED APPROACH<o:p></o:p></span></span></h2><div class="MsoNormal" style="line-height: 115%;"><span style="line-height: 115%;"><span style="font-family: Georgia, 'Times New Roman', serif;">The government has certain irreducible obligations to provide a level playing field, comply with established legal requirements, and protect public safety and vulnerable populations. However, in the novel case of SIBs, it needs to simultaneously promote cross-sector collaboration in order to maximize the chances of attracting private investment capital. <o:p></o:p></span></span><br />
<span style="line-height: 115%;"><span style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div><div class="MsoNormal" style="line-height: 115%;"><span style="line-height: 115%;"><span style="font-family: Georgia, 'Times New Roman', serif;">Treasury explicitly structures the procurement process as a way to select partners to negotiate SIB contracts, rather than require them to accept terms imposed by the RFP:<o:p></o:p></span></span><br />
<span style="line-height: 115%;"><span style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div><div class="MsoNormal" style="line-height: 115%; margin-left: .25in;"><span style="line-height: 115%;"><span style="font-family: Georgia, 'Times New Roman', serif;">“Since the release of the [government’s first report on SIBs], the NSW Government has conducted further development work on a potential SBB trial, including discussions with a range of potential providers, investors and intermediaries. It is clear from this work that, while there is a high degree of interest in the SBB model and the necessary market conditions may exist in NSW, significant uncertainty will remain until a sustainable data base is established on which to measure improvements in service delivery. This is an evolving market where significant collaborative work between proponents and the Government will be required to develop a viable SBB. The Government is therefore seeking to identify preferred proponents with whom to develop the two pilots through this Request for Proposals (RFP).”<o:p></o:p></span></span><br />
<span style="line-height: 115%;"><span style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div><div class="MsoNormal"><div style="line-height: 115%;"><span style="line-height: 115%;"><span style="font-family: Georgia, 'Times New Roman', serif;">The RFP then lays out a three-phased process:</span></span></div><div style="line-height: 115%;"><span style="font-family: Georgia, 'Times New Roman', serif; line-height: 115%; text-align: left; text-indent: -0.25in;"><br />
</span></div><br />
<ol style="line-height: 115%;"><li><span style="font-family: Georgia, 'Times New Roman', serif; line-height: 115%; text-align: left; text-indent: -0.25in;">an RFP which designates two priority areas (out-of-home care and recidivism);</span></li>
<li><span style="font-family: Georgia, 'Times New Roman', serif; line-height: 115%; text-align: left; text-indent: -0.25in;">“a due diligence and joint development process to be undertaken between the Government and up to two preferred proponents identified through the RFP process, in respect of up to two potential pilot SBBs”; and</span></li>
<li><span style="font-family: Georgia, 'Times New Roman', serif; line-height: 115%; text-indent: -0.25in;">“Contract negotiations with preferred proponents for implementation of up to two pilot SBBs.” </span></li>
</ol></div><div class="MsoNormal" style="line-height: 115%;"><span style="line-height: 115%;"><span style="font-family: Georgia, 'Times New Roman', serif;">This is an insightful, albeit unavoidably laborious approach that will be carried out through two separate and successive agreements. Before the second phase begins, firms selected based on the RFP submissions will negotiate an “SBB Development Agreement” that will govern the working relationships throughout the third phase, which will then culminate in an “SBB Implementation Agreement.”<o:p></o:p></span></span><br />
<span style="line-height: 115%;"><span style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div><div class="MsoNormal" style="line-height: 115%;"><span style="line-height: 115%;"><span style="font-family: Georgia, 'Times New Roman', serif;">Although undeniably cumbersome, this approach accommodates the complexities and uncertainties of SIB development. SIBs have many moving parts, so it is essential to get and keep everyone on the same page. The SBB Development Agreement sets the stage for doing so by addressing such basic matters as: <o:p></o:p></span></span><br />
<span style="line-height: 115%;"><span style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div><div class="MsoNormal" style="line-height: 115%; margin-left: .25in;"><span style="line-height: 115%;"><span style="font-family: Georgia, 'Times New Roman', serif;">“the dispute resolution process; payments to the preferred proponents (if any); insurance; the nature of any involvement by the NSW Government in negotiations with investors; ownership of any intellectual property generated during the joint development phase; the process for negotiating and reaching agreement on the SBB Implementation Agreement …; [and] termination and the sharing of information between the preferred proponent and Government.” <o:p></o:p></span></span><br />
<span style="line-height: 115%;"><span style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div><div class="MsoNormal" style="line-height: 115%;"><span style="line-height: 115%;"><span style="font-family: Georgia, 'Times New Roman', serif;">Unless these legal, administrative and housekeeping matters are buttoned up at the outset, it might prove too difficult to resolve the more challenging substantive issues to be covered in the SBB Implementation Agreement. But NSW recognizes the fundamental need for collaboration from the outset: “[d]uring the assessment of RFP proposals, the Government will discuss and agree [on] the terms of the SBB Development Agreement with parties being considered for selection as preferred proponents.”<o:p></o:p></span></span><br />
<span style="line-height: 115%;"><span style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div><div class="MsoNormal" style="line-height: 115%;"><span style="line-height: 115%;"><span style="font-family: Georgia, 'Times New Roman', serif;">You can appreciate why NSW breaks the contract negotiations into two separate agreements when you see the daunting list of issues “envisaged” in the RFP for the SBB Implementation Agreement: <o:p></o:p></span></span><br />
<span style="line-height: 115%;"><span style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div><div class="MsoNormal" style="line-height: 115%; margin-left: .25in;"><span style="line-height: 115%;"><span style="font-family: Georgia, 'Times New Roman', serif;">“details of the target group, location, and referral and entry arrangements; contract duration and any extension provisions; ownership of intellectual property from the pilot; details of baselines, comparison groups and other measurement arrangements; payment triggers; a payment schedule covering all performance scenarios (below baseline, baseline, good performance and over-performance); allocation of risk between parties to the SBB; dispute resolution provisions including a mechanism for resolution of client issues; break clauses for all parties; [and] any options for recontracting at the conclusion of the SBB term details of how the program would be evaluated.”<o:p></o:p></span></span><br />
<span style="line-height: 115%;"><span style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div><div class="MsoNormal" style="line-height: 115%;"><span style="line-height: 115%;"><span style="font-family: Georgia, 'Times New Roman', serif;">The RFP does a nice job of balancing the need for a level playing field with progressive collaboration to promote benefits to taxpayers and program beneficiaries. Terms to be negotiated include the nature of the contractual relationships, the capital draw-down requirements, and the investor repayment schedules, subject to the non-negotiable requirement that investors bear the entire risk of loss if the agreed metrics are not met. Treasury is willing to consider financial incentives for SBPs “to share in the possible upside return,” but does require that “the bulk of the financial risk (and potential returns) should reside with investors.” Proposers can also recommend outcome measures and ranges, effect sizes, target cohorts, comparison groups, service locations, payment triggers, and measurement periods.<o:p></o:p></span></span></div><div class="MsoNormal" style="line-height: 115%;"><span style="line-height: 115%;"><span style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span><br />
<span style="line-height: 115%;"><span style="font-family: Georgia, 'Times New Roman', serif;">As SIBs are entirely dependent upon the achievement of defined outcomes, data collection and evaluation are critical success factors. However, government data collection systems are constrained by privacy laws, so it is noteworthy that the RFP states that “the Government will provide support in constructing and implementing the measurement system, including thorough access to administrative data.” Indeed, proposers are encouraged to “indicate any requirements of NSW Government agencies in the proposed identification, screening and referral process,” which could be crucial in terms of access to data about program participants. (Presumably, such measures could include removing all personally-identifying information from program participant data provided to intermediaries.)<o:p></o:p></span></span><br />
<span style="line-height: 115%;"><span style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div><div class="MsoNormal" style="line-height: 115%;"><span style="line-height: 115%;"><span style="font-family: Georgia, 'Times New Roman', serif;">NSW anticipates that the term of the pilots will be five to eight years, but recognizes that “SBB terms must balance the time needed to demonstrate maintenance of statistically significant effect sizes with investors’ interest in receiving a return within a reasonable timeframe.” Five- to eight-year terms are probably reasonable, if we assume that services will be delivered to multiple treatment cohorts of 6-18 months each, and that audits/evaluations of 12-24 months will follow each treatment period.<o:p></o:p></span></span><br />
<span style="line-height: 115%;"><span style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div><div class="MsoNormal" style="line-height: 115%;"><span style="line-height: 115%;"><span style="font-family: Georgia, 'Times New Roman', serif;">The RFP also does a good job of establishing a useful and feasible framework for measurement and evaluation. The primary requirement is that “an independent auditor (or auditors) will be commissioned and will be responsible for verifying whether outcome targets are met during the life of the SBB.” Specifically, “the auditors will approve and monitor the outcome targets, measurement approach and payment triggers for the two pilots, … [and] determine whether the agreed targets have been met and therefore whether government payments should be released.” This is a sensible approach because the outcome metrics should be expressed in unambiguous and directly measurable terms, allowing an auditor to essentially verify the data (including any backup records) to determine whether the contract conditions have been satisfied.<o:p></o:p></span></span><br />
<span style="line-height: 115%;"><span style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div><div class="MsoNormal" style="line-height: 115%;"><span style="line-height: 115%;"><span style="font-family: Georgia, 'Times New Roman', serif;">One area of possible concern, however, is that “the Government’s preferred measurement methodology is randomised control trial (RCT), although other approaches may be considered if RCT is not feasible or appropriate for a particular intervention.” RCTs can be a useful tool for the selection of evidence-based intervention models, although other approaches, such as “quasi-experimental” designs using matched comparison groups, have been valuable in demonstrating the effectiveness of innovative prevention programs such as permanent supportive housing. In addition, RCTs often will be infeasible or inappropriate for evaluating SIBs designed to serve the kinds of “most challenging clients” the RFP has in mind. For example, it would be extremely difficult (at best) to make random selections among chronically homeless individuals with severe mental health problems, or high-risk youth aging out of foster care, and it would be even more onerous to track such members of the comparison group who did not receive program services. In some cases, the use of RCTs might deny effective preventive services to the people who need them the most.<o:p></o:p></span></span><br />
<span style="line-height: 115%;"><span style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div><div class="MsoNormal" style="line-height: 115%;"><span style="line-height: 115%;"><span style="font-family: Georgia, 'Times New Roman', serif;">The RFP also provides a useful explanation of its thinking about out-of-home care and recidivism. It offers extensive discussion and analysis of each of the proposed pilot areas “that can be used in the development of proposals,” including detailed examples of SIB models based on this information. Importantly, the RFP states that “the examples are purely illustrative and the potential financial benefits have not been tested against any specific interventions – this aspect is left entirely to proponents.”<o:p></o:p></span></span><br />
<span style="line-height: 115%;"><span style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div><div class="MsoNormal" style="line-height: 115%;"><span style="line-height: 115%;"><span style="font-family: Georgia, 'Times New Roman', serif;">In sum, the RFP assigns the right responsibilities to the intermediary, provides the autonomy necessary to meet those responsibilities, and leaves essential contract terms open for negotiation so that the parties can jointly structure a SIB that investors will accept and intermediaries can implement with confidence. The “Service area information” section provides reasonable assumptions about participant cohorts, outcomes and measurement, and “indicative benefits” that help bring newbies up to speed and level the playing field for comparing proposals. This information also offers a practical way to get the ball rolling in a nascent market that, as yet, has no benchmarks from the field.<o:p></o:p></span></span></div><h2 style="line-height: 115%;"><span style="line-height: 115%;"><span style="font-family: Georgia, 'Times New Roman', serif; font-size: small;"><br />
CONCLUSION<o:p></o:p></span></span></h2><div class="MsoNormal" style="line-height: 115%;"><span style="line-height: 115%;"><span style="font-family: Georgia, 'Times New Roman', serif;">The particulars of drafting RFPs often depend on local market conditions, such as characteristics of the service provider industry, legally-mandated and customary procurement and contracting practices, and economic and social circumstances that give rise to the need for services that the government does not provide directly. In the case of SIBs, there will surely be a range of viable approaches that state and federal agencies will take to soliciting proposals, with no clearly superior way to bring this novel financial instrument to life. That being said, the NSW RFP is a worthy starting point.<o:p></o:p></span></span><br />
<span style="line-height: 115%;"><span style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div><div class="MsoNormal" style="line-height: 115%;"><span style="line-height: 115%;"><span style="font-family: Georgia, 'Times New Roman', serif;">Australia’s Treasury Department has done the embryonic market for Social Impact Bonds a great service by developing a procurement and contracting process that balances fairness, innovation and collaboration. While no government can abdicate its responsibilities on matters of legal compliance, protecting public safety, and serving vulnerable populations, it is in the government’s own interest to encourage the private and social sectors to take a seat at the drawing board to help devise more effective ways to finance proven prevention programs. NSW’s efforts show that the procurement community, broadly defined, has an important role to play in bringing SIBs to market.</span></span></div>Steve Goldberghttp://www.blogger.com/profile/06106824600318886347noreply@blogger.com0tag:blogger.com,1999:blog-141831867777566890.post-67504388332772233872011-02-22T14:02:00.010-05:002011-02-23T14:39:11.100-05:00The Burdens and Benefits of Evaluation<div class="p1" style="font: normal normal normal 12px/normal Calibri; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="Apple-style-span" style="font-family: Verdana, sans-serif; font-size: small;">William Schambra, Director of the Bradley Center for Philanthropy and Civic Renewal at the Hudson Institute, makes a fair point in his article, “<a href="http://philanthropy.com/article/Measurement-Is-a-Futile-Way-to/126203/"><span class="s2" style="text-decoration: underline;">Measurement is a futile way to approach grant making</span></a>,” when he laments that “ever more elaborate schemes for ensuring measurable outcomes” have imposed “a substantial and growing burden of measurement for the nonprofit world.” And he’s right, too, when he observes that “even when measurements have been duly gathered, research shows that they have little impact on actual grant making, not affecting the amount of money spent on a program.” But he overshoots the mark when he acknowledges, with refreshing candor, that “I happen to believe that measurement is finally a futile way to approach grant making.” Useful evaluations of nonprofit performance are not a one-size-fits-all proposition, and the costs and value of assessing effectiveness can and should be calibrated as befits the purpose of evaluation: to get more funding with less effort to more effective organizations.</span></div><div class="p2" style="font: normal normal normal 12px/normal Calibri; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; min-height: 14px;"><br />
</div><div class="p1" style="font: normal normal normal 12px/normal Calibri; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1" style="letter-spacing: 0px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif; font-size: small;"></span></span></div><a name='more'></a><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span><br />
<div class="p2" style="font: normal normal normal 12px/normal Calibri; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; min-height: 14px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif; font-size: small;"><span class="s1" style="letter-spacing: 0px;"></span></span></div><div class="p1" style="font: normal normal normal 12px/normal Calibri; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif; font-size: small;">Mr. Schambra (who wrote a rather nice <a href="http://online.wsj.com/article/SB10001424052970203609204574314580689861174.html">review of my book</a> for the Wall Street Journal and hosted a panel discussion with the provocative title, “<a href="http://www.hudson.org/index.cfm?fuseaction=hudson_upcoming_events&id=708">Do We Need a Nonprofit Capital Market</a>,” to discuss it) leads a distinguished policy center that “aims to encourage foundations and charitable donors to direct more resources toward support of small, local, often faith-based grassroots associations that are the heart of a vital civil society.” So he speaks from experience when he says that “small, grass-roots nonprofits -- which are so often a key source of innovation -- are automatically frozen out of money by the burden of measurement.”</span></span><br />
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif; font-size: small;"><br />
</span></span><br />
<span class="s1" style="letter-spacing: 0px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif; font-size: small;">Alas, measurement and evaluation are expensive and difficult, and the small charities of which Mr. Schambra speaks will almost always have more vital work to do with their limited resources. Nearly all of the work going on to advance nonprofit evaluation (including such efforts as the <a href="http://www.nationalservice.gov/about/programs/innovation_2011_grants.asp"><span class="s2" style="text-decoration: underline;">Social Innovation Fund</span></a> and the <a href="http://www.socialfinance.org.uk/work/sibs"><span class="s2" style="text-decoration: underline;">Social Impact Bonds</span></a> that my organization, <a href="http://www.socialfinanceus.org/"><span class="s2" style="text-decoration: underline;">Social Finance, Inc.</span></a>, is working on) are aimed at larger, more mature nonprofits. (As I’ve written <a href="http://billionsofdrops.blogspot.com/2010/09/growth-capital-for-small-nonprofits.html"><span class="s2" style="text-decoration: underline;">previously</span></a>, one notable exception is Social Velocity, ably led by Nell Edgington, which does impressive work bringing <a href="http://xn--cant%20small%20nonprofits%20raise%20capital%20too-2f44a/?"><span class="s2" style="text-decoration: underline;">growth capital to small nonprofits</span></a>.)</span></span></div><div class="p2" style="font: normal normal normal 12px/normal Calibri; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; min-height: 14px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif; font-size: small;"><span class="s1" style="letter-spacing: 0px;"></span></span></div><div class="p1" style="font: normal normal normal 12px/normal Calibri; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1" style="letter-spacing: 0px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif; font-size: small;">[While I’m on the subject, could we please stop referring to randomized-control trials as the “<a href="http://billionsofdrops.blogspot.com/2010/09/deciding-what-works.html">gold standard</a>” of evaluation? That’s like saying Mt. Everest is the gold standard of mountain climbing, when 99.99% of climbers will never see, much less climb, Mt. Everest.]</span></span></div><div class="p2" style="font: normal normal normal 12px/normal Calibri; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; min-height: 14px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif; font-size: small;"><span class="s1" style="letter-spacing: 0px;"></span></span></div><div class="p1" style="font: normal normal normal 12px/normal Calibri; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1" style="letter-spacing: 0px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif; font-size: small;">But just because it’s hard to justify imposing the burdens of robust evaluation on small charities doesn’t compel the same conclusion for larger organizations. In fact, Mr. Schambra identifies reasonable criteria for legitimate evaluation that aptly describe where I believe the social sector is heading. To his credit, he notes that “the burden of measurement might be endurable were we confident that all those numbers we were collecting were somehow adding up to a coherent science of grant making.” He welcomes an arrangement in which funders and nonprofits “decide jointly on a simple, coherent, user-friendly system to which we can both pay attention, which will prevail over bureaucratic inertia and political connections, and which will feed into a serious body of knowledge.”</span></span></div><div class="p2" style="font: normal normal normal 12px/normal Calibri; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; min-height: 14px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif; font-size: small;"><span class="s1" style="letter-spacing: 0px;"></span></span></div><div class="p1" style="font: normal normal normal 12px/normal Calibri; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1" style="letter-spacing: 0px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif; font-size: small;">I think Mr. Schambra has fairly described some encouraging developments that share a common purpose of trying to make measurement and evaluation more useful and more consequential. That is just as it should be: for all the reason he gives, the burden of proof must rest entirely on funders and evaluators, not on beleaguered nonprofits.</span></span></div><div class="p2" style="font: normal normal normal 12px/normal Calibri; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; min-height: 14px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif; font-size: small;"><span class="s1" style="letter-spacing: 0px;"></span></span></div><div class="p1" style="font: normal normal normal 12px/normal Calibri; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1" style="letter-spacing: 0px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif; font-size: small;">Examples abound. FSG Social Impact Advisors has taken the lead in two areas relating to Mr. Schambra’s concerns: “<a href="http://www.fsg.org/tabid/191/ArticleId/87/Default.aspx?srpush=true"><span class="s2" style="text-decoration: underline;">shared measurement systems</span></a>” designed “to evaluate ... impact across multiple grants and stakeholders” and <a href="http://www.fsg.org/tabid/191/ArticleId/177/Default.aspx?srpush=true"><span class="s2" style="text-decoration: underline;">action-oriented approaches</span></a> that offer “a fundamental transition in the way foundations use evaluation.” The Independent Sector, BBB Wise Giving Alliance, and GuideStar USA have launched a “<a href="http://www.independentsector.org/charting_impact"><span class="s2" style="text-decoration: underline;">Charting Impact</span></a>” initiative grounded in “five simple but powerful questions” that give nonprofits “a shared vehicle for concisely conveying your plans and progress to key stakeholders.” Root Cause’s “<a href="http://www.rootcause.org/social_impact_research"><span class="s2" style="text-decoration: underline;">Social Impact Research</span></a>” project (on which I consulted some time ago) “aggregates, analyzes, and disseminates information to help social impact investors identify and support the most effective, efficient, and sustainable organizations working to solve social problems.” Charity Navigator has launched “<a href="http://www.charitynavigator.org/index.cfm?bay=content.view&cpid=1107"><span class="s2" style="text-decoration: underline;">Charity Navigator 2.0</span></a>” (another consulting project) to transform its widely-used but much-maligned star-rating system into a more informative tool for intelligent giving.</span></span></div><div class="p2" style="font: normal normal normal 12px/normal Calibri; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; min-height: 14px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif; font-size: small;"><span class="s1" style="letter-spacing: 0px;"></span></span></div><div class="p1" style="font: normal normal normal 12px/normal Calibri; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1" style="letter-spacing: 0px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif; font-size: small;">These are not the kinds of “ephemeral metric fads” that Mr. Schambra derides. Rather, they are serious and sustained efforts to shift some, but by no means all or even most, philanthropic giving in a more performance-driven direction, one that actually would significantly affect the amount of funding that the most effective nonprofits attract.</span></span></div><div class="p2" style="font: normal normal normal 12px/normal Calibri; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; min-height: 14px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif; font-size: small;"><span class="s1" style="letter-spacing: 0px;"></span></span></div><div class="p1" style="font: normal normal normal 12px/normal Calibri; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1" style="letter-spacing: 0px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif; font-size: small;">In his seminal article, “<a href="http://www.ssireview.org/articles/entry/money_to_grow_on/"><span class="s2" style="text-decoration: underline;">Money to Grown On</span></a>,” William Foster of the Bridgespan Group identified “a small but growing number of organizations ... involved in providing growth capital” and argued that “donors can learn how to scout out and grow the best nonprofits ... [and] certain nonprofits can ... learn how to attract cash for expansion.” These organizations (which my book calls “growth-ready mid-caps”) meet all of the following seven characteristics: they address a critical need; they have strong leadership; they have strategic clarity; their programs are demonstrated successes; their programs are cost-effective; they have grown successfully; and they have a sustainable funding model.</span></span></div><div class="p2" style="font: normal normal normal 12px/normal Calibri; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; min-height: 14px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif; font-size: small;"><span class="s1" style="letter-spacing: 0px;"></span></span></div><div class="p1" style="font: normal normal normal 12px/normal Calibri; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1" style="letter-spacing: 0px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif; font-size: small;">Most assuredly, these are not Mr. Schambra’s “small, grass-roots nonprofits,” whose contributions to civic life he rightly celebrates. But they are the kinds of organizations that have important potential for “scaling what works,” which has attracted the Social Innovation Fund and a coalition of more than 20 funders collaborating under the flag of <a href="http://www.geofunders.org/scalingwhatworks.aspx"><span class="s2" style="text-decoration: underline;">Grantmakers for Effective Organizations</span></a>. All of these efforts are aiming at developing evaluation systems that are not more trouble than they’re worth and that could actually influence the flow of money to nonprofits that are producing the greatest social impacts.</span></span></div><div class="p2" style="font: normal normal normal 12px/normal Calibri; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; min-height: 14px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif; font-size: small;"><span class="s1" style="letter-spacing: 0px;"></span></span></div><div class="p1" style="font: normal normal normal 12px/normal Calibri; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1" style="letter-spacing: 0px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif; font-size: small;">Evaluation critics aren’t far off the mark when they complain about the long-standing imbalance between the large costs and modest benefits of evaluation. But the fulcrum is shifting because we have an opportunity to leverage the tremendous social innovation the sector is generating with new kinds of financing that are specifically designed to amplify impact and support growth. While Mr. Schambra has a point when he says “devotion to measurable outcomes is hardly new,” the opportunity to combine more pragmatic and actionable evaluation tools with an emerging interest by “social impact investors” in growth-capital funding is new. Without evaluation, we can’t hope to convince impact-minded funders to make the kinds of larger, longer and less restricted grants that are needed to overcome the capital fragmentation that holds back social progress.</span></span></div><div class="p2" style="font: normal normal normal 12px/normal Calibri; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; min-height: 14px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif; font-size: small;"><span class="s1" style="letter-spacing: 0px;"></span></span></div><div class="p1" style="font: normal normal normal 12px/normal Calibri; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1" style="letter-spacing: 0px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif; font-size: small;">Mr. Schambra fears that “the burden of futile and pointless measurement will only continue to grow.” In the broadest sense, I’m not prepared to disagree with him. I do believe, however, that a strong and promising counterpoint must emerge if the sector hopes to move the needle of social change, and I’m quite optimistic that such a movement is well underway.</span></span></div>Steve Goldberghttp://www.blogger.com/profile/06106824600318886347noreply@blogger.com3tag:blogger.com,1999:blog-141831867777566890.post-26564863144675197952010-12-24T14:43:00.000-05:002010-12-24T14:43:36.385-05:002011: The Year Philanthropy Starts to Become a “Long-Term Solution”<span class="Apple-style-span" style="font-family: Verdana, sans-serif;">An apparent disagreement between two of the sharpest minds in philanthropy is just too tempting to resist. Herewith, an unsolicited response to <a href="http://www.philanthrocapitalism.net/about/about-the-authors/matthew-bishop/">Matthew Bishop</a> (co-author of Philanthrocapitalism and The Road From Ruin, and NY Bureau Chief of The Economist) and <a href="http://www.blogger.com/profile/09253941214286179394">Lucy Bernholz</a> (founding President of Blueprint Research & Design and blogger extraordinaire at Philanthropy 2173) on the subjects of predicting trends in philanthropy and the relationship of private giving to public policy.</span><br />
<a name='more'></a><br />
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span><br />
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Here’s the set up: Lucy recently <a href="http://philanthropy.blogspot.com/2010/12/predictions-and-strategy.html">blogged</a> about a <a href="http://audiovideo.economist.com/?fr_story=883907d4b285203218498b374d5fd8ee221ef7f0&rf=bm">video</a> of Matthew offering some predictions for 2011, which include (as Lucy summarized) a “rise in impact investing, ... boom year for education giving, down turn in government aid, and increased awareness of social capital markets.” While I would venture to say that he’s hardly going out on a limb here, still, it’s good to hear someone as perspicacious as Matthew validate what many of us are expecting and planning on for the year ahead. </span><br />
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span><br />
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">But what’s noteworthy to me is Lucy’s response (with my emphases added), which, as I read it, seems to suggest that Matthew is all wet: </span><br />
<blockquote>Most interesting, in my opinion, is Bishop’s sense there will be more attention on policy issues, not just from big givers but also from the rest of us. I'd like to point out that the very fact that Bishop highlights education and maternal health as two "hot areas" for giving in 2011 is indicative of the limits of philanthropy as a solution. Global solutions don't lend themselves to "annual hot lists" - as I noted <a href="http://www.alliancemagazine.org/en/content/matter-rights">here</a>. This blog received a comment from a reader that said: “Planned giving and philanthropic leadership are the need of the hour as many countries are crisis-ridden."</blockquote><blockquote>My response "... I think it is a fallacy to equate anything you would describe as “crisis ridden” with “philanthropy” as a solution. Philanthropy is – by design – episodic, donor directed, temporal, fragmented, decentralized and disaggregated. Not what any people, society, institution, community should expect to be responsible in “crisis ridden” situations."</blockquote><blockquote>Those same characteristics shape the kind of impact philanthropy can possibly have on ongoing issues such as education and maternal health or whatever the 2012 issues of the year will be. We don't help anyone by pretending otherwise. It's not to say that philanthropy can't make a difference. It is to say that we need to develop philanthropic strategies that draw from the strengths of philanthropy and don't burden it with being a long term, equitable, prioritized source of funding or attention.</blockquote><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span><br />
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">The only word that captures my reaction to Lucy’s reaction is one that Matthew might use: gobsmacked. I’m utterly astounded not merely because I so strongly believe that transforming at least part of philanthropy to become “a long term, equitable, prioritized source of funding [and] attention” is precisely what we should try to do next year, but because I would have thought that Lucy Esmerelda* Bernholz would be the last person on Earth to suggest otherwise. [*I have no idea what Lucy’s middle name is ...]</span><br />
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span><br />
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Let’s put this in context. A recent installment of the New York Time’s “Neediest Cases” series, entitled “<a href="http://www.nytimes.com/2010/12/19/nyregion/19neediestintro.html">When Children Are Caught in the Cycle of Poverty</a>,” illustrates what I’ve called “<a href="http://billionsofdrops.blogspot.com/p/reviews_2753.html">$100 million problems</a>,” social problems that are so pervasive, incapacitating and intractable that much larger sums than usual must be marshaled to develop and pilot scalable responses:</span><br />
<blockquote>The economic collapse has taken a toll on vast segments of society, but it has affected some groups disproportionately. Among those are children. The Institute for Children, Poverty and Homelessness reports that nationwide, 1.35 million children are homeless. Most of them are black or Latino. Children make up a quarter of the nation’s population, but account for 36 percent of all people in poverty, according to a report from the National Center for Children in Poverty, at Columbia University. In New York City, 30 percent of children are living in poverty. One out of every five children relies on local food banks or pantries for sustenance, and of these children, 79 percent rely on the National School Lunch Program. Poverty stymies performance in school and negatively affects mental and physical health, experts say. Poor children have higher rates of asthma, are more likely to suffer a higher rate of cognitive delays and developmental disorders. Absent intervention, these children will face great difficulty in transcending the disadvantages of their early lives and, as adults, are likely to perpetuate a cycle of poverty that has consumed generations in areas like East New York, Brooklyn; Jamaica, Queens; Morrisania in the Bronx; East Harlem; and Port Richmond on Staten Island. Such an outcome is not acceptable to advocates like Richard R. Buery Jr., president and chief executive of the Children’s Aid Society, who said, “Those who love our country, and believe in its ideals, cannot be satisfied until the promise of equal opportunity is made true for all of our children.”</blockquote><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Now, we have any number of outstanding charitable organizations that have developed innovative solutions to just these kinds of problems, many of which have achieved significant levels of incremental growth over the course of two decades or longer. But we simply cannot make meaningful headway against the massive scope of these problems -- 1.35 million homeless children, 36% in poverty, one-fifth experiencing food insecurity, with all the attendant impairments of health and educational and economic opportunity -- because we don’t know how to make those innovations much, much, MUCH more widely available. </span><br />
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span><br />
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">In my book, I argue that, as it stands today, philanthropy can’t increase the availability of proven social innovations by orders of magnitude. Much of my thinking about this was informed by none other than Lucy Cleopatra Bernholz. Lucy wrote the very first and extremely insightful book on this critical subject way back in 2004, called <a href="http://www.amazon.com/Creating-Philanthropic-Capital-Markets-Deliberate/dp/0471448524">Creating Philanthropic Capital Markets: The Deliberate Evolution</a> (Wiley), which, by the way, hasn’t become outdated in the least.</span><br />
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span><br />
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Early on in her book, Lucy argues that “the goal of a new philanthropic system should be to demonstrably accelerate the effective application of private resources to achieve public good.” So she asks, “How do we maximize the impact of hundreds of thousands of individual charitable acts and experience the full potential that private giving can bring to our shared society?” Good question, to which she provides an equally good answer:</span><br />
<br />
<ul><li><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">“The greatest professional challenge in philanthropy and the mark of success is the ability to attract other people’s money to an issue and apply the joint resources of many to make change happens.” <br />
</span></li>
<li><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"></span><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">“The book argues for the potential -- and the necessity -- for philanthropy to reorganize into a more rational system for social good.” </span></li>
</ul><br />
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">I like where this is going. So what will it take?</span><br />
<br />
<ul><li><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">“If elements of the industry were deliberately designed, streamlined, creatively conjoined, and aggregated we could indeed build new philanthropic capital markets that could significantly improve the quality of community life.” </span></li>
</ul><br />
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Any difficulties expected?</span><br />
<br />
<ul><li><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">“The strength of American philanthropy is its diversity and personal nature. Its weakness is its dispersed size and diminishing value in the face of ever-widening wealth gaps and public revenue shortfalls.” <br />
</span></li>
<li><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"></span><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">“If we intend to make philanthropy a stronger, more vital participant in social health and problem solving, the most efficient places to focus are on those elements of the industry that broadly affect many individual players. Simply put, the industry is too dispersed and deliberately isolated to effect much influence on it by moving from organization to organization.”</span></li>
</ul><br />
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">So philanthropy needs to be “redesigned” and “aggregated” to accomplish “greater social good”; as it stands now, it’s too “dispersed” and “isolated” to accomplish its potential. I couldn’t agree more. </span><br />
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span><br />
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">But then who’s this other person arguing that philanthropy was “designed” to be “fragmented, decentralized and disaggregated,” so we shouldn’t “pretend” that philanthropy can be a “long term, equitable, prioritized source of funding or attention?” Is there an “old Lucy” and a “new Lucy”?</span><br />
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span><br />
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">I think my confusion began when Caroline Hartnell, editor of <i>Alliance</i> magazine (on whose Editorial Advisory Board Lucy sits), <a href="http://www.alliancemagazine.org/en/content/matter-rights">offered this</a> on Lucy’s behalf:</span><br />
<blockquote>No one should have to rely for their long-term basic needs on something that is by its very nature ‘episodic, donor directed, temporal, fragmented, decentralized and disaggregated’. No one can force foundations or philanthropists to act in a particular way over the long term. If we want to do that, we can tax the wealthy more. Social justice philanthropy doesn’t aim to meet people’s basic needs but to support marginalized groups to change the conditions that make them marginalized and to ensure that their long-term needs are met by the state as a matter of right.</blockquote><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">I respectfully disagree. The charitable sector has long seen government -- naively, in my view -- as an “exit” or “take-out” strategy in which nonprofits develop an important social innovation, which the public sector then adopts and scales with tax dollars. What’s missing, I believe is an appreciation of just how profoundly the public sector has been recast and its role permanently diminished. </span><br />
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span><br />
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Not only has the legislative process become almost completely dysfunctional, but almost everyone agrees that our national and state budget and debt structure have become unsustainable, with severe cutbacks in governmental expenditures as far as the eye can see. There are no realistic prospects for significant expansions of government programs to address $100 million problems in education, healthcare, workforce development, housing, food, or any of the many other areas of significant decline. Lucy seems to agree in both her book and her <a href="https://www.lulu.com/commerce/index.php?fBuyContent=9788366&fBuyProductType=print&cid=en_email_pubcomplete_add-to-cart">Blueprint 2011</a>:</span><br />
<br />
<ul><li><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">“Public funds for nonprofits at both federal and state levels will be down in 2011; many of the public sources of funds for nonprofits in 2009 [including the American Recovery and Reinvestment Act and the Department of Education’s Investing In Education fund] were one-time shots and state budgets have been decimated.” <br />
</span></li>
<li><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">“We are in the midst of a public revenue crisis at every level of governance that will not allow philanthropic assets to remain unaccountable or disconnected.” <br />
</span></li>
<li><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">“Changes in public funding practices, primarily the devolution of funding and decision making from the federal government to state and local jurisdictions, constitute the fourth driver of the [philanthropy] industry.”</span></li>
</ul><br />
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">I see decades of governmental retrenchment ahead that cannot possibly cope with the array of debilitating social problems we already face. If government remains the primary institutional response to those problems, we will not make sustained progress in overcoming them. Other sectors, including business and nonprofits, have to take up the slack. </span><br />
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span><br />
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">A more plausible approach, presaged by the Social Innovation Fund and NYC Deputy Mayor Stephen Goldsmith’s <a href="http://www.amazon.com/Governing-Network-Shape-Public-Sector/dp/0815731299/ref=sr_1_1?s=books&ie=UTF8&qid=1293219647&sr=1-1">Governing by Network</a> model, is forming new public-private partnerships (such as Promise Neighborhoods based on the Harlem Children’s Zone) to share ongoing responsibility and funding for the development of new initiatives that straddle boundaries between sectors by combining the strengths of both. Old Lucy seemed to agree: </span><br />
<br />
<ul><li><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">“A stronger philanthropic system will integrate private funds with public strategies....” <br />
</span></li>
<li><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">“There is no universal equation for the best relationship between the marketplace, government, and nonprofit providers -- the challenge is making the mix work. As the balance of players -- commercial, nonprofit, and public -- shifts, the public benefit sector presents a shocking new environment for philanthropic action.” <br />
</span></li>
<li><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">“Philanthropy is also changing as a result of new public-private partnerships. There are many catalysts for those partnerships but the devolution of public budgets and decision making from the federal to the local level is a major reason for their growing popularity.” <br />
</span></li>
<li><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">“Co-production of social services may become the norm, as municipal governments scale back and individual residents and philanthropic entities band together to provide core community services such as recycling, safety, and recreational services.” </span></li>
</ul><br />
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">This evolution is happening right before our eyes. Consider some of the more significant developments of 2010 in nonprofit growth capital markets and scaling social impact:</span><br />
<br />
<ul><li><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Three grantees of the Social Innovation Fund recently awarded the first round of subgrants to support 61 community-based nonprofit organizations working to provide workforce training, job placement, financial literacy services, and other resources to help over 32,000 individuals and families find jobs, reduce their debt, gain financial literacy and build assets. <br />
</span></li>
<li><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">In June, the Social Impact Exchange held its 2010 Inaugural Conference on Scaling, where more than 450 funders, investors, high net-worth individuals, philanthropy advisors, academics and nonprofit leaders focused entirely on planning, evaluating, and financing the scaling of high impact, nonprofit organizations. In December, the Exchange announced several follow-up capital projects to be developed in time for the next annual event, including the formation of collaborative working groups focusing on Social Impact Bonds, donor-advised funds, private banks and financial institutions, and multi-family offices. <br />
</span></li>
<li><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Social Finance in London has launched the first Social Impact Bond to raise private investments for early intervention programs to reduce downstream governmental expenditures resulting from prison recidivism. The Centre for Social Impact in New South Wales, Australia has announced plans to develop a similar initiative in areas such as juvenile justice, mental health or services assisting young families at risk. <br />
</span></li>
<li><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Nine NFF Capital Partners’ “philanthropic equity” campaigns -- “the type of capital needed to explore better business models, scale impact, and create lasting change” -- have grown average annual program delivery by a factor of 3.1x, with a compound annual growth rate of 57%; annual business model revenue for these nine organizations has doubled, with a compound annual growth of 36%. <br />
</span></li>
<li><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">SeaChange Capital Partners launched “transformational fundings” totaling more than $11 million for outstanding nonprofits that have “the opportunity, capacity, and ambition to increase their impact significantly on behalf of low-income young people in the United States.” <br />
</span></li>
<li><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">The third annual Social Capital Markets (SOCAP) conference added a “Tactical Philanthropy” track curated by Sean Stannard-Stockton to “examine the way in which philanthropy is an integrated part of the social capital markets, not a separate activity.” <br />
</span></li>
<li><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Charity Navigator, Philanthropedia, Root Cause, GiveWell, New Philanthropy Capital, Keystone Accountability, Great Nonprofits, Guidestar, Independent Sector, BBB Wise Giving Alliance, and the Alliance for Effective Social Investing are developing and collaborating on various initiatives to advance performance-based philanthropy and measuring social impact. <br />
</span></li>
<li><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Social Venture Partners International launched its first “mezzanine fund” to “take investees to national scale.”</span></li>
</ul><br />
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">I could go on, but it appears to me that we’re on the verge of something seismic. In fact, over the last few weeks, I’ve asked quite a few people who’s views I respect whether they think (as I do) that a significant shift is taking place in the nonprofit capital marketplace and that major funders and intermediaries are ready to support growth capital investments and scaling initiatives. While no one thinks that we’ve arrived at the promised land just yet, they all agreed that a lot more people seem to believe that such a place exists and that a consensus is emerging about the most likely ways to get there. Having talked the talk for several years now, the possibility of walking the walk feels imminent.</span><br />
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span><br />
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Philanthropy is experiencing the kind of periodic “paradigm” changes that <a href="http://plato.stanford.edu/entries/thomas-kuhn/#3">Thomas Kuhn</a> described in which radically new approaches to social and scientific problems finally displace long-accepted explanations (such as belief that the sun revolved around the Earth) that clearly no longer work. The idea that philanthropy is supposed to be “episodic, donor directed, temporal, fragmented, decentralized and disaggregated” has been eroding for some time, and the realization has taken hold that “new philanthropic capital markets ... could significantly improve the quality of community life,” if, but only if “elements of the industry were deliberately designed, streamlined, creatively conjoined, and aggregated.” When we finally acknowledge (as the old Lucy urged us to do) that declining social mobility cannot be corrected by diminishing public revenues, and that the nonprofit sector has become impressively good at spawning effective social innovation, we must accept Lucy’s conclusion that the time has surely come “to demonstrably accelerate the effective application of private resources to achieve public good.” </span><br />
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span><br />
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Philanthropy as “long term, equitable, prioritized source of funding [and] attention,” here we come. </span><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">But who knows? As Yogi Berra said, “It's tough to make predictions, especially about the future.”</span>Steve Goldberghttp://www.blogger.com/profile/06106824600318886347noreply@blogger.com2tag:blogger.com,1999:blog-141831867777566890.post-31702567234511378622010-11-30T15:42:00.000-05:002010-11-30T15:42:59.268-05:00I Beg to Differ<div class="p1" style="font: normal normal normal 12px/normal Palatino; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1" style="letter-spacing: 0px;"><span class="Apple-style-span" style="font-family: Verdana, sans-serif;"><span class="Apple-style-span" style="font-size: small;">I take a back seat to no one in my admiration of the Nonprofit Finance Fund, so it pains me to dissent from Rebecca Thomas’s thoughtful article, <a href="http://philanthropy.com/article/Poor-Advice-for-Donors/125523/">"New Ways to Rate Charities Don’t Help Donors Make Smart Bets,"</a> published in the <i>Chronicle of Philanthropy</i>, but dissent I must. The simple answer to her important questions – “So why the rush to rate and rank? Why not provide information and let donors decide?” – is that donors aren’t willing to wade through unprocessed information about nonprofits to make more informed decisions about which charities to support. Given the choice between making steady improvements in sites like Charity Navigator and continuing to leave donors without any meaningful guidance about which nonprofits are most effective, I’ll take better rankings every time.</span></span></span></div><div class="p1" style="font: normal normal normal 12px/normal Palatino; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1" style="letter-spacing: 0px;"><span class="Apple-style-span" style="font-family: Verdana, sans-serif;"><span class="Apple-style-span" style="font-size: small;"><br />
</span></span></span></div><a name='more'></a><div class="p1" style="font: normal normal normal 12px/normal Palatino; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1" style="letter-spacing: 0px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="Apple-style-span" style="font-size: small;">First, a disclosure: I've been both a consultant to Charity Navigator and a member of its Advisory Panel that's helping CN enhance its rating methodology.</span></span></span></div><div class="p1" style="font: normal normal normal 12px/normal Palatino; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1" style="letter-spacing: 0px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="Apple-style-span" style="font-size: small;"><br />
</span></span></span></div><div class="p1" style="font: normal normal normal 12px/normal Palatino; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1" style="letter-spacing: 0px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="Apple-style-span" style="font-size: small;">Second, the disconnection between performance and funding is one of the most significant problems facing the nonprofit sector. We urge charities to undertake the difficult and expensive work of measuring and managing their performance, knowing all the while that doing so is likely to have little or no effect on donor support. Why? Because, as Hope Consulting’s research shows, donors don’t look for or use performance information. Why? Because it’s not available in a form that’s useful or convenient to them. Lecturing donors about how they “should” evaluate charities, as so many articles (particularly at this time of year) do, is no way to help donors become more thoughtful philanthropists.</span></span></span></div><div class="p2" style="font: normal normal normal 12px/normal Palatino; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; min-height: 16px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="Apple-style-span" style="font-size: small;"><span class="s1" style="letter-spacing: 0px;"></span></span></span></div><div class="p1" style="font: normal normal normal 12px/normal Palatino; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1" style="letter-spacing: 0px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="Apple-style-span" style="font-size: small;">In a recent <i>New York Times</i> column, Nicholas Kristof offered what seemed like sensible advice for holiday charitable giving: “donations could accomplish far more if people thought through their philanthropy, did more research, and made fewer, bigger contributions instead of many small ones that are expensive to handle.” He’s right, of course, but his sound advice is virtually impossible to follow. For most donors, there’s no simple or direct way to find which charities do the most good. As a result, charities that don’t accomplish measurable objectives can still attract funding from uninformed consumers simply by telling engaging anecdotes.</span></span></span></div><div class="p2" style="font: normal normal normal 12px/normal Palatino; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; min-height: 16px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="Apple-style-span" style="font-size: small;"><span class="s1" style="letter-spacing: 0px;"></span></span></span></div><div class="p1" style="font: normal normal normal 12px/normal Palatino; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1" style="letter-spacing: 0px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="Apple-style-span" style="font-size: small;">I don’t agree that “it is far from clear that the new systems are any better than the ones they seek to replace.” Clearly, Charity Navigator’s evolving methodology is a major advancement in thoughtful analysis. Another pioneering site, Philanthropedia, is presenting donors with a tremendously helpful tool. And I would argue that sites like these are doing exactly what Ms. Thomas suggests they do: “provide donors with a truly meaningful blend of information about an organization’s leadership, direction, revenue model, capital needs, and program results.”</span></span></span></div><div class="p2" style="font: normal normal normal 12px/normal Palatino; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; min-height: 16px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="Apple-style-span" style="font-size: small;"><span class="s1" style="letter-spacing: 0px;"></span></span></span></div><div class="p1" style="font: normal normal normal 12px/normal Palatino; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1" style="letter-spacing: 0px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="Apple-style-span" style="font-size: small;">Critics of new rating sites fail to recognize the importance of providing mass-market information tools. Millions of donors are donating billions of dollars to more than 1.5 million nonprofit organizations with almost no idea of how well the charities are run or what they accomplish. In such a crowded market, highly-effective nonprofits are not rewarded for strong performance because, for all practical purposes, donors have no way to find such organizations. The haystack is too big and the needles are too few.</span></span></span></div><div class="p2" style="font: normal normal normal 12px/normal Palatino; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; min-height: 16px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="Apple-style-span" style="font-size: small;"><span class="s1" style="letter-spacing: 0px;"></span></span></span></div><div class="p1" style="font: normal normal normal 12px/normal Palatino; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1" style="letter-spacing: 0px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="Apple-style-span" style="font-size: small;">Respectfully, it is no answer to say that donors should “take the time to do a comprehensive analysis of the context, risk, and opportunities facing each nonprofit.” Perhaps they should, but they never have and they never will. Nor can we accept that “a sophisticated consumer will look beyond a simple rating and ask data-driven questions about a broad range of ingredients that lead to success in achieving an organization’s mission.” There are no such consumers. Foundation program officers and the skilled professionals at places like GiveWell, SeaChange and New Profit certainly go to those lengths, but ordinary donors who provide 75% of the total donations in this country do not.</span></span></span></div><div class="p2" style="font: normal normal normal 12px/normal Palatino; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; min-height: 16px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="Apple-style-span" style="font-size: small;"><span class="s1" style="letter-spacing: 0px;"></span></span></span></div><div class="p1" style="font: normal normal normal 12px/normal Palatino; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1" style="letter-spacing: 0px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="Apple-style-span" style="font-size: small;">Ms. Thomas makes legitimate points about selection bias and disclosing expert affiliations. But I think she goes too far in claiming that new standards of “cost effectiveness” and “financial sustainability” are “arbitrary, inconsistent and misleading.” They’re not perfect and they’re not as rigorous as full-blown due diligence, but they’re vast improvements over the information donors have now. The added value of the new ratings far outweighs their shortcomings.</span></span></span></div><div class="p2" style="font: normal normal normal 12px/normal Palatino; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; min-height: 16px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="Apple-style-span" style="font-size: small;"><span class="s1" style="letter-spacing: 0px;"></span></span></span></div><div class="p1" style="font: normal normal normal 12px/normal Palatino; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1" style="letter-spacing: 0px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="Apple-style-span" style="font-size: small;">Ms. Thomas urges <i>Chronicle</i> readers “to be mindful of the many highly effective nonprofit groups we may overlook in the process.” The fact is that existing information about nonprofits systematically overlooks virtually <i>all</i> highly-effective charities. For the first time, the emerging wave of new rating sites is likely to make it much easier for donors to find and fund charities that they think produce the most social impact. If so, performance-focused nonprofits will finally have genuine financial incentives to publish meaningful and reliable information about their actual accomplishments. And donors can decide for themselves whether they wish to continue to support charities that are unable or unwilling to do so.</span></span></span></div>Steve Goldberghttp://www.blogger.com/profile/06106824600318886347noreply@blogger.com3tag:blogger.com,1999:blog-141831867777566890.post-21409501381080160282010-11-12T13:14:00.000-05:002010-11-12T13:14:24.395-05:00SIF and the Office of Inspector General: Time to Chill<div class="p1" style="font: normal normal normal 12px/normal Georgia; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="Apple-style-span" style="font-family: Verdana, sans-serif;"><span class="Apple-style-span" style="font-size: medium;">Before we jump the gun once again, perhaps it would be a good idea to understand what the OIG does first.</span></span></div><a name='more'></a><br />
<div class="p1" style="font: normal normal normal 12px/normal Georgia; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="Apple-style-span" style="font-size: medium;">The Nonprofit Quarterly, which stirred up unjustified hysteria about the supposed lack of “transparency” in the Social Innovation Fund’s selection of intermediary grantmakers (see my previous posts <a href="http://billionsofdrops.blogspot.com/2010/08/response-to-nonprofit-quarterly.html">here</a> and <a href="http://billionsofdrops.blogspot.com/2010/08/social-innovation-fund-kerfuffle.html">here</a>), is now <a href="http://www.nonprofitquarterly.org/index.php?option=com_content&view=article&id=7221:office-of-inspector-general-at-cncs-to-review-sif-selection-process&catid=153:features&Itemid=336">reporting</a> that the OIG at the Corporation for National & Community Service (CNCS) is conducting an “investigation” of the selection process. NPQ claims that their previous stories “resulted in the publishing of some core [SIF] documents.” As to “the results of the investigation,” NPQ now piously expresses the “hope they will also be published.”</span></div><div class="p2" style="font: normal normal normal 12px/normal Georgia; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; min-height: 14px;"><span class="Apple-style-span" style="font-size: medium;"><span class="s1" style="letter-spacing: 0px;"></span></span></div><div class="p1" style="font: normal normal normal 12px/normal Georgia; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1" style="letter-spacing: 0px;"><span class="Apple-style-span" style="font-size: medium;">Informed readers will recall that NPQ made lurid claims about potential </span></span><span class="Apple-style-span" style="font-size: medium;">“conflicts of interest” without even acknowledging that the responsible official made complete written disclosures about his prior connections with SIF applicants and that he recused himself completely from any and all considerations of their applications. Nor did NPQ report that CNCS indicated beforehand that it intended to publicly post selection process documents as soon as it had time to do so shortly after completing a long and labor-intensive review period.</span></div><div class="p2" style="font: normal normal normal 12px/normal Georgia; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; min-height: 14px;"><span class="Apple-style-span" style="font-size: medium;"><span class="s1" style="letter-spacing: 0px;"></span></span></div><div class="p1" style="font: normal normal normal 12px/normal Georgia; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1" style="letter-spacing: 0px;"><span class="Apple-style-span" style="font-size: medium;">Now NPQ is characterizing OIG’s review as an “investigation” and calling for the results to be made public. Once again, it appears that NPQ doesn’t understand how this process works: what OIG is doing probably isn’t an investigation in the sense that NPQ is implying, and all OIG reviews are required by law to be made public. Remember that when NPQ claims credit later on.</span></span></div><div class="p2" style="font: normal normal normal 12px/normal Georgia; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; min-height: 14px;"><span class="Apple-style-span" style="font-size: medium;"><span class="s1" style="letter-spacing: 0px;"></span></span></div><div class="p1" style="font: normal normal normal 12px/normal Georgia; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1" style="letter-spacing: 0px;"><span class="Apple-style-span" style="font-size: medium;">As someone who practiced federal and state constitutional and administrative law for more than 20 years, let me offer some perspective on this latest development. My take isn’t as exciting as NPQ’s, but it is better informed.</span></span></div><div class="p2" style="font: normal normal normal 12px/normal Georgia; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; min-height: 14px;"><span class="Apple-style-span" style="font-size: medium;"><span class="s1" style="letter-spacing: 0px;"></span></span></div><div class="p1" style="font: normal normal normal 12px/normal Georgia; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1" style="letter-spacing: 0px;"><span class="Apple-style-span" style="font-size: medium;">By law, some 73 federal (and most state) agencies have an OIG. As explained in the <a href="http://livepage.apple.com/"><span class="s2" style="text-decoration: underline;">Inspector General Act of 1978</span></a>, the purpose of an OIG is “to create independent and objective units ... to conduct and supervise audits and investigations relating to the programs and operations” of those agencies. Right away, you can see that the OIG has two separate and quite different functions: “audits” and “investigations.” This is confirmed by <a href="http://www.law.cornell.edu/uscode/html/uscode05a/usc_sec_05a_01000003----000-.html"><span class="s2" style="text-decoration: underline;">Section 3(d)</span></a>, which states that: </span></span></div><div class="p2" style="font: normal normal normal 12px/normal Georgia; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; min-height: 14px;"><span class="Apple-style-span" style="font-size: medium;"><span class="s1" style="letter-spacing: 0px;"></span></span></div><blockquote>Each Inspector General shall, in accordance with applicable laws and regulations governing the civil service—</blockquote><blockquote>(1) appoint an Assistant Inspector General for Auditing who shall have the responsibility for supervising the performance of auditing activities relating to programs and operations of the establishment, and</blockquote><blockquote>(2) appoint an Assistant Inspector General for Investigations who shall have the responsibility for supervising the performance of investigative activities relating to such programs and operations.</blockquote><div class="p2" style="font: normal normal normal 12px/normal Georgia; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; min-height: 14px;"><span class="Apple-style-span" style="font-size: medium;"><span class="s1" style="letter-spacing: 0px;"></span></span></div><div class="p1" style="font: normal normal normal 12px/normal Georgia; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1" style="letter-spacing: 0px;"><span class="Apple-style-span" style="font-size: medium;">So OIG’s divide their activities between “auditing activities” and “investigative activities.” The distinction is extremely important: an investigation is an adversarial proceeding looking into possible violations of law or contractual obligations, while an audit is a non-adversarial process to improve program management and efficiency. Which one is this? I can’t say for sure, but the email I received from Paul L. Carttar, SIF Director (yes, the same dodgy character whom NPQ smeared before), makes it look like an audit:</span></span><br />
<blockquote><span class="Apple-style-span" style="font-size: medium;"><br />
Dear Expert Reviewer, </span></blockquote><blockquote><span class="s3" style="letter-spacing: 0px;"><span class="Apple-style-span" style="font-size: medium;">To ensure that we are building the most effective selection process possible, we have asked the Corporation for National and Community Service’s Office of the Inspector General (OIG) to evaluate the fairness and consistency of the grant review procedures that we used earlier this year to award the inaugural set of grants from the Social Innovation Fund.</span></span></blockquote></div><div class="p2" style="font: normal normal normal 12px/normal Georgia; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; min-height: 14px;"><span class="Apple-style-span" style="font-size: medium;"><span class="s1" style="letter-spacing: 0px;"></span></span></div><div class="p1" style="font: normal normal normal 12px/normal Georgia; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="Apple-style-span" style="font-size: medium;">If this were an investigation, SIF might not even know about it, and it certainly wouldn’t be allowed to go around telling everyone about it. Given that (1) CNCS asked the OIG to conduct the review for the purpose of (2) ensuring the effectiveness of the selection process, this sure doesn’t look like CNCS might be in the kind of trouble that NPQ is implying.</span></div><div class="p2" style="font: normal normal normal 12px/normal Georgia; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; min-height: 14px;"><span class="Apple-style-span" style="font-size: medium;"><span class="s1" style="letter-spacing: 0px;"></span></span></div><div class="p1" style="font: normal normal normal 12px/normal Georgia; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1" style="letter-spacing: 0px;"><span class="Apple-style-span" style="font-size: medium;">Federal and state agencies created OIGs because they wanted government agencies to have independent audit and investigation expertise. Government programs like SIF are complex and expensive, and it takes particular skills and dedicated resources to make sure they’re being run with integrity and efficiency. By asking OIG to review the SIF selection process, CNCS is taking advantage of resources provided by federal law for the purpose of helping the Corporation do its job as effectively as possible.</span></span></div><div class="p2" style="font: normal normal normal 12px/normal Georgia; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px; min-height: 14px;"><span class="Apple-style-span" style="font-size: medium;"><span class="s1" style="letter-spacing: 0px;"></span></span></div><div class="p1" style="font: normal normal normal 12px/normal Georgia; margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1" style="letter-spacing: 0px;"><span class="Apple-style-span" style="font-size: medium;">NPQ (and others) caused a lot of precipitous and unnecessary anxiety last time around because they didn’t bother to read, much less understand, publicly available information about the relevant transparency requirements that governed CNCS’s work or the procedures that SIF had followed. Rather than jump to unjustified conclusions again, let’s consider the possibility, strange as it might seem, that this might be yet another case where a responsible government agency is trying to do the right thing in the way that it manages taxpayer money.</span></span></div>Steve Goldberghttp://www.blogger.com/profile/06106824600318886347noreply@blogger.com0tag:blogger.com,1999:blog-141831867777566890.post-22356380624752794462010-10-08T15:05:00.000-04:002010-10-08T15:05:20.015-04:00When Aggregate Demand Met Aggregate Supply<span style="font-family: Verdana, sans-serif;">Here at the SOCAP10 conference, I'm struck by the number of deals that want to happen, are trying to happen, and, for all I know, may even be happening. I suspect, however, from the strained looks on the faces of many attendees, that the wannabes far outnumber the consummated transactions.</span><br />
<br />
<span style="font-family: Verdana, sans-serif;">One connection that isn't going to come together anytime soon is between aggregate demand platforms such as the <a href="http://www.socialimpactexchange.org/">Growth Philanthropy Network's Social Impact Exchange</a> -- a clearinghouse of some 2,500 cross-sector members presenting carefully vetted investment opportunities in high-performing, growth-ready, scalable nonprofit organizations -- and aggregate supply platforms managed by national donor advised funds (DAF) like <a href="http://www.schwabcharitable.org/scf/">Schwab Charitable Fund</a> -- which, according to its Web site, "has issued over 270,000 grants to 44,000 public charities - a total of close to $1.5 billion." GPN's Alex Rossides and Schwab's Kim Wright Violich led a discussion at SOCAP10 among a circle of nonprofits, funders and investors on the subject of "The Future of Aggregate Demand Platforms." It seems to me like an obvious match waiting to happen, one that could address the social sector's desperate need for more effective capital allocation, but if Schwab's perspective is emblematic of the industry, and I believe it is, the DAFs apparently don't see it that way.</span><br />
<br />
<a name='more'></a><span style="font-family: Georgia, "Times New Roman", serif;">DAFs are in the aggregate supply business, and they have done an outstanding job in making it so simple and inexpensive for donors of all sizes and temperaments to take advantage of charitable tax deductions that they have been able to amass billions of dollars of assets in what are effectively mini-foundations for tens of thousands of retail customers. The DAFs have encouraged the formation of this sizable pool of money by simplifying paperwork and reducing cost, and tens of thousands of nonprofits have benefited from the ready availability and direct distribution of funds from these massive platforms. </span><br />
<span style="font-family: Georgia, "Times New Roman", serif;"><br />
Unfortunately, DAF innovation is apparently confined to the core business of aggregating the supply of donor-managed funds, with little or none left over to think aggregation on the demand side, that is, to serve as the flagship customer base for aggregate demand platforms like the Social Impact Exchange.</span><br />
<br />
<span style="font-family: Georgia, "Times New Roman", serif;">For perfectly understandable reasons, DAFs have always been ruthlessly agnostic (my term, not theirs) about the choices their customers make about which charities they want to support. While this is a defining characteristic of the DAF business model, without which many donors probably would not have felt comfortable parking their funds and creating a mass-market donation vehicle of such remarkable size, DAFs now seem disinclined to providing customers with even neutral information about the new wave of tools the nonprofit capital market is finally producing to enable more intelligent giving.</span><br />
<br />
<span style="font-family: Georgia, "Times New Roman", serif;">That is not to say that DAFs don't get it, because they clearly do. Kim volunteered that improving the allocation of capital is the most important challenge facing the nonprofit sector, and she knows that the social sector will not advance social progress unless more money finds its way to more effective nonprofits. But even though Schwab says it "keeps a close eye" on developments in the burgeoning market of aggregate demand platforms like Alex's, and Kim sits on the newly-formed advisory council supporting <a href="http://www.prweb.com/releases/2010/10/prweb4597544.htm">research on what drives charitable giving</a> (funded by Gates, Hewlett and LiquidNet), the DAFs don't seem ready to flag these opportunities for their customers.</span><br />
<br />
<span style="font-family: Georgia, "Times New Roman", serif;">Creating a gigantic pool of charitable donations is no small accomplishment, but it seems a shame that the funds do not see themselves as having a role in guiding the deployment of the funds they've accumulated so brilliantly. Even if we only focus on charitable donations that are not already committed to specific organizations such as colleges, hospitals and arts institutions with which donors have strong loyalty-based relationships, philanthropy has tens of billions of dollars of essentially "dumb money" which stumbles around blindly looking for places to rest. Much of that money is "in play," in the sense that its final destination is potentially influenceable. The coordinated movement of that money to more rather than less effective nonprofits represents the untapped potential of informed giving. As the Hewlett Foundation put it a <a href="http://www.givingmarketplaces.org/">recent whitepaper</a>, "Reallocating just 10 percent of the current $300 billion annual fund flow to the best performers would have a similar effect as raising billions in new funds—with nowhere near the same cost in fundraising time and energy."</span><br />
<br />
<span style="font-family: Georgia, "Times New Roman", serif;">I understand why, as Kim said, the DAFs don't want to build intelligent-giving platforms themselves, but they don't have to. In the past, there was no way for dumb money to get smart, because nonprofits did not provide meaningful information about how well they were run or what they accomplished. But GPN's site is far from the only platform in the business of aggregating donor demand for growth-ready nonprofits, with the advent of actionable investment and evaluation resources from Charity Navigator, Philanthropedia, New Philanthropy Capital, Root Cause, GiveWell, GreatNonprofits, and many others. As a <a href="http://www.scribd.com/doc/24062122/Nonprofit-Marketplace-Report-D-Koken">Hewlett-funded study</a> of online giving platforms shows, the problem we face today is there are too many aggregate-demand platforms, none of which has the horsepower to provide donors with the kinds of information they need to easily find and fund more effective nonprofits.</span><br />
<br />
<span style="font-family: Georgia, "Times New Roman", serif;">As a result of all this activity in measurement and evaluation, what once was an impossible task -- making informed judgments about which nonprofits can make best use of donors' generosity -- is on the verge of becoming commonplace. The "scaling what works" movement is well underway and it is ready, willing and able to move money to nonprofits that can produce the most social impact. But the transformation will not take place unless and until major industry players on the supply side -- such as national DAFs -- introduce their thousands of highly-engaged customers to the demand aggregators. <strong><em>Performance-based philanthropy needs the troops that DAFs have been recruiting.</em></strong></span><br />
<br />
<span style="font-family: Georgia, "Times New Roman", serif;">Far from interfering with donor choice or favoring some nonprofits over others, as the DAFs seem to fear, the demand-side platforms are positioned to be ideal partners for empowering donors who want to maximize the social impact their donations produce. Rather than join in as intermediaries on their customers' behalf, the DAFs seem to have made a conscious decision to sit on the sidelines just when the market is on the verge of taking off.</span><br />
<span style="font-family: Georgia, "Times New Roman", serif;"><br />
Additional research on donor motivation makes sense, and capacity-building grants are always appreciated. But it does not make sense to defer building out a few of the leading platforms so the market mechanisms will be ready when we need them, and the most precious resource that these emerging marketplaces need is the customers base the DAFs have been building. Kim and Alex and their respective peers in the evolving but still siloed worlds of aggregate supply and aggregate demand platforms are plenty smart enough to find ways of creating additional value for their respective customers by the simple act of introducing them to each other.</span><br />
<br />
<span style="font-family: Georgia, "Times New Roman", serif;">The miracle of markets depends upon the mediated interactions of sufficient numbers of diverse buyers and sellers. The nonprofit capital market works the same way, with donors acting as consumers of the valuable services the nonprofits produce. Performance-based philanthropy is an organized mechanism by which highly-effective nonprofits "sell" social impact to impact-maximizing donors. Those donors are searching for the very thing that aggregate-demand platforms bring together: a ready supply of high-impact nonprofits. But unless the markets attract donor-customers, the nonprofit-sellers have no incentive to show up either. </span><br />
<br />
<span style="font-family: Georgia, "Times New Roman", serif;">This isn't a chicken-and-egg problem because both sides of the market already exist. They just haven't been introduced to each other. As yet, there's no philanthropy mall where lots of choosy donors know they can shop for lots of quality nonprofits. But surely Schwab and other DAFs have large numbers of retail customers who would love to shop at the aggregate demand platforms like the Social Impact Exchange, if only they knew it was there.</span><br />
<br />
<span style="font-family: Georgia, "Times New Roman", serif;">So what's holding back the formation of this marketplace? It's not ignorance, it's not indifference, and it's not lack of resources. I don't really know what it is. But I do know this: it's not happening, at least not yet.</span>Steve Goldberghttp://www.blogger.com/profile/06106824600318886347noreply@blogger.com0tag:blogger.com,1999:blog-141831867777566890.post-35071736210895862792010-10-01T15:15:00.000-04:002010-10-01T15:15:15.145-04:00How Mighty Oaks From Little Acorns Grow<span class="Apple-style-span" style="font-family: Verdana, sans-serif;">The chaotic nonprofit capital marketplace is trying to organize itself to deploy billions of dollars much more effectively. It has miles to go, but it’s heading in some encouraging directions. The intrepid Social Innovation Fund (SIF) and the just-launched Social Impact Bond (SIB) are two of the most promising.</span><br />
<span class="Apple-style-span" style="font-family: Verdana, sans-serif;"></span><br />
<span class="Apple-style-span" style="font-family: Verdana, sans-serif;"><a name='more'></a></span><div style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"></div><div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">At next week’s </span><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><a href="http://www.socialcapitalmarkets.net/">Social Capital Markets conference (SOCAP10)</a></span><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"> I’ll be moderating a panel on my favorite topic, “Scaling Social Impact,” with Shawn Bohen from Year Up, Jennifer Davis from the National Center on Time and Learning, and Lance Fors from the New Teacher Center, which rolls down the </span><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><a href="http://www.socialcapitalmarkets.net/index.php?/tactical-philanthropy-track-page.html">“Tactical Philanthropy” track</a></span><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"> curated by Sean Stannard-Stockton. Beyond that, I’m particularly looking forward to hearing more about </span><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><a href="http://www.socialfinance.org.uk/services/index.php?page_ID=15">Social Finance’s Social Impact Bond</a></span><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"> (SIB), which is surely one of the most promising developments I’ve seen in recent years. (Social Finance’s Emily Bolton will be leading an SIB “working session,” whatever that means, at SOCAP.) Here’s why.</span></div><div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></div><div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div><div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">I wish I had a nickel for every time I’ve quoted these wise words from Harvard Business School’s Michael Porter: “Philanthropy is decades behind business in applying rigorous thinking to the use of money.” The social sector is stunningly ineffectual in so many ways at managing the $300+ billion it takes in every year. We raise money based on telling stories about what we try to do, not on what we accomplish, thereby rewarding skillful storytelling rather than building productive organizations. We invest next to nothing in capacity building, making it impossible to systematically measure or improve performance. We spend virtually every dime we raise, with almost nothing saved for a rainy day or accumulated for long-term needs. We eschew best accounting practices, so few nonprofits are “bankable,” that is, they don’t have ready access to affordable working capital based on the quality of their well-managed balance sheets. </span></span><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">The result is an appallingly low bang-for-the-philanthropic buck. </span></div><div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></div><div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Still, the social sector is nothing if not resilient. We have conducted numerous experiments of some size and duration that provide encouraging and sometimes even convincing evidence that we now know how to solve some of our most difficult social problems. Philanthropy, volunteering and community engagement seem to be rising relentlessly even in the face of cyclical headwinds. The art and science of social entrepreneurship has gained an enthusiastic following in both undergraduate and graduate education and isn’t likely to let go.</span></div><div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></div><div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div><div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Somehow, a tiny percentage of nonprofits manage to endure and distinguish themselves with mature management teams delivering proven innovations through relatively robust infrastructures and sustainable finances. Over the last ten to twenty years, these few exceptions to the rule have become sufficiently numerous that it has become impossible for forward-thinking funders to overlook their accomplishments, to the point that the crustiest segment of the social sector, institutional funding, has evolved a cadre of innovators. </span></span></div><div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div><div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div><div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">If further proof were required that social innovation is becoming institutionalized in the best sense of the term (beyond the success of SOCAP itself), that proof arrived this summer with the launch of the <a href="http://www.nationalservice.gov/about/serveamerica/innovation.asp">Social Innovation Fund</a>. To me, the significance of SIF resides in its structure. A new federal agency carves out a minuscule amount of taxpayer funds, $50 million, for multi-year deployment against defined performance objectives through experienced nongovernmental intermediaries to innovative nonprofits that can demonstrate their effectiveness from documented evidence through a competitive solicitation process. The agency oversees the intermediaries and the intermediaries oversee the nonprofits. </span></span></div><div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div><div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div><div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Even though SIF triples the corpus to $150 million through matching funds raised by both the intermediaries and the nonprofits, neither social nor financial innovation is the main object of the exercise. Rather, SIF is about “scaling what works”: expanding the delivery of proven social innovations beyond what the nonprofits could achieve on their own, even with the same amount of increased funding. <a href="http://billionsofdrops.blogspot.com/2010/08/sif-intermediaries-more-drops-in-fewer.html">As I have written before</a>, producing innovation and spreading innovation are two quite different things, and the former does not inevitably lead to the latter, conventional wisdom to the contrary notwithstanding. If any magic should emerge from SIF, it will be found somewhere in the disciplined and purposeful application of expertise about scaling and the power of collaboration through communities for shared learning. </span></span></div><div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div><div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div><div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">So SIF takes a small amount of federal money, triples it in conventional ways, and then processes it among carefully vetted collaborators to substantially extend the footprint of social innovation. The nonprofits, the intermediaries and the co-funders are all proven, brand-name entities that pose little risk individually, but collectively they’re a high-wire act trying to combine tiered expertise, evidentiary rigor, and careful performance management, to try to make 1 plus 1 equal 3, or at least 2 1/2. </span></span></div><div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div><div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div><div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Will the intermediaries add value? Will the co-funders play well together? Will the nonprofits grow more this way than they would through simpler and quicker funding increases? Can SIF mount a convincing case for continued and increased funding? Will SIF eventually produce a transformative model for scaling social impact? Given what the distinguished sponsors and participants have accomplished so far, I think the endeavor has quite a strong likelihood of success, but SIF wouldn’t be needed if scaling were easy. SIF is undeniably a commendable cross-sector initiative designed to draw on the complementary strengths and resources of public, private and nonprofit stakeholders, and it’s a lot cheaper than the Large Haldron Collider.</span></span></div><div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div><div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div><div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">But, really, why go to all that trouble? Isn’t that a rather roundabout way to promote growth? What do intermediaries contribute other than matching funds? Consider one example: the joint application of the <a href="http://www.nationalservice.gov/pdf/sif_united_way_application_materials.pdf">Strive Partnership/United Way of Greater Cincinnati</a>, which received a $2 million, 2-year SIF grant. </span></span></div><div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><br />
</div><div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div><div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Strive is a partnership of organizations that “represent all areas of our community ... the educators who teach; the nonprofits who support teaching and well-being; the philanthropies that provide financial support to both; the elected officials who create policy change; and the corporations who need a local, skilled workforce.” It was founded in the beliefs “that education must be holistic, because what happens outside of school is just important as what happens inside of school; providers must be accountable and make decisions based on data; is a cradle to career endeavor, and that working together is key to eliminating the ‘cracks’ that children might fall through; </span></span><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">must be fair so that every child, regardless of circumstance, can find the support they need to achieve their dreams.”</span></div><div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></div><div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div><div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">The Strive intervention model begins, as all good intervention models must, with a robust theory of change. The <a href="http://www.strivetogether.org/roadmap_to_success">“Student’s Roadmap to Success”</a> is a breathtakingly thoughtful and comprehensive analysis, developed by University of Cincinnati researchers in the course of reviewing hundreds of evidence-based studies, of “the key experiences and milestones that are necessary along a child’s journey from cradle to career.” The Roadmap focuses on five critical “transition points” that “determine whether or not a child is successful in school and in life”: (1) entering kindergarten, and moving (2) from elementary to middle school, (3) from middle to high school, (4) high school to college or career training and (5) from college freshman to sophomore.”</span></span></div><div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div><div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div><div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">The Roadmap establishes benchmarks children must reach in order to navigate each transition point, together with indicators of progress that academic and student/family support must achieve to reach those benchmarks. For example, to succeed at entering kindergarten, a newborn must have a “stable relationship with a strongly involved parent or caregiver ... who understands developmental milestones” so that the child “responds to parent/caregiver high-quality talking, reading and singing, ... uses exploration and discovery to understand surroundings, ... develops letter knowledge and reading sensitivity, ... and participates in high quality preschool.” When such a child enters kindergarten, she “exhibits learning-related skills such as self-regulation, social competence, self-esteem, and motivation.” Without those skills, children cannot succeed in elementary school and beyond. </span></span></div><div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Implementation is coordinated under the umbrella of a two-phase </span><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><a href="http://www.strivetogether.org/endorsement_process">“Strive Endorsement Process.”</a></span><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"> Social service providers participate in </span><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><a href="http://www.strivetogether.org/endorsement_process/success_networks">“Student Success Networks”</a></span><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"> that meet informed criteria for successful collaboration: alignment with the Roadmap goals; inclusion of all appropriate organizations and willingness to expand as additional organizations are identified; wide support in the community; commitment to being data-driven; and willingness to publish progress and share data with the community. </span></div><div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div><div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div><div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">For example, the Mentoring Student Success Network includes 13 organizations that provide some type of mentoring, whether it is one mentor to one child, one mentor to a group of children, or one mentor to a classroom of children, of which some organizations focus on certain areas of the city, certain schools, or on children in certain circumstances. Strive oversees 12 separate Student Success Networks corresponding to each of its priority strategies: Quality early childhood education; Home visitation (early childhood); School-based resource coordination; Mentoring; Drop out recovery; Health and wellness; Arts; After-school programs; Youth employment; Tutoring; College access; and College retention.</span></span></div><div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div><div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div><div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">In the first phase of the Strive Endorsement Process, participating social service providers define a common problem and create a data plan for measurement; in the second phase, they collect local measurements to determine what indicators were most crucial and create a plan of action to influence those crucial indicators. Both phases follow the “Strive Six Sigma” process (developed with corporate financial support, training and expertise from GE) to “coordinate a group of very individual, independent organizations with a similar mission to becoming a cohesive Network of organizations working together towards the same goals.” </span></span></div><div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div><div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div><div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Clearly, without the Strive Partnership, the community of Greater Cincinnati social service providers could not possibly have undertaken the rigorous work necessary to unearth the essential developmental requirements captured in the Student’s Roadmap to Success. Even if such a dazzling blueprint were magically available from some other source, they could not have organized themselves to provide all of the coordinated academic and student/family supports needed to achieve them. </span></span></div><div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div><div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div><div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">The Strive Partnership understands that scale is not an </span><i><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">additive process</span></i><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"> in which good organizations do more and more of what has worked before, accumulating success and </span><i><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">growing incrementally</span></i><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"> over time. Rather, scale is an </span><i><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">exponential process</span></i><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"> by which good organizations acquire new capacities and develop new systems for delivering innovation in order to </span><i><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">grow by orders of magnitude</span></i><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">. Like metaphorical caterpillars that change into butterflies, scaling organizations transform themselves in stages that comprise differences in kind and not merely in degree. Intermediaries like Strive and the <a href="http://www.nationalservice.gov/about/serveamerica/innovation_grantees_2010.asp">10 other SIF intermediary grantmakers</a> enable that transformation. </span></span></div><div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div><div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div><div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Nonprofits that grow incrementally and organically are merely larger than they used to be; nonprofits that scale are larger and different from what they were before, either by themselves, or by becoming an essential component of a functioning network in which the whole becomes greater than the sum of the parts, like the Strive Partnership than it can accomplish things collaboratively that the components could not produce themselves. </span></span></div><div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div><div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div><div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Wonderful, you say, Strive is terrific. But what does SIF bring to the party other than some additional funding that any federal agency could find under its couch cushions? </span></span></div><div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></div><div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><i>SIF is an intermediation factory. </i></span></span></div><div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div><div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Just as Strive creates </span><i><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">collaboration value</span></i><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"> through the development and oversight of the Student’s Roadmap to Success, the Strive Endorsement Process and the Student Success Networks, SIF creates </span><i><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">intermediation value</span></i><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"> through the development and oversight of systemic tools for competitive grantmaking, impact evaluation and using evidence of effectiveness as the basis for community-wide funding decisions. As explained in the Strive Partnership application, for example, even though the $2 million SIF grant represents only a tiny part of the Greater Cincinnati United Way’s annual $50 million budget, “it will provide a comparatively large influx of investible dollars to the Strive Partnership which will strengthen its systems work in the community and its ability to highlight programs that really work and make them examples for other similar programs and services.”</span></div><div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div><div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div><div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">One of the defining characteristics of social entrepreneurship is the adoption of more business-like practices. When people say nonprofits should be run more like businesses, the SIF / Strive / United Way is a shining example of what that looks like. This arrangement is quite new in the social sector but completely familiar to high-growth business enterprises. However, for-profit companies like GE, the original developer of the Six Sigma process, don’t have the expertise or relationships to adapt or introduce the intermediation model in ways that take into account important differences between for-profit and nonprofit organizations working to solve stubborn and complex social problems. The Strive Partnership and SIF have that expertise and those relationships.</span></span></div><div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div><div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div><div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">This self-organizing process is being invented as we speak, but it sure looks promising. The United Way began a major transformation in 2005 which it called the </span></span><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">“</span><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Agenda for Community Impact,</span><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">”</span><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"> which drastically refocused United Way</span><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">’</span><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">s funding strategy to support a few set priority outcomes, and required programs seeking funding to demonstrate through program evaluations not only that they were producing positive results, but that those results contributed to the achievement of the priority outcomes. The Strive Partnership was launched in 2006; just four years later, Cincinnati Public Schools have increased kindergarten readiness by 9%. Can substantially 100% readiness be far behind? I think not.</span></div><div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></div><div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div><div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Now, in 2010, along comes SIF, which at a cost to U.S. taxpayers of just 7.5% of the $2 million grant awarded to Strive ($300,000), will enable the Cincinnati project </span></span><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">“</span><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">to build evidence of effectiveness and allo</span><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">w organizations to replicate and expand their effective programs.</span><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">”</span></div><div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></div><div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div><div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">What SIF hopes to do for scaling social impact, SIB hopes to do for scaling social funding. As we’ve seen, SIF involves real rocket science when it comes to scaling impact, but not in terms of financial engineering, which relies on simple matching grants. That’s where the Social Impact Bond comes in. The SIB, in both its design and initial implementation, is quite modest in scope, but it is potentially seismic as an innovation of social finance.</span></span></div><div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div><div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div><div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">The SIB is one of those simple but profound ideas that makes you wonder why no one thought of it before. Millions of people face incapacitating social problems that produce disastrous and expensive consequences. For a variety of reasons I explore in my book, our track record over the last several decades in responding to these problems has been poor and declining, and the adverse consequences and their associated costs have steadily increased across the board with only minor exceptions. This bleak outlook is not likely to improve in the face of the direst economic conditions that most of us have ever seen.</span></span></div><div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div><div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div><div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">A common theme of effective social innovations is finding ways that failing institutions like public education, health care and the labor market can be fortified to serve many of those who currently fall through the cracks, so that people and communities that have fallen behind can become economically and socially self-sufficient. Through intensive, targeted and cost-effective interventions, at-risk students can graduate from high school and attend college, single mothers can raise healthier children and disconnected youth can become employable. Not only do the participants get back on track, but taxpayers avoid the added costs from trying to mitigate the collateral social damage.</span></span></div><div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div><div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div><div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">The SIB starts with the simple premise that it should be less expensive to prevent problems rather than fix them after they occur. This is not an entirely new idea, but it has been devilishly difficult to operationalize for a couple of headache-inducing reasons. </span></span></div><div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div><div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">First, government has no choice but to pay at least some of the staggering costs to respond to problems like children without health coverage, families without adequate food or shelter, and unemployed youth, but nothing except prudence requires it to pay for programs that might prevent those problems. In fact, the more money that has to be spent on the back end to deal with social and market failures, the less money is available, politically and otherwise, for preventive programs on the front end. </span></div><div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div><div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div><div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Second, even if prevention programs were funded, how could they prove the amount of savings they generated and that the savings were attributable to the programs?</span></span></div><div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div><div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div><div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">These were some of the problems that plagued the Bush administration’s failed “share-in-savings” program, which sought to reduce federal outlays by entering contracts that would pay vendors only to the extent that they produced quantifiable savings. Contractors were understandably reluctant to assume the risks of up-front investments, particularly when the difficulty of establishing cost benchmarks would create doubts about whether and how much much savings were produced.</span></span></div><div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div><div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div><div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">SIB responds brilliantly to both risks with the same answer: private investment. Instead of asking government agencies to pay up front for preventive programs that might not work (and potentially require the government to pay again later to address any failures) or asking underfunded nonprofits to assume the risk of nonpayment if savings are not realized, SIBs attract private funding for prevention programs by agreeing to pay investors (bondholders) a financial return <i>if, when and to the extent</i> that savings are produced. </span></span></div><div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div><div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div><div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">We got our first concrete illustration on March 18, 2010, when London-based Social Finance and the U.K. Ministry of Justice <a href="http://www.socialfinance.org.uk/downloads/Social%20Impact%20Bond%20March%2018_FINAL%20(2).pdf">announced the launch of the first SIB</a> to reduce prison recidivism:</span></span></div><blockquote>This first issue will fund social organisations working to reduce the re-offending rates of short sentence male prisoners leaving Peterborough Prison. The Ministry of Justice has agreed to make payments to investors in the event that re-offending is reduced below an agreed threshold.</blockquote><blockquote>Re-offending is an area where preventative work could lead to a better society and save the taxpayer money. Of the 40,200 adults on short term sentences, an estimated 60% will go on to reoffend within a year of release, at a significant cost to the taxpayer and society. </blockquote><blockquote>During the Peterborough Prison pilot, experienced social sector organisations, such as St Giles Trust, will provide intensive support to 3,000 short-term prisoners over a six year period, both inside prison and after release, to help them resettle into the community. If this initiative reduces re-offending by 7.5%, or more, investors will receive from Government a share of the long term savings. If the SIB delivers a drop in re-offending beyond the threshold, investors will receive an increasing return the greater the success at achieving the social outcome, up to a maximum of 13%.</blockquote><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Of course, if the project reduces re-offending by less than 7.5%, of course, bondholders will receive a lower financial return, potentially none. </span><br />
<div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></div><div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">The genius of SIBs lies in several factors:</span></span></div><div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div><ol class="ol1"><ol class="ol1"><ol class="ol1"><li class="li1"><span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">The social service provider, <a href="http://www.stgilestrust.org.uk/">St. Giles Trust</a>, already has an impressive track record of reducing recidivism of this target population and generating substantial savings through a field-tested intervention. Research by <a href="http://www.probonoeconomics.com/pdf/Report_launch.pdf">Frontier Economics</a> estimated that the program saved £10 in reduced costs for every £1 spent on prevention programs. The primary risk of SIBs is placed right where it should be: on the viability of the funding mechanism, which has been the obstacle to program growth in past efforts.<br />
<br />
</span></span></li>
<li class="li1"><span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Project risk is further managed by the establishment of reasonable benchmarks against which savings will be measured. Government-funded share-in-savings contracts put public dollars at risk, so estimating both current expenditures and future cost reductions are subject to public scrutiny by regulators, legislators, auditors, and other financial watchdogs, inviting protracted debate, gridlock and second-guessing both before and after the fact. But when only private funds are at risk, the parties can negotiate any savings arrangement they deem reasonable. Here, the parties have agreed to what they believe are achievable targets for reduced recidivism and plausible estimates for corresponding savings, without getting lost in the weeds of either calculation.<br />
<br />
</span></span></li>
<li class="li1"><span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Social Finance hopes to raise about £4.9 million (roughly $7.5 million U.S.) from investors, which will be managed to produce ongoing and long-term success: <br />
<br />
</span></span></li>
<ul><li><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Initial funds secured will fully fund operations for two years, giving the parties breathing space to launch and establish reliable operations. <br />
<br />
</span></li>
<li><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">While the program will be conducted over a six-year period -- a period of time that is long enough to enable the providers to build capacity and improve service delivery operations -- both the initial investment and the financial returns are drawn down and paid out, respectively, incrementally over that time span. Thus, investment capital will be drawn down over six years, and payments to investors (if any) will be made at the end of years 4, 6 and 8.<br />
<br />
</span></li>
<li><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">By focusing on short-term offenders and a one-year intervention model, the program can serve six successive cohorts of 1,000 offenders over the six-year project.<br />
<br />
</span></li>
</ul><li class="li1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Social Finance is funded through a combination of sources that promote the objectives of the program:<br />
</span><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"></span></li>
</ol></ol></ol><ul><ul><ul><ul><li class="li1"><span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Modest government-funded set-up costs (roughly $316,500 U.S.), to create a special-purpose financing vehicle designed to generate taxpayer savings;<br />
<br />
</span></span></li>
<li class="li1"><span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">An investor-funded capital-raising fee of 2.5% for a skilled financial intermediary to manage a new social investment instrument issued on terms that include reasonable and customary rights and protections for investors.<br />
<br />
</span></span></li>
<li class="li1"><span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">A 10% performance fee, to be paid only after investors are fully repaid, to reward the achievement of the desired program outcomes, reduced governmental expenditures.<br />
</span></span></li>
</ul></ul></ul></ul><div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">The scale of the first bond is quite small, as it should be, but SIBs have enormous growth potential. On the demand (or buy) side, other kinds of prevention programs that SIBs could fund include some of our most pervasive and costly social problems, including truancy, family instability, overuse of emergency medical services, and drug rehabilitation. SIBs could become a critical factor in enabling the <a href="http://ash.harvard.edu/Home/Programs/Innovations-in-Government/21stCentury/Governing-By-Network">“governing by network”</a> model advanced by Stephen Goldsmith and William Eggers in which federal, state and local agencies become “generators of public value within the web of multiorganizational, multiorganizational, and multisectoral relationships.”<br />
</span></span></div><div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div><div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">On the supply (or sell) side, Social Finance’s long-term vision is “unlocking an unprecedented flow of social finance”:<br />
</span></span></div><blockquote>Investment fund managers believe there would be considerable consumer interest in investing in Social Impact Bonds once a track record has been established and sufficient scale of investment opportunity exists. Ultimately, Social Impact Bonds could become a new social asset class, comparable to microfinance, enabling an unprecedented flow of investment into addressing social issues in the UK and elsewhere.</blockquote><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">It does not take great powers of imagination to conceive of this new asset class as a tradable security with all that entails, including availability to both mass market customers such as donor-advised funds and institutional investors such as insurance companies and pension funds, as well as trading on secondary markets to create liquidity and reduce risk.</span><br />
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></div><div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;"><span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">And if SIF and SIBs seem like exciting developments in their own right, just think about the possibilities if both experiments succeed over the next several years. The potential benefit of combining these innovations for scaling impact and scaling funding could be quite breathtaking.</span></span></div>Steve Goldberghttp://www.blogger.com/profile/06106824600318886347noreply@blogger.com0tag:blogger.com,1999:blog-141831867777566890.post-18655320338368398732010-09-24T14:21:00.001-04:002010-09-27T14:23:36.071-04:00Enabling Nonprofit Collaboration<span class="Apple-style-span" style="font-family: Verdana, sans-serif;">Despite a number of encouraging experiments in collaboration among nonprofits, it’s an idea that is (in Hamlet’s words) “more honor’d in the breach than the observance.” A recent agreement among seven leading organizations in support of “Charity Navigator 2.0” offers a new model based on advancing the mutual interests of the parties in order to make the whole greater than the sum of the parts.</span><br />
<div><span class="Apple-style-span" style="font-family: Verdana, sans-serif;"></span><br />
<span class="Apple-style-span" style="font-family: Verdana, sans-serif;"><a name='more'></a></span><br />
<br />
<div class="MsoNormal" style="mso-layout-grid-align: none; tab-stops: 28.0pt 56.0pt 84.0pt 112.0pt 140.0pt 168.0pt 196.0pt 224.0pt 3.5in 280.0pt 308.0pt 336.0pt; text-autospace: none; text-indent: 0in;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">I’ve been engaged in a </span><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><a href="http://www.tacticalphilanthropy.com/2010/09/burning-bridges-to-make-venture-philanthropy-work">lively online discussion</a></span><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"> with John MacIntosh of SeaChange Capital Partners and Sean Stannard-Stockton of Tactical Philanthropy on the intriguing subject of “Burning Bridges to Make Venture Philanthropy Work.” John recently responded to my suggestion that perhaps nonprofits and their funders could become more accountable and disciplined through purposeful collaboration:</span></div><blockquote>My thought exercise was about the merits of “unilateral bridge burning” as a strategy to tackle problems of commitment and self-control in the absence of market forces. But you make a good point: entering into a “collective” could be equally effective (e.g. AA) and more psychologically plausible than going it alone. However to be effective such a “collective” needs be long-term and difficult to exit, must require that each participant give up some rights by ceding important decisions to “the group”, and must serve as a shared space of trust where people (or institutions) can candidly debate, discuss and declare their “public reasons” for a particular course of action (think Rawls or Habermas). My suspicion is that most funder “collaboratives” have none of these characteristics (let alone all three) and those that do were created through external pressure (like the SIF?). I hope I’m wrong.</blockquote><div class="MsoNormal" style="mso-layout-grid-align: none; tab-stops: 28.0pt 56.0pt 84.0pt 112.0pt 140.0pt 168.0pt 196.0pt 224.0pt 3.5in 280.0pt 308.0pt 336.0pt; text-autospace: none; text-indent: 0in;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">I don’t think John is wrong about traditional ingredients for effective collectives, including long-term commitments, at least partial relinquishment of independence, and high levels of trust. However, I do think that other approaches are possible, and might be more conducive to productive collaborations among independent organizations seeking to work together without any kind of compulsion.</span></div><div class="MsoNormal" style="mso-layout-grid-align: none; tab-stops: 28.0pt 56.0pt 84.0pt 112.0pt 140.0pt 168.0pt 196.0pt 224.0pt 3.5in 280.0pt 308.0pt 336.0pt; text-autospace: none; text-indent: 0in;"><br />
</div><div class="MsoNormal" style="mso-layout-grid-align: none; tab-stops: 28.0pt 56.0pt 84.0pt 112.0pt 140.0pt 168.0pt 196.0pt 224.0pt 3.5in 280.0pt 308.0pt 336.0pt; text-autospace: none; text-indent: 0in;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">As many of you know, Ken Berger has been leading a <a href="http://www.kenscommentary.org/2008/12/measure-of-outcome.html">heroic effort</a> at Charity Navigator to reform CN’s outdated rating methodology, which has been the subject of heated and often justified criticism long before Ken’s arrival in 2008. On July 1, 2010, CN took the first big step forward by launching its “accountability & transparency” rating, which, <a href="http://www.charitynavigator.org/index.cfm?bay=content.view&cpid=1107">as the site explains</a>, focuses “on how the charity reports publicly – both on the IRS 990 and on its web site. We consider in our methodology whether the charity is making easily available, information regarding its governance practices, ethical practices and financial information.” Although it will take about a year to run through all 5,500 charities that CN rates before the accountability and transparency dimension can be factored into CN’s star-rating system, CN’s small but hard-working staff has published information on how <a href="http://www.charitynavigator.org/index.cfm?bay=search.accountability.list">393 nonprofits</a> did on the new methodology. This is a great development (in which I was involved as Advisory Panel member and CN consultant.)<o:p></o:p></span></div><div class="MsoNormal" style="mso-layout-grid-align: none; tab-stops: 28.0pt 56.0pt 84.0pt 112.0pt 140.0pt 168.0pt 196.0pt 224.0pt 3.5in 280.0pt 308.0pt 336.0pt; text-autospace: none; text-indent: 0in;"><br />
</div><div class="MsoNormal" style="mso-layout-grid-align: none; tab-stops: 28.0pt 56.0pt 84.0pt 112.0pt 140.0pt 168.0pt 196.0pt 224.0pt 3.5in 280.0pt 308.0pt 336.0pt; text-autospace: none; text-indent: 0in;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">CN hopes to revise and expand the financial dimensions of its ratings systems by the end of the year, and, in 2011 or 2012, incorporate the holy grail of “effectiveness and results” into its methodology that will weigh independent evidence of performance, not just self-reporting. When CN completes this work, it will have a three-dimensional rating system -- financial strength; transparency and accountability; and effectiveness and results -- that will finally enable CN to become the simple and complete “guide to intelligent giving” that donors and nonprofits alike so desperately need.<o:p></o:p></span></div><div class="MsoNormal" style="mso-layout-grid-align: none; tab-stops: 28.0pt 56.0pt 84.0pt 112.0pt 140.0pt 168.0pt 196.0pt 224.0pt 3.5in 280.0pt 308.0pt 336.0pt; text-autospace: none; text-indent: 0in;"><br />
</div><div class="MsoNormal" style="mso-layout-grid-align: none; tab-stops: 28.0pt 56.0pt 84.0pt 112.0pt 140.0pt 168.0pt 196.0pt 224.0pt 3.5in 280.0pt 308.0pt 336.0pt; text-autospace: none; text-indent: 0in;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">At the same time, fixing CN’s rating system will not, by itself, transform the nonprofit capital marketplace into a mechanism for guiding more money to the most effective charitable organizations. As I show in my book, there is almost no connection between funding and nonprofit performance: good nonprofits don’t raise more money and weak nonprofits don’t raise less, because fundraising is based on building relationships and telling engaging stories about what nonprofits are trying to do, not what they accomplish. (New Philanthropy Capital has just released an outstanding paper on this subject, <a href="http://www.philanthropycapital.org/publications/improving_the_sector/improving_charities/talking_about_results.aspx">“Talking About Results.”</a>)<o:p></o:p></span></div><div class="MsoNormal" style="mso-layout-grid-align: none; tab-stops: 28.0pt 56.0pt 84.0pt 112.0pt 140.0pt 168.0pt 196.0pt 224.0pt 3.5in 280.0pt 308.0pt 336.0pt; text-autospace: none; text-indent: 0in;"><br />
</div><div class="MsoNormal" style="mso-layout-grid-align: none; tab-stops: 28.0pt 56.0pt 84.0pt 112.0pt 140.0pt 168.0pt 196.0pt 224.0pt 3.5in 280.0pt 308.0pt 336.0pt; text-autospace: none; text-indent: 0in;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">There are many reasons for the disconnection between funding and performance, none of which include laziness or ineptitude by nonprofits. Collecting and reporting meaningful and useful information about nonprofit accomplishments is difficult, time-consuming and expensive, and funders typically won’t pay for such efforts or the expertise required. When I began writing my book in 2005, the idea that charitable funding should recognize and reward strong performance was a foreign concept to all but a few forward-thinkers such as Clara Miller and George Overholser at Nonprofit Finance Fund, Paul Brest at the Hewlett Foundation, Martin Brookes at New Philanthropy Capital, Lucy Bernholz at Blueprint Research, Mario Marino at Venture Philanthropy Partners, Bill Shore at Community Wealth Ventures, Andrew Wolk at Root Cause, and Katherine Fulton and Andrew Blau at Monitor Group. (Apologies to anyone I omitted from the honor roll.)<o:p></o:p></span></div><div class="MsoNormal" style="mso-layout-grid-align: none; tab-stops: 28.0pt 56.0pt 84.0pt 112.0pt 140.0pt 168.0pt 196.0pt 224.0pt 3.5in 280.0pt 308.0pt 336.0pt; text-autospace: none; text-indent: 0in;"><br />
</div><div class="MsoNormal" style="mso-layout-grid-align: none; tab-stops: 28.0pt 56.0pt 84.0pt 112.0pt 140.0pt 168.0pt 196.0pt 224.0pt 3.5in 280.0pt 308.0pt 336.0pt; text-autospace: none; text-indent: 0in;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">There is now a growing consensus that social progress will be held back until nonprofits can attract greater and more sustainable funding by the simple act of accomplishing their objectives. As I put it in my book (with no small amount of jargon that I explain in plain English in the book), “We need a financing system that helps highly-engaged social impact investors to direct third-stage growth capital to the best mid-cap nonprofits, instead of one that forces those nonprofits to spend all their time looking for more drops to fill more buckets.”<o:p></o:p></span></div><div class="MsoNormal" style="mso-layout-grid-align: none; tab-stops: 28.0pt 56.0pt 84.0pt 112.0pt 140.0pt 168.0pt 196.0pt 224.0pt 3.5in 280.0pt 308.0pt 336.0pt; text-autospace: none; text-indent: 0in;"><br />
</div><div class="MsoNormal" style="mso-layout-grid-align: none; tab-stops: 28.0pt 56.0pt 84.0pt 112.0pt 140.0pt 168.0pt 196.0pt 224.0pt 3.5in 280.0pt 308.0pt 336.0pt; text-autospace: none; text-indent: 0in;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Charity Navigator’s expanding rating methodology will become an essential part of this emerging performance-based nonprofit capital market, but it will not be the case that (unlike the movie, </span><i><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Field of Dreams</span></i><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">) “if you build it, they will come.” As <a href="http://www.hopeconsulting.us/pdf/Money_for_Good_Impact_Investing_Overview.pdf">Hope Consulting’s recent study </a>shows, almost no donors conduct comparative research to inform their giving decisions. Although CN’s three-dimensional rating will make it immeasurably easier for donors who want to maximize the impact of their donations to do so, performance-based philanthropy represents a massive change in social behavior akin to civil rights and public health campaigns. Merely providing new tools will not change long-held habits overnight.<o:p></o:p></span></div><div class="MsoNormal" style="mso-layout-grid-align: none; tab-stops: 28.0pt 56.0pt 84.0pt 112.0pt 140.0pt 168.0pt 196.0pt 224.0pt 3.5in 280.0pt 308.0pt 336.0pt; text-autospace: none; text-indent: 0in;"><br />
</div><div class="MsoNormal" style="mso-layout-grid-align: none; tab-stops: 28.0pt 56.0pt 84.0pt 112.0pt 140.0pt 168.0pt 196.0pt 224.0pt 3.5in 280.0pt 308.0pt 336.0pt; text-autospace: none; text-indent: 0in;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">I believe that collaboration will be a critical ingredient of shifting the paradigm and it is something that the social sector is much better at talking about than actually doing. Katherine Fulton and Andrew Blau have presciently observed that “philanthropy itself is not a system”:<o:p></o:p></span></div><blockquote>“Individual institutions and givers in philanthropy are not in any sense reliant on one another; they exist independently and can act without much reference to what others do. Thus, there is no system where actors must respond to one another, adapt to one another, or learn from one another. This is not to say that donors and foundations don’t relate or learn from one another at all. They do, but only to the extent that they choose to. And they also compete with one another — for ideas, reputation, and credit, which can discourage the free exchange of ideas and lead to fragmentation of effort and isolation.”</blockquote><div class="MsoNormal" style="mso-layout-grid-align: none; tab-stops: 28.0pt 56.0pt 84.0pt 112.0pt 140.0pt 168.0pt 196.0pt 224.0pt 3.5in 280.0pt 308.0pt 336.0pt; text-autospace: none; text-indent: 0in;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">It would be an understatement to say that these are not the ideal circumstances for successful collaborations. But they are a reality that must be accommodated in any serious efforts to accomplish what groups of organizations can do working together rather than on their own.</span></div><div class="MsoNormal" style="mso-layout-grid-align: none; tab-stops: 28.0pt 56.0pt 84.0pt 112.0pt 140.0pt 168.0pt 196.0pt 224.0pt 3.5in 280.0pt 308.0pt 336.0pt; text-autospace: none; text-indent: 0in;"><br />
</div><div class="MsoNormal" style="mso-layout-grid-align: none; tab-stops: 28.0pt 56.0pt 84.0pt 112.0pt 140.0pt 168.0pt 196.0pt 224.0pt 3.5in 280.0pt 308.0pt 336.0pt; text-autospace: none; text-indent: 0in;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">In the case of Charity Navigator, Ken and I realized that CN’s new methodology was necessary but not sufficient for a more performance-driven kind of philanthropy, and that CN did not have the horsepower to move the needle of donor behavior by itself. Thinking about what it would take to shift donor thinking toward supporting nonprofits that could demonstrate their effectiveness, we started talking to a number of respected colleagues who were addressing similar challenges and had developed approaches and assets that we thought could help the cause.<o:p></o:p></span></div><div class="MsoNormal" style="mso-layout-grid-align: none; tab-stops: 28.0pt 56.0pt 84.0pt 112.0pt 140.0pt 168.0pt 196.0pt 224.0pt 3.5in 280.0pt 308.0pt 336.0pt; text-autospace: none; text-indent: 0in;"><br />
</div><div class="MsoNormal" style="mso-layout-grid-align: none; tab-stops: 28.0pt 56.0pt 84.0pt 112.0pt 140.0pt 168.0pt 196.0pt 224.0pt 3.5in 280.0pt 308.0pt 336.0pt; text-autospace: none; text-indent: 0in;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">The response was tremendous, leading to the formation of something we call “CN 2.0,” a planned collaborative online platform for intelligent giving “dedicated to the proposition that if donors become well-informed, good nonprofits will get more money.” CN enlisted six “best-of-breed” partners: Keystone Accountability, Philanthropedia, New Philanthropy Capital, GreatNonprofits, Growth Philanthropy Network, and GiveWell. The Hewlett Foundation (via Paul Brest and Jacob Harold) and the Fidelity Charitable Gift Fund (via Cynthia Strauss) have provided both generous financial support and encouragement.<o:p></o:p></span></div><div class="MsoNormal" style="mso-layout-grid-align: none; tab-stops: 28.0pt 56.0pt 84.0pt 112.0pt 140.0pt 168.0pt 196.0pt 224.0pt 3.5in 280.0pt 308.0pt 336.0pt; text-autospace: none; text-indent: 0in;"><br />
</div><div class="MsoNormal" style="mso-layout-grid-align: none; tab-stops: 28.0pt 56.0pt 84.0pt 112.0pt 140.0pt 168.0pt 196.0pt 224.0pt 3.5in 280.0pt 308.0pt 336.0pt; text-autospace: none; text-indent: 0in;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">In order to get this thing off the ground (which remains in the planning and seed funding stage), we needed to actively engage the partner organizations, all of which had very full plates before CN 2.0 came along. Without any initial funding by which to purchase their affections, we needed to find a way of enticing these busy organizations to spend uncompensated time with us to develop the concept and build the platform.<o:p></o:p></span></div><div class="MsoNormal" style="mso-layout-grid-align: none; tab-stops: 28.0pt 56.0pt 84.0pt 112.0pt 140.0pt 168.0pt 196.0pt 224.0pt 3.5in 280.0pt 308.0pt 336.0pt; text-autospace: none; text-indent: 0in;"><br />
</div><div class="MsoNormal" style="mso-layout-grid-align: none; tab-stops: 28.0pt 56.0pt 84.0pt 112.0pt 140.0pt 168.0pt 196.0pt 224.0pt 3.5in 280.0pt 308.0pt 336.0pt; text-autospace: none; text-indent: 0in;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">To make an already too long story a little shorter, we basically took the opposite approach from the one that John MacIntosh offered above, at least regarding the need for the partnership to “be long-term and difficult to exit, ... [and] require that each participant give up some rights by ceding important decisions to ‘the group’.” On the other hand, we did fully embrace John’s thinking that the alliance “must serve as a shared space of trust where people (or institutions) can candidly debate, discuss and declare their ‘public reasons’ for a particular course of action.”<o:p></o:p></span></div><div class="MsoNormal" style="mso-layout-grid-align: none; tab-stops: 28.0pt 56.0pt 84.0pt 112.0pt 140.0pt 168.0pt 196.0pt 224.0pt 3.5in 280.0pt 308.0pt 336.0pt; text-autospace: none; text-indent: 0in;"><br />
</div><div class="MsoNormal" style="mso-layout-grid-align: none; tab-stops: 28.0pt 56.0pt 84.0pt 112.0pt 140.0pt 168.0pt 196.0pt 224.0pt 3.5in 280.0pt 308.0pt 336.0pt; text-autospace: none; text-indent: 0in;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Ken and I circulated a “letter of intent” which all of the parties were happy to sign (copies of which are available upon request), which set forth “what we hope to accomplish and how we propose to go about it”:<o:p></o:p></span></div><div class="MsoNormal" style="mso-layout-grid-align: none; tab-stops: 28.0pt 56.0pt 84.0pt 112.0pt 140.0pt 168.0pt 196.0pt 224.0pt 3.5in 280.0pt 308.0pt 336.0pt; text-autospace: none; text-indent: 0in;"><br />
</div><div class="MsoNormal" style="margin-left: .25in; mso-layout-grid-align: none; mso-list: l0 level1 lfo1; tab-stops: 1.0pt 19.0pt 28.0pt 56.0pt 84.0pt 112.0pt 140.0pt 168.0pt 196.0pt 224.0pt 3.5in 280.0pt 308.0pt 336.0pt; text-autospace: none; text-indent: -.25in;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">1.</span><span style="font: normal normal normal 7pt/normal 'Times New Roman';"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="Apple-style-span" style="font-size: medium;"> </span></span></span><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">We all agreed on a shared purpose to “advance social progress by helping more effective nonprofits grow” by helping “individual donors, who provide roughly three-fourths of all private charitable donations, to find and fund nonprofit organizations that will make the most productive use of their philanthropy.” We stated our belief that “our collective efforts to promote and even universalize informed social investing can guide sizeable amounts of funding to more effective nonprofits and ‘move the needle’ of social progress to an extent that isn’t currently possible in today’s highly fragmented nonprofit capital market.” <br />
<br />
</span> <span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><o:p></o:p></span></div><div class="MsoNormal" style="margin-left: .25in; mso-layout-grid-align: none; mso-list: l0 level1 lfo1; tab-stops: 1.0pt 19.0pt 28.0pt 56.0pt 84.0pt 112.0pt 140.0pt 168.0pt 196.0pt 224.0pt 3.5in 280.0pt 308.0pt 336.0pt; text-autospace: none; text-indent: -.25in;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">2.</span><span style="font: normal normal normal 7pt/normal 'Times New Roman';"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="Apple-style-span" style="font-size: medium;"> </span></span></span><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">So that everyone would clearly understand the scope of the undertaking, we summarized the basic parameters of the project in a detailed attachment entitled, “A Growth and Collaboration Plan for Guiding Individual Donations to More Effective Nonprofits.” In brief, we proposed combining “(1) the best available <i>data</i> about the finances, accountability & transparency and effectiveness & performance of charitable organizations with (2) cost-effective and timely <i>analysis</i> of that data, and (3) <i>distribution</i> of that data and analysis as widely as possible.” <br />
<br />
</span> <span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><o:p></o:p></span></div><div class="MsoNormal" style="margin-left: .25in; mso-layout-grid-align: none; mso-list: l0 level1 lfo1; tab-stops: 1.0pt 19.0pt 28.0pt 56.0pt 84.0pt 112.0pt 140.0pt 168.0pt 196.0pt 224.0pt 3.5in 280.0pt 308.0pt 336.0pt; text-autospace: none; text-indent: -.25in;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">3.</span><span style="font: normal normal normal 7pt/normal 'Times New Roman';"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="Apple-style-span" style="font-size: medium;"> </span></span></span><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">We also made clear that this was a risky and uncertain venture: “we acknowledge that the pathway to success is far from clear, and that experimentation and trial and error will be the order of the day. We believe that our partnership can develop affordable and practicable approaches that will not allow the perfect to become the enemy of the good, and provide a unique environment in which many of the most promising ideas for expanding social innovation can flourish.” <br />
<br />
</span> <span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><o:p></o:p></span></div><div class="MsoNormal" style="margin-left: .25in; mso-layout-grid-align: none; mso-list: l0 level1 lfo1; tab-stops: 1.0pt 19.0pt 28.0pt 56.0pt 84.0pt 112.0pt 140.0pt 168.0pt 196.0pt 224.0pt 3.5in 280.0pt 308.0pt 336.0pt; text-autospace: none; text-indent: -.25in;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">4.</span><span style="font: normal normal normal 7pt/normal 'Times New Roman';"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="Apple-style-span" style="font-size: medium;"> </span></span></span><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">We considered it imperative that the group be governed by operating principles of mutual benefit and open decisionmaking: “CN 2.0 is designed to be a collaborative and consensus-driven alliance of equals, all of whom recognize the complementary value and expertise that the other partners bring to this effort. Charity Navigator is committed to advancing the brands and market positions of the partners in the course of this project.” <br />
<br />
<o:p></o:p></span></div><div class="MsoNormal" style="margin-left: .25in; mso-layout-grid-align: none; mso-list: l0 level1 lfo1; tab-stops: 1.0pt 19.0pt 28.0pt 56.0pt 84.0pt 112.0pt 140.0pt 168.0pt 196.0pt 224.0pt 3.5in 280.0pt 308.0pt 336.0pt; text-autospace: none; text-indent: -.25in;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">5.</span><span style="font: normal normal normal 7pt/normal 'Times New Roman';"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="Apple-style-span" style="font-size: medium;"> </span></span></span><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">At the same, we wanted to make real progress, so we created a collaborative governing structure consistent with the operating principles: “CN will take the lead on coordinating the efforts of the collaboration, and Steve Goldberg will serve as CN’s Project Lead (as an independent consultant) to keep our efforts productive and on track. Decisions will be made through consensus to the greatest extent possible, with the objective of enhancing the value of the collaboration to all partners. At this point, all CN 2.0 business models are ‘TBD’.” <br />
<br />
</span> <span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><o:p></o:p></span></div><div class="MsoNormal" style="margin-left: .25in; mso-layout-grid-align: none; mso-list: l0 level1 lfo1; tab-stops: 1.0pt 19.0pt 28.0pt 56.0pt 84.0pt 112.0pt 140.0pt 168.0pt 196.0pt 224.0pt 3.5in 280.0pt 308.0pt 336.0pt; text-autospace: none; text-indent: -.25in;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">6.</span><span style="font: normal normal normal 7pt/normal 'Times New Roman';"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="Apple-style-span" style="font-size: medium;"> </span></span></span><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">We did not want anyone to worry about whether the agreement would create potential legal risks, so the letter was drafted as an expressly non-binding “expression of our collective interest in collaborating on CN 2.0 and making it a strategic priority for our respective organizations.” We made clear that any participant was free to leave at any time, that our partnership would be “a voluntary alliance of separate and independent entities that doesn’t confer any rights or impose any obligations of any kind,” and that “nothing precludes any partner from engaging in any work on its own or with others, and we acknowledge that all of us are currently involved in related and potentially overlapping collaborations.” There was additional verbiage (I used to be a lawyer in a former life ...) about intellectual property rights, investment risks, “non-recourse” (i.e., no lawsuits), and a commitment that “We will work out any disagreements as professionals” with “appropriate professional courtesies of prior consultation with the others.” We acknowledged that, at some point, “it might make sense to negotiate a formal legal agreement that would create contractual rights and responsibilities, but we agree that would be premature at this time.”<br />
<br />
<o:p></o:p></span></div><div class="MsoNormal" style="mso-layout-grid-align: none; tab-stops: 28.0pt 56.0pt 84.0pt 112.0pt 140.0pt 168.0pt 196.0pt 224.0pt 3.5in 280.0pt 308.0pt 336.0pt; text-autospace: none; text-indent: 0in;"><br />
</div><div class="MsoNormal" style="mso-layout-grid-align: none; tab-stops: 28.0pt 56.0pt 84.0pt 112.0pt 140.0pt 168.0pt 196.0pt 224.0pt 3.5in 280.0pt 308.0pt 336.0pt; text-autospace: none; text-indent: 0in;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">We’re a long, long way from being able to say that CN 2.0 has accomplished anything worthwhile, but we do think this collaborative model has significant potential across the social sector for organizations looking for ways to work together without becoming distracted by side issues.</span><o:p></o:p></div></div>Steve Goldberghttp://www.blogger.com/profile/06106824600318886347noreply@blogger.com1tag:blogger.com,1999:blog-141831867777566890.post-9567640708772998992010-09-21T17:58:00.001-04:002010-09-22T17:29:47.061-04:00Growth Capital for Small Nonprofits?<span class="Apple-style-span" style="font-family: Verdana, sans-serif;">This is a response to a blog post by Nell Edgington of Social Velocity, entitled "Can’t Small Nonprofits Raise Capital Too?" which is available </span><a href="http://www.socialvelocity.net/2010/09/cant-small-nonprofits-raise-capital-too/comment-page-1/#comment-1615"><span class="Apple-style-span" style="font-family: Verdana, sans-serif;">here</span></a><span class="Apple-style-span" style="font-family: Verdana, sans-serif;">.</span><br />
<span class="Apple-style-span" style="font-family: Verdana, sans-serif;"><br />
</span><br />
<br />
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Nell, I wanted to offer some comments on your thoughtful post. I hear this lament from small nonprofits all the time: how do we grow if we're too small to raise growth capital? It's a fair question to which the nonprofit capital market does not yet provide a satisfactory answer.</span><br />
<span class="Apple-style-span" style="font-family: Verdana, sans-serif;"></span><br />
<span class="Apple-style-span" style="font-family: Verdana, sans-serif;"><a name='more'></a></span><br />
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">For the vast majority of nonprofits, there's only one kind of money, regardless of the particular source: funding for programs. That money is secured the old fashioned way, by raising it from donors by (1) building relationships and (2) telling engaging stories about the nonprofit's work. It's a costly and time-consuming process that never raises enough money for long enough time. Hence, the nonprofit starvation cycle is the dominant fact of life for small nonprofits.</span><br />
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span><br />
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">George Overholser pioneered a new kind of money that he calls "patient capital" or "equity-like capital," and that I call "growth capital" (full disclosure: George disapproves of the way I use that term). The basic idea, as you say, is that investors fund the nonprofit's entire business plan for an extended period (say 3-5 years) rather than some or all of particular programs for a finite period of time. The goal is to enable the nonprofit to permanently grow to a new level of operations that can be sustained by traditional program funding. George observes that it's simply too costly for small nonprofits to make the case for this kind of funding, and he knows whereof he speaks. Small nonprofits are no less deserving than larger ones, but only the larger ones can undertake the kinds of planning and demonstrate the capacity to make effective use of funding designed to enable organizations to grow by factors of 2, 3 or more over the course of several years.</span><br />
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span><br />
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">However, I believe there is an intermediate kind of funding between program funding and growth capital that small- and medium-sized nonprofits can raise and that is capacity-building funding. Of course, we all know what capacity-building expenses are -- computers, specialized staffing, professional accounting and fundraising systems, and so on -- and we also that almost no funders, either individuals or foundations, provide this kind of money, which we disparagingly call "overhead" or "administrative" expenses. The failure of the nonprofit capital market to provide capacity-building funding (and not growth capital) is what keeps small nonprofits locked in the Catch-22 of the nonprofit starvation cycle.</span><br />
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span><br />
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">The emergence of growth capital is a recent development in the nonprofit sector and it is still very much in its infancy, even though courageous intermediaries like NFF Capital Partners and EMCF are demonstrating its importance for scaling what works. But you're completely correct that a similar effort needs to be made for capacity-building funding. As you might be aware, Ken Berger at Charity Navigator is revising his rating methodology so that effective nonprofits won't be penalized for making reasonable overhead expenditures designed to enhance their organizational capacity and extricate themselves from the starvation cycle. (Another disclosure: I consult with CN.) Hopefully, charities that would lose four-star ratings under the current CN rating system will attract greater funding when the new system goes into effect.</span><br />
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span><br />
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Growth capital is aimed at achieving true scale, but capacity-building funding is aimed simply at producing robust nonprofits that aren't held back by the starvation cycle of program-only funding. Just as small businesses provide most of the jobs in this country, we need the kind of funding that can enable many more small nonprofits to meet the everyday needs of the communities they serve in a reliable and sustainable way.</span><br />
<br />
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span>Steve Goldberghttp://www.blogger.com/profile/06106824600318886347noreply@blogger.com1tag:blogger.com,1999:blog-141831867777566890.post-66092226764924460132010-09-14T15:44:00.001-04:002012-07-22T17:11:38.651-04:00Deciding What "Works"<span class="Apple-style-span" style="font-family: Verdana, sans-serif;">Conventional wisdom holds that randomized control trials (RCT) are the “gold standard” of evaluation. In fact, RCTs only make sense under very strict conditions that can rarely be met in the real world. Most of the time, RCTs produce inconclusive results and simply aren’t worth the time and money. As the social sector assumes greater responsibility for improving the lives of many more people, it should focus less on pseudo-scientific “proof” that programs work and focus more on making good programs better.</span><br />
<div style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
</div>
<div class="p3" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Verdana, sans-serif;"></span></span></div>
<span class="Apple-style-span" style="font-family: Verdana, sans-serif;"></span><br />
<span class="Apple-style-span" style="font-family: Verdana, sans-serif;"></span><br />
<a name='more'></a><br />
<div class="p3" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="Apple-style-span" style="font-family: Verdana, sans-serif;"><br />
</span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Now that the Social Innovation Fund (SIF) appears to have survived the “transparency” commotion, the eleven chosen intermediary grantmakers have less than six months to select their portfolios of nonprofit grantees. As a commendable exercise in “evidence-based” grantmaking, SIF requires the intermediaries to incorporate evaluation into every step of their awards, from the initial competitive solicitations all the way through final payments and renewals. Applicants will be required to explain how their success should be measured and demonstrate their capacity to do so, and awards will be contingent upon the establishment of meaningful performance metrics, the timely collection and reporting of reliable data, and the faithful implementation of sound evaluation protocols.</span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div>
<div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">The evidence-based rubric represents a significant advancement for the social sector, which has historically relied on anecdotal indicators of success, that is, entirely subjective and largely unreliable assessments of whether programs work. Now that philanthropy and nonprofits are pursuing more ambitious goals for improving educational achievement, extending economic opportunity and alleviating poverty at scale, there is growing acceptance of the need for more objective measures of effectiveness, reinforced by the fact that scarce tax dollars are going to nongovernmental organizations promising to deliver more effective solutions. As a general matter, this heightened appreciation for serious evaluation is an encouraging development.</span></span></div>
<div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div>
<div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">There is a countervailing risk, however, that having ignored systematic evaluation for too long, the social sector will now overcompensate in the other direction, requiring evaluations conducted under “laboratory conditions” that generally cannot be met in the field and that are biased toward concluding that funded programs have no apparent impact. Before we set ourselves up for failure, this is a good time to pause and think carefully about how high we set the evaluation bar.</span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div>
<div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">The problem arises from the seemingly innocuous assumption that judging whether an expenditure of public funds (or, in the case of SIF, a combination of public and charitable funds) was “worth it” requires a determination of whether the funding produced a measurable amount of social benefit. That is, can the grantee show that the observed results were attributable to the funded program? If so, we are told, the expenditure succeeded; if not, it failed. Otherwise, the thinking goes, we’d fall back to our old unaccountable ways in which programs that seemed at first to work later failed to produce enduring or significant benefits, particularly with increased funding and growth. </span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div>
<div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">When auspicious programs fail to produce long-term or transformative benefits, the underlying assumption is that the observed short-term results were either illusory or the product of factors other than the funded intervention, or both. There is another explanation, however: the impacts were real albeit modest, but the program was not properly nurtured to reproduce and extend those benefits.</span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div>
<div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">These alternative explanations comprise two quite different views of how we can bring about social progress. In one view, the burden of proof is placed squarely upon those who claim that the programs “worked”: if their effectiveness cannot be quantified, and the cause-and-effect relationship between the program and the apparent results cannot be proven affirmatively, it would be unscientific and therefore irresponsible to continue or expand their operation. That is to say, social programs are presumed ineffective unless they can be proven effective; the failure to demonstrate effectiveness is taken as proof of ineffectiveness. Let’s call this the “purist” perspective.</span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div>
<div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">The fundamental problem with this approach is that it assumes we have good tools to determine whether programs are effective and how much impact they produced. If so, it would indeed make sense to place the burden of proof on program proponents to show their efforts were successful. After all, they’re the ones asking for funding and they control how the funds are spent and programs are implemented.</span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div>
<div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">But if the assumption is false -- that is, if we can’t reliably verify and measure the effectiveness of social programs -- then imposing the burden in that way merely stacks the deck against social innovation and leaves program advocates without any effective means to make their case. In that case, we’d just be denying ourselves valuable innovations for no good reason.</span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div>
<div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">The second and more “pragmatic” approach to evaluation starts from the premise that the causes and cures of social problems are simply too elusive and complex to measure or explain precisely. Pragmatists believe that, at best, policy makers can make informed judgments about which interventions are probably more effective and which are probably less effective, and social policy should try to identify the more effective policies and continuously improve them.</span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div>
<div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Decades of academic research have shown there is most definitely a place for the purist approach. It has usefully prevented the acceptance of ineffective and dangerous medical treatments, unsound scientific theories and spurious practices in business and industry. There are even some examples, such as the mighty <a href="http://www.nursefamilypartnership.org/proven-results">Nurse Family Partnership</a>, where RCTs have demonstrated the powerful impacts of social innovation. But it would be foolish to give that approach more credit than it deserves or to apply it where the circumstances do not warrant. </span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div>
<div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">The justification for the purist approach is methodological rigor. By setting a high bar for proving that social programs work, we thereby reduce the risk of concluding that an ineffective program actually succeeded, what evaluation professionals call a “false positive.” If we mistakenly invest additional resources in a false positive, not only are we going to be disappointed down the road, but the longer we do so, the more disappointed we will be. In addition, the chorus of “we-told-you-so’s” by program opponents will become correspondingly louder, coupled with the fact that investing more resources in effective programs means that fewer resources would be available for alternatives approaches that might have been more effective. So adopting an evaluation methodology designed to minimize false positives has a lot going for it.</span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div>
<div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">On the other hand, false negatives aren’t much fun, either. A false negative means that a successful or at least a promising program was allowed to die on the vine. It represents an opportunity lost at a time of desperate and worsening social and economic need.</span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div>
<div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">From the perspective of methodological rigor, false positives and false negatives are exact mirror images of each other. Neither is inherently better or worse. In both cases, an erroneous decision is made and resources are misallocated. For false positives, money is wasted on programs that don’t work; for false negatives, money isn’t spent on programs that do (or might) work. Avoiding false positives reflects “do no harm” thinking, while avoiding false negatives, carried to extremes, can lead to “do no good.” By stacking the deck against false positives, we reduce the risk of being too gullible by increasing the risk of being too skeptical.</span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div>
<div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">The problem, of course, is that it’s hard to tell the difference between false positives and false negatives, just as it’s hard to tell whether programs work or not. What evaluation science tries to do is to provide techniques that calibrate the risks of erroneous decisions in ways that make sense. Unfortunately, nostrums like “RCTs are the gold standard of evaluation” are often misused in ways that don’t make sense at all.</span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div>
<div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">A control group, of course, is a means of isolating the effects of a certain “treatment.” If two groups of people are identical in every meaningful way except that one gets the treatment and one doesn’t (or gets a placebo), it’s fair to conclude that any difference in the results were attributable to the treatment. But in the real world, practical obstacles intrude.</span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div>
<div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">First, even under ideal laboratory conditions, perfect randomness can be difficult to achieve. In the field, where researchers are dealing with specific communities of people with virtually unlimited and sometimes indeterminate or hidden characteristics, creating truly random experiments is maddeningly difficult, time-consuming and expensive. There’s also a political dimension: for example, it’s not so easy to explain to poor families why their children were randomly assigned (consigned would be more accurate) to a school that everyone knows is lousy so some clipboard-wielding social scientist can decide whether that hot new charter school that everyone’s talking about can help lucky kids from some other disadvantaged families avoid a life (sentence) of educational inequity.</span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div>
<div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Second, with an RCT, you can’t adjust the experiment along the way to make improvements. Suppose the charter school decides, half-way through the five-year evaluation, that it wants to adopt a terrific new curriculum for teaching fourth-grade math. Now you don’t have one five-year experiment, you’ve got two two-and-one-half year experiments with half as many kids in each, which might or might not still be random relative to the control group, and you might not have enough data in any treatment group to produce meaningful results.</span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div>
<div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">The third limitation of RCTs, the misuse of statistical measurements, is both the most nefarious and the least understood. It begins with the peculiarities of the word “significance,” which means entirely different things in English and in statistics. In English, significance refers to importance; in statistics, significance relates to validity, but its claims of iron-clad validity are often doubtful.</span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div>
<div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Statistics is a mathematical science that allows general conclusions to be drawn from specific cases. If I want to find out if charter schools can improve the educational performance of fourth graders, as a practical matter I can’t conduct an experiment with every fourth grader in the country (i.e., the “universe” of fourth graders). Instead, I have to select a manageable number of students, called a “sample,” in a way that enables me to draw reasonable conclusions about how similar charter schools might help other fourth graders who weren’t part of the sample. Statistical science establishes procedures that enable such generalizations to be made from small experiments, and statistically rigorous studies follow what are called true “experimental designs,” of which RCTs are one example. (For purposes of simplicity, I’m pretending that all charter schools are the same, which of course they’re not.)</span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div>
<div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Here’s the basic problem inherent in using true experimental designs in evaluating social programs. The only way to perfectly measure the impact of charter schools on fourth grade students would be to conduct an experiment with the entire universe of all fourth-graders, in which a perfectly random half went to charter schools and the other perfectly random half went to traditional public schools. While such a study would result in 100% certainty about the charter-school treatment effect, we can’t conduct such an experiment for many reasons, not the least of which is there aren’t enough charter schools to serve that many students.</span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div>
<div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">So we’re going to have to compare a manageable sample of charter students to a manageable sample of non-charter students. Even assuming that perfectly random assignments were made to the two groups so that there were no meaningful differences between them, neither sample would perfectly embody all of the characteristics of the entire universe from which it was drawn. We could choose another sample and divide them randomly between the treatment and control groups, and they would be different in some indeterminable ways from the first sample. </span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div>
<div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">If we follow sound statistical practice, the differences among samples shouldn’t be large enough to invalidate the results. Not surprisingly, the primary factor in these undetectable variations among samples is the size of the sample: the larger the sample, the more it should be like the universe; the smaller the sample, the greater the chance that it will be quite different from the universe.</span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div>
<div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">The genius of statistics is that it enables valid conclusions to be drawn about universes from pretty small samples, which is good because experiments with large samples are expensive and difficult to manage. And statisticians can estimate the amount of variation among different sizes of samples. This enables experimental designs to draw conclusions about treatments within identifiable probability ranges.</span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div>
<div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">But when you’re dealing with probabilities, everything’s indefinite. Among all of the possible outcomes, some are more probable than others, but it’s hard to say exactly how likely any particular outcome is in any particular case. So how do you make an “evidence-based” decision when imprecision is unavoidable? When can you say, “this result is likely enough for us to say this works,” while “this result is just too speculative for us to accept”?</span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div>
<div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">There’s nothing inherently wrong with estimating probabilities, as long as you acknowledge that’s what you’re doing. Which brings us back to the word “significance.”</span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div>
<div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">In the statistical lexicon, an observed difference between two groups is considered “statistically significant” if the probability that the difference is due to purely random factors rather than to the treatment falls below some accepted threshold of evidence. In other words, since we can’t conduct universal experiments, there’s always some chance that a particular experiment will lead us to conclude that the treatment worked, when the difference between the treatment and the control group was actually due to some unpredictable and undetectable fluctuation in the sample we happened to pick. But that’s actually the beauty of statistics: we can use small samples to make informed judgments about how a treatment is likely to affect the universe, even though there’s always going to be some amount of uncertainty that can be reduced but not eliminated entirely.</span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="Apple-style-span" style="background-color: yellow;"><br />
</span></span></span></div>
<div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Experimental designers make a living by conducting RCTs that have acceptably small risks of random error. But how small is small enough? Accepting practice says that sometimes it’s as small as a 1% chance of random variation (meaning there’s a 99% probability that the observed difference is due to the treatment), sometimes as small as 5% (a 95% probability that the treatment caused the difference), and sometimes a 10% difference is deemed acceptable (a 90% probability). Anything more than a 10% chance of random variation is almost always considered “statistically insignificant.”</span></span></div>
<div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div>
<div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Why? Because starting in 1925, Sir Ronald A. Fisher, the renowned English statistician and evolutionary biologist, declared that</span></span></div>
<div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div>
<blockquote>
“it is convenient to take this point as a limit in judging whether a deviation is to be considered significant or not.... A scientific fact should be regarded as experimentally established only if a properly designed experiment rarely fails to give this level of significance. [Researchers should] ignore entirely all results which fail to reach this level.”</blockquote>
<div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Translation: the 99% or 95% or 90% probability thresholds for statistical significance are rules of thumb, nothing more. They’re convenient conventions that statisticians have agreed to use to distinguish between reliable and unreliable experimental results. Instead of 90%, it could be 91%, or 89%, but it’s not. So an 89% probability that a program worked is considered “insignificant,” while a 90% probability is considered significant. As Stephen T. Ziliak and Deirdre N. McCloskey note in their snarky but scholarly book, </span><i><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><a href="http://www.amazon.com/Cult-Statistical-Significance-Economics-Cognition/dp/0472050079">The Cult of Statistical Significance</a></span></i><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">, Fisher’s reasonable but arbitrary line “appeals to scientists uncomfortable with any sort of ... indefinite approximation.... To avoid debate they seek certitude such as statistical significance.”</span></span></div>
<div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div>
<div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">RCTs don’t run into trouble when they produce “significant” results, but real-world problems arise from the fact that most people don’t understand the significance of “insignificance.” Non-statisticians think that an RCT showing that a program result is “statistically insignificant” means that the study “proved” that the treatment “doesn’t work.” That’s completely wrong. All it means is that, due to unexplainable variation in the data, the study couldn’t determine whether or not the program worked based on the particular sample chosen with a probability of 90% or higher. Maybe it could make that determination at an 89% probability, or a 75% probability, but the statistics arbiters tell us that’s not good enough.</span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div>
<div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Ziliak and McCloskey offer an illustration of when focusing on "significance" can be silly. Suppose we conduct a study of body weight based on a person’s height and the amount of exercise they get, and suppose further that the data show that height is statistically significant but exercise is not. “A doctor would not say to a patient, ‘The problem is not that you’re fat -- it’s that you’re too short for your weight.'” That is, just because the exercise data from the particular sample chosen wasn’t precise enough to be considered statistically significant does not mean that exercise isn’t a factor in weight. It doesn’t mean that fat people are too short. It means that this study doesn’t enable reliable conclusions to be drawn about the relationship between weight and exercise. As Carl Sagan famously observed, “The absence of evidence is not evidence of absence.”</span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div>
<div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Statistical insignificance is a finding about the </span><i><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">precision of a sample</span></i><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">, not the </span><i><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">impact of a program</span></i><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">. Insignificance comes from too much unaccounted variation in the data, often resulting from a sample size that’s too small, poor experimental design, or other inexplicable factors that come into play when we try to conduct laboratory experiments in the real world. RCTs often produce “insignificant” results, which means nothing more than the experiment, no matter how expensive, laborious and time-consuming, was <i>inconclusive</i>. And inconclusiveness runs both ways: the study didn’t prove that the program worked and it didn’t prove that the program did not work.</span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div>
<div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Mistreating insignificance as proof that treatments don’t work has real consequences. Ziliak and McCloskey, whose book is subtitled, </span><i><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">How the Standard Error Costs Us Jobs, Justice, and Lives,</span></i><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"> report on a 1980s study that found that Illinois saved $4.29 for every dollar it spent providing a training subsidy for unemployment insurance recipients, but the savings estimate was only significant at the 88% confidence level, just shy of the 90% cut-off. The program was deemed a failure, even though the defect related only to the fuzziness of the data sample. Another study hypothesized that stiffer penalties for dangerous driving in the United Kingdom could have saved 100,000 lives over ten years, but the estimated results were significant at 95% probability but not at 99%. In such an experiment, the choice of significance levels would be decisive.</span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div>
<div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">The purist and pragmatist schools of thought about evaluation techniques reflect different perspectives about the purpose of evaluation. As we’ve seen, the purists focus on precision: they want the most accurate probability estimates possible, even if that leads them to reject results that look strong but don’t cross the magical but arbitrary threshold of “statistical significance.” As The Acumen Fund’s Brian Trelstad wrote in an insightful 2008 paper, “<a href="http://www.mitpressjournals.org/doi/pdf/10.1162/itgg.2008.3.3.105">Simple Measures for Social Enterprise</a>,” “Metrics and evaluation are to development programs as autopsies are to health care: too late to help, intrusive, and often inconclusive.”</span></span></div>
<div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div>
<div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">I agree that purists are like doctors who let patients die because autopsies provide the most accurate cause of illness. Pragmatists care more about figuring out a cure than nailing down the cause. As the standard bearer of the pragmatists, <a href="http://www.fsg-impact.org/ideas/item/353">Mark Kramer of FSG Social Impact Advisors</a> says, “the real value of evaluation is its usefulness as a management tool to refine strategy and improve implementation over time.”</span></span></div>
<div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div>
<blockquote>
“Within the field of Social Entrepreneurship ... the primary goal is to catalyze change rapidly on as massive a scale as possible. The measures that matter most are practical indicators that can be tracked and acted on in real time to spread ideas or build strong organizations that can reach more people more cost-effectively.”</blockquote>
<div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Like Kramer, Acumen’s Trelstad favors a “a performance management process that would ‘take the pulse’ of our work: frequent, simple measures that would allow us to refine our thinking, change our course, and diagnose problems before they become too significant,” using that word in its non-statistical sense, of course. They both agree that evaluation should focus “on the pragmatic question of how to help more people sooner” (Kramer) for “the primary purpose of supporting and scaling each enterprise.” (Trelstad)</span></span></div>
<div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="Apple-style-span" style="font-family: Times;"><br />
</span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Another limitation is that statistical methods only test one hypothesis at a time: does the variation in the data indicate with a high enough probability that the treatment caused the result or not? They don’t provide guidance among multiple treatment options, which is exactly what we need when considering alternative policy choices. Binary choices -- yes/no, true/false -- don’t help much. We need to know how well a program worked, whether it worked better than other potential approaches, and how effective programs can be improved. Acumen, for example, wants to know how programs they fund “compare more or less favorably to the ‘best alternative charitable option’ available to our donors,” that is, “how else the donor could have invested their money.” Trelstad frames this well:</span></span></div>
<div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div>
<blockquote>
“The search for absolute impact or performance measures is elusive and in my mind irrelevant. Performance is always relative to what you had been doing before (past), to what your competition did over the same time period (peers), and to what you should have done (projections).”</blockquote>
<div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">It’s important for conscientious social entrepreneurs, intermediaries and funders to maintain a sense of perspective as they try to shift the paradigm in the admirable direction of greater accountability for performance. Fortunately, there are many sound evaluation models that are much more practicable than RCTs which provide results that provide more than sufficiently reliable results on which to base reasonable policy decisions. For example, Kramer offers a 12-cell “<a href="http://www.fsg-impact.org/ideas/item/354">evaluation matrix</a>” which captures three different kinds of measures -- monitoring, process and impact -- for each of four levels -- grantee, donors, program area, and foundation. From these 12 combinations, he identifies six kinds of evaluation that reflect different objectives: formative, summative, donor engagement, cluster evaluation, overall foundation performance, and administrative processes.</span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div>
<div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">One of the many benefits of the three-level SIF design -- (1) expert CNCS staff, (2) sophisticated intermediaries and co-funders, and (3) growth-ready mid-cap nonprofits, all with experience in data collection and evaluations -- is that the network is well-positioned to resist the siren call of the RCT “gold standard.” CNCS has already demonstrated both the willingness and the wisdom to avoid unrealistic methodological requirements in <a href="http://www.nationalservice.gov/for_organizations/funding/nofa_detail.asp?tbl_nofa_id=79#FAQ">response to public comments</a> (including mine) submitted to the Notice of Funding Availability (NOFA):</span></div>
<div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div>
<blockquote>
“Over 50 public comments were received on the use of evidence of effectiveness and impact in the SIF. Many of the comments encouraged the Corporation to be more inclusive about the types of evaluation that would produce strong evidence of impact. The Corporation will capture these insights in its Frequently Asked Questions (FAQ), a companion document to the NOFA. The FAQ will clarify that the Corporation expects subgrantees to demonstrate some level of impact in order to receive a grant, but does not expect that most initial subgrantees will have the strongest level of evidence. The SIF is designed to build the evidence base of programs over time using rigorous evaluation tools that are appropriate for the intervention. The Corporation is committed to ongoing discussion about evidence moving forward through learning communities and other forums.” (Emphasis added.)</blockquote>
<div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Now, CNCS’s reference to “the strongest level of evidence” makes me a bit queasy as it seems to echo misplaced notions of gold standards. RCTs are often impossible to conduct in the field or are available only at prohibitive cost. As Brian Trelstad noted with some understatement, “it is impractical to spend $250,000 researching the impact of a $500,000 investment ...” At the risk of beating the dead horse yet again, I’ll just comment that it’s hard to see how evidence can be “the strongest” if you can’t actually get it. In my experience, hypothetical evidence isn’t all that strong. Rather, “the strongest” evidence is the most rigorous evidence that you can actually get at justifiable effort and cost. Putting that semantic quibble aside, CNCS seems to understand that it should not let the unattainable perfect become the enemy of the readily attainable good, particularly when it talks about evaluations that are “appropriate for the intervention.”</span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div>
<div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">CNCS’s pragmatic approach makes particular sense given SIF’s focus on more mature nonprofits selected by growth-oriented intermediaries. As Kramer has observed, “Over the organizational life cycle, however, expectations for management performance, cost effectiveness, and scale of impact increase rapidly, requiring very different evaluation criteria at different stages of maturity.”</span></span></div>
<div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div>
<div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">In the case of a promising but untested new innovation, it makes sense to ask “Does this work?” and “Is it better than existing approaches?” But once an innovation has accumulated some evidence of impact, as will be true for all SIF grantees, the more important question becomes, “How can we make this more widely available?”</span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div>
<div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Trust me, we’re going to hear that SIF was a waste of time and money to the extent that it didn’t use RCTs. Ziliak and McCloskey observe that RCT’s “arbitrary, mechanical illogic ... [is] currently sanctioned by science and its bureaucracies of reproduction ...” and “the sociological pressure to assent to the ritual is great.” But when it comes to making important choices about which social policies to fund and expand when families’ lives and welfares are at stake, insisting on an arbitrary 90% or higher standard of “statistical significance” is a luxury we don’t have. If there’s an 89% or 80% or 75% chance that a given program probably accounts for, say, the improved grades that one group of students received, we should think carefully about keeping and improving that program. I agree with Ziliak and McCloskey that it would be irresponsible to abandon such a program based on insignificance alone:</span></span></div>
<div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div>
<blockquote>
“Accepting or rejecting a test of significance without considering the potential losses from the available courses of action is buying a pig in a poke. It is not ethically or economically defensible.”</blockquote>
<div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">No less a figure than W. Edwards Deming put it plainly: “Statistical ‘significance’ by itself is not a rational basis for action.” And Gara LaMarche, chief of The Atlantic Philanthropies wrote in </span><i><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><a href="http://us.ft.com/ftgateway/superpage.ft?news_id=fto041920080013209722">The Financial Times</a>,</span></i><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"> “both funders and the organisations they support need more humility about cause and effect.” Trelstad reminds us that “the expectations for what one can measure and what one can prove diverge from the reality of practice.”</span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></span></div>
<div class="p2" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><span class="s1"></span></span></div>
<div class="p1" style="margin-bottom: 0px; margin-left: 0px; margin-right: 0px; margin-top: 0px;">
<span class="s1"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Of course, if there’s only a 50% chance, that is, if it’s just as likely that the higher grades were caused by random differences among samples, then, sure, that’s not very encouraging. But at some point, it’s foolish to believe there’s some bright line of probability that can rescue us from having to make difficult judgments about what works and what doesn’t. RCTs aren’t a silver bullet, a gold standard or some kind of “on-off switch for establishing scientific credibility.” In exceptional cases, they’re worth doing; in most cases, they’re not. Fortunately, there are many other good ways to evaluate nonprofit organizations and programs that don’t involve complete guesswork or wishful thinking. Those are generally the best techniques available and we should embrace them enthusiastically to help us make timely choices among encouraging alternatives, which is just what we need in the pursuit of “scaling what works.”</span></span></div>Steve Goldberghttp://www.blogger.com/profile/06106824600318886347noreply@blogger.com2tag:blogger.com,1999:blog-141831867777566890.post-23338644442799857552010-08-27T17:16:00.014-04:002010-08-29T10:38:13.092-04:00SIF Intermediaries: More Drops in Fewer Buckets, Please<div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Verdana, sans-serif;">Producing new innovations and spreading successful innovations are two quite different things. The social sector is good at the former but not the latter. The recently selected SIF intermediaries can help fix that if they make larger grants to fewer nonprofits.</span></div></div><div style="text-align: justify;"><div style="text-align: left;"></div></div><a name='more'></a><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span><br />
<span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">In my book, </span><i><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Billions of Drops in Millions of Buckets: Why Philanthropy Doesn’t Advance Social Progress</span></i><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">, I argue that the primary impediment to social progress isn’t lack of innovation per se but our inability to spread -- or “diffuse” -- proven innovations. The main reasons are (1) the fundraising process fragments donations into amounts that are too small to pay for widespread expansion, i.e., the nonprofit sector has very little “growth capital”; and (2) even if growth capital were available, most nonprofits don’t have the capacity to put it to good use. As a result, the U.S. nonprofit sector comprises nearly 2,000,000 organizations, some of which have developed demonstrably effective innovations, but almost all of which are too small (less than $1 million in revenue) to bring those innovations to more than a tiny fraction of the people who need them.</span></div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span> </div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">The Social Innovation Fund (SIF) is an ambitious experiment to address this structural mismatch between funding the development of better ways of helping people and funding the expansion of those better ways. The popular phrase is “scaling what works,” the idea being that lots of social entrepreneurs are already figuring out “what works” on their own, but they can’t “scale” those solutions without substantial outside support.</span></div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span> </div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Not so long ago, a heated debate raged about whether SIF should spur the development of new innovations or promote the expansion of “evidence-based,” i.e., established, innovations. The Corporation for National & Community Service (CNCS) resolved the dispute in favor of expansion, a policy choice I strongly support (although there are still many who do not). As CNCS puts it, “SIF will target millions in public-private funds to expand effective solutions across three issue areas: economic opportunity, healthy futures and, youth development and school support.” This approach echoes the sentiment expressed in the title of Wendy Kopp’s book, </span><i><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">One Day, All Children ...</span></i></div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span> </div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">CNCS just completed its selection process of 11 “intermediary organizations” that “have strong track records of successfully identifying and growing high-performing nonprofits.” Over the next six months, the intermediaries must conduct their own competitions to find and fund growth-ready nonprofits with proven innovations. (In some cases, intermediaries competitively pre-selected qualified nonprofits, which CNCS reviewed and approved as part of the intermediary selection process.)</span></div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span> </div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">The final selection of nonprofit grantees by the 11 intermediaries will be crucial to the success of SIF’s mission of scaling what works. Obviously, the intermediaries will look for well-run, growth-ready nonprofits with innovative, effective and reliable intervention models. Although that’s a high standard of eligibility that most nonprofits don’t meet, there are far more nonprofits that qualify for SIF funding than there are funds available. Given the dire economy and fundraising market, plus lingering disappointments about the design of SIF and the selection of intermediaries, pressure will now likely shift from CNCS to the intermediary organizations to spread the final grants among as many nonprofits as possible. That would be a mistake. </span></div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span> </div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">The intermediary grantees comprise a diverse mix of national, regional, state, and local organizations with a variety of structures and business models. Six of the intermediary grants are for two years and five are for one, with the amounts ranging from $2 million to $10 million and the average annual grants ranging from $1 million to $10 million. The median annual grant is $3.6 million. All told, this is a heterogeneous mix, making it hard to offer generalizations about the ideal number of final grantees or size of grants. But it would inevitably dilute SIF’s ability to accomplish mission of scaling what works to increase the number and decrease the size of final grants.</span></div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span> </div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">The intermediary organizations were chosen for their enlightened approaches to scaling, and the applications I’ve read are impressive, so I have considerable confidence that they will make careful choices about the final grantees. Given how rapidly SIF has been launched, though, their grantmaking parameters are still somewhat fluid. For example, CNCS reports that Foundation for a Healthy Kentucky will focus on “6-10 low-income communities,” Missouri Foundation for Health will invest in “10-20 targeted low-income communities,” New Profit will collaborate with “five to six innovative youth-focused nonprofit organizations,” and the Edna McConnell Clark Foundation will fund “up to 10 youth development organizations.”</span></div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span> </div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">The selected intermediaries aren’t just passive conveyors of federal dollars to local nonprofits. Not only do they have to “select, invest in, support, and monitor the replication and expansion of grantees,” they’re also required to follow best practices for competitive grantmaking, data collection, performance measurement, impact evaluation, and stewardship of federal and private funds. Intermediaries will be held accountable for their grantees’ impact and growth, of course, but they’ll also have to show that they added much more value than the extra cost and red tape their participation required.</span></div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span> </div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">This last point is particularly important. SIF adopted a three-tiered structure because it believes (as I do) that this systemic approach can make the whole much greater than the sum of the parts. At the same time, the approach creates significant risks that would not arise if CNCS just made direct grants to growth-ready nonprofits. Even though CNCS, the 11 intermediaries and the nonprofit subgrantees all bring unique assets to SIF, the collaboration won’t succeed unless their respective contributions can be aligned and managed productively. </span></div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span> </div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">That kind of “alignment” is a key factor in producing what Robert Kaplan and David Norton (the developers of the balanced scorecard) call “enterprise value” in both the private and public sectors. Here’s how they explain the concept in the case of companies with separately-managed business units that must work together:</span></div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span> </div></div><blockquote><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">“The corporate headquarters does not have customers, nor does it operate processes that make products or services.... The corporate headquarters aligns the value-creating activities of its business units -- enabling them to create more benefits to their customers or to lower total operating costs -- beyond what they could achieve by themselves if they were operating independently.”</span></div></div></blockquote><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span> </div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">In a similar vein, NYC Deputy Mayor Stephen Goldsmith and William Eggers have devised an ingenious approach called “governing by network” in which the public sector acts as an “integrator” of outside third-parties to accomplish objectives that government agencies couldn’t do on their own: “A public agency can use its positional authority and perceived impartiality to bring the different parties together, coordinate their activities, and resolve any disputes.” That’s what CNCS is trying to orchestrate with SIF.</span></div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span> </div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">But very few organizations, whether private, public or charitable, have meaningful experience managing strategic alliances with independent organizations they don’t control. Governing-by-network is much easier said than done:</span></div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span> </div></div><blockquote><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">“As more and more agencies forge partnerships with third parties, agency performance will largely depend on how well the partnerships are managed. To achieve high performance in this environment, governments will need to develop core capabilities in a host of areas where today they have scant expertise.”</span></div></div></blockquote><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span> </div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Think about this in terms of SIF. CNCS has to oversee the intermediaries, and the intermediaries have to oversee their nonprofit portfolios. Collectively, the enterprise is trying to significantly increase the impact and scale of the funded social innovations. To be deemed successful, all three layers have to manage the funding, monitor performance metrics, measure impact, and foster growth while maintaining quality, which means they have to develop and manage the tools, processes, infrastructure, and organizational capacity to carry out those functions, all of which requires dedicated funding, skilled professionals and other scarce resources. At the end of the day, CNCS will have to convince skeptics and supporters alike that the results of the experiment were worth the extra effort and expense. </span></div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span> </div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">As someone who strongly believes that SIF is on the right track, I encourage the intermediaries to avoid making their job more challenging than it already is. It stands to reason that, if you’re in the business of herding cats, the fewer the better. Even one or a few more nonprofits in the portfolio will multiply the complexities of intermediation, and I suspect for the really crucial grantees, the incremental increase in funding would provide a welcome increase in their margin-for-error, one that might prove much more valuable in difficult times ahead than potentially underfunding additional recipients. </span></div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span> </div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">These are only the first round of short-term SIF grants, and they could gain the public support needed for expansion if, but only if, their success is clear. Both CNCS and the intermediaries should have the courage of their convictions about SIF’s mission and go all in on scaling what works. Find the very best high-performers and give them as much growth funding as you can.</span></div></div>Steve Goldberghttp://www.blogger.com/profile/06106824600318886347noreply@blogger.com5tag:blogger.com,1999:blog-141831867777566890.post-88307213949259073502010-08-22T20:32:00.010-04:002010-08-29T10:36:22.992-04:00The Social Innovation Fund Kerfuffle<div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Verdana, sans-serif;">This is a response to an article published in the August 19, 2010 </span><i><span class="Apple-style-span" style="font-family: Verdana, sans-serif;">New York Times</span></i><span class="Apple-style-span" style="font-family: Verdana, sans-serif;">, "Nonprofit Fund Faces Questions About Conflicts and Selection Procedures," which is available </span><a href="http://www.nytimes.com/2010/08/22/us/22nonprofit.html"><span class="Apple-style-span" style="font-family: Verdana, sans-serif;">here</span></a><span class="Apple-style-span" style="font-family: Verdana, sans-serif;">.</span></div><b><span class="Apple-style-span" style="font-family: 'courier new';"></span></b><br />
<b><span class="Apple-style-span" style="font-family: 'courier new';"></span></b><br />
<b><span class="Apple-style-span" style="font-family: 'courier new';"></span></b><br />
<b><span class="Apple-style-span" style="font-family: 'courier new';"></span></b><br />
<b><span class="Apple-style-span" style="font-family: 'courier new';"></span></b><br />
<b><span class="Apple-style-span" style="font-family: 'courier new';"><a name='more'></a></span></b></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: 'courier new';"><b><br />
</b></span></div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">The social sector has long been a recipient of federal, state and local government funding, but it has little experience working with government as an equal partner. Breaking with a past in which nonprofits acted almost exclusively as supplicants for federal largesse, either as contractors-for-hire or grantees, the Social Innovation Fund (SIF) vests shared responsibilities in a broad spectrum of leading social sector players, including foundations, intermediaries, and nonprofits with track records of success, not only for funding, but also for the development and administration of the program itself.</span></div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="background-color: #b6d7a8;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Contrary to isolated pot shots being leveled at SIF, the program is a real-world model of transparency that marks the advent of a new era in cross-sector collaboration -- unless, that is, we continue to indulge in an orgy of recrimination and second-guessing that amounts to much ado about nothing. In two previous posts (</span></span><a href="http://views.washingtonpost.com/leadership/light/2010/08/stonewalling-at-the-social-innovation-fund.html"><span class="Apple-style-span" style="background-color: #b6d7a8;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">here</span></span></a><span class="Apple-style-span" style="background-color: #b6d7a8;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"> and </span></span><a href="http://billionsofdrops.blogspot.com/2010/08/response-to-nonprofit-quarterly.html"><span class="Apple-style-span" style="background-color: #b6d7a8;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">here</span></span></a><span class="Apple-style-span" style="background-color: #b6d7a8;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">), I’ve explained why CNCS has neither an actual conflict of interest nor the appearance of one, and why CNCS should not release the first-round reviews of grant applications by outside experts. In this post, I’ll offer some thoughts about the singular importance of SIF and the risks that unfounded and disproportionate criticisms will end up throwing out the baby with the bathwater.</span></span></div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></div><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">[Author's note: Although I was involved in the SIF review process, I’m writing on my own behalf and I don’t speak for the Corporation for National & Community Service (CNCS) or any of the organizations that participated in SIF. I have not discussed this memo with or shown it to anyone else (including CNCS) prior to publication.]</span></div><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span> </div></div><div style="text-align: justify;"><div style="text-align: left;"><i><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">SIF Purpose and History</span></i></div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">In a speech to a joint session of Congress on May 25, 1961, President Kennedy made the paradigmatic statement of what Jim Collins later dubbed a “big hairy audacious goal,” or BHAG:</span></div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></div></div><div><blockquote style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">“I believe that this nation should commit itself to achieving the goal, before this decade is out, of landing a man on the moon and returning him safely to the Earth. No single space project in this period will be more impressive to mankind, or more important for the long-range exploration of space; and none will be so difficult or expensive to accomplish.”</span></div></blockquote></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">In 1962, he added for the benefit of those who didn’t understand him the first time, “We choose to go to the moon in this decade and do the other things, not because they are easy, but because they are hard.” </span></div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">If the nonprofit sector as a sector has ever had a BHAG, the SIF is it. Indeed, it was not just what SIF aspired to accomplish that was audacious, but also how it proposed to go about it, by actually engaging in two enlightened practices about which there has been much talk and little action for many years: collaborating across sectors and leveraging institutional co-investment.</span></div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">We can’t appreciate the significance of SIF without understanding the extent to which it departs from accepted ways of doing things. In 2006, Harvard Business School Professor Michael E. Porter told The Economist’s Matthew Bishop that “Philanthropy is decades behind business in applying rigorous thinking to the use of money.” Even further back in the stone age of performance-based philanthropy -- 1999 -- Professor Porter and Mark R. Kramer, his co-founder of FSG Social Impact Advisors, wrote a seminal article in the Harvard Business Review, “Philanthropy’s New Agenda: Creating Value.” They argued that “foundations create value when their activities generate social value that go beyond the mere purchasing power of their grants,” and identified four ways of doing so: (1) selecting the best grantees; (2) signaling other funders; (3) improving the performance of grant recipients; and (4) advancing the state of knowledge and practice. </span></div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></div></div><div style="text-align: justify;"><div style="text-align: left;"><b><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">SIF does all four.</span></b></div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Porter and Kramer have not been alone in calling for a fundamental restructuring of the nonprofit capital market:</span></div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></div></div><div><blockquote style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">“The core problem is that our education and training systems were built for another era, an era in which most workers needed only a rudimentary education. It is not possible to get where we have to go by patching that system. There is not enough money available at any level of our intergovernmental system to fix this problem by spending more on the system we have. We can get where we must go only by changing the system itself.”</span></div></blockquote><div style="text-align: justify;"></div></div><div style="text-align: right;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">“Tough Choices or Tough Times,” The New </span></div></div><div style="text-align: right;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Commission on the Skills of the American Workforce</span></div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></div></div><div><blockquote></blockquote><blockquote style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">“The financial system [for nonprofit enterprises] we have put in place and support is the worst enemy, not only of the improvements everyone is trying to make, but of the socially critical programs and services this system is meant to sustain. All efforts to improve the sector will be merely palliative without essential, systemic reform of the way the rules of finance work.” </span></div></blockquote></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></div></div><div style="text-align: right;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Clara Miller, President and CEO, Nonprofit Finance Fund</span></div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></div></div><div><blockquote style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">“Many organizations with the potential to grow are unable to do so because they cannot tap into an easy-to-access capital market... There are not enough organizations able to systemically expand and strengthen their work in order to really resolve social issues.” </span></div></blockquote></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></div></div><div style="text-align: right;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Arthur Wood and Maximilian Martin, </span></div></div><div style="text-align: right;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">“Market-Based Solutions for Financing Philanthropy”</span></div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></div></div><div style="text-align: justify;"><blockquote><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">“The forecast is for hundreds of billions, if not trillions, of philanthropic dollars to be dropped into our industry, but given the current scattered nature of our efforts, the chances of effectively channeling these resources to substantial public good is like trying to direct the floods of the Nile River by building sand castles along its banks.”</span></div></blockquote></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></div></div><div style="text-align: right;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Lucy Bernholz, Creating Philanthropic Capital Markets: The Deliberate Evolution</span></div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></div></div><div style="text-align: justify;"><blockquote><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">“Any serious discussion of nonprofit capital market deficiencies has to start with an acknowledgement that there is no obvious way out of this maze. Expanding social needs are being addressed by nonprofits with very limited funding options. Grant seekers put extensive resources into navigating unclear and unpredictable restrictions. This fragmented funding landscape weakens the sector and ultimately limits impact, detracting from the very community efforts that the funds are meant to support.” </span></div></blockquote></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></div></div><div style="text-align: right;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Cynthia Gair, REDF</span></div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">I collected these voices in my book and added my own two cents:</span></div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></div></div><div style="text-align: justify;"><blockquote><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">“Just as experienced financial investors find the most lucrative investment opportunities before everyone else, we need to help ‘smart money’ find the most capable nonprofits that are ready to take on $100 million problems. If we really want to help ‘all children’ but we don’t want to wait forever for ‘one day’ to arrive, we need to turn the fundraising paradigm on its head: We need a financing system that helps highly engaged social impact investors to direct third-stage growth capital to the best mid-cap nonprofits, instead of one that forces those nonprofits to spend all their time looking for more drops to fill more buckets.”</span></div></blockquote></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">The origin of SIF traces back to the formation in 2007 of the non-partisan America Forward coalition, led by New Profit, Inc. (NPI). At the time, NPI had virtually no interaction with the public sector, but it assembled “more than 90 results-driven, entrepreneurial nonprofit organizations, grant-making intermediaries, and their partners” around a shared vision that</span></div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></div></div><div style="text-align: justify;"><blockquote><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">“one day, our nation’s leaders and citizens will work together to foster innovation and high-impact results in the social sector, identify what works, and grow the most effective solutions to wherever they are needed.”</span></div></blockquote></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">In a 2007 briefing book, America Forward proposed what it then called the “Social Investment Funds,” which would “make it easier for policymakers, and private-sector funders, to seed innovation, extract what works, identify why it is successful, and take solutions to scale.” In May, 2009, First Lady Michelle Obama announced the $50 million SIF:</span></div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></div></div><div style="text-align: justify;"><blockquote><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">“The idea of the fund is simple: find the most effective programs out there and then provide the capital needed to replicate their success in communities around the country. By focusing on high-impact, results-oriented nonprofits, we will ensure that government dollars are spent in a way that is effective, accountable and worthy of the public trust.”</span></div></blockquote></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Just one year later, on May 27, 2010, SIF and some of its partners made three big announcements:</span></div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></div></div><div style="text-align: justify;"><ul><li style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Five of the country’s most forward-thinking foundations -- Eli and Edythe Broad, John and Ann Doerr, Omidyar Network, Open Society Institute, and Skoll -- pledged $45 million over two years to help provide matching funds for SIF grantees. <br />
</span> </li>
<li style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">140 community foundations signed a letter to President Obama from the Council on Foundations that endorsed SIF “as a tool to find and invest in more community-based solutions.” <br />
</span> </li>
<li style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">22 grantmakers committed nearly $5 million for three years to an independent coalition called “Scaling What Works” to “extend the reach, learning and impact of the Social Innovation Fund and other philanthropic efforts to bring effective nonprofit programs to scale.” Members include Annie E. Casey, Atlantic, Gates, Carnegie, Mott, Packard, Edna McConnell Clark, Knight, Kresge, Lumina, Robert Wood Johnson, and Kellogg. Its objectives are: (1) Serve as ongoing convener and conduit between the field of philanthropy and the public agencies involved with the Social Innovation Fund with the hope of building effective partnerships between philanthropy and the public sector that can speed the pace at which community solution scale; (2) Expand the number of grantmakers nationally who are prepared to support the evidence base, capacity and growth of promising nonprofits; and (3) Support collaborative learning and action among the network of grantmaking intermediaries funded by the SIF so they can most effectively invest public and private resources, and so the lessons they learn are translated for the larger field.</span></li>
</ul></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></div></div><div style="text-align: justify;"><div style="text-align: left;"><i><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">SIF Purpose and Structure</span></i></div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Grantmakers for Effective Organizations (GEO), which is leading Scaling What Works as part of its “GEO Action Network,” summarized the objectives of SIF:</span></div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></div></div><div style="text-align: justify;"><ul><li style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Promote public and private investment in effective and potentially transformative nonprofits to help them strengthen their evidence base and replicate and expand to serve more low-income communities; <br />
</span> </li>
<li style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Identify more effective approaches to addressing critical social challenges and broadly share this knowledge; and <br />
</span> </li>
<li style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Develop the grantmaking infrastructure necessary to support social innovation in communities across the country.</span></li>
</ul></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">This “grantmaking infrastructure” is so important for the future of social change. As Porter and Kramer pointed out, it’s not just the direct grant dollars that matter; value comes from producing “social impact disproportionate to their spending.” As summarized in today’s otherwise depressing New York Times story, “Nonprofit Fund Faces Questions About Conflicts and Selection Procedures,” the SIF is specifically organized to produce that kind of value:</span></div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></div></div><div style="text-align: justify;"><blockquote><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">“The 11 winners effectively serve as conduits to channel the grant money to other nonprofit organizations that operate successful programs that can be expanded to serve more people in more areas. The winners must match the government’s money, which also must be matched by the final recipients, potentially trebling the fund’s financial effect. The broader goal ... is to develop a network of intermediaries like the grant winners that can identify promising programs and connect them to donors and other sources of financing to allow them to expand.”</span></div></blockquote></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Folks who’ve never worked in or with government don’t realize how rare and precious the SIF is. Before we snatch defeat from the jaws of victory, consider what’s at stake.</span></div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></div></div><div style="text-align: justify;"><ol><li style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">The economy is still in serious trouble and the deficit is blocking far more important programs than SIF. As a result, there isn’t going to be any more government funding for the social sector, period. <br />
</span> </li>
<li style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">It is orders of magnitude more difficult to prevent or stymie a new federal program than to successfully navigate one through the thickets of competing stakeholders. For every SIF grantee, there are nearly four disappointed applicants who know reviewers, reporters, bloggers, and friends on Capitol Hill. There’s no downside for an unsuccessful applicant to whisper any rumor that might disqualify a grantee and free up a slot; even if they take down the whole program, they’re no worse off. The media thrives on gossip, second-guessing and finger-pointing, no matter how thinly supported.<br />
</span> </li>
<li style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">To mangle a phrase from Finley Peter Dunne, transparency, like politics, ain’t beanbag. Sausage-making is always ugly. Without exception, every large project with real money at stake that involves scores of people has an embarrassing paper or email trail. When the media and (former) congressional staff gather in the cause of “controversy,” everything is eagerly taken out of context and cooler heads almost never prevail. After all, “questions have been raised.” If I had access to the kinds of documents that critics are calling on CNCS to release, I could make any public, private, charitable, or religious endeavor look bad.<br />
</span> </li>
<li style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Public scrutiny is a blunt instrument. You can’t calibrate how much a process is “sullied” by unsubstantiated rumors or when the failure to satisfy a small handful of “surprised” participants becomes “stonewalling.” That’s why CNCS tried to overcompensate with duplicate panels to review every application. Transparency means providing sufficient information and inviting sufficient participation to insure fundamental fairness. It does not require unanimous agreement about each application at each and every step and every final decision. Neither perfection nor the absence of “questions” or “controversy” is the standard. Sorry, folks, but when it comes to government transparency, this is about as good as it gets.</span></li>
</ol></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Keep in mind that the President and First Lady of the United States invested their personal political capital in SIF. Why in the world would they do that for a tiny federal program that doesn’t come close to their top ten priorities? Why would SIF staff risk their careers on anything that challenges the status quo, no matter how valuable, if they can be pilloried even after they’ve recused themselves from any conflicting entanglements? Why would any government agency ever try another partnership-of-equals with the nonprofit sector? If SIF goes down, neither it nor anything remotely like it is coming back any time soon. For anyone who wants to strangle SIF in the crib, this is how to do it. </span></div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">And the really sad thing is, we have even gotten to the hard part of SIF yet. Writing all those procedures, enlisting all those volunteers, shepherding them through weeks of reviews, and then reviewing the reviews for errors and inconsistencies is just mechanical stuff. Even the final round of grantmaking by the selected intermediaries will be a walk in the park compared to the real challenge looming ahead: showing that the SIF model can actually scale what works to an extent that isn’t otherwise possible. We’ve talked a good game about social transformation and the time will come soon -- assuming SIF doesn’t blow up first -- when we have to deliver.</span></div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">And we’re being held hostage to typos and grammatical errors.</span></div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">Just last week, new data showed that flawed 2008 research had vastly overstated the gains that New York City public schools had made in reducing the achievement gap between black and white students. What had been thought to be reductions in test-score differentials of about 50% turned out to be modest at best. By happy coincidence, a recent graduate of the Harris School of Public Policy at the University of Chicago, sent me an October 2009 research paper from the Federal Reserve Bank of Chicago on the Rosenwald Fund which showed how an innovative and highly risky public-philanthropic partnership not unlike SIF could scale what works to bring proven innovations to exponentially more people in need. Here’s the abstract: </span></div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></div></div><div style="text-align: justify;"><blockquote><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">“The Black-White gap in completed schooling among Southern born men narrowed sharply between the World Wars after being stagnant from 1880 to 1910. We examine a large scale school construction project, the Rosenwald Rural Schools Initiative, which was designed to dramatically improve the educational opportunities for Southern rural Blacks. From 1914 to 1931, nearly 5,000 school buildings were constructed, serving approximately 36 percent of the Black rural school-aged Southern population. We use historical Census data and World War II enlistment records to analyze the effects of the program on school attendance, literacy, high school completion, years of schooling, earnings, hourly wages, and migration. We find that the Rosenwald program accounts for at least 30 percent of the sizable educational gains of Blacks during the 1910s and 1920s. We also use data from the Army General Classification Test (AGCT), a precursor to the AFQT, and find that access to Rosenwald schools increased average Black scores by about 0.25 standard deviations adding to the existing literature showing that interventions can reduce the racial gap in cognitive skill. In the longer run, exposure to the schools raised the wages of blacks that remained in the South relative to Southern whites by about 35 percent."</span></div></blockquote></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">At a time when our very best social enterprises reach fewer than 3% of the people who need their help, we can’t afford to treat minor misdemeanors as major felonies. But as Professor Porter once said, “Foundation scandals tend to be about pay and perks, but the real scandal is how much money is pissed away on activities that have no impact. Billions are wasted on ineffective philanthropy.” </span></div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;"><br />
</span></div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Georgia, 'Times New Roman', serif;">SIF is working in a conscientious and open way to change that, and it needs our support.</span></div></div>Steve Goldberghttp://www.blogger.com/profile/06106824600318886347noreply@blogger.com0tag:blogger.com,1999:blog-141831867777566890.post-20700282557286218842010-08-20T20:11:00.007-04:002010-08-29T10:38:59.091-04:00Response to Nonprofit Quarterly Editorial<div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Verdana, sans-serif;">This is a response to an editorial published in the Nonprofit Quarterly, "Social Innovation Fund Disclosures Good But Insufficient," which is available </span><a href="http://www.nonprofitquarterly.org/index.php?option=com_content&view=article&id=4611:social-innovation-fund-disclosures-good-but-insufficient&catid=153:web-articles"><span class="Apple-style-span" style="font-family: Verdana, sans-serif;">here</span></a><span class="Apple-style-span" style="font-family: Verdana, sans-serif;">.</span></div><span class="Apple-style-span" style="font-family: 'courier new';"><b></b></span><br />
<span class="Apple-style-span" style="font-family: 'courier new';"><b></b></span><br />
<span class="Apple-style-span" style="font-family: 'courier new';"><b></b></span><br />
<span class="Apple-style-span" style="font-family: 'courier new';"><b></b></span><br />
<span class="Apple-style-span" style="font-family: 'courier new';"><b></b></span><br />
<span class="Apple-style-span" style="font-family: 'courier new';"><b><a name='more'></a></b></span></div><div style="text-align: justify;"><div style="text-align: left;">Although I was involved in the SIF review process, I’m writing on my own behalf and I don’t speak for the Corporation for National & Community Service (CNCS) or any of the organizations that participated in SIF. I have not discussed this memo with or shown it to anyone else (including CNCS) prior to submission to NPQ.</div></div><div style="text-align: justify;"><div style="text-align: left;"><br />
</div></div><div style="text-align: justify;"><div style="text-align: left;">The editorial states that you are “concerned whether or not SIF can demonstrate that no pre-existing relationships sullied the high profile grantee selection process.” You urge CNCS to release “a list of the names of applicants, the original applications, the review panel’s comments and ratings, and, if they were not assured of confidentiality, the names of the expert reviewers.” <span class="Apple-style-span" style="background-color: #b6d7a8;">In fact, there is no basis at all to question whether “pre-existing relationships sullied” the process, and the release of information you request would undermine the integrity of that process.</span> Now that the grantees have been announced, I do happen to agree that the names of the reviewers should be made public, but without any information about who reviewed which applications and certainly not the specific ratings or written comments any of us made, for reasons I’ll explain.</div></div><div style="text-align: justify;"><div style="text-align: left;"><br />
</div></div><div style="text-align: justify;"><div style="text-align: left;">I’ll begin with my own disclosures. I was one of the 48 external reviewers chosen to review the intermediary grant applications in an early phase of the selection process. I received an honorarium of $700 for well over 75 hours of work. I have professional connections of varying degrees with several of the applicants, all of which I was required to disclose in writing prior to my selection as a reviewer, and I did not see any materials of any kind related to those applicants. One of the applicants that I reviewed and rated highly was named one of the 11 grantees. I also happen to be a lawyer with many years of experience in public ethics law, include actual and potential conflicts of interest. I have never met SIF’s Director, Paul Carttar.</div></div><div style="text-align: justify;"><div style="text-align: left;"><br />
</div></div><div style="text-align: justify;"><div style="text-align: left;">To put things in perspective, consider this quote from of a blog by Adin Miller, “Analysis of Social Innovation Fund Update,” posted on April 23, 2010, and available here. The call to which he refers was a media advisory conference call held by senior SIF staff, including Director Paul Carttar, a press release and audio recording of which were published on SIF’s web site after the call.</div></div><div style="text-align: justify;"><div style="text-align: left;"><br />
</div></div><div><blockquote style="text-align: justify;"><div style="text-align: left;">“What was amazing about the call was the level of transparency applied to the Social Innovation Fund and the grantmaking process in general. As Mr. Carttar noted, the Corporation has stressed an open and transparent process, which has been carried out throughout the development process for the Social Innovation Fund. While the Corporation won’t release the names of the applicants, its willingness to shed light on the applications received and its upcoming review process must be recognized and applauded. The field of philanthropy, in which grantmakers commonly cloak such information, can learn to adopt similar standards of transparency.” </div></blockquote></div><div style="text-align: justify;"><div style="text-align: left;"><br />
</div></div><div style="text-align: justify;"><div style="text-align: left;">The primary “fact” upon which you rely to question the integrity of the process is the SIF’s past relationship with one of the applicants:</div></div><div style="text-align: justify;"><div style="text-align: left;"><br />
</div></div><div><blockquote style="text-align: justify;"><div style="text-align: left;">“One of the 11 grantees of the Fund in 2010, New Profit, is an organization with which the director of the SIF, Paul Carttar, has had close ties. Upon taking on the role at the Fund, he signed a Conflict of Interest waiver due to those ties. This creates circumstances that heighten the need for transparency.”</div></blockquote></div><div style="text-align: justify;"><div style="text-align: left;"><br />
</div></div><div style="text-align: justify;"><div style="text-align: left;">To the contrary, Mr. Carttar’s disclosure and his recusal from all proceedings related in any way to SIF participants with which he had prior business dealings eliminate any need for the kind of false transparency you advocate. As you acknowledge, Mr. Carttar complied with the federal Ethics in Government Act by filing a written disclosure of all of his prior business relationships with potential SIF participants before he took the job. The waiver letter dated April 5, 2010 is available online here, and it shows why your concerns are unfounded.</div></div><div style="text-align: justify;"><div style="text-align: left;"><br />
</div></div><div style="text-align: justify;"><div style="text-align: left;">First of all, you are mistaken when you say CNCS’s August 9th response “explained for the first time in detail its many-layered process …” In fact, back in April, the waiver letter itself provided a detailed explanation of the process:</div></div><div style="text-align: justify;"><div style="text-align: left;"><br />
</div></div><div><blockquote style="text-align: justify;"><div style="text-align: left;">“First, applications will be reviewed for compliance with the NOFA submission requirements, including a determination of whether the applicant is an entity eligible for award. The initial review of eligible applications will be conducted by a four member panel to determine an applicant’s ability to select, support and monitor the performance of a portfolio of innovative and effective nonprofit organizations. At this stage of the review (the “blended review”), panelists will apply the rubric in the NOFA, which puts 45% weight on the review of Program Design, 35% on Organizational Capacity, and 20% on Budget. Next, at a first consensus meeting, senior staff at CNCS will review the top applications and evaluate them in light of the goals of the SIF. The results of this meeting will be to confirm the group of approximately 30 applicants that will be sent forward to the “expert review” stage, where panels of two expert reviewers will assess applications based on the same rubric utilized in the blended review process, but will focus more specifically on evaluation plans and potential for replication. The expert review will be followed by a second consensus meeting, at which information from both the blended and expert reviews will be assessed. This meeting will reduce the number of applicants to a final competitive group of approximately 10-15 intermediaries. These top applicants will be packaged for a pre-decision meeting with the senior Corporation official designated by the CEO1 (hereinafter “designated official” or “designated selection official”) to make the selections, which will include executive summaries of proposals, as well as summary information and statistics. After the pre-decision meeting, staff will have clarifying discussions with the applicants, informed by those questions and issues. They will present final proposals for the designated official’s consideration at the final decision meeting.”</div></blockquote></div><div style="text-align: justify;"><div style="text-align: left;"><br />
</div></div><div style="text-align: justify;"><div style="text-align: left;">The footnote after the phrase “senior Corporation official designated by the CEO” says, “The CEO [i.e., Mr. Carttar] will designate a selection official because his former employer [i.e., New Profit] has submitted a notice of intent to apply.” </div></div><div style="text-align: justify;"><div style="text-align: left;"><br />
</div></div><div style="text-align: justify;"><div style="text-align: left;">You attach no weight either to the content of Mr. Carttar’s disclosure or to the judgment of the ethics official who wrote it, dismissing what you call CNCS’s “baby steps” as amounting to saying, “trust me.” That’s a shame because the explanation is quite informative and undermines your insistence that CNCS can “ensure its own credibility and power” only by disclosing the applications and panel ratings. First, here’s the ethics officer’s “authorization and limited waiver” to Mr. Carttar, which takes a quite different and much better approach:</div></div><div style="text-align: justify;"><div style="text-align: left;"><br />
</div></div><div><blockquote style="text-align: justify;"><div style="text-align: left;">“You are authorized to participate in matters of general applicability including general policy discussions and decisions concerning the operation of the SIF. This authorization and waiver is limited, however, in that you will recuse yourself from party-specific compliance or eligibility determinations, consensus meetings, discussions, and recommendations, or portions thereof, regarding any former employer or client … This prohibition shall include Monitor Group, New Profit, Inc., New Leaders for New Schools and Teach for All, and Kaboom! You are authorized to attend the two consensus meetings except to the extent described above. If, after these meetings, either your former employer or clients remain under consideration for the final competitive group, you will recuse yourself from the pre-decision meeting with the designated official and the final decision meeting with the designated official.” (The ethics officer made the underlinings.)</div></blockquote></div><div style="text-align: justify;"><div style="text-align: left;"><br />
</div></div><div style="text-align: justify;"><div style="text-align: left;">Second, the reasons for her decision include: </div></div><div style="text-align: justify;"><div style="text-align: left;"><br />
</div></div><div><blockquote style="text-align: justify;"><div style="text-align: left;">(1) “The grant application review process will include internal and external reviewers applying established eligibility criteria. These criteria were established in the Notice of Fund Availability developed by the Corporation prior to your appointment; (2) The grant application review process … will be managed by the Office of Grants Policy and Operations in accordance with regular agency procedures; (3) You have agreed to resign from Monitor and from your affiliations with New Profit, Inc., New Leaders for New Schools and Teach for All, and your board membership with Kaboom! (4) you will no longer have financial interests in any of these organizations, and (5) if any organization with whom you have a covered relationship applies for funding, you will recuse yourself from preparation for and participation in the pre-decision …, except to the extent set forth in this Authorization and Limited Waiver.”</div></blockquote></div><div style="text-align: justify;"><div style="text-align: left;"><br />
</div></div><div style="text-align: justify;"><div style="text-align: left;">When a government employee complies with a widely publicized ethics ruling by quitting his job, relinquishing financial claims and resigning from a prestigious board, and staying out of decisions that would otherwise be his direct responsibility, he’s entitled to the presumption of ethical propriety.</div></div><div style="text-align: justify;"><div style="text-align: left;"><br />
</div></div><div style="text-align: justify;"><div style="text-align: left;">You equate transparency with publishing any and all documents having anything to do with the SIF process, what you call “fully enter[ing] the sunlight.” In your view, if there was a potential conflict of interest at the beginning of the process, anything less than 100% publication of every document later produced by anyone in a nonofficial capacity fails to remove the taint. That’s just irresponsible.</div></div><div style="text-align: justify;"><div style="text-align: left;"><br />
</div></div><div style="text-align: justify;"><div style="text-align: left;">Disclosure and recusal shift the question from “does the government employee have a current or potential conflict?” to “has the government employee complied with the restrictions imposed in the waiver letter?” If he has complied, he has had no involvement of any kind – direct or indirect – with any application submitted by any party from which he has recused himself, including the review or recommendation of that application by government officials or outside experts. None. Public disclosure and recusal completely eliminate the need for further transparency because the government employee has absolutely no opportunity to improperly influence the process with respect to those parties. NPQ’s own disclosures in a related article provide a similar example. </div></div><div style="text-align: justify;"><div style="text-align: left;"><br />
</div></div><div style="text-align: justify;"><div style="text-align: left;">Answering the only remaining question – has the employee complied with the restrictions imposed in the letter? – is the responsibility of specific federal regulators, namely the Office of Grants Policy and Operations and the Office of Government Ethics, as well the CNCS Office of Inspector General. Neither the public nor the media need the documents you request to make sure that Mr. Carttar hasn’t violated the terms of the limited waiver.</div></div><div style="text-align: justify;"><div style="text-align: left;"><br />
</div></div><div style="text-align: justify;"><div style="text-align: left;">The specific documents you want CNCS to release have nothing to do with transparency. You are mistaken when you claim that the ratings and comments of the expert panels are “public records.” Rather, both are exempt from the Freedom of Information Act (FOIA) under the well-established “deliberative process privilege,” as explained by the U.S. Court of Appeals for the D.C. Circuit in Coastal States Gas Corporation v. Department of Energy, 617 F.2d 854 (1980):</div></div><div style="text-align: justify;"><div style="text-align: left;"><br />
</div></div><div><blockquote style="text-align: justify;"><div style="text-align: left;">“The Deliberative Process Privilege serves to … protect against confusing the issues and misleading the public by dissemination of documents suggesting reasons and rationales for a course of action which were not in fact the ultimate reasons for the agency’s action… The exemption thus covers recommendations, draft documents, proposals, suggestions, and other subjective documents which reflect the personal opinions of the writer rather than the policy of the agency.” </div></blockquote></div><div></div><div style="text-align: justify;"><div style="text-align: left;">The ratings and comments are precisely the kinds of “predecisional” documents the privilege covers. They reflect the personal and subjective opinions of the reviewers as part of the “give-and-take of the consultative process,” made in an early round of a review process that had many subsequent phases. Their disclosure would surely inhibit candid assessments by reviewers, which were sometimes sharp and even caustic, and after-the-fact analysis in the public domain would convey the false impression of “suggesting reasons and rationales for a course of action which were not in fact the ultimate reasons for the agency’s action.” Confidence in SIF would inevitably be eroded by such a contrived “controversy.”</div></div><div style="text-align: justify;"><div style="text-align: left;"><br />
</div></div><div style="text-align: justify;"><div style="text-align: left;">You then make the gratuitous comment that “according to our sources, even the expert panelists appear not to have understood” the process. Leaving aside your ironic reference to anonymous sources, the statement is completely untrue. In fact, the experts unquestionably understood the process, because the SIF bent over backwards to explain it to us over and over again in multiple web seminars, instructions and phone calls precisely because they wanted to make sure that we applied the same criteria to all applicants in the same way. And I’m not talking about rocket science here, just basic definitions and steps that were sufficiently clear the first time they were explained to us. But the staff insisted that each expert reviewer participate in every redundant forum going over the same material, and we complied because we wanted to make sure the inaugural process succeeded. The process had a lot of detailed parts for the purpose of maintaining tight control, but it was not confusing. If anything, we were too straightjacketed, but it made sense to err on the side of caution and consistency, as your editorial painfully demonstrates. Hopefully, the training process will be streamlined in the future.</div></div><div style="text-align: justify;"><div style="text-align: left;"><br />
</div></div><div style="text-align: justify;"><div style="text-align: left;">You quote an unnamed CNCS “spokesperson” who spoke to the Chronicle of Philanthropy about why CNCS had promised not to make public the names of the unsuccessful applicants or their applications. That’s just sloppy journalism and completely unfair. As required by law, CNCS conducted an open bidding process that included publication in the Federal Register, which invited anyone to submit comments in response to the Notice of Funding Availability (NOFA). Whatever shorthand language the unnamed spokesperson might have used in a separate conversation with the Chronicle about the reasons for not publishing information about intermediaries that weren’t selected, the actual reasons – the official reasons – for deciding not to do so came out of that legally-required public comment process. Taking public comments seriously is one hallmark of government transparency, whether or not you happen to agree with the public.</div></div><div style="text-align: justify;"><div style="text-align: left;"><br />
</div></div><div style="text-align: justify;"><div style="text-align: left;">Nor is there anything “confounding” about why unsuccessful applicants might not want their submissions disclosed. As a World Bank employee stated in the New York Times on August 16, 2010, “the private sector talks about failure freely and candidly,” while the nonprofit world “has to worry about donors who don’t want to be associated with failure and beneficiaries who may not benefit from admissions of failure.”</div></div><div style="text-align: justify;"><div style="text-align: left;"><br />
</div></div><div style="text-align: justify;"><div style="text-align: left;">Given all of the above, you have no basis to lampoon CNCS’s careful, conscientious and open process as a “restricted access, need to know, hush-hush operation.” It is easy to talk about the virtues of transparency without accepting any of the attendant responsibilities. Unlimited transparency can interfere with thorough and deliberate decision-making, particularly when raw information never intended for public dissemination becomes fodder for sensational and one-sided cheap shots and second-guessing in the guise of serious analysis. SIF ran a painstakingly open process for selecting intermediary grantees, and it followed its rules to a fault, subject to review by numerous oversight agencies. It has promised to provide additional information soon, but it is right to draw the line at releasing more than a thousand pages of unofficial and subjective documents prepared by private experts expressing their personal opinions which may or may not have shaped the final official decisions. No one should care whether I and my colleagues gave applicant X a 2 instead of a 3 on question Y.</div></div><div style="text-align: justify;"><div style="text-align: left;"><br />
</div></div><div style="text-align: justify;"><div style="text-align: left;">There is not the tiniest bit of evidence that “pre-existing relationships sullied the high profile grantee selection process,” or even the appearance of such. If NPQ wants to serve the public interest, rather than its own prurient interest in obtaining as much blog fodder as possible, it should undertake a substantive analysis of the SIF information will release about the actual basis for the final decisions made. </div></div><div style="text-align: justify;"><div style="text-align: left;"><br />
</div></div><div style="text-align: justify;"><div style="text-align: left;">It is also too easy to be cynical about government and to wrap oneself in the mantle of “transparency,” but baseless cynicism does not serve the public interest. This is a case where CNCS has established a well-designed program with extensive input from the social sector, and it has been appropriately transparent within any reasonable definition of the term. The publication of peripheral documents would force CNCS to divert its small staff and budget to responding to endless second-guessing, rather than insuring that the important and extremely challenging work of SIF continues productively. That might be a desirable outcome for NPQ, bloggers and SIF critics who want to continue fighting battles decided long ago, but it would not be good for the social sector or the people who need the ultimate SIF grantees to make their proven innovations available nationwide.</div></div><div style="text-align: justify;"><div style="text-align: left;"><br />
</div></div><div style="text-align: justify;"><div style="text-align: left;">Sincerely,</div></div><div style="text-align: justify;"><div style="text-align: left;">Steve Goldberg</div></div><div style="text-align: justify;"><div style="text-align: left;"><br />
</div></div>Steve Goldberghttp://www.blogger.com/profile/06106824600318886347noreply@blogger.com0tag:blogger.com,1999:blog-141831867777566890.post-31359723039301434792010-08-20T08:14:00.004-04:002010-08-29T10:39:17.913-04:00Response to Paul Light re SIF "Stonewalling"<div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="font-family: Verdana, sans-serif;">Let me see if I have this right. SIF is "becoming one of the most important efforts to stimulate social change in recent history," its selection process was conducted in record time and resulted in choosing 11 of "the very best organizations in the country," with "no pressure" to favor any applicants, using "perfectly appropriate" criteria. As a fellow SIF reviewer, I agree.</span></div></div><a name='more'></a><div style="text-align: justify;"><div style="text-align: left;"><br />
</div></div><div style="text-align: justify;"><div style="text-align: left;"><span class="Apple-style-span" style="background-color: #b6d7a8;">But, yet, you making sweeping assertions that SIF is "becoming a study in what doesn't work in government transparency," based on "rumors," "controversy" and "surmise," a fancy word for guess. Your sole basis is that you claim to know of "at least one" "weak and nonresponsive" applicant that received a grant, although you state that you "have no idea how this applicant reached the winner's circle."</span></div></div><div style="text-align: justify;"><div style="text-align: left;"><br />
</div></div><div style="text-align: justify;"><div style="text-align: left;">Maybe you're right about that applicant, but you're inflammatory rhetoric and eager leaps to speculative conclusions can only force everyone involved to run for cover because "questions have been raised." You mention "the applicant's impressive lobbying effort on behalf of SIF" to imply that the applicant might have done something nefarious, offering wild conjectures about "revised" applications and unexplained "clarifying discussions." Soon, no doubt, we'll be hearing sage pontifications along the lines of "doesn't the White House know the cover-up is always worse than the crime."</div></div><div style="text-align: justify;"><div style="text-align: left;"><br />
</div></div><div style="text-align: justify;"><div style="text-align: left;">This is sad and unfortunate. Even with its tiny size, SIF represents and important and courageous experiment by a forward-thinking administration to promote social progress by combining what the government does well (funding programs at scale) with what the social sector does well (fostering innovative solutions to difficult and incapacitating problems). It has attracted private funding from some our best foundations that exceeds the taxpayer money committed.</div></div><div style="text-align: justify;"><div style="text-align: left;"><br />
</div></div><div style="text-align: justify;"><div style="text-align: left;">You have raised questions about just 1 of 69 applications, which can be investigated by the responsible oversight agency, the Office of Grants Policy and Operations. There is no basis to cast SIF's response as "weak and non-responsive," yet you seem willing to throw SIF to the wolves and let a promising cross-sector innovation become engulfed in a feeding frenzy of speculation and second-guessing. Are you really prepared to deny the beneficiaries of the final grantees the unprecedented financial and management leverage that SIF is on the verge of producing?</div></div>Steve Goldberghttp://www.blogger.com/profile/06106824600318886347noreply@blogger.com0