Tuesday, February 4, 2014

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.

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