Making the most of the philanthropy boom
Former Bain CEO Tom Tierney gave up his million-dollar paycheck to create a consulting firm for non-profit clients.
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NEW YORK (Fortune) -- Before he crossed over to the social sphere, Tom Tierney was a big deal in corporate America. As CEO of Bain & Co., he helped FORTUNE 500 companies and private-equity clients like Texas Pacific Group build their customer relationships and their profits. He did the same, actually, for his own firm, multiplying Bain's revenues six-fold in seven years. Then, in 1999, Tierney gave up the million-dollar paycheck to do something really good: He co-founded Bridgespan Group, a consulting firm modeled on Bain but customized for non-profit clients.
Today, he works for no pay at all, overseeing 140 employees who provide strategy and recruiting services to more than 100 clients. Tierney's clients include the Bill & Melinda Gates Foundation, the Packard Foundation, and Big Brothers Big Sisters of America. A director of eBay (EBAY, Fortune 500) and a frequent speaker at business schools, he talked about the philanthropy movement with Patricia Sellers.
Fortune: Why did you change your life?
Tierney: I was on non-profit boards in the '90s. I started thinking, What do I want to do with my life? And is there a way to leverage the Bain & Co. platform and capabilities to benefit society?
Why don't you pay yourself?
I wanted to walk the talk that the mission mattered more than anything else. It doesn't mean that I'm holier than thou, but I wanted to reinforce the idea culturally. I figure that if I manage my investments and life's cost structures properly, I don't need more money. And I have no desire to leave my children as wealthy as I am.
You and a lot of wealthy people! Is this idea or trend to not leave millions to your kids helping drive the philanthropy boom?
Yes, to an extent. One driver is the growth of real GDP per capita. It's increased 45% in the U.S. in the past 20 years. So many individuals and families are wealthier than they used to be. But beyond that, the notion of giving while living seems to be more prominent than ever before. Ted Turner kicked it off a decade ago. Bill and Melinda Gates are role models. So are Pierre Omidyar [founder of eBay] and Chuck Feeney, who founded Duty Free stores. And now Warren Buffett too.
So how rapidly is the philanthropy sector growing?
U.S. charitable giving in 2006 totaled $295 billion, up from $183 billion in 2003, according to GIVING USA. In the last 20 years, the total non-profit sector has grown faster than the business sector in terms of dollars and the number of organizations.
This level of growth brings its own challenges, doesn't it?
Yes. As 3,000 new foundations form every year - that's 12 a day - the talent pool is shrinking. Assuming we have 6% annual growth in the number of non-profit organizations - which has been the growth rate during the past 10 years - the non-profit sector will need more than 600,000 C-level leaders to come from outside the current senior leadership pool. That's 2.4 times the current pool of C-level executives.
Why the leadership deficit?
One of the problems is that the gap in compensation in the non-profit sector vs. the business sector is still enormous. In this era of talent wars, which in 15 years will just get worse given the demographic trends, the rub is that donors don't like to pay for overhead. And they lump talent, which is good overhead, in with bad overhead, like high rent. But if the non-profit sector is going to attract the returns that donors want, it's imperative to attract and pay them.
Don't you face the same challenge in attracting talent to Bridgespan?
Actually, we have over 100 applicants for every entry-level position. It's about as hard to get a job at Bridgespan as it is to get a job at Bain - even though the starting compensation is 30% lower. At the partner level, the pay is significantly lower. This is in part because there are no bonuses. One advantage we have over most non-profits is that we offer tremendous training. Recruiting and talent development is a core competency here.
At other non-profits, feeding the hungry or taking care of the poor is the core competency.
Yes, it's more important to feed the hungry than build the organization. That's a bias on the part of management teams and donors, and it's hurting them dramatically.
What foundations get your message that leadership development is critical?
The Ed McConnell Clark Foundation shifted their strategy from grant-making to organization-building - that is, they help their grantees build their organizations. The Clark foundation operates not unlike a small private-equity firm where the investors take a constructive role in the portfolio companies. The Hewlett Foundation is also pushing hard in this direction. And the Gates Foundation is doing the same sorts of things. Also looking hard at the issue is Grantmakers for Effective Organizations (GEO), which is a coalition of grant-makers aiming to build effective non-profits.
What's the motivation for foundations to perform efficiently? There's no market force, as in business, to impose discipline.
This is a very powerful point. In the corporate world, the marketplace tells you in short order what you're doing well and what you're doing poorly. In the non-profit world, excellence is self-imposed. I divide that world into charity and high-impact philanthropy. Charity means you give the money away not expecting a specific outcome. You give money to churches and synagogues, or a hospital or an alma mater. All of us do that for emotional reasons - we're giving back, we're doing our share.
OK, what is high-impact philanthropy?
The donor is actively engaged in holding the organization accountable. This movement is fueled by the notion of giving while living. As more people are giving away more money during their lifetimes, they're holding organizations accountable. We're seeing it in organizations like the Robin Hood Foundation and the Tiger Foundation, where high net-worth individuals are banding together. There's also more information out there about who is doing what. And there are more intermediaries, like Bridgespan. So there's a method and means to achieve results.
What are the best practices of high-impact foundations?
First, they have to have the leadership capacity. The right people in the right jobs at the right time.
That's a Meg Whitman mantra. Did you steal that from her?
I don't know. I don't remember not knowing that rule. Think of philanthropy like investing. Peanut-butter philanthropy, where you spread your money in a lot of places, is like having an index fund. You don't need a whole lot of oversight. But high-impact philanthropy is like stock-picking. You have a portfolio of grantees, so you need the capacity to make smart bets.
Okay, what else do you need to do to do high-impact giving?
You need to perform appropriate due diligence on those big bets. All philanthropy is personal, but due diligence requires objectivity and rigor. Look hard at the strength of the organization you're giving to. And you need to be a continuous learner.
A continuous learner - to make sure you're a better philanthropist tomorrow than you are today?
There is a natural tendency for those who give away money to think that they have all the right answers. Because when you give money away, people tell you, "thank you...thank you." Nobody tells the donor that they failed. You've got a conspiracy of euphoria. So a foundation has to ask, What am I doing wrong? What are my failures? Learn from the top and bottom quartiles of your accomplishments.
Besides Bridgespan, who else can philanthropists turn to for advice?
The best teachers are practitioners. Talk to people you know. The Tiger Foundation has a program to create Tiger Cubs, which are next-generation philanthropists. There's the Philanthropy Roundtable, which aims to improve the effectiveness of family foundations, and GEO. Besides Bridgespan, there are other intermediaries like McKinsey, the Monitor Group, and the Foundation Strategy Group. The Forum of Regional Associations of Grantmakers and their local offices are great resources too.
Who uses the web effectively?
The Hewlett Foundation. They're posting failures and being more specific about grants than they used to be. But generally, foundations have been very introverted in using the Web.
But lots of organizations use the Web to facilitate giving.
Absolutely. GuideStar posts nonprofits' IRS Form 990, from which the public can learn about organizations that interest them. boardnetUSA, which partners in with our Bridgestar initiative, connects organizations with potential board candidates. Network for Good connects donors to charities. Volunteer Match connects opportunities to volunteers. My family and I give to Heifer International. You buy a goat online for a family or village in Africa. With a click, you send an e-card to them. And at DonorsChoose.org, I can find specific requests from specific teachers for specific needs. So if a classroom in Harlem needs a globe, I can buy that globe for $40. It's just extraordinary. In thousands of ways, the web enables people to respond to needs and create new ways of giving.
So the Internet is another growth driver. The shift to the information economy is a huge driver. Anyone can go online and identify opportunities to give. And there's not a week that goes by that your friends and colleagues are not inviting you to charitable events. Today, we have charitable SurroundSound. 
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