Why Philanthropy Matters

Foundations are stewards of resources that would otherwise be added to federal and state treasuries. So given that these assets are managed privately instead of paid into the U.S. Treasury, foundation dollars are, by this definition at least, public money, money otherwise taxed and used for public benefit. For this reason alone, the public should know more about how foundations are managed.

But it is not the size of endowments they manage that make foundations an interesting sector to study. Collectively, foundation endowments add up to large sums, but they represent only a small fraction of the total federal budget, so the dollar value of the sector, while significant and growing, is in fact relative. Most foundation clients—nonprofit organizations—seldom rely on foundations for more than fifteen percent of their annual budgets.

Yet foundations have significant influence beyond the dollar values of their endowments or their grants because foundations are a bellwether for both the nonprofit sector and for society at large. A foundation grant is an imprimatur, a “Good Housekeeping seal of approval” that can help a nonprofit organization—new or established—attract a wider donor base. Effective foundation support—or the lack of it—can make or break nonprofits and the well-being of many constituents they serve.

Increasingly, foundations have important roles to play in public policy by funding research and policy analyses as well as working in collaboration with other sectors to implement effective policy. By some assessments, the success of conservative public policy at federal, state, and local levels in the last several decades is largely attributable to the strategic philanthropy of a small group of conservative foundations. In a series of reports, the National Committee for Responsive Philanthropy documents the effective philanthropic strategies that conservative foundations have used to support activities of public policy-oriented right-wing think tanks at the federal, state, and local levels. Service on nonprofit boards, especially “culture” boards like museums and the performing arts or boards for the “right” diseases that have garnered high-status profiles, provides essential expertise, generous donations of both time and money, and considerable community benefit.

But another dimension of this generous charitable service is status: board service on the “right” boards is de rigueur for both women and men who are upwardly mobile (or have arrived) in high-status social and business communities and networks, and many elite trustees also serve on private, family, and community foundation boards. While these wider cultural and public policy dimensions of the philanthropic sector are beyond the scope of this book, it is important to name them because they demonstrate the multifaceted—and often unacknowledged—weight and influence both charitable giving and foundations hold in our social, political, and economic sectors.

By virtue of their “power of the purse” and more subtle forms of influence, foundations are key players in U.S. social, economic, and public policy sectors. This is the main reason we have written this book. When foundations function effectively, there is potential for tremendous public benefit. When these institutions, which influence the public good both directly and indirectly, do their work effectively, the impact on the public good is enormous.

But many foundations are elite institutions, classic examples of organizations with little actual public accountability beyond the narrow constraints of federal and state tax laws. In many instances, foundations have self-perpetuating boards, and they “market” to clients –nonprofit organizations—who, for all intents and purposes, are captive customers. While many foundations, especially larger, professionally staffed foundations, work responsibly, collegially, and for “the common good,” many more—an estimated five out of six U.S. foundations4—are unstaffed and, for want of a better word, idiosyncratic because they are influenced by family members on their boards or financial advisors who may or may not have the interests of “the common good” as part of their portfolio.

All of which is why foundations make such an interesting subject for a book about organizational success. Much of what we write about in this book can be equally applied to the corporate sector, to government, and to higher education. The case studies and other examples of effective philanthropy cited throughout this book are models for the kinds of effectiveness that need to take root and grow in all kinds of organizations—large and small, private and public, national and regional, bureaucratic and entrepreneurial. Given their inherently elite status with so few outside pressures to change, foundations are the least likely sector to model cutting-edge organizational effectiveness initiatives. As one of our seasoned CEO respondents observed, “Trying to move the philanthropic sector is like trying to herd cats.”

So if foundations can learn to be effective in the ways we describe throughout this book, so too can colleges and universities. So too can multinational corporations and government agencies. So too can both large and small nonprofits. And while we focus throughout the book on philanthropy itself and provide examples specific to foundations’ primary work—giving away money—many of our analyses, case studies, and benchmarks can work for any organizations that aspire to be effective.