I have seen three dramatic changes in the landscape of charitable giving in my 14 years as president of The Philanthropy Roundtable.
The first is a growing commitment to giving by wealth creators during their lifetimes—both to apply their enterprising mindset to the philanthropic causes they most care about and to avoid the undermining of donor intent that frequently occurs in foundations after the founder’s death.
The second is the repeated assault on philanthropic freedom by interest groups, regulators, and political leaders of both parties who seek to direct how and where individuals and foundations make their charitable contributions.
And the third, the theme of this issue of Philanthropy, is the entrepreneurial explosion of services for donors and foundations. Donors today have more choices, more information, and more analytical tools for making philanthropic decisions. Consider just some of the new services that are transforming charitable giving:
- The rapid growth of donor-advised funds, which made grants of approximately $10 billion in 2013. Donors have a robust array of sponsors to choose from, including the charitable funds associated with Fidelity, Vanguard, Schwab, and other financial services firms; specialized cause-oriented funds such as the Jewish Federations of North America, the National Christian Foundation, the Tides Foundation for progressives, and DonorsTrust for free-market funders; and local community foundations, which have recently become much more responsive to serving the needs of individual donors. Much as mutual funds transformed investing, donor-advised funds have simplified and democratized philanthropy, making it much easier for smaller donors to enjoy the benefits of organized giving. There are now over 200,000 donor- advised-fund accounts, more than twice the number of foundations.
- The application of high-powered business consulting principles and knowledge to philanthropy. Among the leaders here are Bridgespan, the nonprofit established in 2000 by the consulting giant Bain to apply its insights to philanthropic and nonprofit strategy; FSG and the Monitor Institute (now part of Deloitte), both co-founded by legendary Harvard Business School professor Michael Porter; and consulting giant McKinsey, which has expanded its services for philanthropists and published seminal reports on subjects such as prize philanthropy.
- Entry of for-profit companies into philanthropic services. Rapidly growing firms such as Arabella Advisors, Sterling Foundation Management, and Foundation Source enable foundations and other giving entities to take advantage of business efficiencies by outsourcing functions like back-office management, strategy development, due diligence, grant execution, and evaluation.
- Competition among foundations seeking outside investment. For many years foundations have sought co-funders for their favorite grantees. Over the last decade, they also have actively solicited funding from other foundations and donors. The Edna McConnell Clark Foundation has raised over $280 million from other funders through its Growth Capital Aggregation Pilot and the True North Fund. The Lynde and Harry Bradley Foundation has established the Bradley Impact Fund to encourage other donors to fund Bradley grantees. The Pew Charitable Trusts converted from a foundation into a grantmaking public charity. In fiscal year 2013, Pew raised $54 million from other funders. Similarly, a number of wealthy families are making their philanthropic staff available to other funders. Rockefeller Philanthropy Advisors, for instance, now advises on and manages $280 million in annual giving by 160 donors. The competition for investment has introduced some market-like accountability into foundations that previously did not have to attract outside support.
- Growth of specialized intermediaries. In the twenty-first century, you do not have to be wealthy to become a sophisticated, high-level philanthropist. You can set up an intermediary that will raise funds from others and offer specialized expertise. Examples include Acumen and the Global Fund for Children, which offer investors opportunities to address poverty in developing countries; Hope International, which offers microfinance funding with an evangelical Christian spirit in some of the world’s poorest countries; and the Silicon Schools Fund, which is supporting charter-school experiments with different models of blended (digital and classroom) learning.
Other innovations include crowdfunding, impact investing, networks of public-policy donors such as the Koch seminars and the Democracy Alliance, and growth philanthropy marketplaces such as the Social Impact Exchange. As long as freedom to make philanthropic decisions is protected, charitable giving is likely to become a more entrepreneurial and more competitive industry in the years ahead. And this in turn has the potential to stimulate substantial increases in charitable giving.