An address by Mario Morino, VPP, for the Washington Regional
Association of Grantmakers Annual Meeting, June 21, 2000.
This document is
also available in Adobe Acrobat (PDF) format.
Thank you. It is a pleasure to be here today,
to have this opportunity to speak with you, and to celebrate
the accomplishments of National Capital region's grantmakers.
Today, I want to share a few thoughts about
how we can expand our approach to philanthropy to include
the promise, prosperity and best practices of the New Economy.
I hope to convey three points. First, change
is coming to the nonprofit world, and I'll outline my beliefs
about why and how. Second, I'll suggest a new philanthropic
model that can help facilitate this change—a model built
on the idea that by helping many nonprofits to build stronger
organizations, we can help them empower themselves to serve
people in need more effectively. Finally—and just as
importantly—I want to share my belief that we should
demonstrate the power of this change here, in the National
Capital region.
No matter how much philanthropy changes, one
constant will remain: the dedication of extraordinary people
in nonprofit organizations and foundations who put their careers
and reputations on the line to solve problems that sometimes
seem unpopular and often seem intractable. Many of you are
here this afternoon. You've done so with conviction and courage,
and often without nearly sufficient resources or reward. The
changes I propose build on this dedication. The future of
philanthropy lies neither in a clean break from the past nor
a stubborn reluctance to change. So of all the thoughts I
want to share with you today, one of the most important is
this: in philanthropy, as in most changes in society, the
new and the established that have earned their place in philanthropy
must work constructively—and respectfully—together.
The approaching change in philanthropy is a
product of the extraordinary times in which we live. A thriving
New Economy, globalization and a new global medium—the
Internet—are combining forces to make for a smaller,
more connected world. But amidst this stunning prosperity,
we are also seeing a stunning paradox. As our world grows
closer together, our economic and social divides are widening.
A recent report by the United Nations found that one of six
children in the world's 29 wealthiest nations lives in poverty,
including 13 million in the United States. We are moving dangerously
close to cementing a permanent underclass in our country.
And this paradox deepens. Even though the
New Economy is booming, government investment in the social
services has been reduced. And even as this public sector
investment shrinks, we ask—and expect—nonprofits
to shoulder a growing responsibility to address our most vexing
social problems.
As it faces this exceptional challenge, the
nonprofit sector and the philanthropy that supports it will
undergo extensive, if not radical, change. Change will come
for many of the same reasons it has already wracked our economy.
A flood of new wealth and new expectations is one. The influence
of information technology is another. So are new trends in
business, like disintermediation and disaggregation—the
splitting apart or stitching together of organizations to
produce better results. New trends in financial services introduce
the emerging field of philanthropic fund management. And,
with forces like privatization and new models for wealth creation
for nonprofits, the changing roles of for-profits and nonprofits
blur.
These changes add up to an inevitable and dramatic
transformation in philanthropy. And that adds up to a dramatic
opportunity—an opportunity to rethink philanthropy in
America. One of the biggest leveraging points in helping nonprofits
deliver social services more effectively lies in changing
the funding system itself. Let me explain why I think that's
true.
Strong organizations are the backbone of effective
services. Strong organizations can make long-term plans. Their
managers are better able to focus on mission. They invest
in management, staff development and infrastructure that allow
them to better define goals, measure progress and be accountable
for outcomes, while supporting program improvement and growing
the organization to scale.
But the way we fund nonprofits prevents them
from doing these things well, or, too often, at all. Executives
must focus too much on fundraising, not management. Their
horizon is often the next grant cycle, not the next performance
goal. The standards they are forced to follow deal with programs
and process, more than outcomes. Perversely, their funders—rather
than the people they really seek to serve—can end up
becoming their primary clients. The assessments to which they
are subjected are often a one-way judgment rather than constructive
interaction that helps them to learn and improve.
We ask those in the nonprofit sector to take
on our most formidable social problems. But we nearly ensure
they can't fully succeed. Because givers often insist on low
overhead, nonprofits are limited in their capacity to build
strong organizations. They cannot invest enough in the management,
technology and other tools they need that are the keys to
delivering effective services. For the most part, nonprofits
rely on a single financial instrument—the charitable
donation. And after receiving two-three years of support,
they often find their funders moving on to newer program initiatives
rather than helping to build further what had been started
so well. As a result, their ability to provide quality services
and grow is constrained. They are forced into a relentless
race for resources rather than results. Nonprofits can even
be driven to alter or veer from their missions in search of
programmatic funds.
Success stories in philanthropy are not well
disseminated and seldom are they more broadly adopted. Marketing
remains a bad word in philanthropy, and knowledge capture
and dissemination are still too foreign a concept. This causes
needless duplication of effort, longer and more expensive
development, and less efficient service delivery. And, as
the wheel is reinvented time and again, funding is diluted.
Is what I present a dramatization? Perhaps
to some, but not based on my observations in seven years at
the Morino Institute. In fact, many of the problems I am discussing
today we learned from social entrepreneurs and activists themselves—the
people most actively involved in their own communities, trying
to make the nonprofit sector work. The growing base of foundations,
academics, think tanks and community organizations grappling
with how to make the nonprofit sector more effective is itself
evidence that we have a fundamental problem.
Like all problems, to solve this one, we must
move away from the fringes and attack the cause. And I strongly
believe the most important challenge—and, therefore,
the most powerful lever for change—is the funding system
itself. If we want nonprofits to deliver effective social
services, we need to change the funding mechanism to help
them build stronger organizations, ones that are highly effective,
sustainable and accountable for outcomes.
Here is where the exciting times in which we
live become so relevant. We can apply the best practices of
the New Economy to help create a New Philanthropy whose focus
is strong, highly effective organizations with the power to
sustain themselves.
This approach has been called "venture
philanthropy." It is a relatively new field that has
no single accepted approach or commonly agreed upon definition.
We define venture philanthropy as the process of adapting
strategic investment management practices to the nonprofit
sector to build organizations able to generate high social
rates of return on their investments. Strategic management
assistance is provided to leverage and augment the financial
investment made. This approach is modeled after the high end
of venture capital investors—the relatively few who
work to build great organizations instead of just providing
capital.
In the commercial world, the most successful
investors are true strategic partners to the enterprises they
fund. Their work starts with the funding instead of ending
there. They develop relationships and build trust with the
people of the organizations in which they invest. Instead
of intruding and directing, they support and consult. Instead
of controlling, they become vested partners that share risk.
They provide management advice. They help managers deploy
technology that helps them achieve their missions. They make
long-term commitments that enable businesses to invest in
capacity for the long haul rather than simply surviving to
the next quarter. More than anything else, they help build
great organizations that, in turn, create great value.
Our experience at the Morino Institute suggests
that many nonprofits could benefit from a similar approach
of strategic investment management. Under this model, rather
than a charitable foundation writing a one-time check for
two or three years to finance a specified program and then
moving on, investors would make a substantial, long-term commitment
focused exclusively on building capacity. This commitment
would last four to six years and total several million dollars.
They would seek nonprofit organizations with both great potential
and the commitment to tap that potential to significantly
improve the services they provide and expand the number of
people who receive them. They would insist that focus be placed
on a clear mission and on accountable results that demonstrate
a social rate of return on their investment. In addition to
gifts of equity—the investment—these givers would
also share their managerial and technological expertise. They
would leverage their network of contacts. They would help
organizations empower themselves to achieve their missions
instead of trying to redefine them.
In short, a core goal of this model—as
in any investment partnership—would be to build strong,
highly effective organizations that achieve strategic objectives
and become financially sustainable.
Financial sustainability is critical if nonprofits
are to be free from the constant demands of fundraising. And
that means the New Philanthropy, like the New Economy, must
think of new, more effective means for fund development and
explore ways to help nonprofits create economic value rather
than simply redistributing existing wealth.
Consider the remarkable story of Gary Mulhair
and the 15 years he has spent leading—and building—Pioneer
Human Services in Seattle.
Pioneer had a challenging mission: giving people
coming out of prison new skills—and new hope. But Gary
had an even bigger idea in mind—a nonprofit institution
that could create enduring and growing wealth to finance effective
human services. Pioneer sells the metal products that program
participants manufacture. Boeing is among its customers. Today,
Pioneer's equity is $11 million. In 1998, it was a $50-million-a-year
firm—providing a sustained, predictable source of funds
that enabled Gary to build and grow an effective human services
organization.
Pioneer succeeded because its partners, companies
like Boeing and Starbucks, followed a "venture philanthropy"
approach. Pioneer was able to break its dependency on grants.
It could focus on results. Rather than a mission that bounced
between grant applications, Pioneer focused on a defined outcome
and invested in the technology, management and capacity needed
to reach it. And it worked.
Imagine the gains we could make in delivering
social services by helping other leaders, budding Gary Mulhairs,
build strong organizations and explore new ideas for developing
and supporting them.
The Morino Institute has already tried this
model of strategic investment partnership on a somewhat smaller
scale. It was the basis of the Youth Development Collaborative
(YDC) Pilot we led in partnership with four community-based
organizations in the District of Columbia. The Pilot helped
these organizations integrate the Internet into their work
to increase their capacity to offer quality services for youth
and improve their overall operations. When successfully completed
at the end of this year, we will have invested over $2.5M,
the bulk of which has been focused on the people who make
these organizations run, not on hardware and software. We
deployed a team with expertise in the area of education and
technology to work full-time with our partners. We invested
heavily in staff development to enhance the capacity of these
organizations. And as word of what we've learned and our partners
have accomplished is disseminated, the effort is increasingly
being viewed as highly successful and leading edge.
Now we're exploring the strategic investment management
model on a larger scale. The Morino Institute, in partnership with
the Community Foundation for the National Capital Region and Community
Wealth Ventures, is leading a group of business leaders to launch
an exciting experiment in venture philanthropy. It will be dedicated
to demonstrating that the application of strategic investment management
can build strong, more effective and more sustainable organizations
serving children in the National Capital region.
The strategic investment model does not fit
the needs of all nonprofits. Nor does it replace existing
philanthropy. Venture philanthropy applies best where it is
most needed and can most succeed: in institutions that provide
a social service and that could deliver that service much
more effectively and with far greater value with a strategic
investment that helps build a stronger organization. It applies
most to untapped potential that can be harnessed and highly
leveraged. And it is worth noting that venture philanthropy
would work only for organizations that are highly receptive
to this more engaged approach.
What are the benefits of this model?
For donors, it offers the potential for a better—and
accountable—return on their charitable investments.
It accommodates their desire for more direct involvement,
their hunger to contribute beyond just writing a check and
their thirst for knowledge about how to give more effectively.
For nonprofits, this model offers the chance to reach their
potential and realize their dreams. They'll have partners.
They'll have the support they need to move toward sustainability.
They'll have the opportunity to obtain the tools for success.
Their leaders will be able to focus more on results rather
than securing grants. With increased capacity, they will be
more effective in their delivery of services. And they'll
be able to use those results—and this support—as
an engine for continuous internal improvement. Collectively,
the results of this approach will also bring new givers into
the philanthropic space—and at younger ages.
For the nonprofit sector—and others,
like government or education—I believe this approach
has the potential to demonstrate a more effective mechanism
for funding social programs. I believe it will demonstrate
the importance of building strong organizations. And the more
funders see demonstrable outcomes, the more they will expect
similar results of other efforts in which they are involved.
And, I am convinced they will then invest more.
But, ultimately, the most important beneficiaries
will be the children and families who depend on the strength
of the nonprofit sector. The organizations that serve them
will be able to make long-term plans and be agents of long-term
hope. When leaders focus more on results rather than grants,
children will have more effective resources—resources
like a mentor or an after-school program. For these children,
we seek not just better managed organizations, but better
managed lives.
This is a new model for philanthropy. But it
should not—it cannot—be an isolated one. For this
venture philanthropy to succeed, it must work together with
today's nonprofit and philanthropic sectors. I believe the
New Economy has many insights to offer the nonprofit sector.
But my years in working with nonprofits have also demonstrated
how much we have to learn from—and how much we have
to admire about—what you already do. We very much need
to work together.
If anything, our own experience with the Morino
Institute has given us a healthy realization of the magnitude
of what we propose to do. The challenges children face today
are enormous. And those trying to serve them face difficult
systemic barriers.
We know we can't just be a bunch of rich do-gooders
from the suburbs. To the contrary, our decisions must be thoughtful,
our deeds deliberate and our actions sensitive. We have much
to learn. We need to continue to earn the respect of those
already working with children in philanthropy and the nonprofit
world. And most important, we must recognize that this effort
and those involved with it understand the needs and values
of the communities in which we hope to invest. As such, we
are being methodical in our planning. We are engaging people
who know more than we do. We are being inclusive in our outreach.
And most of all, we are trying to avoid unrealistic expectations.
We are determined for this approach to philanthropy
to succeed. But, in equal measure, we are determined for it
to succeed here—in the National Capital region.
We are determined for it to succeed here because
it must succeed here—because, in spite of the tremendous
efforts of foundations and nonprofits here in the region,
our children need more help.
We should do it here because here we have an
unprecedented opportunity. This region is emerging as one
of the major centers of New Economy innovation. Over the next
10-20 years, the region will be home to an unimaginable creation
of wealth. New givers will emerge as a result. And we have
the opportunity to influence them—to make their giving
more strategic, to direct them toward outcomes, to engage
them in their region's future and to focus more of their efforts
on the children who need our support the most.
We can do it here, in the National Capital
region, because the leading players in the New Economy here
may be unique because of several intangible factors. They
are approaching their lives and their philanthropy with a
level of maturity and thoughtfulness that would surprise many
people. Their stories are of lifelong service, not just shotgun
wealth. They are players like Raul Fernandez and Kathy Bushkin Calvin,
who worked in public service before they were private entrepreneurs,
or Nina Zolt, Josh Freeman and Mark Warner, who have already
introduced innovative approaches to social challenges, or
Jim Kimsey, whose tours in Vietnam taught him the true measure
of a life's worth. And among these players, there is a collegiality
brewing—even growing friendships that will bind them
together in causes larger than corporate success.
We can do it here because a vibrant entrepreneurial
ecosystem has been nurtured in this region over the last several
years. That ecosystem provides receptive channels through
which to engage entrepreneurs and businesspeople alike in
this mission more effectively.
Change will come to philanthropy, as it has
come to our economy and as it will come to other sectors of
our society. Today, we discussed one model for change—a
model that applies only to some corners of the nonprofit world.
But in those corners are children whose lives will be saved
or squandered based on how effectively they are served by
nonprofit organizations.
Today, those organizations are replacing or
supporting family and social structures that have eroded.
And I know how important those structures are. They were the
reason I was able to succeed after growing up in a neighborhood
that was not, to say the least, the richest one in Cleveland.
Where I was raised, we were short of material things, but
we were never without hope. My family and the neighborhood
in which we lived gave it to us wrapped in gifts called love,
confidence and the encouragement to learn.
In 30 years in the software industry, I participated
in the transformation of the economy. I saw theories of value—and
approaches to management—evolve. I saw business models
that thrived, and others that failed.
So I know—from a childhood in Cleveland
and a career in technology—that boosting the capacity
of nonprofit organizations means the difference between social
services that save lives or waste them.
Today, I represent many people like me—individuals
who have enjoyed the financial benefits of the New Economy.
Collectively and individually, we are at a juncture in our
lives at which we are seeking a significance beyond financial
success. We are a growing force seeking to accelerate change
in philanthropy. For us, writing a check is not enough. We
need to know that there are positive results—outcomes
to our giving. We need to know that the system will be changed
for the better. Anything less is irrelevant.
We believe we can help to rethink and improve
one systemic factor limiting success in the delivery of social
services—the mechanism of philanthropic funding. Venture
philanthropy is one way to demonstrate this potential.
By way of closing, let me restate what I said
when I began : The real solution for helping nonprofits deliver
social services more effectively is neither a clean break
from the past nor a stubborn resistance to change . The road
to progress is partnership—a partnership under which
the established and the new work side by side. We can partner
to better learn how to be good at helping organizations build
their capacity and be more effective and sustainable. We can
partner so that our investments to build stronger organizations
greatly leverage the program funding of the larger, more established
philanthropic funders. And, together we can trigger a reaction
in this region—one that will ripple out to provoke new
thinking in philanthropy across the nation—that could
have a lasting impact on the lives of children for years to
come.
This is our common purpose.
The National Capital region is riding a tsunami
into the 21stCentury. It is ground zero to the New Economies
of the Internet in Northern Virginia and bioscience in adjacent
suburban Maryland. This region is home to the White House
and Capitol Hill, a world center for global organizations,
embassies and foreign missions. What better place in the world
to demonstrate that the wealth cycle—from innovation
to financial success to life significance and giving—can
be completed? Where better to show that our society—divided
at the start of the 21stCentury—can heal itself?
Let's demonstrate venture philanthropy with
compelling success—a success compelling enough to be
a catalyst for a broader, more meaningful philanthropic involvement.
Let's work together to embrace new ideas—to
rethink philanthropy.
Let's embrace a new philanthropy to show that
we can take on the intractable problems and enrich the lives
of children.
And let's do it in a place to which the
world is once again looking for new ideas and new hope—the
National Capital region. Thank you.
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