Foundations’ Role in a Tough Economy

What should foundations do in an economy that has seen their assets fall by almost 30% but also has created enormous need among the nonprofits they fund and the people those nonprofits serve?  Charitable foundations are required by law to distribute (to grantees and foundation administrative expenses) at least 5% of a rolling average of their endowment each year.  They can do more, but not less.  In times like these when their return is not even close to 5%, it can be difficult to think about giving more than 5%.  Many foundations are determined to preserve the corpus of the foundation in perpetuity.  However, there is a debate raging among philanthropists, nonprofits, advisors and thought leaders about how foundations should respond in these difficult times.

First, here is how foundations are responding:

• The Foundation Center has created an interactive map detailing where and how foundations are giving in response to the economic crisis.
• Philantopic is keeping a running post of statements from foundations on how they will respond to the economic crisis.

Then, here is how people think they should be responding.  Here are just a few examples:

• Paul Brest, head of the Hewlett Foundation, wrote a blog post about the difficult position foundations are in, and he encourages them to “ensure that the best organizations — those that are delivering real outcomes — weather the storm. We’re not going to be able to salvage them from the bottom of the sea after the storm is over.”  He also warns of the importance of investing now in issues that need our immediate attention: “dollars spent today to address issues like global warming can do more good than dollars spent in ten years, when mitigating climate change will certainly be much more expensive if it is even possible.”
• Todd Cohen, editor of Philanthropy Journal, wrote a stinging post in the Stanford Social Innovation Review Opinion Blog against foundations that are prioritizing preserving their corpus above giving back to the community: “Instead of pitching fits about the plunge in value of the endowments they count on to perpetuate their power, foundations should be digging deeper and paying out more to begin to give back what they and their donors have received from taxpayers in the form of tax breaks and tax-exempt benefits.”
• Sasha Dichter, Director of Business Development for the Acumen Fund (a venture philanthropy fund working to end global poverty), wrote a piece about how the Weingert Foundation’s announcement that they were going to now support operating costs for nonprofits demonstrates how out of whack the funding apparatus for nonprofits has gotten: “The result…is that we end up with scores of nonprofits twisting themselves into knots to manage a series of too-small, too-specific “program” grants, with individual donors asked to pick up the difference between what’s funded and what’s needed to deliver on the non-profit’s mission (weren’t the foundation supposed to be the trailblazers in this equation?).”

This is a worthwhile debate and absolutely critical to the social sector going to the next level and creating solutions to the many problems that face our country and our world.  But it is not just about foundations.  They are only part (and a very small part) of the resource engine that drives the social sector.  The entire way in which the social sector is capitalized needs to change.  We need to put a financial priority on the solutions that the social sector is coming up with.  Those solutions need to be scaled and made sustainable. And adequate capital (from all sources) is the only way to do that.

Related posts:

1. Foundations Can Lead the Charge Toward a New Philanthropy
2. Maybe Things Won’t Be So Bad After All
3. A Strategic Path Out
4. Resetting Philanthropy
5. Innovation Cities in a New Economy

Tags: economy, Foundations

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