Grant Makers Should Take Risks to Build a Better Society

To the Editor:

The current U.S. economic recession continues to wreak havoc on the economy, jobs, and livelihoods. All of us in the nonprofit world have been severely impacted.

Many foundations have seen their assets decline by 30 percent or more since the crisis began.

As individuals, corporations, and foundations give less, nonprofit groups are preparing to slash their budgets, lay off employees, and do more with less, with significant impact on the communities they exist to serve.

Those same families and communities are faced with record levels of unemployment, rising health-care and food costs, and a mix of other challenges that threaten their basic quality of life.

Yet at the same time, we are in the midst of historic opportunities to transform our society to be more equitable, just, and sustainable by enacting new policies on health care, education, green energy, labor standards, immigration, scientific research, criminal justice, and a range of other issues that directly benefit the communities that philanthropy supports.

As philanthropic leaders, in this time of peril and promise, we must ask ourselves, what is our role?

Do we exist only to ensure our perpetuity or do we exist to take risks at moments like these and help move our nation closer to fulfilling our essential values and create a thriving society?

We believe philanthropy has an obligation to move beyond its comfort zone and seize the opportunity to do as much as we can to support nonprofit groups to meet the needs of their constituents and seize the opportunities of this historic moment.

Just as the Pharaoh told Joseph in the Old Testament story to store corn in times of abundance so there would be food in times of scarcity, we argue that foundation assets, which grew and thrived over the last decade should now be made available to help those who are most in need.

At the French American Charitable Trust and the Hill-Snowdon Foundation, though we may come from very different places, we are approaching this crisis as a moment of opportunity in much the same way.

The trust will be spending down its assets no later than 2016; therefore by maintaining its current level of spending coupled with the 15-percent decline in assets, it is rethinking if it will continue to exist that long.

Hill-Snowdon is also maintaining its spending in 2009 at last year’s level, which, given a near-30-percent decline in assets, translates into an increase in its payout. Also, in celebration of its 50th anniversary, the foundation created a special Big Picture Fund to help its grass-roots partners step back and engage in big-picture thinking and strategizing with its allies to help seize this unprecedented moment for change.

In order to help their grantees, both foundations are also making available capacity-building money to help nonprofit groups weather the storm and strengthen their internal capacity.

Maintaining giving during these challenging financial times, creating special pools of funds, and offering technical assistance are just a few ways that foundations can help nonprofit groups.

Another way that foundations can help their nonprofit allies includes investing in communities with program-related investments or using one’s investments to make missionrelated investments in community banks.

Many foundations are maintaining their giving this year and we applaud this courageous decision. We hope next year, which may be even more of a fiscal challenge, that more of our colleagues will employ some of the giving strategies that we outlined above and invest in advocacy and community organizing as leveraging strategies, even as they consider cost-cutting measures.

With the difficult circumstances we face, it is natural to see the glass as half empty or adopt a scarcity paradigm. However, we would urge our colleagues to strike a healthy balance between purpose and perpetuity, guided by a paradigm of abundance.

We must be abundant in our boldness, creativity, persistence, and vision moving forward to counteract the paradigm of scarcity and make the most of this moment.

After this moment passes and we look back on our response, will we be most proud of protecting our assets for later use, or that we acted boldly and used our assets in this critical moment to ensure a better future for our nation and its people?

Diane Feeney
Director
French-American Charitable Trust
New York

Nat Chioke Williams
Executive Director
Hill-Snowdon Foundation
Washington

To the Editor:

During 2008, family and private foundations lost approximately $150-billion in assets. As a result, many private foundations have cut back on their annual giving, sending nonprofit organizations into tailspins. However, other foundations have responded by maintaining or even increasing prior giving levels despite the decline in their corpus.

Recent surveys by the Foundation Center and The Chronicle of Philanthropy indicate that 40 percent or more of foundations have recently pulled back on their annual giving. After putting aside Gates foundation activities, which skew the overall data, it is estimated that private-foundation donations in 2008 dropped about 3 percent, or $1.3-billion.

The result of this withdrawal of charitable giving by foundations has had a very significant negative impact on nonprofit organizations and the people they serve. A survey of 986 nonprofit groups by the Nonprofit Finance Fund indicated that only 16 percent of nonprofit groups expect to cover their operating expenses in 2009, while more than half think the economic downturn will have long-term or permanent negative effects on their organization.

Much of this devastation could be avoided if foundation directors anchored their decision making in their fundamental raison d’être — to serve the community’s good. While individuals and for-profit corporations rightfully have self-preservation as a base motivation, philanthropic foundations need not.

If a corporation does not survive, then it cannot serve its primary mission of making money for its shareholders and providing jobs for its employees. If an individual does not survive, he or she cannot achieve any purpose in life. Alternatively, if a foundation were to spend out all of its assets on the explosion of social needs resulting from an economic meltdown, then it would achieve its primary purpose even if it meant closing its doors for the future. It would need to take solace in the fact that it stepped up to the plate when most needed, and that future philanthropists will emerge to take care of future social needs.

The reality of choosing to “step up” during tough times actually need not be a matter of spending out completely, but instead, a matter of accepting that the individual foundation will have fewer assets in the future. Financial modeling can provide a peek into the future to see how much effect there could be on future assets.

A model that assumes a starting value of $100-million and a decline in assets of 30 percent in a single year followed by a steady recovery at an average market portfolio return of 8 percent shows the following:

If Foundation A decided to pull back donations as its assets decline and implemented that approach by pegging annual giving to 5 percent of asset value, then in 10 years it would have donated about $39-million to the community and would have an asset value of $84-million.

Alternatively, if Foundation B decided instead to step up to the crisis by increasing its annual giving with a 2.5-percent annual inflation adjustment, over this 10-year period it would donate $57-million and have an asset value of $60-million.

Foundation B would have invested $18-million more in the community than Foundation A, or 46 percent more. And, it would have more than 70 percent of the asset value after 10 years that it otherwise would have had if it had kept that $18-million in its own coffers to grow.

Far from putting itself out of business, Foundation B would have been truer to its mission of serving community needs, and it would still have plenty of assets to work with moving into the future.

When applied to the entire $530-billion of estimated private foundation assets at the end of 2008, that would equate to a difference of $95.4-billion more invested in social needs versus $127-billion of retained foundation wealth. It seems clear which avenue benefits society most.

Foundations should also factor in the reality that new foundations are continually being started. With an average growth rate for new foundations of about 7 percent, over a 10-year period we might expect the estimated 125,000 existing private foundations to grow to about 230,000. That would equate to about $440-billion of new philanthropic dollars.

So, even though decisions today to respond to the increased social needs versus pulling back indeed leaves current foundations with fewer assets in the future, all can rest somewhat assured that new philanthropic wealth enters the picture to ensure that future social needs can be met. In making decisions, foundation directors should keep in mind that they are part of a living philanthropic ecology that allows them to attend to current needs without worrying about society being left high and dry in the future.

Foundations are run by directors who, as individuals and businesspeople, have survival instincts. Their instinctual response to their foundation’s loss of assets is the same as if it were a personal or business loss — to shift to a model of austerity.

Society would be better served if they resisted that impulse and took the counterintuitive route of holding true to their mission. In times of greatest social need it seems that foundations should be more responsive as opposed to less responsive.

Our job as foundation directors is to mitigate the ill effects of negative events on people and to help people thrive. We are here to respond during tough times, not to withdraw.

Neal H. Mayerson
President
Manuel D. and Rhoda Mayerson Foundation
Cincinnati