May 7, 2009 | Read Time: 7 minutes
The Great Recession that began in 2008 will be one of the defining events of the 21st century. With five million Americans losing jobs since the recession began and 600,000 more losing their jobs monthly, our country is in the midst of a profound social and economic transformation. Add to this the tremendous public anger toward the banking, finance, and insurance industries that created this disaster while their executives received millions in compensation, and you have the ingredients to spark change. Our nation’s future is unlikely to be defined by its past of cheap credit, greed, and unending consumerism fueling the world’s economy.
The transformation that is under way will result in the rise and fall of new industries, the development of a new social contract between our government and its people, and the formation of new societal norms regarding money, status, and privilege. This transformation presents a once-in-a-century opportunity for foundations to make a significant difference in the nation’s future direction. Unfortunately, many foundation leaders act as if this is a normal, albeit severe, market downturn, after which things will return to normal. This is a mistake.
For years, there has been steady erosion in the public’s perception of the value of philanthropy and the nonprofit world. Research has shown that the public’s trust in nonprofit organizations has been declining due to major scandals involving charities and concerns that some organizations do not sufficiently help the poor. As those views have gained traction, thought leaders from both the left and the right have suggested ways to “fix” nonprofit organizations.
Few can forget the McKinsey study written by the former senator Bill Bradley that suggested that nonprofit groups would have an additional $100-billion if the charities and foundations were managed more efficiently. The former labor secretary Robert Reich has suggested allowing the charitable deductions only to causes and organizations that focus on the poor because they are more worthy than other causes. Conservative commentators have suggested that foundations consider shutting down after a set period to ensure assets are spent in accordance with their founders’ interests. That kind of thinking reinforces the concern that foundations are driven more by the personal interests of their founders than by interest in the public good.
More recently, the Greenlining Institute has found state legislatures and Congress receptive to its ideas that foundations do not sufficiently support racial and ethnic minorities and that legislation may be required to change foundation behavior. The National Committee for Responsive Philanthropy’s “Criteria for Philanthropy at its Best” suggests that foundations should adopt mechanistic formulas to ensure that all foundations promote diversity, invest their assets in accordance with their missions, and provide ample amounts of general operating support to charities. The implication of this formalistic approach is to limit the discretion and judgment of foundations that the committee, a Washington watchdog group, sees as the problem. The committee has suggested that its ideas be considered by legislators.
Foundation leaders have a decades-old response to such criticisms. First, we ignore them. If they persist, we question the validity of the research methodology. When pressed further, we profess deep concern about the problem, say that we can be trusted, and ask for more time to study the issue. As a last resort, we conclude that the problem is not due to foundation decision making but rather to the lack of capacity of those seeking resources. Privately, some foundation leaders espouse the belief that grant making should be indifferent to both race and ethnicity and a focus on the poor.
Such responses will no longer be sufficient as our record is reviewed and assessed in the court of public opinion. First, research from the Council on Foundations and the Foundation Center, hardly radical institutions, confirms that the boards and leadership of foundations remain largely white and that nonprofit organizations that serve communities of color receive limited support from foundations. This is important because America is fast becoming a minority-majority nation, and blacks, Hispanics, and other minority groups are disproportionately poor. If we live in a country that truly believes in government for the people and by the people, it will be increasingly difficult to sustain public support for philanthropy if people of color are not reflected on the boards and staffs of foundations and do not see benefit to their communities.
Second, the nonprofit world is a creation of the tax code and exists because Americans believe that they derive some benefit from philanthropic organizations. If the increasingly minority-majority public and its elected officials no longer believe that nonprofit organizations provide sufficient benefits, they can change the governing regulations overnight. The work and survival of philanthropy depend on the public’s trust that foundations use private money for public good and not public money for private good.
These disturbing trends have culminated in a watershed event that has occurred without much reflection about its meaning.
President Obama, a former community organizer, proposed limiting the charitable deduction because of his belief that it disproportionately benefits the personal interests of the wealthy and that the nation could make better use of the money by providing universal health care.
In other words, the president has opened a Pandora’s box by suggesting that he does not perceive the charitable giving of the wealthiest Americans as being essential to reshaping the future of America and that their philanthropy does not mirror his own interests in helping the poor. The fact that this provision is unlikely to be included in the final budget should be seen as small relief. It is a harbinger of how charitable giving is perceived by our government and will remain so unless we prove otherwise.
Philanthropy is at a crossroads. One choice is to naively believe that once the Great Recession is over, foundations will return to business as usual. The endowment portfolios and grant making of foundations will recover, criticisms of philanthropy will fade away, and our time and energies will be best spent on issues like the excise tax for private foundations and payout rates.
Our other choice is to embrace the realization that today foundations have a unique chance to make our communities, nation, and world a better place. Foundations can now bring the lessons learned about education, health care, economic development, and immigration — as well as all they have learned about how to evaluate effective programs — to the public-policy discussions that are under way. We should have much to offer about how billions in stimulus money being distributed by the federal government can be best used to jump-start our communities and how to evaluate the return on investment. Philanthropy means the betterment of humankind, and at a time of severe dislocation, this has to include some focus on poverty alleviation.
How are we using our endowments to show that we are a resource in this time of extreme need? We have to stop making excuses for why we do not mirror an increasingly diverse America and consider the implications of this for our grant-making decisions. How do we defend the lack of openness and accountability by many foundations as state and federal governments become ever more willing to disclose their decision making using online tools?
Unprecedented times require unprecedented actions. Shrinking investment portfolios mean that foundations will need to find new ways to collaborate meaningfully, and many may need to consider merging. What is the minimum size to sustain a private foundation that can meet accountability and disclosure requirements?
Foundations will need to consider the heretofore unthinkable ideas of assisting local governments in providing basic human services and subsidizing private business development.
Lastly, foundations need to engage in the public-policy process to help frame the difficult choices that will need to be made among all of the good things that are worth doing but that we can no longer afford. For a field that values collegiality and consensus above all, these will be difficult decisions, and action will be even harder.
This is our time to usher in a renaissance for philanthropy if we are willing to seize the moment. Or we can shoot the messenger, avoid meaningful dialogue, and watch as we become perceived as what was wrong with America’s past rather than what’s right for its future.
Emmett D. Carson is chief executive of the Silicon Valley Community Foundation.
