Featured below is the transcript of the speech that Bob Gallucci, chief negotiator during the North Korean nuclear crisis, Assistant Secretary of State for Political Military Affairs, and Deputy Executive Chairman of the UN Special commission overseeing the disarmament of Iraq following the first Gulf War, delivered at Duke.

Hard Choices: Strategy, Leverage, Impact,
and Risk

Thank you, Joel, for that kind introduction. It is a great pleasure to be here at Duke, in the Sanford School, and at the Center for Strategic Philanthropy and Civil Society.

Joel’s scholarship has both defined and changed the practice of philanthropy in America. His work on strategic philanthropy, both evolution and practice, is required reading in the field and his encyclopedic knowledge of the foundation landscape is a national resource.

I’m not sure what I can add to Joel’s wisdom (he may know as much about MacArthur’s history and programs as I do). But I can share my own experience as a foundation president and some of the calculus that informs our decision-making.

My own background, as you heard, is largely in the field of national security and military affairs, with a particular interest in nuclear issues. There I learned how precisely “strategy” and “risk” must be defined when lives and national interests are on the line.

The other strand in my career has been academic, in university teaching and administration. I was trained as a political scientist. Perhaps the most important thing I learned was the power of intellectual models to simplify, and engage with, an immensely complex world. I also came to value the free exchange of ideas that an academic environment, at its best, can foster.

That is the experience I brought with me to MacArthur. Some of it has served me well.

I had no direct experience of philanthropy when I became MacArthur’s president, except that, which I am sure many of you share, of looking for funding. I know that the large foundations are seen from the outside as mysterious, perplexing, sometimes infuriating.

“What are they doing? Why are they doing it? And why did they take so long to decide not to do it?” Those are legitimate questions for anyone to ask. So let me tell you about what I have seen on the inside.

First, the good news. There are indeed disciplined, coherent thought processes going on inside MacArthur and other foundations about what to do, and how. In fact, we may even spend too much time studying, analyzing, planning, and developing strategies, relative to other things we should attend to.

The bad news: there is no magic formula inside the organization that makes any of the decisions obvious or even easier.

Foundations must play a zero-sum game. We have limited resources; there are many pressing problems. Money spent on one problem cannot be spent on another. To act at all, we cannot avoid choosing, and the choices are hard.

What determines those choices? In the first instance, an independent charitable institution has to decide for itself what it is about. Donors have deep feelings about problems, often for personal reasons, and choose to devote themselves to them.

Other foundations have been more analytical from the outset. Gates, for example, considered what would most improve the human condition, and settled broadly on health, development, and education, with specific target areas such as HIV and malaria, agricultural productivity, and improving America’s schools.

MacArthur did not have a strong mandate from its founder. John MacArthur is reputed to have said “I made the money, you fellows figure out how to spend it.” Our choice of areas has consequently developed over time, with some long-term commitments (such as our work in conserving biodiversity) and some more recent (such as girls’ secondary education in developing countries).

When I came to MacArthur, our overall direction and mission was well established. In 2010, we undertook a comprehensive review of programs with our board and agreed to continue our course with only evolutionary change. So my attention to strategy has been primarily at the level of the program, rather than the organization.

In our view, most of MacArthur’s work is strategic philanthropy – though not all. I would say that, for us, strategy is a tool and a center of gravity, not a religion.

Here, I know that I am venturing into one of philanthropy’s standing debates.

My own view of strategy in philanthropy is pragmatic and, at least in theory, pretty simple.

One uses a strategy because it is a more reliable way to achieve a desired outcome than luck or intuition. A plan (for most of our programs) is better than no plan.

In my first years at MacArthur, several program areas were starting on new directions in their work. There was plenty of good thinking, but I was struck by the fact that there was not a unified approach to developing and presenting strategies across the Foundation.

A team of staff looked at the best work of other foundations – including Hewlett, Packard, Gates, Wallace, and others – and put together a Strategy Lifecycle Guide. That is now being tested in programs exploring and developing new strategies and taking stock of existing work. It requires standard elements: problem statements, reviews of landscape and scholarship, theory of change, projected intermediate and long-term outcomes, and an assessment plan.

My expectation is that standardizing our process will take some time, but that it will make MacArthur clearer about its objectives and better at both understanding and managing results.

I am flexible about different methodologies or tactics within strategies. I can see good reasons why, in one area, one would choose to focus on research and in another, on practical interventions on the ground. Our International Peace and Security program has invested in academic research and the development of think-tanks and intellectual networks because we think, in the complex security policy world, the best way to influence policy is to have cogent, well-argued cases that support specific policy prescriptions. Other work is closer to the ground. We have for some years been working to reduce maternal mortality, particularly in Mexico, Nigeria, and India. That work depends on delivering a set of interventions that reduce the chances of post-partum hemorrhage for women living in rural areas. As long as the aims are clear and the steps are credible, I think we are still safely in the category of strategic work.

I said that most of MacArthur’s work was strategic – what isn’t? Here I would have four categories.

First, there is our Fellows Program, the so-called “genius grants” to creative individuals. Some have described the program as one of philanthropy’s missteps, since its success in capturing the public’s imagination makes it very hard to change or abandon. We think it adds value, because it has enriched America’s sense of creative excellence, raised the profile of important areas of human endeavor, and advanced the careers of many exceptionally worthy people. But the Program does not aim to change a social system or find solutions to a particular structural problem.

Second, there is the kind of grantmaking one does to be a responsible citizen – such as the funding we provide to major institutions and arts organizations in Chicago, or because we are asked to contribute to a worthy cause that is “out-of-program.”

Third are what we call “Discovery Grants,” grants made as investments in projects that are outside of our ongoing fields of work that represent innovative responses to important social programs, take up issues that are little addressed, or show real promise of impact. The process of reviewing work outside of our areas of deep commitment and expertise helps us to have the peripheral vision that is important to continuing to refresh our existing work and to look for innovative approaches to meeting our goals.

Fourth are the big problems we want to explore to see if we may find a way forward. They comprise work in early phases, when we are not sure how to define the problem at hand or may not even know enough to say that there is a problem.

Two examples come to mind: over the last few years, we have been looking at the issue of America’s dysfunctional democracy. So many factors are at play that we have spent two years investigating which may be the most influential, and which are most likely to be changed. We examined primaries, redistricting, media coverage, and other topics in a series of expert convenings, commissioned papers, and roundtable discussions. We decided to conduct exploratory work in two areas: The first is the influence of money in politics, which seems to be of fundamental importance since it has an impact on public policy which is central to every area in which MacArthur works. So far we are supporting transparency of campaign contributions and lobbying expenditures and public funding of elections. This is an area where the problem is getting bigger and the solutions are not clear, but we think it is so important that we continue to work on it.

The second area is changes in the process of voting. The assumption here is that the only practical response to money in politics is for more citizens to vote, and that the processes through which we hold elections need to be significantly improved.

In less than two years, we have made about $10 million in grants to strengthen American democracy, and have worked with our colleague foundations to help figure out how to address this problem. We characterize this work as exploratory since we are still thinking about the best way forward.

The other example is the first phase of our work in Digital Media and Learning. We started from a proposition of our trustee John Seely Brown that computers and the information revolution were likely to spur social changes as significant as those caused by the advent of printing. We wondered what the consequences would be for education. The first phase of the work was entirely exploratory, using methods such as large-scale ethnographies to find out the ways young people were using digital media and analyses of how that changed their modes of learning. It was quite possible that we could have left the field after this first phase. As it happens, we thought there was more to be done and now have several major projects, including support of schools with curricula centered on systems rather than disciplines, using digital games to individualize learning and integrate assessment, learning “hives” in libraries and other cultural institutions for after-school learning, with specific initiatives to encourage youth civic participation.

I suppose one could say that our inductive method in these instances was a “learning strategy,” but I would prefer to keep a category open for exploratory work, similar to the R&D divisions in companies, that may graduate to becoming strategic initiatives over time.

The point of strategy, I said earlier, is to be effective. Leverage, as I understand its use in philanthropy, is a way of being even more effective – crudely put, of getting more than you paid for.

In some ways, leverage is central to every foundation strategy. It is what distinguishes our work from charity. I have a vice-president who likes to remind me that “we do not do soup kitchens.” Her point is a good one. American foundations have from the beginning hoped not simply to treat persistent social problems but to address and remedy the root causes which, it was thought, would be both cheaper and more enduring.

We often use the term “levers” when identifying what we think are key points of influence. In our Conservation program, we have determined that one of the greatest threats to large watershed ecosystems is human beings’ extracting more resources than the environment can sustain. At present, China’s need for raw materials and energy is driving much of the increase in demand. We are hoping to influence leading decision-makers within the Chinese government to adopt more responsible practices. It is a long shot, but we think it could be widely influential if it works.

A notable failure of this method was our attempt to protect the tropical fish species bought for private aquariums. We thought that we could affect the supply chain by supporting certification that fish were sustainably and legally harvested, and so drive poachers out of business. Our point of leverage was the market in the rich world – we expected that collectors would be willing to pay a premium for certified specimens. Not only did it prove hard to certify chain of custody for the fish, but the collectors turned out to be a sorry bunch of cheapskates. We ended the project.

In common with many other foundations, MacArthur has often expected that good research would directly influence policy. An investment in intellectual capital, in this model, would yield a high return if adopted by the right policymaker. This approach has seldom been as successful as projected. Most recently, our work on designing a more responsible fiscal future for America has had less influence than we had hoped it would.

But MacArthur’s work in Juvenile Justice started from research in adolescent development that showed empirical differences between the adult and teenage brain, a sound reason that young people could not be held accountable in the same way as adults for risky or criminal behavior. These findings were compelling enough for us to take them into the juvenile justice system itself where, over the last two decades, they have helped change the way our systems deal with youth who break the law and fostered less punitive penalties and more emphasis on rehabilitation.

Having the right idea at the right time will always give one outsized influence. A couple of years ago, we funded a Brookings project on global education. Their 2011 study, A Global Compact on Learning, was tremendously persuasive. It so happened that the development and education community needed a new policy agenda to succeed the Millennium Development Goals. The Compact has influenced UN policy, attracted a consortium of funders to join MacArthur in a partnership to strengthen innovation and practice in secondary education, and established a research agenda to see what methods work best. MacArthur’s emphasis is on secondary education for girls.

Most leverage is the result of careful alliance building, cultivating relationships with nonprofit organizations, other foundations, governments and business, using reputation, and crafting persuasive messages. These techniques are at play across MacArthur’s portfolio.

Of course, the flip side of leverage is risk, as anyone who has bought stock on margin will tell you.

While all the rhetoric is that foundations should embrace risk, that they are “social venture capital” which needs to fail often to sometimes succeed, I think it is fair to say that most foundations do not, at least not deliberately. Sometimes they are so vague about what they hope to achieve that they could hardly know if they had failed. More often, they claim only to have made a contribution to a broader movement or trend which, though honest, is not exactly betting the farm. Most ”Mini-Max,” (to use a term from game theory) – they give up on the best possible outcome in order to avoid the worst.

Risks obviously get higher when one puts bigger bets on fewer positions, when one becomes a strong public advocate for something, or when one joins a binding partnership whose members are beyond one’s direct control. Many foundations spread their bets, advocate quietly or indirectly, and avoid entangling alliances. This is rational, responsible behavior. But I think we should accept and consider the critique that we may lack boldness or vision.

On the whole, I must say that I am not much impressed by what I have heard in the discussion of risk in philanthropy, except that I fully support the idea of being open and honest when programs do not perform well. Mistakes are too often replicated because there has not been a public autopsy of failure.

The most compelling aspect of the question to me is the risk of doing something unpopular. I suppose that is a political or reputational risk. Yet, to me, many of the most interesting grantees take unpopular or contrarian positions. Even if one is apprehensive or only half-convinced, it seems to me that their work and voices can add value, enliven debate, or push out the borders on an issue.

MacArthur recently funded a review, convened by the Constitution Project on the interrogation techniques used by the U.S. government after the 9/11 attacks of 2001. Several staff advised against our doing so, but I felt it was an important project for a foundation that is prominent in funding human rights internationally. The study concluded that American personnel used techniques that constituted torture and violated both U.S. law and international treaties. As it happens, response to the study was largely positive. It could equally as likely have been hostile, and I would still have been satisfied that we had done the right thing.

We have, in the past, supported unpopular stands against copyright laws and over-regulation of internet freedom because of security concerns.

But if we really want to spur innovation, as everyone says we do, I think we have to have a higher tolerance for the disruption it causes.

My last topic is impact. Everyone wants it. Like other things everyone wants, it is hard to come by.

There are two aspects to consider here. First is “how do you know you are having an impact?” and second is “is impact the most important thing after all?”

Assessment and evaluation have become increasingly important across our field. But anyone who has tried to do social science knows how hard it is, in a complex system that has almost infinite variables, to determine causes and consequences. When RCTs – Randomized Control Trials – can’t be done, the task becomes even harder.

Most foundation programs are in precisely this situation. If we have to know what our impact has been, how do we go about establishing it?
First, the minimal requirements: our strategies have to be clear enough about outcomes that we have something to measure, and we have to establish baselines that give something to compare against. Then we have to find indicators that are feasible and meaningful marks of change and collect them.

There are several traps. The worst, in my view, is to have a need for evidence constrain one into doing only work that can be neatly quantified or packaged into random-controlled trials. There are so few fields that lend themselves to this kind of work and it is so cumbersome and expensive to construct that the methodology overpowers the strategy. This is not to devalue the RCT, just to suggest that it may not be the most useful tool across philanthropy – what is helpful in public health is not applicable to human rights, for example.

Another is to collect too much information, burdening grantees and overloading one’s own analytical process. Enthusiasm for detail easily becomes a distraction from the big picture.

Yet assessment that is too impressionistic makes it easy for program staff to cherry-pick success and overlook failure, constructing a narrative that reflects the best of all possible worlds. The tendency toward confirmation bias is extremely strong, particularly when future funding depends on showing progress.

Again, I fall into the middle here. I think a strong assessment function is essential to keep foundations honest and focused. Indeed, a project on assessment and evaluation was the first thing I set in motion at MacArthur, and we have since hired a director and require stronger assessment protocols in every area.

But I do not think a single-minded focus on quantification should keep us from undertaking work that is just the right thing to do. The epidemic of violence in Chicago, for example, seemed to demand a response, and we have invested in middle-school programs that use cognitive-behavioral techniques that reduce violent behavior. We did so not because they were entirely proven, or good grist for an experiment, but because they seemed to be the best available intervention in a crisis situation.

This raises the question of whether impact should be one of our highest values. Privileging impact will lead us toward more practical, perhaps more short-term programs, in which progress is readily discernible. Nothing wrong with that.

But such a choice can displace the more experimental, long-term, imaginative work that philanthropy is well placed to do. A research network MacArthur funded in the 1990s, for example, addressed the issue of longer lifespans and more elderly people in society before this was a popular issue. The book the network produced in 1999, Successful Aging, became a best-seller and opened the policy debate on what we now see as a crucial issue.

Impact can come from long-term commitment, from originality, and from sheer luck. Every foundation has to decide for itself what its preference and policies will be.

The issues I have addressed – strategy, leverage, risk, and impact – will be perennial as long as our current model of philanthropy endures. That seems likely to cover the foreseeable future, given the increase in the number of foundations and the size of their assets. Already 113 (certified as of July 2013) billionaires have taken the Giving Pledge to dedicate most of their wealth to philanthropy, which promises to make our current debates more urgent and relevant.

My advice, for what it is worth, is that there is no way around grappling with the issues and that it is more important for each organization to reach clarity about its definitions and processes than for the field to establish consensus about what is the right approach.

Above all, we should not let these insider-baseball, methodological discussions distract us from the essence of what philanthropy is about – improving people’s lives, remedying the grave challenges that face nations and the planet, and working toward a better future. After that, we are merely negotiating the details, however important those details may be. What truly unites and inspires us is the hope that, grant by grant, strategy by strategy, we can build a better world together.

Thank you for your attention. I look forward to a lively discussion.