Foundation Assets Grow Sharply

Many funds expect to give more in 2007, Chronicle survey finds

Many of the nation’s wealthiest foundations plan to increase their giving in 2007, largely because

the assets of many grant makers increased sharply last year as the stock market rose and other investments thrived, a new Chronicle survey has found.

For the 112 philanthropies that reported data for the 2005 and 2006 fiscal years, assets grew a median of 7.7 percent, meaning half achieved gains of 7.7 percent or more and half did less well. Thirty-three of the grant makers achieved double-digit percentage increases in assets.

Combined assets of the foundations in the survey equaled $185.4-billion, which represents a significant portion of the wealth in the foundation world; total assets of the nation’s grant makers equaled $510.5-billion in 2004, the most recent year for which data are available.

Of course, recent volatility in the stock market has eroded some of that wealth. But many foundation officials say the decline will not affect their giving this year.

“It’s been sort of a wild ride in February and March,” said Sheryl Jones, vice president of the Houston Endowment. But the foundation’s giving policy “is designed to smooth our spending whether the market’s wildly up or wildly down.”

What’s more, several foundations said they are less susceptible to big investment losses today because they have diversified their stock portfolios.

For example, the W.K. Kellogg Foundation, in Battle Creek, Mich., last year reduced its holdings in the Kellogg Company to 66 percent of the grant maker’s total assets. Previously, it held 80 percent of its assets in the cereal maker. And the Lilly Endowment, in Indianapolis, announced in July it would sell off some of its stock in Eli Lilly and Company; historically the endowment has held almost all its wealth in the pharmaceutical giant.

Increased Donations

Perhaps in part due to feeling more secure about the market, of the 57 philanthropies that estimated their giving for 2007, the majority — 37 — said grants would increase.

The Henry Luce Foundation, for instance, is increasing its giving by 21 percent this year. Michael Gilligan, president of the New York fund, said part of that increase will support a public-policy effort that started in 2005 to help Americans better understand the role of religion in foreign affairs. He said the fund expects to provide at least $3-million to the program this year.

Of the other 20 funds that estimated their grant making for this year, 15 said they would give about the same amount as last year, and five said they would give less.

Other findings from the survey:

• The Bill & Melinda Gates Foundation, with $33-billion in assets, remains the wealthiest grant maker in the nation. If Gates’s assets were excluded from The Chronicle’s survey, the total wealth for the remaining 111 foundations would fall 18 percent to $152.4-billion. Gates is almost assured of continuing its reign at No. 1, thanks to a $36.1-billion pledge from the investor Warren E. Buffett. So far, Mr. Buffett has given the foundation $1.6-billion.

• The Gates organization, in Seattle, also made the largest grant last year — $100-million to the Global Fund to Fight AIDS, Tuberculosis, and Malaria, in Geneva. So far, Gates has pledged $650-million to the fund, a contribution larger than the commitments by the governments of Australia, Canada, and Russia combined.

• For the first time, The Chronicle asked survey respondents about foundation leaders’ “signing authority,” meaning how much they can approve in grants without seeking permission from the board.

• Gates’s chief executive, Patty Stonesifer, had far and away the largest, $40-million. Of the 44 grant makers who provided data, the median amount of a chief executive’s signing authority was $50,000. Monica Harrington, a spokeswoman for Gates, said that all grants approved by Ms. Stonesifer must fit with the goals and guidelines established by the Board of Trustees, which consists of Mr. Buffett and the Gateses.

• The Chronicle also asked grant makers for the first time how many of them provide compensation to the members of their boards. Of the 136 foundations that answered this query, 77 said they provide compensation, including salaries, reimbursements for expenses, and fees for duties the board members fulfill, such as legal or accounting services.

Big Changes

Three of the nation’s largest philanthropies have decided to change their programs this year so they can do a better job of solving emerging problems.

Perhaps the Kresge Foundation, in Troy, Mich., is making the biggest overhaul. The foundation, which supports arts and cultural institutions, health groups, and universities, is breaking 20 years of tradition: It will no longer give money only to build or refurbish facilities, but when it does, it will not require that such grants come at the midpoint of a capital campaign and that beneficiaries match the dollar amount donated.

Rip Rapson, Kresge’s president, said the majority of Kresge’s grant making will continue to support capital campaigns. But it will now consider supporting charitable programs, administrative functions, and other activities by its grantees.

When Mr. Rapson took over as chief executive last year, he said, the foundation asked itself if its grant making was “sufficiently flexible, creative, and forward-looking to permit us to grapple with some of the more pressing issues of our time. The answer was in some cases, yes, in many cases, no.”

The Heinz Endowments, in Pittsburgh, is also redirecting its efforts, as well as streamlining its structure.

The $1.5-billion organization, which consists of the Howard Heinz Endowment and Vira I. Heinz Endowment, will now be governed by a single board of directors. Previously, the two charitable funds had the same president and staff members, but separate boards.

The foundation, which announced the change last month, said it will now focus at least 30 percent of its annual giving on three “big bets”: improving its hometown’s public schools, helping the city’s downtown area revitalize, and supporting economic growth in southwestern Pennsylvania while emphasizing technology jobs and the importance of environmentally friendly approaches to building and renovating facilities.

Such projects are not necessarily new to Heinz, but the fund will now focus on them in a larger and more comprehensive way, said Max King, the foundation’s president: “The objective was to be more tightly focused on our grant making.”

Each of the foundation’s five grant-making programs — arts, education, youth and families, economic development, and environment — will contribute to the new objectives, though the foundation has not decided where it will decrease its grant making to make money available.

In addition to Heinz and Kresge, the Kate B. Reynolds Charitable Trust, in Winston-Salem, N.C., is re-evaluating its efforts.

As a result, Reynolds suspended grant making for part of 2006 and said it will focus more on “the root causes and effects” of poverty and disease in its state and take more risks with its grants.

For example, the trust plans to make more multiple-year commitments to improve the health of North Carolina’s residents and to prevent chronic illnesses.

Such grant making is “always risky when you’re thinking about prevention, which literally takes a generation to solve,” said Karen McNeil-Miller, president of the trust.

Disaster-Related Giving

While those foundations are revamping their grant making due to internal reviews, outside factors, such as Hurricane Katrina, have triggered changes at a few other philanthropies.

The Kellogg Foundation has made more than $40-million in grants to the Gulf Coast since the storm hit — an amount larger than any of its counterparts gave.

Kellogg has historically been involved in that part of the country, but Katrina forced Kellogg to refocus its work there, said Sterling K. Speirn, the fund’s chief executive.

The foundation is now concentrating on education in the region, and recently awarded $3.5-million to the Children’s Defense Fund to help rebuild public schools in New Orleans.

“Certainly no one’s going to bring a family back if there’s not a school for their kids,” Mr. Speirn said.

He added that, given the scope of the disaster, the foundation will continue major support of Katrina-related projects.

“We will just stay at the table to be asking what will the rebuilding efforts take,” he said. “The jury’s still out about how to rebuild and re-create a major city when people’s lives have to go on.”

As a sign of the need for foundations to remain focused on the after-effects of disasters, several big foundations recently joined with the New York Times Company Foundation to tackle lingering health dangers created by the September 11, 2001, terrorist attacks.

According to a survey by Mount Sinai Medical Center, in Manhattan, of 9,500 construction workers and volunteers who helped out at ground zero after the planes struck, 70 percent are suffering from respiratory problems, and many are uninsured, a finding that shocked Jack Rosenthal, president of the Times foundation. “It’s plainly repellent that these people are being left without care,” he said.

Since the fund’s wealth is relatively small in the foundation world, Mr. Rosenthal said the organization gave $1-million to the effort and used its “very big name” to solicit money from others. (The Times fund is not part of The Chronicle’s survey because the survey does not include philanthropies connected to corporations.)

So far, the newspaper fund has raised $4.6-million, including $1-million apiece from the Ford Foundation and the Open Society Institute, both in New York.

Diversity Concerns

While the New York Times program has received accolades for focusing on health-care needs that government and other institutions have not financed, foundations are under attack from activists who say they are not doing enough to tackle another problem: economically and socially disadvantaged minorities.

California has emerged as the battleground for this issue. Last year, the Greenlining Institute, a social-justice group in Berkeley, Calif., released a report that said about 12 percent of grant dollars from 10 of the largest California foundations in 2004 went to minority-led organizations. It defined such groups as those at which at least half of the board and the employees were members of minority groups, and whose charitable mission was to help needy black and Hispanic people.

Orson Aguilar, associate director of the research group, said it began questioning foundations’ commitment to minorities after it heard complaints from Hispanic and black fund raisers that grant makers ignore them and that they were often “treated very disrespectfully.”

Even in its own fund-raising efforts, Greenlining has been stymied. “We really saw how difficult it was. And not only the difficulty, but just that doors were closed,” Mr. Aguilar said.

Greenlining’s efforts, however, have come under fire. The National Committee for Responsive Philanthropy, a watchdog and research group in Washington, refused to co-sponsor Greenlining’s survey last year, saying that no reliable data existed to determine whether a nonprofit group was “minority-led.”

“We’re supportive of Greenlining’s overall goal,” said Aaron Dorfman, executive director of the committee. But “how do you determine who is minority-led or not? That’s one substantive question.”

For its survey, Greenlining contacted foundation grantees by phone or with e-mail messages to determine if they matched its criteria. If a charity did not respond, the institute excluded it.

“We’re doing the best we can with limited data,” said Mr. Aguilar of Greenlining.

But despite criticisms, the survey has prompted politicians in California to draft legislation.

Last month, a member of the state Legislature proposed a bill that would require California grant makers to disclose in annual reports and on their Web sites how much money they give to nonprofit groups led by members of minority groups.

“As our population changes, it is critical that foundations take steps to ensure that more minorities are active participants in our democracy,” Assemblyman Joe Coto, a Democrat who represents east San Jose, said in a statement about his legislation.

Colin Lacon, president of Northern California Grantmakers, in San Francisco, said he and other associations of foundations are fighting the bill, which he calls “heavy-handed.”

“Our response is not to say, ‘Here’s how to fix the legislation,’” he said. “Our response is, ‘We would like to have some meaningful discussions about what are we trying to achieve.’”

Mr. Lacon said Greenlining’s research misrepresents philanthropies’ interest in tackling social ills that affect minorities, saying a substantial amount of grant money supports charities led by white people that are assisting members of minority groups.

What’s more, foundation leaders are already trying to develop research on how much they give to minorities, he said.

For example, Robert K. Ross, president of the California Endowment, in Los Angeles, is leading an effort to use data collected by several national organizations on grant making to minority causes. The project, which started about a year ago, has yet to release any findings.

Mr. Ross, whose foundation Greenlining has praised for its grant making to charities that serve minority groups, said he disagrees with Mr. Coto’s proposal, describing it as “an affirmative-action program for philanthropy.”

Said Mr. Ross, “It would be a sad day for philanthropy when the value of diversity is appreciated through a legislative mandate.”

Candid Communications

While Mr. Coto wants foundations to disclose more information about their efforts, a few foundations are taking bolder steps this year with how they communicate with the public.

Specifically, the James Irvine Foundation, in San Francisco, and other grant makers are trying to be more candid in how they discuss their mistakes. This spring, Irvine will release a report that scrutinizes a $60-million program — the largest single effort in its history — started in 1999 to improve how low-achieving students perform in elementary school. Despite the best of intentions, the project had significant setbacks.

“About five years into it, we realized that there were all kinds of problems with the way it had been designed and, frankly, with the way it was being executed,” said James E. Canales, chief executive of Irvine.

“We’re being pretty self-critical about design mistakes that we made, places where the board might have been more engaged in asking some difficult questions, and places where perhaps by being so invested in the initiative we ignored some things,” Mr. Canales added.

The report highlights lessons learned by the foundation, such as the importance of having outside consultants review its program, developing clear goals, and making sure foundation staff members do not have “conflicts of interest” between giving honest assessments of a charitable program and advancing their own careers.

The William and Flora Hewlett Foundation, in Menlo Park, Calif., is also stressing the importance of learning from its errors. But in its case, the fund has sparked a rather unusual contest.

Hewlett’s president, Paul Brest, annually asks the staff members who run its six grant-making programs — arts, education, environment, global development, improving philanthropy, and population services — to submit candidates for the worst grant they made and what they learned from it. After presenting their stumbles, the officers vote on which one is the biggest mistake. The “winners” are treated to dinner at a restaurant, on the foundation’s dime.

“The motivation was that our own staff wasn’t used to talking the language of failure,” Mr. Brest said. Often, among foundations, he noted, failure is a “dirty word.”

He said the most common problem he has seen in the contest is Hewlett’s support of charities that lack proper succession plans.

The contest has “helped improve our due-diligence process,” he said. Now, “if we’re making a multiyear investment — which we often do — we want to know what the back bench is like.”

With the increased focus on philanthropic failures and big program reviews at some large grant makers, 2007 appears to be a year of increased introspection for the foundation world.

While such ruminations may make some grantees uncomfortable, foundation leaders say such periods are necessary to improve their operations. “You look for those moments as an institution,” said Mr. Rapson of Kresge. But “the prospect of a change may be unsettling to some.”

Debra E. Blum and Sam Kean contributed to this article.