Creative Philanthropy

Toward a New Philanthropy for the Twenty-First Century

Helmut K. Anheier, Diana Leat

• Publisher: Routledge
• Year: 2006
• Print ISBN: 9780415370905
• eBook ISBN: 9781134197644
• Topic: Betriebswirtschaft
• Subtopic: Business allgemein

Philanthropy and endowed foundation are vitally important institutions of modern society, yet in recent years, they've faced new threats such as declining resources and questions of accountability and performance. To address these questions, individual philanthropists and foundation leaders have looked to strategic philanthropy to become more effective and efficient.

This important book provides an overview of creative philanthropy along with an analysis of its theory and practice. The authors spell out the implications of their study for management and policy and provide readers with vital tools and techniques. Drawing on case study examples and incorporating sections on key questions and dilemmas, this revealing book covers:

• the philanthropic deficit
• finding a distinctive role to do more with less
• characteristics of the creative foundation
• beyond strategic philanthropy
• the strength of creative philanthropy
• developing creative foundations and philanthropic practices.

Essential reading for all those who study or work in foundations, philanthropy and non-profit organizations, this volume clearly navigates a path through this significant yet highly complex subject area.

Part I: Why philanthropy?

1 The debate about philanthropy

Foundations have enormous potential to add to the problem-solving capacity of modern democratic societies. This potential is currently largely unfulfilled due to a low-key malaise affecting the foundation sector.This malaise is not about money in the sense that limited philanthropic resources keep foundations from achieving greater impact. Nor is it about mandatory pay-out rates and other hotly debated technical issues of how much of their assets foundations should be required to donate to philanthropic causes each year; nor is it about how assets and pay-outs should be valued in financial terms and according to what accounting standard. This low-key malaise is not even fundamentally one of legitimacy and governance, irrespective of more frequent and louder calls for greater accountability and transparency in the world of foundations.

The malaise is less a matter of what is or has been achieved. It is much more a matter of limited models and approaches. It is about a lack of awareness of what could be possible, and what greater – and largely unrealized – potential foundations could have. In our opinion, the ability to overcome this malaise could provide the key to reinventing philanthropy as a central institution of American society as well as in other parts of the world, in particular Europe, Australia and the developed market economies of the Asian Pacific. For future growth and legitimacy, achieving greater impact through what we call creative philanthropy is the central issue for foundations today.

At their best, foundations are innovative, risk-taking funders of causes that others either neglect or are unable to address. They fit in well with the way American society, and others, is developing in an era of smaller government, higher social diversity, and greater reliance on private action for public benefit (Abramson and Spann 1998; Fleischman, Smith in Clotfelter and Ehrlich 1999; Gronbjerg 1998; Prewitt 1999; Roelofs 2003; see also www.philanthropyroundtable.org). Nevertheless, we suspect many, and perhaps too many, foundations would be hard pressed to prove the effectiveness of their contributions and the sustainability of the impact achieved.Why?

The answer is not simply the cost of heroic mistakes borne of high-risk philanthropic ventures, nor found in overly cautious foundation boards and staff that fund safe but marginal causes. Foundations’ failure to maximize their potential is systemic and rooted in three consecutive approaches that have dominated the world of philanthropy over the last two centuries, and that continue to shape foundation policies and practices.While useful and effective in the respective eras when they emerged, we argue in this book that they have become increasingly inadequate to address the needs and opportunities of the 21st century. In essence, we posit that foundations have to build on these approaches to evolve new models if they wish to maximize their potential in today’s world.

We call these three historical approaches or models charity, scientific philanthropy and new scientific philanthropy. Each deserves fuller treatment than we can provide in these introductory paragraphs, but a summary, however simplified, may help to prepare the major thrust of our argument.¹

The first approach, charity, was the original model that in many ways was well suited to the social and political context of the 19th century and the Gilded Age (Harrison and Andrews 1946; Andrews 1974; Prochaska 1990; Lagemann 1999; Smith 1989, Sealander 1997; Karl and Karl 1999). With inadequate provision by nonprofit organizations and government, foundations provided services to those unable to care for themselves. This largely meant addressing poverty, but also health-care and social services more generally. As governments increasingly began to provide some kinds of services for some groups, and as social security schemes were progressively introduced, foundations began to modify their approach and provide services complementary to those of government.

Until the early 20th century, this approach was probably effective, yet it had, and continues to have, major shortcomings that prevent foundations from exploiting their fullest potential. For one, this approach can be, and is, adopted by other kinds of charities, including religious institutions, and it is not clear where the distinct role of endowed foundations lies relative to that of alternative providers such as nonprofit organizations or government. In terms of sustainability, the charity approach makes a difference to those lucky enough to benefit from the service but, taken alone, has no impact beyond that. Moreover, the approach tends to operate on the now largely false expectation that someone else will take up the job of widening and sustaining the impact. Traditionally, it was assumed that what foundations start, government will, and should, continue (Anheier and Toepler 1999). Finally, the charity model addresses symptoms rather than causes. In an important sense, the charity approach changes very little.This last argument was the key criticism that led to the rise of the philanthropic/science foundation approach.

Scientific philanthropy is different from charity in its emphasis on dealing with underlying causes rather than the symptoms of problems. Instead of feeding the hungry, the real task of scientific philanthropy became to root out the causes of poverty (Bulmer 1995, 1999; Nielsen 1985; Karl 1997; Smith and Borgmann 2001). Again, the rise of the philanthropic foundation was a product of its time. In the early to mid 20th century, belief in the power of a ‘scientific approach’ was riding high, as was the notion of social engineering. Social, medical, and economic problems could all be solved once their causes were understood and ‘scientific’ solutions applied. Education and research rather than services to the needy became focal areas of philanthropic activity. For all the achievements of scientific philanthropy, it too suffers from distinct weaknesses when viewed from a 21stcentury perspective.

First, like the charity approach, scientific philanthropy fails fully to exploit the unique potential of endowed foundations. For the most part, this approach can be, and is, adopted by other kinds of organizations as well, including governments. Second, it rests on assumptions that may be true in physical science but are questionable when applied to social issues. Even if the causes of something as complex as, say, poverty are identifiable, they may not be susceptible to scientific solutions and simple control measures. Third, while scientific philanthropy has much wider potential impact than the charity approach, it often failed to appreciate how long, slow, complex and expensive the path to effective problem solving could be.

In recent years, and largely in response to criticism of the ineffectiveness of existing philanthropy, new approaches have been added to the foundation lexicon, including strategic philanthropy, venture philanthropy, social investment, the blended value proposition and so on (Breiteneicher and Marble 2001; Carrington 2002; Emerson 2004; Letts et al. 1997; Porter and Kramer 1999; Reis and Clohesy 2001).We refer to these approaches collectively as ‘new scientific philanthropy’ because they are, in many respects, descendants of scientific philanthropy. The new-scientific approaches tend to focus on foundation processes rather than roles – let alone purposes – and do not address the question of the unique value of foundations in a democracy. They apply business models to foundation practices, with the assumption that if only foundations were run like businesses, all would be well.

While new-scientific models have something to offer and have stimulated healthy debate, their fundamental weakness stems, in large part, from their instrumentalist, managerial assumptions. They are inappropriate guides to achieving social change and sustained impact. Social change is a negotiated, contested, political process, not simply a matter of better management. The complexity of social problems is such that their resolution is never in the hands of one actor, particularly so if the actors, like foundations, do not have the resources commensurate with the problem at hand.

Each of the three approaches has its merits. That foundations have done much good in the world is beyond doubt. But the key question is not ‘do foundations do good?’ but rather ‘do foundations do the best they possibly could in the current environment?’ Arguably, one of foundations’ weaknesses is that the world has changed while they have remained much the same in a variety of ways. We argue that the approaches outlined above are insufficient in today’s world, thus preventing foundations from exploiting their distinctive characteristic of freedom from market and political constraints to make a unique contribution to democratic debate and to maximize the scope and sustainability of their impact.

So what do we offer instead? In essence we argue that in order to achieve their true potential and greater impact, a fourth approach is necessary: creative philanthropy. A creative approach builds on some of the elements and practices of the charity, scientific and new-scientific models but is distinctive in adding new and crucial ingredients, increasing the scope and sustainability of foundation impact, and giving endowed foundations a distinctive role in society. Our aim in this book is to illustrate the ways in which foundations can do this by adopting what we call a creative approach; to explore why foundations adopt such an approach; what a creative approach involves in practice; what management tools it requires; the tensions and dilemmas it raises; and the results it achieves.

Foundation Renaissance

After decades of stagnation and then decline, philanthropic foundations are enjoying a renaissance. Countries as different as the United States, the UK, Australia, Japan, Italy, Germany, Sweden, Turkey and Brazil are displaying renewed interest in creating foundations. In 2004, the Economist reported ‘an explosion’ in new private foundations in the United States. According to the Foundation Center, foundation numbers are up from about 22,000 in the early 1980s to 65,000 today (Renz 2004). In Europe there has also been growth (Anheier and Daly 2006). In Germany, for example, formation of philanthropic foundations has risen from around 200 per annum in the 1980s to between 800 and 900 per annum today (Anheier 2003). The inter-generational transfer of wealth looks set to increase the number of philanthropic foundations in Germany yet further from the present count of 12,000. The UK has about 9,000 foundations, which is about the same number as Switzerland (Anheier and Daly 2006), whereas the Netherlands has about 1,000, and Italy 3,000. In these countries, too, further growth is expected.

This significant and prolonged growth notwithstanding, the ‘golden age’ of philanthropy is usually seen as being the early 20th century when the ‘big foundations’ were established by Rowntree, Nuffield, Rockefeller, Ford, Carnegie and others.We suggest that the early 21st century, with foundations enjoying unprecedented global growth and increasing policy importance amid heightened expectations, could become a new golden age. For policy makers, and others, the hope is that greater philanthropy will capture greater private wealth for the public good, take some of the pressure off government spending, and both reflect and enhance the renewal of civil society.

But despite the hopes attached to philanthropic foundations there are important questions about the capacity of foundations to make a real, sustainable difference in the 21st century. In many countries foundations have been around for centuries, and have poured huge sums of money into a variety of problems that remain obstinately entrenched, with poverty and social exclusion as perhaps the most obvious examples. Are foundations essentially 19th-century institutions, dispensing charity to relatively small numbers of grantees, or funding to scientists sequestered in ivory towers? More fundamentally, do foundations, spending money as and where they choose with very little accountability, have a place in modern democracies without greater calls for openness and transparency?

As one leading commentator on foundations, Nielsen, remarked in The Big Foundations (1972, p. 3), ‘foundations, like giraffes, could not possibly exist, but they do’. As quasi-aristocratic institutions, they flourish on the privileges of a formally egalitarian society; they represent the fruits of capitalistic economic activity; and they are organized for the pursuit of public objectives, which is seemingly contrary to the notion of selfish economic interest that originally created their wealth. Seen from this viewpoint, foundations are not only rare, they are also unlikely institutions, ‘strange creatures in the great jungle of American democracy’, to paraphrase Nielsen (1972, p.3).

The Case Against Foundations

In most countries, renewed interest in philanthropy in general, including foundations, has gone hand in hand with greater scrutiny of the freedoms and privileges enjoyed by both public and private foundations (Ilchman and Burlingame 1998; Nielsen 1979; Frumkin 1998; Fleishman 1999; Van der Ploeg 1999; Anheier and Toepler 1999; Brilliant 2000; Schlüter et al. 2001). The media have stepped up their interest in foundations, and in the United States in particular have found sufficient salacious stories to whet their appetites for more (Gaul and Borowski 1993; Fleishman 1999, 2005). It may be merely a matter of time before journalists in other countries develop similar interests.

Foundations, especially in the United States, are under attack from across the political spectrum – from various House and Senate committees, government agencies, advocates for the nonprofit sector, and from within their own ranks (Dowie 2001; Eisenberg 2002; Fleishman 2005; Williams 1998; Panel on the Nonprofit Sector, 2005). The debates over pay-out and estate duties and taxes, as well as actual and proposed restrictions on foundations’ freedom to give grants where they see fit, have all served to bring foundations into the limelight. At the same time, from within their own ranks, foundations are suffering the effects of abuse and mismanagement by a minority, as well as criticisms that they have become ‘flabby’ and ‘complacent’ (Eisenberg 2002).

The charges against foundations in the United States are varied. Issues of contention include insider relationships between foundations and outside vendors, corporate abuses including use of charitable gifts as bribes to overlook financial improprieties (as in the Enron case), conflicts of interest with grantees, issues around Donor Advised Funds, trustee self-dealing, salaries and severance packages, trustee compensation, and so on (National Committee for Responsive Philanthropy 2004).

In 2004 and 2005, the US Senate Finance Committee responded with a series of recommendations, including a requirement that nonprofit organizations file detailed information every five years showing that they continue to operate for tax-exempt purposes, tougher conflict-of-interest standards, a requirement for detailed descriptions of performance goals and measures for meeting them, controls on donor-advised funds, and tougher controls on administrative costs and pay-out.²

Foundations in other countries, such as the UK (Leat 2005) and Australia (Crimm 2002), are facing similar and growing demands for greater oversight and accountability, even though the particular issues may be different. The European Union, too, is taking a more pronounced interest in foundations, and some philanthropic leaders in Europe are calling for the establishment of a new legal instrument, the European Foundation, to overcome the complexities and inefficiencies of national laws and the weaknesses of oversight regimes in many member states (Anheier and Daly 2006; see www.efc.be).

At the same time, foundations as far apart as the United States, the UK and Australia faced dramatically reduced income between 2000 and 2003. A report by the Foundation Center (2003) suggests that two-fifths of foundations surveyed expected giving to decline in 2003, and this was greater among larger foundations. Foundation giving rebounded somewhat in 2004 (Foundation Center 2005).

Foundation Responses

Foundations have mounted a number of responses to these threats. The dominant response to increased demand and expectations in the face of declining income is to emphasize their limited resources: ‘To bolster civil society, philanthropy must do all it can – but it cannot do it all’ (Cohen 2003).

Various responses have been made to accusations of abuse and mismanagement (see National Committee for Responsive Philanthropy 2004). Some foundations have attempted to blame all that is wrong on smaller foundations, and there have been calls for minimum levels of capitalization for foundations (National Committee for Responsive Philanthropy 2004). The reality is undoubtedly more complex: not all small foundations are badly managed, and not all large foundations are well managed.

Responses to calls for greater regulation and accountability have also been varied. Some have seen this as a good idea, protecting the sound majority from the few bad apples in the barrel (National Committee for Responsive Philanthropy 2004). Some have accepted the broad principle of greater scrutiny but have quibbled with the detail, arguing that foundations are too varied in size to permit simple rules and formulae. Others raised questions about the dangers and inappropriateness of over-regulating what are essentially private institutions, albeit for the public good (see www.cof.org).

Reframing the Question

Current debates concerning foundations, we suggest, start from the wrong angle. Underlying all of the responses above – ‘limited resources’, ‘too small to be capable’, ‘the devil in the detail’, ‘private institutions’ – is a more fundamental question: what are foundations for, and what is it they do that they alone can do? This is the key question: If foundations ‘cannot do it all’ what is it that they can do? Where should they concentrate their resources? If there can be no simple formulae, why is that? If it is dangerous to (over-)regulate private foundations, how is the balance between public and private to be reconciled?

These, we argue, are the fundamental questions. By contrast, focusing on pay-out rates, accountability, or declining income is putting the cart before the horse. Process issues should follow consideration of roles, not vice versa. Until foundations make a clear, well-reasoned case for their unique role and value in a democracy they will be forced to respond to debates framed in terms that miss the fundamental questions.

Rather than responding to a debate the terms of which have been set by others, foundations urgently need to redefine those terms and vigorously defend, define and illustrate their unique strengths and the roles that they, and only they, can play in strengthening and defending democracy. In this way they can turn a low-key crisis into an opportunity.

To make this happen, foundations need to move the debate away from concerns with processes to the more fundamental question of what value they add in society. They need to illustrate their unique roles with success stories, and consider ways in which these success stories can be replicated. What is more, foundations must do more in promoting these messages to policy makers, the media, the nonprofit sector and the public. These are some of the challenges we address in this book – challenges that foundations must face if they wish to seize the opportunities of renewal presented to them.

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Table of contents

• Cover Page
• Title Page
• Copyright Page
• Acknowledgments
• Part I: Why philanthropy?
• Part II: In Search of Creative Philanthropy
• Part III: Implications
• Notes
• Bibliography