The Legitimacy of Philanthropic Foundations: United States and European Perspecitives
edited by Kenneth Prewitt, Mattei Dogan, Steven Heydemann, and Stefan Toepler
Russell Sage Foundation, 2006
312 pp., $45.00
In an August interview, Montana’s Senator Max Baucus, now chair of the United States Senate Finance Committee, which is responsible for legislation affecting foundations, told a reporter from the Chronicle of Philanthropy that enacting new regulations on nonprofits is “not at the top of my list” of priorities. Some of his colleagues, especially Iowa’s Republican senator, Charles E. Grassley, who spearheaded the effort to legislate new rules in previous Congresses, may have different ideas.
Just why organizations established to give away money and do good works should have so often been the object of suspicion is supposedly the topic of The Legitimacy of Philanthropic Foundations. This collection of essays, edited by four distinguished social scientists, compares how foundations are viewed in the United States and in Western Europe, which—surprisingly—turns out to have almost as many foundations in relation to its population (although a larger share are what would be considered operating foundations, rather than grantmaking ones). Yet, despite its strong line-up of contributors and the often fascinating information it contains, the book promises more than it really delivers.
As co-editors Steven Heydemann and Stefan Toepler explain in their introductory chapter, the root of the problem—whether in the United States or in Europe—is the question of what foundations should be expected to do in return for the “privileged treatment” they receive from government. In the United States, such benefits are mostly tax-related, but also include the right of donors—or those designated as trustees—to determine what activities they wish to support, with relatively little second-guessing from public officials. In Europe, the tax breaks are generally fewer, but especially in countries where they have flourished, foundations have enabled benefactors to place their businesses in trusts, which they are allowed to control without worrying too much about minority owners.
The traditional justification for such special treatment is that it would encourage the wealthy to give their money to worthwhile causes, such as helping the needy. But as Princeton’s Julian Wolpert shows in his chapter, American foundation giving is not particularly redistributive. To the contrary, while acknowledging the limitations of the available data, he claims that “most foundation grants are targeted to supporting major institutions and quality of life services that have little to do with income and social inequality.” Though they pay lip-service to doing so, European foundations seem to show even less interest in supporting the poor, perhaps because expansive welfare states leave little room for them to do so.
What about other social benefits? Kenneth Prewitt and other contributors point out the difficulties of showing that foundations generally out-perform government, are more innovative, or are responsible for important social changes. Although Steen Thomsen, of the Copenhagen Business School, reports that Danish and German companies owned by foundations are better-run and more socially responsible than other corporations, critics in the United States, starting in John D. Rockefeller’s days, have faulted foundations as lightly-disguised (and publicly subsidized) schemes to protect business interests.
Peter Frumkin, who directs the RGK Center on Philanthropy and Community Service at the University of Texas, and Giuliana Gemelli, a historian at the University of Bologna, contend that how foundations behave may be more important for their legitimacy than what they accomplish. Greater openness and professionalization, better explanations for how much they spend on administrative costs, and even, perhaps, some sort of accrediting system might enable foundations, Frumkin writes, to use “accountability for procedural matters” to build public acceptability, while preserving considerable autonomy over what to fund. More strategic grantmaking policies, adds Gemelli, would also help. Yet, these are precisely the sorts of steps American foundations have been taking since the 1970s—but, if the contributors to this book are right, without ending challenges to their legitimacy.
Two chapters on community foundations—by Indiana University’s Kirsten Gronbjerg and Diana Leat, of London’s Cass Business School—point to governance changes as another possible route to improving foundation legitimacy. Unlike most foundations, which are established by an individual or family, community foundations build their endowments from public contributions, and grants are approved by supposedly representative boards, which often include members appointed by public officials, rather than people designated by the donors. But neither author offers any evidence that these characteristics make community foundations more legitimate in the eyes of the public; while they have been growing rapidly in size and are less heavily regulated than their private counterparts, they are still a small portion of the grantmaking world, holding less than ten percent of total foundation assets in the United States. In any case, much of their recent growth has been spurred by donor-advised funds (in the United States) and government grants (in the United Kingdom), both significantly controlled by givers, not community governing boards.
One of the frustrating aspects about The Legitimacy of Philanthropic Foundations is that it never reaches any conclusions about which of the various ways of demonstrating public usefulness—through programs, procedures, or governance—are apt to work best for foundations. Instead, the volume reads like a collection of papers delivered at a conference, as, in fact, they were. Two of the co-editors, Kenneth Prewitt and Mattei Dogan, try to provide some coherence, but ultimately conclude that the strongest argument for the legitimacy of philanthropic foundations is as vehicles for expressing pluralism, or differing views of the public interest. Yet, this rationale amounts to little more than saying the existence of foundations can be justified—by their own existence.
Another shortcoming of this book is that it makes little effort—other than references to official investigations—at ascertaining what the public thinks about foundations. Is concern that rich people are taking advantage of the tax system to shelter their fortunes while pretending to be philanthropic widespread? Or does the public admire those who put the wealth they have accumulated into charitable activities and not care too much about the details?
Surveys show little public awareness of foundations, let alone raging suspicion and hostility toward them as bastions of privilege. When Bill Gates and Warren Buffett combined to create by far the largest foundation in the world, with its spending controlled by its donors and Mrs. Gates, few notes of protest were sounded. Compare that with the acrimonious debate almost a hundred years ago that followed John D. Rockefeller’s plan to establish a foundation, which triggered not only bi-partisan objections, but also the first major Congressional investigation of philanthropy.
Whatever legitimacy challenges foundations may still face, they are clearly a good deal less severe than they were a century ago. Americans, and increasingly Europeans, are now more inclined to trust private rather than government efforts to deal with public problems, a situation not without dangers for philanthropic foundations, but hardly evidence of shaky standing.
To be sure, the misuse of foundation assets for personal benefit (as some donors will inevitably do) can still set off a wave of scandal-mongering, especially now that major publications are treating philanthropy as a topic for the news pages, not just the society reports. In both the United States and Europe, ambitious politicians—such as New York State’s current governor, Eliot Spitzer—can always win applause by attacking the wealthy for not doing enough for the public (though as Spitzer himself found out, even that has limits). But organizations that receive favorable treatment by public policy inevitably risk becoming political footballs as well.
Still, “as early as the 1920s,” David Hammack notes in his thorough account of American debates about foundations in this volume, “leaders in most states were much more interested in increasing local foundation resources than in curbing the activities of the most famous northeastern foundations.” That undoubtedly remains the case. Just a month before announcing his unwillingness to seek new regulations, Senator Baucus told the same reporter that he was hoping foundations would make more grants in rural areas, such as those in his state. They undoubtedly will, proving that however difficult it may be for scholars to justify their legitimacy, foundations can easily win public support.
Leslie Lenkowsky is professor of public affairs and philanthropic studies with the Center on Philanthropy at Indiana University.