Foundation Friday: Putting Mission Above All

A self-study by the Heron Foundation of its program-related investing will probably interest foundations most for what it reveals about the rewards and perils of, e.g., owning their own brokerage firms.  To the rest of us, though, the most important aspect of the report is its elegant statement of rationale:

. . . . Heron’s board of directors understood all too well that the scope of the social problems it sought to address required more significant resources than its mandated 5 percent payout. . . . [T]he board put forth the suggestion that because of Heron’s social mission and tax-exempt status, the Foundation should be more than a private investment company that uses its excess cash flow for charitable purposes. . . .The board began to view the 5 percent payout requirement as the narrowest expression of the Foundation’s philanthropic goals. By looking to the other 95 percent of assets, the “corpus,” the board could conceive a broader philanthropic “toolbox” capable of generating greater social impact than by grantmaking alone.

(Emphasis supplied.) 

Perhaps the Foundation could generate even more social impact by spending the corpus rather than investing it, or by equalizing grantmaking and lending rather than giving such primacy to loans; perhaps not.  This, at least, is a morally legitimate basis on which to compare program-related investments to grants.  The comparison shouldn’t be between the effect of 5% grantmaking and 5% PRIs, with the rest of the principal just sitting there merrily collecting dividends and interest; it should be between large allocations in each form directed to mission.  Otherwise, as the Heron board wisely said, "[T]here could be very little to distinguish the Foundation from a conventional investment manager."

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2 Responses to “Foundation Friday: Putting Mission Above All”

  1. Sam Davis Says:

    Investing provides an immense social impact because it creates jobs. This is a lesson that many in the nonprofit world, and most in government, do not understand. It can be best summed up by the old Chinese proverb, “Feed someone a fish today, and she will be hungry again tomorrow. Teach her to fish and she will never be hungry again.”

    Andrew Mwenda, a Ugandan journalist, recently published a paper at the Cato Institute explaining how charity, in the form of foreign aid to the Ugandan government, makes it less accountable to its own people, and does nothing for the economy.

    Rather, trade barriers should be loosened, and the rule of law strengthened in Uganda, so that people will be able to work, save and invest their way to prosperity.

    Ultimately, true social impact does not come from continuing handouts, no matter how worthy the supposed goal, but in economic empowerment of individuals, which happens only in a market economy.

    To have a functioning market economy, liberal trade, property rights and the rule of law are necessary. This brings about true social impact.

  2. Nonprofiteer Says:

    If I understand Keynes correctly, expansion of the money supply creates jobs whether that expansion comes in the form of grants or loans or equity investment. It may be that job growth is more sustainable when not dependent on repeated acts of charity, but that only argues for endowment of charitable activities rather than current funding of those activities.

    No doubt teaching people to fish is a good idea, but only after we’ve made sure they don’t starve for want of a fish we have in our basket. And while it may be true to say that foreign aid diminishes the accountability of host governments (I’m agnostic on that point), it’s simply false to argue that “charity does nothing for the economy.” Every charitable contribution that underwrites anti-malaria bednets or the eradication of polio or prenatal care leading to healthy infants strengthens the economy to the tune of a human being’s potential. (And individuals can’t be economically empowered if they’re dead, or brain-damaged, or too physically incapacitated to work.) The Cato Institute is hardly a reliable source to the contrary, having an anti-government axe to grind; I recall a Cato devotee explaining that he didn’t vote because “it only encourages them [governments].”

    No question that the rule of law is an essential precondition to human progress. Whether liberalized trade is a good or bad thing depends on specific times and places; a race to the bottom in wages and prices may be most costly to those who can afford it least. Every market economy needs to have its most extreme effects mitigated by non-market concerns; otherwise we’d still be buying and selling people.

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