Spotlight on the Challenge of Modernizing Institutional Giving

Spotlight on the Challenge of Modernizing Institutional Giving

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Historically, foundations have largely shaped the landscape of American philanthropy. Organizations such as the Ford Foundation, The Rockefeller Foundation, and the Carnegie Foundation were largely recognized as leaders in giving and played a massive role in shaping policy, driving social innovation, and influencing the private sector. However, over the last two decades, foundations have lost some of their power. Institutional giving has declined due to shifts in wealth accumulation and the rise of new philanthropists, particularly in the technology sector. In 1993, the top 10 foundations accounted for about 15 percent of all giving. However, the top 10 foundations made only 4 percent of all grants in 2014.

While they have contributed less in overall giving, foundations have become exposed to greater criticism in how they operate. This fact remains especially true as funding strategies shift and foundations fail to respond. Many people now view institutional giving as a practice steeped in tradition rather than a progressive means of addressing social issues. This view stems partly from rigid budgets and structures, which make it difficult for these organizations to take advantage of opportunities to make a large impact. The typical foundation has fixed annual budgets across specific program areas, which limits flexibility.

Primary Focus Areas

Moreover, foundations often suffer from fragmented giving because they donate to so many different issues. A handful of foundations donate a great deal of money to their primary focus areas, but the majority of them give to so many different causes that they are unable to make a significant impact. This issue also relates back to the inflexibility of many institutional structures. Furthermore, when foundations give to another organization, there are often strings attached. Foundations have a reputation for being overly prescriptive rather than supporting the goals and programs of the nonprofits that they fund.

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Despite the perceived shortcomings of many foundations, others have radically adopted their approach to stay current. Several of these progressive foundations have adopted a big-bets approach and have begun funneling considerable amount of funds into a given issue. However, this is the only one way for institutional giving to stay more current. Some other strategies that foundations could adopt to evolve to modern needs include the following:

1. Building in Greater Flexibility

Already, some foundation leaders are working to dismantle the programmatic silos that reduce the flexibility of their organizations. The MacArthur Foundation, for example, is abandoning the traditional program structure and moving toward cross-disciplinary teams that make it easier to adjust giving on the fly. Other organizations have decided to maintain traditional focus areas while keeping a portion of overall funding unallocated. That way, the organization can pivot when necessary to maximize its impact. The Ford Foundation has done so. Currently, about 10 to 15 percent of its overall budget is discretionary, which means that it can increase funding to specific projects without having to reduce the amount of money dedicated to different focus areas. While it may sound like a simple solution to keep some money out of the silos, this actually represents a very new shift in how foundations have operated and emphasizes the importance of breaking from historical patterns.

2. Collaborating with Grantees

While foundations will always have their own ideas about strategy, it is becoming increasingly important for institutions to pay attention to what is happening in their field. More foundations have begun to cede creative control to grantees and other stakeholders, which is an important step in order to have the greatest possible impact. While no one expects foundations to give up all control over how their grants are used, nonprofits increasingly expect to take part in the conversation about how they use the money they receive. One of the biggest hurdles to greater collaboration between grantees and foundations is an organizational one. Foundations frequently employ experts in their focus areas, and these individuals have a stake in pushing their own strategies to prove their worth. Some foundations, such as the Edna McConnell Clark Foundation, have begun employing more generalists and fewer experts. These generalists can work effectively with grantees to develop strategy instead of imposing their own ideas.

3. Setting Short-Term, Realistic Goals

Long-term, lofty goals will continue to guide foundations and their decisions. However, it has become increasingly important for foundations to set short-term goals that can help to guide the immediate decisions that they make. These short-term goals build in some accountability for institutional giving by providing the opportunity to demonstrate progress. Creating milestones enables foundations to demonstrate the impact they have and can guide future decisions. A recent study found that only 10 percent of foundations expressed clear, achievable goals despite the fact that 90 percent outlined lofty aspirations. One foundation that has embraced this approach is The James Irvine Foundation, which set the specific, short-term goal of helping 25,000 Californians with low incomes to secure jobs paying $18 per hour or more. The goal is a stepping-stone toward larger ones and seeks to help to demonstrate the foundation’s immediate impact.

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