Why foundations should embrace radical transparency

Philanthropy is a "black box," writes David Callahan, the founder and editor of Inside Philanthropy. "If you don't think philanthropy is maddeningly opaque, it's because you're deep inside the sector."He's exaggerating, but not by much. Some foundations don't disclose their donors. All are required by law to report on their grants, but many are slow to do so. Finally, there's scant information about the most important question of all: How effective are foundations when they spend their money?Foundations would do well to become radically more transparent and accountable, not merely for their own sake, but to set an example for the nonprofits they fund. After all, if foundations, with their influence, deep pockets and professional staff, don't demand more transparency and accountability from nonprofits, who will? They are key to unlocking the immense potential of the nonprofit sector.These issues are my mind because I moderated a conversation last week called Meeting the Transparency Challenge. Joining me were communications executives Allyson Burns of the Case Foundation; Jeremy Hillman, currently of the World Bank, formerly of the Gates Foundation; and Joanne Krell of the Kellogg Foundation. Paul Massey, who advises foundations and nonprofits as leader of the "social impact" team at Weber Shandwick, a Washington communications firm, arranged the event.The discussion was timely. Issues of transparency and accountability, which go hand-in-hand, are very much in the news these days, and not in a happy way. Fraudulent cancer charities have made headlines. An NPR/Pro Publica investigation suggests that the American Red Cross wasted a fortune in Haiti. The Clinton Foundation is under a microscope, sometimes for good reason. A new book spotlights dubious practices at the Hershey Trust.All this threatens to undermine the trust that people place in foundations and nonprofits, at a time when, ironically, foundations are becoming more transparent and accountable. This is the encouraging part of the story. The Center for Effective Philanthropy does outstanding work, surveying donors and staff to deliver feedback to foundations. Philamplify.org analyzes grantmaking, albeit on a limited scale. GlassPockets, an initiative of the Foundation Center, encourages foundations "to tell the story of what they do, why they do it, and what difference it makes" because "foundations use private wealth to serve the public good for which they receive a tax exemption in return," as Brad Smith, the president of the Foundation Center, wrote back in 2010.But much remains to be done. Consider the Kellogg Foundation, a model of transparency. Recently, the foundation invested about $500,000 to revamp its website, which now provides an easily searchable and up-to-date database of its grants. It uses the assessment tools offered by the Center for Effective Philanthropy, so it can learn from what staff and grantees are saying. "It's sometimes hard to hear it, but you have to get that feedback," Kellogg's Joanne Krell said.By contrast, the Case Foundation -- whose backers, Steve and Jean Case, made their fortune at America Online -- didn't have a website until 2005, eight years after they got it started. Even today, the foundation doesn't list grants online; the most recent 990 form (an IRS form that nonprofits must file) that I could find online covered 2013. The foundation's Allie Burns, to her credit, said: "We have a lot of work to do in terms of being more transparent."The Case Foundation, as it happens, has an initiative called Revolutionizing Philanthropy and a campaign called Be Fearless that encourages foundations and nonprofits "to be bold, act with urgency and embrace risks with potential to produce exponential social returns. " Allie Burns contrasted foundations and nonprofits, which she described as "super crappy when it comes to talking about failure," with startups, which embrace failure as a way to learn."The faster we fail," she said, "the better off we will get at moving on to something that's more successful."The Case Foundation learned that lesson the hard way. With much fanfare--involving Bill Clinton, former First Lady Laura Bush, MTV, Jay-Z, Save the Children and others--the foundation invested $5 million in the PlayPump, a technology designed to bring clean water to African villages by having children play on merry-go-rounds. It flopped, which the foundation ultimately acknowledged, sort of, after reporter Amy Costello, then of PBS Frontline, now of TinySpark, began investigating for a television report.In a 2012 blogpost, Jean Case, the foundation's chief executive, wrote:

It sometimes feels like philanthropic efforts are held to a different standard than in the private or public sectors. All too often there is less tolerance for mistakes, which leads many organizations to become risk-averse. And when mistakes are made, the tendency is to sweep them under the carpet – thus depriving the sector of important lessons learned. But in reality, the very nature of innovation requires that we try new things and take risks....If the philanthropic sector is transparent about mistakes and lessons along the way, and adapts as the situation calls for, hopefully we’ll all end up a little wiser and a little closer to solutions that can more effectively address the daunting challenges of our day.

True enough.So here's a modest proposal for the Case Foundation, the Kellogg Foundation and every other foundation that wants to "be fearless." Don't just publish a list of grants on your website. Publish your evaluations of every grant and grantee, for better or worse. (Assuming, that is, that foundations evaluate their grants.) Tell the world how you define and measure success. Explain what worked, what didn't and why.This could have a big impact. So much would be learned. And, ultimately, radical transparency will help steer more resources, from foundations and individuals alike, to high-performing nonprofits.Some foundations and nonprofits will be scared by this idea. As Kellogg's Joanne Krell said during our panel: "People don't want to admit failure because they want to continue to get funded." But public companies disclose their earnings quarterly, and most big companies also report on their social and environmental impact as well. It's no fun to admit that a new product has failed, or that a new strategy didn't deliver as promised. But, as the Case Foundation says: "It's time to ignite a more fearless approach to changemaking—one that requires taking risks, being bold and failing forward."A few nonprofits are setting a high bar when it comes to openness. Take a look at the exhaustive our shortcomings page at GiveWell, which logs "mistakes we've made, strategies we should have planned and executed differently, and lessons we've learned," or the mistakes page at much-smaller Animal Charity Evaluators. These organizations, which are part of the Effective Altruism movement, go much farther than most when it comes to radical transparency.Who will follow?