Philanthropy Under Pressure
How foundations are - and are not - evolving in this moment
So now we’ve talked both about the “elephant” – the five self-reinforcing domains that are driving our current negative spiral – and the “butterfly” – the many positive trends that point toward the potential for a better future. I’ve touched briefly on the importance of storytelling, media, and the arts to help us imagine and move toward that better world, and will go into more depth on that topic soon. What we have not yet discussed is how “big philanthropy” – large foundations and wealthy families who make donations and mission-driven investments in the millions or even billions of dollars – have responded to the transformative nature of this moment, and the critical role they can play in catalyzing the world we want.
Unsurprisingly, large-scale philanthropy is under significant pressure to rise to the occasion and fill the gaps where society and government are now falling short. Yet the scale of the issues far outweighs the capacity of private funders to absorb. Having spent the last twenty years leading and working in and alongside large foundations, my conversations naturally included discussion of how funders have and have not stepped up to the plate in meaningful ways to address the challenges of our time. I was encouraged not only to synthesize what I heard but also to put forward my thoughts on what can and should be different. This is the first of three posts that will explore the state of philanthropy today, how we reached this point, and what role I believe philanthropy can play in catalyzing the change we need.
Philanthropy Today
Effective philanthropy requires a lot of time and creativity - the same kind of focus and skills that building a business requires.
- Bill Gates, Chair, Gates Foundation
Failure of strategic philanthropy, we believe, is rooted in a set of assumptions that originated more than a century ago and still shape our nonprofit sector today: that the beneficiaries of philanthropic support are incapable of solving their own problems, that wealthy donors have the wisdom and incentive to solve society’s many challenges, and that the social sector is an effective alternative to government in building an equitable and sustainable society.
- Mark Kramer and Steve Phillips, Stanford Social Innovation Review, Summer 2024
In this time of accelerating complexity and change, philanthropy is paradoxically evolving quickly and still fundamentally mired in old ways of thinking. Mackenzie Scott and Melinda Gates dominate the headlines with their willingness to give more and give fast, reflecting the rise of a new approach to philanthropy that is increasingly ambitious and collaborative. Where foundations historically operated very conservatively, with onerous application and reporting requirements, philanthropists have been expanding the tools in their toolkit, not only making larger gifts but also establishing spend-down strategies, pursuing more trust-based giving, and increasingly using an asset frame[1] to describe and engage with the individuals and communities they seek to empower. Yet the vast majority of philanthropic funds remain tied up in investment accounts and philanthropists are often more concerned with reputation and risk management than with putting funds to work at the scale of the issues.
On the positive side, strategic philanthropy – where every foundation has its own logical model and impact metrics, funding is tied to line-item budgets, and nonprofits must hit specific goals annually – is generally understood to be burdensome, especially for smaller organizations who do not have the staff capacity to track and report differently to each of their funders. In an effort to reduce overhead and assume more of the risk, many foundations now prioritize general operating support grants where grantees report on progress toward goals but can spend the funds however they see fit, and have reduced or eliminated onerous reporting requirements. And in a bold move, an increasing number of donors now acknowledge their philanthropic funds can have more impact through spend-down strategies that put the bulk of the organization’s funds out into the community over the next 20-30 years, rather than managing them in perpetuity and only granting five percent annually.
Many funders also embrace a continuum of tools and strategies available to them for philanthropic impact, including grants, mission-related investments, network cultivation, convenings, storytelling, marketing, and shared services. Where grants remain the mainstay of philanthropic giving, mission-related investments enable foundations to expand the toolkit to include loans, investments, guarantees, and other vehicles that tap into larger pools of money and offer the potential to recycle capital. Network cultivation and convenings enable foundations to accelerate their grantees’ progress through field-building, funder and partner introductions, upskilling, and peer-to-peer learning. And finally, scaling storytelling capacity and visibility helps organizations to shift the narrative about the people and communities they serve to create a more conducive environment for their success.
And philanthropists across the board are proactively bringing on new board members and hiring people who have lived experience with the issues they are addressing. In addition to being more knowledgeable about the realities people face on the ground, staff with lived experience can more easily build a trusting relationship with grantees, learning more quickly if strategies need to pivot or funding can be more effectively deployed. And by adding lived experience to the board, donors gain valuable insights that fundamentally shift the dialog in the board room. This inclusive approach shifts the power dynamic from one of “us and them” to a partnership between those with resources and those with first-hand experience and expertise with the issues at hand.
Together, these are significant changes in the day-to-day way foundations operate and represent a meaningful shift in foundation culture from an “ivory tower” to one that is more open and inclusive. In addition, the term “systems change” has moved from an arcane term to a buzz word, with many funders now shifting to a systems orientation to address the fragility of individual organizations, the upstream causes of the challenges they seek to address, and the intersectionality of issues that make it impossible to solve any one issue in isolation.
With this change, more philanthropists are starting to prioritize funding ecosystem-building and collective action as well as the critical role of field catalysts and systems orchestrators within those ecosystems. As a result, funders who previously only supported individual direct service organizations are now expanding their portfolios to include organizations that can bolster multiple grantees within an issue area (e.g. peer-to-peer networks, skill-building workshops, and infrastructure support) or advocate for policy changes that can address root causes or attract more significant government funding.
There is also a recognition that innovation alone is insufficient to combat the forces of stasis that defy change. Social entrepreneurs demonstrate new and better ways society can operate which are catalytic in breaking down outdated systems,[2] but that army of social innovators will need allies at every level to move the entrenched web of systems, infrastructure, and narratives that hold back the scale of progress required. Where philanthropists, especially from the technology world, once believed they could innovate their way to a better world, there is a growing acknowledgement that we need to stop shying away from tackling government policies and politics and address the deeply entrenched systems that lead to stasis.
And while many believe that nonprofits and foundations are prohibited from using charitable funding for advocacy, federal law actually allows them to participate in a mix of direct lobbying, grassroots mobilization, and policy development, as well as voter registration and get-out-the-vote efforts.[3] It is important to know where the bright lines are, but advocacy is now more commonly part of a comprehensive philanthropic strategy and increasingly embedded in the work of direct service organizations as well.
Similarly, there is a recognition that individual donors cannot create change at scale on their own, resulting in a surge in innovative approaches to collective giving. Collaborative funds like the Democracy Frontlines Fund have emerged as powerful new tools in philanthropy, enabling those with lived experience and deep expertise in a given issue to establish sizeable pooled financial vehicles that aggregate support from multiple sources under one umbrella investment thesis. The fund can then establish a closer working relationship to grantees, make larger individual grants, and eliminate duplication and gaps in funding.
This approach dramatically simplifies reporting requirements for nonprofits, who now have only one funder instead of dozens, and often includes a mix of best practices including community building among grantees and advocacy efforts to benefit the full portfolio. And while donors can be reticent to give up the control inherent to direct giving, the benefits for them include lower management overhead, consistent impact metrics, a sense of belonging and community among givers, and often the chance to participate in collective learning opportunities alongside peers.
While there was significant progress in all these areas during the early 2020s, many have observed backsliding more recently. Some donors are now uneasy with trust-based approaches to philanthropy and have returned to the comfort of logical models and its inherent accountability. Others recognize that increased trust can still involve accountability but struggle to find the right balance. And where racial justice and DEI rose in prominence several years ago, many funders have stepped back in light of public backlash. In fact, safety has become a growing concern at every level, with “doing good” now politicized and personally dangerous, and lawyers advising foundations to pull back or only give anonymously.
Just as journalists face backlash, social justice and philanthropic leaders now must invest more in staff and volunteer safety, and many have had to leave their homes due to threats of violence. Women and black leaders in particular report needing and having personal security and often no longer publish their office or home address. This has a chilling effect on the willingness of philanthropists to take a stand on issues, with some like the Chan Zuckerberg Initiative shutting down potentially controversial programs like general election support in favor of promoting universally accepted issues, such as research and advances in medical science.
The bottom line is that philanthropy still needs massive disruption, prioritizing progress over perfection, and embracing risk rather than seeking to preserve capital. Business and technology are moving “fast and big” at a time when the sector tasked with addressing our most urgent needs is not. There is polarization over “who gets to decide” how philanthropic dollars are spent – the donors or the community – with society increasingly distrustful of institutions and donors less trusting that communities will make wise choices.
And all the while, the growing disparity between the charitable funds accumulated and those deployed is increasingly visible, creating frustration and anger among those who know how meaningful the deployment of those funds would be. In the next post, we’ll look at how we reached this moment in philanthropy and the norms and structures that are holding us back from putting money to work at the scale of the issues.
[1] Trabian Shorters created asset framing to define people by their assets and aspirations before noting the challenges and deficits. For example, if we describe low-income young people as “aspiring college students” rather than “at-risk youth,” they become the empowered subject of the story, rather than a problem to be remediated.
[2] Getting Beyond Better: How Social Entrepreneurship Works, Roger L. Martin & Sally Osberg, 2015
[3] When Philanthropy Meets Advocacy, Patrick Guerriero & Susan Wolf Ditkoff, Stanford Social Innovation Review, Summer 2018
I really appreciate this concise overview of the current philanthropic landscape and the ways in which charitable funders can more effectively support impactful change.