This Is No Fleeting Crisis—It’s the New Normal. Are Foundations Ready to Get Serious?

This article was originally published on October 22, 2020.

On the opinion pages of philanthropy sector publications, a debate has raged about the right foundation payout rate for “this moment of crisis.” Since the 1970s, the received wisdom among many of the largest, most influential foundations is that the best approach is to allocate just over 5% of the institution’s assets for grantmaking and overhead each year. The actual annual payout rate for American foundations is somewhere in the neighborhood of 7 to 8% when smaller foundations are included. Some prominent philanthropists and activists have urged their colleagues to “overspend” in light of the country’s compounding crises. Some have even called for new legislation temporarily mandating payout rates as high as 10%. That means, since March, the range of what is considered responsible foundation payout has, in the most optimistic scenario, expanded a whopping 2 to 3%.

Meanwhile, sometime in the month of September, the 200,000th American died from COVID-19. In mid-September, the Census Bureau reported that 12% of white renters and 25% of Black renters were behind on their rent payments. The Aspen Institute reported in August that between 30 million and 40 million Americans were at risk for eviction in the last quarter of 2020, and that under normal circumstances, 80% of those facing possible eviction are people of color. And on September 23, after months of using his bully pulpit to undermine faith in our election systems, President Donald Trump declined to promise a peaceful transition of power—“there won’t be a transfer, frankly. There will be a continuation.”

At a time when philanthropy leaders should be radically reimagining their role in a just society—leaning into the transformation COVID has wrought on our economy and society—many are dwelling instead on the minutiae of the old way of doing philanthropy. Nothing could be more emblematic of that disconnect than the payout discourse, which presupposes that the 2020 crises will end and that foundation endowments and the grantmaking they support will revert back to “normal” then.

But these crises may not have an “end” to plan for. Our social, environmental and economic systems seem to have entered a liminal space between the old world but not quite fully formed in the new. Far from bouncing back to “normal,” they may be on the precipice of something new and strange. We live in a country whose democracy is in tatters, whose climate has transformed, and whose economic house of cards seems finally to be falling down. The sooner foundation CEOs and trustees read the room and stop vainly hoping for a return to normal, the sooner the sector can get on with planning for what comes next.

A legacy of complicity, compounded by decades of neglect

Institutional philanthropy is itself a product of unjust systems that have recently begun to come apart at the seams. Its combined $1 trillion in assets largely reflects generations of ill-gotten wealth stemming from slavery, corruption, worker and environmental exploitation. Between 2010 and 2019, according to FoundationMark, foundation assets grew 50%, while the Federal Reserve reports the median U.S. household’s financial assets (excluding real estate, business equity, etc.) increased just 3%, and the median Black household’s financial assets decreased 23%.

While the cash, stocks and bonds sitting in philanthropic bank accounts have piled up, foundations have maintained their decades-long commitment to steering grantmaking away from work that is targeted in the communities in the best position to put it to good use. Between 2010 and 2017 (the most recent year of data available for the Foundation 1000, a representative sample of the largest 1,000 foundations in the U.S. compiled by Candid), foundations gave just 9% of their total grant dollars and less than 1% of their total assets to work explicitly to benefit Black, Indigenous, and POC communities, and 1.4% of their total grant dollars and about one-tenth of a percent of their assets for work intended to benefit immigrants and refugees.

In a decade that witnessed a deeply flawed recovery from the Great Recession, the rise of a capable far right movement in the U.S. and abroad, the construction of a massive state violence apparatus aimed at immigrant families, and the abandonment by the U.S. federal government of any international commitment to slowing carbon emissions, foundations ignored organizations and strategies proven to build people power and advance equitable change.

Between 2010 and 2017, foundations dedicated 11% of grant dollars and less than 1% of their assets to long-term structural change work. Funding for human rights, democracy and civic engagement was almost completely neglected by U.S. foundations while the American social fabric began to unravel.

It should come as no surprise, then, that in the last two years, a plethora of proposals for regulating and even dismantling institutional philanthropy have emerged from the sector—partly in response to a blossoming of strident critiques of foundations coming from outside the sector—from both the left and the right. We have entered an iconoclastic period in American history where once well-respected institutions and people have experienced dramatic falls from the public grace. Will foundations be next?

A looming legitimacy crisis for philanthropy

If a safe, effective COVID vaccine became available tomorrow, it would still take months or years to vaccinate all who need it, and public health officials would need to overcome entrenched vaccine skepticism, bordering on paranoia, in order to be effective. Similarly, more than half of Americans said in the spring of 2019 they were not confident in the integrity of our elections, a year before President Trump and the Republican Party began a full frontal assault on the legitimacy of our elections systems. Our economy, our climate, and our criminal justice system have each been bent to the will of the rich and powerful over the last half-century and more. The middle class was already teetering on the brink before the COVID depression. Black Americans have been the target of state-sanctioned violence since well before George Floyd’s murder in May. Eight of the 10 largest California wildfires have occurred since 2010.

In the last six months, many in philanthropy have asked themselves and their peers “when will this end?”; “what’s the best way to support communities while they’re in crisis?” and “how do we ensure we can get back to business as usual as soon as possible?” But at this point, it seems just as likely that these “crises” will become our new normal. And business as usual is what got us here to begin with. In April, the Indian novelist Arundhati Roy wrote in the Financial Times:

“Our minds are still racing back and forth, longing for a return to ‘normality,’ trying to stitch our future to our past and refusing to acknowledge the rupture. But the rupture exists. And in the midst of this terrible despair, it offers us a chance to rethink the doomsday machine we have built for ourselves. Nothing could be worse than a return to normality. Historically, pandemics have forced humans to break with the past and imagine their world anew. This one is no different. It is a portal, a gateway between one world and the next.”

At first, “doomsday machine” may feel like a stretch. But all the pro-social elements of the foundation industrial complex are built on top of a perpetual profit machine that may soon experience a legitimacy crisis of its own. Stock market returns have increased while nearly 1,000 Americans die needlessly each day from a preventable virus because our political and economic leaders have decided it would be too costly to try to save them. Likewise, the 95% of foundation assets that CEOs and trustees choose not to put to charitable use each year course through the arteries of our unjust economy, extracting more wealth each year than foundations give away.

The conversation about philanthropy’s rightful role during the “crisis” has lacked imagination. At some point, the debate between “save it for a rainy day” payout conservatives and “10% for three years” payout radicals starts to sound like the denial stage of grief.

In just about all other realms of our social, political and technological life, the window of the possible has been expanding rapidly. Priests are blessing distant worshippers with holy water using water guns, families are saying goodbye to dying loved ones over Zoom, half the West Coast is on fire, and the president is committing high crimes and misdemeanors on Twitter from his sick bed. Tech leaders, activists and politicians understand that this liminal space is full of potential, some of it dark. Philanthropy leaders need to understand that, too, or they risk being overtaken by events.

The world in which a perpetual growth machine drove booming endowment gains and allowed foundations to shower large charities with billions, while grassroots, POC-led movement groups got the spare change—that world may very well be on its way out. Once philanthropy leaders can accept that loss, the sector can begin to move forward. Big decisions loom beyond this portal. If a new world is almost here, what role will philanthropy play in it? What role will your foundation play? Will your wealth and power ease this transition for those suffering most? Will it be shared broadly so that we can all have an equal say in what comes next? Here are some specific things to consider:

Control

Endowed philanthropy is a fundamentally anti-democratic force. It distorts our civil society toward the interests of the rich and powerful. New foundation governance structures are possible, including structures that haven’t even been imagined yet. Every foundation has a duty and an opportunity to innovate in the governance space so that foundation assets truly live as the private and public vehicles for social change they were intended to be. Imagine the possibilities if every large foundation was governed by an assembly that included youth, people on limited incomes, undocumented people, local union and faith leaders, and others who share a broad set of experiences and interests—instead of a small group of 40+ investment bankers, CEOs and lawyers.

Timeline

It is time for the sector to re-evaluate foundation perpetuity. What good is being accomplished now by the $900 billion and more that is invested each year in the private market instead of being put to charitable use? How can individual people, communities and a country that is facing down potentially existential threats accept the possibility for more grant funding in 10 years instead of the certainty of support now? It may not be time for regulation yet, and perpetuity may still be the best time structure for some foundations depending on mission. However, as humanity careens closer to potentially irrecoverable collapses of democracy and the planet’s climate, the old arguments about the value of a dollar today versus two next year ring hollow.

Job Security

Black activists and their allies have accomplished what was once thought an impossibility by driving a wedge between white liberals and the racist mass incarceration system represented by their local police departments. The Republican Party has made a public calculation that it’s better not to have a democracy than to enfranchise everyone. And many on the left now accept as an article of faith that the Senate and the Supreme Court cannot persist in their current forms. If at some point the foundation industrial complex is faced with the level of public scrutiny and thirst for accountability that has been directed at institution after institution in American life over the last two decades, I am not optimistic it would survive intact. The point is: Many institutions that once sat on rock-solid foundations of public trust have lately found themselves in quicksand once the curtain is pulled back by savvy political actors. Foundation CEOs and staffs should not delude themselves into thinking it cannot happen to them.

—

The institutional philanthropy sector—and especially endowed private foundations—must recognize the country and the world they operate in is starkly different from the one most foundation CEOs and trustees perceived pre-COVID. The pandemic has exposed the rot at our economy’s core, a rot that institutional philanthropy itself has enabled and even profited from. For decades, our economy has worked far better for the rich and powerful who create foundations than for the many whose lives foundations are meant to better.

Many of the sector’s core tenets—perpetual growth, long strategic time horizons, the unassailable legitimacy of charity, the fundamental stability of the American democratic experiment and others—have been badly corroded over the last few years or never really held much water to begin with. It is time for sector leaders to begin using their imaginations to envision new ways of advancing the public good with public/private wealth.

Twiddling the dials on our current foundation industrial complex so that payout increases to 10% or twice as many BIPOC-led organizations are invited to apply for funding won’t be enough to regain a stable footing in our rapidly changing world. It’s time for a great leap in foundation evolution, or else endowed philanthropy may end up like the woolly mammoth, dwindling in the face of a changing world and increasingly skilled hunters.

Ryan Schlegel is the director of research at the National Committee for Responsive Philanthropy (NCRP).

Featured