Inside Philanthropy

A blog on philanthropy and nonprofit news and issues. A publication of Philanthropy Journal.

December 15, 2008

Foundations need to kick fixation on themselves

By Todd Cohen

Foundations just do not get it.

With nonprofits and the communities they serve trying to cope with the worst economic crisis in the U.S. since the Great Depression, many foundations still act as if they are the only ones suffering.

A new effort known as the Philanthropic Collaborative says it wants to defend the giving sector from any federal policies that might emerge to address the recession.

But the effort simply continues the war big foundations have been waging for years against efforts to require they give more and disclose more about who they are and how they operate.

A report prepared for the Philanthropic Collaborative estimates the average return on every dollar in grants and support from private and community foundations totals $8.58 in direct, economic-welfare benefits, or a return of $367.9 billion on $42.9 billion in grants and other support in 2007.

While that sounds like a great return on investment, foundations could do a lot more and have an even greater impact.

A separate report prepared for Grantmakers for Effective Organizations says foundations have failed to practice what they preach.

Grantmakers themselves, along with nonprofit leaders, agree foundations should improve the type of financial support they provide, including support for nonprofit operations and multi-year support, and should improve their relationships with nonprofits.

But the report says grantmakers are giving a median of only 20 percent of annual grants to general operating support, and that only 36 percent of foundations surveyed solicit feedback from grantees.

“The study seems to suggest that most grantmakers see themselves as an island,” says Beth Bruner, board chair for Grantmakers for Effective Organizations. “The sense of reaching beyond the intellectual and operational corpus of the foundation is rarely there.”

Charitable foundations and corporate-giving programs are quick to tout their generosity and preach to nonprofits about the need to be more effective, collaborative, strategic and transparent.

Yet a top priority for foundations has been their fierce fight against efforts to require they be more open about their own operations and increase to 6 percent from 5 percent the share of assets they must pay out each year in grants and overhead.

That fight, in which they have invested millions of dollars, argues they can police themselves and that increasing the payout rate would deplete their assets over time and force them out of business.

And now, with the value of their assets plunging, foundations have stepped up their whining.

But now is precisely when foundations should be making good on the investment taxpayers have made in the form of the tax-exempt benefits foundations and their donors enjoy.

Foundations need to pull their collective head out of the sand and take a good hard look at themselves and the needs of nonprofits, and start working harder to improve the operations and impact of the giving sector on the urgent needs our communities face.


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