The longer I hang around the world of foundations, the more I’m struck by their unrealized potential. On the one hand, few institutions in U.S. society can match the freedom of action enjoyed by foundations, which don’t have to answer to shareholders or voters or donors or, really, anyone. On the other, these institutions aren’t nearly as dynamic as you might expect given their wide latitude to take risks. They tend to be cautious and aren’t known for pivoting rapidly as conditions change.
What explains the chasm between the potential and practice of institutional philanthropy?
This is an age-old question, one that’s been debated since at least the early 1970s, when Waldemar Nielsen published his trenchant look at the sector’s top players, “The Big Foundations.” More than 50 years later, people are still scratching their heads about why foundations aren’t more nimble.
These limitations were top of mind in reporting my recent article, “How We Got Here: Six Reasons Liberal Philanthropy Is Losing the Battle for America’s Future.”
In talking to over two dozen leaders across the sector, I was struck by how many of them acknowledged that foundations had done a poor job of responding to Trump and right-wing populism — despite the existential threat MAGA posed to everything liberal funders care about. Yet when I tried to nail down why, exactly, foundations had fumbled, it was hard to get definitive answers.
What are the barriers to dynamism?
To be sure, there were familiar explanations: siloed grantmaking programs, conservative boards, an aversion to political risk, and too much groupthink. But all of that just begs the question: If foundations are underperforming in a clutch moment, why don’t they dramatically shake things up to do better? After all, nothing is stopping them — in theory, anyway.
One factor appears to be nonprofit culture. The philanthropist John Arnold once told me that when he managed energy traders at Enron, he had to work to rein in their risk-taking behavior. But once he started running his foundation, he said he faced the exact opposite problem — trying to get his staff to take enough risks.
Like most foundations, Arnold Ventures is largely staffed by people who’ve previously worked at nonprofits, so one wonders if a big part of the problem here is the overall ethos of this sector and those who populate it. These people may just be so used to things moving slowly and at a small scale and so unattuned to a “fail fast, fail often” mindset that it’s hard for them to operate dynamically.
I’m not trying to point fingers here since I know firsthand how easily one can develop a crimped, incrementalist mindset when working at a nonprofit. I spent 15 years building a public policy think tank. Securing modest grants to get new projects off the ground could take many months. You start to think that these small wins and progress at a snail’s pace are normal, adjusting your horizons and mental timetables accordingly.
Foundations may not be so special after all
Of course, foundations don’t have to plead for funding. They already have the money to do new things quickly as conditions change. To be sure, some do just that, and we often write in IP about examples of institutional funders thinking big and taking risks. The National Committee for Responsive Philanthropy gives out annual Impact Awards to funders that show such leadership, including engaging in rapid-response funding. So I don’t want to paint with an overly broad and negative brush. Still, the larger truth remains that the sector is not as dynamic as you might think. Why is that?
Ultimately, my best answer to that question is that foundations behave like most other institutions despite their seeming uniqueness. While they don’t have to grapple with powerful external stakeholders, they do have internal constituencies with often competing agendas, along with long-established pathways of work. This can make it hard to shift gears dramatically, even when the stakes are high. As a rule, all institutions tend to keep doing what they’re doing — unless or until some shock forces them to change.
Will Trump 2.0 prove to be the kind of disruption that upends the foundation world, remaking how grantmakers operate? It’s too early to tell.
Megadonors to the rescue?
What I can predict is that individual megadonors will be the most dynamic players in philanthropy in the coming years, as they have been over the past decade. MacKenzie Scott is the most outsized example of a top giver who takes bold action, unencumbered by either board or staff. Less well known is Howard Buffett, who operates with a very lean team to move hundreds of millions of dollars annually, including making big, risky bets — like surging over $500 million into Ukraine after Russia invaded. Or C. Frederick Taylor, who’s been building on his impressive record as the key donor behind the Wellspring Philanthropic Fund, which is now winding down to rapidly scale a new grantmaking operation, Sequoia Climate Foundation.
To be clear, I don’t think living donors are necessarily more effective than legacy foundations. But they are far more likely to fully realize philanthropy’s freedom of action — a crucial strength in a national crisis like the one we’re in now. The other thing about today’s megadonors is the sheer scale of their wealth. For example, Sergey Brin’s net worth is eight times larger than the Ford Foundation’s endowment. If just a few donors like that swing into action to defend democracy in a big way over the next few years, they could more than compensate for the inability of institutional grantmakers to rise to the moment. My fingers are crossed.
