The Foundation

In June 2006, a century after the great industrialists Andrew Carnegie and John D. Rockefeller Sr. established foundations and other endowed institutions to be named for themselves, Warren Buffett—in a single stroke that instantly caught the attention of much of the world—announced that he would donate thirty-one billion dollars, over a period of years, to a foundation named not for himself but for two other major donors—Bill Gates, founder of Microsoft, and his wife, Melinda.

With that announcement, Buffett, widely revered as the world's greatest investor, earned the title of history's greatest and most admired divestor. He would be giving away, for the public good, the bulk of his lifetime accumulation of wealth—more than two times, in 2006 dollars, what John D. Rockefeller Sr. and Andrew Carnegie, America's most generous philanthropists before Bill Gates and Warren Buffett, gave away combined!

It was not only the magnitude of Buffett's gift that compelled the attention—and the curiosity—of the entire world. Even more breathtaking was Buffett's decision not to memorialize himself with his gift by placing his wealth in a foundation named for himself, as all but a handful of previous philanthropists had done before him. Self- or dynasty-promotion has always been understood, accepted, and even lauded as perhaps the primary driver of the creation of perpetual foundations, as well as other kinds of institution naming in perpetuity. So, in an age in which aggressive selfpromotion is rampant (if widely deplored), it was stunning to witness an act of historic altruism transformed into one of sacrifice by its donor's renunciation of the attention of posterity. Had Buffett followed the example of virtually all of his predecessors in giving, the foundation he could have created would have instantly become the wealthiest in the entire world, ahead of even the Bill and Melinda Gates Foundation, thereby assuring himself of perpetual admiration and the gratitude of history for all time. Instead of that guarantee of fame forever, the summum bonum for most human beings throughout history, he chose to veil his magnanimity in the cloak of another foundation, thereby assuring himself of anonymity in the future even if his gift has already won him worldwide celebrity in the memory of those alive today. If Maimonides was right in lauding secret giving as the second most praiseworthy form of charity, Buffett has earned incalculable virtue for saving or improving the lives of millions of human beings who will never know his name.

Andrew Carnegie, founder of the first great American foundation, took a very different tack. His name appears today on some 2,500 libraries in the United States and elsewhere, as well as on more than two dozen major American think tanks, foundations, and other institutions, all of which continue to confer great benefits on society.

While Buffett obviously shares the conviction Carnegie expressed 125 years ago in The Gospel of Wealth that "he who dies rich dies thus disgraced ," and obeyed his injunction to the wealthy to give away their riches while they're still alive, his approach to philanthropy differs from Carnegie's in another way. Carnegie urged the rich to give away their wealth during their lifetimes so that they could apply to their philanthropy the same entrepreneurial skills and zeal for efficiency that they employed in its accumulation. By contrast, Buffett is turning over control of his giving to another organization, although one of which he has become a trustee.

Buffett explained his reasons in an interview with Fortune magazine:

In other words, in his usual self-effacing way, the "Sage of Omaha" confessed that he felt he would not be as good in giving away wealth as he had clearly been in making it. Perhaps the same humility explains why the admiration of history doesn't tempt him. From now on, perhaps he will be known as the "Saint of Omaha."

Buffett's gift has drawn more sustained and intense press and public attention to the world of foundations and charitable giving than any other donation in the past hundred years. That attention is long overdue. Moreover, Buffett's example has raised to public consciousness a hitherto unconsidered option for those who are blessed with wealth that they are inclined to give to charity. Now, in addition to thinking about creating a foundation themselves or naming an endowed program for themselves at an institution that will outlive them, wealthy would-be donors will perhaps think about giving it to already-established foundations to administer.

The Gates Foundation's biggest challenge may be responding appropriately to the increased scrutiny it can expect as the steward of such a massive sum. The public attention drawn to a foundation governed by only three trustees who will oversee its annual spending of around $3.5 billion has already sparked public concern over its scale and the lack of broader accountability, as well as curiosity about how and how well the Gates Foundation will manage to spend such large amounts of money wisely and effectively.

That gargantuan annual grantmaking budget imposes great responsibility on the Gates Foundation to take the lead in becoming a model of transparency for American foundations. The public knows very little about foundations—how they work, what they do, their role in society. As a result, whenever foundations come under attack by politicians, public officials, or the press for one or another misdeed or mishap, there is no existing reservoir of public support upon which they can draw. The only way for foundations to protect the freedom, creativity, and flexibility they now enjoy—and which they need if they are to serve society to their fullest potential—is to open their doors and windows to the world so that all can see what they are doing and how they are doing it. At this dramatic juncture in the history of the Bill and Melinda Gates Foundation, as well as of the entire world of philanthropy that has now come into sharper public focus perhaps for the first time, it is essential that the Gates Foundation lead the foundation sector by becoming a model of what a transparently run foundation can be.

This book will explore many of the questions raised by Warren Buffett's historic action. It examines why the rich establish foundations, the roles foundations play in powering the civic sector, how they discharge their stewardship responsibilities, and the extent to which they produce significant measurable benefits for society. Above all, this is a book about how charitable foundations have sometimes achieved high impact in their grantmaking initiatives. I believe that most institutions and individuals with charitable dollars to spend are eager to wring as much benefit for society as possible out of those dollars. Therefore, I have distilled in these pages some major lessons about how high-impact philanthropic initiatives may be conceived and brought to fruition.

The lessons are drawn from my study of a hundred significant foundation initiatives, many of which are referred to and described in these pages. The complete list of these cases is in the Appendix, and those interested in learning more can find them all in a companion volume, Casebook for The Foundation: A Great American Secret, ISBN 1-58648-488-5,which can be ordered on demand from 1-800-343-4499, or as a read-only document on the Web site www.pubpol.duke.edu/dfrp/cases/.

As I explain in this book, the role of America's sixty-eight thousand foundations is replete with paradoxes. Foundations must be free and autonomous in order to fulfill their mission of challenging, reforming, and renewing society. At the same time, in part because of the tax benefits they enjoy, they must somehow be accountable to society.

There is the paradox of enormous wealth, originally generated by greed and energetic pursuit of self-interest, being donated to help the less fortunate through motives of pure altruism.

There is the paradox of great social and economic power concentrated in the hands of a few unelected and largely unregulated foundation leaders, who nonetheless feel insecure and threatened by the real or imagined suspicion and resentment of society at large.

There is the paradox of foundations' striving to add value to society by working to enhance, strengthen, and guide grant-receiving organizations, yet doing so in ways that do not intrude on those organizations' autonomy.

There is the paradox of organizations that devote their efforts to changing society, yet rarely seek to measure, or even comprehend, the extent of the changes they actually produce.

Finally, there is the paradox of a huge number of wealthy organizations spending their wealth to serve the public interest even as the public remains largely ignorant about what they do.

All of these and other paradoxes will be explored—and, I hope, explained—in the chapters that follow.

Two major themes run through this book. The first might be called the "effectiveness and efficiency" theme. I'll propose that there are specific decision-making processes and progress-checking systems that foundations need to employ if they wish to increase the impact of their charitable money. Specifically, I'll recommend that those who command philanthropic wealth be strategic in deploying their resources, focus on problems that are ripe for solution, but remain flexible to be able to respond to opportunities that arise unexpectedly.

The second is the public policy theme. Like all other institutions, foundations operate in a social context that significantly influences what they are able to do, what they choose to do, and how they can go about doing it. It's important that those external influences, whether in the form of governmental regulation, public scrutiny, or self-policing, be designed to create positive incentives that will encourage foundations to use their money wisely and effectively for the broadest social good. In the final chapter of this book, I'll recommend several ways of strengthening the social context within which foundations operate. In particular, I'll strongly urge foundations to abandon their long-standing resistance to greater transparency in regard to their decision-making processes.

Foundations have long been, for good and ill, the least accountable major institutions in America. The challenge with which this book grapples is how to ensure that foundations can raise the level of their performance by reducing their insulation from beneficial external influences while retaining the independence they need. The reader will judge whether or not I succeed in striking the right balance.

Here is an analogy. As a music lover, I have found that composers most often reach the heights of greatness in musical expression when their creativity is constrained within a clear yet flexible structural framework. The tension between insistent lyrical impetus and ordered, restraining structure—between the emotional energy and the confines of the rational—is at the heart of the greatest compositions of Bach, Haydn, Mozart, and Beethoven.²

In a similar way, foundations operate at their highest level when they make their program choices within a structure of constraining boundaries and prolonged, disciplined focus. No single foundation can do everything. Therefore, a foundation must be willing to make hard choices and to stick with programs and grantees over a long period of time if it is to achieve significant impact. Creativity within a restraining structure is one key to high achievement in both philanthropy and the arts.

In these pages, I have resolutely avoided any scholarly jargon, with one exception—the word polyarchy. Derived from Greek, this word defines and underscores the unique role that philanthropic foundations play in American society. Whereas anarchy refers to the absence of any central governing power, and monarchy refers to the dominance of a single power center, polyarchy refers to the existence of many separate, independent power centers in society. In America's civic (not-for-profit) sector, it is the foundations that put the power of concentrated money behind individuals and the associations they form, thereby transforming American pluralism into a polyarchy with effective firepower.

The greatest contribution of America's private foundations, therefore, is in continually empowering widely diverse individuals and groups, holding a rainbow of views on every conceivable matter of social policy and civic concern, to organize themselves, to make their views heard, and to transform their ideas and dreams into reality.

This book provides compelling evidence of the impacts that foundations have often achieved in fulfilling their mission of empowering America's polyarchy and the strategies they've employed in doing so. I consider foundations a major force for good in American society. Yet they have many shortcomings as well. Without sufficient pressure from what I call "accountability-influencing forces," many of today's foundations underperform in their critical civic-sector functions. They operate within an insulated culture that tolerates an inappropriate level of secrecy and even arrogance in their treatment of grant-seekers, grant-receivers, the wider civic sector, and the public officials charged with oversight. This needs to change.

There is a heart-moving and mind-convincing story here that has not yet been told, backed up by factual evidence, and that has rather been more often shrouded in the nitpicking and naysaying of the cynical, envious, and petty-minded, as well as the fuming of right- and left-wing ideologues. This book, in part, is about what pioneering philanthropists, their successors and others who emulated them did, through the foundations they created, each in their own respective images, how, and why, so far as we can ascertain, as well as with what impacts a selection of their benefactions have had. In making my case, I have sought to avoid the anecdotal, the superficial, and the gossipy. Instead, I have, with the help of very talented and dedicated research assistants, Scott Kohler and Steven Schindler, assembled and published in a casebook parallel to this volume a representative, although by no means comprehensive, sample of the evidence of such impacts, mostly beneficial but some less so, not heretofore available. Based on the evidence offered there, I have sought to analyze the strategies that guided the initiatives that succeeded in achieving significant, beneficial social impacts, and also those which, for one reason or another, fell short of doing so. Then, based on the incidence and timing of impact success rates, I have attempted to understand and describe relevant characteristics of those foundations that enjoyed high rates of success, either consistently or during particular periods of their history, especially the size and structure of their organization, the kinds of staff and board leadership they had, and the extent to which their institutional culture embodied the vision and values of the donors who established them. That analysis, let me underscore, rests not on conjecture or hearsay, but rather on evidence of the impacts of the actions taken by the foundations themselves.

Behind this book, therefore, there are no ideological axes to grind. I strongly believe that a fair, unbiased weighing of the evidence makes a persuasive case that foundations have succeeded in conferring significant social benefit on the people of the United States over the past century. At the same time, however, I am convinced that the foundation sector as a whole, as great as its social contribution is now and has been for most of its history, seriously underperforms its potential with respect both to the social benefit it might otherwise have conferred if it were not underperforming and also to the mission that its freedom from substantial government and social control is designed to enable it to fulfill. The exploration of both of those themes—significant documented impact accompanied by significant underperformance—takes up the bulk of this book.

My intention in writing this book is certainly not to praise particular foundations whose work is highlighted herein, but instead to provide some evidence that foundations in the United States do make highly valuable contributions to society—the lack of which would significantly diminish the robustness and creativity of America's nonprofit sector and indeed our economy and society as a whole. Not only would society be diminished without foundations to make such contributions, but it would also be seriously harmed, I believe, if foundation creators were without the legal ability to shape their initiatives as freely as they have been in the past.

Nor is it at all my intention to single out for special praise over and above other foundations and their initiatives those documented in the casebook. They are examples, certainly a partial and to some degree a subjective selection, hardly the whole story. Rather I have sought to understand why the included initiatives did or did not work, in the hope that foundation trustees and program officers, as well as the public and the press, can learn how philanthropic capital might be administered so as to take advantage of successful strategies and avoid some common mistakes. I am convinced that those that are included fully merit being selected because of the exemplary strategies and extensive impacts they represent. In writing each case, my research assistants and I have presented the evidence of impact that convinces us of the persuasiveness of its inclusion, and I hope that the reader will find such evidence convincing, too.

No single book can do justice to all that America's foundations have done or are trying to do. There are a few excellent works on foundations, most of which are included in the Bibliography, although only a tiny handful attempt any assessment of impact.³ My practice in writing this volume is to be selective and illustrative rather than fully representative or comprehensive. The initiatives documented and analyzed here represent my personal choices, informed by my professional and scholarly experience with foundations, stretching across some forty-five years of seeking support from foundations, preparing program strategy papers for foundations, evaluating foundation initiatives of a variety of kinds, assessing the effectiveness of foundation governance and evaluation mechanisms, chairing the board of a foundation, serving as head of the United States program staff for a large foundation,⁴