This week, we speak with Malcolm MacLeod. Malcolm is a board chair, retired nonprofit CEO, lawyer, and author of the book entitled, “The Practice of Philanthropy: A Guide for Foundation Boards and Staff.” Malcolm’s book is the culmination of 19 years of experience spent as the president and CEO of the Johnson Scholarship Foundation. Those 19 years were not all smooth sailing. Malcolm had to learn by trial and error. He wished he had a reference book for leading a nonprofit. Thus, when he retired, he wrote his own.
In this episode, we cover several chapters of the book, including the “Essence of Grantmaking,” managing your investment managers, and a foundation’s approach to values, mission, strategy, and vision. To end the episode, Malcolm provides great advice for CEOs, “trust is your currency” and to board members, “listen.”
Malcolm’s website: malcolmmacleodauthor.com
Timestamps:
00:00 Introducing Malcolm Macleod
03:10 The role of the CEO and board
04:35 The reason for writing the book, the transition from for-profit to foundation work
07:00 What do board members/leaders need to know about the “Essence of Grantmaking”?
08:35 What have you found to be solid principles of Foundation investing?
10:55 Control your investing costs
11:20 How do you keep your board informed of investment policy?
13:30 Compare and contrast your view of Governance as a CEO and now as a Board Chair
15:06 Positives and negatives of being CEO and Board Chair
17:45 How do you advise Foundation leaders to approach Values, Mission, Strategy and Vision?
20:50 Discuss your epiphany about the grantmaking process
25:20 How might a board “manage” its investment managers?
27:35 Closing advice to a CEO
29:00 Advice for a board member
31:23 Recapping with Read
Transcript:
Michael:
On this week’s episode of I501(c) You – The Podcast for Nonprofit Board Members. I get to interview Malcolm MacLeod. He’s now he’s now an author. He’s got a book out, The Practice of Philanthropy. But before that, he was a litigator. He’s an attorney. Then he, I guess, saw the bright side and, if you will, went to the good side, became CEO of a private foundation, Johnson Scholarship Foundation, and now is the board chair upon his retirement. So please join me as I interview Malcolm MacLeod. Hey, I want to jump in real quick. Somebody asked me other day, what does the Callie Company do? Well, we do three things for nonprofits. One, we facilitate meetings. Yes, like board retreats where we discuss governance and strategy with all the members of the board member to advise CEOs and help them as they make decisions and implement actions to drive their mission. And then finally, we produce podcasts such as this one, but also for a number of nonprofits to help you get the word out, get your message out. So if you’re interested in any of these services, please feel free to reach out to Michael@thecorleycompany.com Now back to the podcast. Malcolm just wrote a book entitled The Practice of Philanthropy A Guidebook, A Guide for Foundation Boards and Staff.
I actually met Malcolm a couple of weeks ago at the Florida Philanthropic Network conference. I talked about that in last week’s podcast and the importance of going to conferences and networking. And this is one of the benefits of my experience there. I sat down next to Malcolm. He was distributing his bookie, autographed it for me, and just had a lovely conversation.
Boy, what a wealth of experience. So please welcome Malcolm and Malcolm, if you would, share with our audience just a little bit about yourself and how you have your career trajectory and how you came to be board chair of the Johnson Scholarship Fund.
Malcolm:
Thank you, Michael. I am I I’m from Canada. I practiced law in Canada for 25 years, so I thought I was going to be doing that for the rest of my days. And I got involved with the Johnson Scholarship Foundation as a volunteer board member. That was back in the early nineties, and I like to say that it gradually took over my life. I took on more responsibility and finally the president came to me and said, Well, would you go on the grant committee? I said, No, I can’t do that. As a matter of fact, you’re going to get off some of these other committees. And he he wanted me to take take the foundation and be a judge of it. And I knew after some discussion I did that I was glad to do that. It was a nice opportunity for me and so I came to Florida and I became the president and CEO of the AG Foundation. I did that for almost 20 years. And then in 2020 I retired as CEO and was elected board chair, and I’ve been doing that since then. We have a young, bright, talented CEO, does a great job, and I just sit there and try to stay out of the way.
Michael
Very good. Must be hard for a former CEO, though, but you recognize the different roles between the board chair and the CEO. Having sat there and sat one now sitting in the other, talking just a little bit about that before we get into the book.
Malcolm:
Okay. Yes, I’d love to really. It’s the CEO’s job to to run the foundation to to do the work, to manage the staff. And it’s the board’s job to oversee that work, to to govern. And so the tasks are very different and the board has got to have its nose in, but its fingers out and the board chair speaks for the board. So individual board members don’t do run off and do that task by themselves. The board chair speaks for the board and has a relationship with the CEO, and I’m lucky to have a very good relationship with the CEO and an excellent CEO. So it it works, but I do not interfere. I don’t meddle. And if there’s something that I see that I wouldn’t do it that way. Well, so what? It’s not my choice.
Michael:
Wonderful. You appreciate that role. And I I’m sure there are a number of board chairs out there that are listening that agree with that. And I bet there are some CEOs I think go I wish my board chair was like that. But we we know how that goes. But now, Malcolm, thank you for that. Now I’m holding up a copy of your book, The Practice of Philanthropy, a Guide for Foundation Boards and Staff. I have flipped through this. It is incredibly well written, a wealth of information. And I guess my first question is because I want you to share this story. How did you come about writing the book? How long did it take you to write this thing?
Malcolm:
It took me the better part of two years, and the reason I wrote it is because when I transitioned from law to running a foundation, I thought it would be pretty easy now. I was pretty full of myself at the time and probably still am, but I thought this wouldn’t be tough after I would practice law. I was a litigation lawyer. I did the thought well of myself in that role and what could be difficult about running a foundation? And when I started doing it, I came face to face with the work and I realized how ill equipped I was. It was really I just thought, What have I done this is, you know, I can’t do this. And when you’re in a professional practice and you you go for a reference book, a precedent, something that will show you how to do it, and there wasn’t one. And so I have to I had to learn by trial and error by by just observing these lessons over years. And I thought, you know, if I ever get the chance, I’m going to write a book that will help somebody in my place or even in the place of a new board member who comes on and thinks, okay, what am I doing? What am I supposed to do, be doing? And so that’s that’s why I wrote the book. I as soon as I retired from being the CEO, I went to work on the book. It took me the better part of two years and many edits and iterations of it. And so that’s that’s my story.
Michael:
Well, it was certainly worth the two years that you put into it, because it’s amazing, very easy to read and understand. And I love your comment. How hard can it be to give away money? So many of us are naive that way that have come from the for profit sector and think it’s got to be a piece of cake. I was in that same boat as you and it’s not as easy as people would think.
Malcolm:
We’re sure. Yes. And it’s most of us do come to this work from other walks of life. And so that transition is not it is in this book was written for people making that transition. And people have already been in this work for a while. It’s it’s a constant learning. And if you stop learning, then you should stop doing this now.
Michael:
Amen. So let me ask you, let’s dive into the book a little bit. You talk about the essence of grant making. You open it up with that. What do board members and leaders need to know about the essence of grant making?
Malcolm:
Good grant making tries to catalyze change to solve problems rather than perpetuate dependency or create dependency. You want to you want to help people to to make change. And so those ideas don’t come from on high. They come generally from the people that you’re trying to help. And so if you immerse yourself in your field of interest, if you get to know those people, if you get to know the ideas, then they will come to you and your best ideas probably won’t even be your own. You’ll hear so say, Yeah, somebody’s got a good idea and you make a grant to support that idea. And you know, it’s not always going to work. There is an element of risk, but really that is the highest calling for a grant maker as to is to try to catalyze change. And so the good news is that you don’t have to be brilliant, you don’t have to be very wise and and know everything. All you’ve got to do is work hard. You’ve got to get to know the people that are in your field of interest, get to know the issues and listen because they have something to tell you and your ideas will come. Knowledge begets ideas and ideas beget change.
Michael:
Well, I like that. And there’s a CEO that was on our podcast, Deborah Jacobs. She said, Do not arrive with the answer. Cannot arrive with the answer. Let the answer emerge by asking people and sounds like exactly what you’re saying. Been your experience. Yes. So that’s the giving out side of the money. Big part of the foundation side is the investing is the preserving of the capital. It’s using those those assets through the endowment. What have you found to be some really solid principles of foundation investing?
Malcolm:
I think the number one principle is to fashion an investment policy that suits the unique circumstances of your foundation and by an investment policy, I mean asset allocation. How are you going to allocate the foundation’s assets? You’re going to buy bonds. You you’re going to invest in stocks. What are you going to do? And so if your foundation needs stability, if if you need to support a museum or you need a steady income for something else, then you’ll value stability in your investment performance, not too much volatility. And on the other hand, if your foundation aspires to be perpetual and most of them do, then you’ll want high investment returns. You’ll want the best returns over time you can get. And so you’ll have to have more equity and it’s asset allocation, not smart, start backing that drives returns. And so you will need to allocate your assets to produce a sustainable return. And by sustainable I mean 5%, which is what you’re required to give out every year, plus inflation. That’s generally around 8%, 8.3%. And that’s hard to do, especially in a sort of slow growth world that we live in now, which is the developed world here. So so you’ve got to allocate to equity and accept some volatility and accept the ups and downs of land and stick to your asset allocation. So when the market goes down a little bit, don’t be afraid and sell all your equity. And when it goes up, don’t be greedy and start piling into it. Just stick to your asset allocation, stick to your discipline. And over time, that has proven in the past to be the way to reach sustainable returns. And the other thing is control Your costs don’t care so much for investing that you you can’t earn a sustainable return. You really need to watch fees. See, the power of compound returns is astonishing. And even small amounts of money that you pay in fees will cost you a lot in the long run.
Michael:
Very wise advice. And so how throughout your time as CEO, how could you keep the board abreast of investments of, you know, even the discussion on investment policy? Because your board members probably came and go a little bit. I’m sure you had some turnover and I’m sure somebody comes and has an idea to keep them in line, for lack of a better way of saying it.
Malcolm:
Well, it is. I mean, it’s all leadership. So you want an investment committee that has the trust of the board and your CEO and your board chair should probably be on that committee. You should also have at least one professional investor in that committee that is trusted by the board. And if you don’t have an investment professional on your board, you can certainly appoint one to your committee anyway. And I mean, an investment professional does not charge you that’s volunteering their time. So you need a committee, an investment committee that the board trusts. And the other thing you need to be totally transparent with the board. Tell them what’s going on, Tell them what you’re doing, Report to them. Often, give them everything you know, in 2008 and nine, when the market was just awful, you know, we were losing upwards of $30 million a month. And, you know, the board just stuck with it. They all were they all knew what was going on. They knew the investment committee. They trusted it. They knew the advisors to the foundation, and they just stayed the course. And sure enough, we were in a bad time for 18 months. And then the market just shot straight up and two years later we were recovered. If we had sold during that downturn, we would never have recovered. We’d be a lot smaller than we are today.
Michael:
No doubt. And I’m sure several folks did that. Unfortunately, you’re you’re absolutely right. What I’m hearing you say is build that trust, that trust through that transparency that’s so important. So. So you are CEO for 19 years. You now move into the role. You’ve been board chair for. I’m nearing four years. Well before your. Sometime this year. Yes, just a little bit about the difference in governance as a CEO versus a board chair in the. Well, I’m.
Malcolm:
Still learning, but you should ask the CEO that question. Yeah, you have to get used to the idea that you’re not really in control and you never were really. But especially as board chair, it’s it’s not your show anymore. And what is your show always is oversight. And you better know what’s going on and you need to understand that. But and know that the foundation is is acting at its best interests and following its mission, following its strategy. And I think that’s that’s really all your your job is. And you watch what your CEO and and the CEO staff and and as I say, I feel fortunate that we have a very good CEO and that things are going well. We’ve continued to follow our our mission and and follow our our values and act according to our values. And so it’s it’s been a relatively easy task for me. It’s probably been easier for me than it has been for the for the CEO.
Michael:
Well, that’s probably always the case right now. Now, when you were CEO, how did you structure the relationship with your board chair? You probably had multiple board chairs over that time. You know, in terms of communication, did you set a schedule meeting? I’m looking for some application for the CEOs out there. Do you quote unquote manage your board chair in that relationship?
Malcolm:
Michael, I was appointed before Sarbanes-Oxley and it was a pretty old fashioned group. And so I was president and CEO. So I enjoyed both facts and that was good and bad. And at some point, the the one of the board members said, look, you know, it’s this isn’t really great practice to have you as chairing the board meetings and also CEO And I agreed but I said, look, I really like doing this, so I’m going to do it. And maybe when I retire, we can separate these about time. So the board agreed with that and it worked. It works because with such a great board. But I think actually it’s quite a bit easier now with a CEO and a separate board chair, because when I had to do both jobs, I would often run into a situation where I was not totally in accord with what the board was thinking, and I really didn’t have a voice to speak for me. I didn’t I couldn’t say to them, Look, you guys, you act right. I couldn’t do that at all. Whereas now the CEO’s got an ally on the board. And if there’s a board member that’s line and I’m not suggesting that’s happened because it isn’t, I have the ability to say to that board member, Look, we can’t do that. This is our CEO. We’ve got to respect the independence of the autonomy of the CEO. And you know, that’s not good enough. So. Well, so I am afraid I’m not much used to you on the on dealing from a CEO’s point of view with the board chair because I was the board chair at the time as well.
Michael:
Well, you you’re the first person I have met in the nonprofit sector that’s held both of those roles. So there’s a first time for everything. But you eloquently stated why you think separating them is beneficial. And of course it makes sense now.
Malcolm:
I think it is. I think it’s better this way. And I think that our our CEO would agree. I’m sure he was very good.
Michael:
All right. So given your experience, I want to move back to the book now. How do you advise foundations to approach values of mission, strategy and vision that boy, that whole strategy. How do you idea what would you advise foundations in that regard?
Malcolm:
Take your time. It is the bedrock upon which everything rests and people that think, we don’t need to spend much time and that let’s get to the ground making. They are totally on the wrong side of that issue, in my opinion. You’ve got to. Every foundation is different. Every foundation has a different story. Why I was founded, who founded it, what they were thinking, what they wanted. And really that’s the beauty of foundations is that they are so different and you want to capture the foundation personality in your values, in your mission, in your vision, and of course, in your strategy. And the reason you have to do that is because if you don’t really define who you are, then it’s going to be impossible for you to make a significant difference. And if you don’t know where you’re going and then your road will get you there, as the old cliche goes. So so you really got to got to know that and you’ve got to define yourself and define what it is you want to do. You can’t do everything. The whole point is a focus and focus your activity, focus your grantmaking. Find an area that that you can that you can understand, that you can learn, that you can make grants in and and make a difference.
Michael:
You stay in that swim line. I think that’s critically important. Everybody thinks, you’ve got all this money and reality. As you said, yours is over 200 million, or at least I read that that’s a lot of money, but it isn’t, you know, when you’re trying to make a change. So you really got to be laser focused and understand what’s happening in that that specific area.
Malcolm:
Compared to the problems that we are trying to address. The foundation resources are paltry and I used to say, well, we’re not the Gates Foundation, we can’t do everything. But I heard Melinda Gates say once, we can’t do everything either. It’s matter of fact, our resources are small compared to the problems we’re trying to address. And she gave an example that I think they had an endowment of about 50 billion at the time. $50 billion is a lot of money. But that money, never mind the grand budget, but her whole endowment wasn’t enough to run the California school system for a year. Think about that. So she they’ve got to give strategically. Well, everyone does.
Michael:
Well stated. You’re absolutely right the resources are paltry. I like that word so you were CEO you said in your book you had an epiphany about the grant making process. What was your epiphany?
Malcolm:
Well, it was the power imbalance between the grant maker and the grantee. I always understood that. I thought I understood the okay. But I really understood one day and I heard a group of CEOs, very good CEOs of nonprofits complaining about grant makers and I mean really complaining about grant makers saying things like, Do you guys get stupid vaccinations when you go into philanthropy? What’s the problem over why are these leaders so, so angry, so cynical? And I think the reason is, is because they have to deal with with us and they’ve got to go and ask for money from somebody who knows less about the problem than they do from somebody who might be arbitrary. And for somebody who can just say, I don’t like that idea for no reason at all, and they won’t be punished by the market, it doesn’t matter. The the foundation’s grant making ability is uncorrelated with its fiscal well-being and its comfort. So these people can be as as obtuse as they want and go home and have a nice steak and watch a movie and go to bed. They haven’t got a care in the world. Whereas the nonprofit leader needs this grand money to keep the doors open, to keep the lights on. And so it’s it’s frustrating. And I’m not suggesting that philanthropists are are uncaring or obtuse. It’s matter of fact, I think grant makers have never been better. But there is that disconnect and in order to get a really good relationship with your grantee, in order for your grantee partner to be truthful with you, you’ve got to mitigate that power imbalance. You can’t eliminate it. There’s this impossible. It will always exist, but you can gain the trust of your grantee partner. You can do that by by recognizing that they’re the ones doing the work that they generally know more about the issue than you do because they are doing the work. You can mitigate that by multiyear grants and grant agreements where it’s reduced to writing if they perform according to the grant agreement and they’re going to get the grant and they don’t have to come around and hope and be nice in order to continue to get your support. And if you win the trust of your grantee partner, then your grantee partner will be able to tell you the truth and be able to be honest with you and say, Yeah, I don’t think that’s a very good idea or I don’t agree with that. It’s very hard for somebody who to ask you for money and hope that you get that and to disagree with you at the same time. And they will only do that if they really trust you. And so if you find that everybody’s telling you how wise you are and how smart you are and and how great your ideas are, then really you’ve got to ask yourself, is that is that true? Was that like that before I went into philanthropy, did people sort of line up to tell me how smart I was? I don’t think so. They used to line up to tell me how bad my ideas were. So if you find that you’re getting that kind of talk and not much else and you’re probably not enjoying an honest relationship with your grantee partners, and if you’re not enjoying that honest relationship, then it’s going to be harder to do your work. So be objective. It’s not about you, it’s about the work and try to enjoy an honest relationship and and if if they are being critical of your ideas, then good for you. You’ve you’ve gotten somewhere.
Michael:
Very good. And you know and I think the key thing is there you can never eliminate that dynamic, but you can manage it and you can work towards reducing it. And I have heard that at any number of times. And that’s a challenge for nonprofits. So I’m glad you stated that and wrote about that really, really important. So I want to go back to the investment side of things and managing investment managers and a board managing the investment managers. What is their obligation? Can you just paint that picture, that landscape a little bit?
Malcolm:
Well, the legal obligation, of course, is to be prudent, to be a good fiduciary, a good steward. And if you’ve got an investment adviser, a consultant or somebody, a reputable advisor and a foundation and you’re taking advice, not always following it, but listening to it, you’re probably going to pass at pass that hurdle. But really, the obligation is in much the same as Graham making. You’ve got to find investment managers that you trust, understand what they’re doing and let them do it. And so if if you have an investment manager that underperforms the market in a year or a quarter or even a couple of years, you don’t just say, okay, that’s enough of that and then get rid of them. You you need to understand that, okay, why are we underperforming the market? And if it’s that they’re following their strategy, that their strategy is sort of not in favor right now, but it will pay off. And if you believe that and they’re doing what they said they would do, then probably stick with them. Reversion to the mean means that it’s going to it’s going to come back. And if you sell them when they’re down, you’re probably leaving money on the table. So I guess my short answer is I understand what they’re doing and supervise them, read everything they write and watch for changes in personnel. If you’re if they’re losing key people, that’s a warning sign. If they’re not following their strategy, that’s another warning sign. But all of their factors equal, if they’re if they’re doing what they said they would do and they’re just down for a quarter or a year or even to two probably come back now.
Michael:
So it’s like oversight of the CEO, it’s oversight of the investment manager, and that’s the role the board plays. I absolutely being up and then asking those questions. Yeah, the key is asking those questions. May I ask you, as we start to wind down now, your advice to a CEO running a foundation and your advice to board members in their roles? So CEOs, so many came up and you said, Hey, Malcolm, I’m a new CEO, what advice would you give them?
Malcolm:
So my advice to the CEO would be that their currency is trust, and if they earn the trust of the board and they keep the trust of the board, then they’ll be fine. They’ll be able to do whatever they want. And trust starts with transparency. They need to be transparent. They need to act in the best interest of the foundation. They need to always put the foundation first and of their own personal interest. And if the board believes that they’re doing that, if the board trusts them to do that, then then they’re fine. David And then go and and do it. Take risks, build a culture of risk, and the board will understand that not everything is going to be a smash hit, that there will be failures, that failures are an opportunity to learn, and that risk taking is a vital part of the process and a good part of the process. That would be my advice to to a CEO and get out of your office of of all things, get out of your office.
Michael:
I like that last one was your version. The currency is trust. Your currency is trust. I love that. That’s a that’s a sound bite. And you’re probably gonna see it on social media. I really like that. Even you full credit, of course, Malcolm. So how about for a how about for a board member? What advice would you give to a new board member?
Malcolm:
Listen, a new board member needs to to listen. All board members need to listen. All grand makers need to listen. Listening is a underutilized strategy. It’s a undervalued strategy. But listen. Listen to everything and but also be independent. Don’t just sort of agree because you think other people agree. There’s a wonderful story, the Abilene Paradox. And it’s a it’s about this this family in Texas. And it’s a hot day and does a dust storm and they all agree to go to Abilene in the car. And the car is not air conditioned and it’s just horrible. They go and they have this awful lunch and they come back and the son in law is there and say, well, wasn’t that a great trip? And the mother in law says, that was horrible. I didn’t enjoy it at all. And and they realized after they got back that none of them really wanted to do that. But they all agreed because they thought the other guys wanted to do it. And so the bird is a bit like that. And I think if you’re on the board, managing agreement is more difficult than managing disagreement. Boards don’t often disagree and get at each other’s throats. More commonly they they agree. yeah, that’s a good idea, young guy. And they just do disastrous things because of groupthink or the desire to please each other. So if you’re a new board member just because you’re new, listen, but don’t don’t go against your better judgment. Speak up. You know, boards need to board. Members need to speak up, not just to talk, to hear themselves talk, but talk to make their their views known. Don’t be afraid to disagree.
Michael:
Wonderful. And their wise advice from an attorney, a former CEO, a current board chair, and now author Malcolm MacLeod, The Practice of Philanthropy. Malcolm, thank you so much for coming on the podcast this week. You’re doing so much for the industry and I just want to say thank you.
Malcolm:
While Michael Thank you so much for having me. I’ve totally enjoyed it.
Michael:
All right. We just heard from Malcolm MacLeod. Now it’s recapping with Read where Read shares three things that stood out to him from our podcast interview. Read Number one.
Read:
So number one is that the board chair speaks for the board. I feel like we’ve had a lot of people say things similarly, but just the directness of that statement really resonated with me.
Michael:
Yeah, he manages the board. You’re right in. Malcolm understands that. Number two.
Read:
Good grantmaking tries to catalyze change or solve problems, not create dependency.
Michael:
Yeah, very good. Interesting statement there and you can unpack that for a long time in a conversation. And number three.
Read:
For CEOs and generally everybody trust is going to be your currency and for CEOs and the board, it starts with transparency and putting the foundation or organization first.
Michael:
No, you’re absolutely right. And once CEOs only get into trouble, when they forget that and they come first. But as long as you keep the organization first in your decision making, boy, you build that trust. And that really is a currency nowadays. There you go. Thank you. Read recapping with three Read from our interview with Malcolm MacLeod. And as we come to an end now, will 501 see you next week.
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