There is nothing like an economic downturn to “concentrate the mind wonderfully.” That turn of phrase was coined by the 18th century English pundit Samuel Johnson. Although speaking about a man who knew he was to be hanged in a fortnight, Johnson might well have been describing the cumulative effect on philanthropy of three consecutive years of falling financial markets: The prospect of having less to give concentrates one's philanthropic thinking.
Before 2003 many philanthropists used financial terminology to describe their giving. Phrases like “investment,” “social capital,” “maximum return” and “present value” became common currency. By the end of 2003, however, the language of the emergency room replaced the language of the boardroom. The ailing economy demanded “philanthropic triage.” Donors asked themselves such questions as: “Which organizations do I support at the current level, and which do I cut?” “Do I take a chance with start-ups or stick with the tried and true?” “Can I advance my philanthropic mission by giving larger grants to fewer grantees?”
As if the economy weren't cause enough for concern, foundations also had to contend with the prospect of increased governmental involvement in their operations. Two congressmen floated a proposal that would have prohibited foundations from counting administrative costs — such as rent and staff salaries — toward their federally mandated annual disbursement of 5 percent of their assets for charitable purposes. The stated objectives of the proposed legislation were to increase the amount of dollars that flow directly to charities and to eliminate opportunities for abuse. Professional givers felt differently. In opinion columns, foundation spokesmen worried that thoughtful grantmaking would be compromised if basic expenses were disallowed. The proposed legislation was “throwing the baby out with the bathwater,” complained one op-ed writer, noting that “enforcement of existing regulations accomplishes the same thing.”
The states jumped into the political fray, with New York Attorney General Eliot Spitzer leading the charge. Early in 2003, Spitzer proposed legislation that would subject foundations and not-for-profits to governance reforms similar to those enacted by Congress in the Sarbanes-Oxley Act, which calls for publicly traded companies to adopt more stringent accounting procedures and face stiff penalties for financial improprieties. By the end of 2003, Spitzer's original legislative proposals were still being revised. Attorneys general in other states are watching the progress of Spitzer's efforts in New York. Even if reforms are not enacted, their mere consideration adds to the pressures foundations and not-for-profits are feeling from the media and donors.
Questions about the troubled economy (including the still-unfolding consequences of tax reform) and aggressive politics (including the ongoing war with Iraq) provide reasons aplenty for philanthropy to “concentrate its mind.” So what will happen in 2004? Here are my predictions:
In spite of an uncertain economy and an uncertain world, we will continue to see entrepreneurial philanthropy on a bold scale. Bill Gates and Paul Allen will use their Microsoft millions to fight disease in Third World countries and map the unknown terrain of our genes. Rather than nibble at the edges of change, these masters of the universe will take big bites out of social problems.
Philanthropic neophytes will emerge in growing numbers as the intergenerational transfer of wealth picks up steam. As a result, the cottage industry of philanthropic advising will expand. Just as fundraising turned itself into a profession by bestowing degrees in fundraising, the field of philanthropic advising will begin to develop professional, industry-wide parameters.
Public-private partnerships, a trend that has been incubating for years, will increase thanks to its validation by big players, like the Gates Foundation partnering with the New York City Department of Education and the Broad Foundation, with the U.S. Department of Education. The growth will come not only because philanthropists have models to build on, but also because cutbacks in government spending make it incumbent upon the private sector to pick up the slack in public services.
Spooked by all the attention from Congress and New York's attorney general, not-for-profits will attempt to become more accountable, Sarbanes-Oxley-style, in their operations. They also will attempt to become more revenue-savvy, finding ways to generate earned income to supplement donations. For example: The Yale School of Business's recent National Business Plan Competition for Nonprofit Organizations met an enthusiastic response from not-for-profit groups interested in competing. One part of the application to the competition addressed how to develop a product line. As not-for-profits move beyond the occasional t-shirt or baseball cap, there may be a flag on the field regarding unrelated business income.
Collaboration will move beyond lip-service. To position themselves competitively in the giving world, not-for-profits will focus more narrowly on their core missions, and seek partners to complement their programs; donors will do the same. Private foundations will caucus on ways to work together; expect to see more conferences with collaboration as a theme. Family foundations will take advantage of the existing network of affinity groups and regional associations of grant-makers to find like-minded partners.
What common threads will weave through philanthropy in 2004? Funders and not-for-profits alike will embrace opportunities for collaboration and affirm the value of accountability. Boundaries between sectors will become more fluid, blurring private and public, for-profit and not-for-profit. As a result of these and other changes, new economies of service and operation will emerge and the philanthropic dollar will have a larger impact than ever.