Background

The Kresge Foundation is a multi-billion dollar private foundation based in southeastern Michigan that works nationally in the areas of arts and culture, Detroit [as a distinct programmatic focus, not solely geographic], education, environment, health, and human services. Established in 1924 by entrepreneur Sebastian Kresge with a mission “to promote human progress,” The Kresge Foundation today lives out that mandate through its work “to expand opportunities in America’s cities.”

Core Framework

The Kresge Foundation operates as a connected foundation, maintaining a thin but resilient connection to its original founder. Its social compact is defined by a deep understanding of and a rigorous commitment to its unique role in society. This is manifested in its explicit and intentional efforts to cultivate transparency, accountability and partnership with its stakeholders. It has developed operating capabilities that can be described as centralized, disciplined, deep, and highly networked. It uses these capabilities to create (i.e., build) deliberate opportunities in advancing its mission.

Charter

As one of the oldest foundations in the country, The Kresge Foundation can be defined as a “donor-connected” foundation. That is, Sebastian Kresge’s vision, preferences and approach guide his successors to this day, though the foundation leadership has broad latitude in how those traditions are interpreted and applied in the present. The foundation is conscious and intentional about maintaining a continuous and defensible connection to its founder’s wishes, but recognizes its freedom to evolve in their expression.

Mr. Kresge left no explicit direction or instructions beyond his original intent “to promote human progress,” and much of how the foundation operates is based on unwritten understandings or accepted norms about his wishes. Though not designed nor ever intended to be a family foundation, the foundation has always voluntarily had a representative from the Kresge family on its board of directors. On the rare but inevitable occasions where key questions or decisions affecting the foundation’s future may arise, the board of directors may look to the family representative for guidance and insight about Mr. Kresge’s preferences.

For instance, during the economic recession of 2008, the foundation conducted rigorous analysis about its payout rate in light of diminished returns and increasing community needs. This exercise called into question the foundation’s intent to exist in perpetuity or to embark on a path that would undoubtedly limit its life span. The sole family representative voiced the deciding position: “That was not the intent of my great grandfather and would be in clear violation of his intent [if the foundation were to spend-down.]  He intended this to be an institution in perpetuity.”  Although there is no evidence of Mr. Kresge’s position on the matter, this set the foundation’s course of action through the recession.

In another instance, the foundation recently had to reflect on its particular focus on low-income people. Following the U.S. presidential election in 2016, the board struggled with the question whether the outcome of the election was an indication of having missed the needs of a key demographic (i.e. rural, working class, middle class, etc.) that should warrant the foundation’s attention. Some family members expressed a sentiment that perhaps the focus on low-income people was too narrow. In the end, the foundation decided to retain its low-income focus “and stick with its perceived calling toward trying to even the playing field for people of less advantage,” according to President and CEO Rip Rapson.

The Kresge Foundation has always been based in southeastern Michigan where Mr. Kresge built his S.S. Kresge Company chain of five-and-dime stores. These would later became a national chain and eventually the Kmart Corp. There was no explicit written requirement that the foundation be based or conduct its activities in southeastern Michigan, but it has always done so out of respect for where the foundation’s resources were generated and a sense of connection to the Kresge roots. The foundation has always funded nationally but retained a strong “hometown” connection through its support of Detroit-area needs.

Mr. Kresge served on the foundation’s board until his death at the age of 99, which provides some knowledge about his preferences and thinking. However, it should be noted that the foundation views its broad mandate as one of intentional design that is reflective of and consistent with the entrepreneurs of Mr. Kresge’s era, such as John D. Rockefeller and Andrew Carnegie. “These entrepreneurs were entrepreneurs because they understood flexibility and were willing to take risk. They all had a variation on the idea that capital needed to free up human potential,” Rapson said.

For most of The Kresge Foundation’s history, this was manifested through an exclusive focus on capital projects (i.e., buildings) of community and civic organizations through a highly specialized formula of providing matching grants. That changed in 2006 when the foundation brought in new executive leadership that changed the work dramatically. “People have said to me, ‘How could you possibly have reversed 80 or 90 years of capital giving?’ said Rapson. “I said, ‘It just seemed to me that any entrepreneur of his or her time would be similarly flexible.’ They would understand the role their capital could play. And for a while, the role of Kresge capital was to help building campaigns because very few other folks did. But Carnegie did it with libraries, and Rockefeller did it with universities, and other people did it with medical centers. The model was powerful until the context changed.”

That changed context was the key driver for the foundation’s shift over the last ten years to define a vastly different approach and orientation to its work. “We have not struggled at all with donor intent in the sense of having completely [reversed course] in terms of the things we support, but it’s in the spirit of using capital flexibly,” according to Rapson.

Although this ‘spirit’ gives the foundation broad latitude, it has been judicious and intentional about validating that with the Kresge descendants. For instance, when the foundation began to shift its focus away from capital projects and undertake some controversial projects within Detroit, the family was asked, “Do you find this to be in any way at odds with the family’s values, aspirations?”  The grandson of the founder replied, “No, my grandfather would have appreciated trying to use the resources of the foundation to lean into the issues of the time, and whether or not they are the exact issues that our family would have chosen is neither here nor there. It’s the fact that you’re using the machinery of the foundation in a way that seems fundamentally consistent with improving the human condition, and that’s what my grandfather cared about.”

Although such a gesture is completely voluntary (i.e., not legally mandated), the foundation recognizes the value of such a connection. “Ever since I came, I would always want that voice in the mix somehow. It’s just an important ground wire to history, to animating values. Again, they are a little bit amorphous, but I think they’re there somehow,” Rapson said.

Social Compact

While acknowledging its freedom and independence as an institution to operate as it chooses, the foundation’s social compact is informed by a belief that it cannot achieve its goals without a high degree of partnership, validation and support from those outside the foundation. “By definition we’re really not accountable to anybody,” Rapson said. “And so it is only the intentionality of our ability to be transparent, listen to criticism, adjust course that ultimately serves as a check on our innate authorities.”

The foundation holds itself accountable according to a balance of internal and external measures. Internally, it has articulated values of stewardship, respect, creativity, partnership and opportunity as the foundation’s guideposts. Externally, its effectiveness in achieving its goals serves as the final arbiter of the foundation. “There’s ultimately the accountability to whether what you seek to accomplish is actually having impact. That’s the ultimate accountability to the people you serve. Because if you’re not being effective, how are you held accountable for that?” according to Rapson.

Indeed, it is precisely because the foundation is not required to be accountable to anyone that it is so rigorous and conscious of submitting itself to public scrutiny so seriously. “Let’s be honest, philanthropy’s a less accountable sector,” said Ari Simon, Chief Strategy Officer at the foundation. “Trying to shy away from or hide that fact can be the very origins of hubris, and the most dangerous forms of philanthropic hubris. What that means for us is that we are constantly aware of the ways in which, for example, we show up in community.”

To further demonstrate its commitment to hold itself accountable, the foundation has made significant investments in recent years toward its own transparency. This is manifested in several ways: it has been building a robust communications department that currently has a staff of 15 people, covering such areas as social media, constant updating of the foundation website, etc. Second, the foundation regularly undertakes the Grantee Perception Report run by the third-party Center for Effective Philanthropy to get honest and actionable feedback–and makes the results public. Instead of undertaking the survey every few years, it has begun instituting spot surveys every four to six months in order to gauge progress incrementally. Staff meet weekly to assess itself against a set of indicators that signal improvement.

The foundation believes that these core elements of its social compact – accountability and transparency – are key to its effectiveness, and from this effectiveness it derives its legitimacy, or license to operate. “You’re transparent about your intentions and about your methods. You’re uncompromising in your self-evaluation of whether you believe your work is bearing fruit. And you hold yourself accountable to be constantly, continually self-reflective,” said Rapson. “At the end of the day, the best we can do is put ideas in play. If the civic fabric won’t hold them, if the public decision makers won’t come to them, if the entire community feels that these are wrongheaded and organizes in opposition to this, we can’t get very far. We can’t really get done what we want to get done unless there is some buy-in somewhere.”

The foundation’s clarity and rigor around its social compact enables it to play a significant and unique civic role in carrying out its work. For instance, in Detroit, long-plagued by economic decline and dysfunctional public systems, Kresge has been a leading force in the city’s recovery, often supporting controversial projects that otherwise would have been viewed as government’s responsibility, such as a light rail transit system.  As manifested by Kresge, philanthropy stepped in to fill a void at a time when the public and private sectors were unable to. “The question of moral hazard comes up quite a bit when you’re engaged in work that touches on the public sphere,” said Simon. “I don’t think that’s a reason for us not to do this work. If you’re worried about moral hazard, I would argue that you wouldn’t have partnerships at all between multiple sectors, especially with public sector, private sector, and philanthropic sector. It’s an ever-evolving relationship.”

That ever-evolving relationship with the public and private sectors is a hallmark of how The Kresge Foundation defines its social compact, embracing its singularly distinct role as a foundation and not only seizing but creating opportunities to exercise that role in fulfilling its mission. This also imbues the foundation with a higher tolerance for risk relative to other foundations. “To the extent possible, do things that you feel like other sectors otherwise wouldn’t be able to do, and they wouldn’t, or couldn’t, or shouldn’t. Seed the activity that would be too high-risk to justify,” Simon said.

Operating Capabilities

The Kresge Foundation has used its flexible charter and its tight social compact as the basis for developing a set of operating capabilities to support its work. The foundation’s shift away from using a narrowly defined, single tool – the capital challenge grant – to a broad-based approach that “uses every tool in the toolbox” necessarily required a new set of operating skills within the foundation. Although the transition has been complete for many years, the foundation considers its evolution to be an ongoing process of constant reflection, refinement, and adjustment to sharpen its ability to operate.

The foundation works within a carefully crafted, overarching strategic framework to “strengthen the building blocks of vibrant urban life.”  All program funding areas work in service of this framework, reflecting a centralized orientation. That said, although the foundation is strongly centralized, it is also highly matrixed:  programs strive to work across fields and approaches, and there are numerous cross-functional sub-groups of staff that combine program activities with other practice areas as needed.

Stemming from its desire to be more than a “checkbook” for nonprofits, it undertakes an active, hands-on, entrepreneurial approach to its issue areas. This is indicative of a foundation that operates like a builder rather a buyer. The foundation is actively involved – from ideation/conceptualization to implementation – of the projects, programs, and services it supports. This often results in creating new organizations to fill a void or working to strengthen an entire field, for instance.

Although a foundation of Kresge’s size and stature could work far more independently than it does, it recognizes the importance, perhaps even imperative, of working with others in order to achieve its goals. As a result, the foundation can be described as networked in its operating style rather than independent. Rapson described it this way: “You really have to not just go into lock down. Acknowledge that all of the philanthropy is completely interwoven with the other members of the civic community.” This is a direct illustration of how the foundation lives out its social compact.

Because the foundation spends significant time and energy to make intentional, informed choices about its purpose, role, and value-added characteristics, it operates in a highly disciplined manner. It has explicitly articulated a cohesive approach that defines it identity, values, tools, and methods. Having these elements provides clear parameters, both internally and externally, under which the staff carry out their work.

The foundation works across six diverse program areas that arguably cover the most common major funding areas among foundations. The broad approach serves its mission well, recognizing that the needs of low-income people in America’s cities are multi-faceted. While many foundations in the last 20 years have eschewed breadth in favor of depth, The Kresge Foundation is able to operate across the broad spectrum precisely because it has taken pains to so clearly define what it seeks to accomplish, how to best do it, and why it is singularly positioned to play a role in that field.

Theory of the Foundation in Action

In keeping with its commitment to use “many tools,” The Kresge Foundation has distinguished itself in the area of social investing. This practice area within the foundation makes non-grant capital, often at below-market terms, available to nonprofit or for-profit enterprises whose efforts advance the foundation’s mission. The foundation committed $350 million of its endowment to be invested by 2020 for this purpose. The desire to use “the full capital spectrum” in all of its program areas is an ideal contemporary embodiment of the foundation’s charter, social compact, and operating capabilities.

The foundation began a process in 2007 to investigate ways to accelerate change by expanding beyond grantmaking. This was born out of a concern that support to help vulnerable, low-income people achieve economic security continued to shrink, increasing the need for cross-sector partnerships to fill in the gaps and for philanthropic dollars to maximize their impact. The lack of access to capital prevents many cities from having necessities like quality child care centers, health clinics, affordable housing, healthy food and social service providers, all of which are crucial to the foundation’s priorities. Through social investing the foundation leverages its assets in ways beyond traditional grants to support markets not well served by the private financial sector.

The move into social investing was a key element of the foundation’s pivot away from the bricks and mortar challenge grant era. Today the foundation views itself as a multi-faceted capital provider able to offer a range of supports including grants, loans, equity and guarantees.

The foundation describes the area as reflective of an inflection point in its identity and way of working, making clear the belief that “using a variety of investment tools to bring enhanced opportunities to low-income people in America’s cities is central to Kresge’s DNA.”

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