Treehuggers, Please Meet the Barbarians at the Gate
What Environmental Philanthropists Can Learn From Wall Street Investors
The Quick Rundown:
The Instigator champions private sector-led environmental strategies. We also argue that better environmental outcomes are achieved when business collaborates with non-profit organizations. Environmental NGOs need to be well-funded to perform at the highest level. Let's explore what philanthropists can learn from the way Wall Street investors allocate capital.
A couple of weeks ago, Jeff Bezos announced the first recipients from his eponymous Earth Fund. The grants totaled nearly $800 million distributed across 16 nonprofit groups, including The Nature Conservancy, which I once led. It got me thinking about how the richest man in the world — one who built his fortune on data, metrics, and shrewd allocations of capital — might structure these new relationships.
Now, I don’t know anything more than the public about the specifics of Bezos’s funding, but I do have experience being on the receiving end of philanthropic investments from my time at TNC. And I can say that, after spending most of my career in the business world, what I saw surprised me.
A Strange Start
Back in 2008, I was a brand new and eager non-profit CEO. Recognizing that our big donors were some of our most important partners, one of my first orders of business was a round of courtesy calls, beginning with a prestigious foundation that had been supporting us for years.
I did my homework beforehand. I was ready to discuss in detail each of the grants the foundation had provided to us throughout our partnership. I knew what had gone well on their projects, what hadn’t, the reasons for both, and what we had learned. And looking ahead, I was ready to present several new projects we thought the foundation might want to support. This will be fun, I thought. I was excited to represent my new organization.
I arrived early for my 11:00 am meeting and waited patiently in the beautifully appointed reception area.
At 11:30 — still waiting — I started getting restless. A nice young person asked if I’d like a cappuccino or latte. Okay. But what about my meeting?
At about 11:45, the same nice young person offered me a tour of the foundation’s brand new LEED-certified headquarters building. Fine. We had a pleasant tour. And yes, the building was beautiful. But so what? Anybody willing and able to spend enough money could do this.
At 12:15 I called my office. I asked my assistant to tell my next appointment that I’d be late. I was way behind schedule now.
At about 12:30, I was finally ushered into the foundation CEO’s fancy office. Game time. I was ready to go.
But, as you’ve probably sensed by now, things didn't go according to plan.
The CEO quickly introduced himself (with no apology for the late start) and launched into a monologue about how the foundation focused on metrics, accountability, and rigorous measurement.
“We’re all about achieving results,” he told me. “Great,” I responded. After all, I had come prepared.
I wanted to jump in and explain that my team had done well on the projects the foundation had funded. Not perfectly, of course. But we had mostly accomplished everything we had promised. And where we fell short, we tried to figure out why so we’d be better going forward. But the monologue continued.
“How about asking some questions about the projects you funded? Hold me accountable. Ask for some metrics if that's what you like,” I thought. But before I could vocalize anything along these lines, another young person came in to inform the CEO that it was time for the next meeting. Sorry, time’s up. I was ushered out.
The foundation had invested tens of millions of dollars in our programs. The CEO told me that the organization’s top priority is ensuring they achieve measurable results. But he didn’t spare a moment for questions or dialogue about any of that.
“Toto, I have a feeling we’re not on Wall Street anymore,” I thought to myself on the way out the door.
Kinder and Wiser Masters of the Universe?
When I was at Goldman Sachs, one of my jobs was running the IPO and follow-on equity offering business. (We called this business unit “Equity Capital Markets.”)
Before every IPO, we’d organize a “roadshow.” The company’s CEO and CFO would spend two full weeks on the road with us, meeting with institutional investors every day from early in the morning all the way through drinks and dinner.
When we first told them this was how it’s done, the CEOs usually balked. “Can't do it. I’m too busy,” they’d say.
“Sorry,” I’d explain. “It's mandatory. But two things you should know.
“First, these investors are really smart. They’ll be prepared. They know your competitors inside and out. You’ll be impressed. Be ready to answer many tough questions.
“Second, you only have to do this once. Afterward, your investors want you to be focused on running your company, not traveling and taking meetings with them. They want results.”
The CEOs almost always ended up enjoying the roadshow. Yes, the investors were brash, sometimes impertinent, very young, and occasionally even rude. But they knew their stuff. Answering their questions was challenging. You could learn a lot through the back and forth. And nobody’s time was ever wasted, that's for sure.
One CEO even said to me, “Spending time with smart investors like this will help me run my company better.” Exactly, I thought.
One of These Things is Not Like the Other
Everybody knows Wall Street doesn't always get capital allocations right. (See: Enron, 2008 financial crisis, Theranos, WeWork, etc). But broadly speaking, things usually go pretty well.
Enormous sums flow from capital providers (investors) to capital users (companies). Audited financial reports keep investors informed and facilitate comparisons and analyses. Analysts, journalists, and daily stock price quotes help everyone stay up-to-date. CEOs and management teams focus on running their organizations, not fundraising. More capital flows to better performers and better terms. Companies raise capital for “general corporate purposes,” which gives them the discretion to spend the funding where they think they can earn the highest return on investment.
In the philanthropic world, it doesn't work like that. I acknowledge it's not as easy. Financial reporting doesn't capture the most important information about outcomes and impact for NGOs. There are no “equity capital market” banking teams organizing roadshows. There are no (or very few) analysts appraising the NGOs. No stock prices, no Wall Street Journal, or Jim Cramer on CNBC.
I also want to acknowledge and emphasize that professionals in the philanthropic world (usually working at foundations) are smart, dedicated, hard-working, and very good people. I enjoy working with them, and I'll always be grateful for everything they do to support NGOs and to make the world a better place.
But still... I think professional philanthropists can learn a lot from their Wall Street counterparts. It will make them better partners to the organizations they support, and they’ll get more accomplished.
A Few Ideas from Wall Street for Philanthropists
Obviously, this is too complex of a topic for me to fully cover in a single email missive. But it's worthy of exploration and ongoing discussion, so I’ll make my contribution by noting a few practices that I think can make a positive difference. I know I would have appreciated the following approaches back when I was a CEO of a big NGO.
Do the work, analyze results, make comparisons. Investors pay close attention to all of the companies in any sector where they invest. They know who's doing what, where the innovations and breakthroughs are happening, and where their portfolio companies face risks or have big opportunities. This lets them see things that management teams sometimes miss.
Ask management teams to explain their plans, identify desired outcomes, and provide specific milestones for the period ahead. Sounds obvious, I know. But this takes some discipline. This is where holding management accountable makes a lot of sense. All you have to do is follow up. When things go counter to plan, ask why. If management teams regularly miss their plans (or worse, drop their plans), get a new management team.
Provide capital for what companies call “general corporate purposes” (known as “unrestricted funding” in NGO parlance). Please don’t use the term “overhead” — it's offensive. When great companies invest in training, marketing, HR, R&D, information systems, and other technology — and the best companies invest huge sums in these areas — nobody calls it “overhead.” These investments are what enable great performance. It’s just as true for NGOs.
Don't micromanage. Even though investors pay extremely close attention to their companies, they don't usually tell management or staff what to do. Resist the urge to dream up your own projects. Don't ask NGOs to compete for the assignment to execute your initiatives. Rather, support great organizations in their efforts to achieve their mission and goals.
Respect the management team’s time. NGO CEOs are always on the road fundraising. They joke about it with one another. I felt like my IPO roadshow continued every business day for the entire 11 years I worked for TNC. This is crazy. NGO CEOs have complex organizations to run. But they need your capital and will keep selling until you persuade them to stop. Agree on a set number of meetings per year. Do meetings by Zoom as much as possible. Provide your capital in a smaller number of much bigger grants.
Learn from for-profit investors. The analogy is imperfect but there is a lot to learn here. Visit Fidelity or T Rowe Price and watch their investment teams in action. Add some of their executives to your boards. Read Warren Buffet’s annual reports.
A Donor in Buffet’s Clothing
It’s not just about what foundations and their leadership can do for the NGOs. It’s also about what they can expect from NGOs and how to keep them accountable. Some philanthropic leaders get this right. I especially admired how one foundation CEO worked very hard to get to know me, my organization, our projects, and our marketplace when I was running TNC. It really felt like she was a long-term strategic partner.
I told her she reminded me of Warren Buffet back when he was a big investor in the Washington Post and worked very closely with the paper’s publisher Kay Graham. He knew everything he could know about the Post, its market, the competition, and the challenges that Graham faced. And he did everything he could to help her and the company succeed. (You can read about all of this in Graham’s superb memoir or in this great biography of Buffett. Both are great books for investors or donors to study.)
Here are a few of the things this leader did to be a smart and supportive backer of TNC.
She visited TNC headquarters at least once per year. As I recall, no other foundation CEO visited me even once during my 11 years at the organization. If you’re investing tens of millions of dollars every year in an organization (as this foundation was doing), it should be a no-brainer to visit annually, kick the tires, check out the CEO, and see how she/he interacts with the team, right?
She attended some of my board meetings as a guest and met with some board members privately. Again, common sense, right? Find out what's on the board’s mind, see how they view the CEO, get a firsthand sense of what drives the organization.
She required a one-on-one conversation with me before the foundation approved any grants. She and her team knew I wasn’t writing up the proposals and wouldn’t always be hands-on with the projects. But if the proposals were important enough for her foundation to fund, then they were also important enough for me to explain why I viewed the projects as critical.
She funded a special CEO project every year. We’re not talking about a lot of dollars here. But the foundation funded a small grant annually for a project that otherwise probably wouldn't happen. I still had to submit an official proposal. The foundation CEO and I would always have a one-on-one conversation about my proposal before it was approved. And it wasn’t always approved. This practice was a great relationship builder and led to some strong new programs. It was also a smart way for the foundation CEO to see how I think. And, after a few years, depending on how these new projects went, it was also a good way to see if my ideas are any good.
She worked very hard and traveled extensively. I thought I worked hard as CEO. TNC does projects in all 50 states and in another 70 countries. It felt like I traveled nonstop to visit them all. But this foundation CEO visited more TNC projects than I did. She always arrived very well briefed. And by the time she left, she had met with the full TNC team, most of our partners, had asked countless questions (no monologues!) and knew the work inside-out. There’s no substitute for hard work.
She always asked us to list our greatest funding needs. She recognized that we were in the best position to identify the needs and opportunities unique to us, as well as to prioritize among them.
She did so much more. I could go on and on here. The main thing is she and her team did everything they could to get to know us, our projects, and our people. They were tough, demanding, and critical when things went wrong or we didn't know our stuff. But it always felt like they were on our side, and together we achieved some great outcomes.
The private sector gets a lot of flack from the advocacy and nonprofit world. Some of it is well deserved, but some of it also feels reflexive and absolute. I think we should value progress over perfection and embrace more actors who have smart ideas and are willing to do their part.
Jeff Bezos and his Earth Fund are already drawing a ton of criticism for thus far choosing to partner with “mainstream” climate organizations, rather than experimental ones. I’ll have more to say about that next week. But for now, I’m just glad these organizations are getting much needed financial support, and I hope the fund’s management nurtures and holds those organizations to account the way they would any division of Amazon.
Hedge Fund Superstar Turns Full-Time Philanthropist. This thorough podcast interview of John Arnold is fascinating and completely on point with this issue of The Instigator. First, John explains carefully exactly how he became the most successful natural gas trader ever — by outworking his competitors and knowing more about everything concerning natural gas than anyone else alive, period. Next, he explains how he now deploys those same skills and strategies in philanthropy. I bet he once again earns very high returns on investment — only this time, he’s also making the world a better place.
“Analysis, evidence, and thorough vetting” drive the philanthropy of Good Ventures — the foundation created by Facebook co-founder Dustin Moskovitz and his wife Cari Tuna. They use advisory firms Open Philanthropy and Give Well for the kind of thorough analysis I recommend in the newsletter. Smart. Another commendable aspect of Good Ventures is the extensive disclosure and transparency on their website.
I admire most foundations but believe the sector would benefit from a lot more scrutiny. Rob Reich is a Stanford professor who is doing just that. I was in the room a few years back at the Aspen Ideas Festival where he made some in the audience uncomfortable as he pointed out how philanthropy can undermine democracy. I’m not sure I'd go that far, but I think it is very useful to shine a spotlight on how foundations wield their power. I couldn't find a link to that specific talk, but his book covers the topic thoroughly and raises a number of important questions. Here’s a good review by author David Callahan.
One Last Thing
Almost everyone has a copy of Jim Collins’ Good to Great on their bookshelf. But has everyone read it? Philanthropists should do so. They should also read (or re-read) the companion monograph, Good to Great and the Social Sectors: Why Business Thinking is Not the Answer. Both focus on the difference between good organizations and great ones. My advice to philanthropists: be a donor who does everything possible to help organizations become great, period.