Can We Still Improve Philanthropy?

Friday, July 17, 2009

By Charles H. Hamilton
Senior Fellow, Philanthropy New York

Being away from the day-to-day administration of a foundation has allowed me some time to think about how philanthropy can be improved. That is a huge topic that can’t be given justice in this short piece. It is also a topic that has naturally led me to Criteria for Philanthropy at Its Best, recently published by the National Committee for Responsive Philanthropy. The five articles that Paul Brest wrote about Criteria were quite good, but most of the commentary and responses from NCRP have proven to be too partisan to be useful or interesting. The Criteria offers a lot to like and think about, but I was struck that it may be remembered for falling back on two common but misleading approaches that will not improve philanthropy: (1) quantitative measures that actually divert attention from determining effective philanthropy, and (2) seeing the source of foundation dollars as “partially public,” which is a profoundly troubling abrogation of the value and independence of philanthropy and the entire independent sector.

Criteria presents 10 benchmarks that are “the most critically important issues for foundations to consider.” I have long believed in and acted on many of these issues, others not so much. Seven benchmarks are quantitative:

  • funds benefiting lower-income communities (benchmarked as “at least 50% of [a foundation’s] grant dollars”);
  • general operating support (at least 50%);
  • multi-year grants (at least 50%);
  • funds dedicated to advocacy (at least 25%);
  • board size (at least 5 people);
  • payout (“at least 6% of [the foundation’s] assets annually in grants”);
  • and mission-related investing (“at least 25% of its assets”).

Each topic deserves a fuller, objective airing, but any of us in the field knows that there are plenty of poor and wasteful grants that would nonetheless meet the benchmarks. These percentages do not define effectiveness and foundations aren’t more effective by simply meeting these numbers.

The subtle, lasting effect, however, of such quantitative quotas may well be that they become the measures for deciding whether foundations are effective or not (in the same way that simple benchmarks for administrative expenses have misconstrued effectiveness). This will distract foundation staff and boards, policymakers, researchers, and legislators from the much more important and difficult issue of determining—and communicating—what really effective grantmaking is.

Many writers have claimed that philanthropy’s public trust rests on the idea that foundation dollars are “partially public.” Criteria uses this idea rather uncritically as an organizing principle. I believe that position contains a profoundly troubling and unintended attack on the value and self-determination of the entire independent sector. There are legal, economic, and political aspects of this idea that need a full discussion and, I would argue, there are better rationales for the serious and real public obligations philanthropy and the entire independent sector have. I can only raise a few points here.

If “generous tax subsidies provided to donors and to foundations make the government and the public partners with philanthropists in pursuit of the public good,” then this concept must apply to the entire third, nonprofit, or independent sector because of their “subsidies.” Must it not also apply to the mortgage deduction and tax breaks of any kind, which seems to make it logically absurd? Does “partially public” mean some percentage should be allocated by a government or bureaucracy? At one point, Criteria mentions “at least 45%” as the percentage that is “public.” What does that mean? Practically speaking, could states be within their rights to restrict partially the use of foundation giving depending, for instance, on whether people have voted for or against such divisive issues as gay marriage? When the Bush Administration banned federal funding of stem cell research, wouldn’t this assumption have given that Administration an excuse to ban partially private foundation funding for the same? These may seem like silly examples, but I am afraid there are those who would eagerly use similar excuses for their purposes.

Have we so quickly forgotten about the theory and practice of civil society theorists and advocates against totalitarian countries and restrictive governments that have partially defined history, especially in the last several decades! Brian O’Connell, the Founding President and President Emeritus of Independent Sector, rightly warned us years ago that “the very hint that tax exemption should depend on the political popularity of ideas under examination is a fateful step down the totalitarian road.” Consider, for instance, the comments in a recent column in the New York Times on the plight of newspapers. The author warned: “Government bailouts, including special tax status, seem likely to kill independent journalism, not save it. A free press that serves at the pleasure of its government is a diminution of the intent of the founders and not, by the way, a free press.” Similarly, there is simply no such thing as a philanthropic sector based on the concept of “partially public” dollars; there would be no “room of one’s own” for the independent sector.

Paul Ylvisaker was a complex and endlessly probing thinker on philanthropy. He once asked: “has philanthropy gained more or lost more by being associated with tax advantage, which has brought us into being but may well compromise our future? It is an excuse [for] regulation, it is an excuse for harassment, and more than that (as I have argued elsewhere) it has kept the third sector from having the full range of free speech.” Tax advantages for the entire sector should be reexamined, by all means; maybe they aren’t good public policy. It is clear to me, though, that using “partially public” dollars as an underpinning for improving philanthropy and discussing its public obligations will be used by different political interests along the entire spectrum for “regulation,” “harassment,” and keeping the entire “third sector from having the full range of free speech.”

The philanthropic sector and the entire independent sector do immense good and are also fraught with serious problems. Shackling the complex challenges of improving philanthropy with simple quantitative benchmarks within a “partially public dollars” framework encourages the wrong discussions and trivializes the independence of the sectors. We need to ask the right questions; highlight what works; candidly address the real problems; and also maintain the special place voluntary philanthropy and institutions should have. Philanthropy’s public trust and obligation have been frayed and need to be reasserted. Real effectiveness and authentic independence are two of the keys for getting philanthropy to its best.

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