Establishing a Firm Foundation

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  • From left, Nolan Finley, Jean Case, and Rip Rapson

    From left, Nolan Finley, Jean Case, and Rip Rapson

  • Jean Case of The Case Foundation

    Jean Case of The Case Foundation

  • Rip Rapson of The Kresge Foundation

    Rip Rapson of The Kresge Foundation

  • Nolan Finley (left) and Jean Case

    Nolan Finley (left) and Jean Case

Panelists

Jean Case
Chief Executive Officer, Case Foundation

Rip Rapson
President and CEO, The Kresge Foundation

Interviewer

Nolan Finley
Editorial Page Editor and Columnist, The Detroit News


What has philanthropy achieved in Detroit and America’s cities, and where will it go next? Join the heads of the Case and Kresge Foundations for a conversation on the role of foundations in the revival of urban life. How do they see their role in bolstering partnerships and collaboration in the communities they serve? How do they enable a new notion of civics, and civic leaders driven by the use of tech for social good?

Kirkpatrick: So the next session really is going to look at, in this age of metrics, there are aspects of city life—art and recreation, for example—that are tangible but not quantifiable, and for some of these things, as public dollars dry up, private money is necessary. And there’s two really incredible philanthropists about to join us onstage.

Once upon a time, Kresge Five-and-Dime stores were born right here in Detroit. That transmuted into K-Mart. The Kresge Foundation remains as a legacy of the great Kresge fortune that’s been used for the betterment of Detroit and elsewhere, and so we’ll hear them onstage—along with Rip Rapson, from that organization—along with Jean Case, the CEO of the Case Foundation. And we’ve hosted Jean before; we’re happy to have her back. And Detroit News editorial page editor Nolan Finley will moderate, so please welcome Rip, Jean and Nolan.

Finley: Detroit’s just red hot on the national stage, and it’s no better proof of that than having a technology conference in a city that’s synonymous with manufacturing. It just shows how much things have changed and how fast Detroit is diversifying and growing. We’re here—we don’t have a whole lot of time, so we need to get started, but you know, we’re here to talk about foundations and the new role of foundations in our communities and our major cities, and I guess, Rip, there’s no better example in the country of a foundation that has transformed, and in the process helped transform its community, than the Kresge Foundation and what you all have done over the last several years here. And we were talking previously about—during this great recession, the institutions of Detroit collapsed. The city government went into chaos. Our business community was struggling for its lives, and the foundations stepped up to play a new role, led by the Kresge Foundation. Would you talk about the new role that foundations are playing, and how that fits into the overall transformation of Detroit? You’re not just writing checks anymore.

Rapson: Right. Well you know, Adlai Stevenson once said, it’s sort of hard to lead a cavalry charge if you think you look funny on a horse. I think for a long time, philanthropy felt it looked funny on a horse, and it really took this sort of convergence of the public sector really having its bottom fall out, with the indictment of a mayor, the recession, the foreclosure crisis, the autos and others sort of in their bunkers. And so in many ways, the philanthropic sector was the only sector left standing, and I’d like to think it was in some ways prescient on our part to see that coming and kind of get prepared and geared up and enter the fray, but in many ways it took the severity of the crisis for us to kind of fully optimize our role. And I suspect Jean will talk about it, but it’s all about risk-taking. It really is about sort of putting a set of ideas on the table that perhaps are uncomfortable or unprecedented. It’s peeling away risk out of deal structures, that the city desperately needs in order to survive. It’s taking the risk of pulling multiple sectors together, because the private and the public and the non-profit sector all have to work together.

So my sense is what has happened in philanthropy in Detroit, is that we’ve really sort of carved out a new role. And what I’m hoping is that that doesn’t now go away, now that things seem to be stabilizing, that we really follow Jean’s advice and sort of keep sort of leaning into these questions at the sharp edge of risk, because I think that’s the only way that you sustain the kind of energy that you talked about.

Finley: Jean, Rip works for, represents a mature foundations, if you will.

Case: Right.

Finley: You’re a relatively young foundation. Harder or easier for the newer foundations to do, than the sort of hide-bound institutions, like Kresge and like some of the others?

Case: You know, I think so, Nolan. Let me just start by saying it’s a pleasure to be onstage with these two gentlemen, and actually to be back in Detroit. We came out last year and participated in the conference, and I brought our entire team from the Case Foundation, and Rip and some other foundations hosted us here, and we had an opportunity to really see firsthand the exciting things taking place, and to learn and to understand—but to your question, for those of you that don’t know the Case Foundation, we were born out of two tech careers, that my husband and I were privileged enough to have, in building a great company in AOL. And really, the idea that animated that company—access to ideas, information, communication—it was, of course, a very risk-tolerant environment in tech overall, and at that company, and we brought that same spirit to our foundation. So we are what they call living donors, which is a little different than some of the bigger established foundations, but we find that there’s a tremendous space for us to learn together and learn from each other.

I think when it’s your own money that your deploying, the comfort level of taking risks with that money is different. I often say, you know, gosh, if you gave me $100 dollars that you have and asked me to take care of it for you or spend it in a certain way, I’d suddenly turn pretty cautious, but when it’s my own $100 dollars, I’m much more willing to take some risks with that. So some of the work that we’ve been engaged in, that Rip referenced, is a campaign called Be Fearless, and the idea behind Be Fearless is really calling the sector more broadly—and the sector we’ll define not just as philanthropies, not just as non-profits, but the public sector too. That we live in a day when we need to innovate. Things are broken. Our communities need help, they need new solutions to old problems, and you can’t innovate without taking risks, and if you’re going to take risks, you risk failure. So we have to accept that failure is an option, it might happen, don’t let it stop you, fail fast, fail forward, and move on, and share your lessons. And I’m very excited to see that alive in Detroit. You heard Jack Dorsey talk about—tech gets that. Now we need our communities to get that as they try to innovate.

Finley: Well, you talk about risk-taking in philanthropy almost in the same way that a venture capital fund might, and Rip, is that a suitable model for foundations, particularly ones that are accountable a board and are several generations old and used to doing things a certain way?

Rapson: Well, it is not, it is not easy—I mean, you’re right. I mean, I think when you’ve got decades of tradition, of giving in a more responsive way, waiting for the community to sort of package ideas, bring them to you, you do grant reviews, you do your due diligence—that still goes on, but I think what Jean is describing is a sort of a much more forward-leaning approach to this kind of giving. And what I would say is that, philanthropic risk for a large private foundation actually is a little bit different, it seems to me, because I think that some of the things that we can do are a little bit more subtle. For example, we spent $50 million dollars to help create a light rail system here in Detroit. I mean, at some level.

Case: Yeah! That’s risk-taking!

Rapson: Thank you. You know, at some point—it’s a little crazy. Philanthropies are probably not supposed to be building railroads, but the idea was, it was a different form of risk. It wasn’t so much the risk that the rail system wouldn’t work, or wouldn’t generate the ridership, or it wouldn’t ultimately be built—because all that stuff could kind of fall in place—it was trying to create the kind of foundation, the base, so that the private markets felt that their risks would ultimately pay off. So when Dan Gilbert moved however many thousands of people downtown, one of the things he said to me, and to his employees is, “I would not move you downtown in the absence of a light rail system.” Well, Dan wasn’t going to build that—and he actually ended up helping build it, but—the idea is that philanthropy is, I think large, private, legacy philanthropy can sometimes take those big, sort of almost infrastructure risks, that invite the market back.

Finley: Well, what sort of pushback did you get? Because infrastructure building is not what you traditionally do at a foundation. If you support cultural institutions—and you did, through the bankruptcy with the Grand Bargain—but, you support cultural institutions, health initiatives, education, what have you—as you said, you don’t build rail. What sort of pushback did you get from your board and from those who sort of might have felt they’re not going to get their checks because of this?

Rapson: Yeah, I think it was sort of, what kind of pushback did we not get? I mean, it was pretty remarkable. I mean, the federal government had never dealt with a private, philanthropic rail system before. They didn’t—they had to change all their regulations to prevent monies to flow. The city felt that we were in their space. The state government felt that there wasn’t enough statewide support to do this, I mean, so it was—and I think if I understand Jean’s point correctly, is that it is that sort of calculation of risk that is so important. I mean, you can line all that stuff up and say, “Too hard. Too big. Too unorthodox.” Or you can kind of lean in and then try to sort of adapt as you go, and I think that’s the sense in which it’s a little bit more like venture, is that you really sort of have to stick your neck out. We can take risks all the time, on an individual grantee or an individual project, but when you get into the public space, when you get into traditional private sector space, market space, I think it does involve a very different kind of educating people about your role, including your board. I mean, it was a big problem with our board. They were very uncomfortable with this.

Finley: Well, I’d like to hear from both of you on what different type of foundation infrastructure does it take to operate this way versus the traditional way foundations operate. Jean?

Case: Well, I want to say, you know, we’ve told a lot of folks to take a look at Kresge as a model, because we think they found a really beautiful balance between the role of a more traditional foundation and where they can lean in and take risks—and I’ll let Rip answer how he sort of changed his organization—but I think at the end of the day what we’re seeing play out here in Detroit holds great potential across the nation in communities, because when a foundation comes along next to federal government, so now you’ve got a private-public partnership—or a local government, I should say—both have de-risked the other a little bit.

Rapson: Yeah.

Case: So even though both are taking risks, you’ve limited the other’s risk by playing together, and there just hasn’t been enough of this in the communities around the United States, and I think this is where we’re excited. And when we talk about risk, and because I talk about it a lot as part of our Be Fearless movement, it’s really important to point out that we’re talking about measured risk. We’re not talking about reckless risk here. And for every organization and every leader and every board, that’s going to feel different. For some it might be one project a year that they’re willing to kind of lean in or take a big risk. We’ve seen some other foundations say, “Heck no. It’s going to be most of our portfolio.” And so, Nolan, depending on where they land on that spectrum—so because we’re very comfortable, and part of our role as a foundation is we’ve said we’ll go out first, we’ll take the arrows in the back, and then we’ll publish everything we’ve learned in the hopes that some will follow. So we have a very risk-tolerant, entrepreneurial team at the Case Foundation. Other foundations have a very different balance, and I’ll let Rip speak to how he manages that balance.

Rapson: Can I just pivot just a little bit off of Jean’s comment, because I think ecology in a place is really important. If Kresge is going to invest in a light rail system or in an entrepreneurial ecology, or in a riverfront development, we really can’t do that work unless someone is doing more safety network, other people are doing more health-based work. I mean, I think what’s interesting about the emerging philanthropy of tech firms and other sort of next-generation philanthropy is that they’re prepared to sort of move into spaces that philanthropy, in its traditional forms, hasn’t covered. And so what you get is this really interesting ecology. I think as risk-embracing as we might be, we wouldn’t do a lot of the stuff that Jean is doing. I mean, it’s really edgy, interesting, thoughtful stuff—but knowing that she is doing it permits us to line up our effort a little bit differently.

Finley: All right, I want to just stop and say we’re going to take questions from the audience here in a few minutes here, so if you have a questions, you want to start moving to the microphones up front, because, again, this is a short panel, we don’t to waste a minute of it.

But Jean, you talked about engaging entrepreneurs in philanthropy and foundation work.

Case: Absolutely.

Finley: What’s the thinking behind that, and how is it working?

Case: Well, really, when you look at our communities today, as I said, we really need new solutions to old problems. And really to get there, I think there’s a recognition that we need a different kind of table, different people around the table. Another analogy I’ve used is, we need all the oars in the water, and typically, when we look at those who have been at work trying to solve the issues in our communities, it hasn’t necessarily included the business community. Maybe a company has CSR they throw over the wall, but it hasn’t necessarily involved the passion, the entrepreneurial talent and imagination for new solutions and innovation that entrepreneurs usually bring to the party. So this idea of having entrepreneurs at the table, philanthropy at the table, the public sector, those on the front lines as citizens, and probably the most powerful thing that technology can do is bring the citizen’s voice to the table. So instead of those solutions being drawn on a whiteboard—and you guys followed this very carefully here in Detroit—instead of those solutions being drawn by a bunch of folks, you know, under fluorescent lights, you bring the people that you’re actually trying to serve, bring their ideas in, bring their voice in. And these technology platforms are enabling that unlike we’ve ever seen before, and it’s very exciting.

Finley: And Rip, you talk about strategic partnerships, so not just writing a check and then waiting for the next request to come in the door. You’re following your money through the process, and often providing much more than the check and the money.

Rapson: Well, I think you have to. I mean, I don’t mean to dwell on the rail project, but I think our money, in many ways, was the least important part of our contribution. We dedicated staff time to talking with the Federal Transit Administrator, to pulling together a statewide coalition, to working with people to get legislation passed at the state level. I think it becomes much more than just writing the check.

Finely: And before we go to questions here, I just wanted to talk, as much as you can, about this Grand Bargain that the foundations led, and really was a lynchpin to getting Detroit’s bankruptcy moving toward a relatively painless solution, not a painless solution, but certainly not as bad as we thought. How did big foundations end up in the middle of a bankruptcy, and end up basically offering the solution?

Rapson: Well it’s—for those of you who aren’t following every nanosecond of this conversation, we had to solve for two problems. The State of Michigan’s Constitution protects the impairment of pensions, so you can’t impair pensions; it’s a problem if you want to reduce them. And on the other side, the creditors were saying, we want to reach the assets of the Detroit Institute of Art, you sell a Van Gogh, you’re done and free and clear. Well, both of those things would have been litigated into eternity. It just, it would have been impossible, the bankruptcy would have completely fallen apart, and so the chief mediator, the Federal District Judge, came to a couple of us in philanthropy and said, “I have this great idea. If you can aggregate enough money, we can help the pensions not have to take reductions, and we can essentially transfer the money, for all practical purposes to the city, they’ll then buy the Institute of Art and put it into nonprofit status.” I mean, so you would sort of solve for both problem. I said, “Well, that’s fine. How much do you have in mind?” He said, “Oh, I don’t know. $500, $800 million should do it.” “Really? That’s interesting. Don’t call me. I’ll call you.”

Rapson: And—but then I got on the phone to one of the really great new figures in philanthropy, Darren Walker, who’s the head of the Ford Foundation, and Darren said to me, he said, “Rip, these are crazy numbers,” he said,” But at the end of the day, it would be philanthropic malpractice for us not to at least consider something that could essentially expedite the city’s exit from bankruptcy.” So we agreed that I couldn’t do it unless Ford could do it, Ford couldn’t do it unless Krege could do it, so they put in $125 million dollars, we put in $100 million dollars, over and above our other commitments to the city of Detroit—we ended up assembling about a dozen foundations, put in almost $400 million dollars, the State of Michigan put in another couple of hundred. The Detroit Institute put in a hundred, and all of sudden we were near $900 million dollars, which solved for both of those problems.

And I think in many ways, it’s exactly what Jean was talking about. Sometimes you just have to step outside your comfort zone, be fearless, not think too much about the consequences—we were asked all the time, “Well why wouldn’t you do this in Dayton, or why wouldn’t you do this in Columbus?” You just—that’s the paralysis stuff. You just have to leap in.

Finley: And Jean, that fits the Be Fearless.

Case: It really does. And A big part of that, that he just mentioned, is collaboration. You know, we talked before about how we de-risk it if you have more people in the game. You just gave a great example of what that looks like. But collaboration among philanthropies and governments has not really happened, for the most part. Philanthropies have called their non-profits to collaborate, but they haven’t been particularly good at it themselves.

And so it’s one of the reasons we love this model. We think they’re demonstrating maybe a new model that can go forward in a lot of different places, so philanthropies and the public sector working together.

Finley: Okay. And we’ve got a question, Jeanette?

Bearse: Hi, Jeanette Pierce, D-Hive. Thank you so much for all of the support from the foundations to the city. We really appreciate it. My question is, how do you balance the new investment that you might be doing with the long term? So I’ve heard some conversation lately, just I guess in the community, around foundations always—seemingly, at least—going towards, sometimes, the shiny new toy. And, but what about the existing programs, and I guess part of that is, how long would you give that shiny new toy? Is it a one-time thing? Is it five years? And I guess just balancing all that timing, of old and new investments.

Case: Well, we probably have different answers to that. The Case Foundation is a catalyst investor. We know going in, we’re not going to be in there for the long haul, and our grantees know that as well, but we’re usually trying to do proof points. Usually there’s not data, necessarily, to say that something is a good idea, so other philanthropies might be less willing to invest. We give it usually about three years. We have a very rigorous process in which we measure the performance of these investments. If they fail, we tell the world, this is what didn’t work. If they work, we say this is what worked beautifully. And if it’s somewhere in between, we try to tell that story as well. But we’re very much explicit and intentional that we’re not 20-year grantors. We’re usually in for three years, to model as a catalyst the potential in places across the nation and the world.

Rapson: Yeah, and I think that’s one of the reasons this ecology is so important, because—although I suspect that we’re equally seduced by the shiny new toy—we really are in it for the long term. Our Grand Bargain commitment is 20 years. We developed an operating support program for the arts ecology in Detroit, both the large, the mezzo and the small organizations in Detroit, that we anticipate will go for 20 years. We’ve funded the riverfront since its inception. We will fund it, probably another 15 or 20 years. The human service organizations in town have no other place to turn. We have to be there. So my sense is that even though we want to similarly do catalytic things when it’s required, I think, again, a large, national philanthropy with local roots almost has an obligation to stay the course. So I think we tend to think in terms of a much longer horizon line and realize that the kind of fabric that you’ve described is something that has to be nurtured carefully over a very long period of time.

Audience: Good afternoon. I know the Case Foundation, the Kresge Foundation, you guys do a lot of social impact grants, doing a lot of communal stuff. And I know the big issue or obstacle that the impact investing community is facing is, how do you measure the success of a social impact? So I want to ask, what metrics do you all use when making these grants, and then how does the impact the screening process, as well as the relationship you guys have after making those investments?

Case: Yeah, so we have a rigorous business planning process. Our team competes for business planning every year. As part of the business plan, the expect return on investment is articulated, or where we want to see impact, and then we set about to measure that. And I have to say, that sounds really perfect, and it’s a very imperfect system that we have, because often, much like start-ups, where we start out with an investment, we realize maybe six months into it, you know what, if we pivoted and did this instead over here, we think it could have greater impact. So sometimes we have that, you know, same kind of pivoting and changing the business plan along the way, but generally, we have a memorandum of understanding with anyone that we grant to, and we work together to understand what are the impacts we’re after, and measure those along the way.

Rapson: At the risk of sidestepping the question just a little bit—we every year, Kresge gives out about $150 or $160 million dollars of grants. I like to think that each one of those is some form of impact investing, and that you’re really sort of taking an organization or an idea or a movement apart and putting it back together to understand where it can have the greatest impact. But what has changed in the last five or six years, I think, in, again, a national, private philanthropy, is the idea that you can probably use that grant base to leverage up into loans, direct equity investments, guarantees, and so we’ve set aside $30 million dollars a year, which is 20% of our, above and beyond our normal giving, to exactly that kind of purpose, but what we’ve insisted on is that it’s integrated with the base. That we don’t just go get the shiny new object because it’s a social impact bond, that we actually try to say whether it’s in our health program, our environmental program—what is our program trying to accomplish? And are there circumstances in which a loan or a direct equity investment would actually accelerate the take-up of the idea?

It’s really hard work, and Nolan asked earlier, do you have to change your staffing model? I didn’t really answer the question. The answer is, absolutely. We had to bring people onboard who understood how to construct these kinds of transactions. It is not something that traditional program staff know how to do.

Finley: Did you have to change your accountability methods as well?

Rapson: Huh. That’s an interesting question. Yes. I mean, it begins to look a lot more like our investment portfolio than it does, like, our grant portfolio. We have to risk rate, we have to make sure that the maturation of the loans isn’t skewed, that, you know—all sorts of different accountabilities, all up and down the line have to get superimposed.

Case: Yeah, and I think for purposes of clarity, it might be good to point out that we’re kind of talking about two different things, right?

Rapson: Yeah, yeah.

Case: One is the grant work, and there it’s pretty straightforward—your memorandum of understanding and what impacts you’re seeing. But this exciting new area, impact investing—and if you didn’t see the G7 just came out with a report yesterday summarizing some early activity in the countries involved around the potential here. And this is where foundations money, whether it be money that was designated for grants or investments out of their corpus—which is, you know, their core assets—can be used to fund companies and private-sector things that are driving the same change they want to see, through grants. We think that holds great promise.

Finley: We have time for one more questions, right here.

Douglas: Hi, Alicia Douglas, of PIP of Detroit, and I just came back from SOCAP and Jean, I know your team was out there, Rip, your team was out there. And this is the exact conversation that we need to be starting here in Detroit, really, on how—not social impact bonds, but actually impact investing—

Case: Correct.

Douglas: —can really start transforming our communities, as well as our ecosystems. And Jean, I know you’re doing some great stuff with Pacific Ventures out in California, and how you’ve partnered with them, as well as some public-private partnerships. And so maybe you’d like to give everybody an example with that? And also I’d like to ask you, Rip, with what you’re going to be doing here in Detroit, to grow that ecosystem with impact investing, and how you’re going to be able to get that funding to local social entrepreneurs that have ideas, that we can be addressing some of the challenges that we’re being faced with in our communities. Thank you so much.

Case: Sure. SOCAP, for those of you that don’t know, is short for Social Capital, and it’s kind of like the impact investing conference that takes place every year out in San Francisco. So I think that G7 report that I just referenced, I had the privilege of serving on the U.S. advisory board for that, so I helped put the U.S. report together, and as I said, I think we see a lot of potential here. But at the launch of that report in June at the White House, we pulled together $2 billion dollars in new commitments to impact investing, and much of this money intended to go into new start-ups, new companies that are committing to provide both a social return as well as a financial return. And this area is a burgeoning area, it’s growing, and we have a lot of early leaders, like Kresge, who’ve been at the table with investments for some time. Our foundation has participated in impact investing, but my husband and I personally have as well, where we’ve invested in companies that are trying to address social challenges where there isn’t enough investment, either from the public sector or from philanthropy. Do you want to add anything, Rip?

Rapson: Well, I just think this is one of the 10,000 reasons that Jean and Steve are so incredibly important, is that I think they’re modeling a set of behaviors that will tug private philanthropy out of its comfort zone. I mean, for a long time there has been a complete Chinese wall between the grant side and the investment side, and we’ve sort of begun, sort of chipping away at that wall through PRIs, but the real payoff is when the $4 billion dollars of Kresge’s assets begin to be put into play for all of our program. And that’s a long step, but it’s a step that Ford and Kresge and Heron and a number of other national foundations are beginning to take. I probably should have a longer conversation about what we’re going to do here in Detroit, but I think what you can see is that social investing in Detroit requires a pipeline, and for a long time we didn’t have one, nor did we have effective delivery mechanisms on the ground. And I think both of those are emerging, and if there is a sort of an unstated story in Detroit, it is all of a sudden these investable propositions are growing like crazy, and we now increasingly have the capacity—through CDFIs and through others—to get that money deployed effectively. So I actually think it’s not as far a reach, from here on out, to identify philanthropic capital that can push into those channels.

 

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