Cheers and Challenges

Nobel laureate praises foundations for fighting racism but urges them to do more; endowment growth fuels payout worries

Foundations have played a great role in fighting racism in the United States and abroad, but they need to do much more, 2,100 grant makers assembled here at the 50th annual meeting of the Council on Foundations were told in speeches by South African anti-apartheid leader Archbishop Desmond Tutu and former Mississippi Gov. William F. Winter.

Archbishop Tutu, the retired Anglican prelate who received the 1984 Nobel Peace Prize, told grant makers that their money and advice had been critical in ending South Africa’s official policy of racial segregation and that some of the lessons from that battle could be applied in the United States.

Echoing the three-day conference’s theme of “Communicating Philanthropy,” the archbishop urged grant makers not to be reserved or modest in speaking out about their role in ending apartheid, or about their work in general.

“You ought to be able to say to the world: Our work is not about ameliorating situations; our work is something that actually does bring about fundamental change.”

“I want to urge you to find ways of letting the world know that what you are about is not about making shackles comfortable,” he said. “What you are about is helping people to break the shackles.”

Foundations played a greater role than just providing dollars for the anti-apartheid movement, the archbishop said: They also provided key counsel and strategic advice. Such help from people away from the center of the struggle was critical, he said, “because when you are in the struggle, you can’t distinguish the woods from the trees.”

Archbishop Tutu suggested that the United States, to help ease racial tensions, might benefit from the creation of a forum similar to South Africa’s Truth and Reconciliation Commission, which was formed when apartheid ended in the mid-1990s. The commission unearthed “ghastly stories” of suffering, torture, and death, he said, but in doing so helped pave the way for the healing of much of South Africa’s emotional wounds.

“I have found that as people tell their story, they experience a catharsis,” he said. “I have sometimes wondered whether in this country we need to have a forum where people would talk about the pain that sits in the pit of their tummy — whether they are Native Americans, African Americans — to tell of the legacy of slavery, to tell of the anguish of racism.”

Mr. Winter, a member of President Clinton’s Advisory Board on Race, said the most successful way that foundations and other elements of society can fight racism is to support efforts to improve education.

Foundations, he said, must “get the message out to every household, and especially every poor household, that the only road out of poverty runs by the schoolhouse.”

“We must provide an opportunity to every person, regardless of race or class, to secure a competitive education that will lead to a more rewarding economic future,” he said. “Racism in whatever form,” he added, “must be considered outside the bounds of acceptable conduct in our society.”

Speakers throughout the conference predicted that one of the biggest challenges facing grant makers will be the public’s response to the huge growth in foundation endowments that have been triggered by the bull market. Many grant makers said they think that the surge in endowment values will cause the public to urge Congress to stiffen federal distribution rules, which now require foundations to give away at least 5 per cent of their assets, on average, every year.

Virtually all the speakers who discussed the payout requirement said they hoped that Congress would stay away from the issue. They said they feared that any attempt to redraft the complicated distribution rules could lead to problems for foundations — especially if the market goes sour. But several grant makers said they thought foundations should voluntarily increase the percentage of assets they give to charities, perhaps to a minimum of 7 per cent.

To focus attention on the subject and to encourage more grant makers to increase the percentage of assets they give away, Stephen Viederman, president of the Jessie Smith Noyes Foundation, in New York, suggested that the Council on Foundations urge its members to publish their payout rates in their annual reports.

“Let’s get that stuff out there and see who is doing what,” said Mr. Viederman, who noted that his foundation distributed 7.6 per cent of its assets last year.

Other grant makers, however, were reluctant to see foundations increase their distributions substantially. They said that giving away more than 5 per cent of investment assets a year could make it difficult for foundations to weather downturns in the market.

Still others suggested a compromise: keeping the payout minimum at 5 per cent, but urging foundations to exclude the administrative expenses, trustee fees, and other items that they can now count as part of the 5-per-cent figure. That would guarantee that at least 5 per cent of assets a year were channeled directly into grants.

The National Network of Grantmakers, which represents 400 foundations that support social-change groups, used the conference to push its “The Payout Initiative: 1% More for Democracy” campaign. The grant-making group is encouraging foundations to increase the amount they distribute in grants by one percentage point annually and to earmark those funds for such causes as fighting poverty, protecting the environment, and encouraging racial and ethnic diversity.

“There’s so much money out there,” said Julio Rosa, who is running the 1-per-cent campaign for the network, “that what we’re saying is to focus some of those dollars on social-change issues.”

Concern about payout rules was not all that was on the minds of grant makers here. Some speakers expected that Congress might consider placing other restrictions on grant makers.

Council on Foundations president Dorothy S. Ridings predicted that in addition to the payout rate, the “hot-button” policy challenge in coming years would be whether foundations should be permitted to operate in perpetuity or instead be required to spend all their assets within a set period of time.

She said the best way for grant makers to fend off calls for stiffer regulation is by “continuing to tell your stories,” including details of specific grants that have improved the everyday lives of Americans and people around the world.

Ms. Ridings said she was concerned that if foundations did not step up their efforts to communicate with the public, the consequences would be disastrous.

“We must do better, we must become masters at communicating what we’re all about,” Ms. Ridings said. “I do not believe it is hyperbole to say that the bottom line is our survival as an essential, traditional, independent force.”

While Ms. Ridings and other speakers at the conference were encouraging foundations to talk more openly about their work, a new survey released here made it clear that many people in the foundation world see significant barriers to getting grant makers to communicate better.

The Communications Network, an organization affiliated with the Council on Foundations, released results of a telephone poll it sponsored in which 23 foundation chief executives and three foundation trustees were asked to identify what they saw as the key barriers to effective communications. Among the barriers most frequently cited, according to a summary of the survey results:

* “The secretive (or modest) and risk-averse culture of philanthropy that avoids media at all costs.”

* “The newness of communications as a tool for the field.”

* “Resource limitations (time, money, focus, staff, geography, and technology), exacerbated by the huge number of initiatives that could benefit from greater investment.”

For the first time, the Council on Foundations used the Internet to provide its 1,700 members and the general public with a window into the activities of the conference. The Council’s World-Wide Web site (http://www.cof.org) features a special section called “SimulConference,” which is still accessible, where on-line visitors can choose to read about or listen to selections from the conference. At one point, the site boasted a live interactive “SimulChat” — a 30-minute panel discussion where those who were watching via the Internet could send in their questions and comments via e-mail.

Internet broadcasts were not the only new form of technology to get attention. The Institute for Global Ethics, in Camden, Me., demonstrated a new CD-ROM designed to help grant makers tackle ethical dilemmas that occur in their daily work. “Cornerstones for Ethical Foundations” is a two-and-a-half-hour training workshop for foundation leaders, program officers, and others.

The CD-ROM’s development was financed through a $600,000 grant from the David and Lucile Packard Foundation, in Los Altos, Cal.

Cole Wilbur, executive director of Packard, said his fund made the grant out of concern that, “If foundations don’t pay attention to ethics, or act ethically, they’ll have no right to continue existing.”

The next step for the Institute for Global Ethics will be to develop a CD-ROM on ethics for charities. Because the prototype already has been developed, the new CD-ROM will cost significantly less to create than did the first CD-ROM, institute officials said.

Sara E. Melendez, president of Independent Sector, which represents the nation’s major foundations and charities, said that such a tool could be useful for grant seekers as well as grant makers.

“When it’s a question of right vs. wrong, it’s easy,” Ms. Melendez said. “But when it’s right vs. right, how do you make that choice?” For example, Ms. Melendez said the CD-ROM could be useful in answering the question that many charities ask in deciding how to react to a request for proposals: “Do we want to respond to a proposal that is not part of our mission — but massage the mission so it fits in?”

Jed Emerson, executive director of the Roberts Enterprise Development Fund, in San Francisco, provided one of the more entertaining moments of the conference when he used the metaphor of marriage to describe the relationship between grant maker and grantee necessitated by so-called venture philanthropy.

“Classical funding is to dating as venture philanthropy is to marriage,” Mr. Emerson said at a session on the topic, which is loosely defined as the application of venture-capital investment techniques to grant making.

For example, he said, as in marriage, there’s the “Seeing Other People” problem, when a foundation that has entered into a committed relationship with a charity may become a little jealous and possessive when that charity accepts money from another foundation.

Then there’s the “I Thought I Knew You” stage, when grantees discover that they really didn’t know their benefactor’s expectations, followed closely by the “Do You Really Want Kids?” stage, when goals that were agreed upon — such as the need for profitability and the aggressive pursuit of growth — turn out to have been defined differently by each partner in the relationship.

Finally comes the “Divorce” stage — which, he noted, is “much messier” in venture relationships than it is in traditional grant making, where foundations may simply send charities a rejection letter. Foundations in a venture relationship cannot just “walk away” from the organizations they support when they are no longer interested, but must meticulously work out all the details of the split, including how it is to be presented to other charities and grant makers. His implication was that venture philanthropy, like marriage, has tremendous rewards — but that a lot of grant makers might want to think long and hard before deciding to take the plunge.