May 3, 2017 From the President

Rethinking Philanthropic Strategy: An Innovative Voice

I had the pleasure of spending some time recently in discussion with a group of Canadian foundation leaders and an innovative American philanthropic leader, Clara Miller of the Heron Foundation of New York. Clara has spent her career in the non-profit sector, leading the NonProfit Finance Fund, which is a leader in building financial capacity and lending capital to nonprofits. Six years ago she became President of the Heron Foundation, a foundation dedicated to helping people and communities help themselves out of poverty.

Clara Miller is an unconventional thinker. She has applied her experience in non-profit finance to set about breaking out of the cornerstones and paradigms of foundation thinking, axioms which separate investments and grants, which keep us focused on a quota rule that limits our thinking about the capital we have to spend, and which keep us defining ourselves as grantmakers, not more boldly as providers of capital for public benefit.

Miller believes in communicating openly about these questions and about the solutions that she has come up with at Heron. She also has a straightforward and witty style. In her recent President’s Letter and in her post on Frequently Overheard Grumblings, she spends some time addressing the conventions that govern many foundation boards. It is worth quoting her thoughts on these points, because they represent a refreshing rethink of foundation  “givens”:

  1. Foundations should govern their grant spending according to the disbursement quota. Miller notes that the payout rule or, in our terms the disbursement quota, is “a tax compliance necessity and an operating data point, not a relevant strategic element… Grants are one among many tools, so making more or fewer grants hinges on their quality relative to other investment opportunities.”
  2. Foundations should have two kinds of staff: program or grant officers, and investment managers. At Heron, says Miller, “we do not have programs or program officers, and we don’t have a program side and an investment side. We work as one team to deploy and attract the various forms of capital that can help achieve our mission. And we consult experts in program areas or industry groups — healthcare, housing, financial inclusion, accounting, and communities — to inform our work.”
  3. Foundations should work primarily through charities. As Miller notes, this is thinking imposed by the tax authorities (in our case CRA) . In Heron’s case, it approaches “non-profits in the context of the multiple enterprise types that all foundations (ourselves included) already invest in: public and private for-profit companies; government entities; cooperatives; and others. We think the division among various types of enterprises on the basis of tax status (or financial instruments, such as PRIs or MRIs) is about tax compliance, not mission.”  So Heron invests in some enterprises, and makes enterprise capital grants to others, mostly non-profit organizations to help them  “achieve strength and staying power”.
  4. Foundations should focus on reviewing grant requests. Miller has reversed this, moved from a “docket review” approach to a “platform/network” approach (oriented to co-investing, building the capacity of others, and leveraging social and knowledge capital intentionally).” In her view, Heron should be “a social investor looking to invest capital in a particular stage of enterprise and appropriate opportunity (non-profit or for-profit, large or small, with equity or debt). This, as she acknowledges, is a pretty radical view, for the foundation staff and for the non-profit sector alike. Change is uncomfortable and demanding. But in her view, the value-added is enormous.
  5. Foundations should only invest a small portion (between 5 and 10 percent) of their portfolio in impact investments. This is a view that Miller flatly contradicts. In her view, “all investing is impact investing”. She says that “every enterprise impacts the environment and society in the course of its business, through its products and services, treatment of workers, supply chain and more. Therefore all investing also has impact, whether positive or negative, and thus investing for impact is not limited to a particular asset class or enterprise type, but implies understanding and improving social and environmental outcomes across an entire portfolio.”

Reading and listening to Clara Miller is like a blast of fresh air. Her philosophy is challenging and not every foundation can make as wholehearted a commitment to her approach perhaps as Heron has done. But Heron’s returns in conventional terms have been excellent. The Foundation and its board  would argue that their impact on the complex problems of communities in poverty is more meaningful than if they had stuck to the traditional models.  I highly recommend spending some time challenging your own ideas by reading those of Clara Miller. The return will be worth it.

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