Are the New Big Foundations Lean or Just In the Process of Staffing Up?

On the CEP blog this week and next, CEP President Phil Buchanan is discussing, in a series of eight posts, recent critiques of large, staffed foundations and assertions that recently-established, “lean” foundations are paving a promising new path without being saddled by “bureaucracy.” The following is the second post in the series. To make sure you don’t miss a single one, subscribe to the CEP blog and get each post in your inbox as soon as it goes live.

In my last post, I quoted critics like David Callahan and Sean Parker who take aim at “lumbering legacy foundations” encumbered by “layers of bureaucracy.”

On his Inside Philanthropy site, Callahan repeatedly points to new donors who he says are doing significant grantmaking with few staff — making a small number of large grants. It seems not to occur to him, however, that this apparent leanness may be a function of the simple fact that it takes time to get organized and staff up!

Callahan frequently calls out the Laura and John Arnold Foundation, located in Houston, Texas, as archetypal of the new model, describing it  as “a sophisticated funding effort with a small staff.” The staff may indeed be fairly — though hardly radically — small today, though it is growing rapidly. It numbers 34, two of whom are part-time, and is on track to be 42 once eight open positions are filled, according to Director of Communications Leila Walsh. The Foundation’s assets are about $1.7 billion.

The Arnold Foundation is not much different in terms of relative “leanness” than, for example, its 78-year old neighbor, the Houston Endowment, which has just 26 staff, according to its website, and the same size endowment as the Arnold Foundation at $1.7 billion. I reached out to Ann Stern, Houston Endowment’s president, who confirmed these numbers.

The 64-year old Brown Foundation, also in Houston, has $1.4 billion in assets and its executive director, Nancy Pittman, tells me the foundation currently employs just nine people — two of whom are part-time.

What about payout? Stern says Houston Endowment pays out about $85 million annually and Pittman says Brown’s payout was $64 million in the last fiscal year and $74 million the year prior. Walsh told me in an email that the Arnold Foundation paid out $104 million last year and has paid out $128.5 million so far in 2015.

So in terms of dollars out the door relative to staff, Houston Endowment and the Arnold Foundation are similar. And Brown is the leanest of the three billion dollar-plus foundations in Houston.

So much for the “new foundations are lean, old foundations are bloated story.” At least in Houston, it doesn’t hold up.

It’s worth recalling that the Bill & Melinda Gates Foundation was described by the New York Times in 2002 as having a “lean, informal structure” (which the Times dubbed, strangely, “very Seattle”). As the authors of this 2012 Foundation Source report noted, “the implication was that Bill Gates was pioneering a streamlined approach to philanthropy which didn’t involve all those unnecessary staff and expenses.”

“Fast-forward to 2010,” the Foundation Source report continues, and “the Gates Foundation reports more than 900 employees and spends $362 million in order to give away $2.2 billion in grants — now 16% of total expenditures.” Today, of course, those numbers are higher still.

“Is this a criticism of the operating expenses of the Gates Foundation?” the report goes on. “Absolutely not. Rather, it is evidence that in the last decade, the Gates Foundation has learned that thoughtful, effective grantmaking is hard to do on a shoestring.”

What looks to Callahan and others to be a trend of new donors choosing a leaner — and in their eyes superior — model may not be even accurate. Or, in the cases where a new foundation is leanly staffed, it may often simply be a reflection of a developmental stage. Over the past 14 years, I have visited the offices of many new foundations with large endowments that start out in small offices with few staff, only to come back a few years later and be amazed by their growth — in office space, staff size, and programs. Similarly, I have met with donors who have been heralded for their “new” approach to giving that doesn’t involve a staffed foundation, only to learn that they’re planning to form one.

It’s hard to come by accurate and up-to-date data on staff size, and I am not confident enough in the data CEP has on this front to make any definitive statements about the relationship between age and staff size, holding assets and giving constant. We’ll be seeking to explore this further in the coming months, and if we can conclude something one way or the other, I’ll write about it here.

Meanwhile, Callahan continues to spin a story about “new” and “old” philanthropy, like in this recent post on the MacArthur Foundation. In that post, he points approvingly to Mark Zuckerberg as an exemplar of the lean approach.

But I imagine Zuckerberg — who seems from media accounts to be the kind of guy who earnestly seeks to learn from his mistakes — looks back at what happened in the Newark schools (see, for example, this account or this recent review of The Prize, a new book on what went wrong) and wishes he had had more help, not less, in understanding what was really happening on the ground.

My guess is that Zuckerberg’s philanthropy will be handled by a growing staff in the years to come.

Just as a toddler who is not yet walking is not a harbinger of a trend of embracing crawling as a superior mode of human transit, leanly staffed young foundations may often simply be in an early developmental phase. 

Find all the posts in this series here.

Phil Buchanan is president of CEP. Follow him on Twitter at @philCEP.

 

 

 

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