Sara Engelhardt, President, Foundation Center: Fifty Years of Promoting Foundation Openness and Transparency

December 21, 2006
Sara Engelhardt, President, Foundation Center: Fifty Years of Promoting Foundation Openness and Transparency

As foundation historian James Allen Smith has noted elsewhere, when the Foundation Center was first conceived in 1954 the approximately 5,000 philanthropic foundations in the United States had roughly $4.9 billion in assets and made grants totaling $300 million annually — 4.5 percent of the $6.65 billion in total income received by America's charitable organizations that year. Despite those relatively modest numbers, Congress had evinced growing interest in what one member of the House had termed "the tragic misuse of foundation money" and had conducted a series of public hearings devoted to foundations and foundation practices.

Two years later, in 1956, the Foundation (then Library) Center was launched under the able leadership of F. Emerson Andrews, a longtime executive at the , with the twin goals of promoting foundation openness and improving foundation accountability. As the American economy mostly boomed in the ensuing decades, the number of foundations in the U.S. and the assets under their control increased by an order of magnitude.

Today, the more than 68,000 foundations in the United States hold combined assets of $510 billion and make grants of almost $11 billion annually. More importantly, as Allen notes, foundations have emerged as a powerful and very visible force in American society — and, increasingly, on the world stage. At the same time, foundations have rarely if ever been subject to more scrutiny, from the media as well as Congress, or have had to contend with such heightened expectations.

Earlier this fall, Philanthropy News Digest spoke with Sara Engelhardt, president of the New York City-based organization, about increased scrutiny of foundations and the foundation field, public perceptions — and misperceptions — about foundations, the impact of globalization on philanthropy, and the significance of Warren Buffett's historic gift to the .

Engelhardt joined the staff of the Foundation Center as executive vice president in 1987, having served on the center's board of trustees since 1984. Prior to that, she was on the staff of the  for more than twenty years and, during the final twelve years of her tenure there, served as secretary of the foundation, managed its grants, and was program officer in the areas of philanthropy and nonprofit organizations and women in higher education and public life.

Engelhardt serves on the boards of the  and the Education & Research Foundation of the , and chaired the Foundations and Corporations Committee of  Campaign Council.

A 1965 graduate of , she holds a master's degree in administration of higher education from , Columbia University.

Philanthropy News Digest: The Foundation Center was created in response to congressional hearings on private foundations in the early 1950s. Many of the features of the philanthropic landscape then are still visible or are re-emerging: rapid growth in the number of foundations and their assets, foundation worries about public perceptions of their work, public concern about abuses of charitable status and misuse of foundation resources. Are foundations today more transparent and accountable than they were fifty years ago?

Sara Engelhardt: Yes, I think they're a lot more transparent. It didn't happen overnight, and it wasn't all because of the Foundation Center. But the center played a very important role in the evolution of foundation transparency. In the center's early days, our Foundation Directory systematically profiled foundations, whether they wanted to be profiled or not. And from the very beginning we pushed for foundations to publish annual reports and for the IRS to provide better access to foundations' annual 990 filings. Soon, we began asking foundations to send us updates, particularly of their grants. Foundation Newswas the center's original vehicle for publishing grant information, and because we published it every couple of months, the information was pretty timely. All these things helped create a sense that there was a field that foundations belonged to, and the public responded by asking for even more information.

But the big change for foundations came, I think, not from any legislation or IRS initiative but from the Internet. Before the Internet, getting information from foundations was like pulling teeth — mostly because it wasn't a priority for them. Foundations tend to be busy places, with a lot of urgent priorities and a relentless grantmaking cycle, and most of them were relatively slow to get on the Internet. They eventually realized, however, that if they didn't put something online that accurately represented what they did, someone else would do it for them, and it would often be inaccurate. To help foundations get online, the center created a "foundation folders" program at our Web site, giving funders a relatively easy — and free! — way to have an Internet presence. I think we've created more than a hundred and fifty folders — basically, mini-Web sites — over the past few years, so clearly foundations are seeing transparency about their work as more of a priority.

PND: When we talk about the foundation field, what are we talking about? And how has the field changed over the last twenty or thirty years?

SE: I would say that when the Foundation Center was founded there wasn't such a thing as a "foundation field." You may not know this, but we were the first national organization for foundations. The precursor to the  was established in 1949, but it wasn't reorganized to include private foundations until 1964. The center's first president, F. Emerson Andrews, actually served as a sort of one-man chronicler, organizer, and leader of the field.

The whole point about the role of organized philanthropy in our society is that grantmakers don't all have to march in the same direction....

But, you know, it's hard for foundations to be a field, and many of them, even today, see themselves as part of the arts field or the environmental field, not as part of a field of entities that make grants. That simply reflects their mission-driven character. Foundations tend to care most about their missions and the recipients of their funding, rather than field-wide issues. Nevertheless, a focus on the "how" of making grants has been expanding in importance over the past thirty years or so. The Tax Reform Act of 1969 created a lot of new rules of practice for foundations, particularly private foundations, and I think there's still a struggle within what we call the foundation field to figure out what its defining characteristics are, beyond the definitions in the Tax Reform Act. At the Foundation Center, we now use the term "grantmaker," to be more inclusive of the many diverse entities that are now arguably part of the field, and we talk about the field itself as "organized philanthropy." The whole point about the role of organized philanthropy in our society is that grantmakers don't all have to march in the same direction, so perhaps we should call it "disorganized philanthropy" instead!

PND: Is congressional scrutiny of the foundation field, which we saw in the '50s, the '60s, the '80s, and are seeing again today, a recurring response to changes in the political environment? Or is something fundamentally different happening this time around?

SE: Actually, scrutiny of foundations by Congress goes back to the teens — with the Walsh Commission — when the  and  foundations were relatively new. It's interesting to note — this is my observation, at least — that these periods of scrutiny occur when two things have happened: first, there has been major growth in the number and/or assets of foundations and therefore a great deal of money in the field compared to prior years; and second, the country's political mood has turned relatively conservative.

The confluence of these two factors leads to some really interesting tensions, which is why the current scrutiny of the field seems so complicated. There's the tension between the government and its agencies not wanting to kill the goose that lays the golden eggs and their desire to tell the goose where to lay them. Government devolution at all levels, combined with the increasing amount of private wealth going into philanthropy, has led politicians to say, "Let's get government out of this; we'll let the free market of philanthropy identify the needs in society and solve these problems."

You know, philanthropy is inherently a social-change activity. Lots of wealthy people don't give their money away. Those that do are seeking some kind of improvement in their world. That leads to a lot of diversity in the foundation field, in that individual donors and boards get to decide on the changes they want to aim for, and our government has given them great freedom to choose the targets of their philanthropy, rather than forcing them to march to the same drummer.

PND: What changes, if any, is renewed scrutiny of the field likely to result in? Will we see requirements for foundation accreditation, periodic reviews of tax-exempt status, limits on trustee and staff compensation, and/or an increase in the mandatory payout rate, as some have suggested? Or will Congress, having included a package of charitable reforms in the Pension Reform Act passed earlier this year, move on to other issues and concerns?

SE: It's always risky to predict what's going to come out of one of these periods of scrutiny. The one that led to our founding, in the '50s, didn't immediately result in any legislation or changes. In fact, it took more than a decade for enough momentum to build to produce the Tax Reform Act of 1969. Of course, many of the laws that have been passed over the years have been beneficial to the field. They've required some rethinking or restructuring of how these institutions relate to the business sector, to the governmental sector, to the social sector, and by and large, they haven't been too burdensome. Still, it's always possible that a law will be passed that will kill the goose by making people not want to start a foundation or, worse, forcing existing foundations to go out of business after a set number of years.

PND: By imposing a higher annual mandatory payout rate on them?

SE: Yes, that's a possibility, because the public and its representatives in government really don't understand the way the field works or its value to our society. I'm not going to try to predict what's going to happen. I will say, however, that it's hard for Congress, particularly when we're going through a transition in the political balance of power, to focus on this issue. It's such a complex area, and its constituency, though small, requires a lot of handling once it's energized, so it's likely that Congress will move on to more pressing public concerns.

PND: Historically, private foundations have preferred to work behind the scenes to advance their missions. Given the higher profile of foundations, increased scrutiny of the field, and the magnitude of the challenges the U.S. faces, domestically as well as internationally, is that paradigm obsolete? In other words, are foundations too cautious about promoting their activities and agendas?

SE: Well, I would actually suggest that the opposite is happening. Historically, foundations' reputation for working behind the scenes was driven, I think, by the Protestant ethos that prompted philanthropists to create many of the largest foundations in the first place. You see this early on with Carnegie Corporation and the Rockefeller Foundation, but also later with the , which were initially extremely secretive — but from a deeply religious conviction that you don't flaunt your good deeds, not because they felt they had something to hide. You also see a uniquely American brand of individualism in many foundations, with each working to find its own niche where it can make a difference. But after the Tax Reform Act of '69, which foundations viewed as the disastrous result of the lack of field-wide standards, transparency, and public outreach, foundations began to work on these issues individually and through their growing "infrastructure" — at that time, primarily the Council on Foundations and the Foundation Center.

Foundations are communicating as never before, not only with each other but also with the public....

By the 1980s, many of the large staffed foundations had highly professional communications offices, and in the new-foundation boom of the '90s, virtually all the "born-large" foundations, as one of the center's trustees used to call them, were on the communications bandwagon from the start. Today, foundations are communicating as never before, not only with each other but also with the public — directly and through intermediary groups like the Foundation Center, as well as through the media. Ultimately, the goal is to strengthen the public mandate for foundations to do their work on a tax-exempt basis and to increase public trust in the field as a whole.

PND: Is there a gap between how foundations view themselves and how they're portrayed by the media?

SE: The media used to cover foundations only rarely, and some of the increased media coverage in recent years undoubtedly results from the increase in foundation communications efforts. But whether that has strengthened public trust and their public mandate is unclear. I don't recall the media ever being impressed with foundations just doing their work, while the press seems dazzled of late by the "celebrity factor" in philanthropy. I think that's what is driving the more positive media coverage of foundations. A lot of new money is coming from high-profile personalities in the business and entertainment worlds, many of whom are relatively young and glamorous, and that helps sell papers. The media are excited about celebrity and big-money philanthropy, not about foundations per se. It's the American version of royalty, which this country has always been fascinated by.

How is it different from the way foundations see themselves? Well, the media try to simplify things, but the foundation field is very diverse. The media tend to extrapolate from one instance to the whole, but the old saw that "if you've seen one foundation, you've seen one foundation" more accurately represents the reality of the foundation world. Any way you slice it, the result is a gap between the picture of the field presented by the media and the picture of the field that the Foundation Center, for instance, portrays in its reports. Most people in the field believe our research to be authoritative, but they also read the media coverage. And they sometimes challenge us about the gap between what we say and what they hear from the media: "So if the new entrepreneurs are taking over the field, why don't your data reflect that?" Because the reality is that they're not; they're just getting more coverage because they're new and different.

PND: What misperceptions about organized philanthropy undermine its potential to contribute to society?

SE: The biggest problem, in my view, is the sense of power that the media — and hence the public — seem to believe foundations have. This leads to the misperception that foundations are failing to achieve the positive impact they should be having on society. That perception stands in stark contrast to most foundations, which understand that they have very little power in the great scheme of things, particularly when they're trying to address root causes — what we call "strategic philanthropy" — as opposed to more direct charity for specific institutions or communities. Yet some of those very foundations feed this misperception by stating their ambitions in such grandiose terms that it sounds as though they expect to be held accountable for achieving sweeping results.

In the early '80s, I developed what I call my surfer theory of philanthropy, which owed its origins to the fact that many leaders in the field at that time spoke of foundations, in the idiom of the day, as "making waves." I remember first articulating it at a Council on Foundations meeting convened by Jim Joseph on the Stanford campus. At some point during the meeting, I pointed out that only God or forces of nature can make waves, and that the most a foundation could do is learn to ride them well. Well, I got a pretty hostile response, from the foundation critics as well as from those with extensive foundation experience. Curiously, both insisted that foundations were one of the most powerful institutions in society and only needed to figure out how to convince the public of that fact to get the respect they deserve.

Actually, surfing is a great metaphor for the problems strategic foundations face when they're trying to "make waves." In surfing, you sit on your board watching dozens of waves roll by while trying to decide which one to catch. Once you've decided, you have to really commit. Sometimes you wipe out, and other times you see the wave isn't all you thought it would be. Even when you catch a good one, you have to decide whether to ride it all the way in or whether, at some point, to bail out and get ready for the next set. Basically, it's the same for strategic foundations, which have to weigh the risks they take in any program and grant against potential outcomes, precisely because they aren't powerful enough to "make waves" or control many of the factors that determine the success of a given strategy.

As someone who spent twenty years of her life working for a foundation, I believe that the decisions foundations face on a daily basis make the work terribly stressful. And the people looking over your shoulder — other staff, your board, the media, and to some extent the government — will ask, "So what have you achieved lately?" No matter how you respond, you can always be second-guessed about the decisions you made. In this respect, at least, grantmaking is a risk-taking business.

PND: Part of the problem may be that a billion dollars isn't what it used to be. A billion-dollar foundation in the context of a $2 trillion economy is unlikely to achieve the same kind of impact as it might have in a much smaller economy. And yet the public and the media see the billion-dollar figure and think, "Gee, that's a lot of money."

SE: As you note, it's much less money than it used to be — and it's not just that the cost of living has gone up. When Andrew Carnegie founded Carnegie Corporation in 1911, its endowment of $125 million amounted to 18 percent of the federal government's annual expenditures of $690 million. By the time the  was created in 1999, its assets of $17 billion equaled only 1 percent of federal domestic spending of $1.5 trillion. Yet the sheer size of its endowment relative to other large foundations made us all compare it to Carnegie and Rockefeller in terms of the impact it could have. Of course, with the addition of Warren Buffett's money, the Gates Foundation really does have a lot of money. But even the combined fortunes of Bill Gates and Warren Buffett do not add up to the kind of clout that Carnegie and Rockefeller had when they started.

In combining their fortunes to achieve their philanthropic goals, Bill Gates and Warren Buffett have set a new standard for philanthropy that others surely will emulate....

That said, Gates and Buffett are like Carnegie and Rockefeller in that they are the wealthiest individuals of their day, and in combining their fortunes to achieve their philanthropic goals they have set a new standard for philanthropy that others surely will emulate.

PND: We've been talking mostly about private foundations, which have dominated organized philanthropy since the early part of the twentieth century. The last fifteen years, in contrast, have seen a rise in alternative grantmaking vehicles. To what degree do these vehicles represent the beginning of a new type of philanthropy that has the potential to achieve better results in the decades to come than private foundations have in the past?

SE: Foundations, like anything else, are creatures of their time, but I don't actually believe there's a lot new under today's sun. In fact, in the '90s I chuckled whenever new philanthropists held up their "venture philanthropy" as a daring alternative to conventional foundations, especially when they cited Andrew Carnegie as their role model. Well, it was Carnegie's general-purpose foundation that was the model for the institutional philanthropy they were railing against. What's more, they assumed, falsely, that Carnegie Corporation had become captive of a staff that had turned it into an inflexible bureaucracy. Unfortunately, that assumption gave rise to the notion that philanthropists should "give while they live," rather than let later generations of trustees distort the original donor's "intent." I can tell you that Andrew Carnegie's vision for his foundation was extremely "institutional," as was Rockefeller's. They both built major business organizations that were highly "bureaucratic" — in the best sense of the word. And they both built philanthropic foundations that were organized and staffed following that business model, because they assumed it was the best way to achieve their philanthropic goals.

PND: Didn't Carnegie and Rockefeller characterize their own philanthropy as "venture" philanthropy?

SE: Yes, and they weren't the only ones. Maria Mottola has noted that the venture capitalists who created the  even before Carnegie and Rockefeller created their foundations talked about their philanthropy using the language of venture capitalism. It's not a new term. But the more important point is that it's not entirely clear how today's "venture philanthropy" foundations are distinct from the long-established foundations such as Carnegie, Rockefeller, and — all of which, of course, have changed with the times.

This all leads me to conclude that philanthropy is continually changing and reinventing itself in response to forces around it. A major force for change in our own day is technology, which, among other things, has dramatically changed the way companies and organizations do their work. It's probably not a coincidence that technology companies are the ones generating a lot of the wealth driving the new philanthropy, but of course, even the older foundations have adopted new technologies and are working differently.

However, I think it's easy to confuse the way the wealth is created with the way philanthropy gets done. That's why foundations established "in perpetuity," as we say, sometimes get a bad rap. Critics of foundations established in perpetuity fear that a foundation's giving will become mired in an outmoded vision of what it can or should achieve — or, conversely, that the original donor's vision for the foundation will be subverted by later generations of family members or trustees. Andrew Carnegie's deed of gift for Carnegie Corporation stated, "Conditions upon the earth inevitably change; hence no wise man will bind Trustees forever to certain paths, causes or institutions." In that regard, I believe he was a wise model for the philanthropists of today. He understood that future generations would continue to have great need for philanthropic resources but also believed that they would have the wisdom to use those resources well.

PND: To what degree are some of the new philanthropic models — the public charity model, for example — a means for philanthropy to do a better job of aggregating resources and applying those resources to problems? And to what extent are they simply a pragmatic way of circumventing the laws and regulations covering private foundations?

SE: Well, the , the first community foundation in the nation, was set up in 1914 as a means of aggregating philanthropic resources then managed by Cleveland's banks and trust companies in a way that would produce significant community benefit, rather than being distributed by the banks in dribs and drabs. And as you know, that foundation was the model for the seven hundred-plus community foundations across the country today. United Ways and other federated giving vehicles have also long provided the means for small amounts of philanthropic money to have a large impact. But you're right in suggesting that many of the newer "foundations" are really means for people with similar philanthropic interests to pool their resources and have greater impact on a cause they care about. Examples of those kinds of vehicles include the women's funds and grantmaking public charities that focus on particular issues, rather than primarily on a geographic area.

In light of the phenomenon we've been talking about — of even very large private foundations no longer having the clout they'd like to have — there's a lot of talk in the private foundation world of needing to collaborate more. I must say I have mixed feelings about this, since too much collaboration is likely to reduce what I consider to be one of the great strengths of the private foundation model — the freedom to pursue innovative solutions to social problems without regard to conventional wisdom. That said, we're definitely seeing new collaborative models, including jointly creating new public charities to accomplish a common program goal. I might even suggest that Warren Buffett's decision to join forces with the Gates Foundation is the ultimate expression of this trend, although I believe his motivation had more to do with not wanting to run such a large foundation than of believing his fortune wasn't big enough to have an impact by itself.

The real surprise is the resurgence of the private foundation model....

The real surprise, however, is the resurgence of the private foundation model. I've been frankly astounded, given the tax laws and regulations, at how many people are going that route. Philanthropists like Bill Gates who put huge amounts into their foundations probably don't get much of a tax deduction and must use other pockets to fund things forbidden to foundations, such as direct lobbying. But a private foundation gives these philanthropists a community and also a platform for interacting with other institutions in society. The benefits of having a "foundation field" make the private foundation a desirable model even today.

PND: What does the emergence of successful, high-profile businessmen like Gates, Ted Turner, George Soros, and Michael Bloomberg as philanthropists say about philanthropy in the twenty-first century?

SE: Those are the same kinds of people who have been philanthropists from the beginning. What's interesting to me is the other kind of people who increasingly are seen as philanthropists, people like Bill Clinton, who's considered a philanthropist not by virtue of his money but by virtue of his connections and power.

PND: His power to convene?

SE: More his power to attract and channel large amounts of private money. Maybe it's a coming together of economically and politically powerful people with a common vision for improving the world. It's very interesting, for instance, that Bloomberg is both a philanthropist and an increasingly prominent political figure. The mixing of political clout with philanthropic impulse, I find that fascinating. To some extent it may be the result of the governmental and political gridlock we've had in this country. Frustrated with politics as usual, those in power are using philanthropy to make headway in improving our society. It's definitely something to watch.

PND: If philanthropy is the child of American capitalism, and American capitalism increasingly is driven by globalization, do you expect globalization to have a long-term impact on philanthropy? And what, if any, are the implications for democracy and civil society should that turn out to be the case?

SE: Globalization is already having a tremendous impact on philanthropy. Many of the issues confronting our global society — including health and environmental issues, immigration and labor issues — know no borders. And these issues are politically globalized, as well as economically and in other ways. So globalization is going to continue to have an impact on philanthropy — not only on how philanthropy is conducted, but even more profoundly, perhaps, on the kind of impact it is able to achieve.

One theory I have is that the twentieth century epitomized philanthropy's use of social science — and to some extent the health and hard sciences — to get at the root causes of social ills and to develop new methods of studying society that would yield new ways of improving it. But as the twentieth century came to an end, it seemed that philanthropists and foundations began to embrace politics as a more effective way to change the world. Maybe that's partly because in a global society no one can afford the luxury of dealing with just one political system; today, people who want to make a difference must navigate multiple systems and cultures and ethnicities and languages. And in this environment, the practice of politics becomes much more important than social science research in achieving social change. Social science is still important, but philanthropy in the twenty-first century may be defined by the dominance of political strategies as the favored means to achieve philanthropic goals.

PND: Interesting. Does that put philanthropy on a collision course with democracy? In other words, who has a vote in how the Gates Foundation spends its money or what any large NGO does in country X or Y?

SE: That's the key question. One of the major goals of the '69 Tax Act was to cordon private foundations off from the political arena precisely because, unlike public charities, they didn't have a broad constituency. They were forbidden to lobby, except on their own behalf; they were forbidden from explicitly funding organizations to influence legislation; they were forbidden from supporting voter registration, as opposed to voter education; and so forth. During the '60s, the power of foundations to drive public issues had become apparent, although they were doing it primarily by funding demonstration projects or commissions charged with studying an initiative that the federal government would then pick up. Head Start, public television, and a lot of other Great Society programs came out of those kinds of partnerships. And to some degree the Tax Reform Act of '69 was the backlash against foundations driving the public agenda in this way.

Starting in the '80s, as the federal responsibility for many social programs was devolved to the states, neither government nor foundations had the capacity to take demonstration programs to scale. Foundations switched to a focus on public policy as the means to achieve an impact on major social issues. More and more foundations — which represent no one, or perhaps everyone — are now trying not so much to influence public policy as to help policy makers become informed by the research they fund and the experts they convene. At some point, the public could balk at that strategy, as well as at giving foundations too much influence.

PND: A final question: Given foundations' relatively modest resources, where does organized philanthropy have the best chance to achieve breakthroughs over the next ten or fifteen years?

SE: It's tempting to say health or public health because of all the breakthroughs achieved in those fields by foundations over the years. As you have reported in PND, a number of major foundations today, including the Gates Foundation, focus on disease, especially in the developing world, as a social ill that can be conquered. One of the problems, though, is that in an age of all-embracing globalization, new diseases and how they travel and mutate — AIDS being a sobering example — will make it much harder to solve health issues. So foundations might not look to the health field for the big breakthroughs in the future.

I guess I go back to my hypothesis that politics is going to be a key to making social advances in the future....

I guess I go back to my hypothesis that politics is going to be a key to making social advances in the future. In a connected and interdependent world with so many different political structures and systems, how does philanthropy help all people advance without imposing "solutions" developed for one nation with its own values and history and political system on nations with different beliefs and political systems? Left to their own devices, governments are more likely to fight for their own survival and supremacy than to work for the global good. I don't have the answer to that question, but I have a strong feeling that finding that answer is the breakthrough that philanthropy — global philanthropy — might be capable of. And next to that, any other breakthrough pales in its capacity to improve human society.

PND: Well, thank you, Sara. And congratulations on the Foundation Center's 50th anniversary.

SE: Thank you. It's been an honor to lead the Foundation Center these past fifteen years, and I'm delighted to have the chance to share my thoughts with PND's readers.

Mitch Nauffts, PND's editorial director, spoke with Sara Engelhardt in November. For more information on the Newsmakers series, contact Mitch at [email protected].