Does the mere size of the infrastructure in large foundations create an issue in itself?

Here is an issue I’ve not seen before: Is the size of the infrastructure at humongous foundations a problematic issue just by itself?

David Callahan, writing at Inside Philanthropy on April 10, stretches my brain:  Ford Sinks Over $1 Billion a Decade Into Overhead. Is That Money Well Spent? – First, adjust that decade cost figure to annual.  That would be $100M a year.

In 2013, the Ford Foundation spent $146M on G&A out of $685M total expenses, according to the article.  That is 21.3%, which would usually be considered respectable.

The issue, according to the author, is their overall approach of making programmatic grants. That means the foundation chooses this study, that new effort, and another ongoing project. Which in turn means they drive the programs of their grant recipients. That heavy control approach requires a lot of staff.

Therein lies the rub, according to the author. With that approach, foundations gather power and authority unto themselves. At that scale, the agendas of the grant officers are driving the funding of lots of charities.

The author’s perspective:

Big legacy foundations have, over time, turned themselves into major power centers—as opposed to mere facilitators of work done by others. … The people controlling the money call the shots.

There is another approach: find NPOs that are going the direction you wish to encourage and give them grants for general operations. The author provides two examples:

In 2013, the Susan Thompson Buffett Foundation … gave out $450 million in grants. The Sherwood Foundation, also controlled by Buffett, made $102 million in grants. How much did both these foundations, together, spend on operating expenses to give away $552 million?

Around $11.5 million, or around 2 percent overhead.

That is 2.08% of total expenses.

The concentration of perpetual, self-selecting, self-aggregated power is interesting. Yet…

The most devastating question is related to the outcomes issue:

Does spending 21% of total expenses to manage grants instead of 2% produce better results?

The author’s question:

Still, how do we know whether this kind of leadership is worth the cost?

My paraphrase of his question:  Where are the outcome measures that indicate a heavily staff foundation creates better results for society than a thinly staffed foundation?

His answer:

We don’t. For all numbers crunching on operating expenses, there’s been little rigorous analysis of whether it’s a good thing for foundations to turn themselves into heavily staffed command posts within civil society.

My translation of his answer:  Nobody anywhere has the foggiest clue whether the extra 19% makes any difference in anything anywhere at any time.

Phrased differently, there are no outcome measures that indicate the extra $131M the Ford Foundation spent on overhead compared to the Buffet foundations is worth the cost ( 21.3% Ford foundation – 2.1% Buffet foundations = 19.2% premium x $685M Ford expenses = $131.5M premium ).

Like I said, a whole new set of issues I’ve never encountered before. But then again, I don’t get out much. Hat tip to Prof. Brian Mittendorf (@CountingCharity) for his retweet that pointed me to the article.

Your thoughts? What did I miss?

Update: followup article by Mr. Callahan discussed here.

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