As NPQ approached its annual issue on philanthropy, the stock market nose-dived, the president was toying with a preemptive war against Iraq, and federal and state budgets were hanging out “closed for business” shingles. Moreover, we may see huge shifts in American civil rights due to our nation’s preoccupation with fighting terrorism abroad and at home.

Does any of this make a difference to America’s foundations? Mark Dowie, author of American Foundations: An Investigative History, believes that many will be painfully slow to respond to our rapidly changing circumstances; he thinks this is unfortunate because, in the words of the late Paul Ylvisaker, former public affairs director of the Ford Foundation, foundations are “America’s passing gear.”

We decided to ask 12 foundation insiders and observers about the likely tenor of the foundation response to unprecedented political and societal changes. Will foundations live up to Ylvisaker’s expectations, or shift into low-gear–or might they simply stall-out on the shoulder of the highway.

Our environment is as unstable as most of us have ever seen it–this creates both threats and opportunities. Will foundations be in the forefront of positive and strategic social change? For that matter, will most nonprofits? How do we all need to change in order to create an effective “passing gear?”

Of course, we recognize that there’s great diversity in foundation types and practices, and lots of exceptions to even the boldest prognostication. As one of our experts quipped, “If you’ve seen one foundation, you’ve seen one foundation.”  Nevertheless, our respondents have joined us in making some overarching statements about the philanthropic response to these changes.

One problem, according to Mark Dowie, is that most foundations don’t play a passing gear role–even when they think they do. This is because foundations “are in the midst of a massive identity crisis and no institution acts confidently or intelligently when this is the case.” The identity question, as he portrays it, is whether foundations are essentially private or public institutions. He contends that, because of tax breaks, they are essentially public and that their governing systems should be more inclusive or “democratic.” He argues that because decision-makers in many foundations tend to be the monied elite they are constrained from crafting fully informed, effective, powerful strategies.

As a result of their insulation, Dowie talks of foundations having a “drag anchor effect,” slowing the pace of social change. “Social change is really a challenge for plutocracy,” he says. “And, as far as I can determine, foundations are beneficent engines of plutocracy. They are doing some good things but they are, nonetheless, protecting private wealth.”

He sees this as an obstacle to the exciting potential of foundations, “anticipating social problems and looking for their root causes and doing something about them. That has always been the stated goal of foundations in general, and it is to me the heart of their failure.”

Dowie’s critique raises some concern among those believing that the logical conclusion of his proposal would be additional regulation of charitable contributions resulting in a chilling effect on giving in general.

Addressing the public policy problems of civil liberties and government accountability, budget cutbacks and massive tax reductions, Pablo Eisenberg, senior fellow at the Public Policy Institute at Georgetown University, believes that we are in serious trouble unless non-conservative foundations move to a “less neutral position” in society.

He describes the current situation as unbalanced. “We have,” he notes, “a very conservative government that is trying support the country’s wealthiest people through the tax system, defending a free market system that is out of control, and trying to cut back on government regulation in every area. The only way to respond is through galvanizing large numbers of people who are well informed and organized and speaking out.

“Unfortunately most foundations are just scared to death of influencing public policy and government decision-making. They have to be willing to do what the conservatives have done, that is to back an agenda dedicated to bringing about necessary social and institutional changes.”

Again, our experts cautioned that there are notable exceptions to all of these critical characterizations.

The vicissitudes of the stock market play havoc with the portfolios of foundations. Foundations typically limit their spending to the legal minimum, five percent of net assets. Spending is frequently averaged over a three to five year period. This, obviously, affects the level of grantmaking, theoretically evening out spikes and dips in assets caused by Dow or S&P. As we talked to our experts, the stock market was plunging to new lows.

The Surdna Foundation’s executive director, Edward Skloot, predicts a decline in foundation assets of anywhere from 10-30 percent. While he believes that many foundations will try to hold to their current payouts as long as they can, he warns that if the market continues to tank, grantees must expect reductions or stretch-outs.

Cynthia Gibson, program officer for the Strengthening U.S. Democracy program at Carnegie Corporation of New York, agrees: “Increasingly, there are a lot of alarms about the current market being sounded among foundation staff and these will likely roll out into reduced money being available for grantmaking if the market continues to nosedive.”

Overall, NPQ’s expert respondents agreed. It seems prudent to expect less money from most foundations over the next three to five years.

But Eisenberg thinks that a reduction in grants should not be a given in this situation. He believes that foundations are obligated to function, at least to some extent, counter-cyclically. “In these difficult times of federal program cutbacks, lowered taxes for the wealthy, a recession economy and corporate scandals, it is incumbent on foundations not to reduce their efforts to maintain an active civil society. They should increase, not decrease, their payout in grants.”
Will foundation grantmaking simply follow the market and take a dive, or act “counter-cyclically” and come out fighting when their support is most needed?

Changes in foundation leadership may be a powerful variable in the way foundations will act in the next few years. Many such shifts in larger institutions have happened recently.

“In my opinion, leadership turnover is the most powerful indicator of change in most foundations,” insists Elizabeth Boris, director of the Center for Nonprofit and Philanthropy at the Urban Institute. “When the CEO changes, the board changes and there is a program review, frequently new program directions or completely new areas of interest. Some nonprofits benefit from the changes and others are left behind.”

Loren Renz, vice president for research at the Foundation Center notes that overall foundation grantmaking did not decline in the past year–in fact it rose five percent–and may not fall off significantly in 2002. “This is a year when many grant makers are trying to keep giving levels steady, recognizing that many nonprofits in their communities are struggling,” Renz says. However, a year like this one sets the level for a five-year average; we may be looking at an extended period of fewer resources. She believes that many foundations are still very unsure about what their grantmaking capacity or priorities will be in the immediate future.

Renz and Gibson agree that the declines in grant budgets are made somewhat worse by the fact, that during our recent economic boom, many foundations made larger multi-year commitments that will need to be honored even in the context of squeezed budgets. This could, however, cause a great deal of difficulty for newer projects and organizations seeking new funding. At the same time, recipients of multi-year grants should anticipate that these commitments might be paid out over longer periods than originally scheduled.

Edward Skloot agrees that there will be a significant pinch; adding that we should expect foundations to drop grants that are not central to their guidelines. This may show itself in less money being available for experimentation and pilot programs.

Gibson anticipates that the pressure on foundation staff will be to deal with reduced grantmaking budgets, which in turn will force staff to be more focused in their overall program strategies and the organizations they will support. She thinks that program officers will be required to provide increasingly tight justifications for particular grants and, in some cases, entire funding initiatives.  This could have both positive and negative consequences. On the one hand, it could prompt more accountability among foundations. On the other, it may put more pressure on grantees to produce more measurable and quick outcomes–accountability measures that are not always relevant to the many nonprofits addressing complex issues not easily measured.

But Skloot is hopeful that funding constraints might spur more funding collaboration, where foundations will begin combining resources to support various kinds of initiatives. “The deepest issue is that foundations don’t see themselves as part of a system; their worlds are hermetic. They seldom share data and knowledge, despite an obvious need to do so. With the market bubble bursting, a better way of thinking and acting may now result.”

Emmett Carson, president and CEO of the Minneapolis Foundation, believes that many foundations are still “in a state of shock” and have not yet rethought their spending and grants policies. He foresees significant reductions in grantmaking and internal debates over whether (and how much) to cut back on staff and operating costs. Carson expects that foundat