For Foundations, Concern Amid the Celebration

As the Council on Foundations observes its 50th anniversary this week in New Orleans, the assembled grant makers can be expected to take great satisfaction in how hearty their world looks today. Indeed, over the past 30 years, organized philanthropy has overcome a set of legal questions from both lawmakers and the public and has grown at an unexpectedly rapid rate.

But in the changed political landscape of America at the turn of the century, where large-scale solutions to social problems have fallen out of favor, a new set of questions — this time originating from philanthropists themselves — is being asked. Those questions may ultimately prove to be even more formidable than the last set.

Unless foundations can adjust their grant making to the changing political times and adopt new, more entrepreneurial approaches to giving, they may find themselves becoming increasingly irrelevant to society.

That is not to deny the recent successes of grant makers. Indeed, to put the current situation in proper context, one need only remember that not too long ago, the environment for foundations appeared to be so unfavorable that some observers wondered whether they even had much of a future. As the summary of a five-year Council on Foundations study put it in 1987, “Policy makers of the late 1960s may have accomplished their goal of discouraging foundation formation, or at least of not encouraging it.” The regulations instituted by lawmakers in response to charges of abuses by foundations were likely to encourage the proliferation of small funds, the report observed, but the prospects for “new large independent foundations” seemed to be rather bleak.

Far from joining the dinosaur and the dodo, however, foundations have been growing rapidly, both in number and size. To be sure, many of the newly created funds have been small, but since 1985, more than 70 foundations have been created with initial assets of $50-million or more. Thanks to the performance of the American economy, total foundation wealth has soared, doubling in real value since the mid-1980s. And thanks to the diligent efforts by the Council on Foundations and others, the legal climate for foundations is vastly improved today. Indeed, Congress just last year enacted a provision that strengthens the incentive for wealthy people to donate stocks and other assets to foundations.

Yet ironically, one group that seems to be increasingly critical of traditional foundations is the wealthy. Other ways of supporting charities besides traditional grant making — such as through donor-advised funds at community foundations, investment-company gift funds, and endowment grants — are attracting more and more of donors’ interest and money. And both the newly rich, high-technology entrepreneurs, as well as some descendants of the nation’s oldest fortunes, now criticize how traditional grant making operates and call for more innovative and effective methods: more hands-on, results-oriented grants that operate like investments rather than gifts.

Such challenges from within are not new to American philanthropy and so far have not had much influence on the growth rate of foundations. But they reflect a real concern about what grant-making organizations are doing that even some large and long-established ones are feeling.

In part, that anxiety grows out of a sense that the overall record of foundation accomplishments of late has been less than overwhelming. On the Council on Foundations’ list of “philanthropy’s great grants,” for example, none of the more-recent ones deals with issues such as poverty or health care, which are often included among the matters that are most urgently in need of philanthropic attention.

The list was undoubtedly not meant to be comprehensive, and many of the grants on it — such as the money that several organizations provided to promote the idea of the “designated driver” — have been valuable. Nonetheless, for all the effort that grant makers have devoted to the nation’s critical problems, the list provides evidence that journalists and pundits aren’t the only ones who have difficulty showing what good came of foundation spending. In moments of candor — and even occasionally in published evaluations — so, too, do people closely involved with foundations.

Added to that is an unsettling — if ultimately healthy — uncertainty about what foundations should be doing. Although that uncertainty is not a pressing concern for the vast majority of small and mid-sized funds — which generally operate locally and respond to requests from charities with which the funds’ donors had been involved in the past — it is vital for the numerically fewer (but financially far more significant) grant makers that traditionally have viewed foundations as agents of large-scale social change.

What should they do in an era in which the progressive values for which they have stood are on the defensive, and the potential for promoting bold ideas for public betterment so limited? As the recent enthusiasm exhibited by some foundations for reducing “urban sprawl” suggests, it is not just the nation’s political leaders who have concluded that curbing traffic congestion is about as ambitious a domestic undertaking as the nation can handle these days.

Just as foundations were attaining the resources and political legitimacy to try social and economic reforms on a grander scale, the landscape changed, leaving many with a legacy of ideas and methods that were out of tune with the times. The call for new approaches to grant making is an attempt to deal with that curious irony by linking traditional philanthropic goals to entrepreneurial means. Many of those results-oriented approaches are already being tried, and not all will succeed. But the alternative to developing new philanthropic strategies and directions is a foundation world that may be larger, wealthier, and more secure — but whose value to society is less than it could be.

Writing at the height of the investigations into foundation activity in the 1960s, veteran foundation-hand Warren Weaver observed that “faults of stupidity, triviality, lack of imagination, and unresponsiveness to the basic and long-range needs of society” might turn out to be more significant for grant makers than the tax and legal abuses that were then under so much scrutiny.

With the legal issues now (mostly) behind the philanthropic world, that other set of concerns looms much larger. How well today’s foundations stack up against those criteria will determine whether they can avoid the descent into irrelevance that the Council on Foundations, for different reasons, once feared.

Leslie Lenkowsky is professor of philanthropic studies and public policy at the Indiana University Center on Philanthropy, and a regular contributor to these pages. His e-mail address is llenkows@iupui.edu.