Big Philanthropy Faces a Reckoning, Too

For a few weeks this winter, in the time before social distancing, it seemed as if Michael Bloomberg’s vast spending might buy him the Democratic presidential nomination. In the end, the marketing couldn’t overcome the product flaws, but what Bloomberg also collided with was a deep distrust of the billionaire class that has been steadily building in our politics. From Occupy Wall Street’s spotlight on inequality to the growing recognition that the once-golden tech and social media companies led by whiz kids like Mark Zuckerberg are just today’s version of extractive industries—mining our personal data for their own enrichment instead of oil and gas—big money has been on the defensive.

I’ve been teaching courses on foundations, and the way they influence public policy, for the last 15 years, and I’ve seen this coming in the classroom, since my students have always been a pretty good barometer of social and political trends. A little over 10 years ago, just before the economic collapse, most of my NYU graduate students looked to philanthropy—in particular the emerging wave of tech billionaires like Bloomberg and Gates who seemed to be eclipsing the “legacy” foundations like Ford, Carnegie, and Rockefeller—as the place to be if you wanted to actually bring about social change.

Both markets and the state, in their view, had failed to solve poverty or fix dysfunctional health and education systems. Enter “social entrepreneurs” and “innovators,” freed from bureaucracy and hidebound ideologies and bound only by the rigor of data and metrics, to disrupt these systems, backed by sympathetic donors who had already shaken up whole industries—or created new ones. Indeed, an influential book of the period, Philanthrocapitalism, by Matthew Bishop and Michael Green, bore the apparently unironic subtitle How the Rich Can Save the World.

Fast-forward to now, and my students in the human rights program at Hunter College—many of whom take a different view. I always start the semester by giving a brief history and taxonomy of American foundations, since this opaque field is mysterious even to many leaders of the nonprofits whose budgets and futures are dependent on philanthropy, much less to undergraduates. Right away, I got some unaccustomed pushback: Why should rich people get to take money out of the tax system so they can use it to further their pet projects? What’s democratic about that?

I was a bit surprised but also heartened by the way many of my students seemed very much in sync with the mounting outrage roiling politics and other sectors over a rigged, unequal system.

There have always been critics of philanthropy. But after the dawn of modern American foundations like Carnegie and Rockefeller—when many progressives saw these new entities as launderers of tainted fortunes incompatible with democracy—most criticism has assumed the basic legitimacy of foundations, focusing instead on how they function: excessive bureaucracy and micromanagement of how grantees use funds, fickleness, unresponsiveness, deficiencies of transparency and diversity, and the like. There have also been ideological critiques—from the left, for example, about the Joyce Foundation’s heavy promotion of school voucher programs and the Olin Foundation’s pivotal role in the creation of the Federalist Society, and from the right against George Soros’s Open Society Foundation’s work on drug policy, immigration and other hot-button issues. But something has recently changed in the public conversation around philanthropy—and my students are but one harbinger.

There finally is a public conversation that goes beyond the hagiographic media profiles of the enlightened rich who “give back.” In the last year or two, a number of new books have trained a critical eye on donors long accustomed to basking in the glow of their largesse. The book garnering the most attention has been Winners Take All: The Elite Charade of Changing the World, by journalist and critic Anand Giridharadas, a trenchant look at the global corporate class who grow wealthy through the exaltation of markets and then turn their attention to ameliorating some of the consequences, taking care not to upset the system that enriched them and perpetuated inequality. Writing in The New York Times last month, Giridharadas asked if a nation committed to its founding ideal of equality must “resign itself to a gilded revolving door in which you unseat billionaire leaders you hate by electing billionaires you don’t mind.”

Giridharadas deals mostly with rich jet-setters and not so much with institutionalized philanthropy. More focused on foundations themselves are Just Giving: Why Philanthropy is Failing Democracy and How it Can do Better, by Rob Reich, the Stanford political scientist, and The Givers: Wealth, Power and Philanthropy in a New Gilded Age, by David Callahan, a former leader of Demos, the progressive think tank, and the founding editor of Inside Philanthropy. Reich is the most prominent academic engaged in raising questions about the legal structures that foster philanthropy, “partially underwritten by the state through a complex web of advantageous tax laws” which cost the Treasury at least $50 billion in foregone tax revenue in 2016.

Callahan’s book is a comprehensive walk through today’s philanthropic landscape, which has changed a lot since I came to work for one of the upstarts, launching George Soros’s US foundation in 1996. Save for a few places, like the Ford Foundation, reinvigorated by Darren Walker’s energy and prominence, the momentum today is not with the 20th century “legacy” foundations but with a bunch of still-very-much-living donors whose assets approach or exceed Ford’s, and who are focused on big challenges like education, health care, or climate change. Callahan warns that “their rising power will further push ordinary Americans to the margins of civic life in an unequal era when so many people already feel shoved aside by elites and the wealthy.

Giridharadas, Reich, and Callahan write knowledgeably but at some distance from the seats of philanthropic power. In “Decolonizing Wealth: Indigenous Wisdom to Heal Divides and Restore Balance,” Edgar Villanueva, a member of the Lumbee Tribe who’s been a program officer at several social justice–focused foundations, makes it more personal. He writes from a place of pain and injury, based on his own experiences in philanthropy and those of communities he believes have been “colonized” by foundations. Villanueva’s book is profound in its critique and resonates with me and many others in social justice philanthropy, where the money and trustees are still largely white, while the “labor force” is increasingly less so.

Reich says he will count his efforts successful “if this book shows why we need to think about philanthropy more seriously in philosophy and in society more generally.” While Callahan has a few policy suggestions—like review of tax deductibility, greater transparency, and an “Office of Charitable Affairs” with the independence of the Federal Reserve—in general, these books are heavy on diagnosis, and light on remedy.

Andrew Carnegie (c. 1905). (Library of Congress)

But it’s past time to move from critique to reform. There are two main paths for making foundations more accountable—one route for reform from outside, and another from within.

We can certainly demand greater accountability from institutions that are, after all, creatures of the tax code. Government could capture more of the wealth now exempted from taxation by the charitable deduction—as President Obama attempted and failed to do, against the implacable opposition of foundations and others in the nonprofit sector, when trying to finance the Affordable Care Act. Legislation could limit the lifespan of foundations, requiring them to spend down their assets after a number of years, as Atlantic Philanthropies, which I once headed, has done. Or it could cap the size of foundations, limiting the outsize impact that a Gates or Bloomberg might have—for better or for worse.

I could support some or all of these approaches, but none seem to have much traction at the moment. A new president with a sharp, progressive critique of inequality, which now seems unlikely, might begin to raise these issues. More promisingly, progressive state attorney generals—once their hands aren’t full leading the resistance to Trump policies—might explore their powers, since charities are regulated at the state level. But it’s a long-haul project, and perceived assaults on the independence of foundations are one of the rare things in our ideologically polarized society that can provoke opposition from both the right and left.

Philanthropy does many things well, and at times like the present, with so much pain and economic dislocation, its major institutions can rise to meet crises, digging deeper for funds (even as foundation endowments take a hit) and suspending or accelerating some changes in how they relate to nonprofits, like relaxing reporting requirements and shifting grants to general support. But as Chorus Foundation head Farhad Ebrahami asked in Inside Philanthropy: “What if we made these kinds of commitments under ‘normal’ circumstances? What if we applied these recommendations to our work even in the absence of a global pandemic? And, most importantly, what could it look like if we acted as if we really believed that another world was possible?”

In my view, more than benevolence is needed. What is needed is a shift in power. The best hope in the near term is to build on some encouraging signs of innovation and democratization we’re seeing from within philanthropy itself, with funding decisions increasingly being influenced, and even made, by those closest to the ground. Why this is needed is illustrated in a story Villanueva tells of a black colleague in a foundation in the South who told him “we had to hire a consulting firm in the last six months to do a full scan of [the field], just to bring it back to my boss and to his boss to say everything I’ve been saying for the last year…but no one heard it, or it wasn’t given the same weight without having some sort of outside external person who was paid a lot of money to say it and put it nice and neatly down on paper.”

Carnegie library competition, Pittsburgh, Pennsylvania. (William Eckert / Library of Congress)

Foundations use consultants and expert advisory panels—for instance, in science and medicine—all the time to inform their grant decisions, so why not listen to the voices of those in impacted communities whom their grant-making initiatives are intended to help? As Cynthia Gibson, a former Carnegie Corporation program officer, wrote on the philanthropy blog HistPhil, such participatory grant-making draws on well-established models in other fields, like community organizing, deliberative democracy, and participatory budgeting.

For example, the David Rockefeller Fund, on whose board I sit, created the Canary Impact Fund to address the challenges faced by those most harmed by mass incarceration, and invited people directly impacted by the judicial system to write the funding guidelines for the fund and review and act on the proposals received. I was struck, hearing the leaders of the fund speak at a board meeting last year, with how reflective they are about the power they now have to direct resources to groups that until recently have been ignored by philanthropy. This approach was pioneered in the 1980s by the Funding Exchange, a consortium of 16 progressive community foundations, and taken up a notch in the late 1990s by Southern Partners Fund, founded by leaders of Southern rural community organizations, grantees of philanthropist Barbara Meyer’s family foundation, invited to form a new fund, to be financed by the transfer of her family foundation’s assets. They wrote their own bylaws, grants, and membership policy, elected a board, and birthed Southern Partners Fund in 1998.

Another promising effort was launched in late 2016, right after Trump’s election, when three progressive donor groups, Solidaire, Threshold, and the Women Donors Network (with the backing of the Democracy Alliance, where I am president) created the Emergent Fund to get money quickly “with no strings attached to communities…under attack by federal policies and priorities—immigrants, women, Muslim, and Arab American communities, Black people, Indigenous communities, LGBTQ communities, and all people of color” so that they would have “increased capacity [to] respond, act nimbly, and develop new strategies.” The funding decisions were made by a panel of community activists who have disbursed over $2 million to 100 groups in the last two years.

Some key sources of support for community organizing, like the North Star Fund, have long delegated decision-making to members of the most impacted communities, with local panels in New York City and the Hudson Valley. Following Eric Garner’s death at the hands of police in 2014, North Star’s Let Us Breathe Community Funding Committee has responded with $180,000 in grants.

John D. Rockefeller (c. 1909). (Library of Congress)

The big money in philanthropy has been slower to embrace this approach, but even there, larger mainstream funders are beginning to experiment with more participatory grant-making. In its new “Culture, Equity and the Arts” initiative, the John D. and Catherine T. MacArthur Foundation is aiming to reach deeper into marginalized communities by developing “new and more inclusive selection criteria,” and has stopped basing the amounts of grants on the size of an organization’s budget—a practice that has all too often left grassroots organizations with mere crumbs from the table. According to Inside Philanthropy, “Initiative stakeholders will recommend grantees to foundation leadership based on feedback from a five-to-eight-person participatory grant-making panel,” though “MacArthur’s president and board will ultimately retain approval authority.” And last year, the Ford Foundation solicited proposals to “study participatory grant-making further, with an emphasis on how to get larger legacy foundations to buy into the practice.”

While political change in the larger society works overtime to create the appetite and the opportunity for changes in the tax code and more public accountability for foundations, the work of the moment is to change the culture in which foundations operate. Both pressure and example have been successful in recent years in diversifying foundation leadership—in the last few years at least five of the country’s largest foundations, from Kellogg to Mellon, have chosen people of color as presidents—and in divestment of foundation endowments from fossil fuels, as several Rockefeller-connected funds have done.

The task of democratizing philanthropy, though, involves something even more fundamental than diversifying staff or investments. It involves a significant shift in the locus of decision-making. To date, despite stirrings at giants like MacArthur and Ford, that kind of power shift has been largely confined to small foundations or pooled funds like North Star that raise money from a broader base of donors and are more insulated from any particular donor’s control or from the often-deadening hand of boards heavily weighted toward corporate and academic leaders. And while greater opening of foundation decision-making processes and power to excluded groups is an exciting development, it brings its own challenges. We made a number of efforts in that direction when I headed George Soros’s US foundation—for example, appointing a board of grassroots leaders in the South to vet and approve grants in a special initiative focused on the region—and it quickly posed some difficult issues. Would those making the grant decisions be excluded from applying for funds, to avoid conflicts of interest? What influence would they have on Soros’s thinking about how much money to spend, since the amount he was willing to experiment with was quite unequal to the scale of the change effort? Indeed, in a few years, as Soros decided to reorganize his global foundation and phase out a number of programs, the Southern initiative was a casualty, and the hope we had sparked in a part of the country that has been woefully neglected by philanthropic dollars turned to disappointment and bitterness.

And while there is plenty of group-think and mediocrity in institutional philanthropy now, at times its very unaccountability has made possible considerable boldness. Last year some of his admirers organized an evening recalling the legacy of David Hunter, a white man who for a quarter century until 1986 led the Stern Fund, established by descendants of Julius Rosenwald, the Sears Roebuck founder, a staunch ally and backer of civil rights and social justice causes in the 1960s and ’70s. Before dinner, a series of speakers now in their 70s who worked for Hunter extolled his personal leadership in steering a great fortune to progressive causes; after dinner, a younger, much more race- and gender-diverse panel paid homage and argued for shifting grant-making power to excluded communities along the lines of the examples I’ve cited above. As someone who’s held the reins of unaccountable philanthropic power and tried to use it over two decades to support the oppressed and the colonized, I’ve come to feel, on balance, that this is a shift that needs to take place. But it’s just possible that it could lead to grant-making that is less bold and has a more diffuse impact than what in its best moments an unaccountable system has produced.

And yet something else is at stake, which is confidence in the integrity of decisions about who gets access to the dollars produced by wealth and who does not. All institutions face challenges to their legitimacy in these times, from political parties to churches to media. There is no reason foundations should be exempt, given the influence they wield, albeit in less visible ways than other societal actors. The more foundation trustees and staff open up their decisions to those who have been marginalized, the more effective and informed their grant-making will be, and the more we will be able to trust it.