It was the shot heard ‘round the philanthropy world.
In June 2006, Warren E. Buffett, the world’s second-richest man, took the unprecedented step of donating most of his fortune not to a new eponymous entity, but to the gargantuan Bill & Melinda Gates Foundation. The gift’s sheer size—at least $30 billion—and the concentration of power it creates shook a philanthropic world already rumbling, sometimes uneasily, with change.
In the past few years, the Gates Foundation, just a decade old but flush with some $30 billion of its own assets, has taken a leadership role in grant areas like global health, poverty alleviation and education. It has also become a pacesetter in foundation governance, recently announcing, for example, that it would spend its money and go out of business within 50 years of the death of its last trustee, rather than become a permanent institution, and that it would separate its investment management from its grantmaking to avoid conflicts.
Meantime, wealthy young entrepreneurs like eBay founder Pierre Omidyar, impatient with traditional foundations that address social problems with research and trial-and-error experimentation, have instead launched “for-profit” philanthropic ventures intent on seeking fast solutions and measurable results. Google’s founders have started Google.org, a hybrid combining a traditional foundation with a for-profit arm to broaden its range of social-change tools. And world-renowned figures like former President Bill Clinton and songmeister Bono have created a celebrity philanthropic model: pick a problem, propose a solution, publicize both, work connections, raise money, and channel it to the cause. Repeat, if necessary, or move on to a new problem.
All the activity and the ensuing media attention are drawing even more dollars, including numerous $100-million-plus mega-gifts, to philanthropic causes and new foundations. At last count, in 2004, the Foundation Center pegged the number of reporting foundations at 68,000 and their assets at $510 billion—double the number of a decade ago, with more than double the assets—and still growing fast. The Buffett gift, experts predicted, would likely attract more donations and more scrutiny. It already has.
Small wonder, then, that the foundation world has entered an era of soul-searching and adaptation. “It’s a time of creativity,” says Adam J. Abramson, director of the Aspen Institute’s philanthropy programs. “There are lots of new models and it’s useful to have this innovation. It shakes things up and it makes people think about what they’re doing.”
As Sara L. Engelhardt, the president of the Foundation Center, sees it, “the field is growing more diverse, more entrepreneurial, more collaborative and more global.”
And James Allen Smith, a historian who holds the Waldemar A. Nielsen Chair in Philanthropy at Georgetown University, believes foundations are now bound to take a larger role in society. “The Gates Foundation and the Buffett donation,” he says, “raise our sights and alter the level of our ambition.”
Twice in the past, Smith points out, similar increases in scale transformed the aspirations of philanthropy.
Before the 1910s, charity—as philanthropy was most commonly called then—focused on aiding needy people, often on a local basis. Then Andrew Carnegie and John D. Rockefeller changed the game, each creating foundations with more than $100 million in assets (more than $2 billion in today’s dollars). With those resources, they were able to spend large amounts on lofty educational efforts, including Carnegie’s famed libraries and Rockefeller’s schools of public health, on combating diseases like yellow fever and hookworm, on scientific research, and on other broad social goals. Both philanthropists, for example, were supporters of Booker T. Washington and Tuskeegee Institute in Alabama at a time when educating black Americans was not a national priority.
Then, in the 1950s, the Ford Foundation became the first billion-dollar foundation, upping the ante. After establishing a study commission to chart its future, Ford elected to pursue efforts to promote world peace, freedom and democracy, as well as to push for change in science, education and the arts.
Now, given their growth in number and financial firepower, many experts say that foundations again seem poised to take on more and larger social problems and, this time, on a truly global basis. Those trends dovetail at the Gates Foundation, which, like its predecessors, Carnegie Corporation of New York, and the Rockefeller and Ford foundations, among others, is seeking to lead the way. With foundation assets that are triple those of the next largest, the Lilly Endowment and the Ford Foundation, Bill and Melinda Gates decided to focus on the vast task of reducing inequities among people around the world.
In a November 2006 speech, Bill Gates described how, once the overarching goal was set, he and his wife began choosing program areas, which so far number three: “We look for strategic entry points—where the inequality is the greatest, has the worst consequences, and offers the best chance for improvement. Internationally, we believe our greatest opportunity is in reducing extreme poverty and fighting disease. Here in America, we believe we can do the most to promote equity by improving education.”
To date, the Gates Foundation has made grants worth $13 billion to recipients in more than 100 countries around the world; in 2005, about 70 percent of its grants went to global efforts.
The Gates Foundation’s enormous resources have enabled it to take on immense causes like the reduction of malaria, which is believed to infect 300 million to 500 million people annually and to cause one million to three million deaths each year, largely among African children. Through December 2006, the Gates Foundation had committed $765.8 million directly to the fight against malaria; it had also committed another $650 million to a global fund against AIDS, tuberculosis and malaria, some of which supports national malaria control programs.
All told, the Gates Foundation “Global Health Program” has granted nearly $8 billion to the reduction of various diseases, health technology, research and similar issues.
The foundation’s “Global De-vel-op-ment Program” was launched more recently, officially in April 2006. Aiming to help the poor in the developing world avoid hunger and create a sustainable living, it has committed just over $630 million, mostly for public access to computers in libraries and other special initiatives. Going forward, it will disburse about 25 percent of the foundation’s annual grant money. There will be money for efforts to improve agricultural production, to help small farmers get their products to market, and to provide access to loans and other financial services that will help poor people build assets and weather financial setbacks.
With the additional funds from Buffett, who said he chose the Gates Foundation because he believed in the wisdom of its programs and administration, spending will rise. By 2009, the Gates Foundation plans to give grants worth about $3.5 billion a year, up from about $1.75 billion last year in 2006.
At the 2009 level, annual grants from Gates would outstrip the total assets of all but a dozen or so American foundations; they’ll also place the Gates Foundation squarely in the ranks of governments and nongovernmental organizations that deal with the same issues.
The Foundation Community Reacts
The wealth of the Gates Foundation has created something of an inferiority complex among some long-standing pillars of the foundation community. They seem to be worried that Gates will become the foundation world’s sole superpower, setting the spending agenda in areas of focus for many foundations—specifically health and education. How can grantmakers with fewer resources possibly make their own mark?
But numerous experts say such concerns are overblown. “It makes people think, ‘what can I do with the relatively smaller amount of money that I have,’ but there are so many problems in the world that need to be addressed,” says Adam Abramson, of the Aspen Institute, “that philanthropy can almost always have a positive effect.”
Likewise, Steve Gunderson, the president and chief executive of the Council on Foundations, says other foundations “ought to ignore Gates. It will make a significant impact on philanthropy, but it should not dictate the focus or structure of other foundations. We must celebrate the diversity of philanthropy.”
Several experts have pointed out that last year’s grants by the Gates Foundation—$1.75 billion—amount to just over 5 percent of all grantmaking by American foundations. After 2009, the number could grow to nearly 10 percent—unprecedented, yes; monopoly, no. In terms of all U.S. charitable giving, the Gates share is less than 1 percent of total U.S. charitable giving, which the most recent figures put at approximately $260 billion.
Martin Morse Wooster, a senior fellow at the Capital Research Center and author of Great Philanthropic Mistakes is bemused by the idea that some foundations might change course because the Gates Foundation or other donors with big wallets have taken on a particular cause. “It’s not a contest,” he says. “It’s about what you are doing to make your community better. Small foundations can do a relatively great amount of good with small budgets.”
At a discussion about philanthropy post-Buffett held in June 2006 by the Hudson Institute’s Bradley Center for Philanthropy and Civic Renewal (which published Great Philanthropic Mistakes in May 2006), Adam Meyerson, president of The Philanthropy Roundtable, also dismissed concerns that the munificence of the Gates Foundation might have a chilling effect on other foundations. He pointed out that they are already intimately familiar with another funding Goliath. “Every foundation lives in the shadow of the federal government,” Meyerson said.
The National Institutes of Health has a budget of close to $30 billion a year, for example. “That doesn’t mean you can’t be an effective foundation in biomedical research,” Meyerson said. “Many foundations are. But they have to determine, ‘what is our comparative advantage in the face of this enormous spending from the government?’ And one reason, by the way, that the Gates Foundation chose malaria and has been quite effective in raising awareness about [the disease] was that it was an area where there wasn’t much spending.”
At the same discussion, Elizabeth Boris, the founding director of the Center on Nonprofits and Philanthropy at the Urban Institute, offered another telling comparison. Citing research by the Hudson Institute, she said that foundation giving for international development issues amounts to about $3.4 billion a year versus about $20 billion by the U.S. government.
Such statistics should put paid to another worry that has been bandied about post-Buffett: that the government will shirk its spending duties in some areas because of foundations’ largesse. “Few people understand the proportion of foundation giving in relation to government spending, and you have to add in the budgets of other countries, too,” says James Allen Smith of Georgetown. “Once you tally it all up, philanthropy is small.”
That doesn’t mean governments won’t be tempted to shirk. According to Rick Cohen, former executive director of the National Committee for Responsive Philanthropy, the fine print of the Bush Administration’s fiscal 2007 budget proposals shows that “the proposed cuts in the small-schools program were basically explained away by saying that the government expenditure from the Department of Education would simply duplicate what the Gates Foundation and Carnegie Corporation are already doing.”
But such examples are few. And popular pressure, exerted on Congress or through the media, can reverse proposed budget cuts. Steve Gunderson of the Council on Foundations, a former Republican Congressman from Wisconsin, believes that foundations must weigh in when necessary. “I think I can make a contribution here,” he says. “I had an ‘R’ behind my name all those years I served in Congress. When I am communicating with our sector, I am a strong advocate for advocacy, for education about public needs. That’s not politics; we have a duty to articulate public needs. We will be engaged in articulating the need for government spending.”
The Gates Foundation, which causes the biggest worries about obviating government spending, is being very careful to mitigate those risks, notes Adam Abramson of the Aspen Institute. “They’re trying to figure out how to leverage their grants, going to great lengths to ensure that governments don’t leave a field because of their money.” He adds, “They want to spend money to unleash government money.” In some areas, like combating AIDS and malaria, that has indeed happened.
A Golden Age?
Big gifts, from Gates or anyone, have in fact been known to have an exponentially positive effect on the private and foundation sectors, too, encouraging additional donations for a cause. Take poverty. The Gates Foundation formalized its Global Development program a year ago, and plans to devote about $875 million annually to the effort. Still, in late November, David Rockefeller said he would make a $225 million bequest to the Rockefeller Brothers Fund (RBF) to create the David Rockefeller Global Development Fund. It was the largest gift in the fund’s history, and it will be put toward the RBF programs that address poverty, health care, sustainable development and management of the global economy, among other areas.
Indeed, it helps to recall that what some people have suggested is a golden age of American philanthropy began in 1996, when Ted Turner, an active philanthropist, chastised his fellow moguls for their stinginess and suggested that more would give if someone published an annual list of big donors. Turner’s remarks prompted Slate magazine to do just that, and helped spark more media coverage of philanthropy in general. In 1997, acting on a challenge from Vartan Gregorian, president of Carnegie Corporation of New York, Turner pledged $1 billion to support UN programs. Perhaps as a result of all this, giving has become a contest for some. Peter B. Lewis, a Cleveland philanthropist who is chairman of the Progressive Corporation, an automobile insurance company, is one person who acknowledged it as such in January 2006, when he promised $101 million to Princeton University; he said he chose that figure to surpass the previous record donation to the university, which was $100 million.
So what is there for foundations to worry about? This is a good time for them. The fact that there is more money in the philanthropic sector creates an opportunity for foundations large and small to examine their goals and strategies, several experts have suggested. It’s an occasion for them to define their comparative advantage vis-à-vis both government and big spenders like the Gates Foundation.
Forecasters predict several likely outcomes from this self-examination, but few expect dramatic changes. “Foundations have always made their impact doing four things,” says Kathleen D. McCarthy, director of the Center on Philanthropy and Civil Society at the Graduate Center of City University of New York: “Building institutions, forging partnerships to leverage their grants, training new managerial elites in new fields, and investing in new ideas. That’s what they will continue to do.”
But they may become more strategic. “That is happening, period, regardless of Gates,” says Gunderson, adding, “Foundations are becoming much more focused in grantmaking, in expertise, and that’s a healthy thing.”
As a result, foundations may decide to write fewer, bigger checks to pay for longer-term projects. That, some experts believe, is a good thing: it leads to more efficient grantmaking as recipients need spend less time writing grant applications and reapplying for funds. “Transactions costs” are therefore lower. Larger grants may also allow foundations to develop a closer relationship with the organizations they support, leading to more understanding of their true program needs and closer monitoring of how their money is used.
The positives aside, a word of caution is in order here: no grant recipient will turn down a large project grant, yet some lack the staff and capacity to deal with them. Virtually every large project commitment stretches an organization in some way, often adding to overhead expenses. Over the years, many funders have been reluctant to cover those costs. But that may be changing. “The sector is beginning to recognize that operational support is a key component of effectiveness,” Gunderson says. “I think that discussion is starting, and it will improve the entire sector.”
Tackling larger issues is also likely to lead to more grantmaking partnerships with governments and among foundations. As Vartan Gregorian has pointed out: “In the past, it may not have been normal for foundations to collaborate because institutional pride was at stake. But nowadays, I believe most foundations understand that what is done to improve the lives of human beings is much more important than who is responsible. And that makes forming philanthropic networks to carry out strategic grantmaking much easier.”
Examples of such cooperative efforts abound. In December 2006, the Gates Foundation and the William and Flora Hewlett Foundations agreed to collaborate on a $60 million series of grants to improve the quality of primary and secondary schools in the developing world. The Partnership for Higher Education in Africa is a $350 million effort by six foundations—Carnegie Corporation, the Rockefeller, Ford, John D. and Catherine T. MacArthur, Hewlett and Andrew W. Mellon foundations—to strengthen universities in a number of African nations. The Corporation also partners with the James S. and John L. Knight Foundation in an effort to improve journalism education at some of the nation’s great research universities and with the Annenberg, Ford, Nellie Mae Education and Ford foundations on an initiative to improve teacher education.
“Where Market Forces Have No Force”
In an era when agenda-setting foundations like Gates focus on humanitarian problems, many arts and culture organizations have raised fears of a coming drought in their funding. Some statistics do show donations to the arts dropping in the post-tsunami, post-Katrina, global-warming world and numerous arts administrators have expressed concern that their museum, opera or theater will be dropped in favor of organizations that produce tangible results demonstrably contributing to the public good. How can performances of Beethoven symphonies, uplifting as they are, compete with programs to feed the hungry of Africa?
James Allen Smith of Georgetown says he sees the subject with a 30- to 40-year perspective. In the early 1950s and 1960s, the arts were getting a much smaller share of total funding, perhaps as low as 2 percent. That proportion grew dramatically over the years, at times into the double digits. But part of the gain came from extensive capital campaigns that are now over. Lately, “the arts fears that as the pie has grown, its share has changed,” Smith says. “But they’re not hurting.” Besides, he adds, it’s not just the large foundations that are on the playing field in terms of funding for the arts. In reality, says Smith, “You have to look down a few levels to small foundations to find people who understand the needs of artists.” Smaller foundations are also more responsive to regional or local needs and to smaller institutions. Council on Foundations head Steve Gunderson agrees that the arts are not in as much trouble in terms of funding as some may think. He points out that many of today’s philanthropists who were born in the baby-boom era are positively predisposed to arts and cultural efforts and are probably going to keep them in mind when it comes to giving.
Arts organizations have, however, raised a real issue that applies more generally across the philanthropic spectrum: the imperative of producing measurable results. Foundation executives, grant recipients and experts all fear that the focus on results will stymie innovative thinking and experimentation.
“I worry that performance measures may mean shorter time horizons and make nonprofits behave more like business entities and lose some of their nonprofit values,” Smith says. “For example, hospitals not providing care for charity cases, performing arts centers that are changing programs to lure audiences, grants made to people who are certain of success. It’s a blurring of an ethos that undermines the motives rooted in charity and philanthropy. ”
Such caution in grantmaking could have long-term repercussions. “I understand the pressure on foundations to be relevant and to produce measurable results,” says Richard Haass, the president of the Council on Foreign Relations, which depends on foundation grants. “But this pressure should not be a disincentive for investing in the development of human capital. Foundations, to put this positively, should invest in people and ideas. When you give money, you never know if you’ll get intellectual capital from it.”
Haass says he has not yet witnessed a great flow of funds away from investing in ideas, but that he has noticed that some foundations are starting to act like nongovernmental organizations, getting into the business of delivering health care, for example. And in terms of funding for the idea-generating mission of think tanks, Haass notes that support for policy-related work has been shrinking or has become extremely focused. “The agenda is set, and you decide if you want to work on it,” he says. “There’s been a decline in funding for general work.”
Martin Morse Wooster of the Capital Research Center also encourages foundations to take more risk, not less, particularly with people. “A lot of existing foundations give lots of money to well-established people in their declining years who are good at getting grants,” he notes. “They should be giving money to talented people they spot. A lot of the great grantmakers were very good at being talent spotters, and that’s something that foundations are sorely lacking in.”
Far from being the culprit on this score, the Gates Foundation has adopted the traditional line that foundations have the luxury of experimentation that might fail. In another 2006 speech, Bill Gates said: “Through our foundation, Melinda and I are trying to step in where market forces have no force—to point research dollars and technological innovation toward challenges that are truly life-and-death for some of the world’s poorest people. That often means taking the risks that businesses can’t afford, and governments can’t justify.”
Gunderson, for one, says the Gates Foundation has lived up to those words. It’s others in the new generation of business-oriented philanthropists who are trying to harness the market to provide solutions to social problems.
The Omidyar Network, for example, describes itself as a “mission-based investment group committed to fostering individual self-empowerment on a global scale.”
A look at its “portfolio” of grantees shows ventures like Backfence, which produces very local web sites for the posting of neighborhood news; CellBazaar, which allows people to buy and sell goods over their cell phones; GlobalGiving, an Internet site that connects individual and institutional donors directly to social and economic development projects around the world; and Witness, which helps “local human rights defenders…use video to transform personal stories of abuse into powerful tools of justice.”
Similarly, the Skoll Foundation, founded in 1999 by Jeff Skoll, the first president of eBay, describes its mission as fomenting social change to benefit the world “by investing in, connecting and celebrating social entrepreneurs….proven leaders whose approaches and solutions to social problems are helping to better the lives and circumstances of countless underserved or disadvantaged individuals.”
Google, meanwhile, appears to be just getting started on philanthropy. One early effort, a small “grants” program, offered free advertising it says was worth $33 million to 850 nonprofit organizations, including the Grameen Foundation USA, Doctors Without Borders, Room to Read and the Make-a-Wish Foundation.
Google has announced that it will henceforth focus its efforts on poverty, energy and the environment. In February 2006, the company named Dr. Larry Brilliant, a founder of the Seva Foundation, a Policy Advisory Council member at the University of California, Berkeley School of Public Health, and a member of the Strategic Advisory Group of Kleiner-Perkin’s Pandemic and Bio-Defense Fund, as executive director of Google.org.
But Google’s philanthropic efforts remain small according to its web site and its 2005 Form 990 to the Internal Revenue Service. Among them: $5 million to Acumen Fund, a nonprofit venture fund that invests in market-based solutions to global poverty; $250,000 to TechnoServ, which has launched an entrepreneurship development program in Ghana; and $200,000 to PlanetRead, an organization that tries to improve literacy in India by adding subtitles to Bollywood films and other videos. The foundation’s total assets are $85 million.
Some of these moves have prompted traditional foundation-watchers to scratch their heads. Questions about them were generally met with a chorus of “it’s too early to tell.”
“Let’s see in three years,” Wooster says. “What I applaud Omidyar and Google for doing is trying to think up new ways to do philanthropy.” Gunderson agrees, saying, “It’s too new. Its big attraction is that it’s attracting more money. There are people who will be drawn to that form of giving. They would not otherwise participate in this sector.”
Abramson, too, is circumspect: “It’s a movement with some upsides, but some downside as well,” he says. “One may worry, for example, about whether nonprofits that don’t have commercial potential may be overlooked by philanthropy that is moving toward a more commercial orientation.”
Still, Abramson notes, these new philanthropic efforts probably came about, in part, because government wasn’t picking up the ideas foundations had incubated, so the new generation of funders turned to getting the marketplace interested. That, he says, “may unleash a whole new set of resources for addressing social problems.”
Oversight and Governance
The new and emerging forms of philanthropy, together with the high profile of the post-Buffett Gates Foundation, are widely expected to increase the push for accountability in the foundation sector. So will the influx of new money to philanthropy that demographers are expecting as baby-boomers age. Foundations, therefore, may find themselves facing increased regulation, or, at the least, more oversight.
In the wake of the November 2006 elections, Senator Charles Grassley, the Iowa Republican who has held hearings on what he called abuses in the nonprofit world, no longer heads the Finance Committee. But Kathleen McCarthy, of the Graduate Center, CUNY, warns: “The Grassley hearings will not be the last to look at the role of foundations in American life.” She believes that some proposals, like an increase in the mandated payout rate and perhaps a sunset provision that requires foundations to go out of business in, say, 25 years, will return to the legislative agenda.
With the Gates Foundation as an example, following the John M. Olin Foundation, which shuttered its doors in 2005, and the Atlantic Philanthropies, which intends to go out of business in 2016, other foundations may also choose to spend their funds and close down voluntarily. There is ample precedent for making such a choice. Linkages, the newsletter of the Rockefeller Philanthropy Advisors, notes that, “Julius Rosenwald created a foundation with the wealth he earned as founder of Sears, Roebuck & Company, and stipulated that all the funds be spent by 25 years after his death; the Foundation closed in 1948, having spent $63 million. The Aaron Diamond Foundation, The Stern Fund and Field Foundation more recently did the same,” as did the Vincent Astor Foundation.
Elizabeth Boris of the Urban Institute has said that other governance issues may also be debated on Capitol Hill, like a minimum number of board members. But Steve Gunderson does not foresee a confrontation with Congress. “Congress’s likely focus is in the area of governance: transparency, conflict of interest, and maybe compensation, though I hope not,” he says. “We need to deal with the obvious abuses.” Beyond that, he thinks Congress will avoid attempting to make qualitative judgments about how foundations spend their money, which would be resisted. Private foundations and private donors have generally been left to set their own course, so long as they met minimal payout requirements each year, and that is likely to continue, he believes.
Foundation executives themselves seem to be worried about their records, however. Late last year, an admittedly unscientific Internet poll taken by the Philanthropy News Digest asked respondents to choose the philanthropic sector’s biggest challenge in 2007. By January 2, 2007, 190 people had voted and the overwhelming response was “demonstrating effectiveness,” with 58 percent; 18 percent focused on “leadership vacancies,” showing similar concern about the future. Yet thanks to the Internet, foundations are providing more information about themselves than ever before—through their own web sites and through entities such as Guidestar (www.guidestar.org), a web site founded in 1994 to improve the dissemination of information about charities and philanthropies.
By many measures, the foundation sector’s future looks bright. Buffett’s gift is likely to inspire more people to give, and some may well follow his example and give to an existing foundation. This, too, has precedent. Since 2001, acting on behalf of an anonymous donor, Carnegie Corporation has been able to grant a total of $85 million to small- and medium-sized, New York City-based arts, cultural and social service organizations because of the generosity of an anonymous donor who has chosen the Corporation to make the grants on the donor’s behalf.
Some experts, including James Allen Smith of Georgetown, hope that foundations will accept gifts from others, precisely because good grantmaking is harder than it looks. There might even be competition among foundations for money. Others note that Buffett did not choose a “staff-dominated” foundation that had any chance of departing from the political and philosophical principles of its founders—also good, in the view of some. “Buffett looked at Gates, thought about how he was using his money, and trusted Bill Gates, who is 25 years younger than him, and is using the money in his lifetime,” notes Martin Morse Wooster. “Donors,” he adds, “want to have more control over how their money is spent.”
Nearly everyone agrees that most foundations will continue in their traditional role of experimenting, trying out new ideas, taking risks that other institutions, held more accountable to various constituencies, cannot. That’s because problems themselves are not going away; in fact, some are more complicated than ever.
New York Mayor Michael Bloom-berg, who says he’ll devote himself to spending his own multi-billion-dollar fortune philanthropically after he leaves office in 2009, acknowledged as much in December 2006. Announcing that the city would spend $150 million annually to combat entrenched poverty, he said $25 million of it would be raised privately from donors. “When you do things with public money, you really are required to do things that have some proven track record and to focus on more conventional approaches,” he told The New York Times. “But conventional approaches, as we know, have kept us in this vicious cycle of too many people not being able to work themselves out of poverty even though they’re doing everything that we’ve asked them to do.”
In other words, today’s problems require more creativity, not less. That leaves foundations with an even bigger role to play in the years ahead.