Larry Kramer’s essay is a thorough and thoughtful examination of philanthropy, the importance of achieving mission during extraordinary and more normal times, and what should be the present and future foundation payout rates to nonprofit organizations responding to opportunities and to many of the nation’s most intractable challenges.
Kramer’s thesis revolves around a tradeoff on payouts that foundations and their board members face when cataclysmic crises befall people, communities, governments, and business in the United States: “When a downturn happens, should [foundations] reduce spending to preserve capital for future grantees and beneficiaries, or should they maintain spending to preserve the work of present grantees and beneficiaries?”
It takes unflinching honesty to ask this question during any crisis, but especially now when the severity of COVID-19, the corresponding economic recession, and our nation’s racial reckoning is prompting calls for foundations to increase payout policies to meet this historic moment. His interrogation is set against the reality of the unique and essential role of foundations in contributing to meet future challenges in civil society.
Kramer offers a point of view, but he deftly builds his argument around the idea that there is no absolute one-size-fits-all answer to his question, that we need to keep the idea of achieving overall good in mind, and that foundations need to be prepared with “rainy day” funds to weather cyclical and inevitable economic downturns. His call for rigorous, evidence-based analysis on payout rates is responsible stewardship of philanthropic dollars. It is the standard to which we should hold ourselves, and it leaves room for our own thinking, which can open the door to clarity and justification on when and how to act especially when facing extraordinary challenges.
Kramer’s argument and nuanced analysis should not be a surprise given his years of leadership and fiduciary responsibility as president of the William and Flora Hewlett Foundation. He also brought his intellect to bear as a professor at and dean of Stanford Law School. And (in full disclosure) he now serves on the Independent Sector Board of Directors.
Though he discusses the long view in much of his essay, we know the present is fraught with real-life questions for philanthropy: The US nonprofit sector and people in diverse communities nationwide are facing unprecedented challenges during the pandemic, economic recession that has a weakened safety net, and movement for equity in our nation’s racial reckoning. In addition, the nationwide demand for services is spiking while traditional fundraising and fee-for-service income has taken a significant hit. While demand is increasing, financial support is decreasing in many cases.
Kramer’s article, in my estimation, is a clarion call to society in general, and philanthropy specifically, to reflect deeply and thoroughly investigate the issue. Moreover, he’s challenging all of us in the field with the possibility that the answer for the social sector may be a non-binary one. And it is attracting attention and public debate: “With some trepidation, then, I will try to explain why a funder might credibly think it wiser not to increase payout during an economic downturn, even a severe one,” writes Kramer. “I hope to show that this is so not only because people might reasonably disagree about the right thing to do, but because there might actually be more than one right thing to do.”
One of his conclusions: “Of course, a funder can almost always accomplish more good now by spending more money now. But that’s not the right question: The question is whether a funder can accomplish more good overall by spending more money now, which means taking into account the opportunity costs of not being able to spend as much money in the future. Seen in that light, whether to spend more now depends on what one is trying to achieve.”
Keeping in mind the immediate and long-term goals of a foundation is just as important as recognizing who is asking and answering this question. In both cases, philanthropic actions and money will follow. It just depends when, at what scale, for whom, and in the face of which challenges and desired impact.
Kramer acknowledges that part of the calculus to answering his question requires assessment about what merits increased payout, especially with the goal of mitigating or containing future problems. In discussing the Hewlett Foundation’s work to address global warming, for example, he writes: “If, on the other hand, overspending by us could help produce that—could galvanize new funders to join the effort at scale, for example, or catalyze critical new work capable of moving the needle—we would certainly consider it.”
Complicating his analysis is that philanthropy exists in a complex ecosystem made up of a broad set of actors, missions, investment options, mandates on spending money in the form of grants, and increasingly other tools to drive impact like impact investing. Foundations, though powerful on many levels, are part of an ecosystem in which navigation and collaboration are needed for collective success. This makes the calculus of paying out more money during a given year or period harder to answer—though not entirely out of reach.
This complexity and his question open the door to the idea that a range of collective solutions is possible—that in addition to being a serious tradeoff about dollars, mission, and impact, there is a real and immediate opportunity for philanthropy, the nonprofit sector, and people in communities to think anew in this ecosystem amidst these challenging circumstances. It will require serious thinking and work because the tradeoff can be murky.
If we were talking about a single topic or goal for a foundation or nonprofit organization, the answer would be easier to pinpoint because the focus is smaller. Instead, if we were mapping the supply of multi-issue philanthropic dollars against demand in the United States, we would have dozens of actors in the system because missions and implementation vary. They also are governed by diverse and individual boards with different interests and goals. Historically, this reality has served the nation exceedingly well, despite ongoing needs for reforms to further develop the sector.
There is a pressing topic that could justify increased foundation payouts now under Kramer’s thesis. It is the racial equity movement and the national openness to it. It is evident to me that the nation has entered a historical reckoning with its history of racism. Like his example of global warming, there is a powerful opportunity now to add momentum to the movement and rework systems, hopefully permanently, that would, in fact, mitigate and contain racism and its manifestation in an historic way.
If systemic racism is a societal issue that we need to address now because it harms so much in the country—in addition to violating human and civil rights and dignity—and there is national momentum and will to address racism, should we wait for philanthropic investments of the future? Judiciously spending more money now to increase the success of mitigating the magnitude of interrelated systemic racism in the future certainly follows out of Kramer’s argument.
Overall, a nonprofit sector conversation about this question of present and future spending and philanthropic impact would be productive, rigorous, and lively for the nation. It would be a way to engage leaders in a rich exchange of diverse ideas, to discuss and interrogate them in real time and detail, and possibly find ways—collectively—to map a path forward in the context of Kramer’s deep question.
Have we brainstormed enough as a collective group about this question? What can we learn from each other? What are other perspectives to his argument, in addition to recognizing the opportunity costs about spending endowment money? Is there a new narrative, a different path to the mountaintop that we have yet to realize? As we consider these questions, we also must ask: Who needs to be part of this discussion as the nation becomes more diverse and we bring to the fore the voices and lived experiences of the people directly affected by the issues in our national conversations and policy solutions?
Kramer writes that Congressional action might help stimulate more foundation spending and describes how the Hewlett Foundation has embraced general operating support to give nonprofit grant recipients more financial freedom for their current and future work.
But until a new, widespread financing and investment model surfaces or a greater commitment or involvement from Congress arrives, the answer to Kramer’s real-life question will continue to fall on the diverse set of foundations and their board members. These leaders look to missions, bylaws, conversations, data, trends, experience, and investment strategies to make decisions.
They are responsible for setting policies and deciding how and when hundreds of billions of philanthropic dollars are spent yearly for the public good in an increasingly diverse nation of 328 million people. It can be a daunting task in an ecosystem, but it is worth pursuing because philanthropy, nonprofit organizations, and community trust are central to building a healthy civil society for all and improving the nation.
There is no doubt that foundation board debates and discussions about spending are lively and, at times, contentious. But they are conducted under the auspices of hope, with people, environmental stewardship, and communities at the heart of it, and in conjunction with the calculus of upholding philanthropic missions and making a positive impact while safeguarding institutions and endowments. All of this, we know, is done amidst complexity and with a healthy dose of reflection and institutional introspection.
Knowing that your foundation has enough money to achieve more good in the face of future intractable challenges offers peace of mind during uncertain times. Still, this reassuring financial footing is one in which thoughtful and responsible foundation board members can lose a night’s sleep. Because as they step into their communities the next day, they will see the faces and hear the voices of people striving to make their neighborhoods as strong, healthy, and equitable as possible. To achieve philanthropic, nonprofit, community, and nationwide success, we know listening will always remain bedrock—both now and in perpetuity.
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Read more stories by Dan Cardinali.