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.

Is Criticizing Private Foundations Anti-Capitalist (i.e., Marxist) or Pro-Capitalist?

Working on a dissertation that seeks to address empirically the notion of private foundation effectiveness, I’ve been struck by two things: the lack of critical inquiry on this topic and how criticism of foundations has been stifled. On the first point, of course, people pontificating and expressing their opinions have spilled lots of ink, but much of this is subjective and reflects ideology not facts. Certainly, personal expressions by those knowledgeable about the field can be useful, but without including a critical, discourse-dependent approach to inquiry, conversations about private foundations neither become increasingly sophisticated nor elevated beyond a shouting match. This lack of scholarship is a far cry from my other academic experience, which was in art history, which I can’t help but use as a comparative foil. In my graduate studies in art history, I was bombarded with criticism—discourse on identity, how we perceive, and the notion of power and otherness. As frustrating as it was to be reading semiotics than visiting a museum, I appreciated being able to move beyond appreciating art on the basis of personal aesthetic pleasure to understanding the construction of meaning that says a lot about who we are as a people.

In building my literature review of private foundations, there is very little critical study of its effectiveness. Hence, in the absence of empirical data, I’ve been mining references for different ways in which people have critically analyzed foundations, particularly around the notions of accountability and effectiveness. In that process, I found something interesting that has no room in my study, so I’ll talk about it here instead. There’s something odd and disturbing in how people treat those who criticize private foundations.

There seems to be two kinds of treatment of people who express any kind of criticism of private foundations. One kind of reaction is to accept their criticism and laud the person for being an important voice in the field. These folks are perceived as being an intellectual scholar or enlightened leader: They are warmly invited to circulate among foundation board trustees and to speak at foundation-only conferences. Joel Fleishman (2009) falls into this camp as do many foundation CEOs and presidents who express self-critical opinions, such as “we need to do more” and “this is not our money.” When I consider why these folks are so well received within the private foundation community, it’s because they are moderate in their ideas of what foundations should be doing. Instead of calling for increased regulation, such as increasing taxes on private foundations or increasing the payout floor beyond 5%, they ask foundations to self-regulate their giving to give more to the poor, consider sunsetting, and be less secretive and more transparent. The bottom line is that their recommendations stop short of increased governmental regulation and do not upset the general social order. Take, for example, Fleishman (2009). In the same book in which he suggested that foundations should pay out more and that more foundations should sunset, he is also quite firm on the point that foundations have the Constitutional “right to disburse [funds]” in any way they choose (pp. 15-16). This “autonomous” right to freedom of grantmaking is a position that has a large following, reflected in the membership of Philanthropy Roundtable. (I may return to this topic later, as there’s also interesting going-ons with those who believe that foundations should be considered as having tax immunity (freedom from government) than tax subsidy of helping re-distribute wealth [see, for example, Reid, 2013].)

This type of critic does not upset any apple carts and, in fact, makes the case for why those in power should stay in power: Elites still get to be elites, and their ability to self-initiate any improvements in charitable practice depends on them staying in power. This notion of philanthropic elites is an important notion well established by a body of research generated by a group of smart women whose names, coincidentally, all start with “o.” Odendahl (1990), Ostrander (1984), and Ostrower (1995) studied the elites and found that their participation on nonprofit boards and their charitable giving reified their elite status, placing them in a social circle of other elites and reinforcing class divisions between high and low.

The other type of response to critics of private foundations is to accuse them as being a Marxist enemy of capitalistic and, hence, undemocratic. Take, for example, Fleishman’s criticism of Roelofs’s (2003) book “Foundations and Public Policy: The Mask of Pluralism.” Fleishman warned: “There is a small body of Marxist-oriented scholarship about foundations, much of it politically marginal and factually shaky” (cited in Van Til, 2008, p. 124). I’m both discouraged and ashamed that such a revered foundation scholar like Fleishman takes to dismissive name calling (come on, can’t we have an intellectual debate without accusing people of being a sickle-wielding communist?).

Roelofs’s work has as much of an important place on foundation executives’ book shelves as Fleishman’s works do, particularly among funders who want to redress social inequities and not inadvertently re-institute them. Roelofs (2007) perceived private foundations through a critical lens of power and social inequities (listen up all you social justice funders!). She contended that private foundations reinforce the existing social order “promoting consent and discouraging dissent against capitalist democracy” (p. 480). For example, intellectuals who are disenfranchised by the existing social order and want to promote change often find an outlet in being employed within the nonprofit sector, such as private foundations. (This pretty much describes every smart, value-forward program officer I know.) By being employed in an industry that depended on capitalism for its success, these folks are quieted by their involvement in these civil society entities, which exerts a cooling effect on the possibility of a revolution that fights against the established hegemony (Roelofs, 2007). (Hmm, maybe Egypt’s best way to stymie revolution is to proliferate its own civil society institutions!) Roelofs (2007) posited that the United States is without the kind of protest movements that marked the 1960s and 1970s because of philanthropic institutions that exert social control: “Radical activism was often transformed by foundation grants and technical assistance into fragmented and local organizations subject to elite control” (p. 485).

Does Roelofs sound like a revolutionary manifesto? Not to me, but that may be because I’ve felt personally the cooling effects of working for private foundations. Any program staff member who has worked for many years in a foundation (after the stars have fallen from their eyes) would likely find Roelofs’s message to be a no-duh, not a polemic. (Yes, working for foundations does provide wonderful opportunities to make change, but I’ll talk about those in another post.) There have been moments when low levels of wealth redistribution, which make no dent in addressing the gross inequalities and inequities in society, frustrated me. A concrete example of this is foundations’ efforts to pay out only the bare-minimum amount of 5% distribution of assets rather than give away more money to truly try and fulfill their missions. Hence, I welcome Roelofs's contribution to the literature, which helps funders be more enlightened about and effective in attempting to redress inequities--an effort that is directly in line with creating a more democratic society.

In the last decade, there has been a renewed effort for ‘social justice philanthropy’ to try and solve inequities of resources, opportunities, and power. For those of you in that camp (and anyone else), you may be interested in learning more along the lines of what I’ve written about here. This line of thinking about how foundations reflect or fight the negative effects of capitalism is important because it helps illuminate how your foundation may be accidently complicit in re-enacting injustices. The learning from these writings is the intellectual basis for how your foundation can ‘move the needle’ permanently in your funding, rather than ‘move the needle’ temporarily as so many foundations do. There is a still-too-small body of writing that critiques private philanthropy but for more, start with Robert Arnove’s writings in the 1980s. He pioneered thinking about ‘liberal’ foundations that tried to fight inequities but actually ended up re-enacting socio-economic systems in grantmaking that corroded democratic accountability in decision-making. See also the special May 2007 issue of the periodical “Critical Sociology” critiquing private foundations, which includes an article by Feldman (2007) who attests to Arnove and Roelofs’s contentions by describing how progressive journalists and nonprofits avoid scrutinizing private foundations inadvertently because of subservience to private foundation funding.

Works Cited

Feldman, B. (2007). Report from the field: Left media and left think tanks--Foundation-managed protest? Critical Sociology, 33(3), 427–446. doi:10.1163/156916307X188979

Fleishman, J. L. (2009). The foundation: A great American secret; how private wealth is changing the world. New York, NY: Public Affairs. Retrieved from http://books.google.com/books?hl=en&lr=&id=fR4IYOB9RUsC&oi=fnd&pg=PR7&dq=joel+fleishman&ots=-MY11uDRS7&sig=EK3oDOsPzDS7qq4ua7EtgRQyInA 

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.

Reid, A. (2013). Renegotiating the charitable deduction. The Exempt Organization Tax Review, 71(1), 21–31. Retrieved from http://www.philanthropyroundtable.org/topic/philanthropic_freedom/a_boundary_to_keep

Roelofs, J. (2003). Foundations and public policy: The mask of pluralism. State University of New York Press.

Roelofs, J. (2007). Foundations and collaboration. Critical Sociology, 33(3), 479–504. doi:10.1163/156916307X188997

Van Til, J. (2008). Searching for critical issues in philanthropy. Nonprofit Management and Leadership, 19(1), 123–128. doi:10.1002/nml.209