Thank You, Government

Foundation and public charity leaders want government to be a good partner to their efforts, but fail to question if they’ve been a good partner to government.

An important tactic to creating positive social change is to participate in advocacy. Government—at municipal, state, or federal levels of the U.S.—has more money than the private philanthropic sector and, with the single stroke of a pen, can enact policies that would significantly advance nonprofits' missions. It’s no wonder then that conferences of nonprofit or foundation professionals often include a session on how to approach and influence elected officials. Designed to help nonprofits pitch their causes, these sessions are about convincing elected officials to see the world from a nonprofit perspective.

But do we ever, as nonprofit workers, ever sympathize with government? Do we ever ask ourselves what we can do to help strengthen government, particularly when it comes to advocating for expanding government services to redress inequities, reduce income inequality, redistribute opportunities, and enact social changes that would benefit all? Now, THAT would make for an interesting conference session. The nonprofit sector has been too uninterested in the welfare and well-being of government, which is actually to the detriment of the entirety of nonprofits’ efforts.

Advocacy, by and large, has been about influencing elected officials; it’s about how government can help me, my nonprofit cause, my social change agenda. In this way, nonprofits’ advocacy activities reflect a fragmented, special-interest driven nonprofit sector. Your elected official is sitting down with an education reformer one day and an environmental advocate the next. Moreover, how we are being taught to conduct advocacy enacts an adversarial dynamic in the nonprofit-government relationship. Government representatives are perceived as gate-keepers to much-needed resources and policies who need to be convinced of the merits of your nonprofit’s interests.

In our single-minded focus on advancing our own sector-specific causes, we have forgotten the importance of government’s own social welfare mission and role. Among nonprofits, there are many special interests spanning all sorts of issues, but where’s the group devoted to advocating on behalf of government? For instance, there's no national foundation collaborative raising a furor to ensure that civics and U.S. government classes remain a core high school education instruction. Yet doesn’t educating young minds on government's role in the functioning of a democracy help the entirety of the third sector, which depends on voluntary democratic action? It's like we're fighting too many battles and losing the war. Of all people, why haven't those in the nonprofit sector been able to appreciate the need for a strong government in fighting poverty, advancing education opportunities, and fighting climate change? Successful foundation initiatives and nonprofit programs cannot be taken to scale when the role of government is diminished in the eyes of the public.

When foundation and public charity leaders approach elected officials for support, they should also be asking what they can do to help strengthen government in meeting larger social welfare needs. After all, government is not an adversary to nonprofits' interests: Rather, government is the nonprofit sector's complement (for theories of the government-nonprofit relationship, cf. Frumkin, 2006; Sandfort, 2008; Young, 2006).

But, the nonprofit sector has been strangely and alarmingly silent in defending the role of government in improving lives. Why wasn't there a unified and loud nonprofit voice defending the Affordable Care Act--the most important progressive social welfare act of this generation? The ACA singlehandedly will help all nonprofits and foundations come closer to realizing their missions by helping clients of grantees live healthier lives as well as by improving the capacity of grantee organizations by protecting the well-being of their volunteers and staffs. More recently, why didn’t the nonprofit sector stand up together to defend the importance of the IRS in regulating (and protecting the reputation of) the nonprofit industry when the IRS was attacked for scrutinizing far-left and far-right groups? You may, too, have bought into the criticism that this was a government overreach but by being silent and not rising to government’s defense, the nonprofit sector has been complicit in effectively weakening government. And a weakened government at any level is not only bad for those who stand to benefit from taxpayer-enabled social welfare programs and efforts—the poor, the uneducated, the mentally ill, the immigrants—but it’s also bad for the nonprofit sector at large. Government’s programs, funding, and policies comprise the national infrastructure of social welfare and is what foundations and public charities depend upon to leverage their contributions and activities.

I'm happy to go against the general sentiment of government unpopularity by expressing my appreciation to government for:

• my ESL class when I first came to this country. (Admittedly, it was a bit confusing as a Korean to be put in Spanish ESL to learn English but, hey, I managed OK.)
•  my public education. (Albeit not the source of happy memories, this education effectively taught me to read, write, think, and express myself.)
• my government-subsidized college loans. (I’m still paying this off and not entirely happy about it, but I'm eternally grateful for the opportunities it afforded.)
• my food stamps which was the only way I was able to feed myself in college.
• an environment back in the 1990s (which is no longer the case today) that made affirmative action OK, thus opening doors to education and work that would have been closed to me in a culture of homogeneity.
• making financial institutions write to me in plain English. (I actually now read my Bank of America “Notice of Changes” letters, relishing how clearly they are articulating what they’re up to.)
• government grants to nonprofits for creating a robust independent sector that has allowed me to work in ways that satisfy both my mind and my heart.

In the clip below of a 2013 South Park episode, Butters (yes, that’s his name) concludes his day with “Dear Government, Thank you for watching over me.” At least when it comes to the U.S. government, I couldn’t agree more. What do you thank government for?

Works Cited

Frumkin, P. (2006a). Accountability and legitimacy in American foundation philanthropy. In K. Prewitt, M. Dogan, S. Heydemann, S. Toepler (Eds.), The legitimacy of philanthropic foundations: United States and European perspectives (pp. 99-122). New York, NY: Russell Sage Foundation.

Sandfort, J. (2008). Using lessons from public affairs to inform strategic philanthropy. Nonprofit and Voluntary Sector Quarterly, 37(3), 537–552. doi:10.1177/0899764008320270

South Park. (2013). Let go, let gov [television series episode]. Los Angeles, CA: Comedy Central.

Young, D. R. (2006). Complementary, supplementary, or adversarial? Nonprofit-government relations. In E. T. Boris & C. E. Steuerle (Eds.), Nonprofits and government: Collaboration and conflict (2nd ed., pp. 37-79). Washington, DC: Urban Institute.

Fixing a Problem of Foundation Payout

The topic of private, non-operating foundations’ payout has not been popular as of late. This is not surprising as we are still in the aftermath of one of the worst financial crises to hit the U.S. Arguably, however, this topic shouldn’t be tied to how well or how poorly foundations’ investments are faring; rather, payout should be an ongoing discussion as it represents a timeless question of what we want foundations to achieve. Hence, I’m bringing this topic up again, but with a different approach to this conversation. Rather than advocate for a solution based on a personal ideology of what I think foundations should be doing, I’d like to revisit a technical benefit of tying foundation payout to investment performance, a long-forgotten part of the original tax code that was jettisoned with too little deliberation. To get to my point, it’s worth pausing on (1) the genesis story of payout to contextualize why this topic has been so controversial and (2) the ideologies underlying the payout rate before moving on to (3) my own suggestion of how foundations can maximize charitable spending while retaining donors’ privilege of grantmaking.

If you’ve been in the foundation sector long enough, you’ve read countless articles and listened to innumerable speeches of the pros and cons of either maintaining the 5% minimum distribution rate or raising it to increase charitable spending. The notion of the payout requirement is rooted in the Tax Reform Act of 1969 (TRA 1969), which is what first recognized and regulated private foundations. One way to think of payout then is that it is a defining characteristic of foundations and is what distinguishes private foundations from any other type of charitable entity.

TRA 1969 was an outcome of years of distrust of endowed philanthropies. Before the Act was passed, endowed charitable organizations, such as the Ford Foundation, were being roundly criticized for protecting wealth and not distributing it for taxpayer benefit. Beginning in 1961, Congressman Wright Patman of Texas made it his personal mission to go after what he considered to be tax shelters for the elite, and his efforts were rewarded with the signing of TRA 1969 by President Nixon who declared, “Tax-free foundations were brought under much closer Federal scrutiny. . . . [as] congressional consideration of this matter reflected a deep and wholly legitimate concern about the role of foundations in our national life.” Patman’s suspicion of foundations was not unfounded. Private foundation expert Troyer (2000) recalled that when he entered law practice in the late 1950s, tax lawyers and estate planners used to advise clients to establish endowed nonprofits as a way to avoid estate taxes and as an instrument to maintain control of wealth.

What TRA 1969 effectively did was distinguish between private foundations and public charities (the former fails the public support test) and required that foundations must distribute a minimum amount of their wealth annually. (I should mention that all this pertains only to non-operating foundations; operating foundations’ direct charitable activities exempt them from payout.) At the time, there was very little consideration given to determining an appropriate minimum rate: Hence, the rate was set without “any systematic data about the consequences it would have on the operations of foundations” (Salamon, 1992, p. 119). When TRA 1969 passed, the minimum distribution requirement was set at an annual rate of 6% adjusted based on investment rates and market yields. In other words, legislators favored a distribution rate that was on par with investment yields so that money gained would be spent. Put more bluntly, the winning sentiment was that foundations should not last into perpetuity and wealth should be given away for the good of all. But this sentiment did not last, and under much pressure from foundation executives, the law was changed to a flat 5% rate in 1981 (TRA 1981).

What are we to make of this history? My own view is that the 5% rate should be seen as a compromise between those arguing for preserving wealthy elite’s privilege to practice philanthropy (i.e., the ‘private interest’ position) and those who see foundations’ tax-subsidized assets as accountable to the public good (i.e., the ‘public interest’ argument). Although there was strong opinions from both sides, there is nothing clear-cut in the historical documents or in the legal codes that definitively answers which viewpoint is more correct. In actuality, TRA 1969 and TRA 1981, taken together, reflect a great deal of ambiguity by making private foundations beholden to both public and private interests: TRA 1969 mandated spending for the public good while TRA 1981 protected foundations’ ability to exist into the future. Given the lack of clarity in policy, it’s no wonder that the payout rate has remained a source of contention over the years.

Hence, much of the debate over payout pivots on the fundamental differences in opinions of what and whom foundations should serve. Consequently, such an outsized ideological cage match has diverted attention from smaller details of payout regulation that merit attention. For instance, under current regulations, there is no answer to the question of what happens to foundations that realize greater yields on investments that surpass charitable spending. In other words, what should happen to foundations that grow wealth at a greater rate than they redistribute it? The answer, I would argue, lies in the original TRA 1969 notion of tying spending to investment returns.

I suggest that a foundation’s payout rate be determined by comparing its charitable spending rate and its yield on investments, minus rate of inflation, over a 25-year time horizon. (A variable payout rate is not a new idea [cf. Frumkin, 1998] but what I propose is a much longer time horizon to support intergenerational equity.) So, let’s say that a foundation averaged distributions of 5% over a 25-year period and over that same period the average rate of inflation was 5.17% (this is actually the averaged inflation rate between 1975-2000), the foundation would then need to distribute at a rate of .17% more over the next 25 years. The calculation begins with a foundation’s first tax return and if the averaged inflation rate is below the mandatory minimum, the 5% still applies. In actuality, most foundations distribute more than 5% of non-charitable use assets so, given the rate of inflation, this proposal will not likely result in public charities experiencing a huge windfall. What this proposal does do, however, is ensure that wealth does not growing disproportionate to charitable obligations. In sum, by basing adjustments in payout rate over the long term, this would protect foundations’ financial ability to work toward perpetuity while ensuring that any investment gains beyond rates of inflation are spent for the greater social good.

What this proposal does not do is resolve the debate about whom foundations should primarily serve—foundation owners or the public good. Hence, I'm not going to touch the question of how payout should affect perpetuity, which would require greater clarity in policy about a foundations' social role. Short of that, however, an adjusted payout rate minus inflation over nearly a generation timespan ensures that foundation wealth does not grow at the expense of taxpayers’ expectations for social benefits. Although there has been criticism of even having a payout requirement (Deep &Frumkin, 2001), we now know empirically that mandating distributions has been effective. Desai and Yetman (2005) discovered empirically that foundations behaved more charitably in response to government regulations and oversight. Furthermore, Worthy (1975) found that foundations paid out less before the mandatory distribution requirement than after its implementation. Therefore, the payout requirement is working and merits continued refinement, particularly in calibrating the balance between competing desires for wealth accumulation and charitable spending.

Works Cited

Deep, A., & Frumkin, P. (2001). The foundation payout puzzle (Working paper no. 9). Cambridge, MA: Hauser Center for Nonprofit Organizations, Harvard University.

Desai, M. A., & Yetman, R. J. (2005). Constraining managers without owners: Governance of the not-for-profit enterprise (No. w11140). National Bureau of Economic Research. Retrieved from http://www.nber.org/papers/w11140

Frumkin, P. (1998). The long recoil from regulation: Private philanthropic foundations and the Tax Reform Act of 1969. The American Review of Public Administration, 28(3), 266–286. doi:10.1177/027507409802800303

McGlaughon, K. (2013). Foundation Source annual report on private foundations (No. 2). Fairfield, CT: Foundation Source. Retrieved from http://www.foundationsource.com/resources/FS_2013_Annual_Report.pdf

Renz, L. (2012). Understanding and benchmarking foundation payout. New York, NY: Foundation Center. Retrieved from http://foundationcenter.org/gainknowledge/research/pdf/payout2012.pdf

Salamon, L. M. (1992). Foundations as investment managers, part 1: The process. Nonprofit Management and Leadership, 3(2), 117–137. doi:10.1002/nml.4130030203

Troyer, T. A. (2000). The 1969 private foundation law: Historical perspective on its origins and underpinnings. The Exempt Organization Tax Review, 27(1), 52–65.

Worthy, K. M. (1975). The Tax Reform Act of 1969: Consequences for private foundations. Law and Contemporary Problems, 39(4), 232–254.

What’s Wrong with a Standard of ‘Excellence’ in Grantmaking?

The role of the nonprofit sector is to address the kinds of problems that haven’t been able to resolved in the consumer-driven marketplace. This concept has been well described by economists such as Hansmann (1981) who called this contract failure to imply individual consumer’s unwillingness to pay for goods and services that are for the benefit of all. More colloquially, we call this the tragedy of the commons wherein goods and services that benefit the masses cannot be sold through a capitalistic approach. The nonprofit sector exists, then, to correct marketplace failures so that the things that are good for society—environmental conservation, cultural expression, and opportunities for advancement by those who are poor—actually get addressed. Hence, the nomenclature of nonprofit is not to imply an inability to retain a profit, after all, every enterprise needs a financial surplus to be sustainable and vital, but rather to describe activities that exist outside of profit-making motives.

Because nonprofit entities are responsible for redressing problems that have failed to be addressed in the marketplace, private foundation grantmakers should be wary of incorporating competition-based approaches in their practices. Merit-based decision-making has been repeatedly shown to be inadvertently discriminatory: “According to the ideology of meritocracy, inequality is seen to be fair because everyone presumably has an equal (or at least an adequate) chance to succeed, and success is determined by individual merit (McNamee & Miller, 2009, p. 4).” In other words, if meritocracy worked—that is, if everyone enjoyed fair and equal opportunities based on a level playing field—then there really wouldn’t be a need for charitable and philanthropic entities to exist. The proprietary sector would be an effective place for everyone to be able to rise out of poverty. But we know that for those who struggle, the opportunity to make money is not fairly distributed. Therefore, why do private foundations apply the same marketplace-based principles and practices that further disadvantage the already disadvantaged?

A foundation practice that harms rather than helps is decision-making based on the notion of excellence. Making excellence a primary criterion precludes supporting those who lack capacity. Put another way, a standard of excellence ensures that resources flow to those with already demonstrated capacity. Capacity, in this case, can mean a lack of demonstrated success, not being well-connected to foundation insiders, an insufficient budget size, or inexperience. By giving grants based on excellence, this favors applicants with a demonstrated track record of success, those with insider connections, and those with enough savvy to know how to work the foundation system in their favor; in other words, a criterion of excellence perpetuates an elitism that should have no place in a sector tasked with righting wrongs. Standards of merit and excellence discriminate against those who fall outside of the right networks, who haven’t had advantages to navigate grantmaking processes, and who lack the individual capacity to excel in this system. Think of rural communities, poor communities without local donors, and non-English speaking communities and you get a sense of who gets left out of a system of philanthropic meritocracy.

The problem of an excellence-based grantmaking lens is inextricably tied to the problem of competition in grantmaking. For sure, there are far too many applicants than foundations can support, but supporting those who are good competitors precludes those who are of different backgrounds, networks, experiences, and knowledge. By making decisions based on best articulation of a project, superior editing of a proposal, the most seamless site visit experiences, and a track record of success, foundation support will always go to those who already demonstrate success. Now, I don’t have a problem with this necessarily—nonprofits that have these elements (i.e., they have their act together)—are a safe bet for successfully working toward their mission. In other words, the most capable nonprofits should be rewarded in a competitive grantmaking environment. But the problem is that the peoples, regions, and issues that lack capacity and are, therefore, not as competitive, are the ones that most need grantmaker support and yet remain under-served philanthropically. Therefore, the practice of competition should be based more on redistributive outcomes and less on excellence.

Gatekeepers to philanthropic wealth would be well served if they become more self-critical of their own biases. This means that for those who were richly rewarded in the capitalist system, it means having the humility to recognize that how they achieved their success cannot be universally applied to others. It also means that for program staff who have risen because of their accomplishments, attention to detail, and creativity, it means having a kind of sympathy that can overlook spelling errors, lack of perfect execution and written articulation, and proposals that seem non-sexy for being focused on necessities and basics. All this means that grantmakers would do well to ask themselves:

• How are my personal biases and expectations of what it means to be successful inadvertently blocking those with less means and capacity access to opportunities that I control?
• Is access to funding based on inadvertently discriminatory practices that make it harder for poor, non-urban, or culturally different people to compete?
• Are those with the ‘right’ connections better able to compete for funding because it ameliorates my own and therefore my foundation’s risk?
• Do I feel more comfortable investing in people with whom I feel I have a cultural connection? For instance, do we listen to the same NPR programs? Did we share the same alma mater or major? Do we have children in the same schools? Do we bond over the same sports teams? Do we compare frequent flier experiences?
• Do I make myself accessible to people in communities that fall outside of standard nonprofit spheres? Keep in mind that opportunities arise from simple luck—chance encounters, unexpected connections. If foundation trustees and employees only network within their own familiar circles, then not only are those outside of your cultural, academic, and professional networks already disadvantaged, but they are even deprived of the opportunity for dumb luck to strike.

This kind of introspective questioning can improve how foundations redistribute not only wealth but also opportunity. Furthermore, such a redistributive lens helps ensure grantmaking dollars directly, and not through trickle-down effects, support those who represent the change we want to see in the world. As the wealth gap increases and already poor, ethnically diverse communities become even poorer (Hook, 2013), foundations must be part of the solution and not exacerbating problems.

All this is not to say that grantmakers should drop the practices of competition; after all, limited resources beget competition. But if grantmakers want to be able to change structural problems of inequality, then they need to be able to recognize practices that re-enact, not redress, unequal access. One major place to start is by becoming more aware of how competitive approaches based on merit-based criteria actually replicates the problems of the marketplace so that the growing gap between the haves and the have-nots become perpetuated in the nonprofit sector. If the nonprofit sector is the place to take care of societal problems that couldn't be addressed through capitalist economics, then private foundation grantmakers need to counter this by applying a decision-making lens that makes different backgrounds and limited opportunities important criteria over the criterion of excellence.

Works Cited

Hansmann, H. (1981). The rationale for exempting nonprofit organizations from corporate income taxation. The Yale Law Journal, 91(1), 54–100. Retrieved from http://www.jstor.org/stable/10.2307/795849

Hook, B. (10 May 2013). The racial wealth gap [Infographic]. Sojourners. Retrieved from http://sojo.net/blogs/2013/05/10/infographic-racial-wealth-gap

McNamee, S. J., & Miller, Jr., R. K. (2009). The meritocracy myth. Lanham, MD: Rowman & Littlefield Publishers, Inc.

A New Level of Principled Foundation Grantmaking

For those foundation leaders who want their decision making to be insulated from public scrutiny, this is a moment of growing anxiety. There are signs that foundations will need to do more to demonstrate their public good value. For foundations in California, this anxiety reached an apotheosis in 2008 when legislation was introduced—California AB 624—that would have made it easier to find out how much or how little foundations were supporting the interests of the underserved. Foundations effectively succeeded in killing the bill when they pledged $30 million to support minority-led organizations. Now there’s a new website, Inside Philanthropy, that makes available the kind of information that is usually only known to foundation ‘insiders’. In an effort to make foundation workings more transparent, the website will include articles illuminating foundations' hidden funding agendas and processes (not just what’s available on their websites) and share stories from foundation grant seekers who will rate foundations. Think Yelp reviews by fundraisers on foundations.

On the face of it, Inside Philanthropy seems to provide customer service-oriented information akin to what Center for Effective Philanthropy has been collecting in their Grantee Perception Report; but what is substantially different is that Inside Philanthropy serves those outside the foundation world while the Grantee Perception Report serves those within foundations. In other words, the launch of Inside Philanthropy is a win for those wanting foundation performance to be more accountable to constituents’ interests.

Foundation heads have been attentive to the trends of transparency, with a few welcoming this trend as an opportunity for more effective grantmaking. Others, however, see increased transparency as a slippery slope toward public accountability, which seems to mean losing ownership of foundation resources. Those who feel threatened by public-interest grantmaking have a forum for fighting this trend and protecting the autonomy of private philanthropists: The nonprofit Philanthropy Roundtable protects philanthropic freedom of expression (i.e., the ability to make grants however, to whomever, and to whatever causes short of private inurement) and preservation of wealth so that family philanthropies can pass on the financial ability to become philanthropists to their descendants. Even though foundations’ tax-subsidized status may be grounds for arguing that foundations should work in the public’s interest (Porter & Kramer, 1999; see also Deep & Frumkin, 2002; Prewitt, Dogan, Heydemann, & Toepler, 2006; Toepler, 2004), Philanthropy Roundtable promotes private interest-focused philanthropy as a means to enacting democracy through expression by society’s wealthy elite.

As the gap between the wealthy and the poor widen, it should be no surprise that public skepticism of the wealthy is growing, with even private foundations unable to escape critical attention. Unfortunately, while there are numerous outlets for private-interest philanthropists to exercise and protect their power (e.g., Philanthropy Roundtable and even the protectionist stance of Council on Foundations), there is nothing for those interested in advancing a new level of philanthropic practice that prioritizes the greater good over the interests of private individuals. There is no equivalent national forum or platform for foundation leaders who want to rectify structural social problems and more effectively redistribute wealth and opportunities in ways that counteract the effects of a capitalist economy. After all, the nonprofit system exists to take care of the things that could not be capitalized in the marketplace. Yet there is little opportunity for such thinking to coalesce into a movement, let alone to counterbalance the influence of conservative organizations that protect philanthropic autonomy and the wealth of foundations.

Consider that with the Tax Reform Act of 1969 foundations are meant to do two things: Perform a public good (and not inure private benefits to its owners) and redistribute wealth. But today’s private foundations' worldviews and practices have remained largely unchanged from the philanthropic model established in the 1920s by the fortunes of Andrew Carnegie, Russell Sage, Henry Ford, and John D. Rockefeller (Parmar, 2012). Yet, the social problems of today, including the growing gap between rich and poor, demand a new level of performance by private foundations. In effect, when public sentiment turns against wealthy elites, this is not the time for foundation leaders to fight to protect their interests, but rather a bar should be raised for foundations to demonstrate their public good. (Such conditions are what led to the Tax Reform Act of 1969 that introduced regulations on private foundations.) I suggest that today’s foundations need to evolve to a new level of performance never before realized. This new level of private foundation performance would achieve the following four things, all of which are meant to redress aspects of structural social inequalities:

1) Use a public accountability lens. Enable people who hold different worldviews from foundation owners and who have an informed healthy skepticism of foundations to not only inform grantmaking strategies and decisions but also be given voice to hold foundation performance accountable. In some ways, Inside Philanthropy is doing this by giving fundraisers the opportunity to weigh in on foundation performance but it's unclear if this experiment will actually help foundations achieve improved mission-related performance or only help fundraisers be more effective in identifying foundation resources. Enabling public accountability to become part of foundation operations and culture does entail using a diversity, racial equity lens, but the ultimate goal is not better representation but rather to help foundations be a more democratic enterprise. Certainly, achieving better representation of different types of people is important, but if achieving diverse representation is the endgame then it’s just not enough to bring about structural social change.

2) Consider foundation owners’ own complicity in contributing to the social problems that they are now trying to solve. Theory of change documents include such lofty ambitions, such as, “Improve low-income student academic performance.” But without addressing built-in inequalities in this country, foundations are actually fighting a losing battle as the gap between rich and poor widens and foundation donors remain ignorant of how they contributed to this dynamic. The very things that helped foundation founders achieve great success--entrepreneurship, business-minded approaches, competition, use of scientific knowledge--can become the very traits that hurt their ability to realize positive social outcomes and actually exacerbate social inequities (Parry, Field, & Supiano, 2013). For instance, rather than impose competition-based performance standards that worked in the commercial marketplace on the nonprofit sector, foundation leaders need to take a step back to understand that those very standards are what made it difficult for people without resources to compete in the first place. Why replicate the same standards in a sector where concepts such as ‘excellence’ continue to inadvertently disadvantage those who have not been able to 'work' the system?

3) Re-think the infrastructures that your foundation has supported. Foundations with strategic focus areas are typically attentive to the ‘ecosystem’ of nonprofits working in their issue area. Foundation staff need to ask themselves: Is this network reflective of the diversity of people in the United States? In other words, is this infrastructure led by nonprofit executives who reflect similar worldviews as that of funders: Did they go to the same camps, schools, colleges, and churches? Do they bond over the same music and shared love of certain public radio stations? In other words, are foundations investing in people who share their worldview and, thus, unintentionally keeping the financial resources circulating in a closed network? Is the infrastructure that has foundation backing privileging communities that are relatively well-resourced compared to communities of color, religious diversity, and rural populations? If so, foundations are actually contributing to widening opportunity gaps that fall along income, class, race, religious, and urban vs. rural lines. If the past five decades can be credited for helping to build nonprofit infrastructures, let’s have the upcoming decades be remembered for shaping infrastructure and networks to be more inclusive, equitable, distributive of opportunities, and socially just. The way forward entails foundations doubling down on supporting the very people who represent the underserved voices who need to be empowered in the world. For international, developing world funders, the opportunity is now to shape new infrastructures by giving people without political voice a platform to speak rather than replicating 'Great North' NGO infrastructures that are led by people who speak on behalf of Others.

4) Quit perpetuating myths that government is at worst 'the enemy', at best a 'weak but necessary partner', and on most days a piggybank to leverage foundations' agendas. When the Obama Administration's Neighborhood Revitalization Initiative supports communities using a competition-based approach based on local ability to generate private foundation matching funds, more money flows to relatively well-resourced urban communities. When private foundations are in the driver's seat in setting the priorities for capturing government money in Pay for Success or Social Impact Bonds, once again private funders are drawing public funds toward parts of the country with relatively better capacity. These projects are important and innovative endeavors, but foundations need to remember that when they exert such a large influence, they inadvertently stymie efforts to spread government resources to areas outside where foundations operate. Foundation workers need to not only help keep government remain committed to social welfare, but also help (and not distract) government from spreading its resources more equitably.

Which brings me to a larger point about the interaction between foundations and government, which is that foundations actually need a strong government to realize charitable purpose. Foundations' narrow foci and relatively minuscule budget sizes will never be wide or large enough to realize their missions without government. A weak government and influential private foundation sector has led to current conditions, which is not ideal, equitable, or democratic: widening gaps of opportunity between haves and have nots in accessing nonprofit services; increasing wealth of elite higher education, cultural, and medical institutions that serve a minority of the population; and less resources for places and peoples that cannot compete in a competition-based, performance-driven nonprofit marketplace. In the mid-twentieth century, our foundation ancestors contributed to strengthening government by advancing modern welfare reform, which helped them realize their own agendas (Parmar, 2012). Today’s foundation leaders who see themselves as the only and best solution to social problems forget that government is better able, through their equal opportunity mandate and budget size, to serve the needs of all. Foundations would be well-served if they stopped thinking of government as a broken partner and start empowering government with vocal support.

I started off by prioritizing the importance of using a public accountability framework in grantmaking. Incorporating a public accountability lens is what would distinguish tomorrow's private foundation practice from what has come before. It's a principled approach that serves the greater good beyond siloed manifestations of personally held values and ethics. With this lens, the subsequent steps are specific ways to improve private foundation practices taking into account the legacy of their accomplishments and shortfalls: adapt the strengths of foundation leaders for a social change environment lest their biases and tendencies inadvertently do harm; redistribute wealth by investing in those who represent the change we seek in the world; and act as a supportive (not outsized) social welfare partner to government. Incorporating these approaches within an accountability framework would help foundations come closer to fulfilling internal mission-related mandates as well as earn the trust of external stakeholders. Why? Because such changes move foundations closer to addressing the roots of structural problems plaguing society while effectively utilizing the power of autonomy.

Works Cited

Deep, A., & Frumkin, P. (2002). The foundation payout puzzle (Working paper 9). Cambridge, MA: Hauser Center for Nonprofit Organizations, Harvard University.

Parmar, I. (2012) Foundations of the American century: The Ford, Carnegie, and Rockefeller Foundations in the rise of American power. New York, NY: Columbia University Press.

Parry, M., Field, K., & Supiano, B. (2013, July 14). The Gates effect. The Chronicle of Higher Education.

Porter, M. E., & Kramer, M. R. (1999). Philanthropy’s new agenda: creating value. Harvard Business Review, 77, 121–131.

Prewitt, K., Dogan, M., Heydemann, S., & Toepler, S. (Eds.). (2006). The legitimacy of philanthropic foundations: United States and European perspectives. New York, NY: Russell Sage Foundation.

Toepler, S. (2004). Ending Payout as We Know It: A Conceptual and Comparative Perspective on the Payout Requirement for Foundations. Nonprofit and Voluntary Sector Quarterly, 33(4), 729–738.