Transparency and Foundation Results: In Philanthropy, What's Good for the Goose is Good for the Gander

The Center for Effective Philanthropy’s recent research report, Sharing What Matters: Perspectives on Foundation Transparency, released earlier this year, provides some startling data about the state of transparency in the foundation world.

While for the most part, foundation leaders recognize the importance of transparency and are trying to be more transparent, the report shows there is still much work to do.

To me, this question of foundation transparency is part of the larger, ever-present power imbalance in the nonprofit sector between those with money (funders), and those who seek that money (nonprofits). Funders often encourage nonprofits to be transparent about their results and when they have succeeded or failed. But it appears that in these two areas (results and lessons learned), funders are less transparent than either their grantees want them to be, or they would like themselves to be.

This is all critically important because a more transparent philanthropic sector — particularly if foundations were more transparent about how they assess their results and what has worked and what hasn’t — could mean more money flowing to more social change. 

CEP’s report delineates two levels of foundation transparency. First is transparency about grantmaking: who leads the foundation, how they have made grants in the past, how they make decisions. The second is transparency about the results foundations themselves achieve: how they assess the performance of their investments, how they share successes and failures.

This second (and I would argue much more interesting) level of transparency is about foundations reporting the very thing they are often asking nonprofits to report: their performance.

In particular, the research uncovers three stark disconnects:

1. Foundations Don’t Share How They Assess Their Performance
   Of the foundation leaders surveyed, 61 percent said they believe being transparent about how their foundation assesses its performance could increase effectiveness to a significant extent. Yet, only 35 percent of foundations reported actually being very or extremely transparent about it.
2. Foundations Aren’t Transparent about Successes and Failures
   While 69 percent of foundation leaders think that being transparent about what’s worked in their grantmaking could increase their effectiveness, only 46 percent report being very or extremely transparent about what’s worked. And transparency about what hasn’t worked is even worse. 30 percent of foundation leaders say their foundations are very or extremely transparent about what does not work, which makes failures the lowest-rated area of foundation transparency. And nonprofits agree that foundation transparency is lowest when it comes to sharing what hasn’t worked.
3. Foundations Want to Be More Transparent, But Aren’t
   While 94 percent of foundation leaders surveyed say that increased transparency is a medium or high priority at their foundation, 75 percent of foundation leaders say that their current levels of transparency are not sufficient. And shockingly, 24 percent of foundation leaders say that nothing limits their ability to be more transparent. So it’s a big priority, yet it’s not getting done.

The report suggests some reasons why transparency about performance and lessons learned is recognized as important, but still far from ubiquitous in the philanthropic sector:

• Lack of Strategy: Foundations aren’t creating clear enough goals around which they can actually assess their performance.
• Lack of Capacity for Evaluation: Foundations aren’t allocating enough resources to assessing their performance.
• Fear of Diminished Reputation: Foundations are afraid of harming their own or their grantees’ reputations by revealing what has or hasn’t worked.

Surprisingly (or maybe not so surprisingly), these impediments to foundation transparency mimic the hurdles nonprofits find (or place) in their own way. Nonprofits often pour as much money as possible into programs and skimp on investing in organization-building efforts like strategy and evaluation. This bias against organization-building is often encouraged (or demanded) by their funders. And so it appears that funders put these same hurdles in their own way. Perhaps foundations, just like their nonprofit grantees, need to acknowledge that with sufficient investments in smart strategy and performance evaluation, greater results can be achieved.

The third and final impediment to foundation transparency about performance and lessons learned is trickier. Fear of harming the reputations of their grantees by sharing lessons learned is a real issue. Foundations tend to invest in packs. So if a foundation reveals investments that have failed, there is a risk that other foundations will flee.

But if we truly want to move to a place where more resources flow to what works, don’t we have to be more transparent about what worked and what didn’t work? If a foundation investment failed because of the foundation’s shortcomings (the investment didn’t fit with foundation goals, the foundation didn’t invest enough, or it didn’t invest in capacity as well as programs), the foundation (and other foundations learning from these lessons) could learn to become more effective investors. And if the investment didn’t work simply because it was the wrong intervention, then isn’t it better to move investments to interventions that do work? Fear can be a debilitating thing, and for the sake of greater results, I think both foundations and their nonprofit grantees must work to overcome it.

Ultimately, the CEP report is hopeful. It uncovers a desire among both foundation leaders and their grantees to move from a basic level of transparency toward a deeper (and more important) one that reveals performance and lessons learned.

Let’s hope that this stated desire for a change in foundation transparency, and the requisite changes in how foundations invest in strategy and performance assessment and overcome fear, becomes reality.

Nell Edgington is president of Social Velocity, a management consulting firm for nonprofits. At Social Velocity she helps nonprofit leaders chart a strategic direction, achieve financial sustainability, engage their boards, and become more effective leaders. She also writes and speaks extensively, including authoring the popular Social Velocity blog about moving the nonprofit sector and the philanthropy that funds it to become more effective at creating social change. Follow her on Twitter at @nedgington.