Amid a surge of mistrust directed at all kinds of elite institutions, a new report calls on foundations and big individual donors to define their own “social compacts” that clearly articulate how they plan to use their wealth and power to make the world a better place.
For years, donors have insisted that the organizations they support provide rigorous documentation of how they enhance the public good. Melissa Berman, president of Rockefeller Philanthropy Advisors and co-author of the report, says it’s time for grant makers to face the same type of scrutiny.
“There’s always reason to be introspective about who has power and how it is exercised,” Berman says. “Even people who believe that wealth-holders should have a nearly unfettered right to donate their resources as they please would say we should think about it. In this particular period, the way we think about it is changing.”
The report, titled “Social Compact in a Changing World,” follows publication in the past year of several books that take donors to task for their opaque operations and use of charitable gifts to exercise power, including Rob Reich’s Just Giving: Why Philanthropy Is Failing Democracy and How it Can Do Better and Anand Giridharadas’s Winners Take All: the Elite Charade of Changing the World.
In addition to the published critiques, a series of recent scandals has made it more important for philanthropy to demonstrate its trustworthiness, Berman says.
Most recently, the MIT Media Lab is under fire for its financial ties to pedophile Jeffrey Epstein. Many museums and other nonprofits have had soul-searching episodes from their acceptance of gifts from the Sackler family, which built much of its fortune by flooding the nation with opioids.
Complex Mission
The need for more accountability, however, isn’t just the result of bad actors, Berman says. A social compact gives a donor a “license to operate” alongside other players working for social change. Many foundations need to demonstrate their legitimacy because their mission has shifted from simply writing a check for a good cause to identifying and solving complex social issues at their root. This “systems-change” approach requires donors to establish deeper ties with grantees, public officials, businesses, and individuals who need to feel comfortable with a foundation or individual providing the cash.
The response of many foundations to date, such as providing searchable databases of grantees on their websites, publishing grant-making criteria, or responding to calls within a day or two, doesn’t cut it, Berman says.
“We’re still relying on old-fashioned ideas,” she says. “Those are useful and important communications tools, but they don’t answer the question about how they are using private resources for public good.”
‘Feedback Loops’
The report doesn’t lay out a set of rules every foundation should follow. It provides several approaches that philanthropies can use, such as researching public attitudes about philanthropy in general and their own work; developing an external communications strategy that tells the public what it does and why; developing a practice of listening to grantees and people in areas they support, and building more diverse boards to better reflect society.
Several attempts by foundations to establish trust are highlighted in the report, including the use of “feedback loops” developed by the Fund for Shared Insight’s Listen4Good effort to understand the needs of people affected by a grant and fine-tune the grant-making process.
The report is a follow-up to Rockefeller Philanthropy Advisors’ Philanthropy Framework, a March study that urged foundations to consider how they adhere to their mission, how they are perceived by the public, and how they carry out their strategies.
Tax Advantages
Because donors can take a charitable tax deduction for their gifts, the public subsidizes those gifts and has a financial stake in philanthropy, says Reich, a professor at Stanford University. To hold donors to account, Reich believes mainstream press outlets should beef up their coverage of philanthropy, giving it the same kind of scrutiny they give to corporations and government agencies. He also believes foundations and donors should undergo a kind of peer-review process.
In addition, wealthy donors need to open up because rising wealth inequality has given the superrich too much sway in public debate, Reich says. He credits Andrew Carnegie with trying to establish some guidelines in his template for Guilded Age philanthropy, the “Gospel of Wealth.” Some legacy foundation leaders, like the Ford Foundation’s Darren Walker, who is publishing a “new” Gospel of Wealth in the coming weeks, have tried to follow up with a modern version. But foundations and superwealthy donors have largely been silent, Reich says.
“Foundations have an obligation to justify their activities to the public because big philanthropy is, by definition, an exercise of power,” he says. “We await the donor with the courage to explain why outside wealth can play a legitimate and justifiable role in a democratic society.”
Missing Guardrails
Bill Gates has tried to offer insight into what drives his philanthropy, Berman says, and other major donors have done the same. A task for philanthropy, she says, is to collect those observations and make them accessible to the public.
Philanthropy doesn’t have many of the same guardrails as public corporations or public officials. Their stock price won’t be pummeled following a bad quarterly earnings report, and voters won’t yank them from office if they fail to meet certain standards. This freedom allows donors to use their grants and gifts as risk capital, to support things the market or government agencies take a pass on.
Becoming more accountable, and entering into a social compact doesn’t take that freedom away from donors, Berman contends.
“If part of your legitimacy comes from the fact that you can take these kinds of risks that governments and investors can’t take, and you’re not sharing about that risk-taking, how does anyone know you’re really doing it?”
Alex Daniels covers foundations, donor-advised funds, fundraising research, and tax issues for the Chronicle. His recent foundation coverage includes articles on the North Star Fund and Justice Funders, two efforts where grant makers are trying to cede power to grantees.
