ArticlesBlog

GSB Lecturers Kim Jonker and Bill Meehan, “Engine of Impact”

GSB Lecturers Kim Jonker and Bill Meehan, “Engine of Impact”


[MUSIC] Well, it’s great to have such
a fabulous turnout for this event. I could tell that this was a really
great reunion today when I walked across to the Knight Management Center and
I saw that it was the end of October, and we were giving out sunblock at the sign
up shed, so this turned out very well. So first of all, Bill and Kim,
it’s great to have you here today. This is a real pleasure for me because you
just heard about all the great things that Bill and Kim have done, but in addition
to those things, Bill has been for many years at the GSB
a great font of wisdom and strategic advice for everyone at the
school, and has been for me personally, so lovely to do this with you. And Kim, even before she was a GSB
student, we were fellow students many, many years ago at Oxford. So nice to get to do this
together with you, Kim. Okay, so the topic of today’s
discussion is Bill and Kim’s new book, Engine of Impact,
and I recommend it to everyone. I’ve got an advance copy of it,
and it’s fabulous. And essentially, it takes what they’ve
been teaching at the school for, in Bill’s case, for more than 20 years,
about nonprofits in the social sector, and tries to distill it down to
give advice to people involved with nonprofit social sector organizations,
which is such a fabulous topic. So I think I’ll start by asking
questions for maybe 30 minutes, and then we’ll turn it over for Q and A. So, first question. So tell us a little about
how you got started thinking about the performance of
nonprofits and social organizations. Well, for me it goes back,
I think it was 2005 when I first encountered Roy Posterman,
who’s the founder of Landesa. He’s an extraordinary entrepreneur and
leader. And he is 83 years old, and still works to alleviate extreme
poverty every single day. Very inspiring. I was on the front with him a few weeks
ago when he was about to head to Asia to do field work. And Landesa’s intervention is
basically grounded in land reform, which turns out to be a critical
mechanism of extreme poverty alleviation. And over many decades, Landesa has impacted over 100 million families,
which is 400 million people. And what’s intriguing about that is
that it’s easy to assume that that’s an enormous budget, and
they just got a lot of donations, and so were able to help a lot of people. But actually, especially in
Landesa’s case, that’s not true. So in the first 20 years,
they operated on a shoestring budget. They had an annual budget
of less than $2 million and the headquarters was in a small one
bedroom apartment in downtown Seattle. It’s where all the staff came to work. And it was so small that they kept
half of the files in the bathtub, and they kept the other half on the stove. [LAUGH] And
what’s intriguing about that story is, so if it’s not funding, what is it
that drives extraordinary impact? And it’s those questions that we were
wrestling with and undertook this research so we could answer and codify in this book
>>And so Kim, for ten years, did up the valuations for the Henry Kravis Prize, which was
administered by Claremont College. And Roy was the first winner. And after seven or eight years Kim said, why don’t we come down,
and we’ll get seven or eight of the Kravis Prize winners,
and we’ll do peer learning for a day. And it was just a glorious experience. And Kim and
I noted after the first couple, that a lot of what these leaders
with demonstrated impact were saying was consistent with what Kim and
I had learned over the years. And so we first did a series of,
what was it, webinars, or->>Articles.>>Articles called Fundamentals, Not Fads
for the Stanford Social Innovation Review. Which is now part of PACS, which was
founded here at the business school. And then Kim, I think happily, turned to
me one day and said, let’s write a book.>>[LAUGH]
>>And we’ve discovered, any of you who’ve done any writing,
as I was just saying to John, all the great writers who talk about
writing use violent metaphors, things like, you slash your wrists,
and you bleed it on the page.>>[LAUGH]
>>And I can only tell you that is an incredibly joyful experience
compared to doing book promotion.>>[LAUGH]
>>And I would just like to thank you all for showing up today because
this is our first formal event.>>[APPLAUSE]
>>And if each of you buy 2000 copies,
we don’t have to do anymore. [LAUGH]
>>So give us a brief summary of
what exactly is in the book, as a teaser, so people will order
at least their first thousand.>>Well, so
let me start with our call to action. In our introduction we review
the history of the US non-profit sector. I think it’s well known by all of us. The non-profit sector in the US,
as first famously commented on by Alexis de Tocqueville in the 19th
Century, is unique around the world. And it’s given us a lot a strengths. Many of us know America has somewhere between 15 and 17 of the top
25 universities in the world, and the reason is our philanthropic model. It’s just true. We’ve been able to fund when
governments begin to withdraw. Our call to action is,
we just ran some numbers, just, for those of you, you know there’s a Monte
Carlo model, and all that sort of stuff. And if U.S. philanthropy this year is $400
billion, about a third of that’s churches. By 2020, we think the sector is going to
fall, $100 to $300 billion a year short. And I don’t care what kind of
nonprofits you’re involved in. Could be university, could be an opera, could be a hospital,
could be a social service organization. You’re all going to
need more philanthropy. And as we have that, plus the famous tech
millennials coming through, we basically used the metaphor of an engine,
thought about strategic leadership. We call for a clear and focused mission. We call for a strategy that is
grounded in a theory of change. A logic model,
perhaps even supported by evidence. And-
>>[LAUGH]>>Impact measures that demonstrate that what you’re doing is actually working. Now in most of our lives, the notion
that you have a goal or a mission. A way to achieve it, and
a measurement is not controversial. And it remains largely not the model
that most nonprofits follow. And we add into that, so we demonstrate, we call ourselves analytics
who like Yeats because the sector has an ambivalent attitude
toward measurement and quantification. And so we add insight and courage because
we all know all the great nonprofits were involved not only in the founder, but very
often in the current executive director. They have a unique insight into
what they’re trying to do. And it takes enormous personal courage
that pervades the organization to do it. And then we get into the more concrete,
day to day things. And in our experience, the nonprofits that
truly have impact have an excellent board. And we can talk a lot about boards. Most nonprofit boards, we all know,
I mean just sit there. And you just wonder how so many talented people can have no
apparent influence and impact.>>[LAUGH]
>>We can talk a lot about fundraising and what’s going on. And, again, the last 20 years, there’s
been a call for foundations and others, for sustainability and earned revenue. And at a certain level,
we’re all for that. But we can tell you the next era is
going to be about more philanthropy, including, we hope,
to the social services organizations. And, lastly, in organization and
talent, we talk about two things. The team of teams models which we think
are being pioneered again by Bill Drayton at Ashoka, who was my first mentor and founded the movement we call
social entrepreneurship. He’s organizing Ashoka
around team of teams. It’s a model many of us
are working in today. And we also borrow from the great
organizational rethinkers, starting from Peter Drucker, and
have our six elements of a high performing non-profit, which you
have to have in a book like that. So, Kim, I’ve kind of done the survey. Anything you’d want to call
out out of that particularly?>>No, I think we chose the metaphor of
the engine because we believe very firmly that these seven components all have to
function at a high level at the same time. And that malfunctioning in any of these
parts can really drag the performance of the entire thing down.>>Let me come to one of
the points you made at the end, which was you take a lot of frameworks
from for-profit corporations and the work that’s been done on
high performing organizations, some of it done here at the GSB,
and you apply it to nonprofits. So you’re running a nonprofit, Kim. So how do you think about the difference
between running a nonprofit? And where are the closest
parallels to the corporate sector? And where’s the biggest distinction,
in your mind?>>I think one of the biggest
distinctions is mission, in the sense that in the nonprofit sector, organizations are inherently
mission driven. And missions can also be
the reason that things fall apart. Whereas in the corporate sector there
is inherent clarity of purpose. We’re maximizing shareholder value. And so stakeholders might disagree,
but there is this guiding principle, whereas nonprofits come with
all of these stakeholders. And they often have different agendas or
at least if not different, competing and whatnot. And so the mission in the nonprofit
sector is a really critical tool, especially when it’s very tightly
focused to make decisions about which programs to pursue,
which to exit, which to avoid. And in addition to having a tightly
focused mission, the organization has to, Have its activities
actually abide by that. And unfortunately many don’t, and we get
a lot of mission creep, which Bill and I think is the leading
virus in this sector. And to make a distinction,
in the for-profit sector, if a bakery business suddenly decided
to start manufacturing pianos and tennis rackets and developing software,
people would raise an eyebrow, and that would be an inherent problem. And yet the equivalent can happen in
the nonprofit sector and nobody blinks. So I think that’s a really
important distinction.>>Or they would rename themselves. Instead of being Google,
they’d be Alphabet>>[LAUGH]>>Well, and John, you talked about corporate
strategy in business and whether it relates to nonprofits. And on a coupleof important
points in the book, we have to use the data from business,
and argue by analogy. Because there’s just one inherent
constraint to doing analysis of performance in the nonprofit sector,
which is there’s no dependent variable. And we could argue about SROI and
all sorts of things. You and I,
we were talking about it at lunch. I think the problem of comparing the cost
and benefit of Stanford Hospital and the San Francisco Opera and the Ravenswood
Medical Clinic is too hard for me. It’s just too hard for me. And so
we know from corporate strategy, and it’s conclusive,
that focus always beats diversification. There might be one company,
an error that you argue about. It used to be GE, now it’s Danaher. But by and large, if you’re a company,
you’re supposed to focus. And yet, as Kim points out, we have many
nonprofits that do two or three things. And they’re generally quite
smaller than businesses. If you run a million dollar business,
would you have it do more than one thing? Of course not. And yet nonprofits will argue that. And often it’s because some foundation or
donor came along and said, well, we only fund programs. Our program is for
midnight basketball, and guess what? We now have a midnight basketball program. Well, it’s just not clear at all. The last thing I’ll say is I teach,
and it’s true, all nonprofits operate in markets. When Eastside Prep opened up four
charter schools in East Palo Alto, it was a complete market failure. There was no high school. Literally everybody either had to bus or
what have you, it was an awful situation. And obviously we want many nonprofits to go into markets that are in failure. And they’re in failure because the profit
motive is somehow not available. But if you look at hospitals in the US,
very different in most of the country. 75% of the hospital beds in
this country are nonprofits. In the Bay Area,
we have guys at Permanente. We have Sutter. We have Stanford. We have UCSF. Those are all nonprofit beds. Having said that,
you only have to look at TV or billboards on 101 to know these
are very commercial organizations. And they’re making a trade-off. The economic research shows that in areas
where there might be contract failure, which is to say the consumer can’t really
tell whether they’re receiving a quality service, that nonprofits might, in fact,
deliver a higher quality service. On the other hand, we know that there’s
no more powerful model to scale an organization to make them productive,
then being in business. And so, the last thing I’ll say is, yes there are important lessons
from business for non-profits. But don’t go to your
first board meeting and say, this thing needs to
run more like a business. Yeah, it needs to do that but it also needs to do two other things
that are at least as important. So it’s a more sophisticated message.>>And the mission point
is really interesting and I’m curious about the following,
which is whether you think for-profit corporations now actually have to be more mission focused and the two
things that make me ask that question. One is: if you take the students that
we have now at the business school and they talk about what it is that they’re
looking for when they look for a job. One of the things that will always come up
in that discussion is they say I want to look for an organization whose
values are aligned with mine and who have a mission that I believe in. And when we bring in corporate leaders,
organizational leaders, of for-profit companies to talk here, say
at view from the top, the one thing that they almost never say is our mission
is to make money for our shareholders. What they say is we have a great mission
of serving our customers, our employees. And I don’t know that every time in
the world that would’ve been true, but that seems to be very much the way people
are thinking now or at least talking now?>>Well, let’s do a whole another hour and
a half on this one. So I learned here that certainly publicly traded companies
need to maximize shareholder value. This is because of economics,
it’s not because of choice or mission. Of course, it’s attractive to any of us,
a good culture, values that we support. Myself, I would like corporations not to focus on corporate social
responsibility but ethics. Just give me strong ethical performance. To me, there’s no necessarily
reason that a corporation has as a skill set to have
a positive impact on society. If you look at most corporate foundations,
a large amount of the money they give is now marketing money,
some of it’s good citizen money. And I don’t think the record of corporate
foundations as change agents is justifies a lot of enthusiasm. You know the last thing I’ll
say is of course we all want to work with organizations whose
values are similar to our own. There are a lot of people going
to work In the last few years for UBER and other companies where, first of all, the social mission,
to me, at least, in unclear. And the values of a lot of companies in
Silicon Valley, from my point of view could use, not so much social but
just basic human values and ethics.>>[APPLAUSE]
>>Right, I don’t necessarily want them, well, in the first instance,
I want them to be successful companies. And then the second’s how about
treating their people well. And forget about whether or not they can be change agents for
The East Bay or something. Kim, you want to?>>Well said.>>And you have a great chapter
in the book about managing people inside the organization.>>Yes, yeah.>>Let me ask about. Actually, I’m going to ask about boards,
but I’m actually just curious about this. But how many people in the audience
serve on a nonprofit board? That is unbelievable. I have to say that’s pretty fabulous. That must have been two-thirds
of the hands in the audience. What advice do you have for
people serving on non-profit boards, from the research you’ve done?>>So I have my quip,
my swing thought for you. It will sound harsh and
I’m completely right.>>[LAUGH]
>>Which is, how many of you who just raised
your hand have sat on a board which you have felt is dysfunctional?>>[LAUGH]
>>It was slightly less than how many
are serving on a non-profit board.>>Yes, exactly and so my swing thought
is very simple, which is ask stupid questions until you figure out
what the smart questions are. Ask the smart questions until
you get a smart answer, and if you don’t get a smart answer, resign. There’s an enormous amount of
opportunities for all of you. You’re a scarce resource. You’ve got leadership. You’ve got experience. You’ve probably got some money. You’ve got a network of
friends to bring to bear. If you’re sitting on a non-profit board
and it’s not making any sense for three times or four times in a row,
it’s not your problem. It’s not because you don’t understand
social work, or doctors, or orchestras, or faculty. Well, maybe faculty.>>[LAUGH]
>>[LAUGH]>>No comment.>>But the point is, listen our book is seated in in deep intellectual thought and rigorous analysis, either that or
it’s all common sense. And so, there’s almost
nothing on a nonprofit board, certainly of a million dollar ten million
dollar, even on the board of Stanford, which will not yield to your thoughtful,
rigorous, thinking. Now, does that mean the first idea out of
your head, well you know I’ve been for 20 years in business and every time
I know when I’m on you, we know, I mean take the time to learn,
take the time to learn, it is different. Motivating social workers is different
than motivating retail employees. But just bring a rigorous eye. There’s a joke that nonprofit staff. I’ve spent at least as much time with
nonprofit staff members as board members. And you know sometimes they
say after the board meeting, please make sure you write the check
before the door hits you on the back. Not all non profit staff are pure
in their interests with the board. And you have to understand
where they’re coming from. And so I’d empower you to
use your common sense and also view yourself as a scarce resource. If you’re on a non-profit board, and you’re not having impact, even we join
non profits because of our friends, because of our social aspirations,
all sorts of reasons. Virtually all of you have
a contribution to make and you should find a non profit
where you feel aligned.>>I would add a couple
areas where I think GSB alums can make a particularly useful
contribution on the non-profit boards. One of them is on mission. We already talked about that, but make sure that you are the mission
police on your board. And the other one Is on this
topic of quantitative evaluation. It is astonishing how many non-profit
organizations have little or no evidence that their
intervention actually works. And so make sure that you are the voice
on the board asking for the data. And there’s so
many organizations that will push back on that request and-
>>It’s too expensive, Kim.>>And it’s qualitative.
>>It’s too expensive.>>You can’t measure-
>>It’s too expensive.>>Something qualitative, don’t reduce
our work to mere numbers, right.>>It’s too expensive. But I think we take the perspective that,
yes, that’s right, but you can learn something
from the process of trying to translate the qualitative into the quantitative. And the board plays a critical role
there in asking for the numbers. And we give this example in the book
Of Willowcreek Community Church, which there was a GSB alum who
was working at this church, and they decided to to undertake
this quantitative analysis on something as touchy
feely as spiritual growth. And they did this whole rigorous
Mackenzie-style quantitative analysis and they came out with answers
that fundamentally shifted the way in which they did their work. And if they had stopped and said,
you can’t measure something like spiritual growth, well, they might not have learned
what they learned from that exercise. And so we hold that as an example of
the extreme, but to make the point that almost every organization can,
in fact, measure, and should.>>Yeah, and we ought, I mean again,
back to the incentives of the staff, how many of here of you like
to receive negative feedback?>>[LAUGH]
>>Yeah, and so the problem is if you’re, let’s say,
an established non-profit leader, and somebody comes on the board and says,
no, you really want to measure it. My god, like Jesus, do I want to be? I don’t want to be a manager. So you just have to be thoughtful,
rigorous and patient with them, but persistent because in the end, let’s talk a little bit about fundraising,
the single biggest choice many of us have as board members
is whether we’re going to fund raise. Nobody would, well,
very few people want to fund raise. And frankly, a huge portion of
your power as a board member will come from your own generosity in
that that you might be able to raise. In today’s world, certainly in our world, one of the first three
questions people are going to ask is do you do any
performance measurement? And so in advance of going out for the
capital campaign, if I was a board member, I would sure want to be able
to answer the basic questions that we’ve been talking about. Is there a clear and focused mission? Is there a strategy grounded
in theory of change? And can you show me something which
demonstrates that this organization is actually having the impact
that it’s aspiring to achieve? Anyway.>>On the fundraising side and the philosophy side,
you talk about philanthropy in the buck. I’ve got questions of philanthropy and
you can pick either one. One was about whether you think that
philanthropy is changing from a model where people want to support more
traditional organizations that they feel good about and recognize them
to more strategic philanthropy, people who are looking at impact or
results. And the second is how you think about the
philanthropy, and we’re in Silicon Valley, there’s been a lot of wealth created, how
do you think about the philanthropy of all of the new generation that has been very
successful, and is maybe still very young? What do you think the impact of
those folks will be on philanthropy?>>So where do we start? It’s a great opportunity to be topical. So let’s start with Hewlett-Packard Moore,
and the next generation,
Gates, now most famously, Chan-Zuckerberg, Emerson Collective,
Omydar. What defines a lot of these individuals is the first idea they
ever had as an adult changed the world and made them billions.>>[LAUGH]
>>And so->>Wow.>>I’m still waiting for
that idea, how about you? And so to go back in the history of
the American nonprofit sector and philanthropy, it begins with a very
similar generation a little over 100 years ago. We call it the industrial era,
and the US non-profit and philosophic sector was essentially
created by a group like this, Carnegie, Rockefeller Sage,
Julius Rosenwald, here but was a founder of Sear’s, and
the first spend down philanthropist. And so I think we need to be patient,
and watch to see what they do. Their first blush effort in almost
every case is to say what they learned, which is everything that went before is
old, traditional, and I’m going to do new, because the only thing that this sector
needs is my intelligence and resources. And most of them are in the second
generation because the first thing Zuckerberg did was give a $100
million to the Newark public schools. And he could have asked anybody. And Bill Gates has had a tremendous
impact, particularly, in health care. But he also spent $1 billion to
discover that class size and school size does not affect
US public education. So I think we are very optimistic. There’s a lot of learning to be done. There’s no history at all to
guide our thinking on what 40 year olds do in philanthropy. It’s never happened before,
they’re all learning. Kim and I are both fans of Cari Tuna and
Dustin Moskovitz. Dustin was number two at Facebook,
now runs Asana. And they are just doing a wonderful job. They’re, in a certain way, disciples of
Peter Singer, a philosopher at Princeton, who espouses a view,
very utilitarian in a humanist, which is that all of our
philanthropic resources should go to help the poorest and
neediest of the world, full stop. Until you do that,
don’t think about anything else. Well, they worked with a group at GetWell, they’re now called Good Ventures or Open
Philanthropy, and they have gone in and done as rigorous analysis as you can
into interventions into extreme poverty. Very fact-based, very careful,
very thoughtful, very innovative. Similarly, Matt Bannick,
who’s a graduate here, leads a Omidyar. They’ve really pioneered thinking
about the full range of capital, let’s call it impacted vesting, but bringing the full range of capital to
solving poverty and other interventions. So lots of intervention,
lots of ideas And we’ll all get to watch.>>Let me open it up for questions and see what folks in the audience
want to ask about. There’s a I think, raise your
hand if you have a question, and we’ve got a microphone in the back. So we’ll get to you with the microphone. Great, hi,
Adam Stern from the class of 1987. Your book,
which I look forward to reading->>Available for pre-order right now on Amazon.com.>>[LAUGH]
>>And by the way, you can order copies for
your friends.>>[LAUGH]
>>Okay, good.>>The whole nonprofit board.>>Yeah, absolutely.>>Good, probably makes some
big generalizations across the whole nonprofit sector,
which is extremely diverse from hospitals, to social service groups, to environmental
groups and a lot of other things. Talk about, if you would,
sort of how you tried to find the common threads across the different sectors
within the nonprofit sector and what do you think of charity
rating services that try to boil down the performance of an
organization to a set of stars or grades. And where does that enter into your
assessments of performance of nonprofits?>>Can I take the second and
then you can take the first? So I’m sitting here for lots of reasons. I met Bill Drayton in 1974, but more
proximately Buzz Schmidt was a member, close friend of mine from
the class of 1978 and in the mid 90s founded Guide Star. And Guide Star was named Guide Star
because we thought it would become like Morning Star, but
in the end to collect the basic data. If you don’t know guidestar.org
it’s the leading source of information on nonprofits in the US. But we’ve avoided ratings because
fundamentally the nonprofits wouldn’t give you the information if you
told them they were rating. Charity Navigator is the leading rater. They claim to do things
beyond financial ratios. They don’t. They can’t. Nobody has spent more time
on the topic of outside-in evaluation of thousands of
nonprofits than I have. And when you come up with a way to
do what you’re saying can’t be done, you let me know. There are some things,
you can talk about broad ratios, you can talk about transparency,
you can talk about a few things. But just think about evaluating
a thousand nonprofits outside or in, it’s just not doable. But Charity Navigator, boy, is doing a great job of leading
us all to think they are. Would I give money to an organization
that Charity Navigator had as a one star? Not without a lot of study,
but what I allocated. I mean, well, allocating your money,
your philanthropic money to five star charity organizations has all
the insight and analysis that allocating all your mutual fund money
to five star morning side ratings, which have been shown historically
to regularly regress to the mean. So that’s just the measurement thing. It’s just too complex to reduce to stars. I wish it was easier. And if anybody has an idea to do it,
it would end our 25-year search.>>And on the question of diversity, There is enormous diversity in
the landscape of nonprofits. And one of the reasons we wrote the book
is because we were so struck in these peer-learning retreats that we were
facilitating for nonprofit leaders that there was so much similarity in their
experience, both in their successes and their challenges, even though they
worked in completely different areas and different geographic areas,
different kinds of interventions, everything from public health to
education and across the board. And yet, there, what the key fundamental drivers that made them extraordinary and
effective were similar across them. And so, that was, the effort to
write the book was to sort of really distill what are these things that
whether you’re an arts organization or a homeless shelter in Cincinnati, what are the common things you can all
do to increase your impact over time?>>So one of the things that’s very common
in the nonprofit sector I call art and science, which is many of these
organizations and nonprofits whether they’re a university or a hospital or
social service organization or a symphony. Well, church and state,
they have the state. They have faculty members, they have
social workers, they have singers, they have doctors. These people are professionals. They have a professional mission, and there’s a reason why they’ve
chosen to affiliate with a nonprofit. There’s a cultural element to it. That’s not true to every kind of
nonprofit but it’s true of churches, for example, It’s true in probably 75 or
80% of the sector. And that’s a large part of
what makes nonprofits uniquely challenging to manage and lead. People talk about mergers of
nonprofits like it’s this big trend. Well, companies merge because
of financial incentives that lack in the nonprofit sector.>>Let me follow up on the question,
then we’ll go back to the audience. You talk about measuring impact and a lot of the nonprofits you talk about
are ones that are helping needy people. There’s another category of nonprofits
which are cultural organizations. A lot of them are struggling. Symphonies, ballets,
we think about it here at Stanford because it’s much easier for us to raise money,
for example, to build the medical center than to support the arts
as a broad generalization. Any particular things for
the cultural sector? They have some of the biggest challenges
from the frameworks you give.>>So I just retired as a life governor of
the San Fransisco Symphony after 27 years. I just helped the new general
director of the San Fransisco Opera transition his new role. More philanthropy, more philanthropy,
more philanthropy. Anybody planning to pay more for
their tickets to concerts next year? It’s I mean, 150, 250, 300,
plus a required donation. The big opportunity for most of these
performing arts organizations is to cut their price and
get more people to come. That’s less economic. I mean, most of them don’t get
hardly any government money, they’re going to get less. Some of us, I don’t know what you
all think, believe that investment returns in the next 25 years might
be less than the previous 25 years if you have a payout of 5.5% and
real returns are three or 4%. And so just as a matter of simple
arithmetic, these organizations, you probably all know,
it’s been around the sector forever. Bill Baumol’s original research
with Bill Bowen at Princeton, it’s called the Baumol’s cost disease. It just means That this auditorium has so
many seats. And once it’s sold,
you’re paying the orchestra so much, there’s no economies of scale. And let’s not talk about
the Metropolitan Opera and maybe it makes a dollar, maybe it doesn’t. So I think all these organizations
are trying everything they can to escape inevitable, which is they’re going to
have to have larger endowments and larger annual campaigns. And one of the things they’re doing,
a little bit like philanthropy, is they’re saying, what can we
do to get the millennials come? It is generally true,
we all know this, very few of us go to the performing arts regularly
until the kids are teenagers. And so, 28 year olds don’t go to
the opera much, a few, but not much. So it’s going to be more philanthropy,
I don’t know how else to solve it. And by the way, it’s probably
true of a leading university.>>[LAUGH]
>>Unless you’re planning to raise tuition more aggressively.>>I would love to lower our tuition
actually, it make the economics better for the students. But, as you say, I’ll give you an example
the cost disease, they talk of course, this is characterized
that higher education. Two nights ago, I was at the SEP reunion. That’s our summary executive program. It’s the 65th reunion. Just to give you a sense of cost inflation
in education versus other sectors, the first summer we ran
the SEP program 65 years ago, we charged $750 for the summer program. And today we charge, I think it’s $75,000,
the costs have gone up 100x for that program over 65 years,
which is higher than inflation. Okay, who’s got another question?>>You mind if I do my commercial here?>>Go ahead. [LAUGH]>>So first of all,
John doesn’t want to say this, but executive education is one of
the few things where you can charge a market price.>>Yes, that is correct.>>Right, so that’s a. Can I get my commercial for
Stanford or not?>>You go for it, absolutely.>>So obviously, I’m asked from time to time about giving
to elite universities like Stanford and I have to tell you I’m a far more
positive proponent than one might guess. I worked with the Gordon Moore Foundation
in the first three years of it coming together. And I met a man named Ed Pednault. Terrific guy,
started ran the Berkeley School of Health. He was hired by Gordon to create a program to fund the basic sciences in a
way that the biosciences have been funded. And I said, Ed,
what’s your thought about that? He said, I only know two things. Number one,
great science is done by great scientists. And so, first of all, if you want to have
an impact on the world with an insisting institution, I am everything at Stanford,
including an employee. And a lot of us who have a casual
relationship with the University say, [SOUND] you know,
it’s actually very well run. In a certain way, right?>>[LAUGH]
>>But we have thousands of faculty who are highly incented to do
world class research and teaching. They just are. And it doesn’t look like a business,
I can tell you that. But I will tell you that certainly in
particular areas, our philanthropic model for this university,
I mean our elite universities, like it or not, are one place where we continue to
distinguish ourselves around the world. And so the only thing I can say is,
number one, there’s a lot of great researchers and
teachers at this university. And secondly, the model more,
let’s put it this way, Stanford University runs a lot better
than any private foundation I know. And nobody knew I was going to say that.>>I didn’t prompt him on that one. That’s him.
>>I am David Guleb, also class of 87. My question is about the role of the GSB. So we’ve heard today we’ve talked
about new era of philanthropy, I think everybody agrees on that. We’ve talked about how there’s
an increasing need for philanthropy because of a variety of
different factors including reduced government spending in a number of areas. We’ve talked about how philantropies
are often not well run. So my question for you is,
is there an opportunity for the GSB to become more involved in
a variety of different activities all in that increasingly
effectiveness of philanthropy?>>Well, yes, and
I would also say it’s university wide. Let me start with the Center of Social
Innovation, that I had something to do with starting, and now, the Center for
Philanthropy and Civil Society, which used to be part of the business
school, now it’s part of the university. And PAX is focused on bringing the best of academic research
to these questions of impact. By and large, the academics have stayed away from
philanthropy in the social sector. As John can attest,
you didn’t get your PhD 15 years ago by doing research,
non-profits or philanthropy. We’ve begun to start an era where
there’s going to be more research. And in terms of the GSB,
the CSI and the PMP are thriving at a level that, well again,
I’ve been here teaching for 20 years. It’s more vital than ever,
the nonprofit management courses get great registration, and
now there’s more of them than ever. They love impact investing, corporate and social responsibility. Anyway, I was at, David Kreps was
speaking to a group like this and some old alumni, older than any of us,
I can’t hire those GSBs, they’re too expensive and
they’re too entitled. I’m not going to say that, because after
all most of our kids are millennials, so have to get that title. But I will say that there
is this social conscience, sometimes nonspecific,
but very specific at other times of a desire
to give back in some way. And I think the GSB is
very open to doing even more to support our graduates
in wanting to do that. I think that the GSB’s much more focused
now on a broader life of leadership. Than only just business leadership or
entrepreneurship leadership. But I think talk to John or
Neil Malhotra or Bernadette Clavier, they would all be happy to engage
with any of you on the topic of what more you might do here for
the students. There’s also, of course,
other executive education here and, or around the university for nonprofit
leaders that wasn’t there ten years ago.>>And working in the sector, the mark
of the GSB is there for me every day. Not only in the way that
I approach problem and the tools that I acquire here, but
Also in the colleagues that I have. I have this wonderful network of
people who also went to the GSB and who are working in the social sector. And we speak a similar language and
approach problems in a very similar way.>>I’ll just chime in that question
because I think it’s a great question actually. And I would say there’s
at least three ways, and there might be more,
that a place like the GSB can have an impact on nonprofits and
sort of generally their objectives. One is through the faculty and the work
they do, the research they do, and having folks like Kim on the faculty. Another is in the students. I think the fact that two-thirds of
all of you are on nonprofit boards, that’s actually representative
of our alumni population. So it’s the amount of engagement
our alumni have is enormous. And if you look now at the students, a third of our students last year were
involved in some sort of social activity, community activity,
social activity through the center for social innovation, which is
a historically, high level of the school. And then the last is,
we do direct impact things. I mean, something like Seed, and
Kim oversee’s King Fuentes, which was very involved with Seed, it is a way to sort
of do things in a sense forwarding the social mission of the university
in addition to the educational mission. Okay, I’m going to give you guys a chance
to wrap up with any final takeaways. Give us a sense of what can they
expect if they buy the book? And what would you leave them
with as a piece of wisdom? Maybe not the whole thing,
because they got to go out and read it, but
>>Well, I’ll just say at a personal level, My god, there’s nothing like re-reading something. Well, it took Kim much more work because
she’s so much a part of the writing. And as everybody who knows who works with
me I don’t actually do anything any more. But I will tell you, for me it was 15 months of three to
four days a week of four hours, and I am happy to report that I find
it very readable and contentful.>>[LAUGH]
>>And we’ll know in about a month
whether anybody else does. But it’s intended to be
both highly substantive and grounded as best as we can find in
fundamental economic and other concepts. But also seeing the limits, and at the same time, to be something
that everyday board members or executive directors would like to read. But it’s hard to talk
about one’s own book. The other thing I would add is that we developed a number of resources
that accompany the book. They’re up on our book website. For philanthropists,
we have a payout model. And for all of you who are on nonprofit
boards, we developed a diagnostic. We call it the Engine of
Impact Diagnostic, and it’s a set of questions that if you’re on
a board, you can answer the questions. It takes about ten minutes,
in order to get an assessment of how your organization fares on these seven
elements of strategic leadership. And what’s really interesting is to
ask other people at the organization that you’re involved in,
ask them to take the diagnostic as well. And everybody print out their results,
and then come together and talk about areas where you agree, and areas where
there’s a discrepancy in your viewpoint. Maybe because some people think that
things are going very well with your strategy, and
others have a different opinion. But it’s a useful tool, so I’d encourage
you to check that out as well.>>And Kim led a survey of
3,000 nonprofit leaders.>>Yes, that will be released this week.>>And the survey you can
connect to a matrix that we did, which reflects that data and shows kind of standard business
school consulting four box matrix. You can compare your answers with what the
survey data said for this sector overall. And also you just
mentioned the payout tool. The payout tool,
people are talking all about pay down, spend down, and versus perpetuity. And almost nobody I know ever
does the arithmetic, right? Which is they say things like I’m
going to give it all away in my grandchildren’s life. Well, if you do those numbers, it just turns out, because you all
know net present value and all that. Your grandchildren’s life and perpetuity are arithmetically in terms of
the paydown, is not that much different. And so you can play with this model if you
want, if you’ve got a lot of money to give away and begin to think about over what
period of time you might want to do your philanthropy Kim, Bill, thank you so much.>>[APPLAUSE]>>[MUSIC]

Comment here