3 Cheers for the Little Guys

Let’s hear it for the small foundations—those with assets of less than $50 million, as defined by the Foundation Source and the subject of its Annual Report on Private Foundations 2015.

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These “little guys” are certainly doing right by the charities they fund.  In every category, from the very small (assets under $1 million) to the large small (assets between $10 and $50 million), the 769 small foundations in this study gave more in 2014 than they did in 2013.  Across all categories, that amounted to $30.4 million more.  But what is truly impressive, and in so many ways much more noteworthy, is the fact that again this year, as small foundations have done consistently over the last seven years, according to the Foundation Source, small foundation giving exceeded the mandatory distribution of 5%.  In 2014, the average distribution rate for all small foundations was 7.6%, up a bit from 2013 when it was 7.5%.  And even more inspiring is that distributions by the “little guys” exceeded even that, as their distribution was 13.2% in 2014.

It is difficult to pin down the numbers of small foundations, as the places you would expect to find such information don’t have it—or it wasn’t readily discoverable after quite some time on those various websites.  But according to the National Center for Charitable Statistics, there are 64,211 grantmaking foundations with assets under $1 million, comprising 63% of the total number of such foundations.  I can’t help but wonder how many of them are spending some of their mandatory distribution on the ever burgeoning cottage industry of professional advisors available to help them spend their philanthropic dollars, such as the 769 foundations who were the subject-clients of Foundation Source’s annual report.  And then there is the sub-cottage industry of the professional associations that have popped up to support the professional advisors who also take some of that distribution, such as the International Association of Advisors in Philanthropy (AiP) started in 2005 and the reinvented and renamed, in 2006,Partnership for Philanthropic Planning, originally started in 1988 to support and push planned giving, with that new mission of “charitable giving made most meaningful.”  As good as small foundations are doing in supporting charities, just how much money is getting diverted to these for-profit and nonprofit professional advisors?

The same can be said of philanthropic dollars of wealthy individuals, as they too, seem to be increasingly relying on this cottage industry of professional philanthropic advisors.  U.S. Trust, itself an advisor to wealthy and mega-wealthy individuals, providing, among other things, guidance on how to spend their philanthropic dollars, recently released its 2015 Insight on Wealth and Worth survey revealing some interesting things about 640 clients with at least “$3 million in investable assets.”  These individuals are charitable:  78% give dollars and 66% give time.  How the wealthy give is two-fold:  they give to things that matter to them and/or to support positive change in society.  And, more than 50% think that giving back is part of a “life well lived” (the focus of this report), and 43% think it is important to model this behavior for their children.  (An interesting aside: the majority of parents haven’t disclosed their wealth to their children, less than 1/3 have discussed with their children their likely inheritance and only 20% believe that their children will be ready to handle the inheritance of family wealth.  Factor that into your development strategy!)

While it is impossible to get a handle on the dollars that get diverted from charitable purposes to philanthropic advisors, there is an upside to some of these professional advisors.  Those advisors who, like the Center for High Impact Philanthropy at the University of Pennsylvania, and what the recently formalized Center for Strategic Philanthropy at the Milken Center proposes to be, gather the hard, scientific data that demonstrate the impact—or lack thereof—of methods being used are providing incredibly useful information that can guide money toward impact and away from things that sound nice but don’t make a difference, are led by nice people but don’t make a difference, have a great reputation but don’t make a difference, etc.  With the growing number of organizations clamoring for a limited pie, we should all—donor and recipient, alike—want to see philanthropic dollars going where the problems are being best addressed and clients are successfully served.  And knowing this is how more and more donors are acting might just spur every nonprofit to understand the importance of being able to prove impact where it is found and redesign services and programs to achieve measurable impact.

But there is also something to be said for philanthropy that is palpable, for philanthropists not only knowing that their dollars are making a real, measurable difference, but seeing that difference being made.  There is a far greater sense of urgency to solve the problem when the distended stomachs and visible ribs of children have been seen first-hand, when a teen tells you directly that it was being able to express his anger through poetry or dance that prevented him from avenging his brother’s shooting, when you talk to the mother whose children’s school performance have improved since having a home of their own.

While philanthropic advisors can provide an assessment of need, an array of options to redress that need and some can even tell you which of those options are really making a difference (and not merely how they look according to their 990s), they cannot make you understand, at a gut level, the way giving circles, from the small friends’ group to the organized Impact100 types, do.  They cannot ignite your passions and open your checkbooks a little wider—with the money you’ve saved on doing for yourself.