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Describing private foundations as “virtually by definition . . . the voice of plutocracy,” Rob Reich challenges us to consider how society might nonetheless find democratic virtues in them.
The democratic impulse has to come from the primary constituency of foundations: the million or so formal nonprofit corporations and the hundreds of thousands more voluntary associations that stand to benefit directly or indirectly from foundations’ largesse. Yet, as Reich notes, nonprofits have traditionally been averse to challenging their foundation funders. My field investigations show much grumbling from nonprofits but almost no critical feedback, for fear of losing not only current funders but of scaring off other foundations.
Grantees’ inability to criticize foundations can have significant effects. When foundations organized to advocate against the Charitable Giving Act of 2003, which would have eliminated their ability to include administrative costs in their mandatory payout and reduced their ability to pay otherwise voluntary trustees for their board service, many foundations made it clear to their grantees that they expected—required—their support against the legislation. Similarly, foundations sought grantee support against proposed California legislation that would have obligated large foundations there to report on the racial and ethnic composition of their boards and staff and on the leadership of their grantees. Efforts by the National Committee for Responsive Philanthropy to increase private foundations’ mandatory payout level about the current 5 percent have also met with grantee resistance.
Much like the unfortunate staff person at the Open Society Institute dismissed for daring to suggest that George Soros’s philanthropic money wasn’t all his, nonprofits know what happens when they open up their mouths about foundations. They march into Congress, statehouses, city halls, and corporate headquarters issuing courageous demands, but they lose their voices when faced with foundation executives.
Nonprofits individually and collectively should be questioning what foundations do with their money, how they spend and how they function. The grantee reports that foundations tout so proudly focus on foundation processes and mechanics—how responsive foundations are to phone calls, how clear they are in their grant-making priorities, how long it takes them to make decisions—but that is lightweight. Reports don’t get to foundations’ substance and don’t say anything about the nonprofits that don’t make it through foundations’ grant-making portals.
Increasingly, foundations support initiatives that they create and run.
Foundations have much to be held accountable for. Increasingly, as Reich notes, they are playing a public-policy role themselves rather than equipping nonprofits to speak with and for communities about their needs. Foundation heads are camping out at the White House and tying their grant-making to idiosyncratic government initiatives such as the Social Innovation Fund and Race to the Top, suggesting that big philanthropists believe they know better than the people represented and served by the nonprofits those philanthropists fund. This is top-down policy advocacy.
Foundations are also narrowing the scope of nonprofits that might have a stake in the philanthropic world by making fewer, larger grants to smaller circles of organizations, under the guise of strategic giving. Increasing numbers of foundations are refusing to consider, much less fund, unsolicited proposals from nonprofits, and many instead support initiatives that they originate, design, and largely run. Aggregate grant totals mask the shrinking amount of money actually accessible to the broad mass of nonprofits.
In a recent development, foundation leaders, such as Ralph Smith of the Annie E. Casey Foundation, have pronounced themselves “sector agnostic,” meaning that they feel no particular allegiance to nonprofits and are free to support projects from for-profit entities if those projects fit the mission priorities of the foundations. Many foundations are directly and indirectly supporting privatization efforts. Apparently, in these boardrooms, nonprofits are yesterday’s news, not up to the entrepreneurial challenges of modern societal problem solving. Some foundations—including the Gates, Ford, Cummins, Schwab, and Skoll Foundations—have been supportive of so-called hybrid organizations, for-profits that claim to be carrying out social or charitable missions.
“A plutocratic tempering of government orthodoxy may be better than no tempering at all,” Reich points out, and he’s not incorrect. But in a world where the creators and managers of philanthropic plutocracy are often close to, if not the same as, political campaign donors, foundations represent a pretty weak effort toward pluralism and democracy.
Don’t expect Congress or state legislatures to take the lead in reforming the nature, operations, and governance of private foundations. But as President Obama said at the 2013 Citizen Medal Awards, given to nonprofit leaders, the American tendency is to organize and mobilize. If nonprofits can live up to that statement, they can serve as a democratic counterweight to the undemocratic but exceptionally wealthy institutional philanthropy sector.
The modern foundation is an institutional oddity in a democracy. A democratic society is committed to the equality of citizens, but foundations are the voice of plutocracy.
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