“Revisit the Assumptions.” A New Report Poses Big Questions About Funders’ Impact in the 2020s

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In 1946, George Orwell wrote an essay titled “In Front of Your Nose” in which he questioned the conventional wisdom around topics like political stability in Hong Kong and the economic benefits of a low birthrate.

“To see what is in front of one’s nose needs a constant struggle,” he wrote—the idea being that society must continually revisit its fixed beliefs. A seemingly true principle may, upon closer examination, turn out to be outdated, incorrect or even counter-productive.

As strange as it might sound, Orwell’s adage is a big thematic influence on “What’s Next for Philanthropy in the 2020s,” a new report from the Monitor Institute by Deloitte. With financial support from Deloitte Tax LLP, the Robert Wood Johnson Foundation, the John D. and Catherine T. MacArthur Foundation, the W.K. Kellogg Foundation and the McConnell Foundation, its authors—Gabriel Kasper, Justin Marcoux, Jennifer Holk and Jeff Morshed—interviewed over 200 philanthropy professionals, donors and grantees over the past 18 months.

They concluded that funding leaders must reexamine the following three assumptions to unleash greater innovation in their work: (1) that funders should only give to efforts that have proven successful rather than making bets on higher-risk, higher-reward ideas; (2) that grantmaking to nonprofits is the only way to make significant change; and (3) that endowed foundations are the best way for funders to allocate their money toward specific causes.

I suspect most funding leaders aren’t consciously wedded to these assumptions. But conceptually dismissing an assumption is one thing. Allocating resources to dispel an assumption is something else entirely. “Despite all the experimentation in and around the field,” the authors write, “most of the core practices and principles of giving remain largely unchanged for the vast majority of funders.”

Responding to the “Big Shifts”

For all of philanthropy’s talk about evolution and reform, the authors contend that the complexion of a typical private foundation—its “board governance, organizational structures, endowment management, and primary grantmaking processes”—hasn’t changed all that much in the last 50 years.

As a result, many funders are ill-equipped to respond to complex and rapidly developing trends across society. The report lays out seven specific “Big Shifts” that “have the potential to create fundamental change in the philanthropic landscape.” They are economic inequality, extreme political polarization, shifting demographics, new momentum around racial justice, ubiquitous technology and access to information, a state of climate and social emergency, and a social compact in flux.

The report profiles funders that are rolling out strategies—the authors call them “Edges”—“that, if scaled, could begin to challenge or change some of the core practices of the field that are no longer a good fit for today’s philanthropic context.” The authors identified four Edges—Rethinking Philanthropy’s Role, Balancing Power, Catalyzing Leverage and (Re)Designing the Enterprise. Each Edge contains a set of best practices, dubbed “Edge Practices,” that “represent critical frontiers for philanthropies and individual donors in the coming years.”

It’s a lot of proprietary terminology to process in this context, so I’ll just give one quick example of a funder practice that addresses the three assumptions spelled out above.

The Omidyar Network: a case study

The report’s first Edge, “Rethinking Philanthropy’s Role,” includes four “Edge Practices,” one of which is “Changing Systems and Cultural Narratives.” This practice finds funders scaling up their ambitions to “fundamentally change systems and influence large-scale policies, movements, and culture.”

The report cites funders that have adopted this approach, including eBay founder Pierre Omidyar’s Omidyar Network and its Reimagining Capitalism initiative. The program, which debuted last year, “seeks to address structural challenges embedded in capitalism to shape a new, more inclusive economy where markets serve the interests of all people and society.”

Omidyar’s initiative is instructive because it challenges the three assumptions laid out by the authors. The first assumption is that funders are too focused on supporting organizations with proven outcomes at the expense of “high risk, high-reward” efforts. Reimagining Capitalism, which scrutinizes the core tenets of neoliberalism and directs funding to historically under-resourced organizations focusing on worker power, can be thought of as a quintessential high-risk, high-reward proposition.

The second assumption stipulates that grantmaking to nonprofits is the only way to make change. But the Omidyar Network status as a limited liability company (LLC) allows it to bankroll for-profit enterprises with a social mission in addition to nonprofits and political organizations.

The network’s LLC structure also challenges the authors’ third stated assumption—that endowed foundations are the most effective way for funders to allocate money for a cause. Motivated by the belief that traditional approaches “may no longer be an optimal fit for addressing today’s complex challenges,” the authors write that “donors are increasingly experimenting with alternative structures, such as donor-advised funds, giving circles, 501(c)(4) organizations, and limited liability companies, that have the potential to be more efficient or effective vehicles for funders seeking to influence policy and make for-profit investments.”

Progress is relative

Now, it’s time to dispense with a handful of caveats. For starters, savvy readers know that funders aren’t a monolithic bloc. Certain segments of the ecosystem move faster than others.

Back in 2015, IP editor David Callahan looked at how Omidyar’s LLC-based giving was shaping funders’ calculus. While early adopters like Mark Zuckerberg (the Chan Zuckerberg Initiative) and Laurene Powell Jobs (the Emerson Collective) chose to channel their giving through LLCs, private foundations were “still far, far away from putting for-profit investments on an equal par with grantmaking,” Callahan wrote.

The Deloitte report suggests that for all their experimentation with alternative structures, foundations remain laggards in this area as tech donors continue to push the field forward. Last April, to take a notable recent example, Jack Dorsey transferred $1 billion of shares in Square to an LLC called Start Small to fund COVID-19 relief efforts.

Another caveat involves the extent to which funding leaders must—and I’m quoting the report, here—“navigate across the different mindsets, expectations, and risk tolerances of donors, trustees, staff, grantees and constituents.” This might be the most important sentence in the entire report. Readers know that “risk” is a relative concept, but it’s worth repeating, since it can contextualize the degree to which funders are challenging previously held assumptions.

After all, Pierre Omidyar’s $23 billion fortune enables him to readily embark on high-risk efforts like the Reimagining Capitalism initiative without having to make the case to skeptical trustees or overcome organizational inertia. A “high-risk” bet will look a lot different to a small, regional foundation where one dollar earmarked for an envelope-pushing venture means one less dollar for a steadfast nonprofit grantee addressing an immediate community need.

The Deloitte report picks up on this idea, citing research from Giving USA which found that “individual donors give more than four times as much as institutional funders.” In response, foundations are “Catalyzing Leverage” (Edge 3) to pool their resources and create the kind of impact that they couldn’t make on their own while attempting to match the impact of major individual donors. Examples include the anti-poverty collaborative fund Blue Meridian Partners (which also involves major living donors and their foundations) and the James Irvine Foundation’s partnership with the Entertainment Industry Foundation to develop a career pathway program.

Returning to the concept of risk, collaborative work can allay some of that, while at the same time letting philanthropic players—like those involved in Blue Meridian—amplify the impact of their funding as they operate beside a public sector whose overall level of resources dwarfs them.

Change efforts “often end with a whimper”

Funding leaders’ risk tolerance also influences how they do their grantmaking. Take funders’ widespread affinity for project-based support, predicated on the idea that it would be too risky to cut a grantee a blank check. Leaders sleep better knowing that funding is flowing to a specific cause, and that, in most cases, they can measure an organization’s effectiveness against a set of metrics.

The Deloitte report looks at how funders are revisiting this enduring article of faith. Within “Edge 1: Rethinking Philanthropy’s Role” is the practice it calls “Getting Out of the Way,” which finds funders supporting nonprofits “with as little complication as possible.” The study noted that MacKenzie Scott’s grantmaking approach doesn’t include a grant proposal process, nor does she require grantees to file reports. Authors also highlighted “a growing movement in the field” to “provide nonprofits with multiyear, general operating support rather than individual project grants.”

Nonprofit leaders will be happy to learn that a December 2020 study from the Center for Effective Philanthropy (CEP) corroborates this second point. According to the report, 55% of foundation leaders said that the goal of “making new grants as unrestricted as possible” will be “permanently implemented in at least some program areas.”

It’s encouraging stuff—until you realize that all these promises of more flexible support aren’t lining up with data from the recent past. A March 2021 brief on COVID-related giving in 2020 by Candid and the Center for Disaster Philanthropy found that flexible support reflected “only 9% of all dollars awarded to named recipients” once Scott’s grantmaking was taken out of the equation.

The contrast brings to mind St. Augustine, who recounted in his “Confessions” that he would often pray, “Lord, make me chaste—but not yet.”

The authors of the Deloitte report make a similar (and thankfully, less spiritually fraught) point as they consider why well-intentioned pledges don’t come to fruition. “Deeply embedded structures, norms, relationships and power politics serve as antibodies to change, even as leaders say and do the ‘right’ things,” they write. “As a result, change efforts often end with a whimper when, after much reflection and consternation, the status quo largely remains.”

A series of “what-ifs”

All of these dynamics—institutional barriers, organizational inertia, nuanced definitions of terms like “risk” and “impact”—underscore what the report’s authors call “deeper assumptions about philanthropy’s role in society.” This is where the authors get really philosophical.

“Should funders be using their unique assets and positioning themselves to intervene in larger systems?” they ask. “To step back and simply finance the work of grantees who are closer to the issues and the communities they are serving? To find and fund innovation where existing solutions are proving insufficient?”

“There is no universal right answer to these questions,” the authors write. “But as the world shifts in the years ahead, funders should expect to revisit the assumptions they make about their role in creating social change, and align their methods, actions and structures accordingly.”

Beginning on page 20, the report presents a series of “what-if” questions to guide funding leaders through this thought exercise. All 16 (!) questions probably warrant a separate piece in their own right, so I’ll just focus on the first one: “What if philanthropies started to make the scale of the problems they take on even bigger?”

Once again, the rule of relativity applies—today’s heftiest donors have enough capital on hand to “go big” at an unprecedented level. As IP’s Tate Williams and Michael Kavate wrote after Laurene Powell Jobs’ recent $3.5 billion climate pledge, “We’ve entered an era of philanthropy when gargantuan announcements that eclipse even large foundations’ budgets seem to materialize out of thin air, via Instagram post, tweet or blog post.”

“Leaving potential impact on the table”

Scaling up philanthropy’s ambition can be different for private foundations, which, more often than not, have fewer resources on hand than the mega-donors. Consider how arts funders responded in the early days of the pandemic. Foundations banded together and rapidly shoveled enormous amounts of money out of the door, cognizant of the fact that artists lacked strong safety nets.

As the pandemic recedes, should arts funders stick to their core competencies and strengthen programs that provide direct support for artists and undercapitalized organizations? Or should they channel their inner Pierre Omidyar and—to quote the Deloitte report—allocate finite resources to “influence larger systems and cultural narratives like capitalism, democracy, global governance, and systemic racism?”

We already see this happening, to some extent. Last June, the arts sector’s biggest funder, the Andrew W. Mellon Foundation, announced it was adjusting its mission to prioritize social justice in all of its grantmaking. But what about the local and regional funders that make up part of the lifeblood of a community’s arts ecosystem? Should these less affluent funders add lobbying for unemployment system reform, or universal basic income for artists, to their already full plates?

These are the kinds of questions funders need to be asking during this time of social, economic and cultural upheaval—to safeguard their own relevance, if nothing else. As the report’s authors write, “The events of the past two years suggest that funders that aren’t able to change and evolve to match the shifting realities of public problem solving may, at best, be leaving potential impact on the table, and at worst, be at risk of losing relevance and influence as other, more adaptive funders grow in prominence and impact.”