08/28/2012 | 5 mins |

We Need to Boost Government’s Capacity to Make Pay-For-Success Work

08/28/2012 | 5 mins |

Earlier this summer, I confessed to being a skeptic regarding the potential of social impact bonds (SIBs) in the United States, primarily because of my doubts about government’s ability to make this emerging tool work. In the spirit of problem-solving, in my next two posts I want to explore possible ways of getting around the challenges I flagged. I’ll begin by proposing how an enterprising philanthropist could bolster the capacity of government to make SIBs happen. We need someone to do for SIBs, and pay-for-success approaches more broadly, what Eli Broad has done for education reform: notably, to recruit, train, and support a cadre of government leaders with the drive, savvy and public sector management chops needed to transform how human services are funded and delivered in this country.

As I noted in my earlier post, most health and human service administrators and government procurement officials are hard-pressed to use basic performance-based, two-party contracts. This does not bode well for SIBs given the third parties, extended time horizons, independent impact evaluations, and all-or-nothing payments involved. While a handful of entrepreneurial government leaders are working to make SIBs happen, e.g., in New York City and Massachusetts, in the absence of a major boost to the vision and capacity of their peers in other jurisdictions, they could end up serving as exceptions to the rule.

Eli Broad encountered a similar obstacle when he launched a philanthropic effort to transform public education in the nation’s urban school districts. From his experience in business, Broad believed that effective organizations require leadership of the highest caliber. He observed, however, that many executives in urban school districts lacked the wherewithal required to drive change. "When we started 11 years ago, we saw most of the superintendents or chancellors start as a coach or a teacher without any training in management, labor relations, systems, communications, logistics, etc.," Broad told NPR in December 2011. The Broad Superintendents Academy and the Broad Residency in Urban Education aimed to change that by recruiting and preparing exceptional leaders from a diverse set of backgrounds – including business, the military, nonprofits, and within education – to become catalysts for change in America’s urban school districts.

To date, over 400 school district leadership positions have been filled by Broad Academy graduates and Broad Residents. Broad participants and alumni also form a network of peers who share advice and best practices and help each other fill leadership posts as they tackle similar challenges across the country. As one alum recently told us, "Broad meant everything to me. To be a part of something that ties to a bigger mission, to have an opportunity every three months to decompress, reflect, and reinvest, to be inspired by the great work that was being done in other systems that were struggling—that was critical."

The results have been impressive. Last year, Education Week reported that the nation’s three biggest districts (New York, Los Angeles, and Chicago) had Broad-trained executives in top leadership positions, and that "21 of the nation’s 75 largest districts now have superintendents or other highly placed central-office executives who have undergone Broad training." Four have been named superintendent of the year in their states and one has been named national superintendent of the year. In addition, four Broad alums now serve as reform-minded state school chiefs. The Broad Foundation reports that 75 percent of currently serving academy graduates who have led districts as superintendents for at least three years are outperforming comparison groups based on a variety of student achievement data. This impact in turn greatly strengthens the talent pool of leaders coming into the programs.

Now just imagine, in ten years’ time, that a similarly high-powered and well-connected network of several hundred leaders are serving in the largest state health and human service departments and major city halls across the country, focused to a person on driving social impact by directing the government funds at their disposal to programs and providers delivering superior results. If a philanthropist were to provide the same kind of vision and commitment toward this end that Broad has provided toward transforming urban school districts—including sustaining it for a decade or more, not the two or three year period typical of philanthropic initiatives—that picture could in fact be realized.

I admit it is counter-intuitive to call for philanthropy to invest in building the capacity of government in light of the relative resources of the two sectors. Despite the magnitude of the money passing through it, however, government at all levels struggles to invest in recruiting and developing leaders. Elected officials and political appointees are typically focused much more on policy-making than on organizational execution, and they cycle rapidly through political leadership roles. Thus they rarely have the time or the inclination to develop the civil servants who stay with government for the long haul, or to cultivate promising leaders within the ranks of agencies who can step in to drive change from the top slots of the organization. Government recruiting and training budgets are also severely constrained, something that will only get worse with our ongoing fiscal constraints.

Philanthropists who emphasize the importance of leadership, human capital, and effective organizations in the social sector need to follow their logic all the way through and acknowledge that the same principles hold in the public sector. Given our system for funding and delivering human services in the United States, every social entrepreneur doing great work needs to have an equally entrepreneurial public sector counter-part in order to have impact. Capitalizing intermediaries or underwriting the development of model term sheets for SIBs won’t suffice without having the right leaders to develop and execute them within government. Insofar as the bulk of money that will be paying for success in social services will ultimately come from government, making focused investments to ensure that government has the capacity to make this happen could provide highly leveraged returns for a visionary philanthropist’s dollar.

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