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Use of Consultants by U.S. Foundations: Results of a Foundation Center Survey Lawrence T. McGill, Ph.D., Brenda L. Henry-Sanchez, Ph.D., David Wolcheck, B.A., and Sarah Reibstein, B.A., Foundation Center

Keywords: Philanthropy consulting, survey

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Key Points

· This article presents the results of a survey launched in January 2014 by Foundation Center, in collaboration with the National Network of Consultants to Grantmakers, examining use of consultants by community, corporate, and independent foundations whose annual giving totals at least $100,000.

· The survey asked funders to report whether they used consultants in the past two years and, if so, how frequently and for what purposes; they were also asked to report their level of satisfaction with consultants’ work. Funders that did not engage consultants in the last two years were asked why not. The survey also sought open-ended responses about working with consultants.

· The survey found widespread use of consultants among foundations. While the results of this study tend to emphasize the benefits – taking advantage of external expertise, allowing staff to stay focused on what they do best, bringing fresh or neutral perspectives to the work – respondents were also clear that working with consultants has its challenges.

Introduction To what extent do foundations use consultants to support their work? The recent rise of “strategic philanthropy” and its talk of theories of change, logic models, and the like may seem to explain why foundations would engage consultants. While we have known for years that foundations use consultants to support various aspects of their

work, we’ve never had a quantitative picture of how many, how often, and for what purposes.

This article presents the results of a survey conducted January to March 2014 by Foundation Center, in collaboration with the National Network of Consultants to Grantmakers (NNCG), examining use of consultants by community, corporate, and independent (including private and family) foundations.

The survey asked funders to report whether they used consultants in the past two years and, if so, how frequently and for what purposes. We focused exclusively on consulting for purposes of governance, program development, and management, and excluded legal, accounting, and financial/investment services and technical assistance provided by consultants directly to grantees. Funders were also asked to report their level of satisfaction with consultants’ work across multiple dimensions, including cost, quality of work, and ability to communicate findings and recommendations.

For those funders that did not engage consultants in the last two years, the survey asked them to indicate why not. Last, we solicited open-ended responses regarding the benefits and challenges of working with consultants.

Methodology Data on consultant use by foundations were collected as a supplement to Foundation

doi: 10.9707/1944-5660.1231

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59,395

21,566

4,617 358

109

467

< $100,000 $100,000 to $1 million $1 million to $9.9 million $10 million to $49.9 million $50 million +

Total = 86,045

Center’s annual giving forecast survey. The primary purposes of the forecast survey are to obtain information on giving and assets for the most recent year of giving, and to forecast for Foundation Center’s annual report on growth and how giving might change in the coming year. The survey is also used to understand various developments in the field. Past topics have included diversity, equity, and inclusion practices of foundations and foundation engagement in mission- and program-related investments. The survey has a maximum of 20 questions; the consultant questions were developed and vetted in partnership with NNCG. (See Appendix.)

The majority of U.S. foundations – 69 percent – are very small, with annual giving of less than $100,000. (See Figure 1.) Most of these are unstaffed and reliable contact information is hard to come by, making it difficult to include them in surveys of the field. Hence, these foundations are not included in this analysis. We focus on the 31 percent of U.S. foundations (N = 26,650) whose annual giving totals at least $100,000. Although the excluded foundations represent more than two-thirds of the foundation community, they comprised less than four percent of total giving in 2012 awarded by community, corporate, and independent foundations. The foundations invited to respond to the survey represented more than 74 percent of total giving by those types of foundations in 2012.

The survey was sent to the primary contact for all community, corporate, and independent foundations that reported giving of $100,000 or more in 2012 for which Foundation Center had contact information (N = 4,517) at the end of December 2013. The primary contact was the individual who completed the survey the previous year; if a primary contact was not available, the survey was sent to the president or chief executive officer of the foundation.

Even among foundations with total annual giving of at least $100,000, most are unstaffed. The total number of staffed foundations in the United States is not known, but most estimates suggest that it is less than 10 percent of all foundations, or between 5,000 and 10,000. Virtually all the foundations surveyed for this study are staffed.

The survey was administered electronically (web-based) and on paper, and was open through March 2014. Follow-up calls were made to the larger foundations to encourage participation. Twenty-three percent of contacted foundations completed the survey (N = 1,031). Among foundations with total annual giving of at least $50 million, the response rate was 56 percent (55 of 99 foundations), more than two times the rate for smaller foundations. Community foundations had the largest response rate by foundation type, at 36 percent; the response rate was 14 percent for corporate foundations and 22 percent for independent foundations. (See Figure 2.)

Response Rates by Total Giving & Foundation Type

56%

26% 23% 20%

36%

14% 22% 23%

0%

20%

40%

60%

80%

100%

* Includes private and family foundations

FIGURE 1 Number of U.S. Grantmaking Foundations by Total Giving (2012)

FIGURE 2 Response Rates by Total Giving and Foundation Type (N = 4,517)

McGill, Henry-Sanchez, Wolcheck, and Reibstein

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By design, the surveyed foundations did not mirror the distribution of foundations in the United States. (See Figure 3.) To ensure subsamples large enough to permit meaningful analyses, we oversampled larger foundations (by total giving) as well as community and corporate foundations. We then weighted the data by foundation size and type to mirror the distribution of foundations in the United States, and adjusted the weights to account for differential response rates. While we weighted the data to be more reflective of the overall distribution of foundations by size and type, we do not know the extent to which the foundations that responded to the survey represent the broader foundation community and, therefore, we caution against generalizing to the broader group.

We received responses from 757 independent foundations, 194 community foundations, and 80 corporate foundations. Grouped by total giving, the sample included 55 foundations with annual giving of $50 million or more, 119 with annual giving of $10 million to $50 million, 481 with annual giving of $1 million to $10 million, and 376 with annual giving of less than $1 million. The foundations that responded to the survey represented 33 percent of total giving in 2012.

Findings We found evidence of widespread consultant use by U.S. foundations. Among foundations with annual giving of at least $100,000, one-third reported using one or more consultants in the past two years. However, this figure obscures a wide variation in the use of consultants by foundations of different sizes and types. Larger foundations and community foundations were significantly more likely than their counterparts to have engaged consultants in the past two years. (See Figure 4.)

FIGURE 3 Sample Distribution

Sample Distribution

NUMBER OF FOUNDATIONS

Independent Foundations*

Community Foundations

Corporate Foundations TOTALS

Annual Giving > $50 million 35 (3%) 15 (1%) 5 (0%) 55 (5%)

$10 million – $49.9 million 81 (8%) 26 (3%) 12 (1%) 119 (12%)

$1 million – $9.9 million 355 (34%) 79 (8%) 47 (5%) 481 (47%)

$100,000 – $999,999 286 (28%) 74 (7%) 16 (2%) 376 (36%)

TOTALS 757 (73%) 194 (19%) 80 (8%) 1,031

* Includes private and family foundations

Consultant Usage by Total Giving & Foundation Type (N=1,031)

81% 74%

55%

28%

75%

26% 33% 33%

0%

20%

40%

60%

80%

100%

* Includes private and family foundations

FIGURE 4 Consultant Usage by Total Giving and Foundation Type (N = 1,031)

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Community foundations were more than twice as likely as independent foundations to engage consultants, 75 percent compared to 33 percent, and almost three times as likely as corporate foundations (at 26 percent) to do so.

Consultant use is particularly widespread among foundations with total giving of $1 million or more, of which there are nearly 5,100 in the United States. According to our survey, 55 percent of foundations with giving between $1 million and $9.9 million have used consultants at least once in the past two years. Among foundations with total giving of more than $10 million this figure rises to 74 percent, and for foundations giving $50 million or more, it is more than 80 percent. Simply stated, consultant usage is the norm among large U.S. foundations.

Frequency of Consultant Use Of those foundations that reported using consultants (33 percent), more than two-thirds (68 percent) used them one to three times in the past two years. The other one-third used consultants four or more times. (See Figure 5.)

Just as the overall use of consultants increases as foundation size increases, so does the frequency with which they are engaged. Among the smallest foundations (those with total giving of less than $1 million), 28 percent of which reported using consultants, the most common response on frequency was once in the past two years. Among slightly larger foundations (those with total giving of $1 million to $9.9 million), f requency of use

rises to two to three times in the past two years. (See Figure 6.)

Among the largest foundations (those with total giving of at least $50 million), consultant use is nearly ubiquitous: 81 percent of these foundations reported using consultants in the past two years; of those, 63 percent used them 11 or more times.

The frequency of consultant use did not vary greatly by foundation type. Among community, corporate, and independent foundations that used consultants, the median was two to three times in the past two years.

What Are Consultants Used For? We asked foundations that used consultants in the past two years to tell us, f rom a list of 12 categories, the areas of expertise where they sought advice. Consultants were most commonly called upon by foundations to provide expertise in technology/information management/IT (40 percent), communications and marketing (28 percent), and evaluation (21 percent). (See Figure 7.)

With the exception of the smallest foundations, those areas of consultant engagement were the top three among foundations. Among those with annual giving of between $100,000 and $1 million, facilitation replaced evaluation as the third most frequent area for consultant engagement.

The largest foundations made extensive use of consultants across multiple areas. Of those that

Frequency of Consultant Use (N=555)

32% 36%

13% 10% 9%

1 2 to 3 4 to 5 6 to 10 >10

FIGURE 5 Frequency of Consultant Use (N = 555)

Frequency of Consultant Use by Total Giving (N=555)

37%

22%

0% 0%

35% 39%

36%

7% 12%

17% 13% 13%

8% 12%

16% 17%

7% 10%

27%

63%

0%

20%

40%

60%

80%

$100K to $1 M $1 M to $9.9 M $10 M to $49.9 M $50 M+

1 time 2 to 3 times 4 to 5 times 6 to 10 times > 10 times

FIGURE 6 Frequency of Consultant Use by Total Giving (N = 555)

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used consultants in the past two years, more than half used them for communications and marketing (83 percent), evaluation (81 percent), technology/information management/IT (76 percent), human resources and/or executive search (64 percent), facilitation (56 percent), and training (51 percent). For the majority of categories, consultant use increases as foundations increase in size. (See Figure 8a and Figure 8b.) Foundation management is the only category where use decreases as foundation size increases. In addition, the use of consultants to support work related to grants management fluctuates by size.

Consultant use also varies by foundation type. Independent foundations most often use them for technology/information management/ IT (41 percent). For community and corporate foundations, consultants are most often used for communications and marketing (47 percent and 33 percent, respectively). (See Figure 9a and Figure 9b.) As noted earlier, community foundations are more likely than other types to engage consultants in general. Likewise, they tend to use consultants more frequently than other types of foundations in most areas, but not by especially large margins. Areas where community foundations are not the greatest users of consultants are evaluation, grants management, foundation management, and program development. In most of these areas, independent foundations are slightly more likely than other types of foundations to use consultants. Foundation management is the only

area in which corporate foundations are more likely than other types of foundations to engage consultants.

Why Use Consultants Instead of Staff? Not surprisingly, most foundations use consultants because their knowledge needs exceed their internal resources – 78 percent said that the “need for outside knowledge, expertise, or networks” led them to engage consultants. (See Figure 10.) This was true regardless of size and type, although the need for outside expertise seems to be most common among the largest foundations and community foundations. The largest foundations were significantly more likely than their smaller counterparts, 69 percent to 10 percent, to cite staff capacity as a reason for engaging a consultant. (See Figure 11.)

Consulting Services Used by Foundations (by Total Giving) (N=555)

51%

47%

20%

64%

23%

4%

24%

25%

14%

35%

17%

12%

8%

12%

15%

19%

19%

12%

2%

4%

9%

6%

13%

17%

Training

Executive coaching

Governance

Human resources/executive search

Grants management

Foundation management

$100,000 to $1 million $1 million to $9.9 million $10 million to $49.9 million $50 million +

FIGURE 8b Consulting Services Used by Foundations (by Total Giving) (N = 555)

FIGURE 7 Consulting Services Used by Foundations (N = 555)

Consulting Services Used by Foundations (N=555)

5% 7%

10% 11%

15% 15% 16%

20% 21% 21%

28% 40%

Training Executive coaching

Governance Human resources/executive search

Grants management Foundation management

Program development Strategic planning

Facilitation Evaluation

Communications/marketing Technology/information management

Consulting Services Used by Foundations (by Total Giving) (N=555)

41%

34%

56%

81%

83%

76%

32%

27%

34%

45%

67%

51%

21%

25%

19%

27%

38%

43%

13%

18%

21%

18%

22%

39%

Program development

Strategic planning

Facilitation

Evaluation

Communications/marketing

Technology/information management

$100,000 to $1 million $1 million to $9.9 million $10 million to $49.9 million $50 million +

FIGURE 8a Consulting Services Used by Foundations (by Total Giving) (N = 555)

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While the need for outside expertise is the primary driver for consultant use across all types of foundations, there are differences regarding secondary drivers. Community foundations are more likely than other types to hire consultants for reasons having to do with neutrality and external credibility; corporate foundations are most likely to hire consultants because of staff- capacity constraints and to avoid hiring additional staff. (See Figure 12.)

How Foundations Find Consultants The best predictor of whether a foundation may hire a particular consultant is whether that consultant has worked for the foundation before. More than half of the foundations surveyed – 56 percent – said they had rehired consultants. (See Figure 13.)

One-quarter of foundations hired consultants who had been referred to them by other grantmakers and one in five (19 percent) hired consultants referred to them by board members. Only six percent of foundations said they found consultants through a request for proposals. Online searches (four percent) and consultant directories (one percent) are rarely used to identify potential consultants. More than one-fifth of foundations cited other means of identifying consultants. Among those providing a write-in response, regional associations were most frequently cited as a means of finding a consultant.

There is a strong relationship between foundation size and use of referrals from other foundations and RFPs to find consultants. Prior use of a consultant is also positively correlated with

Consulting Services Used by Foundations (by Foundation Type) (N=555)

12%

35%

26%

15%

47%

45%

14%

21%

17%

13%

33%

31%

16%

20%

21%

22%

27%

41%

Program development

Strategic planning

Facilitation

Evaluation

Communications/marketing

Technology/information management

Independent* Corporate Community

* Includes private and family foundations

FIGURE 9a Consulting Services Used by Foundations (by Foundation Type) (N = 555)

Consulting Services Used by Foundations (by Foundation Type) (N=555)

15%

13%

16%

25%

19%

11%

4%

1%

10%

6%

1%

13%

22%

5%

6%

10%

11%

15%

15%

Fund development (community foundations)

Training

Executive coaching

Governance

Human resources/executive search

Grants management

Foundation management

Independent* Corporate Community

* Includes private and family foundations

FIGURE 9b Consulting Services Used by Foundations (by Foundation Type) (N = 555)

Why Foundations Use Consultants (by Total Giving) (N=555)

21%

35%

69%

52%

94%

10%

35%

36%

39%

86%

7%

20%

22%

31%

84%

3%

17%

10%

29%

75%

Outside credibility needed

Avoid hiring additional staff

Time frame exceeds staff capacity

Need for neutral perspective

Need for outside expertise

$100,000 to $1 million $1 million to $9.9 million $10 million to $49.9 million $50 million +

FIGURE 11 Why Foundations Use Consultants (by Total Giving) (N = 555)

Why Foundations Use Consultants (N=555)

6%

10%

23%

25%

34%

78%

Other

Outside credibility needed to sway foundation colleagues/board or external stakeholders

Desire to avoid hiring additional permanent staff/prefer to outsource responsibilities

Time frame for assignment(s) exceeded foundation staff capacity

Need for neutral perspective or assistance to achieve results

Need for outside expertise, knowledge, or networks

FIGURE 10 Why Foundations Use Consultants (N = 555)

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foundation size – nearly all the largest foundations (95 percent) said they had hired consultants who had previously worked for them, compared with 54 percent of the smallest foundations. (See Figure 14.)

Community foundations used all these methods to find consultants with greater frequency than other types of foundations, although their use of RFPs was two times more frequent than corporate foundations and almost four times more frequent than independent foundations. (See Figure 15.)

Satisfaction With Consultants Respondents were asked to indicate their level of satisfaction with their most recent consulting experience with respect to aspects of the work (e.g., quality, impact, level of engagement). Satisfaction was high overall: On a four-point scale

of very satisfied, satisfied, somewhat dissatisfied, and very dissatisfied, levels of dissatisfaction never exceeded 6 percent. (See Figure 16.) But satisfaction with consultants decreased as foundation size increased. Larger foundations consistently expressed lower levels of satisfaction with consultant work than did smaller ones, although satisfaction never dipped below 80 percent. (See Figure 17a and Figure 17b.)

The widest difference in satisfaction levels concerned cost. While 95 percent of the smallest foundations said they were satisfied with the costs involved in their most recent experience with consultants, 80 percent of the largest foundations expressed a similar level of satisfaction.

Satisfaction levels by foundation type varied very little, although corporate foundations were almost unanimously satisfied with their

Why Foundations Use Consultants (by Foundation Type) (N=555)

16%

19%

23%

33%

87%

7%

27%

31%

11%

68%

4%

18%

13%

31%

78%

Outside credibility needed

Avoid hiring additional staff

Time frame exceeds staff capacity

Need for neutral perspective

Need for outside expertise

Independent* Corporate Community

* Includes private and family foundations

FIGURE 12 Why Foundations Use Consultants (by Foundation Type) (N = 555)

How Foundations Find Consultants (N=555)

22%

1%

4%

6%

10%

19%

25%

56%

Other

Directory of foundation consultants

Online search

Request for proposals

Referral from a grantmaker network(s)

Referral from board member

Referral from another grantmaker(s)

Prior use of consultant(s)

FIGURE 13 How Foundations Find Consultants (N = 555)

How Foundations Find Consultants (by Foundation Type) (N=555)

19%

11%

31%

30%

66%

10%

0%

3%

15%

63%

5%

10%

19%

26%

55%

Request for proposals

Referral from a grantmaker network(s)

Referral from board member

Referral from another grantmaker(s)

Prior use of consultant(s)

Independent* Corporate Community

* Includes private and family foundations

FIGURE 15 How Foundations Find Consultants (by Foundation Type) (N = 555)

49%

10%

21%

68%

95%

24%

7%

15%

50%

74%

13%

11%

20%

34%

59%

2%

10%

18%

21%

54%

Request for proposals

Referral from a grantmaker network(s)

Referral from board member

Referral from another grantmaker(s)

Prior use of consultant(s)

$100,000 to $1 million $1 million to $9.9 million $10 million to $49.9 million $50 million +

Figure 14: How Foun

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