The following is the transcript of a conversation between Bradford K. Smith, president of Foundation Center, and Denver Frederick, host of "The Business of Giving." In their conversation, which aired September 18, Frederick and Smith talked about the next frontier of philanthropy — managing information and producing and sharing knowledge. The transcript has been lightly edited for length and clarity. "The Business of Giving" can be heard every Sunday evening between 6:00 and 7:00 p.m. on AM 970 The Answer in New York City and on I Heart Radio. For an audio version (running time: 45:38) of Denver and Brad's chat, hop on over to the BofG site.
Denver Frederick: The rate of change is increasing in every field of endeavor, including philanthropy. And in order to be a true leader in the field, a person can't be 100 percent consumed with just the well-being and state of their own organization; one also must leave some space and time to contemplate what all these changes mean for the entire sector. One individual that fits that description perfectly is my next guest. He is Bradford K. Smith, president and CEO of the Foundation Center. Good evening, Brad, and welcome back to the Business of Giving.
Bradford K. Smith: It's great to be back.
DF: For those listeners that are not familiar with the Foundation Center, tell us about the work you do.
BKS: I think the easiest way to understand us is what Bloomberg does for the financial markets, we do for philanthropy! Basically, we publish data and information about the transaction of philanthropy. In other words, these endowed foundations that make grants to support organizations in the social sector to make the world a better place — we track all that information. We put it out there in an unbiased way so that you can search it; you can find it; you can understand who's funding your cause, who's not funding your cause, what foundations are doing, and what they're not doing.
DF: Let's talk about foundations for a moment. When we look at philanthropy in the U.S., last year about $375 billion was made in contributions. What percentage of that comes from foundations?
BKS: It's roughly 16 to 17 percent, and this is a common misunderstanding. A lot of people look at nonprofits in America, and they assume that their larger supporters are wealthy foundations and maybe individuals. But the largest source of income for American nonprofits in the aggregate is actually government. Foundation money is very important because it's one of the few sources of income that nonprofits have that usually is not earmarked; it's very flexible.
DF: Well, let's talk a little bit more about that. I think foundations are pretty abstract to most people. It's kind of a big idea out there, and I think you have a wonderful way of explaining it by talking about the sources of influence that they hold. There are three of them, and let's pick up on each. I'm going to start with the one you just mentioned. The one that is obvious to everybody: money. But as you say, it's a very special kind of money, right?
BKS: Correct. Foundations have a really important role in American history and American society. Basically, our government has created a kind of social pact in which wealthy individuals are given a tax incentive for creating a charitable foundation. They make a donation of a portion of their assets to the foundation. They no longer control those assets. They can't take them back for personal use. They get a tax exemption in exchange for creating a stream of charitable giving in the future. Now, there are a lot of ways to look at the size of the philanthropic sector in the U.S. There are a lot of foundations. I know when the Foundation Center was created in 1956, there weren't near as many. In fact, when the Foundation Center published the first print directory of American foundations, there were about four thousand foundations. And today there are well over eighty thousand foundations. And the assets they manage — their investments — surpass $800 billion. And it's the earnings on those investments, which are tax-free, that are used to actually fund grants and fulfill their charitable purpose.
DF: Right. The second source of influence that foundations have is "convening power."
BKS: Well, there are not a whole lot of people in this world whose job is to give away money. And people always were sort of perplexed about that. They said: "Gosh, how do you find the organizations to be worthy of getting the support of the foundation?" And I used to tell them: "Look, when you are in the business of giving away money, you don't have to go looking for people; they find you." So, one of the things that gives a foundation virtually a seat at any table is the fact that they're giving away money.
And the other thing is, they're giving away money that, unlike congressional money or city money, isn't earmarked by elected officials for their pet causes. It's very flexible, long-term, risk-taking money. But this also gives them the ability to "convene." And we find that the foundations that are having the greatest impact on the issues that are working — whether it's criminal justice reform, or climate change, or job creation — are not just giving away grants in a retail kind of way. They're actually creating tables to which policy makers, academics, activists, and others can come and really think about what the long-term solutions are to these serious problems that our society and world face.
DF: And it would seem, in an era of collaboration, they do have that special role. They don't have a dog in the fight; they're neutral….
DF: They give money away, and they have an incredible ability to get everybody to come when they call a meeting.
BKS: Yeah. When I worked with the Ford Foundation, the two jokes they always tell you when you start to work there is that all your phone calls get returned. And immediately, it seems like all of your ideas are brilliant.
DF: That's right, and you also become a little funnier and better looking, too.
BKS: That's right. Two of the perks.
DF: And finally, and this is so important: the accumulated knowledge that foundations hold. Speak to that.
BKS: I think this is really the frontier for foundations. Roughly, I think we can say that — and I know you've had a lot of speakers come on this program — foundations have moved from the notion of just giving away money, a charity approach, to what a lot people call social investment. The idea that even though you're making a grant, you're investing in a solution, and you're expecting return in the form of impact.
But another way to look at foundations is — I gave a presentation on this recently, and I said: "When it comes to knowledge and information, foundations are like black holes, and they need to become supernovas."
So what do I mean by that? The average foundation receives hundreds, if not thousands, of proposals from nonprofit organizations — different kinds of social sector organizations filled with ideas about how to make the neighborhood, the community, the city, and the world a better place. Some portion of those get approved. As part of the process, the groups that get the grants provide written reports periodically — progress reports — full of information also. Then there's also the foundation staff themselves. When you’re sitting in a foundation, let's say you're working on early childhood issues, on any given day you probably talk to four or five different people who are the best in their field, who have fantastic ideas about how to solve all the issues around early childhood learning. And you accumulate all that knowledge; that knowledge is in your head; it's in your notes; it's on your hard drive. All these documentations are flowing in to foundations. If we weren't philanthropy — if we were Google or we were Facebook — we would have data scientists crawling all over that stuff!
DF: Tagging everything.
BKS: Tagging everything, looking for correlations, trying to extract [information]. This is a tremendous source of potential knowledge about how we can make this world a better place. And I think the next frontier for philanthropy is going to be managing information, and producing and sharing knowledge.
DF: Let's talk a little bit about that frontier. A few years ago, the Foundation Center launched a site called Glasspockets. The tagline was: "Bringing transparency to the world of philanthropy." And, when it comes to the world of foundation transparency, there is a [recent] development which you believe will have a profound effect: the machine-readable 990. Tell us what that is. And what is the significance of it?
BKS: I think that phrase, "machine-readable 990s" — if we went out onto Broadway here and we asked a bunch of people what they think about machine-readable 990s, we'd get a lot of blank stares.
First of all, the whole notion of transparency is in the DNA of the Foundation Center. We were created during McCarthyism when foundations were being investigated for support of un-American activities. And a group of foundation leaders felt that the best way to deal with that kind of suspicion was to create a public information service about philanthropy. And part of that is, we're not an advocacy organization; we're not a membership organization. We're neutral.
But there is one thing we advocate for, and that is transparency; that's why we were created. And in fact, the name of the site, Glasspockets.org, comes from a quote that was used at the founding of the Foundation Center. "We think foundations should have 'glass pockets'." That was coined by the chair of the Carnegie Foundation board at the time. So we've been promoting foundation transparency. And for years, the tax return that foundations file, which is called a 990-PF — it's what endowed foundations file in exchange for their tax exemption — has been open information. What that means, or what it has meant until very recently, is that that document, if you request it, should be available from the foundation itself and available from the Internal Revenue Service.
Now, what a lot of people don't understand is that those documents, or some portion of them, are filed electronically online by foundations. But many of them are still filed in written form —
DF: The old-fashioned way...
BKS: — and some of them — because we see this all the time — are still filled out in pencil. But until very recently, regardless of how they were filled out, the Internal Revenue Service was fulfilling its public information requirement by making them available as image files, something called a .tiff file. Probably the easiest way for people to understand it is that it's just like a .pdf.
But even if you file it digitally, anybody who requests it essentially gets a picture of it. Now if you've ever tried to edit a .pdf, or do anything with a .pdf — you can't do anything with it, right? It's not like a Word document. It's not digital. It's a picture; it's like a photograph. So, we and GuideStar and other organizations that work a lot with these tax returns in order to get information from them, basically had to create a pretty significant infrastructure to try to extract data from these documents — which is largely a manual process. But as of just a few months ago, the Internal Revenue Service surprised everyone by releasing all the tax returns — the 990-PFs that have been digitally filed — as machine-readable open data.
So, what is machine-readable open data? What that means is, it's actually released in a form where it can be automatically harvested by a computer with no human intervention. Basically, if you think of the computer as like a vacuum cleaner — it sucks in all the information, and then using algorithms and other kinds of computer programs, you can manipulate and begin to do all sorts of things with that information. All of a sudden, the barriers to actually creating something useful out of information have been drastically lowered and made much cheaper.