Spending Donations Wisely in Hard Times

Tuesday, November 4, at 12 noon, U.S. Eastern time

Paul Brest is president of the William and Flora Hewlett Foundation, in Menlo Park, Calif. His was a law clerk to Justice John M. Harlan of the U.S. Supreme Court and was a lawyer for the NAACP Legal Defense and Educational Fund in Jackson, Miss., during the 1960s. Mr. Brest later joined the faculty of Stanford Law School, where he focused on constitutional law and problem solving. He is co-author of the new book Money Well Spent: A Strategic Plan for Smart Philanthropy (Bloomberg Press).

A transcript of the chat follows.

Peter Panepento (Moderator):
    Welcome to today's Election Day edition of the Chronicle's weekly "live discussions" series. Today, we're veering away from talk about politics and focusing on our attention on what should be a very lively discussion about effective philanthropy. Joining us is Paul Brest, president of the William and Flora Hewlett Foundation, in Menlo Park, Calif., and co-author of the book Money Well Spent.

Peter Panepento (Moderator):
    Mr. Brest will be taking questions about his book, which offers readers a blueprint for effective philanthropy. He'll also be offering his thoughts on the current economic climate and how it affects charities and foundations. As always, though, the discussion will be driven by you. This is your chance to ask questions of one of the philanthropy world's most prominent thinkers.

Peter Panepento (Moderator):
    To ask a question or offer a comment, simply click on the "ask a question" link on this page and type away. Mr. Brest will be available for the next hour to take your queries. His publisher has also agreed to raffle off four copies of Money Well Spent to participants in today's discussion. To qualify, send an e-mail to discussions@philanthropy.com and give us your name, title, and mailing address.

Peter Panepento (Moderator):
    Ok. Now that we've taken care of all of the bookkeeping, let's get started.

Question from Jack Vanderryn, board member of 3 non-profits:
    As a result of the current national financial crisis, some foundations are signalling that they will reduce their grantmaking budgets because of significant reductions in their assets. What percentage of foundations do you expect will do this; what percentage will hold steady, and how many might even increase their grantmaking to help nonprofits that are facing difficult financial futures?

Paul Brest:
    I have not seen a survey of how foundations are responding. But in our recent book, Money Well Spent, Hal Harvey and I discuss the pros and cons of a payout that will maintain the value of a foundation's assets over time versus spending down the assets. In our view, the answer partly depends on what problem's you are trying to solve. As we write in an op-ed piece in the Chronicle, grant makers that focus their money on perennial causes, such as education and the arts, may find that distributing 5 percent of assets is just right. But in realms such as global warming or nuclear proliferation, where prevention is vastly cheaper than cure, spending only the minimum now may be wildly counterproductive.

Peter Panepento (Moderator):
    The op-ed piece Mr. Brest refers to can be found here: http://philanthropy.com/news/updates/index.php?id=6160

Question from Ian Wilhelm, Chronicle of Philanthropy:
    Hi Paul. Hewlett has said that in part because of poor investment returns, it will be trimming its grant making by 3 to 5 percent.

How will it do that and how do you respond to those who argue that during a sour economy foundations should give more? Thanks.

Paul Brest:
    The Hewlett Foundation is honoring all existing commitments, including a five year $100M/year commitment to address climate change. But we're asking of our program directors to be more focused in making new grant commitments. I don't think that foundations should necessarily give more or less, rather than to adjust their grantmaking to their particular goals and long-term plans, including whether their founders wished them to exist in perpetuity, spend down, or something between.

Question from Doug Taber, University of Delaware:
    Much of current progress, from photolithography to pharmaceuticals, depends on developments from the tree of chemical reactivity. The roots of that tree are withering. I would like to create a grant-making Foundation to nourish those roots. Do you have any advice as to how I might approach the world of philanthropy with that project? Thanks, Doug Taber taberdf@udel.edu

Paul Brest:
    Foundations can play an important role in providing unrestricted, core, general operating support to institutions that support the roots of these and other trees, rather than only support projects of particular interest to them.

Question from Diane Creasy, 1in8foundation for breast cancer early detection:
    How can smaller charities effectively compete with the larger more established ones in this economy?

Paul Brest:
    By demonstrating to donors that they are effective in achieving the outcomes called for by their missions and goals.

Question from Glenda Ahhaitty:
    In these difficult times how would you suggest that one could be succesful in seeking funding for American Indian children's services both reservation and urban?

Paul Brest:
    unfortunately I don't have any experience in American Indian children's services.

Question from Sharon Grant, Habitat for Humanity International:
    Do you think that the downturn in foundation profits will affect giving for international work more than for domestic work? In other words, will foundations increase the relative priority they place on domestic programs? Thank you.

Paul Brest:
    I hope not, but I fear this may be the case. Foundations that have made commitments to international work, whether in health, economic development, peace, or the environment, should realize that developing countries will be especially hard hit by the global economic downturn.

Question from Kathleen:
    Do you think US funding for international causes will contract as a result of the financial crisis?

Paul Brest:
    I do, and it concerns me since many developing countries will feel the greatest brunt of a global recession.

Question from Carmen Ruiz, IFPRI:
    In your article you talk about redirecting money from marginal organizations to ensure the survival of high-performing ones. How do you address performance indicators? Also, innovative solutions to social or environmental problems often come from flexible, small organizations, as opposed to bigger/well-established institutions. Could you comment on how to keep the support for small ngos despite the financial crisis?

Paul Brest:
    By contrast to the for-profit sector, performance indicators for nonprofit work depend heavily on the particular goals of an organization. An organization that make public its goals, strategies, and what it uses as indicators of progress and success is already ahead of the game. A small organization's ability to do this should help level the playing field with larger ones.

Question from Katie Gustafson, Conservation International:
    Dear Mr. Brest,

In your article, you write: "Our bottom line: In periods of financial stress, don’t lose sight of your fundamental goals and strategies, and make sure that your assets are deployed to achieve them most effectively."

How does the Hewlett Foundation approach this idea? What would you say are the Foundation's "fundamental goals and strategies" -- the things you will be solidifying over the next, lean years?

Are there any particular areas where you will focus most strongly, or any particular strategies you will depend on? Thank you.

Paul Brest:
    Like many large foundations, Hewlett is a comglomerate of sorts, with programs including global development, education, the environment, and performing arts. We have developed pretty clear goals for each of these programs, and made them available on www.hewlett.org. As we review budgets for 2009, each program is asking: which grants in which of our strategies are likely to be most effective in achieving the goals--taking a perspective of at least several years in answering the question.

Question from Philip, Catholic diocese:
    What are some of the ways that a Christian community, such as a Catholic diocese, can do a better job of promoting stewardship to church leadership as well as the faithful?

Paul Brest:
    I'm sorry to say that I have no knowledge about this subject.

Question from Michelle Caldeira, Pine Street Inn, Boston MA:
    The Council on Foundations recently published an open letter with three recommendations to help take on "the challenges of our time," even while acknowledging it's not a sufficient response. How do you think foundations can be most helpful during this economic crisis?

Paul Brest:
    Glad you asked. Hal Harvey and I have just written an op-ed on the subject for the Chronicle of Philanthropy, based on lessons from our recent book, Money Well Spent. http://philanthropy.com/news/updates/6160/how-grant-makers-should-respon

Question from hsien hong lin (Joe), Taiwanese, Kent State University:
    Hi, Paul, as I know, a wealthy foundation should have wealthier organizational regulations to control and to execute their donations, but your topic is to discuss how to spend wisely, so I can not catch your key point. Is there a difference between a hard time and a better time to spend donations?

Paul Brest:
    I don't think there's a fundamental difference. Funders who care about their resources being used most effectively, will follow the strategic approach that Hal and I outline in Money Well Spent in flush times as well as times like now. It's just that tough times make the need for focus even more evident.

Question from Josie, medium size nonprofit:
    Are we seeing any trends yet for salary increases or freezes in 2009?

Paul Brest:
    We haven't talked to enough of our grantees to be able to say yet. I can assure you, though, the Foundation is not micromanaging its grantees on issues like this.

Question from Michael Frohna, Health Foundation:
    We're experiencing that donors still have money, but they are lacking confidence. What are your thoughts about focusing on planned gifts at year end vs. out right gifts? Relative to confidence, how do you recommend we proceed in our attempts to remain a "promising investment"?

Paul Brest:
    The global panic seems to have reduced people's confidence in everything, unfortunately. This is an important time for high-performing nonprofit organizations to make this performance and the importance of their sustainability clear to donors.

Question from Alison, nonprofit:
    Do you read annual reports? Or are they a relic from a bygone era?

Paul Brest:
    I tend to read the president's summary, hoping that that encapsulates what's really important. The Hewlett Foundation has moved from a printed report to an on-line one, and we are now considering whether, if we're even more tranparent about our grantmaking during the year, our annual report might in effect be a link to other materials. Whether or not it's in the form of an annual report, increased transparency is important.

Peter Panepento (Moderator):
    A quick reminder as we approach the halfway point in today's discussion that participants today are eligible to enter a raffle to win a copy of Mr. Brest's new book. Send an e-mail to discussions@philanthropy.com before 1 p.m. Eastern time to qualify.

Question from Kate Lee, consultant at Corfilis :
    Paul - sometimes my clients get pushback when asking for sustaining funds (ie, the new word for operating funds). With the economic uncertainty, we're hearing this more and more. Keeping the lights on, the website running, etc are integral to the operations and ability to deliver services. Can you suggest some ways to convince donors that this is a wise investment?

Paul Brest:
    I completely agree with your point. Hal and I devote Chapter 7 of Money Well Spent to discussing Forms of Grant Funding, and argue for a presumption in favor of general operating support when the funders' goals are well-aligned with those of a grantee.

Question from Katie Gustafson, Conservation International:
    Can you tell us a bit more about the Hewlett Foundation's five year $100M/year commitment to address climate change? What are the strategies behind this? What approach are you taking in addressing climate change?

Paul Brest:
    We will have more available on the website soon, but essentially the approach has been based on a deep analysis of which sectors in which countries (e.g., transportion, building codes; US, China) one can most reduce greenhouse gases in the next 10-15 years to try to keep temperatures from rising more than 2 degrees. Most of the work involves disseminating best practices in these areas combined with efforts to change government and corporate policies and practices. The overall focus is on prevention rather than adaptation--though adaptation is also important.

Peter Panepento (Moderator):
    Great questions so far. If you want to have Mr. Brest answer your question, please click on the "ask a question" link on this page. Thanks.

Question from Tara Collins, Watershed Agricultural Council:
    When culling line items to accomodate for budget shortfalls, do you find certain program areas or expenses fair better than others for the short-term reduction? For example, I'm in charge of our outreach budget and have determined that we will reduce our print advertising for FY09 (but may pursue radio partnering as a better "bang for our buck"). I'm also reducing our annual report from 12 pages to 4 to cut print costs. Any other suggestions for maximizing outreach impact while cutting expenses?

Paul Brest:
    I think you have it just right. If administrative costs are justified (only) to the extent they contribute to impact, then that provides the key for reductions--though always taking into account the long term effects (e.g. in your staff's or grantees' morale and productivity) of reductions.

Question from Katie Gustafson, Conservation International:
    Do you think this economic downturn will inspire foundations to give more freely to fund organizations' core operating costs instead of restricting themselves to much to program grants? Access to unrestricted funding, as you know, can be the difference between life and death for an nonprofit, especially a small one -- do you think that foundations will realize this and recalculate their giving accordingly as organizations get more squeezed by the economy?

Paul Brest:
    I completely agree with the implication of the question. In Chapter 7 of Money Well Spent, we argue for a presumption favoring core operating support when the funder's mission is well-aligned with the grantee. We also offer some reasons why, unfortunately, this advice (which many others have given as well) is so often ignored.

Question from Janet, public university:
    Do you think foundation's will reconsider the wisdom of multi-year grants, given the stress these are causing on some grantmakers?

Paul Brest:
    I certainly hope not. Reliable multiyear grants are as important as general support. See MWS Ch 7

Question from Sandy, small nonprofit:
    Our organization is new to grant-seeking from foundations (we have traditionally raised money primarily from individual donors and government funds). What do you think is the best first step in establishing a relationship with a foundation?

Paul Brest:
    This depends so much on the foundation. For Hewlett, the key is understanding our programs' goals--posted on the website--and sending a letter of inquiry if there is a real chance that your work aligns with our goals. For others, it's knowing someone (or someone who knows someone) on the Board or staff. Sometimes both avenues work.

Question from Roberto Cremonini, Barr Foundation:
    Are mergers or going out of business the only options for small nonprofits or is there another way to show impact with less?

Paul Brest:
    I believe that the opportunity for small nonprofits to share "back office" functions has not been nearly as fully explored as it might. There are other possibilities for collaborations and joint ventures as well. But sharing backoffice functions may be lowest hanging fruit.

Question from Amber, Thurgood Marshall Academy:
    How often do you like to hear from your grantees and what kinds of materials do you like to receive (other than required reports)?

Paul Brest:
    At the time the Hewlett Foundation makes a grant, we develop an annual reporting format together with the grantee--esentially progess against agreed-upon indicators coupled with a short narrative capturing important developments, both good and bad. We are trying to move toward a report where we only ask for information that will improve our grantmaking.

Question from Amber, Thurgood Marshall Academy:
    How should a grant proposal look different now than it did before the economic crisis? What new items should we specifically address?

Paul Brest:
    A good proposal now, as before, describes the organization's goals, strategies, indicators of progress, and its capacity to carry out the necessary activities. Hal and I describe what we believe to be the essentials in Ch 5 of Money Well Spent.

Question from Megan Hawkes, Campus Crusade for Christ:
    Hi, Paul. Recognizing that this recession is different from others we've known, we never the less recognize a similarity between all downturns. Eventually, there is recovery! In light of where we are right now, where we will be in the immediate future, and looking at long term realities, what would you consider to be a non-profit's most intelligent utilization of resources: evaluating positions/expenses for the duration of the recession, intentionally improving donor relations (using various high-touch, low or non-ask strategies, thus improving donor long-term value), or working towards a strong presence in the organization's market segment to better positioned upon initiation of recovery?

Paul Brest:
    I particularly like your emphasis on the longer-range strategies. While you need to keep the organization up and running at a time of decreasing resources, this is an important time for planning and strenghtening donor relations as well. I was dean of Stanford Law School during a recessionary period, and donors who I paid attention to even though they couldn't afford much then remembered this when times got better.

Question from Martha, IJIS Institute:
    State and local governments are being especially hard hit due to declining tax revenues. As a result, it is increasingly difficult for law enforcement and fire service personnel to receive training and technical assistance. Are you aware of any foundations that will provide funding for training initiatives? thank you

Paul Brest:
    Unfortunately, the Hewlett Foundation doesn't work in this area and I don't know of foundations that will help with these critically important activities.

Question from Beth, medium nonprofit:
    On the subject of transparency, I wondered if you wanted to comment on what you see as a foundation's responsibility to communicate their intentions to their grantees - especially in today's economic climate. The Hewlett Foundation is one of the few foundations I've seen that has said anything about what the effects of the economic climate will be on their future grant making activities. I would hope that other foundations will be equally candid about their financial situations.

Paul Brest:
    Until perhaps the last week, and even then one can't be sure, many foundations probably haven't been sure about their own intentions. But, without being so uncertain as just to create more unease, I think it's essential that foundations let their grantees know at least what the 2009 budgets and grant practices will look like.

Question from Katie Gustafson, Conservation International:
    Thank you for your answer to my question about your climate change initiative. If I could drill down a little, can you give any reflections on whether the sectors your considering supporting are all technological (transport, alternative energies) or if conservation, particularly forest conservation, might have a role to play in this equation?

Paul Brest:
    We are collaborating with the Packard Foundation, among others, on this initiative, and Packard is bringing is great expertise on forest conservation to the table. This will be an important part of the overall initiative.

Question from Suzanne Robinson, US Green Building Council, LA chapter:
    What are the prospects for endowment building? How do you feel that the need for and possible trend of foundations narrowing the funding focus will have on this?

Paul Brest:
    I think of endowments as one among a number of funding tools. My own preference is to limit endowment support to institutions that have a very solid track record, and that have shown a strong business plan in which endowment, annual expendable gifts, capital gifts, etc. each plays an appropriate role.

Question from Wende Micco, development consultant:
     Paul, From where you sit and the wide-view conversations you have with peers the foundation sector nationally: what are the top 2-3 things would you like to see evolve (5-10 year time horizon) that would improve and leverage the partnership of nonprofits and foundations (+ government?)in achieving desired social and environmental change?

Paul Brest:
    I would like to see the evolution of a "nonprofit information marketplace," where organizations seeking funding are clear about their goals and strategies, how they plan to measure progress and success, and actual results achieved--and where foundations and individual donors demand this information as a matter of course. I'd like to see donors be clearer about their goals and strategies as well. And I'd like to see them adopt application procedures and reporting processe that have at least a large common core, so that grantees don't have to waste time providing the same information in multiple forms.

Peter Panepento (Moderator):
    I'll be drawing the names of our four book winners in four minutes. If you haven't yet entered, please send an email to discussions@philanthropy.com.

Question from Jeannette Archer-Simons, CFRE, Consultant:
    Mr. Brest, It seems as if this may be a good time for nonprofit capacity building - identifying effective partnerships and assessing internal organizational practices to improve results. Do you have any suggestions for nonprofits about seeking funding to become more effective in their outcomes.

Paul Brest:
    I agree. In collaboration with eight other California foundations, the Hewlett Foundation is currently drafting a plan to provide capacity-building assistance to minority-led and other community-based organizations in the State. The process of working on this project together has both confirmed how important capacity building can be to an organization's vitality and sustainability, and the unevenness of the resources available--especially in more rural parts of the state. I hope that the initiative will lead to a better inventory of these resources.

Question from Mary Zareen, nonprofit grant writer:
    What are your thoughts on providing a % of grants funded (say 1-2%) "bonus" as a way to compensate/incentivize grant writers to write and submit the best grants, and not simply be grant machines who are showing a lot of activity, but very low results? Thanks.

Paul Brest:
    In truth, I haven't thought about this before. But my first reaction is that the prize for a reall good grant proposal should be that the grant is awarded.

Question from Mort Sosna, Cornell University:
    Hi Paul, and greetings from an old friend! At my institution, and especially during these economically difficult times, I'm getting more and more pushback against Foundations' general policies on indirect costs. There is also a sense that, as foundations demand more in the way of accountability on the part of their grantees, the administrative costs associated with their grants has been incresing rapidly in recent years. As one who's been at both a major university as well as a major foundation, what is your current perspective on this?

Paul Brest:
    Hello Mort. I have always believed that foundations should pay just or reasonable indirect costs. Even for those who share this belief, different organizations use such diverse and sometimes inaccurate ways of accounting for them, that it's difficult for funders to know what they really are. Your question comes at a time when the Hewlett Foundation is trying to develop some foundation-wide standards for this. I'd appreciate any insights.

Question from Katie Gustafson, Conservation International:
    You have mentioned that you anticipate international funding getting less focus than domestic funding in the is economic climate. Can you give any sense of what that will mean for the Hewlett Foundation's priorities? Are there countries or regions you will be putting less focus on? Are there those in which you are committed to remaining strongly present?

Paul Brest:
    I wasn't describing the Hewlett Foundation, which has commitments in global development, population, education, and environment in India, Africa, and China among other places. None of this work is subordinate to our domestic policmaking. In each prorgam area, regardless of region, we're trying to ensure that somewhat fewer dollars have as much impact as possible.

Peter Panepento (Moderator):
    Before we sign off, I'd like to announce our raffle winners. They are: -- Lisa Ianello of the New York State Historical and Farmer's Museum in Cooperstown, N.Y.; -- Marie Patagonia of Family & Children's in Minneola, N.Y.; -- Martha Hill of the IJIS Institute in Ashburn, Va.; -- Marianne Harding of the Wilderness Society in Washington.

Peter Panepento (Moderator):
    They will each be mailed a free copy of Mr. Brest's new book, Money Well Spent.

Peter Panepento (Moderator):
    Thank you for joining us, everyone. It has been a fantastic discussion. Please mark your calendars for next Tuesday at noon Eastern time for our next discussion. We'll be taking questions on what the results of today's election mean for the nonprofit world. See you then.