Exponent Philanthropy Survey Offers Insights into the World of Small Foundations

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Small foundations

Much of the coverage of foundations in the online and print journals that report on the field tends to focus on those institutions whose banked assets, annual grantmaking, and proclivity toward self-promotion combine for a massive imprint on what the public thinks philanthropy is. The actual number of such bigfoot foundations is quite limited. Most foundations are small, in many cases with few or no professional staff. Of the 1,200 or so largest foundations in the U.S., one third are unstaffed.

Exponent Philanthropy, formerly the Association of Small Foundations, conducts a biannual survey of its membership, all foundations with few or no staff. The most recent report, the 2015 Foundation Operations and Management Report, provides insights into the slice of philanthropy whose annual reports and CEOs’ pronouncements aren’t treated as news stories in the New York Times, but whose grantmaking and support may be very important to their local communities and beyond.

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This year’s study, based on data collected in mid-2014, aggregates the responses of 777 Exponent Philanthropy member foundations out of a total membership of some 2,300. The key findings about the respondents are as follows:

  • Accounting for $4.4 billion in annual grantmaking, the 777 respondents had a cumulative fair market value of $87.8 billion, more than $13 billion higher than the figure in the previous small foundation study. The foundations in the report distributed 158,000 grants, a noticeable decrease from 203,000 a year before, and the median grant size increased from $15,415 to $19,116. The trend toward fewer and larger grants that has characterized large foundation grantmaking is apparently showing up in small foundations, too. Noticeably, the grantmaking is local—two-thirds identified as going to local communities in the foundations’ areas and another 11 percent statewide. Education is the top priority for the small foundations’ grantmaking, accounting for 29 percent of the grant dollars, followed by human services (18 percent), health (16 percent), and arts and culture (8 percent). Just short of one-fourth of the foundations have also established donor-advised funds or other grantmaking vehicles at community foundations and at national corporate fund managers such as Fidelity, Schwab, and Vanguard. Based on a quick review, it doesn’t appear that the report contains information on the proportion of respondents that might not accept unsolicited proposals or might be open to letters of inquiry.
  • Qualifying distributions (“payout”), as a proportion of the foundations’ non-charitable use assets, were surprisingly low: a median of 5.19 percent and an average of 6.50 percent (the average grants-only payout was 5.51 percent and the median 4.55 percent). While those payout figures exceed the required 5 percent annual payout requirement, they contrast with the foundations’ 14.1 percent average annual investment return (median of 13.5 percent), up from 9.7 percent in the previous survey. Over a quarter of the respondents anticipate that their foundations will receive addition infusions of capital from living donors and others. That suggests that foundations could easily bear a higher payout rate without threatening the perpetuity potential of the foundations’ corpus. Given that large foundations, unlike these small foundations, often have better returns in the market, it would appear that the decision of philanthropic advocacy organizations to give up on their longstanding campaigns in favor of higher mandatory grants payout may not have been a wise move now that foundations are earning double-digit returns from various kinds of investments.
  • Over one-third of the foundation respondents pay their board members an annual fee, a per-meeting fee, or both an annual and per-meeting fee. The larger foundations in the survey, those with over $50 million in assets, are more likely than others to pay their trustees (44 percent), as are the non-family foundations. The average and median compensation levels of board members in that 36 percent of survey respondents are not high—the average for total trustee compensation is only a little over $11,600 and the median around $6,000, though for foundations that only pay an annual fee, the average jumps to $16,400 and the median $10,000. In some large foundations that are not Exponent Philanthropy-sized, the trustee compensations are much higher. If the reality is that the trustees in these small foundations are legitimately functioning in place of non-existent staff, this might be warranted. However, payment of trustees on foundation boards, given that most foundations would likely be horrified at giving grants to operating nonprofits that paid their board members, is another of the practices of some foundations that were once an issue for philanthropic advocacy but seem to have passed by the wayside.
  • Unlike larger foundations, small foundations do turn to their trustees more regularly to provide certain professional services that would more typically be provided by outside firms. In the survey, 36 percent of the foundations reported that board members provided accounting, legal, investment, or administrative services. One would expect that these services would be provided at below-market rates or on a pro bono basis, but a surprisingly high proportion of the foundations reported that their trustees charged “full rate”: 41 out of 99 foundations paid the full rate for board members providing accounting services, 34 out of 95 foundations paid full rate for legal, 32 out of 105 foundations for investment services, and 56 out of 152 for administrative services.
  • Thirteen percent of the respondents reported using impact investment approaches, which the study defined as mission-related or socially responsible investing. For those foundations engaged in impact investment, more than half (59 percent) utilized social screens for selecting stocks, bonds, and mutual funds, just short of a third (31 percent) pursued impact through direct investments in private companies or funds, and one-tenth deposited funds with community development financial institutions (CDFIs). Unfortunately, the lengthy analysis prepared by the Glenmede Trust Company examining the investment information in the report didn’t analyze the comparative returns of the impact investment or CSR aspects of the foundations’ portfolios, focusing on the more general risk and liquidity issues of the foundations’ investments instead. There was also no information on whether the foundations in the survey participated in shareholder proxy actions or if they divested from specific holdings due to social or other issues.
  • The report provides extensive information on the foundations’ administrative costs, even to the point of the hourly rates paid to consultants for board meeting facilitation ($125/hr. median), strategic planning ($150/hr.), and communications/public relations ($100/hr.), just to name three. For many readers, however, the more interesting component is foundation salaries. On average, full-time (30+ hours a week) CEOs of the foundation respondents earned $126,405 (median $120,000), professional grantmaking/program staff an average of $94,470 (median $83,100), and support staff an average of $55,560 (median $50,500).

The detail in this Exponent Philanthropy study is impressive, only briefly highlighted here. With a response rate of over one-third, it provides a reasonably reliable picture of the world of small foundations. One might guess that nonprofits encountering the CEOs and handful of staff working for these foundations might see them as peers in their localities and probably reasonably approachable. For all of the nonprofit journals that have glommed onto obsequiously following the big foundations and the high-net-worth donors with fortunes in the billions, most of which are inaccessible to the typical 501(c)(3) operating charity, this report describes a world of somewhat more accessible and more local foundation grantmakers that nonprofits might find not in a New York City skyscraper, in an office suite overlooking the San Francisco Bay, or in a new campus in Seattle, but in their hometowns. –Rick Cohen