[Chapter 15, pages 245, 250]

Private Grantmaking Foundations—Unstaffed and staffed

“Private foundations are now a distinctive national phenomenon, both numerous and rich. They are elitist institutions left remarkably free by a democratic, egalitarian society to involve themselves in almost any field—education, science, medicine, religion, the arts, and international affairs, among others. Not bound by voters, shareholders, or customers—and with only feather-light oversight by government—they couldn’t possibly be allowed to exist with such power and utter freedom in a democratic society. But they do.”[1]

“[T]he Ford Foundation is a large body of money completely surrounded by people who want some.”[2]

Private grantmaking foundations have been a powerful force in U.S. philanthropy since the days of Carnegie, Rockefeller, and their peers. Their influence has been profound, and their role has been the subject of many observations:

In The Foundation: A Great American Secret, Joel Fleishman describes foundations as tax-exempt, not-for-profit organizations that “provide funds from the foundation’s income or endowment to support not-for-profit organizations, charities, or other programs and organizations in accordance with the mission designated by the founder.”[3] While Fleishman’s subtitle refers mainly to how little the public knows about the good that foundations do, it also captures the deeper truth of the incredible variety of the nation’s 68,000 foundations. There is an adage in philanthropy: “If you’ve seen one foundation, you’ve seen one foundation.”

Private foundations often are established with substantial endowments of investment securities, although they can be set up with a steady stream of donations. Foundations must disburse at least 5% of their endowment assets annually in “qualified distributions,” which include staff and other administrative costs as well as grants. (We will discuss payout at greater length more about payout in Chapter 16). In addition to payout and other tax requirements and excise taxes, foundations are highly regulated by the Internal Revenue Code and by some state laws with respect to influence over legislation, compensation of employees, governance and self-dealing, and grants to organizations other than public charities.[4]

Most foundations, even those with millions in assets, do not have any professional staff. Even among larger independent and family foundations—over 18,000 foundations with at least $1 million in assets or $100,000 in grants—only 14.3% had any paid staff, with a median number of 2 staff members.[5] These numbers tend to increase with asset size: more than half of all foundations with $50-100 million in assets have paid staff and more than three-quarters of those with assets over $100 million do.

Unstaffed Family Foundations

Most foundations in the United States are small family foundations, with two thirds having less than $1 million in assets.[6] These foundations provide a way for a family to manifest its generosity. They inevitably reflect the visions, passions, values, and sometimes the quirks of the donors and their families. And they also are often a place for learning about philanthropy, passing values to one’s children, and expressing one’s views of the world. Many family foundations are essentially financial vehicles that only exist as face-to-face organizations on the days when trustees convene to meet and discuss its grantmaking. Board meetings are opportunities for gathering busy family members for conversations about philanthropy.

How can small family foundations—especially those run by part-time unpaid family members—develop the capacity for strategic planning, due diligence, and evaluation? Family members can:

• Attend meetings of organizations such as the Association of Small Foundations, Council of Foundations, and Philanthropy Roundtable, where they can meet with peers and learn from expert speakers.
• Read newsletters and subscribe to email lists in their areas of interest (for example, the Skoll Foundation’s eNewsletter on social entrepreneurship).
• Conduct field trips and site visits to grantee organizations.
• Develop subject-matter knowledge in particular subject areas.
• Make good use of philanthropic advisors and affinity groups.

Having even one staff member enhances all of these resources and helps create networks among professional colleagues in the foundation world.

Between Donor Advised Funds and Private Foundations: The Supporting Foundation

In-between a donor-advised fund at a foundation and a private foundation, a supporting foundation is a separate foundation that uses a public charity, typically a community foundation, for administrative support. A supporting foundation usually pays larger fees than would a donor advised fund. But these overhead costs can be less than those of a private foundation because supporting foundations can employ a charity’s resources and administrative assistance. Additionally, because the money is donated to the public charity, you aren’t subject to excise taxes or mandatory payout. And unlike DAFs, you can often set your own investment policy.

A supporting foundation also differs from DAF in that it is its own organization with a board of directors and sometimes even a staff. The board, however, has to be appointed by the board of the public charity and the majority of the board cannot be family members or other disqualified individuals.

Staffed Foundations

Having paid staff members represents a decision to bring professional advisors in-house, and almost inevitably increases a foundation’s administrative costs. Most foundations’ administrative costs are about 5% of their grants budget, and even the very largest foundations average around 12-13%,[7]

It is the staff of a staffed foundation that uniquely positions it to engage in strategic philanthropy. While the founder and board determine the foundation’s mission and strategies, it is the staff members who do research, design strategies, solicit and respond to applications, engaged in due diligence, and monitor and evaluate grants and strategies. Ed Skloot, former president of the Surdna Foundation, has described these functions of program officers in addition to their core roles as grantmakers.[8] They are:

1. Integrators of knowledge in the field as well as findings within projects – and translators of that knowledge to other grantees and to foundation colleagues.
2. Collectors of data, who review grants, assemble program trends, present it in coherent ways to others (including board members) and use it to plan the future.
3. Leveragers of money from other funders, governments, and even from within when inter-foundation collaboration is appropriate.
4. Seducers of power brokers, politicians and media in order to get the most favorable attention, financing and local/national support.
5. Partners with government bureaucrats, political leaders and community organizations (and their representatives). They also are partners with their grantees, building sustained and respectful relationships, and with foundation colleagues, who can jointly construct collaborative programs with heightened impact and reach.
6. Builders of intermediaries, who may be necessary to deliver services, or provide technical assistance, when straight-out grantmaking isn’t possible or desirable.
7. Networkers who aggregate time and people around research areas, advocacy and policy planning.
8. Problem-solvers who are able to spot impediments, speed bumps and inefficiencies in grants and larger initiatives, and solve them before they become crises.
9. Advocates of their programs and their grantees in all fora, friendly and skeptical, who communicate extremely well.

Given the basic thesis of this book, you won’t be surprised that we have one, and only one, criterion for the value of a foundation’s administrative costs: whether they increase its impact. To be sure, one can find examples of bloated staffs. And also examples of how so-called “philanthropoids” can forget that it is other people’s money, not their own, they are giving away, and can contribute to the problems of hubris mentioned in Chapter 5. But it is difficult to undertake large scale strategic philanthropy without the expertise only an internal professional staff can provide. In fact, most of the initiatives described in this book were supported by staffed private foundations.

Because of the unavoidable costs of the infrastructure of any foundation, some philanthropists have combined their assets with those of others—often other family members—to take advantage of economies of scale. This was the path that led to the Rockefeller Brothers Fund, which was founded in 1940 by the daughter and five sons of John D. Rockefeller Jr. as a joint source of advice and research on charitable activities and to combine some of their philanthropies to “better effect.”[9] Along similar lines, one staff can manage several different foundations; for example, the staff at the Jenifer Altman Foundation manages two other charitable funds, the Barbara Smith Fund and the Bet Lev Foundation, which have similar goals of addressing environmental health and justice issues. And in the mid-1990's, Ann Sobrato, John A. Sobrato and his wife Sue, along with their three children jointly created the Sobrato Family Foundation. As a place-based grantmaker, Sobrato invests exclusively in community-based nonprofits that promote self-reliance and economic independence, and contribute to the quality of life for the economically, physically and emotionally challenged in the Bay Area. Sobrato Family Foundation received the 2007 Outstanding National Foundation Award from the International Associate of Funding Professionals.