Perspectives
BENEFIT SOCIETY
The philanthropic foundation becomes fair game for reform
All's still quiet on the philanthropy front, at least politically. If it's true that politics is essentially an endless, more or less organized mass quarrel over the distribution of wealth and power, then philanthropy—a vast reservoir of money, power, and influence in this country—ought also to be an important issue in the quarrel. But it's not. Not yet.
Many good and powerful factors have been at work to keep philanthropy out of the political fray. Fear of government is one. We fear its abuse of power—in this case, an attempt to put an end to the quarrel, say, by setting up a final triumph of one side. We fear governments' undependability. Anything given can be taken away. And the elites of art and education fear what they fairly (or unfairly) perceive as government's inherent ignorance, conservatism, and bad taste: its tendency in a democracy to pander to the envious middle. The first two fears go wide and deep in America.
The third fear is narrowly based. It is peculiar to the managers and beneficiaries of all the universities, museums, foundations, and research centers that occupy the high ground of American culture. All depend, to one degree or another, on philanthropy; and their dependants, all those professors and curators of this and that who constitute a powerful special interest, would be more than a little agitated if philanthropy were ever debated.
Beyond these special interests, however, is a strong argument that philanthropy plays a major—no, a redemptive—role in American capitalism. In what other capitalist country do new big winners find arrangements already made for them to attain the high social status they crave (and the respect and the company of their peers-in-wealth) simply by supporting with piles of cash the institutional guardians of all that is most beautiful, beneficent, and beloved in American life? Its an arrangement not to be trifled with by politics.
On the horizon of this tranquil sea, however, a little cloud has appeared, heading for philanthropy and growing darker by the minute. It is the rumor, fast hardening into a politically useful fact, that the very rich are banking an ever-larger, ever-more unfair percentage of the national wealth. Why should this threaten philanthropy, which is, plausibly enough, redemptive giving? Well, actually, for the moment, only one philanthropic institution seems in any danger: charitable foundations. It's an appealing target, dear to their fond founders and a perfect object of plutoprurience in the public.
It's also seen as vulnerable by defenders of the philanthropic establishment. The Foundation: A Great American Secret is a sign of their nervousness. The author is Joel L. Fleishman, professor of law and public policy at Duke University, and an old hand at the care and feeding of 501(c)(3)s. Fleishman establishes the heft of American foundations with a few numbers: As of 2005, there were about 68,000 such institutions, holding some half a trillion in assets and deploying $33.6 billion in annual grants. The great majority of foundations, he says, are small and understaffed, while 46 have assets of over one billion dollars (as of 2003, which leaves out the Bill & Melinda Gates Foundation's recent receipt of Warren Buffett's billions.) Fully 70 percent of all foundation assets were controlled by just 2 percent of foundations, he writes (a percentage that, again, can only have swelled with the Buffett largesse).
The Foundation is not recommended reading for your average philanthropist (who has no foundation and wouldn't think of going to the expense of founding one). It is for the conscientious founder who has heard of possible political inquiries and for the philanthropoids (his/her executives) who may have brought him/her the news. It is a textbook, really, for the bustling new philanthropy courses at business, law, government, and divinity schools. For these people, Fleishman identifies six "besetting sins" of foundations, all of them sins against grant seekers: arrogance, discourtesy, inaccessibility, arbitrariness, failure to communicate, and what he calls foundation ADD. Politics is almost certainly indifferent to these horrors, as they're no more its business than are the troubles of script pitchers in Hollywood.
Politics' business, of course, is the issue of foundation accountability to the tax-paying public. Imagine a small city of perhaps a million tax-paying families. One-tenth of one percent—just 1,000 of them—hold 40 percent of the city's total wealth, or $10 billion. Now imagine that these few families decide to pool 2 percent of their assets ($200 million)—2 percent is the portion of the GDP that seems to form the historically impenetrable ceiling on annual charitable giving in the U.S.—to create a community foundation.
So far, there's nothing to worry about in our imaginary city, neither on the donors' side nor on the citizens'. Trouble comes when the creation of a foundation gets into the papers, along with the news that this fantastic gift has purchased, for the families behind it, effective power of the purse over every significant nonprofit, nongovernment organization in the city, including entities like parks and libraries that will nonetheless continue to sustain themselves with the help of taxpayers money. Because nothing like this has ever been made public before, shock and dismay spread throughout certain sensitive quarters. Politicians pick up on it. Soon it becomes clear to the public that, thanks to the charitable deduction that deprives the city's coffers of one-third percent of the value of the 1,000 families' gift ( or $66.7 million in our example), they, the citizens, are helping to pay for this heist of their city's prized possessions.
Investigations are ordered by the media and the city council. Outrage erupts, along with demands that the community foundation—and, by extension, the donor families—henceforth to be held accountable, somehow, for its grants.
This is theissue for foundations, says Fleishman—the accountability issue. He does not dispute the publics right to demand it, along with visibility both in the media and in the ivory tower. In a word, foundations must become much more open.
That should work, he says, to preserve the integrity of what he calls the "civic sector." The civic sector, on his account of it, is by no means coextensive with philanthropic giving, though giving (of time and money) is at the heart of it. It is the area of a healthy society that belongs neither to politics and government nor to private life and business: rather, it is that place in society around which people voluntarily come together to help each other and themselves (e.g., labor unions and churches) to make a better world.
One wonders about that civic sector, though. Does the American public have enough political energy to protect it or even trifle with it? The public seems energized now, thanks to the Iraq war and a prematurely exciting presidential race, but does it give a damn about philanthropy? The Foundation may be an exercise not in futility, but in gratuity.
Nelson W. Aldrich, Jr., is a regular columnist for CONTRIBUTE. Please send comments to editors@contributemedia.com
