Rev 3/25/18
Strategic Philanthropy and Impact Investing
GSBGEN 319-01
Spring 2017
Meets Tuesdays and Thursdays 3:00-4:20pm
Classroom: Class of 1968 #105
Ling Han (
[email protected]), Course Assistant
The course will be structured around the perspective of a foundation or a high net worth
individual who has decided to devote substantial resources to philanthropy and wishes to decide
which philanthropic goals to pursue and how best to achieve them. Although there are no formal
prerequisites for the course, we will assume that students have experience working at a
foundation, nonprofit organization, impact investing fund, or similar organization, or have taken
an introductory course in strategic philanthropy such as GSBGEN 381. Three to four classes—on
program strategy and evaluation—overlap with Paul Brest’s course, Problem Solving for Social
Change (GSBGEN 367).
We will explore selected topics including:
the roles of the philanthropic and nonprofit sectors in society
whether giving to the poor is morally obligatory or discretionary
choosing philanthropic goals
fundamentals of nonprofit strategy
designing performance metrics and measuring philanthropic impact
the justifications for tax-subsidized philanthropy
barriers to the practice of strategic philanthropy
risk-taking in grantmaking and endowment investing
scaling successful enterprises—opportunities and challenges
alternative legal and organizational structures to carry out philanthropic programs,
including donor-advised funds, direct giving, support organizations and foundations
whether foundations should be designed and run to exist in perpetuity or to spend down
corpus over a finite lifetime.
impact investing
Elements Used in Grading
Class participation 30%.
Coming to class having done the readings and prepared to discuss the discussion
questions
Participating actively in class discussions
Being a responsible member of your team for the team project
Not using cell phones or laptops during the class. The use of cell phones and laptops is
distracting, even demoralizing, to classmates, and there’s reasonably good evidence that
it’s not helpful to take notes on a laptop.
If you are unable to attend a class, please submit a brief essay commenting on the
materials for that class.
Individual assignments 30%
Team project 40%
In teams of 3-4, you will work on a project concerning any theme of the course in which you are
particularly interested. For example, it might include a case study of an impact investment; the
identification and development of a philanthropic strategy to be pursued by a wealthy individual;
a case study of an attempt to design metrics for and measure social impact for a philanthropic
project or program; a case study of a B Corporation; designing a pay-for-success project.
Contents
I. Introduction: The Challenges of Philanthropy ........................................................................... 4
Class #1 Thursday, April 5. Philanthropy in a Democratic Society ........................................... 4
Class #2. Tuesday, April 10. The Choice of Philanthropic Goals .............................................. 5
II. Fundamentals of Philanthropic and Nonprofit Strategy............................................................. 5
Class #3. Thursday, April 12. From Identifying the Problem to Describing Your Intended
Outcome ...................................................................................................................................... 6
Over the weekend ....................................................................................................................... 6
Class #4. Tuesday, April 17. Designing a strategy ..................................................................... 6
Class #5. Thursday, April 19. Advocating Policy Change ......................................................... 6
Class #6. Tuesday, April 24. Assessing Progress and Success .................................................. 7
III. Applications (and Limitations) of Outcome-Oriented Philanthropy ........................................ 7
Class #7. Tuesday, April 26. Generalizability and Scaling ....................................................... 7
A. The Problem of Generalizability..................................................................................... 7
B. Scaling Challenges .......................................................................................................... 8
Class #8. Tuesday, May 1. Tackling Large Problems Individually and Collectively ................ 8
2
Class #9. Thursday, May 3. Funding Fields and Movements ..................................................... 8
Class #10. Tuesday, May 8. Vehicles for Doing Philanthropy; Risk-taking in Philanthropy and
Endowment Management ........................................................................................................... 9
A. Vehicles for Doing Philanthropy .................................................................................... 9
B. Risk-taking in Philanthropy and Endowment Management .............................................. 9
Class #11. Thursday, May 10. The Path to Strategic Philanthropy and Barriers to its Practice . 9
Class #12. Tuesday, May 15. Give Now or Later? Give to Established Institutions or to Less-
Well-Established Institutions Focused on Solving Pressing Social Problems? ........................ 10
A. Giving Now or Later ..................................................................................................... 10
B. Gifts to Universities ...................................................................................................... 11
IV. Trade-offs (or Not) Between Financial and Social Impact: Impact Investing........................ 11
Class #13. Thursday May 17. Introduction to Impact Investing; Concessionary Investments. 11
A. Introduction to Impact Investing ................................................................................... 11
B. Concessionary Investments ........................................................................................... 11
Class #14. Tuesday, May 22. How Investors Can (and Can’t) Create Social Impact .............. 12
Class #15. Thursday, May 24. Promoting Sustainable Development Through Non-
concessionary Private Equity Funds ......................................................................................... 13
Class #16. Tuesday May 29. Measuring Impact, and Taking Stock of the Field ..................... 13
Class #17. Thursday, May 31. Student Presentations ............................................................... 13
Class #18. Tuesday, June 5. Student Presentations .................................................................. 13
Team Project ................................................................................................................................. 14
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I. INTRODUCTION: THE CHALLENGES OF PHILANTHROPY
Class #1 Thursday, April 5. Philanthropy in a Democratic Society
While much philanthropy involves small donations by people of modest net worth, high-net-
worth (HNW) donors, through foundations and other vehicles, have been criticized for exerting
undue influence on matters of public policy.
Readings:
Giving USA 2017 Highlights
Read online: http://nccs.urban.org/statistics/quickfacts.cfm
Megan Tomkins-Stange, Policy Patrons (2016)
Read online: Bill and Melinda Gates, 2018 Annual Letter, “The 10 Toughest Questions
We Get.”
Discussion questions:
What, if any problems, does philanthropy by HNW individuals and foundations present
in a democratic polity?
In Toward a Theory of the Voluntary Non-Profit Sector in a Three Sector Economy,1 the
economist Burton Weisbrod suggests that nonprofits serve as private producers of public
goods. As summarized by another major scholar of the sector:2
Governmental entities will tend to provide public goods only at the level that
satisfies the median voter; consequently there will be some residual unsatisfied
demand for public goods among those individuals whose taste for such goods is
greater than the median. Nonprofit organizations arise to meet this residual
demand by providing public goods in amounts supplemental to those provided by
governments.
Treating this as a theory of funders of the nonprofit sector (i.e., philanthropists), to what
extent does it provide a rationale for the role of philanthropy in a democratic polity?
How are problems of philanthropy in a democracy affected by adherence to the intent of
donors—especially dead ones.
The National Committee for Responsive Philanthropy, a progressive critic of mainstream
philanthropy, recommends that foundation boards have at least five members with
diverse perspectives and backgrounds.3 Assume that the modal foundation has 12 board
members. What are the pros and cons of the recommendation?
1
Reprinted in The Economics of Nonprofit Institutions, Susan Rose-Ackerman, ed. (New York:
Oxford University Press, 1986) pp. 21-44.
2
Henry Hansmann, Economic theories of nonprofit organizations. (1987) In W. W. Powell (Ed.),
The nonprofit sector: A research handbook (pp. 27-42).
3
http://www.ncrp.org/component/ixxocart/?p=product&id=49&parent=1
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Class #2. Tuesday, April 10. The Choice of Philanthropic Goals
Given a virtually infinite number of philanthropic goals, how can one go about selecting which
goals to pursue? What motivates altruism? Is it morally obligatory or a matter of moral
discretion? How can one decide which causes to support? What psychological forces promote
and limit altruism?
Readings:
Effective Altruism, Introduction to Effective Altruism
Case: Good Ventures: The Power of Informed Decisions
Alexa Culwell and Heather McLeod Grant, The Giving Code: Silicon Valley
Nonprofits and Philanthropy, Executive Summary (2016).
Discussion questions:
What are the objects of your own philanthropy, including volunteering, and why?
Suppose that your rich uncle’s will appoints you as trustee of $1 billion in charitable
funds to donate to the non-profit organizations of your choice. The will explicitly states:
“I want the trustee to make his or her own choices of what organizations pursuing what
charitable goals to give to, without any regard for what he or she believes my interests or
intentions to be.” How would you go about deciding what to give to?
Every philanthropist lives in a physical community. What, if any, moral obligations does
he or she have to give to organizations to improve the welfare of that community as
distinguished from supporting people deemed more in need?
II. FUNDAMENTALS OF PHILANTHROPIC AND NONPROFIT STRATEGY
This part of the course examines the fundamental elements of strategy that underlie virtually all
social programs, whether undertaken by government agencies or nonprofit organizations.
In preparation for class discussions, we will ask each of you to develop a strategy to solve a
social problem of interest to you—for example, addressing homelessness, drug addiction,
childhood obesity, energy conservation, animal rights, or whatever. If you don’t have a strategy
in mind, you might surf the Web to stimulate your imagination. But we suggest that you not use
an actual organization, since you will be asked to develop your own strategy, not adopt an
existing one.
Most of the readings for this part of the course will be from Paul Brest & Hal Harvey, Money
Well Spent (2nd ed.)—hereafter MWS. The assignments will be based on the section at the end of
each chapter, “Application to Your Own Philanthropy,” which we will also provide in a Word
document.
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Class #3. Thursday, April 12. From Identifying the Problem to Describing Your Intended
Outcome
You will identify the problem, the beneficiaries of your solution, the causes of the problem, your
approach to a solution, and your intended outcome.
Reading:
MWS, Chapters 2-3 (“Problem Analysis” and “Developing Solutions”)
Assignment:
Submit online before class, and bring to class one printed copy of your answers to
share with a group of classmates:
o Application to Your Own Philanthropy. Questions ##1-6 (not #7)
Over the weekend
We suggest that you do the readings and assignments for both next Tuesday and
Thursday, because there’s little time to do Thursday’s assignment between the end of
class on Tuesday and the class on Thursday.
Class #4. Tuesday, April 17. Designing a strategy
You will design a strategy to achieve your intended outcome, and sketch of a plan to implement
the strategy
Reading:
MWS, Chapter 4 (“From Theory to Action”)
Assignment:
Submit online before class, and bring to class one printed copy of your answers
Application to Your Own Philanthropy. Chapter 3. Question #7
Application to Your Own Philanthropy. Chapter 4. Questions ##8-10
Class #5. Thursday, April 19. Advocating Policy Change
Service-delivery programs are relatively low risk. An effective workforce development program
is as likely to work this year as last. But philanthropists are increasingly support high-risk
strategies, where the likelihood of success may be low but, if they succeed, the social impact is
high. When, if at all, is it appropriate for a foundation to engage in policy advocacy? To what
extent do the tools developed thus far in the course help develop strategies for advocacy, and
what are their limitations? We will discuss these issues with Hal Harvey, an expert advocate on
environmental and climate policy issues.
Readings:
MWS, Ch 15. “Advocacy”
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Guest: Hal Harvey, Energy Innovation
Class #6. Tuesday, April 24. Assessing Progress and Success
You will design a plan for getting feedback as you implement your strategy, and consider how to
determine whether your program had impact—whether it actually made a positive difference in
the lives of its intended beneficiaries.
Reading:
MWS, Chapter 5 (“Evaluating the Impact of Your Philanthropy”)
Assignment:
Submit online before class, and bring to class one printed copy of your answers
o Application to Your Own Philanthropy. Chapter 4, Question #11
o Application to Your Own Philanthropy. Chapter 5, Questions ##12-13
Assignment: Be prepared to explain in class:
Correlation vs. causation
The concept of the “counterfactual”
The value and limitations of these methods of evaluation: (1) before/after, (2) matching,
and (3) randomized controlled trials
Statistical significance
Practical significance
How you would evaluate your own program
III. APPLICATIONS (AND LIMITATIONS) OF OUTCOME-ORIENTED PHILANTHROPY
Class #7. Tuesday, April 26. Generalizability and Scaling
We look at the problem of replicating or scaling a social program from the perspectives of
evaluation and organizational considerations.
Readings:
Case: Edna McConnell Clark Foundation
Browse online: Blue Meridian Partners
Video:
Nancy Roob’s TEDx Talk
A. The Problem of Generalizability
Online class:
Work through the section on generalizability
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Submit online before class, and bring to class one printed copy of your answers.
o Application to Your Own Philanthropy. Question 12.
B. Scaling Challenges
Discussion questions:
What problems might one encounter when replicating or scaling in rural areas of Santa Clara
County a homelessness program that worked in San Jose, California?
What lessons can be learned from the experience of the Edna McConnell Clark Foundation
(EMCF) in scaling and replicating programs?
What are the advantages and challenges of aggregating capital along the lines of EMCF’s
Blue Meridian Partners project?
Class #8. Tuesday, May 1. Tackling Large Problems Individually and Collectively
In this class, we examine large-scale initiatives funded primarily by individual wealthy
philanthropists, and collaborative efforts, typically by foundations, that aggregate funds and
expertise to achieve shared goals.
With respect to individual efforts, we look at the Bridgespan Group’s encomium to big bets, and
a critique of it. With respect to collaboration, we examine grantmaking by the Brin Wojcicki
Foundation with our guest George Pavlov, who manages Sergey Brin’s family office.
Readings:
William Foster et al, Making Big Bets for Social Change (2006)
Larry Kramer, Against Big Bets (2017)
Discussion question:
A major advisory firm encourages HNW donors to launch their own major projects.
Under what circumstances would you advise someone to do, or not to do, that?
Guest:
George Pavlov, Bayshore Global Management
Class #9. Thursday, May 3. Funding Fields and Movements
As described in the last section of Brest & Harvey’s chapter on Advocacy, philanthropy has
played an important role in funding the development of some fields and social movements,
including the evolution of neoliberalism associated with economists like Friedrich Hayek and
Milton Friedman. Here, with Larry Kramer, president of the William and Flora Hewlett
Foundation, we will examine the Foundation’s idea of supporting the development of a post-
neoliberalism framework.
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Readings
Hanauer & Beinhocker, Capitalism Redefined
Larry Kramer, Beyond Neoliberalism [to be distributed]
Guest: Larry Kramer, Hewlett Foundation
Class #10. Tuesday, May 8. Vehicles for Doing Philanthropy; Risk-taking in Philanthropy
and Endowment Management
Readings:
MWS, Chapter 16, “Structures for Doing Philanthropy”
Michael Porter and Mark Kramer, Philanthropy’s New Agenda: Creating Value
The Ebola Pandemic Problem
A. Vehicles for Doing Philanthropy
We will survey the various vehicles for giving, including foundations, checkbooks, donor
advised funds, community foundations, giving circles, 501(c)(4)s, and LLCs. Why would
donors choose one form rather than another in terms of philanthropic impact, tax
planning, family-related interests, and other purposes?
Discussion question:
Foundations add considerable administrative costs to funds flowing to the nonprofit
sector. How would you determine whether the benefits added by a particular foundation
exceeded its operating costs?
B. Risk-taking in Philanthropy and Endowment Management
As discussed in the class on advocacy, foundations sometimes support high-risk
strategies, where the likelihood of success may be low but, if they succeed, the social
return is high. How should a foundation assess a proposed risky strategy?
Discussion questions:
If you had to commit all of the Against Ebola Foundation’s funds either to protective
suits or vaccine development, which would you choose and why?
Is it consistent for a foundation that is willing to take significant risks in its grant-making
to exhibit significant risk aversion (at the sacrifice of expected financial return) in
managing its endowment?
Class #11. Thursday, May 10. The Path to Strategic Philanthropy and Barriers to its
Practice
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In addition to the essentials of strategy considered in Part II, there are other practices that are
conducive to good grant-making. We ask why many individual donors and even foundations do
not adhere to them. We then examine the Raikes Foundation’s efforts to promote effective
philanthropy by HNW donors, including through a project carried out by the Effective
Philanthropy Lab at the Stanford Center on Philanthropy and Civil Society.
Readings:
MWS, Chapter 9. “Forms of Philanthropic Engagement and Funding”
Browse Giving Compass
Impact-Driven Philanthropy (IDPI) Principles
Discussion question:
Identify 2-3 IDPI principles that are particularly important to the practice of responsible
and effective philanthropy, and describe the barriers to philanthropists’ acting according
to them.
Guest: Jeff Raikes, Raikes Foundation
Class #12. Tuesday, May 15. Give Now or Later? Give to Established Institutions or to
Less-Well-Established Institutions Focused on Solving Pressing Social Problems?
Readings:
MWS, Ch. 17, “Principal and Principle: Foundation Spending Policies”
Refresh your memory about Effective Altruism, Introduction to Effective Altruism from
class #2
Read online: David Callahan, Gifts to Universities
Read online: Knight-Hennessy Scholars. Read about the program and its benefactors
online.
A. Giving Now or Later
When is it more effective to give money today than to accumulate the income and make
grants at a later date? Many foundations plan to exist in perpetuity, paying out only the
minimum 5 percent of their endowment required by the Internal Revenue Code to
maintain their exempt status ― though an increasing number seem to be spending down
during the life of their donors, or soon afterwards. The question is also salient for HNW
individual philanthropists.
Discussion question
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Should foundations and donor-advised funds spend down their assets while their donors
are alive (or soon afterwards) or exist in perpetuity?
B. Gifts to Universities
What are the pros and cons of making a large gift to a university? If you were the
President of Stanford University, how would you respond to the argument that Stanford is
rich enough and doesn’t need more charitable gifts? Our guests, Martin Shell and Howie
Pearson, senior members of Stanford’s Office of Development, will help discuss these
and other questions.
Guests:
Martin Shell, Vice President for Development, Stanford University
Howie Pearson, Sr. Philanthropic Advisor and Development Legal Counsel, Stanford
University
IV. TRADE-OFFS (OR NOT) BETWEEN FINANCIAL AND SOCIAL IMPACT: IMPACT INVESTING
Class #13. Thursday May 17. Introduction to Impact Investing; Concessionary Investments
This class introduces the practice of impact investing and proposes a framework for assessing
impact. We then look at how investors assess the impact of their investees—not an essentially
different task from assessing the impact of organizations supported by conventional
philanthropy.
Readings:
Paul Brest & Kelly Born, When Can Impact Investing Have Real Impact? (comments
optional)
Paul Brest, Investing for Impact with Program-Related Investments A report on strategic
investing at the Bill & Melinda Gates Foundation
Other discussion question:
A. Introduction to Impact Investing
Discussion question:
Be prepared to explain the difference between enterprise impact and investment impact,
and the various ways in which those impacts may occur.
B. Concessionary Investments
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An enterprise’s or sector’s development may require different kinds of investments at
different stages. Program-related investments (PRIs) almost always provide investees
with a degrees of subsidy at sacrifice to expected risk-adjusted market-rate returns.
Subsidies can build infrastructure, support nascent enterprises, and provide system-wide
redistribution, but they can also distort markets. We examine the Gates Foundation’s
framework and processes for making impact investments, which reflect a keen awareness
of these phenomena.
Discussion questions:
Could the Foundation achieve all of its goals through grants alone rather than grants plus
PRIs?
How, and how well, does the Gates Foundation manage PRIs so as to achieve its social
mission and protect its balance sheet?
Guest: David Rossow, Senior Investment Officer, Gates Foundation
Class #14. Tuesday, May 22. How Investors Can (and Can’t) Create Social Impact
Some foundations invest their endowments solely to achieve financial objectives, leaving it to
their grantmaking budgets to pursue social objectives. Some foundations draw on their
endowments to (1) make mission-related investments (MRIs) that seek market-rate returns by
investing in companies whose products and behaviors are consistent with the foundation’s
values; or (2) make program-related investments (PRIs), which expect below expected risk-
adjusted market-rate returns. In this class, we present a framework for examining the social
impact of these investments and focus on MRIs.
Readings:
Paul Brest, Ronald Gilson, and Mark Wolfson, How Investors Can (and Can’t) Create
Social Impact
Case: Heron Foundation
Discussion questions:
Assess Heron’s strategy of employing 100% of endowment funds “for mission?”
When can MRIs have affirmative impact?
Might foundations’ reputations suffer from investing in companies whose products or
behaviors are at odds with the foundations’ missions—and what difference might that
make?
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Class #15. Thursday, May 24. Promoting Sustainable Development Through Non-
concessionary Private Equity Funds
In TPG’s own words, TPG Growth “was founded in 2007 to specialize in growth equity and
middle-market buyout opportunities. Taking a long-term and hands-on approach to partnership,
we … assist at all stages of a company’s growth, from its inception to its international expansion,
by drawing on our geography-specific experience and expert global operational resources from
the TPG platforms.” TPG’s new Rise Fund “is committed to achieving social and environmental
impact alongside competitive financial returns.” It is one of a number of new private equity
funds addressing global poverty and environment problems through non-concessionary
investments. Our guest, Bill McGlashan, is the managing partner of TPG Growth and a major
force in the development of Rise.
Discussion questions:
How can TPG Rise measure the social and environmental impact of the enterprises in
which it invests?
How can TPG Rise measure the impact, or additionality, of its investments—that is, its
contribution to its investees’ social and environmental impact?
Should an impact fund manager’s compensation be based on achieving social impact as
well as financial returns? In any event, how would you determine social impact?
Guest: Bill McGlashan, TPG Rise Fund
Class #16. Tuesday May 29. Measuring Impact, and Taking Stock of the Field
Our guest, Brian Trelstad, who was chief investment officer at Acumen Fund, and now a partner
at Bridges Fund Management, is an expert in the field of impact investing. He will discuss
Bridges’ Impact Management Project and the state of the field of impact investing more
generally.
Readings:
Bridges Fund Management, Impact Management Project
Mike McCreless, Toward the Efficient Impact Frontier
Guest: Brian Trelstad, Bridges Fund Management
Class #17. Thursday, May 31. Student Presentations
Class #18. Tuesday, June 5. Student Presentations
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TEAM PROJECT
We will ask you to form teams of 3-4 students to work on a project concerning any theme of the
course in which you are particularly interested. For example, it might include a case study of an
impact investment; the identification and development of a philanthropic strategy to be pursued
by a wealthy individual; a case study of an attempt to design metrics for and measure social
impact for a philanthropic project or program; a case study of a B Corporation; designing a social
impact bond.
Wednesday, April 25. Submit list of team members (Canvas)
Friday, May 4. Propose Team Projects to Paul, Mark, and Ling
Sunday, May 13. Submit 1 page team proposals (Canvas)
Thursday, May 24. Submit preliminary drafts of papers (Canvas)
Thursday, May 31. Selected team presentations (in class)
Tuesday, June 5. Selected team presentations, continued (in class)
Friday, June 8. Final papers due (Canvas) by 5 pm. A typical paper will be 8-12 single
spaced pages long, excluding exhibits. Please submit in Microsoft Word if you would
like comments.
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