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Foundations Engaging in Policy: Not an Option But an Obligation

March 08, 2017

Policy_word_cloudPhilanthropy as a sector produces an ever-increasing body of writing aimed at encouraging impact investments for the public good. Much of that writing ignores a key consideration: Any foundation involved with impact investing cannot be taken seriously if it does not engage in policy. For many foundations, particularly family foundations, the idea of engaging in policy work is daunting, and in too many cases it's viewed as something to be avoided entirely. But while too many foundations consider engaging in policy work to be risky, I argue that it is as important a function as grantmaking and evaluation. And if we take evaluation seriously, we have no choice but to share those learnings with others, including policy makers.

Most of us know that Congress has imposed stringent limits on foundations with respect to advocacy and even more stringent prohibitions on their lobbying activities. Fully aware of the power that comes with accumulated wealth, Congress enacted prohibitions against charitable institutions engaging in lobbying as early as 1934. Later, in 1954, then-Sen. Lyndon Johnson sponsored legislation to prohibit nonprofit organizations, including foundations, from endorsing or opposing political candidates, and extended that prohibition to churches. In 1976, Congress created five exceptions to the lobbying prohibition on foundations. They are: (1) making available the results of nonpartisan analysis, studies, or research that may (or may not) include advocating a particular position; (2) the discussion of broad socioeconomic policy as long as it's not designed to encourage others to take action; (3) the provision of technical advice to a government body; (4) "self-defense" lobbying with regard to action that may affect a charity's existence or tax-exempt status; and (5) communication with members of Congress as long as they are not directly engaged in direct or grassroots lobbying themselves.

The legislated restrictions on what foundations can and cannot do to influence legislation often scare foundation boards away from committing their considerable institutional power and knowledge on behalf of the most fundamental right of all: speaking out on matters of policy. Foundations can do better. Indeed, we have an obligation to do so, if only to ensure that our investments in the social sector are leveraged to maximize our impact. Policy work is not lobbying: policy is what results from listening, gathering data, and developing frameworks that support solutions. Policy informs legislation, which, when crafted well, integrates the solutions defined by policy.

All grantmaking institutions want their investments to help the communities and beneficiaries they have chosen to support, and there are organizations out there — including regional associations of grantmakers — willing to assist us in being smarter about those investments. But "real impact" and "effective philanthropy" are nothing more than slogans if we insist on restricting our activities to transactional grantmaking, watching as requests come in and checks go out.

No, to achieve true impact with our grantmaking, foundations need to understand and align themselves with the social ecosystem in which they have chosen to operate. As a 2004 Harvard Business Review article titled "Strategy as Ecology" makes clear, we can learn something from businesses like Walmart and Microsoft:

Like an individual species in a biological ecosystem, each member of a business ecosystem ultimately shares the fate of the network as a whole, regardless of that member's apparent strength. From their earliest days, Wal-Mart and Microsoft — unlike companies that focus primarily on their internal capabilities — have realized this and pursued strategies that not only aggressively further their own interests but also promote their ecosystems' overall health.
But the performance of these two very different firms derives from something that is much larger than the companies themselves: the success of their respective business ecosystems. These loose networks — of suppliers, distributors, outsourcing firms, makers of related products or services, technology providers, and a host of other organizations — affect, and are affected by, the creation and delivery of a company's own offerings....

Substituting the name of any grantmaker for those of Walmart and Microsoft in the above excerpt gives us a different lens through which we can examine our own funding strategies. Instead of supply chains or backward compatibility, we need to focus on nonprofits and the county, state, and federal agencies that co-invest with us to provide health, housing, and other safety-net benefits to those in need. In other words, foundations will only be as successful as our networks as a whole.

Of course, foundation endowments are the product of voluntary infusions of capital from wealthy individuals (albeit regulated by tax policy), whereas our counterparts in the public sector are dependent on tax dollars appropriated through a budget process. And levels of taxation and the way those tax dollars are allocated are influenced by politics and policy makers. Choosing to ignore that fact only makes it harder for foundations to achieve real impact. We know we can't do it alone, that we need to partner with others to be successful. That recognition, combined with our grantmaking resources and, more importantly, our networks, gives us a unique and — I would argue — authoritative voice in these critical civic conversations.

Shaping policy that influences and shapes what government does cannot and should not be relegated to nonprofits acting by themselves or to individuals in town hall meetings. Grantmakers have a powerful voice to contribute to these deliberations. By choosing not to engage in policy — either directly or through a grantmaking association — foundations are abrogating the responsibility that comes with the stewardship of their tax-exempt endowments.

John_mullaney_for_PhilanTopicJohn Mullaney is executive director of the Nord Family Foundation in Amherst, Ohio. He also serves on Philanthropy Ohio's board and chairs its Public Policy Committee.

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