December 03, 2008
How We Think About Foundation Grant Making Is Wrong
Writing on his blog at the Nonprofit Quarterly, Rick Cohen says the nonprofit world needs a new way to measure foundations and their grant making.
“Our understanding of foundations is faulty, because we lump all different kinds of foundations together in our analysis of their grant making and spending practices, like a ball of string or rubber bands,” he says.
Mr. Cohen says the nonprofit world suffers from “misplaced aggregation.” For example, foundations that are spending all their assets in a set time, and those led by living donors who tend to give more, are calculated together with traditional foundations that rarely give above legally required annual payment of 5 percent of assets per year.
That means statistics like one calculated by the Foundation Center, which says “independent foundations” distributed 6.1 percent of assets last year, makes foundations look more generous than they are.
Mr. Cohen says that foundations use “misplaced aggregation” not only to defend themselves from pressure to give more, but also against regulation that they think would prevent them from hiring additional employees.
He says that foundations argue that, on average, they employ very few people. But a tiny number of large foundations account for most of the staff members, Mr. Cohen, says, skewing the averages well above the medians.
“Until we get to compare apples to apples—that is, endowed foundations to endowed foundations, culling out the unendowed and spend-down foundations that make foundation pay outs artificially higher—we will never be able to understand them, much less advocate about and regulate foundations appropriately and accurately,” he concludes.
Do you agree with Mr. Cohen’s assessment? Click on the comments box below to add your thoughts.
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We at the Foundation Center agree that there are more nuanced distinctions to be made among the various types of foundations and that any meaningful analysis of foundation payout would need to take such factors into account. It is interesting to note, however, that the IRS only recognizes two distinct types of private foundations – private operating” and “private non-operating” foundations. Because of this, we have since the 1980s taken it upon ourselves to subdivide the non-operating funders into “corporate” (i.e., company-sponsored) and “independent” foundations, and to include even more nuanced distinctions in our research. For example, our analysis of foundations’ operating expenses—conducted in partnership with the Urban Institute and Guidestar—examined the impact of characteristics such as type, size, staffing, geographic focus of giving, and whether the foundation was endowed or served as a pass-through for giving (http://foundationcenter.org/gainknowledge/research/pdf/fec_report.pdf).
We also agree that the actual payout rates can vary tremendously based on whether a foundation chooses to maintain an endowment or operate on a pass-through basis, and if it maintains an endowment, whether it plans to exist in perpetuity or spend down its assets. Whether a foundation has a living donor may also be a salient characteristic in determining payout.
Ultimately, the debate over payout rates shades into the perennial question asked by those who think about foundations: Would society be better served by focusing the bulk of foundation resources on current challenges and letting future philanthropy take care of what will come down the road, or does philanthropy owe something to the next generation(s)? While there’s no right answer, recent research suggests that questions about payout should be considered in relation to a particular foundation’s mission and strategy. And in many ways the strength of foundation philanthropy is that those 72,000+ grantmaking foundations will have differing perspectives on this question, ensuring that philanthropic resources are available to meet both current and future challenges.
— Steven Lawrence Dec 10, 02:34 PM #