Kerry Vaughan was a member of the Laura and John Arnold Foundation (LJAF) – a major strategic foundation with over $1.5B in assets – for 3 years and served as the manager of the technology and innovation group. Kerry is also a PhD candidate in philosophy with a specialization in ethics. We spoke with Kerry as part of some compensated research he was doing for 80K about the impact one can have working at a foundation.
- The typical annual budget per employee at major foundations is $2 million. Each program officer oversees a budget of about $10 million.
- The typical program officer is intelligent and well-educated, and many have graduate degrees.
- The board of the foundation typically picks the cause areas and must approve each project. It seems difficult for program officers to influence which causes are supported. However, program officers can influence which projects are funded by selecting which non-profits get presented.
What is the typical budget per employee in foundations?
It depends on the foundation. LJAF is a very young foundation, so its donations per employee should likely increase over time. Larger established foundations tend to have larger donations per employee. In 20121 LJAF donated $32M with 12 full time staff for an average donation per employee of $2.6M. This is in line with the amount donated per employee at the largest US-based foundations which averages around $2.5M per employee for the largest 5 foundations.2 For smaller foundations, the donations per employee is around $1M. In my time at LJAF I oversaw around $7M in projects.
Of course, some employees work in support functions like legal, accounting or communication. If you limit the staff to just those that work directly on grantmaking, LJAF had 7 grantmakers in 2012 for $4.5M in donations per grantmaker. At other foundations this amount is higher. For example, at the Hewlett Foundation, 54 people work in grantmaking roles and the foundation donates around $312M per year for an average donation amount of around $6M per grantmaker.
At some foundations individual initiative areas have three kinds of roles: program associates, program officers and the program director. Program associates mostly provide research and logistical assistance whereas program officers deal directly with grantees and decide where to allocate donations. At LJAF the staff size was small so people at all levels of an initiative area were involved in talking with grantees. At Hewlett they have 25 program officers, meaning that each oversees around $12.5M on average.
What’s the typical process by which decisions about where to donate are made?
I think it’s best to think of foundation donations as encompassing two separate processes that interact at various points.
At the top level there is a set of processes that determine which areas the foundation will work on. These decisions are made at the board level with the foundation’s president. These decisions occur when the foundation is first created and during the foundation’s lifecycle as the foundation sees the success or failure of various processes and as personal interests among the board change. The personal interests of those on the board seems to play a key role in these decisions. Once the board decides which problems to work on, they hire staff capable of executing on these problems or communicate their priorities to existing staff members. There might be some ability for staff members to influence which areas the foundation invests in, but anecdotal reports and personal experience suggest that this ability is limited.
Once areas of interest have been identified, staff members are responsible for executing on those interests. This generally involves getting to know the key players in the field and finding grantees that fit in with the priorities. Staff members have some autonomy over which grantees they select, but they can always be vetoed by the president or program directors. At LJAF and at some other foundations, the board has to approve each grant the foundation makes. This ensures that the programs are executed per the board’s wishes.
The key decisions in any donation are which cause areas the foundation chooses to work on and which nonprofits are chosen to be presented to the board. Cause areas are almost entirely chosen by the board. Which nonprofits are chosen to be presented to the board is generally determined by the program officers at most foundations or by the vice president of the cause area at LJAF. These decisions are sometimes vetoed by the president and sometimes the board requests that grantmakers look at particular nonprofits for possible donations.
In general, I think that while it seems like grantmakers at foundations have large amounts of direct impact because they oversee such large amounts of money, the tight constraints that grantmakers operate under makes it difficult to make significantly better donations than would have been made by another program officer in the position. I think this makes the marginal impact of being a program officer lower than it might seem from the outside.
What is the typical grantmaker like and how do they choose where to donate?
All of my colleagues at LJAF and most of the other foundation staff that I interacted with were extremely smart, well-educated people. For example, at LJAF nearly a fifth of the people I worked with (4 out of around 20) had PhDs, two went to Harvard law school (one of whom was an editor of the Harvard Law Review), and two others went to Stanford.3 Everyone I worked with was also very well-meaning people, knew a lot about their chosen cause area and tended to be passionate about their work which made them excellent colleagues.
What activities grantmakers focus on is heavily influenced by the perceived interests of the foundation’s board and president. Mere perceived disinterest in a project from the board is often sufficient to kill the project and perceived interest is often enough to fast-track a grant. Grantmaker sometimes present projects to the board that they are unsure of personally and many grantmakers see it as their job to collect the evidence necessary to let the board make a decision as opposed to determining which donations would be best themselves.
The nuts and bolts of the grantmaking process is often based on personal connections. Grantmakers network constantly and get to know many people in their sector. If the foundation wishes to make a grant in an area that someone in their network works on, this is often a huge factor in the decision making process. LJAF does not accept unsolicited grant requests, but from among foundations that do, I have heard that the grant request process is mostly pro forma in the sense that the grantmakers often know who they plan to donate to before receiving applications. Grantmakers do collect large amounts of academic evidence and programmatic evidence in making grant decisions and in managing their grantees, but it’s unclear to what degree this evidence actually influences decision-making.
For an impact-oriented grantmaker, what would be some promising ways to make a difference?
I think there are two general pathways to making a difference as a grantmaker.
The absolute highest-leverage thing to do would be to influence which causes the foundation is involved in. The cause selection process at most foundation does not seem to be impact-oriented. It seems to be most driven by what the board and president are “passionate” about regardless of whether that passion is likely to be the highest impact. In fact, the idea that some causes may be orders of magnitude better in terms of impact than others isn’t an idea that is common in the foundation world, so there is much that can be improved in cause selection.
Unfortunately, influencing cause selection is likely to be difficult. Many foundations have no processes that allow staff members to introduce new cause areas for consideration and grantmakers are assigned to a particular cause, so looking for new cause areas would fall outside of their scope of work. For example, LJAF appears to be uniquely friendly to the possibility of working in new causes. LJAF has a process that I helped manage called Innovation Labs which allows staff members to present new cause areas to the board and it has a “Venture Development” department which works on new cause areas and projects. Despite this, I know of no major initiatives or large investments (outside of those in existing cause areas) that originated as an idea from a staff member. Instead, virtually all new investment areas originate as an idea from a board members which are passed on to staff members for execution.
The structure of most foundations creates a few areas where grantmakers are not incentivised to have the most impact but are instead incentivised to do things that will please their bosses. Acting against these incentives occasionally can provide an opportunity to have a larger marginal impact although this may come at the expense of career progression.
1. Grantmakers are incentivised to make grants – the job of a grantmaker is to make grants. Sometimes the incentive to make grants can tempt grantmakers to approve low-impact grants. A grantmaker might push to get a grant approved that they are personally unsure of or they might look for grants in an area that a supervisor is interested in even if the area does not seem promising.
2.Grantmakers are incentivised to be risk averse – the success of a grant is usually measured by whether the grant succeeds in meeting the goals defined in the grant agreement. This means that grantmakers and grantees are incentivised to set goals that are easy to obtain. This creates a disincentive for grantmakers to make grants to organizations that might have a larger impact but also a higher chance of failure.
Acting against some of these incentives might allow an impact-oriented grantmaker to have a larger marginal impact than they might have otherwise.