Well before the pandemic crashed into our national consciousness, there were murmurs and quiet discussions about the adequacy of the annual 5% (minimum) payout rule for America’s private foundations.
By the beginning of December 2020, these conversations had emerged from the shadowy edges of philanthropy thought leadership. They became part of the call announced on Giving Tuesday – December 1, 2020 – by “a powerhouse coalition of philanthropists, foundations, and academic experts” for significant changes to rules on private foundations and donor-advised funds.
In our reporting later in December on this new “Initiative to Accelerate Charitable Giving,” we noted that “[s]o far, there has been lots of enthusiasm and praise for this critical undertaking, but there has been hesitation and criticism from certain quarters as well.” Specifically, doubts had been expressed by then on behalf of the Philanthropy Roundtable by its president and CEO, Elise Westhoff; see The Left Wants a Philanthropy of the Few (December 14, 2020), The Wall Street Journal.
We promised to “follow these and other reactions as they develop.” In early January 2021, the prestigious Stanford Social Innovation Review published a thoughtful and significant pushback on the proposal to raise the required minimum payout rule beyond the 5% figure that has been in place for many decades. See Foundation Payout Policy in Economic Crises (January 4, 2021), Larry Kramer, President of the William and Flora Hewlett Foundation, formerly professor of law and dean of Stanford Law School, SSIR.
And the SSIR editors went further: They solicited responses from selected thought leaders across the ideological spectrum. In its forum, also dated January 4th and titled Up for Debate: Should Foundations Increase Their Payouts During Big Crises?, they presented nine articles commenting on Mr. Kramer’s arguments. The SSIR team also included Dean Kramer’s gracious and considered rejoinder to his colleagues in Further Reflections and Reactions on Foundation Payout Rates.
Up for Debate Series
“The onset of COVID-19 has amplified discussions about philanthropic spending during an economic downturn,” writes the SSIR editors to introduce this compelling debate. They note that “…some observers [are] saying that a big crisis like the pandemic should compel funders to not just maintain their outlays, but to disburse more.”
By contrast, Larry Kramer explains in his opening essay why ‘a funder might credibly think it wiser not to increase payout during an economic downturn, even a severe one.’” There, he also notes that he hopes “to show that this is so not only because people might reasonably disagree about the right thing to do, but also because there might actually be more than one right thing to do. What is appropriate for one funder may not be appropriate for another, and what is apt for a funder at one time may not be fitting even for the same funder at a different time.
It would be presumptuous to try to summarize this compelling and thoughtful presentation by such a distinguished scholar and philanthropy leader. Suffice it to say that he has a strong belief in what he explains is the critical role over many generations by legacy foundations in American society as a force for good and for change.
Perhaps the strongest, but still respectfully presented, challenges to this concept are from Professor Helmut K. Anheier and from Edgar Villanueva, author of Decolonizing Wealth. Other colleagues writing responses allude as well to some hesitation to a full-throttled acceptance of Dean Kramer’s tradition-based perspective.
Another interesting exchange is between Dean Kramer – who criticizes the plan adopted in mid-2020 by several major foundations to fund increased payouts to grantees by the mechanism of issuing bonds – and Darren Walker, president of the Ford Foundation, a leading supporter of (and participant in) it.
SSIR received the following responses from its selected group of commentators:
- The Case for Foundations to Do More in Times of Crisis: John Palfrey, president of MacArthur Foundation, former professor and associate dean at Harvard Law School – “Spending more today will mean having less for the future, but the current crisis is unprecedented and the financial trade-off is very modest.”
- How Much We Give Is Important, But How We Give It Is Too: Kathleen Enright, president and CEO of the Council on Foundations – There is disagreement over how much foundations should payout during this crisis, but there should be no disagreement over the need for all foundations to transform the way they give to help build more effective and sustainable nonprofit organizations.”
- Unprecedented Times Call for Foundations to Take Unprecedented Actions: Darren Walker, president of the Ford Foundation. “During this historic disruption, foundations should not put their own survival above the survival of the civil society and nonprofits that they serve.”
- Now Is Not the Time for Foundations to Default to Minimum Payout: Phil Buchanan, president of the Center for Effective Philanthropy. “Foundations should step up in a time of unparalleled crisis—and strong market returns have made it easier for them to do so.”
- Philanthropy Must Go Beyond Traditional Grantmaking: Professor Helmut K. Anheier. “The COVID crisis has laid bare the limitations of conventional foundations and put a spotlight on alternative approaches to philanthropy and creating positive social change.”
- Retaining Future Spending Power Is the Wrong Priority: Edgar Villanueva, principal at the Decolonizing Wealth Project & Liberated Capital. “By not spending more now, foundations are allowing social problems that have been exacerbated by COVID-19 to worsen in the future.”
- Focus on Outcomes, Not on Dollars: Professor Diana Leat. “The important issue isn’t the preservation of a large endowment, but how to exercise informed, imaginative, and sensitive judgment in pursuit of outcomes for the common good.”
- Foundations Are Risk Averse When It Comes to Spending: Professor Rob Reich. “At a time when society is confronted with so many overlapping crises living donors in particular should increase their giving.”
- There Is No One Answer to How Much Foundations Should Pay Out: Dan Cardinali, president and CEO of Independent Sector. “Larry Kramer’s call for rigorous, evidence-based analysis on payout rates is responsible and leaves room for different approaches.”
In Further Reflections and Reactions on Foundation Payout Rates, dated January 4, 2021, like all of the other articles in this series, Larry Kramer notes the “thoughtful feedback” that has raised “more than a few points that have already prompted additional reflection” on his part, that he “failed fully to consider or explain.” In this lengthy response, he goes through many – though not all (because of space constraints) – of them.
The bottom line, though, is his firm commitment to his original argument against legally mandating a higher annual foundation payout: “There will be future crises as compelling as the ones we are going through today, and philanthropy must be ready to respond.”
Dean Kramer invites additional “debate and discussion among us and in the sector more broadly.” This series, organized and presented by the editors at the Stanford Social Innovation Review, is certainly an important step forward in this critical issue in philanthropy.
— Linda J. Rosenthal, J.D., FPLG Information & Research Director