How New Thinking Is Shaking Up Old Money
WHY YOU SHOULD CARE
If they meet their lofty goals, we all win.
Back in the good old days, America’s robber barons — or captains of industry, if you prefer — left their millions to private foundations that did, well, anything they wanted, the 600-pound gorillas of giving. Steel magnate Andrew Carnegie in 1911 empowered his foundation to focus on education and strive for “real and permanent good.” A few years later, oil baron John D. Rockefeller started by giving money to the Red Cross, then began supporting the sciences, public health and medical education. The Ford Foundation, which got going in 1936, decided to advance human welfare. All colossal, but less than definitive, charitable concepts.
Fast-forward to 2015, and change fever is hitting old money. Call it Gates Foundation envy. The Bill and Melinda Gates Foundation set big but focused public-health goals, such as developing vaccines for HIV or malaria, and designed programs to achieve them. That approach has infected much of the philanthropic sector. After years of listening to critics, some of the oldest and biggest U.S. philanthropic organizations are paring programs, narrowing their focus and changing the way they give away money. “These are big-deal reorganizations,” says Aaron Dorfman, executive director of the National Committee for Responsive Philanthropy, a nonprofit that tries to increase the effectiveness of giving.
Among the moves: The Ford Foundation has decided to pour everything toward one goal, combating inequality — all of it, everywhere. The John D. and Catherine T. MacArthur Foundation, famed for its annual “genius” grants, is cutting long-standing programs in areas like housing and juvenile justice to make two big bets: reforming criminal justice in the U.S. and halting climate change worldwide. (Don’t worry, geniuses — that program is safe for now.) “They’re moving from many different moving parts to fewer,” says Paul Brest, former head of the William and Flora Hewlett Foundation.
Foundations are a key part of the vast U.S. nonprofit economy, which accounts for more than 9 percent of total employment. Collectively, foundations hold assets of more than $750 billion and give away more than $50 billion a year. They can have a big influence on setting the agenda for social change. Ford, for example, is credited with leading the way on civil rights in the 1960s and 1970s. Ford is the second-largest foundation in the U.S. (after the Gates Foundation), with more than $12 billion in assets; Chicago-based MacArthur, founded in 1970, is the 10th largest, holding more than $6 billion.
The changes under way reflect a steady evolution of thinking pioneered by tech-funded foundations, like Gates and Hewlett, a philosophy summed up by the phrase “outcome-oriented philanthropy.” The idea is not just to support causes, but to set achievement goals and think strategically about how to accomplish them. “The foundations are trying to establish a causal link between their work and the real world,” says Peter Frumkin, professor and philanthropy expert at the University of Pennsylvania.
Foundations that set goals that are fuzzy and hard to measure may still demand minutely quantifiable results from grantees. Darren Walker, appointed president at Ford a few years ago, recently launched a broadside against such practices, including at his own foundation, saying the obsession with results that could be counted “miniaturized” the ambitions of grantees. “We want to micromanage. Often, we seem not to trust the very organizations we support,” he wrote.
Walker is steering Ford toward one big cause — inequality — but also away from such micromanaging. In pursuit of its new goal, it plans to give money not just to support a particular program, but to support an entire organization and let it run its own affairs. Giving unrestricted money “helps them to have a bigger impact,” says Dorfman, even if the risk of big-time failure also rises.
At MacArthur, some grant recipients may see their funding shut off as the foundation changes gears, though Brest says it plans to wean those charities off the dole gradually. Traditionally focused on long-term social change, MacArthur became frustrated at the pace of progress. Newly appointed president Julia Stasch explained in MacArthur’s recent annual report that it will instead place big, multimillion-dollar bets in fewer areas, aiming for decisive, quick impacts and then moving on.
Will concentrated giving achieve bigger impacts? It’s a reasonable idea, says Frumpkin, “but not proven.” With the traditional practice of “spray and pray” — giving away a large number of smaller grants — verifying the ultimate impact was just harder, he says. Mark Sidel, a professor and philanthropy expert at the University of Wisconsin Law School, cautions against underestimating the traditional strengths of charitable institutions and wonders if the reorganizations will actually achieve much. Foundations remain highly diverse, often reflecting the vision of their founders. The new approaches would mean little at the Getty Foundation, for instance, which concentrates support on visual arts, or a foundation supporting medical research.
To some degree, the shortcomings of foundations — unaccountability and difficulty of measuring results — are baked into the system. Still, Brest argues those concerns should be seen in the context of relentless pressures on government and the private sector to focus on the short term. “Foundations play a role taking risks that government and private corporations won’t,” he says.