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Home > Research Library > The Business of Giving > Giving Gifts > Foundations

Foundations

Should Christian foundations distribute assets at a more aggressive pace? How can nonprofits learn to be more effective with their limited resources? These articles and papers offer research, data and biblical analysis of various types of foundations, including community, private and “sub-foundations.”


Articles and Papers

When Bad Things Happen to Good Money
Neal B. Freeman, USA Today, January 4, 2001.
In this short piece, Neal B. Freeman, chairman of the Foundation Management Institute, offers several true stories of philanthropy gone bad to serve as warnings for those in the philanthropy business. These include stories of sloppy philanthropists who, after their deaths, end up financially supporting causes that they never would have agreed to support. How did they unintentionally support these “daffy grants and anti-market initiatives”? Freeman gives three reasons: (1) They failed to leave mission statements setting out their beliefs and intentions. (2) They appointed board members who did not share their views and values. (3) They failed to install mechanisms for sanctioning the people who would later trash their values. These short sketches give vivid example of the sort of legacies philanthropists want to avoid.

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Some Foundations Are Electing to Spend It All Now, Close Shop
David Bank. The Wall Street Journal, September 10, 2002.
A growing number of philanthropists are taking a more practical approach to their foundation giving, spending down their foundations over a shorter period of time and then “closing shop”. Many foundations give only a small percentage of their assets per year in order to maintain their endowments in perpetuity. However, the social returns of giving more per year may outweigh the financial returns of keeping the foundations running. It is more beneficial to give now than later, this article argues. In 1913 the chairman of Sears, Roebuck & Co., Julius Rosenwald, declared, “Permanent endowment tends to lessen the amount available for immediate needs, and our immediate needs are too plain and too urgent to allow us to do the work of future generations.” Let’s concern ourselves with the problems of the present and let tomorrow worry about itself.

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Spread the Wealth
myCFO.com, October 3, 2001.
This article identifies the key benefits and limitations of private foundations, donor-advised funds and supporting organizations, three charitable entities that donors should consider in building their charitable portfolios. As donors’ philanthropic objectives become more diversified, so does the need for multiple solutions. By consulting a philanthropy expert, donors can more easily determine the best solutions for them based on their lifestyle, business, family and charitable goals.

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Foundation Maintenance: A Growing Number of Banks, Law Firms, and Consultants Now Offer Wealthy Families All the Tools They Need to Manage Their Charitable Foundations
Jennifer Nelson. Bloomberg Wealth Manager (March 2003).
Over the past few decades, several new trends have emerged in the area of philanthropy. There is an explosive growth of small foundations that has created a burgeoning new industry of private foundation administration. A growing number of banks, law firms and consultants now offer wealthy families all the tools they need to manage their charitable foundations. As private foundations are extremely technical and complex, they must be managed almost like small businesses by knowledgeable advisors, thus creating the need for foundation administration services. This article describes the research on these new trends and gives a detailed list of the top 34 private foundation administrators in the United States. As the baby boomer generation retires over the next 20 years, philanthropy is expected to continue increasing. Note: No downloadable text or audio is available at this time.

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Donations to Community Foundations Drop for Second Year in a Row, Study Finds
Harvy Lipman. The Chronicle of Philanthropy, October 16, 2003.
Gifts to community foundations fell by nearly 10 percent in 2002, after adjusting for inflation, the second year in a row that donations have declined, according to a survey by the Columbus Foundation, in Ohio. Officials at community foundations blamed much of the continued falloff in giving on the sluggish economy.

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Community Foundations Consider New Approaches for Financial Stability
Stephen G. Greene. The Chronicle of Philanthropy, October 16, 2003.
Many community foundations around the country are engaging in cost-and-revenue reviews, prompted by concerns that their current economic model—in which operating budgets rise and fall in step with their assets—may be impossible to sustain. While most community foundations enjoyed robust growth in their budgets during the 1990s as stocks soared, budgets for many have decreased significantly in the last few years, forcing some to scale back programs or trim their staffs even as demand for the grants and programs they support has continued to grow.

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Managing Family Wealth with Charitable Foundations: Want to Keep Your Money in the Hands of Those That Need It? Here’s How
J. Ross Justice. Business Reform 3, no. 6 (November/December 2003).
Government red-tape and bureaucratic inefficiency are the target of this well-aimed article. The article begins with an analogy between the good Samaritan and the principle of individual, “direct-involvement” charity. The author’s essential concern, however, is not scriptural principles, but efficiency in giving. The article thus focuses on the relative efficiency of three different kinds of charitable foundations: private, public and “sub-foundations” (so named because they go “under” the law, hitting its intent in a creative and legal way unforeseen by legislators). By providing many legal details, the author seeks to lead the reader to the conclusion that sub-foundations—the only currently existing example of which is the National Heritage Foundation—are the most cost-effective and tax-efficient way to give money charitably. According to the author, sub-foundations combine the “legal flexibility of the public foundation with the ease of access of a private foundation.”

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Assets of Small-Foundation Group Drop 5%
Nicole Lewis. The Chronicle of Philanthropy, January 22, 2004.
After compiling responses on giving and management from over 1,100 of its members, the Association of Small Foundations determined that the average foundation lost an average of nearly 5 percent of its assets in 2002 but disbursed an average of 9.4 percent in grants that year. Sixty-five percent of the group’s members distributed their grants locally. Education was the top cause, with 31 percent of the grant money devoted to it. Human services was second, at 18 percent, and health third, at 13 percent.

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Two Groups Oppose Foundation Measure
Brad Wolverton. The Chronicle of Philanthropy, June 26, 2003.
Two major associations that represent nonprofit groups have announced their opposition to congressional legislation that would probably require many foundations to give more to charity every year. Despite the opposition, one of the bill’s sponsors says that he has substantial support for the proposal and expects it to be passed by the U.S. House before Congress adjourns for its August recess.

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New Philanthropists Find Drudgery: Giving Away Cash Can Be More Cumbersome Than Glamorous
Stephanie Strom. The New York Times, January 12, 2003.
In the last decade, tens of thousands of wealthy people have created personal philanthropies. However, instead of being a joy, many of these charitable foundations have become burdens to their founders, requiring far more time and paperwork than they had imagined. To escape from the inconveniences caused by heading a foundation, many of today’s wealthy are either converting their foundations into funds at community foundations or just giving directly to nonprofits. Henry Wendt III, who experienced firsthand the difficulties of foundation management, said, “In many respects, giving away money responsibly is harder than making it.”

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Virtuous Capital: What Foundations Can Learn from Venture Capitalists
Christine W. Letts, William Ryan and Allen Grossman. Harvard Business Review, March 1, 1997.
U.S. foundations and nonprofits work diligently on behalf of society’s most needy yet report that progress is slow and social problems persist. How can they learn to be more effective with their limited resources? Foundations should consider expanding their mission from investing only in program innovation to investing in the organizational needs of nonprofit organizations as well. Their overemphasis on program design has meant deteriorating organizational capacity at many nonprofits. If foundations are to help nonprofits be assured of making payroll, paying the rent, or buying a much-needed computer, they must develop hands-on partnering skills. Venture capital firms offer a helpful benchmark. In addition to putting up capital, they closely monitor the companies in which they have invested, provide management support, and stay involved long enough to see the company become strong.

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Foundations Decry Charitable Giving Changes
Kelley Beaucar Vlahos. Fox News, June 11, 2003.
Some of the country’s biggest donors are fuming over proposed changes to the federal tax code that would require private foundations to exclude administrative expenses from the 5 percent of charitable contributions they are required to pay out of their investment assets each year.

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Congress Considers Easing Rules on Foundation Stock Holdings
Grant Williams. The Chronicle of Philanthropy. May 29, 2003.
In a move that has received little attention, Congress is considering whether to require some foundations to distribute as much as 12 percent of their assets annually. In exchange for giving considerably more than the 5 percent that foundations are now required to award, foundations would be allowed to follow less-stringent rules on holding publicly traded stock than other grant makers. The action comes as members of the U.S. House of Representatives have proposed a measure that would, in effect, force many foundations to give more to charity than they do now under the 5-percent rule.

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Pressing Foundations to Give More: Controversial Proposal Could Produce Millions for Charity
Harvy Lipman and Ian Wilhelm. The Chronicle of Philanthropy. May 29, 2003.
A legislative proposal to increase charitable contributions from foundations could have generated more than $370 million for charity in 2001 from the 25 wealthiest foundations alone, according to an analysis by this weekly newspaper. But while the proposal in Congress is a possible boon for cash-strapped charities, it has roiled the foundation world. Many foundations argue the bill would force them to fire employees and reduce grants to small charities, and would ultimately hurt charitable causes rather than help them. A small number of foundations disagree, arguing that the bill would produce much-needed charitable dollars during an economic downturn.

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Pushing Grant Makers: Two Members of Congress Want to Force Foundations to Give More to Charities Annually
Ian Wilhelm and Brad Wolverton. The Chronicle of Philanthropy, May 15, 2003.
In what could be the most significant federal legislative proposal affecting foundations in decades, a bipartisan pair of lawmakers wants to require grant makers to give a larger share of their assets to charities every year. A key part of their bill would bar foundations from counting operating expenses like rent and salaries when they calculate how much money they must distribute each year to charities. Federal law requires foundations to spend 5 percent of their assets annually.

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21st-Century Sell: Companies Use High-Tech Services to Help People Create Foundations
Brad Wolverton. The Chronicle of Philanthropy, February 6, 2003.
Two companies—one an upstart with roots in the Internet world, the other a financial-services giant—are vying to make forming a private foundation as easy as opening an online checking account. Foundation Source, a new company in Norwalk, Conn., and Fidelity Investments, a full-service brokerage in Boston whose Charitable Gift Fund has collected more than $5 billion from donors, both have begun marketing what they see as revolutionary ways to increase the number of private foundations: secure Web sites with 24-hour access that allow donors to view their foundation records and obtain all the legal and accounting services they need to comply with federal regulations. Despite questions about the market for computerized foundation services, Americans certainly have grown more interested in setting up foundations. From 1990 to 2000, the number of U.S. foundations rose 75 percent, to more than 56,000. Some observers say that as Americans seek more control over their charitable dollars, they will continue to create foundations, which allow them and their heirs to say where donations should go, and when they should be distributed.

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Should Christian Foundations Distribute Assets at a More Aggressive Pace?
Gary Latainer. Counsel & Capital, June 2001.
Christian foundations play a significant role in the overall sphere of Christian giving. But many Christian foundations, like their non-Christian counterparts, consistently distribute the minimum percentage of assets (5 percent) required by the tax laws. Gary Latainer points to several biblical teachings suggesting that Christian foundations should distribute their assets at a more aggressive pace. To distribute the required 5 percent annually, he thinks, is a concession to secular standards. Christian foundations should be far more radical in their generosity.

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Terrorist Attacks Did Not Cause Major Shift in Focus of Most Grant Makers
Ben Gose. The Chronicle of Philanthropy, September 5, 2002.
Many foundations made emergency grants following September 11, but few have changed their grant making in more fundamental ways. That frustrates some grant seekers, who worry that not enough is being done in case another attack occurs.

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Endowment Results Pressure Institutions: Asset Depletion at the Top Foundations Results in Two to Three Year Drop of Foundation Awards
Clare C. Pickering. Municipals, August 16, 2002.
Colleges, universities and not-for-profit organizations are bracing for severe cuts in philanthropic gifts for 2003. The reason being that the assets held at the top ten foundations have been dramatically affected by the equity market downtown.

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Shaking the Foundations: For Years Philanthropy Has Been the Preserve of the Super-Rich; Now Entrepreneurs Are Bringing It to the Mass Market
Donna Fenn. Inc, May 1, 2002.
A galvanic shift in philanthropy is taking place: from elitism toward democracy. Due in part to the 1990s boom, 700,000 households are worth at least $5 million each. While the newly affluent may lack the magnate-scale fortunes of a Rockefeller or a Carnegie, they increasingly want to spread their money around. Although most giving is still checkbook philanthropy—a response to the dinnertime phone solicitation or the heart-wrenching direct-mail piece—the nouveau generous often want to be more involved, personally selecting causes they find meaningful and ensuring their gifts are well spent. Traditional donors invest in institutions, new donors in ideas.

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Philanthropy's New Agenda: Creating Value
Michael E. Porter and Mark R. Kramer. Harvard Business Review, November-December 1999.
During the past two decades, the number of charitable foundations in the United States has doubled while the value of their assets has increased more than 1,100 percent. As new wealth continues to pour into foundations, the authors take a timely look at the field and conclude that radical change is needed. First, they explain why. Compared with direct giving, foundations are strongly favored through tax preferences whose value increases in rising stock markets. As a nation, then, we make a substantial investment in foundation philanthropy that goes well beyond the original gifts of private donors. We should therefore expect foundations to achieve a social impact disproportionate to their spending. If foundations serve merely as passive conduits for giving, then they not only fall far short of their potential but also fail to meet an important societal obligation. Drawing on Porter's work on competition and strategy, the authors then present a framework for thinking systematically about how foundations create value and how the various approaches to value creation can be deployed within the context of an overarching strategy. Although many foundations talk about "strategic" giving, much current practice is at odds with strategy. Among the common problems, foundations scatter their funding too broadly, they overlook the value-creating potential of longer and closer working relationships with grantees, and they pay insufficient attention to the ultimate results of the work they fund. This article lays out a blueprint for change, challenging foundation leaders to spearhead the evolution of philanthropy from private acts of conscience into a professional field.

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For Nonprofits, Time Is Money
Paul J. Jansen and David M. Katz. The McKinsey Quarterly, 2002, No. 1.
Society pays a price when foundations and nonprofit organizations stockpile their assets. Donors should ask not just how, but how soon, their gifts will be used.

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Foundations Increased Investments in Stock in Late 1990s, New Study Finds
David Whelan. The Chronicle of Philanthropy. February 21, 2002.
Foundations of all types and sizes are investing more of their endowments in stock than they did in the early 1990s, according to a new report by the Council on Foundations.

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Art of the Possible: Clients with Their Own Private Foundations May Need a Hand in Managing Them to Conform to IRS Rules—and in Forging Family Consensus
Deborah L. Jacobs. Bloomberg Wealth Manager, April 2002.
Various restrictions contained in Chapter 42 of the code severely limit what foundations can do with their charitable dollars and impose stiff penalties on those that overstep the bounds. Often, though, it’s not regulations but family dynamics that cause a foundation to unravel, especially as control passes to the second or third generation.

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Foundation Giving in 2003 Likely to Drop, Report Says
Leah Kerkman. The Chronicle of Philanthropy, August 21, 2003.
In reaction to three years of stock market declines, the amount of grant dollars awarded by American foundations dropped slightly in 2002, declining to an estimated $30.3 billion in 2002, from $30.5 billion in 2001, according to a report from the Foundation Center, in New York. Still, the report shows that foundation giving has nearly doubled since 1997, up from $16 billion, not adjusted for inflation. And the majority of the 747 grant makers that the Foundation Center surveyed about their 2003 plans said they expected their giving to increase or remain the same in 2003.

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Foundation Assets Recover: Many Grant Makers Don’t Plan to Increase Awards, Despite Gains
Stephen G. Green and Ian Wilhelm. The Chronicle of Philanthropy, March 4, 2004.
Bouyed by stock-market gains, assets at most of the nation’s largest private foundations rose in 2003. Despite the growth in the investment portfolios, most charitable funds plan to freeze their grant making at 2003 levels, saying economic gains remain too small and the market too volatile to make new commitments. For the 140 grant makers examined in this survey that reported data for the 2002 and 2003 fiscal years, foundation assets grew a median 9 percent, meaning half achieved gains of 9 percent or more and half did less well. Since 2000, assets for most foundations had been falling.

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Foundation Growth and Giving Estimates: 2002 Preview
Loren Renz and Steven Lawrence. New York: The Foundation Center, 2003.
Despite terrorist attacks, a volatile market, and a year-long recession, the Foundation Center’s annual report on foundation giving has some good news. The center tracks aggregate giving and asset data for close to 62,000 U.S. grant-making foundations, and their numbers show little change in actual dollars giving from 2001 ($30.5 billion) to 2002 ($30.3 billion). Giving by independent foundations decreased by 1.5 percent in 2002, while corporate foundation giving and community foundation giving rose 2.2 percent and 2.6 percent, respectively. A separate survey by the center of 760 large and midsize foundations has more encouraging news. While roughly two-fifths of those surveyed said they expect their giving to decline in 2003, nearly three-fifths said their giving would remain constant or increase. Read the press release.

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Growth in Giving Slackens at Foundations
Ziya Serdar Tumgoren. The Chronicle of Philanthropy, March 20, 2003.
The growth in foundation giving in 2001 slowed to its lowest level in four years, according to a new report by the Foundation Center. The report, Foundation Giving Trends: Update on Funding Priorities, presents the findings of an annual study of grants of $10,000 or more from 1,007 community, corporate and private U.S. foundations. Grants included in the report totaled $16.8-billion, and represent more than half of all foundation giving in the United States in 2001. According to the report, foundation giving rose by 11.6 percent, or $1.7 billion, in 2001 compared with a record 30 percent jump the previous year.

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Foundation Giving Held Steady Last Year, Report Says
Serdar Tumgoren. The Chronicle of Philanthropy, April 1, 2003.
Foundation giving remained steady in 2002 despite a weak economy and volatile stock market, according to a report released by the Foundation Center. The report, Foundation Growth and Giving Estimates: 2002 Preview, is based on data collected from nearly 62,000 foundations in the United States. Despite an overall decline in assets, foundations provided $30.3 billion to charities in 2002, a drop of only $218 million from the previous year. The report attributes the steadfast giving levels to a rapid increase in new foundations, donations made to existing foundations, payments on pledges related to the September 11 terrorist attacks, and an effort by many foundations to keep giving steady—or avoid major reductions—in the face of government cutbacks.

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No More Wiggle Room: Big U.S. Foundations See Drop in Assets for Third Straight Year
Brad Wolverton. The Chronicle of Philanthropy, March 6, 2003.
The declining stock market continued to erode the assets of the nation’s largest private foundations in 2002, causing more than 100 of them to reduce or freeze their grant making for this year. Among 131 grant makers that reported data for fiscal 2001 and 2002, foundation assets fell by a median of 9 percent last year, meaning that half of the funds posted declines greater than 9 percent. Last year was the third in a row that foundation assets declined. The foundations that provided data for this survey lost $19.7 billion in assets during 2002. The losses have prompted some grant makers to cut off funds to charities they have long supported, eliminate staff members and reassess their missions.

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Despite Sour Economy, Foundation Grants Rose in ’01
Stephanie Strom. The New York Times, April 4, 2002.
It apparently takes more than an indecisive stock market and economic uncertainty to rein in spending by foundations. The nation’s more than 56,000 foundations increased their spending by 5.1 percent, to $29 billion, in 2001, according to projections in a report released by the Foundation Center. That predicted growth is certainly less robust than that of the foundations’ outlays in the previous year, but it is far better than expectations.

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Foundation Center Announces Estimates for 2001 Foundation Giving
The Foundation Center. News Release, April 4, 2002.
Defying expectations in a year of economic recession, continuing stock market decline, and national uncertainty in the wake of the September 11 terrorist attacks, U.S. grantmaking foundations increased their contributions to nonprofit organizations in 2001 by 5.1 percent from 2000. Foundations gave an estimated total of $29 billion—the highest level of giving on record. Several factors contributed to this growth in foundation giving in 2001, including asset growth and post-9/11 charitable programs. All these findings are presented in the 12 page report, Foundation Growth and Giving Estimates: 2001 Preview.

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