Foundation Immortality – A Given in These Times?

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We are facing an era of tectonic shifts in social, political, and economic terms and it is important that nonprofits get in the conversation about what must change and how. One of the many pertinent questions being raised is about foundation accountability. Foundations are extraordinarily insulated from any accountability “market.” This topic has already been approached by foundations in a few ways such as through surveys to judge relations with grantees and efforts to engage in what could only be called serial strategic planning, complete with complicated theories of change.

But as with the early stages of any self-imposed reform agenda, there are other basic questions that are not being discussed like —should foundations continue to exist in perpetuity (the current norm for the majority of foundations)? The insulation that comes with being a self-perpetuating concern may not be good either for philanthropy or for the nonprofit sector.

“As we watched their valuations increase dramatically over the past 15 years, many of us wondered why foundations couldn’t be more generous with their payouts. After all, they were growing far larger in real terms. Why should they continue to give only 5 percent of their endowments annually to charity? Why not increase their annual payout rate to recognize some of their windfall?”

Thus begins a provocative article by Buzz Schmidt, the CEO of GuideStar International and the Chairman of the board of directors of the Heron Foundation. The Heron Foundation is known for its interest in using its endowment for program-related investments and mission-related investments, thus extending its social value beyond basic grantmaking. The challenge posed by Schmidt in this article is right in line with this — he proposes that foundations get much more aggressive about using all of their assets for public good. The doctrine of perpetuity, he argues, not only removes badly needed capital from the civic sector but it insulates foundations from disciplines of accountability.

Schmidt goes further to make some intriguing suggestions about how to approach the question of “maximizing [the] social value” of this country’s foundations. We at the Nonprofit Quarterly feel that the time has come for this conversation. We hope that it would catch the imagination of this country’s foundation leadership and galvanize a commitment to new thinking and creativity in the full use of the many billions of dollars in assets held by these tax exempt bodies.

Please read this important article. Circulate it! And start a conversation. Billions are at stake.