Directly across from the standing desk I use is a bookcase. When peering over my monitor, I’m drawn to the top shelf where, kept at eye level, is a stack of books I have read. They sit there as reminders of concepts I want to have right in my face as I work in philanthropy.
Until a couple weeks ago, that stack numbered five titles. It has recently grown a little bit higher.
In Just Giving: Why Philanthropy Is Failing Democracy and How It Can Do Better, author Rob Reich, who codirects Stanford University’s Center on Philanthropy and Civil Society, develops a political theory of philanthropy that challenges the legitimacy of private foundations.
Liberty vs. equality
Reich calls us to closely examine how private foundations operate within a democratic society that balances the competing goals of liberty and equality. Private foundations provide founders, trustees, and staff the freedom to support a broad array of grantmaking goals employing a wide set of approaches, exemplifying the application of liberty. That freedom and its resulting power, however, are concentrated in the hands of a small number of people, which, by definition, obstructs equality. Reich notes that the perpetuity of most foundations continues this obstruction for generations.
Our democratic state has provided structural privileges to foundations that further advance liberty at the expense of equality. The donations used to form private foundations, as well as the income they generate annually, are exempt from taxation. This means resources that otherwise would fall under public control are available for use by a small set of private foundation managers. Reich comments that this and other tax programs result in the state subsidizing the charitable gifts of individuals who are already free to make them.
Reich finds the subsidization of liberty at the expense of equality to be legitimate under a few limited circumstances. Foundations, which typically employ only 5% of their resources annually for philanthropic purposes, may serve as important means for society to transfer their remaining wealth to future generations to address needs that continue into or emerge in the future. Additionally, because private foundations—unlike governments or for-profit entities—have little accountability for their actions, they can take on longer-term, substantive “discovery” projects that test new solutions to major societal challenges. Such projects are important to society but avoided by actors who must be responsive to current-day stakeholders.
Reich’s argument would appear to strike at the heart of the membership of Exponent Philanthropy. Can a foundation with a small staff—let alone no staff at all—properly accomplish a bold mission of “discovery”? If not, is its legitimacy derived from the inaction that conserves its resources for future generations?
On my bookshelf, Reich’s tome is now nestled between two other volumes. It sits beneath Give Smart by Thomas J. Tierney and Joel L. Fleishman and on top of the Jim Collins classic Good to Great. Lessons from those two books provide some validation of Reich’s concerns as well as keys to overcoming them.
Discipline vs. underperformance
Tierney and Fleishman coined the most insightful phrase I’ve come across since I began work in philanthropy following a decade at a Fortune 100 company. They note that “grant makers quite naturally fall into the trap of satisfactory underperformance: accepting things as they are without pushing toward what might be possible.”
The many liberties afforded private foundations—in choosing their own strategies and relieving them from accountability for their outcomes—result in a structural model that is not conducive to making great discoveries. The foundation model has a tilt toward mediocrity, and Reich is wise to be skeptical.
I’m confident that most foundations make good grants to good organizations. Collins, whose phrase “good is the enemy of great” echoes Tierney and Fleishman’s “satisfactory underperformance,” outlines the formula by which we, when we are so compelled, advance beyond the mediocrity of low expectations to the greatness for which we should strive. Simply stated, “when you combine a culture of discipline with an ethic of entrepreneurship, you get the magical alchemy of great performance.”
Disciplined people, disciplined thought, disciplined action. Much of Exponent Philanthropy’s offerings to members help to build such internal discipline.
Articulating a social compact
Internal discipline is necessary but not sufficient to ensure that private foundation performance justifies its privileged status in our democratic state. Foundations must also articulate and adhere to their own social compact with society that more clearly defines their obligations to it.
Melissa Berman, Jason Franklin, and Dara Major, in Frameworks for Private Foundations, state a foundation’s social compact “defines its license to operate, the value it creates, and the relationship it has with its stakeholders. It encompasses a foundation’s external accountabilities, relationship to society, and conception of what it considers appropriate to do beyond the minimum required by legal and regulatory frameworks.”
Berman, Franklin, and Major suggest that a foundation consider several questions to help discern its social compact. Among them, to what degree does the foundation derive its legitimacy from the action of its founding donor? From the government? From its grantees? From its beneficiaries? Additionally, what is the foundation’s approach to transparency? What information about its goals, decisions, and lessons learned should it make publicly available?
Exponent Philanthropy members, and private foundations of all shapes and sizes, operate within a liberal democratic system that provides them with significant benefits. These benefits advance the cause of liberty but, by their nature, compromise equality. The private foundation model contains structural flaws that are obstacles to reaching greatness and making that compromise worthwhile.
Reich surfaces these challenges. Let us keep them—and our solutions to them—directly in our line of sight.
Clark McCain is senior program officer at The Coleman Foundation, Inc., a private, independent grantmaker in Chicago, IL.