Darkness Grows: Time for a New Conversation About Philanthropy and Transparency

One step forward, one step back. That’s the story when it comes to philanthropy and transparency in recent times. You could even argue that we’ve taken two steps back lately, amid the rise of big, new opaque foundations, the spread of donor-advised funds, and now the greater use of private companies to spearhead social investments.

Darkness is growing in the philanthrosphere, and that’s a problem for a bunch of reasons. Which is why it’s time for a new, different conversation on the age-old topic of transparency and philanthropy.

I’ll get to what that conversation might look like in a moment, but first, let’s take stock of how we've moved both forward and backward over the past 15 years or so.

The Good News

Many of the biggest and most established U.S. foundations now strive for transparency. I’m talking about places like the Hewlett, Packard, Ford, Robert Wood Johnson, and Gates foundations, all of which have online grants databases that are updated in real time, along with tons of information about their programs and grantmaking processes. Increasing numbers of foundations also maintain blogs, which are helpful for anyone trying to figure out what program staff are thinking.

Additionally, leaders of established foundations are more attentive to keeping key stakeholders in the loop during important transitions. Look at Darren Walker, and the good job he did in keeping everyone informed about changes at Ford over the past year, a nerve-wracking period for grantees as the foundation reexamined its priorities (before deciding, in the end, to let Ford keep being Ford.) Jim Canales at Barr has been doing the same thing. Or consider how transparent Atlantic has been in recent years, publishing a small library on its decision making.

Even the huge—but historically quite private—Getty Foundation recently let in a bunch of sunlight, launching an online grants database this summer for the first time, including data going back three decades.

I can think of other bright spots on foundation transparency, too, like the launch of Glass Pockets by the Foundation Center in 2010. Or the many foundations that make public the grantee perception reports that the Center for Effective Philanthropy assembles; the Open Philanthropy Project of Good Ventures and GiveWell; and Philamplify, NCRP’s project digging into top foundations. Meanwhile, the emergence of Fluxx and other tech companies in the grants management space have positive implications for transparency, along with the Foundation Center’s ongoing data analysis projects. It feels like there's an impending new era of big data illuminating how philanthropic dollars are spent.

This is all positive. The bigger picture, though, is that the momentum toward more transparency has not only stalled in recent years, things have become markedly worse. Some of the biggest funders on the scene are only marginally transparent, particularly the newer ones, and the announcement by Mark Zuckerberg and Priscilla Chan that they will use a non-transparent LLC as their philanthropic vehicle underscores where things have been heading lately.

Here’s Who Didn’t Get the Memo

Take a dive into the operations of the top U.S. foundations and you’ll see how bad the problem is.

After Gates, the second biggest U.S. funder is the Open Society Foundations, which will spend nearly $930 million this year. But while this organization does a great job of communicating what issues it works on, sharing grant opportunities, and working with the media, good luck finding out where its money is going in a timely fashion. That’s right: The second largest funder in the U.S.—and one of the most politically controversial—doesn’t have a grants database, leaving the curious scrolling through out-of-date 990s. (OSF’s president, Chris Stone, is aware of this shortcoming and has told me the foundation is working on it.)

Why is the timely reporting of grants such a big deal? Because without that basic transparency, we don’t know how foundations are engaging in the great issues of the moment. The recent Iran nuclear debate is a perfect example: Millions of philanthropic dollars shaped this crucial battle, yet we won’t get the full picture of this giving for a year or two, until 990s are released by key funders. Indeed, we’ll probably never get a full picture, given how easy it is to keep donations entirely anonymous, forever. (More on that later.)

To me, as a journalist covering philanthropy, the transparency gold standard is easily accessed, public data revealing where money is going in real time. Of course, this and other information about grantmaking is also really crucial to nonprofits. A survey last year by the Center for Effective Philanthropy found that 91 percent of nonprofits agreed that “foundations that are more transparent are more helpful to my organization’s ability to work effectively.” Alas, only 47 percent of foundation CEOs agreed that “foundations would be able to create more impact if they were more transparent with the nonprofits they fund.” See also CEP’s 2013 report on this subject, which Aaron Dorfman noted was eerily similar to a study that NCRP had published—in 1980!

So how many major foundations report their grants in a timely fashion—within, say, six months time? Data available through Glasspockets on the top 80 or so U.S. foundations reveals that just 26 of these foundations have online grants databases. Among them are some of the biggest players, as I’ve said, but other giant organizations leave us in the dark—as we can see from continuing down the list of large foundations.

Another of the biggest funders in the U.S. is the Susan Thompson Foundation, and it’s a case study in non-transparency. It has no real website and the most recent info available on its grantmaking comes from a 2013 990—even though we’re nearing the end of 2015. This place made $450 million in grants in 2013, mainly in the area of reproductive health, and for all we know, it’s given at even higher levels since then. But, well, that’s pure conjecture. Ask me in 2017.

Then there’s Bloomberg Philanthropies, another huge foundation that’s been stepping things up lately. While this funder is otherwise good at sharing information about its activities on its website, where it reveals it distributed $462 million in 2014, it doesn’t provide details on who, exactly, got all that money—much less where funds have been going in 2015. One thing we do know about this foundation is that influencing government is central to its operating strategy, as Michael Bloomberg explained earlier this year. That’s an unnerving combination: policy activism mixed with mega-giving and a high level of opacity.

All told, according to Glasspockets, only half of the 20 top foundations in the U.S., measured by annual giving, have online grants databases. This analysis, I should add, is hardly authoritative, since we don’t actually know which 20 foundations have been giving away the most money in the past year or two—a period when any number of less transparent funders have been coming on the scene or ramping up. Again, ask me in 2017.

Looking beyond the big foundations to smaller-sized outfits, the transparency picture grows even darker. I occasionally come across small foundations that regularly post their recent grants online—it’s not so hard, after all, to just throw up a list of grants in the most recent docket—but most don’t bother. As a practical matter, it’s nearly impossible to find out what the vast majority of U.S. foundations have been funding in the past year or two.

The Shadow Giving System

After the 2008 financial crisis, there was much talk of a "shadow banking system" that consisted of a growing array of financial entities that had emerged outside of the traditional regulated banking system. Well, something similar has happened in philanthropy, bringing ever more opacity to U.S. giving.

The growth of non-transparent donor-advised funds has received the most attention. Last year, there were nearly 240,000 donor-advised fund accounts that held $70 billion and made $12 billion in grants. These figures have been spiking upward for years, and I’m betting this boom has continued in 2015. While the nonprofit entities running all these DAFs do release 990 data with specific grants, that information is pretty useless, since it’s unconnected with the names of actual donors. As well, it’s not provided in a timely fashion.

Many DAFs are administered by community foundations, and most of the grantmaking is pretty local and innocuous. But a notable trend over the past decade or two has been the rise of more ideological efforts to aggregate DAFs and organize like-minded donors. On the left, there’s the Tides Foundation, which moved $132 million in grants in 2014, including to many advocacy groups working to influence public policy—with much of this money impossible to link to specific donors and little grants data available in real time. On the right, there’s Donor’s Trust, a DAF operation that Mother Jones wrote about a few years ago in an article called “The Dark-Money ATM of the Conservative Movement.” The last 990 available for this place, from 2013, showed that it pulled in $103 million in contributions and made around $38 million in grants, including to most of the top conservative policy shops. We don’t know who provided this money, though.

The biggest values-driven DAF outfit of all is the National Christian Foundation, which manages myriad donor-advised funds, some of which back right-wing causes. It made $662 million in grants in 2013, most of it untraceable to particular individuals. As IP has reported, NCF is a major backer of anti-abortion activism.

Donor-advised funds have long been prized by donors for various reasons, anonymity high among them. Now, though, more wealthy people are using an even less transparent vehicle to manage their giving, the Limited Liability Company. The announcement that Mark Zuckerberg and Priscilla Chan would use an LLC for their social investments set off a furor last week, but it was hardly a novel choice. As I wrote last week, Pierre Omidyar and Laurene Powell Jobs also use LLCs.

The use of LLCs for philanthropy is growing among smaller donors, too, but we don’t actually know how significant this trend is, because there is no real way to track it.

Finally, let’s remember that it isn’t at all necessary to create charitable vehicles to give away big money. Any wealthy person can just write large checks directly to the nonprofit organizations of their choice. In general, these tax-deductible gifts don’t need to be publicly reported by either party. My hunch is that a lot of the money that went to fund advocacy around the Iran nuclear deal took this form, which is why we’ll never truly know who spent big to influence that debate, with its huge stakes for global security.

The bottom line? Under today’s laws, giving in a transparent fashion is a purely voluntary choice for donors, regardless of their scale of operation or the effects of their philanthropy on the public. And with the rise of the "shadow giving system," it’s easier than ever to give in secrecy.

That New Conversation

There’s been much discussion for decades about how to bring more transparency to philanthropy—as well as whether this is even an important goal. People have come to this conversation with different priorities, and a big focus has been improving the flow of information between grantmakers and grantees, to foster a better functioning sector with higher impact. Those issues are as important as ever. But a new, broader conversation on transparency needs to connect squarely with the bigger discussion now raging over the power and accountability of wealth elites in an age of inequality. Here are some points that should help drive that conversation:

  • Transparency in philanthropy is likely to keep falling amid a growing influx of new mega-donors and the rise of a shadow giving system. In other words, things will get worse before they get better.
  • Philanthropy is becoming less transparent, even as it’s becoming more entwined with public policy and used more often as a tool for the wealthy to exercise influence. More donors have reasons for wanting to hide their giving, and it’s easy to do exactly that.
  • The weak transparency regime around philanthropy is failing at the very same time that the regulations of campaign finance limits have also collapsed, introducing record levels of new dark money and donor influence to U.S politics.
  • Political and philanthropic giving are working together to amplify the voices of the rich at a time when many ordinary people already feel disempowered. Secrecy is further fanning anxieties about being cut out of the civic loop.
  • Transparency is also falling at a moment when the public increasingly expects more transparency on everything and is less inclined to trust all elites, particularly the wealthy.
  • Distrust of philanthropy is growing, and that trend is likely to continue, with major ramifications for the sector.

            You don’t need to buy all the points above to recognize that we’re entering new terrain when it comes to philanthropy and transparency. This shift calls for a fresh approach to a well-worn topic. In particular, the philanthropy establishment, to the extent there is one, should understand that they’re kidding themselves if they think there’s a consensus about the need for transparency in the sector. Whatever consensus that may have been emerging on this score has been rendered moot by events on the ground. We’re in a new world, driven by new money.

            There are a lot of issues to address in a fresh conversation about transparency. To me, one of the biggest tasks at hand is to reexamine philanthropic freedom. That ideal has reigned largely unchallenged in recent years, even as people in the social sector find plenty else to fight about. Now, though, it’s time to look more closely at ways to balance the ideal of philanthropic freedom with an idea that’s far more important to Americans, which is civic equality.

            More on that subject to come.