What are foundations?

The Republican Party in Congress is proposing big tax increases on endowments. Foundations (and large endowed nonprofits such as universities and hospitals) are fighting back. As they do so, they'll make claims about their role in civil society, in supporting the vulnerable, in strengthening communities. They are hoping that they're use by both democratic and republican donors will protect them now. They will claim they are part of civil society, and thus, a critical part of democracy.

But when foundations (or more accurately, their professional staffs) get together to discuss the threats posed by the tax bill or by any of the administration's other actions/proposals, they do so behind closed doors. They hold conferences and video calls, meetings and planning sessions, from which they exclude all other organizations (even other large endowed nonprofits such as those mentioned above). Foundations need their own place, their own conversations, their own planning. They see themselves as separate from nonprofits when it comes to planning around big public policy actions or just about anything (Take a look at the agendas of any conference hosted by a "philanthropy infrastructure" organization for the past 30 years and you'll see a "no solicitation" notice and a note that only grantmakers are invited).

Which begs the question, when foundations act as if they are separate from civil society, just what do they think they are part of?

They won't say this, but the answer is clear. Foundations are financial products for the wealthy. They provide a tax benefit that can decrease income taxes for the donor(s) and are managed to preserve and grow (tax protected) capital. If universities are, as many have commented, "hedge funds with classrooms attached," foundations are simply investment products with nice offices and perhaps a few staff people attached.

This view - that foundations are financial products for the wealthy and not assets dedicated to charitable or social purposes - is old news to people working toward social change. For decades and more many marginalized communities have known this truth, and organized for change in ways that don't require, invite, or welcome foundation dollars.

This understanding helps explain why it can be so hard to get foundations to change, to participate as equals with other civil society organizations, or even to speak up against government actions that fly in the face of the foundations' stated goals. As financial products the purpose of foundations is to protect and grow a portion of the donor(s)' assets. Professional staff of foundations - who are the ones talking to the press, attending the conferences, writing (or not) the press releases about new actions - want to position themselves as part of something bigger and more meaningful. They don't want to admit they work for someone's tax evasion product. But they do. And many of their bosses (the boards and donors) care more about the family's overall financial portfolio than about anything else.

Increasing the taxes on those assets is problematic for the donors and their financial advisors. Now, don't worry your little head about them. No one is better at carving out tax breaks for the wealthy than the financial advisors and legal counsel who sold the donors on the foundation in the first place. They might encourage their clients to shift assets to DAFS - adding anonymity and lower overhead costs to the "benefits" side of such a product for the donor. Or they'll advise the donor to set up an LLC, foregoing tax benefits (which many of the wealthiest have already chosen to do) in favor of control and no reporting requirements.

Lots of people have been asking me why foundations in the USA have been so quiet about the president's actions or why they're not spending more? (Tipping my hat to those foundation leaders who have stepped forward in big ways recently)

When you look at foundations the way donors do - as financial investment products - some of the answers to those questions become visible. People outside of foundations want to think of them as part of communities and part of civil society. And foundations hope that those outsiders in civil society will join them in fighting these tax proposals; though I'd bet money the rest of civil society is more focused on the proposed legislation to enable the Secretary of the Treasury to revoke any organization's nonprofit status because he feels like it (this is in the same bill as the proposed endowment taxes). In return for such allyship, civil society defenders of foundations might suggest that the foundation staffs ask themselves: What do you want to be part of, civil society or the financial industry? Perhaps as we build toward a better, more sustainable, egalitarian, and diverse civil society we can expect foundations (if they continue to exist) to act a bit more equal and a lot less separate.

PS: I know there are lots of exceptions to this. Lots of foundations are run for the purpose of making change in the world. Lots of wealthy individuals have called for higher taxes on themselves. These are, precisely, the exceptions that prove the rule. What matters to outsiders trying to/hoping to engage more foundations in a fight for the planet, justice, or democracy is that they can tell the difference between the few and the many.