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My Fears and Hopes for Philanthropy

March 25, 2009

(Bradford Smith is president of the Foundation Center. In his last post, he wrote about the shape of philanthropy to come.)

Hands Recently I was asked to address a group of trustees concerning the outlook for foundation spending and my "hopes and fears" for philanthropy. In an environment where opening a newspaper, logging on to the Internet, or turning on a television provokes panic over the greatest economic downturn since the Great Depression, it seemed more appropriate to begin with the currency of the day -- fear -- before turning to something we seemed to have lost so quickly after the elections -- hope.

My fears for philanthropy are threefold. The first is that philanthropy will pull into its shell, shun new commitments, and go into "life-support mode" like space travelers on a voyage to a far-away planet: the vital signs are still there, but they are barely audible. The temptations to do so are many. Foundation assets, with very few exceptions, have been devastated by the collapse of the financial markets. On the management side, nonprofits and foundations alike have already made all the easy budget reductions and are now cutting into bone. On the grant side, foundation press releases are filled with phrases like "we will honor current grant commitments" or, somewhat more encouraging, "we do not foresee significant retrenchment."

My second fear is that if philanthropy does not take seriously the pressures to address inequality, injustice, and discrimination -- all of which were insufficiently addressed during the boom and will be aggravated in the bust -- then philanthropy may come to be seen as part of the problem rather than part of the solution. If, as a sector, we allow that to happen, we will long for the days when we had the luxury to engage in heated debates about the principle of "philanthropic freedom."

The last item in the fear column is an outgrowth of the second. To the extent that philanthropy is seen as unresponsive and irrelevant to the needs of the day, the public policy cornerstone upon which it rests -- a tax exemption in exchange for charitable giving -- could be endangered. In an era of fiscal restraint and increasing pressure on public spending, far more will be expected of foundations at the same time that tax exemptions will be subjected to additional scrutiny. No sector will get the benefit of the doubt, and foundations, as an expression of private wealth for public good, will need to prove that they can be transparent, accountable, and relevant to the issues and causes about which people care the most.

Fortunately, when I am able to shake off the doom and gloom, my hopes prevail. First among those is that philanthropy will rise to the challenge by giving until it hurts -- and then some. This will mean increasing payout, as many foundations have already announced, by (in most cases) digging deeper into assets. For foundations that plan to exist in perpetuity, this will mark the contraction phase of the accordion. As one foundation executive told me the other day, "We are increasing our spending to respond to the crisis and have resigned ourselves to being a smaller foundation thereafter for years to come."

My second hope is that philanthropy will take a hard look at its own business models. While there is a lot of talk about the inevitability of many nonprofits having to close their doors, downsize, right-size, or merge, little has been said in this regard about foundations. As endowed institutions, foundations do not compete in the marketplace the same way as nonprofits do, and they tend to be more isolated from such pressures. Foundations with living donors can be as fiercely independent as the highly successful entrepreneurs that created them, but a crisis like this one can challenge even the most deeply held assumptions. Foundations that have never made program-related investments are considering staff-sharing arrangements with those that have the expertise. There is the occasional rumor of a merger. Some foundations may even begin to shift to a spend-down model, or, if they are limited-life foundations, may decide to spend down more quickly with the help of the financial markets. These trends would be offset at least partially by the creation of new foundations.

Third, with business against the ropes and big government back in Washington, if not the world, there is an opportunity for philanthropy to forge intelligent partnerships to make real progress on some of the deepest challenges we face. The "intelligent" part will come from philanthropy engaging in a way that makes maximum use of its comparative advantage as an independent source of flexible, risk-taking, and long-term social investment. Although $45.6 billion (the Foundation Center's preliminary estimate of giving by American foundations in 2008) may pale in comparison to the massive amounts being poured into bailouts and stimulus packages, its flexibility makes it golden.

My biggest hope is that philanthropy will see this as a once-in-a-lifetime opportunity to re-invent itself. As tempting as it is to blame someone else for the mess in which we find ourselves, we all share responsibility. As the president of Atlantic Philanthropies, Gara LaMarche, remarked in an October 2008 speech, "We have largely failed to articulate a broad and inclusive social vision that works toward the world as we would like it to be, not simply in the wretched state in which we find it. We have often lost the gifts of collaboration and common purpose with others who share our greater values." Like one who recovers from a life-threatening illness -- and we will recover -- our challenge will be to hold on to the perspective this crisis has given us about what is truly important in life and our work.

We have been presented with the challenge of a generation, if not a century, and we have the immense privilege to work in a field where our job is to leave the world a far better place than we found it. Are we the ones we've been waiting for? I certainly hope so.

-- Bradford Smith

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Posted by Michael Seltzer  |   March 28, 2009 at 01:06 PM

Dear Brad:

Many thanks for sharing with us your comments to a foundation's trustees.

Your remarks are incisive, thoughtful and right on! This is neither a time for foundations to do business as usual or to fall into the trap of focusing primarily
on their own admittedly strained internal operations.

The American people and the Obama administration have a pronounced appetite for social change and bold ideas. President Obama also is the first president in our lifetime whose adult years were spent in a major urban area, which is also where the majority of U.S. foundations are located. Organized philanthropy is well-positioned to provide needed information, resources, and intelligence to officials at every level of government. This is a ripe time for a new generation of partnerships and advocacy to help the nation fulfill its social contract with its people.

Michael Seltzer

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Quote of the Week

  • "[L]et me assert my firm belief that the only thing we have to fear is...fear itself — nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance...."

    — Franklin D. Roosevelt, 32nd president of the United States

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