I. Executive Summary

Charitable foundations justly take pride in the good works they enable. But what does it mean for a foundation to perform well? And how can its performance be measured? These are the difficult question we posed during the autumn of 2001 to 74 foundation executives, CEOs and expert observers of philanthropy.

Evaluation of specific grants, or even clusters of grants, has become a widely utilized practice, and many respondents began by discussing this type of program evaluation. But our focus was different: we wanted to understand how the CEOs of large, complex foundations define success, and what information they track to determine whether their organizations are making progress.

Our interviews were the first step in the Center for Effective Philanthropy's eighth-month Foundation Performance Metrics Pilot Study, scheduled to conclude in the spring of 2002. Early on, we recognized that what we were hearing deserved a wider audience, and we set out to distill our notes into a synthesis that would further the lively debate already underway. This document, therefore, represents a beginning in the Center's research efforts, not an end: it is a working document, designed to extend our conversations to a larger audience, stimulate feedback, and help us frame our continuing research. Throughout this paper, we have tried to be faithful to the interviews we conducted, using the language of those with whom we spoke wherever possible.

Our conversations centered around 18 CEOs, most from among the 100 largest private foundations in the country. As our discussions made clear, many of these CEOs are already wrestling with the dilemmas of measuring foundation performance, but each is doing so alone, or at most with informal support from colleagues.

From these discussions, an important finding emerged: the elements of a common vocabulary regarding foundation-wide performance measurements exist, but are scattered. Various foundations have implemented discrete measures, but none has yet put them all together into a comprehensive framework. Each interview reflected different words and different emphases, yet several overarching themes consistently emerged.

We found that CEOs judge their foundations' performance on three interrelated activities. In order of priority, they are:

Achieving Impact: Making progress toward the foundation's goals and delivering results.

Setting the Agenda: Defining the foundation's fields of interest, specific goals, and overall approach to its work.

Managing Operations: Monitoring internal processes and managing the foundation's human and financial resources.

With in each of these activities, CEOs cited a few specific quantitative and qualitative measures, listed in the chart on page 4, to assess foundation performance. Each CEO tracks some of these measures, although no one currently uses them all.

The first category, "Achieving Impact," is acknowledged to be both the most important and the most difficult to measure. CEOs, therefore, use measures within the other two categories as a means to the first--accepting the inference that a well--managed organization with clear goals is likely to achieve greater impact.

Only two measures seem to be tracked universally: investment performance and the ratio of administrative expenses to assets. Such easily quantified and comparative data seem to receive the most attention. Unfortunately, these measures are widely perceived as having only a remote connection, if any, to the foundation's achievement of impact--and this was frequently mentioned by CEOs as a cause for concern.

In fact, a number of measures currently in use were described as inconsistent, strategically unimportant, and even potentially misleading. Many CEOs expressed the desire to create a more reliable vocabulary of foundation performance metrics with comparative data collected across different foundations. In particular, CEOs sought measures that would be

• Comprehensive;
• Repeatable over time;
• Comparable to other foundations (when relevant); and
• Simple, timely and inexpensive to use.

Some interviewees, to be sure, expressed concern about the idea of adding any new measures of foundation performance at all, questioning whether they could ever be constructive and accurate. A cautionary note was often sounded that such measures might become "blunt instruments" that would distort foundation behavior and decision-making. Many stressed that not all measures would be relevant for all foundations, nor would there necessarily be consistency in the conception of a "good" result on any particular measure. Indeed, for measurement to be meaningful, it must be connected to the strategy of the foundation, and because strategies vary, so too will the measures used.