Déjà Vu (or 1969) All over Again?

 That faint grumbling sound you hear about foundations comes from all over, but recently, more and more of it is emanating from Washington, D.C.  Sonal Shah, head of the White House’s Office of Social Innovation and Civic participation, in January took foundations to task for being risk-averse. Senator Charles E. Schumer, (D-NY) last year stated that “The need for philanthropy is greater than ever in this weakened economy, and we should be encouraging foundations to increase their charitable giving.”

Granted, this is a far cry from the rolling thunder of dissatisfaction led by Congressman Wright Patman, Democrat from Texas, during the 1960s, which led to provisions affecting foundations in the watershed Tax Reform Act of 1969.  And, in this age of anti-big government fury, it is easy to dismiss such Administration and Congressional calls as mere posturing by the discredited denizens of Weimar-on-the-Potomac.

Such a dismissal of this winter of Washington’s discontent with foundations would be a mistake, for one very big reason.  Over the past year, the wave of populism epitomized by the Tea Party movement has grown to tsunami proportions, and the criticisms of foundations in Washington may well be the equivalent of the ominous stillness before the wave washes in. And, sorry to say, most foundations are, figuratively, lolling on the beach.

The Tea Party movement, of course, is a motley collection of malcontents, a certain number of whom are unsavory to the highest degree:  racists, nativists, homophobes, and xenophobes.  These elements lead many decent people to dismiss the Tea Partiers, en masse, as haters and wack jobs.  This is neither accurate, nor wise, for many in the movement are populists who are neither Klansmen nor crazy, but who are mad as hell about the federal government in particular and—this is crucial for foundations—institutions in general.

When the Tea Partiers helped Scott Brown to victory in the Massachusetts Senate race, thus taking a seat that the Democrats had held long before the current President was born, it provided a rude awakening to politicians of both parties.  Both Democrats who had dismissed them as the lunatic fringe, and Republicans who had thought they could co-opt them, now realized that this movement was demanding that establishment politicians dance to their populist tune.

Consequently, we have already seen leaders, from President Obama on down, begin to stake out populist positions, from taxing the banks to gutting the budgets of certain federal government departments. These attempts to placate of the torches-and-pitchforks sensibility will only increase as we approach the November elections.

Once the politicians run out of governmental targets to flog, you can bet that they will turn to other institutions.  Large nonprofits, especially those that pay their chief executives well, are already in the crosshairs.  Maybe foundations will escape the wrath of the populist movement.  Perhaps the sheer lack of familiarity that even the best-informed Americans have with foundations, discussed in my last post, will allow foundations to escape unscathed.

Evidence suggests, however, that foundations will not be so lucky.  In Michigan, for example, the ambitious Attorney General, Mike Cox, took aim at the Ford Foundation a couple of years ago, threatening legal action on the grounds that the Foundation, which was established in Michigan in 1936, was making an insufficient number of grants in its ancestral home. Ford grants to Detroit rose from $350,000 in 2002 to $5,730,000 in 2008, and Mr. Cox, mollified, stepped back from the legal brink.

Should politicians decide to sacrifice foundations upon the altar of populism, they will find a target-rich environment. Consider the following facts.  Most foundations pay out about 5 percent of their net asset value, an amount that many consider to be parsimonious even in good times.  Most foundations have cut back on payouts due to the market meltdown, which makes good financial sense, but seems, to people who are hurting or angry, to be the unkindest cut of all.

Foundations turn down far more organizations than they fund, which means that every day, they make more potential enemies than potential friends.  Most foundations do little or nothing to train their employees, which virtually guarantees that applicants, and even grantees, will occasionally be treated unprofessionally.  Most foundations do little or nothing to improve their processes and “customer satisfaction,” which leaves the people with whom they interact often frustrated and angry.

Naturally, if politicians come after foundations in order to appease the Tea Partiers, foundations will defend themselves as vigorously as they can.  To put it bluntly, however, foundations should not expect to have many friends standing with them on the ramparts.  The field is widely perceived as ungenerous, unapproachable, unreasonable, unprofessional, and unaccountable.

Moreover, it suffers from the Willie Sutton problem:  foundations are where the money is.  If Congress, in its infinite wisdom, decided that revenue enhancement (and populist appeasement) could be achieved by doubling or tripling the excise tax paid by private foundations, does anyone truly think that there will be a groundswell of support for foundations as they resist such proposals?

A growing number of foundations have been taking their business more seriously, by sending their program officers to be trained by The Grantmaking School, and by commissioning Applicant and Grantee Perception Reports from the Center for Effective Philanthropy.

Encouraging as this movement is, it is as yet a mini-movement, its participants amounting to less than 1 percent of the U.S. foundation population. So let’s hope that the populist anger and political posturing pass the foundation world by this time.

A decade or two from now, the foundation world will be better-positioned to respond.  For now, however, they would be well-advised to pray that it is not 1969 all over again.

Note:  My friend William A. Schambra with whom I almost never agree, published a viewpoint article in the February 21 Chronicle of Philanthropy that, to my surprise, advances many of the same arguments.

Joel Orosz, PhD, is the Distinguished Professor of Philanthropic Studies at The Dorothy A. Johnson Center for Philanthropy and Nonprofit Leadership at Grand Valley State University.

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Disclaimers and Disclosures: The views expressed in the CEP blog by guest bloggers are entirely their own and do not necessarily reflect the opinions of the Center for Effective Philanthropy.  

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