The Challenges of Giving

Grant makers debate how to deal with government, poverty, and demands for diversity

The worsening economy and the potential for increased government regulation of foundations were among

topics of discussion at a conference the Council on Foundations held here last week. More than 3,000 foundation, nonprofit, business, and government leaders from around the world gathered to talk about the major issues grant makers will face in coming years — and to help shape their responses.

The council planned one big conference this year, canceling its separate annual conferences for family and community foundations, as a way to unite different types of grant makers and convince them to think of themselves as part of a global movement.

“We have tended to see what divides us rather than what unites us, leaving us with a world of philanthropy composed of its separate parts,” Steve Gunderson, the council president, told the opening plenary session.

The economy promises to be a concern that will dominate grant making in coming months, speakers said.

Robert Rubin, the U.S. secretary of the treasury during the Clinton administration, told conference participants that the economy was facing “the most complex set of circumstances” in his lifetime.

Mr. Rubin, who is now director of the executive committee of Citigroup, the financial-services firm in New York, said the abnormally long period of economic growth preceding the current downturn was atypical. He also warned that development of new “complex financial instruments” during the boom years and disruptions in the credit markets contributed to economic instability.

Foundations, he said, therefore may end up earning less on their endowment investments over the next one to three years when compared with the growth achieved in the past 20 years. They could also end up facing “tremendous fiscal pressure” as the need for their services increases and government budgets tighten.

Some speakers warned that foundations could also face increased government scrutiny and regulation.

Grant makers need to realize that “we are fat cows in a resource-scarce environment,” Lance Lindblom, president of the Nathan Cummings Foundation, said at a session for chief executives and trustees.

As a result, he said, they need to find better ways to explain to government officials, citizens, and others why they deserve their tax-exempt status and freedom to operate independently. “We need to justify the freedom we have — and explain why we deserve that freedom by saying more than we are good-intentioned people doing good things,” he said.

Some conference speakers urged foundations to work more with government at all levels on issues they care about — and get over their reluctance to advocate for public-policy changes.

Board members are far too timid about trying to influence lawmakers, mistakenly fearing it would jeopardize their tax-exempt status, said Timothy Wirth, president of the United Nations Foundation, in Washington, and a former Democratic U.S. senator.

Foundations should collaborate with government bodies, both to tap into their budgets and to have a greater impact. A small change in public policy often has a huge “multiplier” effect, he said.

Speakers also focused on how foundations should gear up for the changes that will be brought about by the presidential election in the United States. John Bridgeland, president of Civic Enterprises, a public-policy consulting firm in Washington, served on the transition team for President George W. Bush and recalls that it was “flooded” with proposals from philanthropic entities and was able to take action on many of them. He said grant makers should be preparing their proposals for whoever wins in November.

Yet, while collaboration can be key to success, Geoff Mulgan, director of the Young Foundation, in London, warned that American foundations need to be careful to use their power with a sense of humility.

He noted that concerns have already been raised about the size of America’s foundations — especially the Bill & Melinda Gates Foundation, which combines the fortune of Warren Buffett with that of the founder of Microsoft — and said, “We need to be careful that partnerships not become too big and squeeze out space for competition and innovation.”

Concern about how best to help the poor, both in the United States and abroad, emerged as a central theme at conference sessions.

Foundations need to abandon short-term thinking and be more flexible when they analyze grant applications for antipoverty efforts, some said. “We have to be willing to take some risks,” said Kafi D. Blumenfield, chief executive of the Liberty Hill Foundation, in Los Angeles.

The risky nature of working with small organizations in poor neighborhoods prompts many foundations to pour money into more-established charities. But Ms. Blumenfield says foundations that take the time to get to know the people who work in those neighborhoods make smart investments and produce meaningful improvements.

The Liberty Hill Foundation, for example, has recruited people in Los Angeles’s most downtrodden neighborhoods to help advise its program officers and board members on which charities to support.

One issue drawing new attention from some grant makers is how to help the thousands of children who cross the Mexican border alone in search of their families — children face human trafficking, detention, and long separations from relatives.

Hispanics in Philanthropy, a nonprofit group in San Francisco, and Fundemex, an alliance of businesses devoted to eradicating poverty in Mexico, have formed a partnership around the issue.

“A child isn’t concerned with national borders; a child simply wants to live with his family,” said Margarita Zavala, the first lady of Mexico, in announcing the partnership at an event celebrating the 25th anniversary of Hispanics in Philanthropy. “We must be true to our humanity by helping these children reunite with their families.”

The partnership will focus first on bringing together charity leaders, scholars, and government officials to conduct research and develop policy proposals about the problem. Diana Campoamor, president of Hispanics in Philanthropy, said her group is beginning a fund-raising campaign to attract money from other donors and nonprofit groups for the effort.

Charities and foundations must continue to push for new ways to test the effectiveness of their work, some conference speakers said.

For example, nonprofit groups that work on campaigns to change policy or get people to vote often look to measures that are too simplistic to gauge what’s working, said Eli Il Yong Lee, executive director of the Center for Civil Policy, in Albuquerque. A coalition might declare success if 9,000 out of the 10,000 people it targeted in a get-out-the-vote effort showed up at the polls, he said. However, “there’s no way to say what we did caused the turnout.”

He said his organization works with local professors to design “treatment and control” tests to determine whether its activities have produced the desired results. Such tests compare the behavior of a group of people who have been targeted by a particular campaign with a control group of people who have not.

One discovery the center made this way, he said: Sending postcards to remind people where to vote was not effective in turning out voters.

While the Form 990-PF — which private foundations file with the Internal Revenue Service each year — could use a makeover, don’t expect one any time soon, Ronald J. Schultz, an IRS senior adviser told conference participants.

Mr. Schultz said many of the changes made on the new Form 990 — which charities must file starting with their 2008 tax year — could also improve the foundation form. In particular, he could envision creating a summary page at the beginning of the form to help the public better understand a foundation’s finances and mission. And he would also consider revising questions about compensation and adding new questions about governance practices.

But getting the money to pay for an overhaul of the Form 990-PF could prove difficult, particularly because relatively few organizations use it, he said. Mr. Schultz said only 75,000 or so groups file a 990-PF each year, compared with roughly 550,000 charities that file a Form 990 or Form 990-EZ.

He said if foundations want to see the form redesigned, they will have to “identify a compelling need” for it.

For the first time in its history, the council devoted a plenary session to the hot-button issue of diversity. Speakers sparred over legislation in California that would require big foundations to publish information about the ethnic background and gender of grantees, staff members, and board members.

Foundations must do more to improve their track records on diversity, but legislative solutions are “fraught with traps and land mines,” said Robert K. Ross, president of the California Endowment, in Los Angeles. He noted that the California bill, adopted by the state assembly in January, ran into trouble because it was amended to require foundations to provide data about sexual orientation, which then drew complaints about violating privacy rights.

“There is no model definition of diversity,” said Dr. Ross, who also heads the Diversity in Philanthropy Project, a group of about 40 foundation leaders who are pushing for more diversity in the field.

But Ann Wiener, a trustee at the Jessie Smith Noyes Foundation, in New York, said her board voted overwhelmingly to endorse the California legislation. She said grant makers had not come very far on a voluntary basis and “legislation may be the only way to do it.”

The council presented data showing that in 2006, 87 percent of foundation boards and 94 percent of chief executives were white, compared with 66 percent of the general population.

Rep. Xavier Becerra, a Democratic member of Congress from California, warned that foundations might invite federal scrutiny if they do not step up their giving to projects that benefit minorities, saying they have an obligation to earn their tax subsidies by working for the public good.

Adam Meyerson, president of the Philanthropy Roundtable, a group of mostly conservative grant makers, said he rejects any effort to tell foundations how to make up their staffs, boards, or giving.

“There’s a tremendous yearning among current and especially among prospective new donors to make a difference in the lives of low-income children and families,” he said. “Let’s not drive away the new philanthropic capital by taking away from donors the freedom to decide how and where to give away their money.”

I. King Jordan, a deaf member of the board of the Theodore R. & Vivian M. Johnson Scholarship Foundation, in West Palm Beach, Fla., urged the grant makers to pay more attention to physical disabilities when they discuss diversity. “We have to be inclusive in our definition of diversity,” he said.

At a separate session, Dr. Ross raised another area where diversity is important — geography.

Dr. Ross, who oversees a foundation that has received national recognition for its work in helping to close ethnic and racial gaps in health care, said the California Endowment has realized that it needs to expand its focus to include largely white rural communities with high poverty rates.

He said his foundation is also looking to broaden its diversity efforts in other parts of its operations, such as contractors and consultants.

That effort is sparking intense debate on the organization’s board, he said, particularly when it comes to choosing investment managers.

Some argue that foundations should help to open doors to minorities who want to pursue careers in investment management. But others worry that foundations could be sacrificing the return on their investments by limiting the financial firms they can hire.

Leslie Loew, chairwoman of the Jessie Smith Noyes Foundation, said, however, that the notion that an investment firm with a diverse staff can’t achieve similar returns as a largely white firm is racist.

“If we find there are not people of color, isn’t it the obligation of philanthropy to create the pathway for those people to get a seat at the table?” she asked.

Two new reports reviewed giving to minorities:

Of 38 foundations that provide the most grants to American Indian causes, only nine said they had any permanent staff members who are American Indian, one survey found.

Two of the foundations hired American Indian consultants, interns, or volunteers, and four said they did not collect racial or ethnic data on their employees, according to a draft report on the survey. Eight said they had at least one American Indian on their board.

The survey was conducted by Native Americans in Philanthropy, in Minneapolis, as part of a study on the impact of leadership by American Indians on the level of giving to Indian causes.

While foundations that support gay causes have significantly increased their giving to organizations led by minorities over the last five years, not all of them make racial equity a priority in their giving, according to a new report by Funders for Lesbian and Gay Issues.

The report showed that giving to minority-led charities by 19 foundations supportive of gay causes jumped from $173,000 in 2002 to $2.9-million in 2006. But only nine of the 19 foundations surveyed had made a grant to help communities of color in 2006, according to the report, “LGBTQ Grantmakers 2008 Report Card on Racial Equity.”

“The responsibility is not being shared among foundations,” said Robert Espinoza, director of research and communications at Funders for Lesbian and Gay Issues, a New York group that seeks to increase donor support for gay causes.

More coverage from the conference can be found online.