Foundations don’t practice what they preach

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by Stephen Viederman
Philanthropic foundations are like old-fashioned slot machines. They have one arm and are known for their occasional payout.

Although the term “mission-related investing” found its way into the lexicon of philanthropy decades ago, the finance committees of most foundations continue to manage their endowments like investment bankers. Their portfolios give no hint that they are institutions whose purpose is the public benefit. There is a chasm between mission – grantmaking – and investment. The logic of a synergy between the two has yet to take hold.

For example, number of reports circulated in the US and the UK in the last few years laid out ways that foundations can “win the war on climate.” The focus was entirely on grantmaking. None made any reference to the various ways that assets could be used to add value to their grantmaking.

My op-ed in the Chronicle of Philanthropy, pointing out the ways that assets could help “win the war” went unanswered by the authors of the reports and by foundations. Among the 25 biggest climate funders, very few have climate investments, and only one –the Jessie Smith Noyes Foundation is an active shareowner on climate issues.

US philanthropy is a big enterprise with over $500 billion in assets. Unfortunately share ownership is not taken seriously. Investing to avoid predictable and preventable surprises is smart investing. Voting proxies and filing resolutions is an ownership obligation rarely exercised.

What I’m calling the Bermuda Triangle of foundation investing seems to swallow up discussions of assets as an instrument of change. On one side of the triangle is the board and investment committee; the second is the investment office; and the third is the consultant. Their views on finance, formed in the same business schools, see reality – the world as it is – as an externality, and intangible. Water availability and utilization, climate change, human rights, working conditions, diversity on boards are issues not factored into their investment decisions, which are made for the short-term, as if the future did not matter. In the foundation setting, as in their day jobs, their awareness is bounded by what they have learned with few incentives to change.

Little time is spent exploring new ideas, leading to what has been called “willful blindness.” And yet these same people after work and on weekends are often very eleemosynary, devoting their time and money to organizations seeking to remedy these issues. Vocation and avocation are split, as demonstrated by the philanthropy of Bill Gates and Warren Buffet. [Note from Marc: The LA Times highlighted the issue with respect to Gates in 2007. See Dark cloud over good works of Gates Foundation.)

Within the triangle outdated views of fiduciary duty prevail. The myth that mission-related investments will underperform remains pervasive. Maximizing alpha, the old-fashioned way, takes precedence over benefit to meet the public good, and to harmonizing investments and grantmaking.  In fact, these are complementary not conflicting activities. Michael Jensen and his colleagues at the Harvard Business School are studying organizational integrity, “that group’s or organization’s word being whole and complete.” The concept incorporates morality, ethics, and legality. Their model “reveals a causal link between integrity and increased performance, in whatever way one chooses to define performance (for example, quality of life, or value-creation for all entities).”

As president of the Jessie Smith Noyes Foundation in the early 90s I worked with my board to “reduce the dissonance” between our grantmaking and our asset management. We screened our portfolio, which was state-of-the-art at the time; filed a shareowner resolution with Intel in support of our grantee, the South West Organizing Project, as well as with other companies on environmental issues; voted all our proxies; and had our own social venture capital partnership seeking to invest in companies that were providing commercial solutions to the issues we were dealing with in our grantmaking. Our performance matched or exceeded the standard benchmarks we used to measure how were doing. And during the decade our payout averaged 7 percent each year, well above the IRS requirement.

Harmonizing mission and asset management, becoming whole, is an organizing concept to improve the practice of philanthropy. Though claiming integrity, foundations often fail the wholeness test. The pessimist sees the glass mostly empty, while the optimist sees it filling. The hopeful say change must occur, and it cannot come too soon.

Stephen Viederman is the former president of the Jessie Smith Noyes Foundation and an expert on sustainable investing. Since “retiring” Mr. Viederman’s vocation continues to be Grandparenting. In addition to loving and caring for his own grandchildren, Grandparenting involves his active commitment to insure that they, and all children, have options to live a full and satisfying life in an equitable, just, peaceful and environmentally sound world.

This essay was originally published by Inflection Point Capital Management, and is reprinted with permission from the author. It came to our attention through a post on Marc Gunther’s blog.

Stephen welcomes comments both here and directly at


  1. This is a point I’ve never seen made before. Thanks for publishing it. And thanks to Mr. Viederman!


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