Foundation Closures Discussed in the WSJ

Per the Wall Street Journal, foundations are being established in record numbers, but also closed in record numbers. It makes you wonder if the foundation form is the right vehicle for those who want to jump start change over a relatively short period of time. Beginning by asking, "What do you want to change or preserve in the world?" leads to the question, "How can you make that happen?" And that in turn leads to questions of social context, potential allies, possible volunteers and collaborators, organizations already at work in the field, then timelines, budgets, legal form, and action plan.

I am afraid that the choice of a foundation is often driven by tax advisors and money managers. The tax advisors see a win in keeping wealth from the IRS, often as part of a "Zero Tax Estate Plan," and money managers see a win in managing foundation assets for as long as possible, preferably in perpetuity. But the shortest distance between a sum of money and a real world result may not pass through the foundation form, particularly if the big funding happens at death. Increasingly, we may see entrepreneurial donors seeking assistance on setting up social ventures, funding start ups, making outright gifts and investments, and otherwise putting the money to work as part of a business plan/plan for social change. The aggressive contemporary world-changer wants to do it now, while alive and actively engaged, rather than later or slowly through trustees doling out the dollars bit by bit.

Who advises the wealthy about how to establish and run an effective social venture? Invest for social return in a forprofit? Create a social movement by catalyzing change agents? How would such an advisor be paid? What kind of background would be expected? Are there networks or professional associations of such "out of the box" advisors? I am not aware of them, if there are.  For the time being, Foundations will be the recommendation of choice for those wealthy people who want to change the world.  And the dear old world will smile, unperturbed, knowing full well that foundations are generally no match for inertia.

Comments

[Lucy Bernholz]

Phil - great post, good questions. How to make help donors know all their options, not just the one that their advisors know/benefit from selling is a real question.

[Sean Stannard-Stockton]

Speaking strictly from the standpoint of a wealth manager who works with philanthropic families (there are many other advisors who need to be having the philanthropic conversation as well), we can see that a similar conflict existed in traditional wealth management. Brokers were paid for selling their own companies product. Today, there are many independent advisors who are paid for giving advice and can select from investment products/choices from across the entire landscape.

The need in philanthropy/social change is to create platforms of various structures and social change options, which independent advisors (wealth managers and others) can plug into. We need to get away from philanthropy advice being a sales process. If you look at community foundations, which do lots of great work, they are still bound by the fact they have to sell donor advised funds. If a private foundation or investment in a social project is a better choice, community foundations can't get paid to help.

Aligning incentives. This is key. The existing infrastructure doesn't exist for incentives to be fully aligned. But that is the direction we need to move in.

[Phil]

Exactly, Sean, and well said. Aligning incentives is the right phrase for it. You can't blame people for doing what they are well trained, well supported, well managed, and well compensated for doing. There are big pieces of the philanthropic advisory landscape for which there is no really attractive and proven business model. How to get paid when the client puts money to work in a social venture, or direct gift? Comes down to hourly. But many make hourly rates plus percentages of assets under management, so for them to go to hourly alone would not "float the boat."

Do you have any specific thoughts on advisory business models supportive of direct gifts and investments in social ventures?

[Dan Bassill]

I hope the WSJ article generates some new discussion of the way donors and non profits and those served, as well as those who benefit, might connect in on-line forums where they can learn from many resources, connect and build relationships with many stakeholders, and build a commitment to long-term involvement in problem solving and social benefit activities.

One of the challenges is keeping the visibility in front of the public on a regular basis so that we can not only attract a crowd, but we can keep them involved and grow the number of people involved over many years.

With Chicago competing for the 2016 Olympics, I posted a message on my blog suggesting that we encourage cities, businesses and foundations to compete for Gold Medals that recognize them for how good they are at using their resources to help end poverty.

My point is that since the media will be writing about this story at least once a week for the next 2 to 9 years, we have a great opportunity to build off of this Gold Medal imagery to encourage higher levels of involvement in support of social causes.

We don't need to buy the front page of the local newspaper if what the media are writing about draws attention to what we're trying to do.

[Phil]

Great idea, Dan, on the Gold Medal in various categories of giving, or civic engagement.