Rolling Up Their Sleeves

January 28, 2009

CHICAGO—Chicago has become a hotbed of “venture philanthropy” in education, as two local foundations contribute not only money, but also the hands-on work of some of the city’s wealthiest and most influential residents, to help improve the schools in the nation’s third-largest district.

When these foundations call board meetings, in attendance are billionaire Penny S. Pritzker, whose family founded the Hyatt hotel chain and who is a successful entrepreneur in her own right, for example, and Helen Zell, the executive director of the Zell Family Foundation and the wife of Sam Zell, the real estate magnate who owns the Tribune Co.

What attracts and keeps busy people with competing demands on their time is their intimate involvement in developing, evaluating, and tweaking the projects they are helping to finance, venture philanthropists say. They are also sharply focused on making sure their projects work.

“We can all write checks,” said Bruce V. Rauner, the principal of GTCR Golder Rauner, a multibillion-dollar private-equity and venture-capital firm here. “Venture philanthropy goes beyond feeling good and trying to be helpful, to being very focused and demanding results. It’s about using philanthropic dollars to change a process and change a system.”

Mr. Rauner, who is the education chair for the Civic Committee of the Commercial Club of Chicago, made up of top business leaders, is among the city’s most active philanthropists. He and his wife, Diana, have contributed to the founding of four charter schools. He is the chairman of the board of the Chicago Public Education Fund and the head of the strategic-planning committee for the Renaissance Schools Fund.

The projects supported by the two venture-philanthropy funds are designed and managed in close cooperation with the 408,000-student Chicago school district, and in some cases are designed to be self-sustaining or absorbed by the district.

The Renaissance Schools Fund was founded after Mayor Richard M. Daley asked the Commercial Club to lead an effort among business leaders to raise money to pay for the new schools he wanted to open under the Renaissance 2010 initiative, announced in 2004.

The project calls for closing underperforming schools, mostly in high-poverty areas, and replacing them with new schools run by outside groups and organizations. The goal is to open 100 such schools by 2010; so far, 75 of those charter and charter-like schools have been opened.

The Chicago Public Education Fund got off the ground in 2000, and has raised and spent $25 million over the past eight years to improve teaching in the city. Last fall, it announced a campaign to raise $25 million in its third round of funding, to create a “master principal” designation with higher pay, and to examine better methods of evaluating teachers in order to create a new compensation schedule.

“We offer every four years to close our doors and not raise another fund. It keeps you focused on what the results are,” said Janet Knupp, the founding president and chief executive officer. “For us, the niche was to create the best vehicle for the private sector to get intellectually and financially engaged in schools.

“Intellectual engagement is important,” she said. “If people don’t want your mind at the table, then you are wasting your capital.”

Arne Duncan, the chief executive officer of the Chicago school system for the past seven years and President Barack Obama’s choice for U.S. secretary of education, said in a recent interview that it would have been impossible for the district to launch a number of improvement initiatives without the backing of the foundations. But he said he values even more the passion of the board members and the way in which they have pushed his thinking.

“A lot of folks would see these groups as funders,” he said. “I see them as real partners. They are as emotionally invested and intellectually invested in making a difference in kids’ lives as we are.”

Both the Chicago Public Education Fund and the Renaissance Schools Fund have adopted practices used by venture capitalists, who contribute startup money for new businesses in exchange for owning a percentage of them, closely monitor their growth, and often play leadership roles in the companies they finance.

On the national education scene, the NewSchools Venture Fund, based in San Francisco, has used a variation of the model to invest in charter-management organizations and other entrepreneurial ventures in several cities.

“People are supportive in Chicago of the idea that entrepreneurs play a role in reform of education,” said Jordan Meranus, a partner with the nonprofit organization, which finances charter school operators in Chicago. “It is a unique place that is well positioned to really build an education system that is as good or better than any urban system in the country.”

Venture philanthropists get involved with a project at the beginning, often providing seed money. The Renaissance Schools Fund provides money to finance the startup of new schools. The Chicago Public Education Fund has provided initial support for a number of initiatives, including efforts to encourage the city’s teachers to become certified by the National Board for Professional Teaching Standards, and support for the Chicago Teacher Advancement Program, which involves new ways of paying teachers.

By getting in on the ground floor, the funders work with organizations and schools to determine a set of goals and expected outcomes. And those goals must be met for the philanthropists to continue funding.

As in venture-capital projects, an “exit strategy” is built in from the beginning. The Chicago Public Education Fund’s programs are designed to be absorbed into the budget of the school system or to become self-sustaining. The new schools backed by the Renaissance Schools Fund, after an initial 2 and a half-year period of support, rely on the per-pupil allocations they receive, as well as money from the partnerships they build with business with the fund’s help.

Members of the foundations’ boards often take seats on the governing boards of the groups they fund, adding another voice of expertise to the table.

Frederick M. Hess, the director of education policy studies at the Washington-based American Enterprise Institute and the author of a book on entrepreneurship in education, said venture philanthropy has potential, even though most groups are not yet collecting and publishing the kind of data that would prove its efficacy.

“At times, I think old-style philanthropy was counterproductive, because it subsidized bad habits,” he said. “I think the kind of investment you are talking about in Chicago moves us into a fundamentally different mind-set.”

“It is a vastly superior approach, instead of just giving to local programs and curriculum,” Mr. Hess added. “What’s nice about this kind of giving is [that] by emphasizing outcomes, you push against the status quo.”

The Renaissance Schools Fund works with the school system to write the “requests for proposals” issued to invite plans for new schools, and helps evaluate the proposals of prospective school operators.

The fund invites prospective applicants interested in opening schools to New Ventures in Education, a series of 14 workshops that provide information and training in a variety of areas, such as setting up a school budget and hiring a staff.

Once grantees are selected, they are provided with ongoing technical assistance as they try to make their new schools work.

The fund gives each school selected up to $500,000 to help it get off the ground. The money pays for specific costs incurred during the “incubation period” of about eight months before the school opens, as well as supplements meager state funding during the first two years of a school’s existence, known as “ramp up” years.

“By definition, when you start a new school, you don’t have any students,” Mr. Duncan said. “So we literally have no resources to support these startups. That’s where the business-community support comes in. That’s why these schools have done so well. You have almost a full year to plan and think.”

In addition, the Renaissance Schools Fund brings in national experts to train new schools’ operators in such areas as crafting professional-development strategies and creating student assessments.

Donald G. Lubin, who chairs the Renaissance Schools Fund, is a partner in the law firm Sonnenschein Nath & Rosenthal, which established a charter school in 2005. The firm decided that would be the best use of money it was planning to use to celebrate its 100th anniversary.

When recruiting business people to join the fund’s work, Mr. Lubin said, he sells the virtues of high engagement.

“[W]hat we are particularly interested in is, can you write a check, dedicate that to a particular school, and get involved in the school?”

John W. Madigan, a former chief executive officer of the Tribune Co. and a member of the Renaissance Schools Fund board, said his family gave $500,000 toward the Polaris Charter Academy, an expeditionary learning-based elementary school that opened in 2006, because of the family’s comfort with the principles embedded in a venture-philanthropy model.

“Some of the things that work for business work for schools: good board governance, good facilities, and above all, good people managing the situation,” he said. “I’m not implying it’s just the same as business. But I think there are several things in common.”

At the Chicago Public Education Fund, board members have donated their own money and taken an active role in changing Chicago’s education landscape.

Ms. Pritzker, the founder and chairwoman of Classic Residence by Hyatt, which provides luxury living for older adults, focuses her efforts on the fund’s work on the quality of school principals. She chaired a task force, Leading to Great Principals, that Mr. Duncan put together to look at strengthening the requirements for serving as a principal in the city. In addition to obtaining a state administrative license, principal candidates must complete a portfolio, take a written exam, and complete a district-approved program that focuses on school leadership.

The task force helped develop and expand three programs’ partnerships—with the New York City-based New Leaders for New Schools, the University of Illinois at Chicago, and the Harvard Graduate School of Education—”that are producing what she termed a “reliable stream of candidates” for Chicago principalships.

Ms. Pritzker, a vice chairwoman of the Public Education Fund, said she and others in the business community understand how essential the work is to Chicago’s future.

“You are fighting on behalf of young people who don’t necessarily have the support at home or in their local community,” she said. “To me, it’s obvious. Every child we can get to graduation and who becomes a productive member of society is a young adult who is helping our city grow, instead of potentially becoming a liability for our city.”

Ms. Zell, who is also a vice chairwoman of the Public Education Fund, said the results of the past eight years have made it easier to recruit others in the business community, because more foundations are looking to see something tangible from their charitable giving.

“People want to see results,” she said. “At this point, we have a very good track record of setting out to do A, B, and C, and doing it.”

The fund’s work is obvious at the Talcott Fine Arts and Museum Academy in the city’s West Town area, where students were hard at work on a snowy winter morning.

As Principal Craig E. Benes walked through the 100-year-old school, he boasted of the work his “teacher leaders” are doing in helping one another become more skilled. Talcott is home to nine teachers who have received the voluntary certification offered by the National Board for Professional Teaching Standards.

But in 2000—before the Chicago Public Education Fund embraced national certification as a goal—just 11 teachers in the city had achieved that distinction. Today, there are 1,191. The foundation and the district, in partnership with the Chicago Teachers Union, have worked to ensure the certified teachers are in high-poverty schools. Teachers have been encouraged to go through the certification process in groups, and nationally certified teachers have taken lead roles in differentiated-compensation programs and school turnaround projects.

Mr. Benes, who was trained by New Leader for New Schools, has told Talcott’s teachers that they all must be working on national certification, endorsements for their state licenses, graduate work, or some other form of continuing education. “When I hire teachers, I tell them this is the expectation,” he said. “If we expect our students to move their scores from ‘meets’ to `exceeds’ [proficiency], we have to be extraordinary teachers, and we have to have our teachers model that commitment to learning.”

“Engagement is the difference between charity and venture philanthropy,” said Sandra P. Guthman, the chairwoman of the Chicago-based Polk Bros. Foundation, who also chairs the investments committee of the Renaissance Schools Fund.

“It’s working with the system to effect change,” she said. “I think it is a much more likely way to make lasting change if you are not only willing to engage, but stay engaged over a long period of time.” (Education Week – subscription required)