Are Foundations too Focused on Themselves?

The Center for Effective Philanthropy (CEP) just came out with a new report, “Nonprofit Challenges: What Foundations Can Do.” There were some dismaying findings. CEP’s survey of nonprofit leaders found that 52 percent felt that foundations are unaware of the challenges that nonprofits face. Less than 33 percent felt that foundations use their resources in ways that help nonprofits actually meet challenges. And, perhaps the most alarming finding is that nonprofit leaders felt more challenged to attract foundation support than any other kind of support. Survey respondents were nearly unanimous (99 percent) about the difficulty of attracting and maintaining (89 percent) foundation funding.

Today, there are well over 75,000 private foundations operating in the United States. Their tax-exempt assets total nearly $644 billion, of which they charitably spend approximately $3 billion each year (Foundation Center, 2012). With such largess and numbers, one wouldn’t imagine that foundation funding would be so hard to come by. Given how many foundations exist and CEP’s findings that nonprofit leaders find foundation grants the hardest to get, there is obviously a sharp disconnect between supply (foundation support) and demand (nonprofit financial need). So, what accounts for this disconnect? I would argue that the nonprofit economy is inherently dysfunctional, and one main reason is that private donors (individual philanthropists and foundations) behave as if the nonprofit economy is like a capital marketplace. Just like they behave in the for-profit economy, donors make emotion-based decisions, and foundations, as charitably focused as they are, are better suited to serving internal priorities than the needs of nonprofits. As a result, nonprofits that are set up to address issues and problems that could never be supported in the for-profit marketplace still find themselves underserved in the nonprofit sector. In other words, funders of nonprofits don't prioritize the very things that were intended to be addressed in the nonprofit system.

Albeit incorporated as a nonprofit entity, foundations behave like any other consumer in the marketplace (i.e., their giving behavior is like that of irrational private donors or bottom-line focused corporate investors) because of foundations'  history, ideological roots, and, ironically, their own pursuit of excellence. Consider the following:

Firstly, foundations are inherently self-serving. When the private foundation entity was established by the Tax Reform Act of 1969, foundations were asked to do only one thing, which was to behave charitably. Regulation of private foundations was necessary at that time because wealthy nonprofits were being incorporated as a way to avoid estate taxes and as an instrument to maintain control of wealth. To counteract this, the IRS specified that private foundations must use their funding for charitable purpose and not for personal inurement. Outside of this requirement, however, government never went so far as to intrude on foundation ‘owners’ freedom of expression, with the result that today’s foundations prioritize the wishes (and whims) of donors over social needs. This historical backdrop helps explain the oddity of foundation culture: There are so many foundations that do wonderful things for the public good, but their individuality, which is rooted in the privilege of free expression, makes this sector seem incoherent, uncoordinated, and idiosyncratic in how and what they support.

Second, in order to maintain the sanctity of foundation ‘owners’ (donors, founders, trustees, executive leadership) wishes and intentions, foundations maintain a highly ritualized process for identifying, vetting, reviewing, and deciding on which nonprofits to support. This is called the due diligence process. Anyone who has been a grantmaker will appreciate that this time- and resource-consuming process has its merits. After all, with so many nonprofits and projects to choose from, funders need to be sure that they are supporting the best projects over any others. Foundations’ careful vetting and review process are useful in protecting foundations’ objectives; however, the downside of all this is that nonprofits are at a disadvantage and waste too much financial and human resources going through this process. At what point is the sanctity of upholding a foundation’s vision worth the harm it causes in the nonprofit field?

Third, the specialized practice of foundation strategic planning has done much, I would say too much, to prioritize the primacy of a foundation’s objectives. Consider that a foundation’s strategic planning process is considered a finished success when trustees feel that their plan is a unique reflection of their combined interests and visions. (This is why having a diverse and community-based board is so important.) To the detriment of society, however, too little time is spent on the needs of the field. Oftentimes, when a survey of grantees is conducted during a foundation’s strategic planning process, the results of such a scan are used to inform the tactical, and not strategic, level. In other words, any input from the field is secondary after addressing the needs and wants of the foundation board. Consequently, foundation support better reflects the lifestyles, entrepreneurial practices, and ideologies of the wealthy than the needs of society’s most underserved. (To this point, research studies have confirmed that foundations are not redistributive to the poor and that they reinforce class divisions [Center on Philanthropy at Indiana University & Google, 2007; Odendahl, 1990; Ostrander, 1984; Ostrower, 1995; Silver, 2007].)

Fourth, foundations spend an inordinate amount of time and money on assessments that are more about their own internal operating and managerial concerns and less about their impact on grantees’ capacity to realize social purpose. I looked up the number and type of assessment tools that exist today for foundations on Foundation Center’s TRASI database (Tools and Resources for Assessing Social Impact). (A wonderful, yet underutilized, resource, by the way.) There are more than 60 tools specifically designed for foundation assessment, and nearly all are meant to help foundations answer questions about their own internal operating or managerial performance. For example, CEP’s Grantee Perception Report helps to gauge a foundation’s customer service as an indicator of performance. The Wallace Assessment Tool assesses if grantees fulfilled their project objectives: In other words, did grantees make good on their promises to funders? That so many foundation assessment tools now exist speaks to the fact that foundations are seriously interested in their performance, which is a good thing. The downside though is that these tools are internally focused and do not attempt to answer how foundation funding helps grantees. With all this energy spent on foundation performance, it's a wonder that the more fruitful and challenging pursuit of answering how foundations actually help nonprofits remains under-developed.

In case you’re curious, here’s a selection of foundation assessment tools available, which can be found using TRASI on the Foundation Center website.

·      A Guide to Actionable Measurement (Gates Foundation)

·      Application Perception Report (CEP)

·      Ashoka Measuring Effectiveness Questionnaire

·      Balanced Scorecard (New Profit, Inc.)

·      Benefit-Cost Analysis (Abt Associates)

·      Benefit-Cost Ratio (Robin Hood Foundation)

·      Building a Performance Management System (RootCause)

·      Building Future Leaders Diagnostic Survey (Bridgespan)

·      Capabilities Profiler (Keystone Accountability)

·      Charting Impact (Independent Sector, BBB Wise Giving Alliance, & Guidestar)

·      Checklist for Reviewing a Randomized Controlled Trial (Coalition for Evidence-Based Policy)

·      Community of Learners (TCC Group)

·      Comparative Constituency Feedback (Keystone Accountability)

·      Compass Index Sustainability Assessment (ATKisson Inc)

·      Core Capacity Assessment Tool (TCC Group)

·      Criteria for Philanthropy at Its Beset (NCRP)

·      Developing a Theory of Change (Keystone Accountability)

·      DevResults (CaudillWeb)

·      Evaluating the Impact of Development Projects on Poverty (World Bank)

·      Evaluation Plan Builder (Innovation Network)

·      Evaluation Principles and Practices (Hewlett Foundation)

·      External Review of Program Strategy (Duke Foundation)

·      Foundation Performance Assessment Framework (Irvine Foundation)

·      Foundation Scorecard (RWJ Foundation)

·      Foundations of Success Guideline for Effective Evaluation (Foundations of Success)

·      Framework for Program Evaluation (CDCP)

·      Grantee Perception Report (CEP)

·      Impact Reporting and Investment Standards (GIIN)

·      Learning for Results (GEO)

·      Learning with Constituents (Keystone Accountability)

·      Measures of Success (Foundations of Success)

·      Multidimensional Assessment Process (CEP)

·      Operational Benchmarking Report (CEP)

·      Organizational Assessment Tool (Innovation Network)

·      Outcome-Based Evaluation (Organizational Research Services)

·      Program and Policymaking Evaluation (Kellogg Foundation)

·      Project Streamline Grantmaker Assessment Tool (CEP & GMN)

·      Prove It! (New Economics Foundation)

·      Pulse (Acumen Fund)

·      Social Audit (Social Audit Network)

·      Social Impact Assessment (Rockefeller Foundation & Goldman Sachs Foundation)

·      SROI (The SROI Network, and many others’ proprietary SROI tools)

·      Staff Perception Report (CEP)

·      Stakeholder Assessment Report (CEP)

·      Success Measures Data System (Neighbor Works America)

·      Readiness for Organizational Learning and Evaluation Instrument (FSG)

·      Theory of Change Community (ActKnowledge)

·      Trustee Evaluation Toolkit (FSG)

·      Wallace Assessment Tool (Wallace Foundation)

I took the time to type this list (and nearly wore down my fingers) from the TRASI site to point out that the foundation sector really has an embarrassment of riches when it comes to assessment instruments, guides, and tools. In the context of CEP’s newest findings, what becomes clear is that foundations are fixated on their internal objectives and not enough on the needs and objectives of the nonprofits they are supposed to serve.

Don’t get me wrong. I am excited that so many foundation tools exist because I really value foundation evaluation: There is nothing more exciting than combining program strategy and evaluation wherein clues of funding outcomes, intended or accidental, provide a way of improving grantmaking interventions. I've mined for ideas in many of the tools listed in TRASI because I am personally interested in advancing grantmaking practice. But, given what nonprofit leaders are communicating via the CEP report, I am also cognizant that foundations’ pursuit of their own excellence has hurt nonprofits. All this innovation in improving foundation performance has had a significant downside. While foundations have evolved increasingly sophisticated, professional practices, this field’s focus on its own objectives has resulted in skirting the question of how foundations are actually helping and serving public charities and, by extension, society’s needs and demands. Until foundations spend just as much time innovating in that direction, too many nonprofit leaders will feel like beggars than deliverers of society’s salvation. There is tremendous opportunity now for foundations to strike a new approach that incorporates social need and nonprofit concerns earlier and with more urgency in foundations’ planning, evaluation, management, and operational practices.

Works Cited

Buteau, E., Brock, A., & Chaffin, M. (2013). Nonprofit challenges: What foundations can do. San Francisco, CA: Center for Effective Philanthropy.

The Center on Philanthropy at Indiana University, & Google. (2007). Patterns of household charitable giving by income group, 2005. Indianapolis, IN: The Center on Philanthropy at Indiana University.

Foundation Center. (2012a). FC Stats: Number of grantmaking foundations, assets, total giving, and gifts received, 1975 to 2010. New York, NY: Foundation Center.

Odendahl, T. (1990). Charity begins at home: Generosity and self-interest among the philanthropic elite. New York, NY: Basic Books, Inc., Publishers.

Ostrander, S. (1984). Women of the upper class. Philadelphia, PA: Temple University Press.

Ostrower, F. (1995). Why the wealthy give: The culture of elite philanthropy. Princeton, NJ: Princeton University Press.

Silver, I. (2007). Disentangling class from philanthropy: The double-edged sword of alternative giving. Critical Sociology, 33(3), 537–549. doi:10.1163/156916307X189013