A Pivotal Moment of Real Change for Philanthropy?

Funders have been pushed over the past year to make big changes to how they approach their work. They’ve been called on to provide long-term flexible funding, to shift power, to trust and listen to nonprofits, to increase payout, to fund more organizations led by people of color, and to center racial equity and racial justice in their work. These calls are hardly new, but they have become much more prominent and urgent in the past 12 months.

So, what’s actually changing in foundations’ work? For months now, this has been the question for my colleagues and me on CEP’s research team.

Some of the findings in our recent series of reports, Foundations Respond to Crisis, suggest that foundations — institutions often perceived as notoriously process-heavy and resistant to change — have indeed been making significant changes to their work. Leaders reported that the COVID-19 pandemic, the ensuing economic downturn, and the movement for racial justice have catalyzed change and forced them to reconsider how they conduct their work. As one leader said, “This has been a wake-up moment for philanthropy.”

Among the encouraging themes our research revealed:

1. Foundation leaders said they changed their practices to be more flexible and responsive to nonprofits. Almost all said they are loosening grant restrictions, providing more unrestricted funding, and reducing what they ask of grantees. As one leader pointedly put it, “We treat our processes like they came down from the mountain with Moses, like they’re embedded on tablets…This moment has called those processes into question.”
2. Among those that had decided at the time we conducted our survey, most foundation leaders said their organizations increased their giving in 2020. “The organizations we partner with need more. Foundations have been able to recover from past recessions. But some communities have not,” noted one leader in explaining the decision to increase payout. It’s important to note, however, that these increases are rather modest; 41 percent of those who increased their 2020 giving did so by 10 percent or less relative to what had previously been budgeted.
3. Most foundation leaders reported responding to the systemic inequities exacerbated by the pandemic and making new or increased efforts to support those most affected — particularly Black, Latino, and low-income communities. Importantly, they also said they are giving a higher percentage of grant dollars to organizations led by communities most affected, particularly those led by individuals from Black, Latino, and lower-income communities.
4. Most foundation leaders described a shift in recognizing the roles that race and racism play in their work. And even as most reported making changes that incorporate racial equity into their grantmaking or programmatic strategies, almost all identified that they need to be doing better and will be focusing more on racial equity moving forward. “No matter what the issue that a foundation is trying to move the needle on, racism is likely impacting their ability to get the results that they want,” said one leader. “And so, if they have not understood, acknowledged, or sought to address this, then they’re missing an integral part of the problem that they’re trying to solve through their philanthropy.”
5. Many foundation leaders we interviewed highlighted that important funder practices have gained newfound importance, such as listening to grantees and communities, engaging in systems change and policy advocacy, collaborating with funders and other organizations, building trusting funder-grantee relationships, and being more tuned into funder power dynamics.

The findings in the three reports in this series suggest some signs of a meaningful and substantial response by philanthropic institutions — both in who they’re funding and how.

But there is also ample opportunity for improvement and progress. Even before the crises of 2020 began, foundation leaders were well aware that they could be working differently, in ways that they themselves believe would lead to greater impact. And, frankly, some of the data in our research suggests good reason for some skepticism.

Among the more sobering realities surfaced in our study:

1. While only time will tell how deep and sustained foundations’ changes will be, the data suggest that most foundations do not plan to undertake these new practices in the future to the degree they are doing so now. This is notable especially because the responses from leaders themselves suggest that it hasn’t been particularly challenging, for example, to loosen restrictions and be more flexible with grantees.
2. Even as funders are providing more unrestricted funding, there is little change in their provision of multiyear general operating support — the grants nonprofit leaders see as most helpful — despite foundation leaders reporting that they are more attuned to grantees’ needs.
3. The data reveal potentially significant oversights when it comes to communities that have received less support from foundations, such as Native and Asian communities and people with disabilities.
4. Racial diversity among foundation boards is sorely lacking. Our data suggest that board diversity and grantee-centered foundation practices are meaningfully related. Yet over half of foundations have boards that are three-quarters or more white — and few foundation leaders mentioned increasing the racial diversity of their board as a priority.

There’s a unique opportunity — and, as some might see it, a moral imperative — for philanthropy to step up to the challenges we continue to face, to contribute to a just response to these public health and economic crises, and to address generations of systemic racism and structural inequities.

Will philanthropy step up? Will funders continue their changed practices, or will they revert to the pre-pandemic status quo? These are the key questions CEP is exploring in a second phase of this study.

In the meantime, it seems fitting for funders to sit with this thought, posed by a foundation leader we interviewed:

I think philanthropy has stared itself in the face and asked, ‘Have we behaved in a way that is truly in partnership with the field? Have we created burdens that are unnecessary? Are we flexible enough? Rather than lead, do we listen?’ And let us not forget the racial justice lens that has become so apparent. This is leading to a recalibration in philanthropy about how we go about our work. I feel like we’re at a pivotal moment of real change.

Naomi Orensten is director, research, at CEP.