The GiveWell Blog

Healing the world: What’s the rush?

I’d like to welcome myself back with a simple question: why do foundations spend their money so slowly?

A couple quick numbers from 2005, according to the Foundation Center Yearbook:

  • Total amount of money held by U.S. foundations: $510.5 billion
  • Total amount of money granted by U.S. foundations: $33.6 billion
  • 33.6 billion divided by 510.5 billion: 6.6%

6.6%. Assuming that most foundations invest their assets at a moderate level of risk, this means that at this rate, all those assets will be given away by around … never.

Now, I know there are good reasons for foundations to give away their money gradually, not all in their first year. They need to gain experience and administrative capacity; they need to get to know their sectors and partners and options; they need to support charities over time rather than dumping their money on them, because this helps to ensure accountability.

All of this would justify foundations’ aiming to stay in business for up to around 10-20 years. Any more than that, and we’re looking at a staff and even generational turnover that would render these benefits moot. So why is it big news that the Gates Foundation is aiming to give it all away this century? Why, honestly, are the Carnegie Corporation and Ford Foundation still around, long past the point where anyone can reasonably claim to represent the founding funders’ wishes? Why are foundations in aggregate giving away money at a pace that indicates they expect to last longer than any U.S. company ever could – indeed, longer than the U.S. itself is likely to?

Is it because they think the returns from holding stocks and bonds are greater than the returns from enabling more people to help each other?

Is it because the law only requires that 5% of assets be given away each year? The law doesn’t require me to give anything to charity, but I still do it because it’s right (and presumably a foundation exists to do what’s right). And if I had to give 1% of my income to charity every year, I’d still give more than that.

Is it because they can’t find enough work to fund? In that case, what’s with all the kashmillions of charities bombarding the general public by phone every day, begging for more money so they can fund what presumably are currently possible but unfunded activities?

Are those charities all doing useless or fraudulent work? Have the foundations checked them out? If so, wouldn’t it be nice of them to let the rest of us (the general population opening our meager checkbooks year in and year out) know? On one hand, I think everyone should give – on the other, you have to ask how much sense it makes that charities have all come begging to Joe and Jane Sixpack while $500 billion (enough to fund the country’s 200 largest charities 6 times over) of money specifically earmarked for giving away sits in bank and broker accounts.

I would really appreciate if people in the know could weigh in on this question because this situation makes no sense to me. My personal best guess would attribute foundations’ sitting on their hands to two factors:

1. Excessively narrow mission statements. Not only are foundations generally obsessed with “innovation” and “attacking root causes” rather than “helping people as much as possible” (something I’ll complain about more later), but they tend to spec out extremely specific, narrow guidelines, and thus force themselves into a position where very few existing world-improving efforts qualify for funding. This forces charities to design new programs around their funding guidelines; end result is that we have a huge need for funds and a huge glut of funds that can’t clear, because foundations have pre-articulated their priorities and thus stopped them from syncing with the problems actually experienced by the world. I’d call this a tragic mess.

2. Plain old bureaucracy, inertia, crappiness, and crap. It’s easier, simpler, and more job-sustaining to give away 5% a year than it is to pour yourself into improving the world. (Note to foundation funders: if the people you’ve hired to staff your foundations prefer the former to the latter, you should be ashamed of yourself for the horrendous job you did in hiring.)

Others, please weigh in. I will be surprised if you can convince me that a world this needy, a charitable sector this underfunded, and $500 billion sitting in savings don’t add up to a broken system and a tragedy for those in need. But I’m listening.


  • Tim Ogden on May 30, 2007 at 10:42 am said:

    Some thoughts:
    1) the presumption here is that non-profits are spending their current income well and could put more money to effective work if only the foundations would pay it out. I think that presumption is wrong.

    2) Another issue is the question of foundations’ capacity to get money out the door well. From the folks at very large foundations that I speak to, their biggest perceived problem is finding quality places to put the 5% that they absolutely have to pay out. Recently had a conversation with one that was deeply concerned about the quality of their grantmaking falling dramatically as the foundation has grown — they simply can’t maintain standards of quality while giving out $10 million a year in line with the funder’s goals.

    While I also don’t think foundations should exist in perpetuity, there are equally bad problems on the other side of the equation (foundations giving out money faster). As the US Government has conclusively demonstrated, having vast amounts of money to distribute is far more likely to generate ridiculous waste than good outcomes.

  • Holden on May 30, 2007 at 11:07 am said:

    I agree that it would be a mistake to say “We’re giving out $X, regardless of quality.” And I suppose there can be times that the 5% requirement is even too high.

    But – it’s hard for me not to chalk that up to some combination of overly narrow mission statements and insufficient proactiveness. The world’s problems are huge enough that it should be possible to find good uses for all that money – the question is whether current nonprofits are doing it. If none of them are, then I’d posit that foundations ought to do two things:

    1. Share their insight that no current charities are worth giving to, along with their reasons for believing so. They could save the rest of us a lot of trouble (and cash).

    2. Build the programs that should exist. Why not? If it’s hard to figure out how to spend the money, and no one else has good ideas, then spend a ton of the funds on research, administration, and program design. Take 10 years to design a good 10-year game plan. That seems like money well spent – certainly a better strategy than hanging around for centuries, waiting for good programs to come along.

  • L. Harris on July 26, 2007 at 10:09 am said:

    I concur innovation in philanthropy should not be confined to the extant nonprofits and their programs. Holden is right about the narrow focus of many large national foundations and the reflection of this myopia throughout the nonprofit sector.

    However, many private foundations discourage program staff from “creating programs” or initiating nonprofits. After being on staff at two such national foundations I have come to understand two basic reasons for this disposition.

    First, foundations, particularly national foundations, generally desire to avoid being accused of “kingmaking” or “annointing” organizations in a field. The “creation” of organizations exacerbates this concern as it highlights gaps in the capacities of existing organizations and raises questions about why foundations wouldn’t simply invest in building the capacity of groups in the field.

    A second rationale is private foundations prefer not to be seen as the a funder in perpetuity of any single organization. The start up costs and capacity building costs of new nonprofits are not cheap and do not immediately result in improving people’s lives or addressing root causes (which is a false dichotomy in my mind but that’s another post for another time). While this may seem contradictory to foundation’s desire for perpetual operation, the reality is in many instances it is simply more efficient to support existing organization.

    Besides there are multiple strategies for wringing innovation out of a field; including,but not limited to competitive grant processes like RFPs; partnering with local and regional funders to build capacity and support new ideas in a traditionally under-attended to region; and connecting research to practice to ensure the best available knowledge is informing and shaping effective practice that produces results for people and root causes.

  • Holden on July 26, 2007 at 10:17 am said:

    The reasons given here to avoid capacity building seem really weak. Foundations don’t want to be seen as “kingmaking” or as funding an organization in perpetuity … why not, if it’s the best way to get the job done?

    You state that funding existing organizations can be more effective, and give a few ways to do so. I tend to agree with you – but if this is true, then that’s just one less excuse for holding onto all this money for so long, isn’t it?

  • L. Harris on July 26, 2007 at 12:51 pm said:

    Because there is a great deal of financial wealth in philanthropy it is seductive to overstate the role money plays in problem solving. It is neither likely nor plausible that $500 billion plus nonprofit effort equals problems solved. Sure the lives of individual people can be ameliorated but the conditions which created their crappy lives to begin with will persist. Social change philanthropy is concerned with addressing the latter as a pathway to the former, which is why I reassert the distinction is one without difference. The entire sector in general and philanthropy in particular have a great deal more to offer than money alone.

    For example, the convening role foundations can play at all levels of society is, indeed ‘priceless’. The ability to gather elected officials, business leaders, community organizers and concerned residents in a room to problem solve joblessness, environmental degradation or some similar matter is a unique role for foundations which has little to do with the size of their purses but rather the credibility and respect many have earned over the years.

    The suggestion that several large national foundations have over stayed their welcome is also curious. Is it possible that precisely because of their staying power that there is a counterweight to substantial cuts in public spending for good and effective social programs and public investment in ideological programs with no track record of success? Is there value in their exisitence to sustain work over the decades prior to the philanthropy generated by tech millionares and billionares? What of the contributions that would have been lost by their absence over the intervening years? For example, I would not have been content with saying to women and students of color “sorry no college opportunity for you the _____ Foundation closed its doors and we no longer have funding for our fellows program.”

    Could the large national foundations give more than 5%? Sure, and as your math exericse shows on average they do give closer to 7%. Is it time to revisit the issue of payout? Perhaps, but along with that conversation consider the wide ranging implications for global philanthropic leadership provided by many U.S. foundations (new and old).

    Weigh the importannce of U.S. foundation initiatives which are investing millions of dollars in building philanthropic infrastructure in developing countries throughout the world and providing models for developed countries in Western Europe. Embedded in these investments are both monetary and non-monetary factors like relationships, leadership, knowledge sharing. I submit these and otherr elements are priceless and would likely be lost in the absence of stalwart institutions who readily share and constantly engage with peers new and old.

    To be sure, the ability to make such large scale investments in fighting HIV on a global scale or building philanthropic capacity would be impaired by a dramatic increase in payout. Further, to responsibly manage larger payouts requires commensurate levels of bureaucracy so as to be efficient administratively, monitoring progress and measure effectiveness. Such costs have to be absorbed as well.

  • Holden on July 30, 2007 at 1:36 am said:

    On the last point, I think that the cost of delaying is higher than the cost of additional bureaucracy needed to get the money out, and I’ve argued that (and can again).

    On the rest – I agree that money isn’t everything, and that foundations have a lot else to offer. But I see their non-money contributions as falling into two categories:

    1. Contributions that don’t depend on particular people – “institutional knowledge” that has been written down and formalized. This knowledge should be publicly shared, obviating the need for the foundation itself to continue existing.

    2. Contributions that do depend on particular people. People don’t last forever, and neither should foundations.

    That’s why I think a 10-20 year time horizon is appropriate. Past this, you just can’t count on retaining anything of what you originally created – except what you don’t need the institution to retain.

  • L Harris on July 30, 2007 at 1:04 pm said:

    I concur with your two and, in the interst of space, suggest three more that have everything to do with reputation, trust and the presence of the institution, including its people:

    3. Influence — the ability to convene non-conventional people to problem solve a critical social issue like the poor quality of inner city education or lack of good afterschool programs.

    4. Leverage — of a long standing foundation’s reputation happens everyday to spark or sustain collaboration, information sharing or just dialogue that leads to action.

    5. Ideas — progressive institutions foster and provide support for progressive people and ideas. I maintain it is a huge assumption to think the next generation of foundations would pick up key issues like human and civil rights from a preceding generation of donors. Each benefactor has her\his own interests which may or may not dovetail those of peer donors. The impact of some of a philanthropists contributions can be measured in real time and some require assessment over time to determine effects.

  • Holden on August 11, 2007 at 11:29 am said:

    Theoretically, I agree that all of these could be benefits of perpetuity. I just have so much trouble with the idea that it’s reasonable to establish, today, a foundation perpetually devoted to a particular idea and value. The problem is that ideas and values are so dependent on their context, and the world changes so dramatically in 50 years.

    The Ford Foundation is a perfect example of an institution that has likely radically diverged from what its actual founder would have wanted … but I would think all foundations are doing this, in more subtle ways. They have to be. There are too many degrees of separation, and there’s too little accountability in a perpetual institution.

    If I tried to express all the values I believe in now, and instructed someone to carry them out in perpetuity, across generational and personnel changes … what would this institution be fighting for 200 yrs down the line? Would it have anything to do with what I really believe in? Would it be a better bet to align with my true values than a randomly chosen smart person? I think it’d be worse, because of the lack of accountability I’d be creating.

    I just don’t think it makes any sense to create a job that will exist forever, with nothing to guide or select the person who does the job except a mission statement.

  • Carrick on December 20, 2010 at 8:00 pm said:

    That is indeed disgusting, just as disgusting as the six-figure salaries of the CEOs of the top charities (UNICEF: over $400,000, OxFam: over $300,000). It’s like, I’m guessing they’re not giving all that money back to their own organization, because in that case they just wouldn’t take it to begin with. Instead, I’m sure they’re using that salary (which, of course, the non-profit “needs” to pay them in order to get the “best” CEOs in this competitive blah blah) to send their kids to private school–while having the gall to ask the rest of us to donate to their organization.

  • Carrick, it’s hard to know when a salary is excessive vs. necessary to get the best person for the job. Our view is that we should focus on what charities accomplish and how much total they spend to get there. Once we start critiquing how much they spend on specific inputs, including people, I think we’re micromanaging.

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