Thursday, July 22, 2021 | 13 Av 5781
One big idea – and a few smaller ones.
Dear All,
First: gratitude. I don’t take anyone’s gift to Hazon for granted. (If it ever seemed like I did, I apologize.) We’re an imperfect organization, but as each year has gone by our impact has increased. Your support enables this. Whether you have given $36, or $3,600, or six and even seven-figure gifts and grants – thank you.
When I started Hazon I had never fundraised, nor thought about it. But I have now spent 21 years (worrying about) fundraising, and so in the second of these stepping-down-as-CEO reflections, I want to share a few thoughts for funders. (Most of these comments are for foundations, federations, and the largest individual funders – though not all.) I don’t claim unique insight; I merely wish to add my voice to the weight of some of these arguments. These are, in many cases, things I’ve been thinking about for a while, but haven’t yet said publicly.
1. Please increase payout ratios. Most “normal” foundations have too low a payout ratio. 5% is a legal minimum, not a guideline. If you’re a foundation trustee or CEO and you’re thinking about how to increase impact, or if that’s something you care about for your grantees: please put on your agenda a fresh discussion about your net payout ratio: what it is, and why, and what it could or should be.
My view is that payouts should be at least in the 7-8% range, (smoothed in dollar amounts over multi-year cycles), which is way more than most foundations today. I write this knowing that markets have been unexpectedly strong and that, given regression to the mean, long-run inflation-adjusted returns in the next 5- and 10- and 20-year periods are likely to be lower than in equivalent past periods. Despite this: please increase your payout ratios. Doing this will unlock significant new monies that are needed now. If you increase your payout ratio, you have the opportunity dramatically to increase your present-day impact. Your increased philanthropy will in due course be leveraged by the wave of new foundations that are yet to be founded.
Note that this is what has happened to earlier philanthropists. People write and talk about effective philanthropy as if it were a recent idea. But the most effective philanthropy in recent centuries has been the early money that went into Harvard and Yale; the money that the Rothschilds invested in Palestine in the late 19th and early 20th centuries, or the money Carnegie put into libraries. In each case, it was successive generations of later funders who leveraged the earliest investments. (The secondary school I attended for eight years was founded by the Bishop of Oldham – in 1515. When an old friend of mine recently gave £150,000 to the school, he was touching people’s lives today – and in doing so he was further leveraging the support of others, long since dead, going back five centuries.)
This argument applies, by the way, not just to foundations but also to federation endowments. One of the best federations in the country recently reduced its payout ratio from 5% to 4.5%. Far better to go the other way – to increase to 6%, at the very least, and apply some of the increased payout towards building future legacies and bequests. If you add $10m a year to annual grant-making, and devote an incremental $2m of that to long-term fundraising, your grantees will be better off today, you’ll have more flexible firepower to deploy – and will you not generate at least an incremental $10m a year in bequests, going forwards?)
I’d add: people reading this email are likely to be particularly concerned either with the future of the Jewish people, or the future of the world. In both cases, there are a wide number of issues that need addressing now. If you increase your philanthropy today, and you use your money well, you’ll increase your impact right now, and your support will be leveraged by future philanthropists.
And then following on from this meta-point, I’d make these other arguments:
2. Once you have a sense of an organization – unless they already have more than a year’s revenues in reserves, please give unrestricted support; and/or please help them build reserves; and/or please increase the amount given to overhead. Yes, by all means give a 2-year or a 3-year grant early on. But if you’ve funded an organization for three years, you ought to have a sense that they have their act together. If you think they don’t, by all means don’t fund them. But if you do, please from that point on give them unrestricted support.
The key clause, by the way, is “unless they already have more than a year’s revenues in reserves.” Put another way: do all that you possibly can to help grantees build reserves. Note that funders have multiple tools at their disposal. Make sure overhead is never less than 20% – realistically that is (at least) what it is. Encourage grantees to promise less. Reduce outcome metrics. Grant more than you’re asked for, not less.
And – again – I don’t suggest that this be an open-ended multi-year blank check. It isn’t, and it shouldn’t be. But many nonprofits are, in a sense, too idealistic for their own good. They exist – and their staff work for them – because they want to effect change in the world. They feel this powerfully. There is a built-in temptation to want to do more, to promise more, and to underestimate what real costs are – especially the really significant costs of building a durable organization and scaling it. Yes: we on the grantee side must strive to do all we can to avoid these pitfalls – agreed. But the structure of much of contemporary philanthropy is (still) geared too much towards program grants, and too little to grantmaking that helps create a durable organization.
By the way: if you’re a foundation that thinks of yourself as Jewishly serious, by all means try this out in the shmita year. Let all your grantees know that, for the coming year, all support is unrestricted, all metrics will be deferred for a year, and all current grants and metrics will be extended by a year. And say to them: we’re going to use the shmita year, post-Covid, to reassess our own giving, in various ways. We give you this money now with the encouragement to do likewise – do a bit less this year, and build reserves, invest in systems, invest in your people, and aim to come out stronger than you went in.
3. Please make a core commitment to addressing the climate crisis, over and above anything else you are doing. Please make this commitment for your own foundation itself, and in your grant-making. Last month it was 116 degrees in northwest Canada. Last week saw the highest recorded temperature, ever, in Northern Ireland. This week Germans are mourning their dead from record floods. A million acres are burning out west, as I write.
I’m going to write a separate email in this series just on sustainability and addressing the climate crisis. But in this email I simply want to suggest this needs fresh framing and commitment in the funding community. This isn’t: “is this one of our strategic foci?” It’s: ok – We’re not required to complete the task – but neither can we desist from it.
That means things like:
- Making your own multi-year commitment to environmental sustainability – ie, in the first instance, just putting it on the agenda, – literally, on the agenda of your next board meeting – and saying, where are we on this topic? What, if at all, have we done thus far? What do we need to learn? And what can, could, or should we be doing? You don’t have to make hard promises or commitments – yet. You need to ask the questions and raise the issues, and promise yourselves that, going forward, you’re going to try to get serious about this. In due course, that leads to questions like:
- Shouldn’t we be giving incremental monies to all our grantees for them to address environmental sustainability across every part of their work: education, action, and advocacy? Every synagogue, every camp, every day school, every JCC. Learning about the power they use; the food they consume; their aggregate carbon impact; issues of adaptation; travel; the use of land; investments, and so on; and then steadily making changes; and taking steps to amplify impact within the Jewish community, within Israel, and in the wider world.
- Our investment portfolio – how much are we deploying into clean tech, into water, into alternatives to industrial meat? What’s going on in our real estate portfolio? How do we make sure that we’re deploying the 92% of our investment portfolio for good – and not just the 8% we give away every year. 🙂
This is what the Hazon Seal of Sustainability is – and certainly what it’s intended to be. TThe most significant part of the Hazon Seal is, I would argue, simply the initial board resolution; committing an institution, on a multi-year basis, to addressing these issues as effectively and determinedly as it possibly can. Although we have had informal conversations with individual foundations on some of these topics, in general, as a grantee, we’re not in position to tell people what to do or not do – we’re trying to raise money as effectively as we can to fund the work we’re doing and aspire to do. But, in fact, we’re now at a tipping point. A small but growing number of foundations have made these sorts of moves. Over the next fourteen months, ie from now until the end of the shmita year, a growing number of foundations need to shift in these directions. Between now and 2029, we need to get the whole of the organized Jewish community to make equivalent commitments.
4. Please devote funding to ongoing staff learning and development, and for sabbaticals. (This is shifting topic from the global to the human). Informally, within Hazon, and since our earliest days, I have encouraged any staffer to participate in any learning opportunities out there – short-term, long-term, Jewishly-focused, professionally focused. If things needed paying for, we paid for them. If people needed time off, we gave it to them. Even when we were a small non-profit with little money in the bank, we had a solid parental-leave policy. We’ve been as supportive as we could be to our interns. ( I can’t guarantee that we have said yes to every single thing that has come along – but in general we’ve had a very strong bias towards yes.) People don’t go into nonprofits to make money. There are no stock options. But our staff are some of the most idealistic people you’ll ever meet. And the Jewish community, in general, is good at leadership development and fellowships and so on. But, proportionately, that support is a little bit too focused at the highest end. Funders can and should be devoting more funding to people development across the board. It is right morally/ethically, and it will also pay dividends in human outcomes.
5. Could a club of foundations and federations please fund a single, community-wide, multi-decadal project on boards? The issue here isn’t that money isn’t going into board development – it is. The problem is that all the different board books, and board gurus, and board organizations, have a somewhat different understanding of what a board is. Consequently for any 100 board members, there are a slew of different and even contradictory understandings of what a board is or how to be a good board member. If we think about leadership, by contrast, it is clear that after more than two decades of Wexner Fellows – lay, professional, Israeli – all of whom have been exposed to the Kennedy School and adaptive leadership and Linsky & Heifetz, that there are some common ideas about the nature of leadership that have permeated the upper echelons of Jewish communal life – and that’s a good thing. If we establish some common understandings and shared language around boards, and we do this consistently (and dynamically) for a couple of decades we will, in due course, have a better functioning community in aggregate.
6. If you’re a Jewish foundation – please think about taking Jewish tradition seriously, in a broader way. A certain integration of Jewish learning has become commoner in recent years. Probably there are more board meetings today that include, e.g., a dvar torah, than might have been the case two or three decades ago.
But taking the tradition seriously should mean much more than a dvar torah. It might include things like these:
- Give tzedakah. As an individual, separately from whatever I give to organizations with a credit card, I also try to give money to people in the street or people who need help. It’s not that I don’t walk past people – sometimes I do. But I try not to. Some foundations focus on people in need. But if your foundation doesn’t: shouldn’t at least 10% of your giving go directly to people in need, or indirectly to organizations that directly serve people in need?
- Pay attention to the Jewish calendar. Treat Pesach and Sukkot as full chagim, for instance, and reduce the work your foundation does for the whole span of each of these holidays – and, where possible, encourage your grantees to do likewise. Treat the month of Elul as a time for professional as well as personal self-reflection. Treat the shmita year as different from the other six years in the cycle – and use each shmita year (including this forthcoming one) to look back on the last six years, and to envision the seven year cycle that is now beginning. (“Envisioning” is and should be looser than, eg, a 3-year strategic plan. Shmita is to the year as shabbat is to the week. It’s about dreaming, composting, looking back, looking forward, celebrating, and so forth.)
- Pay attention to the arts. One can’t imagine twenty centuries of Jewish life without hiddur mitzvah – the way that we create seder plates, menorahs, chanukiot, the coverings for an ark, for a sefer torah, decorations for a sukkah, Jewish writings, and so on. And yet for reasons that baffle me, as a community we under-invest at the intersection of Jewish tradition and creativity. Our philanthropists have underwritten umpteen of the great museums in this country, plus the opera houses, and I’d guess that aggregate Jewish ownership of professional sports franchises is rather more than our share of the population – and yet, somehow, we don’t invest significantly in the arts. As well as funding arts programs, please consider giving extra money to grantees and encourage them also to invest in new art, of all sorts and in all media.
- Support your local federation and/or the key national organizations in Jewish life. In general, relationships and coordination between the larger foundations and federations seems stronger and healthier than it was when I was founding Hazon. But just as I think that foundations should, as it were, “give tzedakah,” so too I think foundations should be giving more support to the federations themselves. We rely on taxation, and governments, for roads and street lights and social safety nets of all sorts. The worth of the federations, and of JFNA, is parallel, and it was made clear this last year. Some of our oldest and strongest philanthropic families continue to be major federation supporters, and much of that nowadays comes through their own foundations. But in many cases the third or fourth generations, or independent trustees, or senior staff, don’t think of federation giving as “strategic philanthropy.” Yet organized Jewish life, from the days of the Talmud to the 20th century has been built around a series of communal chests. The 21st century is no different in that regard – or, at least, it shouldn’t be, if we want to honor the wisdom of the tradition, and build communal structures for the future.
Ok. Like the chicken soup joke (“not only was it lousy; there wasn’t enough of it…”), in this case this email is already too long – and yet far from comprehensive. Lots of other things could be said. And I write in love, and with due humility. I don’t claim a monopoly of truth. I don’t assert that I’m right and you’re wrong. Good people can have legitimate disagreements about every point I have made in this email. But these are some of the things I’ve been thinking about these last umpteen years.
I end by noting that the single greatest objection to the additional funding priorities I’ve suggested here is that there isn’t enough money. Resources are finite. We already have way more grant requests than we can respond to. It’s crazy to imagine – on top of everything else we’re doing – committing the foundation to addressing the climate crisis; and putting money into building reserves, and staff learning, and funding board development, and giving more to the arts, and to people in need, and the federation, and so on.
But that’s why my first point is also my last. You can do a whole slew of additional things, if you increase your payout ratio. You don’t have to do every single one of these things. Different foundations will always land in somewhat different places. But if your foundation or endowment increases its payout ratio, you’ll have the firepower to increase your impact and to implement some or all of these ideas. And by doing so you’ll also, if only implicitly, encourage your peers to do likewise. It’ll be exciting for you as a trustee. It’ll be liberating for CEOs and staffers. It’ll be hugely impactful at the grantee level. And it’ll do a whole chunk of good in the world.
Shabbat shalom – and Tu B’Av sameach,
Nigel