14 November 2024

“Philanthropy Back to the Drawing Board”: One year on

In October 2023 the international version of my book, “Philanthropy Back to the Drawing Board: Shaping a Future Agenda”, was published by Philea, following the Dutch version a year earlier, published by Walburg Press. The release of the international version gave rise to a trail of events in different countries ranging from large conferences held by philanthropic organisations, banks and NGOs to intimate sessions with families, corporates, service clubs, community centres and bookshops.

Red threads

Permeating these discussions was the key question of how philanthropy can enhance its impact in responding to the major challenges the world is now faced with. Across the geographies and settings of these conversations, participants repeatedly brought up the following four ways in which philanthropy can act. These actions resonate with my personal beliefs about how to push the envelope for philanthropy to stay on the cutting edge:

1. Increase spending

Should foundations look upon perpetuity of their capital base (the endowment/reserves) as cast in stone? That is to say, 50 or even 100 years from now foundations should be able to spend the same annual amount of philanthropic money as today, corrected for inflation. Or… should foundations be more relaxed about the perpetuity notion and spend more money in times of crisis as we are experiencing today?

The context within which foundations operate is rapidly changing. Today we are living through a polycrisis: increasing flows of migration with concerns about absorption capacity; climate problems leading to natural disasters; socio-economic divides aggravated by a number of factors, threatening the stability of our society; and nationalism and populism that could undermine democratic institutions.

In the face of these crises, should we not step up our spending? On average, the payout ratio by European foundations is around 4% of assets, and is therefore even below the 5% obligatory payout that applies to foundations in the US. Why should foundations not spend more than the 4 or 5% of their assets? Why should foundations not even opt for a spend-down approach, as Atlantic Philanthropies in the US and Mava Foundation in Switzerland did? Spending down means that foundations not only use the returns on investment for philanthropic spending, but that they also eat into the capital, leading to the eventual closure of the foundation.

Isn’t it normal that organisations come and go (except for the National Archives)?

Even if foundations want to be there in perpetuity (and that is perfectly legitimate), they could decide to take more risk and increase their spending in times of socio-economic crisis. They could for instance opt for an anti-cyclical approach with higher philanthropic spending in times of socio-economic crisis and lower spending in times of prosperity and economic growth.

2. Replace rigid project funding with more flexible forms of support

Foundations are increasingly aware that the complexity of the problems they address to advance their missions requires a different style of grantmaking than just project funding full stop. If your ambition as a foundation is to contribute to systemic change, you cannot constrain yourself to project funding, short-term funding and going solo. Instead, you must consider process funding, long-term funding and working in a collaborative way with other funders. The essence here is that the style of grantmaking is determined by the problems you want to address, and therefore flexible funding is needed.

If you want your partners to be strategic and have a long-term vision, you had better consider institutional funding alongside project funding. After all, the organisation behind a project is crucial to achieving long-term impact. The world is flooded with stand-alone projects. They are all well intended, but if foundations don’t pay attention to the organisation behind a project, “tissue rejection” of the project may be the result. Many projects wither and die because foundations ignore the importance of institutional support. This is what is known as “projectitis”: an infectious philanthropic disease of just funding projects, while ignoring the relevance of the organisation behind these projects.

A caveat: Forms of unrestricted financial support may shore up operations and strengthen the strategic reorientation of grantees, but this could also have a negative effect on the recipient if money is simply used to finance further growth of activities.

3. Embrace participatory grantmaking to add value to your foundation, grantees and society

To what extent are foundations prepared to give a voice to their grantees? The essence of participatory grantmaking is to involve grantees seriously in donations and social investments and in the policies behind such funding. This can also mean that foundations are willing, under certain conditions, to leave the decision-making process about grantmaking more to the community of their grantees.

Ultimately, participatory grantmaking is about a redistribution of power: Are foundations really prepared to shift the power to the recipients of their funding, or are they only paying lip service to a fashionable notion without considering a real transformation of their role?

Philanthropy in this respect can learn from the business world when it comes to providing venture capital to new companies. If such companies raise funding from new and existing shareholders, shareholders are not likely to indicate precisely on what cost items their funding should be spent. But this, however, is exactly what foundations do with their grantees. They should realise that specifying in detail on which cost items funding can or cannot be spent, is the wrong attitude. More trust should be given to the grantee.

For participatory grantmaking to be successful, a few preconditions are required: attentive listening to grantees; trust in the people you serve; a genuine belief that grantees have experiential knowledge that is extremely relevant for the impact the foundation wants to make; a willingness to let go of part of your power; and, above all, avoidance of cultural arrogance.

4. Engage a broad range of stakeholders to ensure good governance

While participatory grantmaking is about the engagement of grantees, engaging stakeholders addresses a much broader challenge for foundations: how to stay effective and relevant. How do foundations keep their finger on the pulse of society; how do they gain a deeper understanding of the problems to address; and how do they start formulating the appropriate answers? If foundations want to remain effective and relevant, they should not isolate themselves from the communities they want to serve.

Very often private companies have, besides management and a supervisory board, a broad group of shareholders. Not only are they the recipients of financial returns for the risks they take, but they can also have a disciplinary effect on the company. Depending on the interpretation of their role, they can constitute an additional configuration of checks and balances: a set-up which is good for them, good for the company and good for society.

What is the equivalent of shareholders in the world of philanthropy? This would be the stakeholders of foundations. Foundations are supposed to generate social returns for people, communities and organisations: these can be considered as the recipients of social return, and, as mentioned above, they are a much larger group than just the grantees. Could these stakeholders, by engaging them, have the same disciplinary effect on foundations as shareholders may have on companies? Would it not be useful for philanthropy and for enhancing its impact in society if these recipients of social return would be allowed to have a voice?For me the answer is definitely: YES.

I am not primarily thinking of experts, consultants and academia as part of stakeholder engagement. The emphasis ought to be on local communities, younger generations, and everybody that is directly or indirectly affected by the work of philanthropic organisations. Such stakeholders have something to offer and hence their participation needs an institutional form. We see different concrete examples in the philanthropic world: community advisory boards, next generation panels, community meetings etc. Stakeholder engagement ought to be part of a wide concept of good and inclusive governance.

From discussion to action

I do hope foundations will continue exploring and discussing the concepts in “Philanthropy Back to the Drawing Board”. But even more, I hope they use the book and the continuing conversations around it to take concrete steps towards realising the vision of impactful, flexible, participatory and collaborative philanthropy outlined here.

This article is part of a series marking the one year anniversary of the international edition of ‘Philanthropy Back the Drawing Board‘. Guest curated by the book’s author, Rien van Gendt, the series shares insights on the prevailing topics and trends in the philanthropy sector:

Authors

Rien van Gendt
Van Gendt Philanthropy Services