Saturday, January 28, 2023
HomeMarketPhilanthropy Takes Stock - MarketWatch

Philanthropy Takes Stock – MarketWatch

- Advertisement -

There’s a natural power imbalance in philanthropy between those with money to give and those who need it, an imbalance that’s exacerbated in the U.S. by an extreme wealth gap.

The U.S. Congressional Budget Office recently reported that family wealth became “less equally distributed” over the three decades to 2019. The share of wealth held by families in the top 10% grew from 63% to 72% in that period, while the share for those in the bottom half fell from 4% to 2%, the CBO said.

This economic imbalance should give donors pause. Ford Foundation President
Darren Walker
recalls
Martin Luther King Jr.
calling out the central contradiction in philanthropy, that is, “the circumstances that allow for philanthropy to exist are the very same that perpetuate inequality at its most basic levels.”

Donors are recognizing the conundrum. Attempts to right the imbalance are beginning to reshape philanthropy.

“The conversation is shifting from ‘who can we give money to, who can we support,’ to deep listening, to acknowledgment and candid conversations about the power that philanthropy holds, including the historical power and socioeconomic advantages that gave philanthropy its wealth, and how foundations can shift that,” says Olga Tarasov, director, knowledge development, at Rockefeller Philanthropy Advisors, or RPA, a U.S. nonprofit consulting firm. 

This is happening in practice through donors who are speeding up their giving while they are alive. Blazing the trail for this approach is MacKenzie Scott, the former wife of
Jeff Bezos,
who has steadily given away more than $12 billion of her roughly $34 billion fortune [as of September, according to Forbes] so far in big, flexible grants to dozens of nonprofits. In announcing plans to give away her entire fortune in a May 2019 Medium post, Scott said she has “a disproportionate amount of money to share,” and that while she would be thoughtful and deliberate about her giving, she “will keep at it until the safe is empty.”

Meanwhile, a rising number of foundations have called on RPA for advice on accelerating their giving, Tarasov says. More than one-third of 150 global philanthropies were spending down their assets faster in 2021 than a year earlier, the advisory firm found in a 2022 survey. 

Consider the Bill and Melinda Gates Foundation, which announced in July that it will boost its payout rate 50% above prepandemic levels to $9 billion annually by 2026 to meet “compounding global crises.” According to news reports, Microsoft co-founder
Bill Gates
recently said the foundation, co-founded with his ex-wife,
Melinda French Gates,
will operate for 25 more years. 

Even foundations established to provide nonprofit funding in perpetuity are finding ways to give more. The Ford Foundation issued $1 billion in social bonds in June 2020 to finance social-justice nonprofits during the pandemic, allowing it to leverage its endowment—but not erode it—while giving more.  

Scott’s approach skirts complex decision-making with directness. She addresses a key message William Foster, a managing partner at the Bridgespan Group, has for the firm’s wealthy clients: “Don’t delay.” It’s easy to get caught up trying to figure out the very best way to give, but just giving is actually good enough. 

For the wealthy to just give their money away faster, however, ignores an essential problem for Anand Giridharadas, author of Winners Take All: The Elite Charade of Changing the World. That is, the wealthy shouldn’t be so wealthy in the first place. “I’m not sure the speed at which you dispense with some of your gains…is the issue,” Giridharadas says.

Another shift at play is in how philanthropists evaluate their gifts. Over the past 30 years, donors had moved toward “impact measurement,” a means of tracking the effectiveness of their grantees, says Amir Pasic, dean of the Lilly Family School of Philanthropy at Indiana University. Yet there is growing concern that this approach, with its rigid donor-conceived templates, may not be generating the best outcomes and so some donors—such as Scott—are breaking the mold, Pasic says. “If you’re convinced that an organization is doing wonderful work, is connected to the community that needs the most help…the best thing you can do is give them the resources and decide how best they use it.” 

An example of this approach in practice is the Democracy Frontlines Fund, a collaboration of foundations established by Crystal Hayling, executive director of the Libra Foundation in San Francisco. The fund’s decision-making is decentralized to put control in the hands of the grassroots organizations it serves. 

The approach is a way “to demonstrate the legitimacy of philanthropy,” by shifting power away from those who give. “We’re not there yet,” Tarasov says. But, “there is progress and actionable things are happening.” 

Darren Walker, President, the Ford Foundation

Tackling the Roots of Inequality

In 2015, Darren Walker, president of the Ford Foundation, declared it was time for a “reimagined gospel of giving”—a rethinking of first Gilded Age industrialist and philanthropist Andrew Carnegie’s “gospel of wealth”—to address the underlying societal causes that lead to racial and economic inequality and make giving to the homeless or the hungry necessary in the first place. 

Walker also said philanthropy needs to face its inherent cultural biases and to reject “an impulse to put grant-making rather than change-making at the center of our worldview.” 

Seven years later, Walker says more foundations are “taking steps to address inequities in society and in our own institutions.” But, he adds, racial inequities exist in most philanthropic organizations, as well as most institutions. “We need to question and challenge inequitable systems, even those from which we have benefited,” he says. 

 At the Ford Foundation, where Walker has presided since September 2013, dollars committed to racial-justice work in just the past two years have doubled to more than $360 million. These funds have been directed to advocacy organizations, movements, and diverse cultural organizations, ranging from the Bargaining for the Common Good Network to Ballet Hispánico. 

In 2016, the Ford Foundation launched an initiative to strengthen social-justice groups, such as the National Domestic Workers Alliance.


Sarah Silbiger/UPI/ShutterstockSarah Silbiger/UPI/Shutterstock

Earlier, in 2016, the foundation created Building Institutions and Networks, or BUILD, to strengthen social-justice groups by providing five years of general operating funds and organizational support. In June 2020, Ford issued $1 billion in social bonds to finance social-justice nonprofits during the pandemic. 

Ford also joined with other foundations in the Biden-Harris administration’s public-private Economic Opportunity Council. The council, which includes corporations such as Key Bank, Google, and Netflix, is tackling economic disparities in communities across the country. 

Established as a foundation in 1936, Ford follows a perpetual model, meaning its endowment assets are invested to ensure it can fund programs year after year. It regularly makes grants from these assets above the federally required annual payout rate of 5%, and has called for legislation requiring private family foundations and donor-advised funds to increase their giving.

Ford is also leveraging its $16 billion endowment by committing up to $1 billion in social impact investments. These so-called mission investments have earned a compound annual rate of 28% since this effort began five years ago, Walker said in August. While those impressive returns may not be sustained forever, the performance does prove that impact investing to address issues such as affordable housing, jobs, and healthcare, can be profitable.  

The foundation is also working “to grow and strengthen” impact investing through grants and coalition building, Walker says. “It’s our hope that this contributes to behavioral change when it comes to how both institutions and individuals view their long-term investments in the years to come, both within the philanthropic sector and beyond.” 

William Foster, Managing Partner, the Bridgespan Group

The Time to Give Is Now

William Foster, Managing Partner, the Bridgespan Group.


Courtesy the Bridgespan Group

A conversation with Bridgespan Group managing partner William Foster about the role of donors in society begins with Foster’s reminder that fundamental societal changes—from civil rights to marriage equality—began with demands by civil society, that is, in individuals, communities, grassroots organizations—and philanthropists. 

By backing community grassroots leadership that defines and fights for solutions with the “kind of significant dollars that the wealthiest folks can have,” strategic philanthropy has played a big role in spawning change over the past 100 years, Foster says. 

As an example, Foster cites the Harlem Children’s Zone, which Bridgespan, a New York-based philanthropic advisory firm, has worked with for more than 20 years. HCZ’s leaders have sought to end intergenerational poverty with backing by “generous, trusting, and empowering philanthropists,” he says. 

When philanthropy works as it should, donors “can partner and share or even cede power to local leaders, and that can create a lot of change,” Foster says. That this dynamic can create a power imbalance between those with and without wealth is also true, he agrees. It’s a criticism that he says stems from broader issues with wealth concentration in the U.S., a problem that “resonates with us,” Foster says, given Bridgespan’s mission to create a “more just and equitable world.”

Because wealth inequality does exist in the U.S., however, the question then becomes: Is it better for the wealthiest individuals in America to give less or more of their money toward solving social problems? The correct answer is evident to philanthropists. The bigger problem is what Foster calls the “aspiration gap” between a sincere intention to give away wealth and actually doing it. Donors often don’t feel an urgent push to give and can get tangled up in trying to find the perfect approach for addressing whatever problem they hope to solve. Their inaction led ultrawealthy families studied by Bridgespan in 2018 to donate only 1.2% of their assets to charity the previous year; if these families wanted to spend half their wealth within 20 years, they would need to donate nearly 10 times more. 

A second aspiration gap concerns which organizations get funded. Donors will say they want to solve society’s toughest social and environmental problems—which are woefully underfunded—and instead give their money to already well-endowed universities and medical research centers.  

Of philanthropists tracked in a 2015 Bridgespan study of $10 million donations, 80% cited a desire to tackle difficult problems such as poverty, public health, or environmental issues among their top reasons to give, above giving to already well-endowed institutions. In reality, 80% gave to universities, hospitals, and cultural institutions. 

To address these gaps, Foster advises donors to remember they won’t live forever, and any money they give to social causes will be put to good use. The needs are vast. For those seeking the perfect strategy, he recommends joining the growing number of multidonor collaboratives tackling tough social issues where “other smart donors have laid some of the groundwork.” Since more than one donor is involved, the power imbalance between giver and receiver is softened. And, Foster says, because multiple donors are involved, “there is a degree of intentionality and focus on impact that is separate from any one personality.” 

Philanthropists also shouldn’t believe there is only one way to give. They can create a portfolio of gifts that include funding a community soup kitchen, giving to a museum, and supporting a collaborative effort to address plastics pollution. “Each opportunity for giving doesn’t rob another channel,” Foster says. More importantly, just “don’t delay.” 

Crystal Hayling, Executive Director, the Libra Foundation

‘Shoulder to Shoulder’ for Change

Crystal Hayling, executive director of the Libra Foundation.


Courtesy The Libra Foundation

After George Floyd’s murder by Minneapolis police in May 2020, Crystal Hayling, executive director of the Libra Foundation in San Francisco, didn’t want another commission created to understand the roots of a racial reckoning sweeping the country. She wanted to get dollars to on-the-ground community groups fighting for racial and social justice and democracy.

Hayling began calling philanthropic leaders and donors to ask, “what if we turned over the decision about this work to a group of brilliant folks who actually know [it] and have done it for decades collectively.” 

The Democracy Frontlines Fund quickly came together in 2020 with a group of “amazing brown-skinned women” skilled in grant-making to social movements, she says. Including Libra, Hayling brought in a dozen funding partners willing to make multiyear, unrestricted grants for general operating support—instead of short-term grants to a specific program—to fund organizations selected by Hayling’s “brain trust” of seasoned philanthropic leaders.

Almost every funder asked said “yes” to making a $3 million commitment over three years, Hayling says. And in return? “You don’t get to make decisions about who the grantees are and you won’t know who the grantees are until after the commitment has been made. We are entering a three-year journey together.” 

The $45 million fund, backed by 14 donors now, supports 10 Black-led organizations, including the National Black Food and Justice Alliance, Black Voters Matter, and the Communities Transforming Policing Fund. Donors sit “shoulder to shoulder” with these groups, not across the table, says Hayling, who has more than 30 years of philanthropic experience, including as CEO of the Blue Shield of California Foundation. “We felt it was important to make the link between democracy and Black-led organizing—the folks who were on the front line of organizing what we now know to be the largest civil rights action and movements in this country’s history,” she says.

Hayling’s approach is at the heart of a movement to give nonprofit organizations the flexibility, funding, and trust required to carry out their missions without reporting back to funders on donor-determined goals.

The same strategy is at the root of Libra, a $500 million family foundation founded by Nick Pritzker, former chairman and CEO of the HYatt Development Corp., his wife, Susan, and their children. Libra, which Hayling has led since 2017, also funds community-based organizations with Black, indigenous, and people of color leaders who are on the front lines of racial justice and democratic rights. 

Crystal Hayling (front row, center) with members of the National Black Food and Justice Alliance and staff of the Truly Living Well Center in Atlanta.


Courtesy The Libra Foundation

“What we really need is a way to open the aperture for how we see society’s problems,” Hayling says, and “we need to innovate in how we give the money away.” 

In September, Hayling wrote a column titled “Hey, Philanthropy: Division Isn’t Our Biggest Problem,” for the publication Inside Philanthropy to challenge the sector’s tendency toward finding common ground. 

“If you are in a room where surface agreement is more important than fighting against racism, standing up for women’s rights, insisting on fair wages for hard work, and demanding truth-telling about our leaders and elections, you need to get up and find another room,” Hayling wrote. 

The piece was necessary because “philanthropy, if it is to be relevant to the moment we are in now, has to embrace Dr. [Martin Luther] King’s notion of ‘the fierce urgency of now,’” Hayling says, referring to a phrase from the civil rights leader’s 1963 “I Have a Dream” speech. 

Funders benefit, too, when they are in trusted relationships with grassroots groups leading the charge. “The organizers know who they are, they’ve had real conversations—they aren’t just seen as a checkbook,” Hayling says. Donors who haven’t experienced that kind of relationship “don’t know what they’re missing.” 

Amir Pasic, Dean, the Lilly Family School of Philanthropy, Indiana University 

Why a Decline in Individual Giving Matters

Amir Pasic, the Lilly Family School of Philanthropy, Indiana University


Courtesy the Lilly Family School of Philanthropy

As individual giving has dropped in the U.S., philanthropy has become increasingly dependent on a smaller number of big donors. This power imbalance “affects the way we see and conceive of the role of philanthropy in society,” says Amir Pasic, dean of the Lilly Family School of Philanthropy at Indiana University. 

“Giving USA 2022: The Annual Report on Philanthropy for the year 2021,” published by the Giving USA Foundation and researched and written by the Lilly Family School, found individual gifts represented 69% of all giving in the five years through 2021, down from 81% from 1982-86. Meanwhile, megagifts of $450 million or more rose to represent 4.6%—or $15 billion of a total $327 billion in individual gifts last year—from 1.3% in 2011, when it was first tracked. 

While 4.6%, may not seem like a lot, it shows a steady increase in giving from a smaller group of individuals. Voluntary philanthropy had always been thought of as a “distinctive feature of the American experience,” Pasic says. “But what do we do now that we have huge disparities of wealth?”

Pasic isn’t prescriptive, but he is paying attention to the swirling trends taking place today and placing them in the context of history. Consider that the U.S. Congress initially rejected a federal charter for the Rockefeller Foundation in 1910, worried about the concentration of money and power in a tax-free institution. Today, billionaires structure their giving through limited liability corporations so they can invest or lobby in addition to providing grants. 

One billionaire who is shifting the power dynamic in a dramatically different direction is MacKenzie Scott, who is quickly dispensing with her fortune, which she says exists because of the work of others. The dollars are going—with no strings attached—to a range of nonprofits advocating for and supporting underserved communities.

But is philanthropy the best way to tackle wealth inequality in the U.S.? “Probably not,” Pasic says. If the U.S. were to start from scratch, “you wouldn’t design a system to let people get wealthy and let them decide if they are going to share that wealth with other people.” 

Most people agree philanthropy should play a role when incentives don’t exist for the market or government to take action, he says. Giving done right can strengthen society. “It’s not only good for the community, but wonderful for a sense of one’s individual dignity,” Pasic says. “That’s something we shouldn’t take away from people.”  

Anand Giridharadas, Author

Dismantle the Systems That Lead to Wealth

Author Anand Giridharadas.


Photograph by Michael Lionstar; courtesy of Penguin Random House

For author Anand Giridharadas, the philanthropically minded wealthy should direct their charitable dollars to causes that make sure no one ever gets as uber-wealthy as they are to begin with. Or, as he puts it, “help us get to a society in which no one can ever hoard the way you did.” 

When it was published in 2018, Giridharadas’ Winners Take All: The Elite Charade of Changing the World was intended to toss a “bomb” into today’s gilded society by detailing how the global elite preserve the status quo while proclaiming a desire to tackle society’s biggest problems. Surprisingly, “there were a lot of people inside the gilded city who pleaded guilty to the charge,” he says. 

Giridharadas doesn’t expect transformation to come from the wealthiest, but “you do see some signs of recognition among them that we have a problem.” The same year Winners Take All was published, billionaire hedge fund manager Ray Dalio declared: “Capitalism is basically not working for the majority of people.” Inequality has worsened since. 

“Ten years ago the consensus was, ‘Make all the money you want to make and then it’s fine if you give some of it away,’” Giridharadas says. “The shift now is that it’s not fine because you give it all away, and that actually, giving it away can make things more problematic.” 

That’s because philanthropists are viewed by some as wielding “illegitimate power” within such spheres as public health or education that no one elected them to preside over.

Impact investing to realize social and environmental goals alongside market-rate returns is just “one of the 31 flavors” of what he calls “win-win-ism” akin to philanthropy. That is, “the idea that we can solve the problems of the least powerful, most disadvantaged, most marginalized, that we can lift them up, make them win in ways that actually cause the winners to win also.” 

Giridharadas’ newest book The Persuaders: At the Front Lines of the Fight for Hearts, Minds, and Democracy, published this fall, is about “people trying to pursue real change.” Specifically, it’s about fighting for democracy, and it details how “real politics involves changing minds,” he says. “You can see why it’s very tempting for people to think they are changing the world by writing checks, but it’s not durable.”

Giridharadas says he’s come to recognize the power differential between those on the ground working for organizations, and those who “are complicit in some pretty awful structures” that lead to problems they later try to solve through donations. Billionaires who want to effect tangible change, he argues, should instead fund organizations that lay the groundwork through civic action, media, and political lobbying to have a wealth tax in the U.S. “Anybody reading this could write a $1 billion check right now to do that,” Giridharadas says. 

This article appears in the December 2022 issue of Penta magazine.

Credit: marketwatch.com

RELATED ARTICLES
- Advertisment -

Most Popular