What the Council on Foundations Should Have Said to Its Members

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Dear Colleagues:

National and global economic turmoil make these extraordinarily difficult times for people in need in the communities served by U.S. foundations. Foundations have to think and act differently at this pivotal moment. As the leadership organization representing the foundation sector, the Council on Foundations encourages its members to step up in these circumstances. We need to be expansive, generous, and bold, not fearful and self-protective. We recommend the following:

  1. Increase grantmaking: As some courageous foundations demonstrated in the wake of the post 9/11 recession, downturns in the economy are the time for foundations to increase their grantmaking, not cut back. While foundation funding is only a small part of overall nonprofit revenues, it is a crucial and distinctive component, enabling nonprofit recipients to undertake programs and actions that the turmoil in the economy demand. As so often stated, our funding is the risk capital for social change. This is the time when we have to live up to that credo and put our money on the table to help nonprofits address the recession or depression in all of its forms.
  2. Increase the flexibity of grants: There are many arguments pro and con on flexible core support grantmaking versus program — or project-specific grantmaking. At this moment, however, many organizations do not have the luxury of taking or completing program-specific grants while experiencing losses in individual donations and government grants. We strongly suggest that foundations make many more core operating grants and, further, make every effort to convert program-specific grants to flexible, core operating grants to help grantees survive these economically perilous times.
  3. Increase program-related and mission-related investments: At the crux of the economic downturn were problems in the financial sector, reflected in widespread mortgage foreclosures and related bank failures. Commercial banks have closed down much of their lending and a retrenching Wall Street is tight on investment capital. As mission-driven institutions, foundations should be devoting increasing proportions of their investment capital to mission-related projects and programs sponsored and implemented by our nonprofit partners.
  4. Increase support for advocacy: The pace of change in these times has been unlike anything our society has seen in many years. Government initiatives to rectify problems in the economy such as the bailout legislation are devised and altered by the day. There is an enormous window for advocacy on social spending and tax policy among many other things. . Foundation support for nonprofit public policy advocacy and organizing is essential if nonprofits are to be able to carry out this function.
  5. Increase our commitment to the nonprofit sector: There is hardly a nonprofit in the nation that is not preparing for cutbacks, laying off staff, reducing program services, contemplating deficit budgets, and thinking about creative ways of surviving what could be a prolonged economic slump. This is a time for the foundation sector to remember that we have to invest in strengthening rather than abandoning the nonprofit sector. It is not “myopic,” as one national foundation leader insinuated, for philanthropy to recommit to a primary focus on the nonprofit sector. Rather, at this moment, it is nothing short of essential to the fabric of American democracy.

We know you are all concerned about raising unrealistic expectations given that foundations across the board are being hit with declining endowments and increasing needs from your nonprofit partners. We encourage you to explain to your nonprofit partners what the economy is doing to foundation assets, but also to meet with and listen to your partners on what the financial meltdown is doing to the core nonprofit infrastructure that undergirds not only social programs, but our democratic local and national polity. We are confident that together foundations and nonprofits will be able to craft appropriate solutions that don’t just help all of us get through this economic crisis, but also take advantage of the moment of instability to reassert democratic values into public dialogue. But this must start with our sector’s willingness to own up to and deliver on the value of our grantmaking and investment assets.

At Nonprofit Quarterly, we truly look forward to seeing this open letter replace the disappointing version (see below) that was officially released by the Council on October 10th. There is time for the Council on Foundations—in fact, time for philanthropy writ large—to really step up and deliver for the nonprofit sector and for American democracy.

“An open letter to council members and other leaders of our field”

October 9, 2008
Dear Colleagues,
At the conclusion of the Council’s 57th annual meeting in Pittsburgh, we committed that we would work to ensure that philanthropy will step up and take on “the challenges of our time.” That commitment served as the theme and frame for the 2007 Annual Conference in Seattle, as a point of departure for the 2008 Summit at National Harbor and the upcoming 2009 conference scheduled next May in Atlanta.

Little did any of us know or expect that “the challenges of our time” would include an economic situation of the scope and magnitude now facing our nation and the world. Even so, there is no avoiding the question: what could it mean for philanthropy to step up in these circumstances? How can we play a constructive role without raising unrealistic expectations?

This is a conversation that has started already and will continue for sometime. We look forward to listening carefully, participating when and how we can and providing whatever technical assistance and support would seem appropriate. For starters, we have three broad recommendations:

  1. Let’s reach-out to the nonprofit sector in general, especially those organizations, leaders, and networks we currently support. Our non-profit partners will bear the brunt of shrinking resources and growing need. Within parameters defined by our respective missions, resources and work, we should actively look for creative ways to assist the sector in weathering this storm and serving those most impacted.
  2. Let’s play an active and visible role in helping communities and regions figure out the scope and extent of the challenges they face, and in finding and crafting solutions that make sense. We know that some regional associations and community foundations already are using the convening role of philanthropy to build the “big tent” under which diverse stakeholders can gather to create shared understanding and to search for common sense solutions. The exciting work of the Dade Community Foundation, the Arizona Grantmakers’ Forum and the Clinton Center for Community Philanthropy represent just the tip of the iceberg of what our colleagues and peers are doing already. We’ll share these examples in the toolkit.
  3. Let’s pay special attention to those situations where the loss of philanthropic resources could be the unintended consequence of mergers and consolidations that are the inevitable products of economic restructuring. In the D.C. area, there is considerable concern that the takeover of Fannie Mae and Freddie Mac could result in an annual reduction of up to $47 million in philanthropic support for programs around child welfare, hunger and homelessness. We know that this was not what was intended and we are hopeful that federal officials will work with local philanthropy and the nonprofit community to rectify the situation.

Having offered up these three recommendations, the Council will move expeditiously to provide some backup on each. First, we will work with partner organizations to compile a list of promising ideas and practices employed throughout the field. Second, we will work with the Forum of Regional Associations, the affinity group Philanthropy for Civic Engagement (PACE), and others to assemble a toolkit designed to assist with the stakeholder convenings we will have recommended. Third, we will produce talking points designed to make the case for preserving philanthropic commitments during takeovers and consolidations. We have more to say on each of these within the next ten days. Please stay tuned.

Finally, we know that, even if fully implemented, these three recommendations do not constitute a sufficient response. We expect to hear and learn more and have more to say in the weeks and months to come. What we also know is that these recommendations offer us the opportunity to continue to serve the common good in these uncommon times. From our point of view, this is an important way to step up and take on one of biggest challenges of our time.

We look forward to hearing from you. Thanks for all you do.

Ralph Smith                Steve Gunderson
Chair of the Board            President & CEO

  • Joseph Kriesberg

    I agree with Non Profit Quarterly. Your letter is much better. If Foundations adopted your recommendations, we’d have a much better chance of weathering the storm. More convenings and meetings are not nearly as helpful.

  • Tracy Kaufman

    I think the main problem with the COF’s letter is that it’s just empty words. There are no concrete ideas offered up on how to survive these economic conditions, and the letter comes across as lacking any real, substantial concern for those who are affected. “Reaching out” to the nonprofit sector? What exactly does that mean? “Play an active and visible role in helping communities figure out the scope and extent of the challenges they face”? What does THAT mean? What does any of it mean? The words are vague and passionless. Foundations don’t need an inoffensive, melodically-worded letter. They need some real ideas.

  • Joanne Thurston

    I am sure Mr. Smith and Mr. Gunderson are paid to organize meetings. These meetings do not get funds or resourses to those who need need the help. Freddie Mac and Fannie Mae are at the source of the problem we are in today. If they had kept their focus on what they are organized to do and stayed out of lobbing for more money everyone would be in better shape today.

  • Charlie Bernstein

    Thank you for your rewrite – a wonderful improvement. Nowhere in their letter did the council’s elders find space to include the words “Give more.”

    Funders might not have heeded the words, but at least they would have heard them.

    I do recommend one modest upgrade to your concrete, useful, easily implementable suggestions: make point 4 “advocacy [i]and organizing[/i].”

    Here at Maine Initiatives, a social justice fund, we find that while advocacy is useful – even, at times, vital – it does little to engage ordinary people in the process of change. And it’s people that drive social change.

    Organizing, regardless of the adjectives you string in front of it (community, grassroots, direct action…), brings people together to build permanent institutions for change. That holds a bright promise, not just for recovery, but for prosperity.

    So that’s what we invest in. And it would be good to see the Council on Foundations encourage more funders to give people a chance.

  • Brigette Rouson

    I believe that the Council on Foundations letter sent out by Ralph Smith and Steve Gunderson starts the ball rolling, and would urge them strongly to come out with a “Part 2” that expresses what the NPQ editors have recommended. It is critically important to speak to the missing piece in both letters — and that is the need to be intentional and explicit about responses that address the disproportionate effect of identity –race/class/power/sexuality/geography — when it comes to who bears the brunt of the economic fallout. It is essential that philanthropy play an active role in educating policymakers about tax, budget, and bailout policies and practices. Mr. Smith and Mr. Gunderson have both “walked the talk” when it comes to diversity and equity; let us not quarantine that analysis when it comes to addressing our economic conditions.

    Now is the time for bold action. Investments in the nonprofit sector are far more likely to pay off now than conventional investments.

  • Morwen Two Feathers

    The Council on Foundations says: “these three recommendations do not constitute a sufficient response.” You can say that again. A usual, the Nonprofit Quarterly is right on in its critique of this letter. Convene meetings to talk about the scope of the challenges?! Like we have time to sit in more meetings. The scope of the challenge is obvious: the need for the services of the nonprofit sector is increasing while the sector’s resources are shrinking. If the Council on Foundation was truly a leadership organization, it would be mobilizing its membership to directly impact the situation by giving more, and for core operating, just as NPQ’s letter states.

  • Tracy Williams

    As a Director of a not-for-profit mental health counseling facility, I certainly was encouraged to read the letter proposed by Nonprofit Quarterly. It seemed to give hope to the mission that our organzation and our other area organizations are working towards. It is good to hear that foundations actually believe in philantropy and what it means rather than just donating funds for IRS purposes.

  • Orletta Caldwell

    Where I truly believe that all nonprofit organizations need to be accountable fiscally; we have an need more than ever to serve humanity. That is why most of us got into this business in the first place. Weak-knee responses are sad and pitful. Council please step it up and thank you NPQ.

  • S McGuire

    It is especially important during times of financial stress that foundations focus on supporting the operational capacity of nonprofits. It doesn’t matter if foundations have money for project-specific grants if the nonprofit organizations do not have the staff or resources to carry out those projects. Capacity building is sorely underfunded at any time, but with the decrease in individual and corporate giving that occurs during an economic downturn, it is even more critical for foundations to step up. I’m so tired of seeing grant applications that specify funding only for new projects. Points #2 and 5 in the NPQ letter should be printed in BOLD and sent to every foundation.

  • Larry Ottinger

    That’s a wonderful letter. Bravo and thank you!!

    I had an Opinion piece in the Chronicle of Philanthropy on nonprofits and the financial crisis that makes similar points about advocacy and economic-related policies.

    Sincerely,
    Larry Ottinger, President
    Center for Lobbying in the Public Interest

  • Ed Runner

    While the letter Mr. Smith and Mr. Gunderson produce is not a complete solution, they do ask that the dialog continue. And, the NPO letter could have been written as an extension of the discussion rather than a reprimand on what Smith and Gunderson should have said.

    My thoughts are:
    * These are challenging times that need our best thoughts and leadership.
    * Non-profits serving societies needy have to be even more vigilant that they are accountable and using funds, staff, and volunteers effectively.
    * Foundations, as clearly stated by the NPO letter, have an opportunity to lead the response to today’s challenges by increasing funding and becoming more flexible.
    * With societies great needs, we need to be careful to not spend too much time and energy in “discussion meetings”. Foundations and non-profit service organizations both have great responsibilities to be individually taking the action they should be accountable for in these times. We can use “white paper” solutions and some forums presenting action foundations can take or forums that non-profit service organizations need to take. Personally, at this critical time, large general discussion meetings leave me cold.
    * Lastly, my personal opinion is that organizations providing vital services to those in need, should be careful to not be adding advocating activity that takes leadership away and makes their service efforts suffer.

    Respectfully,
    Ed Runner

  • Lisa Bronowicz

    Thank you. This was right on the mark, well said, and quite appropriate to the conditions and times we are facing. Bravo.

  • Bill H.

    The letter serves as leadership. History shows that in times like this we need to increase everything we do. Thought we clearly need a plan behind every decision, do not stop or reduce a gift request. Instead expand the time limit or arrangement. Extraordinary gifts are made during times like this. Also leaders are made, as they reaffirm the organizations mission/urgency.

    Times are tough, but this to shall pass. Those who are proactive will be the leaders of the future.

    Bill

  • Jim Rorrer

    As an investment advisor to foundations and endowments, I have a different perspective. I find it interesting that so many of the comments I have read here seem to think of the grant-making foundations as something other than non-profit organizations. Perhaps the most important objective for any non-profit is to ensure that it endures in perpetuity, especially for grant making non-profits on whom so many of you depend. Regardless of your or their mission, if you deplete your assets, you don’t live to fight another day. We are in the midst of the most frightening financial sector crisis perhaps in history. The term Armageddon is being used freely to describe what we face. In today’s world, nothing touches our lives in more ways or with more impact than the global financial infrastructure. If it fails, the consequesnces are too terrible to consider-and it could fail. It doesn’t matter whose fault it is, it is a fact that we all face. October was one of the most disastrous months in history and has contributed to many foundations losing nearly a third of their assets so far this year. The problem is that most foundations have not seen their October statements yet so please sit down before you open them. To increase spending in the face of this financial collapse is the most imprudent step that the fiduciaries of these organizations could take and could result in much less money being available over the longer term. Everyone is having to make due with less, even the non-profits who so ably support their constituencies.

  • Barbara Schoeneweis

    As a consultant who has and continues to work in the healthcare and not-for-proift delivery sectors, as well as having been on several grant panels, I believe that the operative words for fund dispersement in these scary times are “sustainability,””focus” and “priority.” These are times in which not-for-profits providing crucial services
    must be supported. But with that support comes responsibility for real focus and real prioritization, along with examining where unintended duplication of services lies. Never have the words “collaboration” and “partnership” been so practical and meaningful.

  • VCJ

    I agree with Mr. Rorrer. And I’d emphasize that foundations are also nonprofits. I work for a community foundation with a rapidly declining $130 million in assets. Many of our funds are restricted, donor advised, scholarships and/or field of interest which ultimately limits the amount of unrestricted dollars we can use. We are a nonprofit also and we hear what the grantseekers are asking for…we also in fact seek grants.

    It is our mission to exist in perpetuity in order to provide support for our communities and we can only work inside that mission (it is also part of our role to serve as conveners, which also includes community organizing efforts). The reason we cannot fund operating expenses is not that we don’t believe they’re necessary but because we simply do not have the capacity to do so. $130 million is a lot of money, I understand. However, our spending policy allows 5%/year…around $6,500,000 (give or take the day in the market). This includes approx. $1 million in scholarships and another $2.5 million in donor advised grants. This leaves us $2.5 million dollars in grants, half of which are field of interest funds and can only be used for specific areas of interest.

    As you can see, this limits the role we can play so we have to look at what we can do in a strategic, transformative, community changing way. Whether that’s through grants, streamlining applications, supporting capacity building efforts, I truly believe that most of the foundations I know are working to help, not hurt, applying agencies.

    I respect the recommendations set forth in this article but I also know that the COF has an understanding of the flexibility that is often not present for foundations. As a CF, we welcome comments and suggestions for the organizations we work with and I’m seeing more foundations do so.

    Thank you for this perspective…I’ve circulated it in the office and will be sure we discuss.

  • Emily Gantz McKay

    I agree with Nonprofit Quarterly. During difficult times, organized philanthropy needs to take leadership. There is no one right answer, but timid responses are definitely a wrong answer.

    Both organizing and advocacy are especially important in difficult times. During the early Reagan years, the foundation-supported work of the Coalition on Human Needs helped protect critical public funding. Foundations cannot hope to fill critical service gaps caused by hard economic times, but they can support grassroots and national efforts effort to protect funding for government services essential to those most in need.

    We need to be especially aware of how the combination of race/ethnicity, class, and gender puts many people at special risk –and of how grassroots nonprofits play a key role in helping them survive hard times.

    When the District of Columbia was going through its financial crisis, the City stopped paying many nonprofit service providers the funds they were owed under grants and contracts. The Eugene and Catherine E. Meyer Foundation called a meeting of some people engaged in supporting nonprofit development to discuss what should be done. I remember one person saying that we just had to accept that some valuable nonprofits would go under. Others, including the President of the Foundation, disagreed. They said it doesn’t make sense to allow an effective organization to go out of business if its work is so important that in a couple of years we know we will be supporting development of a new organization to take its place. Helping such groups survive bad times is a lot less costly for the community and philanthropy.

    Funders need to review their own missions and identify their priorities, then help key groups — with increased grant flexibility, loans to replace lost bank credit lines, emergency grants, leadership in exploring lower cost or shared office space and other administrative support, and/or in other practical and creative ways.

    Hopefully grantmaker organizations will take real leadership and encourage collaborative action. Thanks to NPQ for expanding the dialogue.

  • Tracy Williams

    Many great thoughts are presented here. They are all very true. None of us can deplete our assets and still continue. The foundations must limit their giving to help sustain their giving for years to come, and our not-for-profit organizations are faced with challenges we may not have expected. Our not-for-profit counseling center has reduced our almost $500,000 budget down to around $350,000 budget for the next calendar year. We are focusing on building new programs to help us sustain our own existing mission based programs in order to help stretch the foundation money we will get. Collaboration – AMEN !!- we work with area organizations and have written grants that benefit two or three organizational missions with limited dollars. That is our challenge. We must be financially responsible and work together in order to continue the great work that is being done by not-for-profits. It is an effort that requires much teamwork.

  • Marshall Ginn

    Let me add my voice to those who are encouraged and pleased with the NPQ’s version of the open letter. While well intentioned, the COF’s original version is merely a plan to plan; a call to keep thinking. This is not a time for thinking alone; it’s a time for thoughtful action and bold steps. The funding community needs to hear these recommendations and really take them to heart. Nonprofits need to know that their funding partners are there with them in these challenging times. They need to see opportunities and ideas, not increased limitations, and heightened wariness and fear. Organizations must be given access to the type of flexible, creative funding that the NPQ describes.

    That being said, funders should take more steps to get to know their nonprofit partners. They should take the time to learn more about the work they are undertaking, the challenges they are facing and the ways they are effectively using their contributed assets to accomplish their missions. Funders should be encouraging clear demonstration of that effectiveness. There is a lot of work to be done on both sides of this equation. Both the funders and the funded need to collaborate more closely – as has been pointed out so well in the many reactions to the NPQ’s postings here. The more we can break down the barriers between nonprofits and grantmaking entities the better. We have a long way to go, but perhaps, if it gets everyone talking and working together more closely, this sour economy will have a little bit of a silver lining.

  • William M. Dietel

    The letter from the Council on Foundations was to be expected but that doesn’t change the fact that it is a pathetic response to the challenges that philanthropy faces. We have read much recently about the decline in popular respect for leadership in government, business and the nonprofit sector. Little wonder if this letter is representative of the most innovative thinking of philanthropy’s leadership at a time of national crisis. The letter from the NPQ editors was spot on!
    The response from some of NPQ’s readers to your recommendations to think afresh about the appropriate level of grant making and the need to invest a significant portion of the foundations’ capital in their grantees is also pathetic. Unhappily it too reflects a knee jerk kind of reaction from people who should be showing creative, dynamic leadership. If foundation leaders think that preserving capital is their most important function, heaven help those individuals in the trenches of the nonprofit world struggling to maintain their independence and their capacity to serve their constituents!

  • Nancy N. McGee

    Thank you Nonprofit Quarterly for pointing out the need for foundations to do more during these unusually difficult times. Foundations should be focusing on the many needs in the community and helping nonprofits to fill the gaps in services left by cutbacks in government programs. Let’s hope that the foundation world listens and takes action.

  • Ed Runner

    The Bill & Melinda Gates Foundation announced yesterday it is scaling back planned growth in its grant making next year in response to the economic downturn. Here’s a link to the article from the Seattle Times:

    http://seattletimes.nwsource.com/html/localnews/2008422359_gates22.html

  • Jonathan Bockian

    The spending policy of endowments may be viewed from a risk management perspective. The concept of intergenerational equity is another way of saying that the endowment stewards are balancing risks — risks to the ability to carry out the mission this year vs. risks to carrying out the mission in the future. But as I note in the Endowment Investing blog http://endowmentforum.wordpress.com[url][/url%5D, exceeding a spending cap may pose as much of a risk as sticking to it.

  • L. Stokes-Gray

    The Council on Foundations letter is an extraordinary disappointment because it doesn’t offer specific strategies – let alone tactics – to respond to our current economic climate and its profound effect on the third sector. The Council recognizes that there is a problem but offers little more than empty – and dare I say faint-hearted – words. Nonprofit Quarterly offers a targeted approach for moving forward in a bold and effective manner. The Council may be philosopically in the right place but our existing state of affairs needs action not rhetoric.