Article7
Beware Big Donors
Megafoundations used to be quiet giants. Now they're noisy activists, shaping policy and politics.
In a January speech at the University of Michigan at Ann Arbor, laying out his policy for higher education, President Obama opened by noting his agenda: "How can we make sure that everybody is getting the kind of education they need to personally succeed but also to build up this nation--because in this economy, there is no greater predictor of individual success than a good education." Although the United States still has "the best network of colleges and universities in the world," he said, "the challenge is it's getting tougher and tougher to afford it." Thus his primary policy concerns were high tuition and student debt.
At Ann Arbor, President Obama captured the spirit of the megafoundation program for higher education. Should we be worried about that confluence?
First, consider how the foundation world has changed. Also in January, at the World Economic Forum in Davos, Switzerland, Bill Gates announced that the Bill & Melinda Gates Foundation was contributing $750-million to the Global Fund to Fight AIDS, Tuberculosis and Malaria. That's a big number. For purposes of comparison, on the same day Japan announced that it would contribute $340-million to the Global Fund, less than half the Gates gift. As of the end of 2010 (the last year for which figures are publicly available), the total assets of the Gates foundation were $37.4-billion, and that does not include the approximately $30-billion Warren Buffett pledged in 2006 to give the foundation. The next largest American philanthropic foundation in terms of net assets is the Ford Foundation (for decades our largest), which at the end of September 2011, had net assets of $10.3-billion.
While, at least for the moment, unique in size, Gates is also representative of an explosion in the net worth and annual-giving potential of the private-philanthropic sector in the United States. According to the Foundation Center, as of March 8, 2012, there were 65 private and community foundations in the United States with net assets of more than $1-billion, 11 private foundations with assets of more than $5-billion, and 30 with assets of more than $2-billion. Total foundation giving in the United States (circa 2010) was about $20.5-billion.
According to a recent Chronicle study, America's top 50 donors gave a total of $10.4-billion in 2011, rebounding from the $3.3-billion of the previous year, with its recession worries. Those numbers reflect the continued growth in the number of private philanthropic foundations in this country--10,093 were created in the 1990s, and more than 8,500 appeared between 2000 and 2009 (as opposed, for instance, to the 1,264 created in the 1970s). There are now more than 33,000 foundations in the United States.
But what grabs my attention is the number with megaresources, almost all of which have emerged over the past two decades. This is truly the er.
Article7Beware Big DonorsMegafoundations used to be quiet gi.docx
1. Article7
Beware Big Donors
Megafoundations used to be quiet giants. Now they're noisy
activists, shaping policy and politics.
In a January speech at the University of Michigan at Ann Arbor,
laying out his policy for higher education, President Obama
opened by noting his agenda: "How can we make sure that
everybody is getting the kind of education they need to
personally succeed but also to build up this nation--because in
this economy, there is no greater predictor of individual success
than a good education." Although the United States still has
"the best network of colleges and universities in the world," he
said, "the challenge is it's getting tougher and tougher to afford
it." Thus his primary policy concerns were high tuition and
student debt.
At Ann Arbor, President Obama captured the spirit of the
megafoundation program for higher education. Should we be
worried about that confluence?
First, consider how the foundation world has changed. Also in
January, at the World Economic Forum in Davos, Switzerland,
Bill Gates announced that the Bill & Melinda Gates Foundation
was contributing $750-million to the Global Fund to Fight
AIDS, Tuberculosis and Malaria. That's a big number. For
purposes of comparison, on the same day Japan announced that
it would contribute $340-million to the Global Fund, less than
half the Gates gift. As of the end of 2010 (the last year for
which figures are publicly available), the total assets of the
Gates foundation were $37.4-billion, and that does not include
the approximately $30-billion Warren Buffett pledged in 2006
to give the foundation. The next largest American philanthropic
foundation in terms of net assets is the Ford Foundation (for
decades our largest), which at the end of September 2011, had
net assets of $10.3-billion.
2. While, at least for the moment, unique in size, Gates is also
representative of an explosion in the net worth and annual-
giving potential of the private-philanthropic sector in the United
States. According to the Foundation Center, as of March 8,
2012, there were 65 private and community foundations in the
United States with net assets of more than $1-billion, 11 private
foundations with assets of more than $5-billion, and 30 with
assets of more than $2-billion. Total foundation giving in the
United States (circa 2010) was about $20.5-billion.
According to a recent Chronicle study, America's top 50 donors
gave a total of $10.4-billion in 2011, rebounding from the $3.3-
billion of the previous year, with its recession worries. Those
numbers reflect the continued growth in the number of private
philanthropic foundations in this country--10,093 were created
in the 1990s, and more than 8,500 appeared between 2000 and
2009 (as opposed, for instance, to the 1,264 created in the
1970s). There are now more than 33,000 foundations in the
United States.
But what grabs my attention is the number with megaresources,
almost all of which have emerged over the past two decades.
This is truly the era of the megafoundation.
That, of course, is a function of America's reinvention of the
One Percent. Look at the most recent Forbes 400 (the
magazine's annual list of the richest Americans), headed by Bill
Gates (net worth $59-billion), Warren Buffett ($39-billion),
Larry Ellison ($33-billion), the Koch brothers ($25-billion
each), one of the Waltons (Christy, $24.5-billion), and so on. As
of August 2011, more than 40 families had pledged themselves
to the effort by Buffett and Bill and Melinda Gates to galvanize
other billionaires to give away, inter vivos, the majority of their
wealth to philanthropy. Many of them have already set up
family foundations (and more will do so), and many of those
new foundations have bounded to the upper reaches of the
Foundation Center's list of the top 100 private philanthropies.
They are new foundations, and they are behaving in novel ways,
departing from the more reflective, more patient, and generally
3. less aggressive behaviors of the classic 20th-century
foundations.
In the past, our large philanthropic foundations, Rockefeller and
Carnegie particularly, were what I have earlier characterized as
"learned"--much of their grant-making was devoted to trying to
understand the underlying causes of the problems that
concerned their boards, and the means they used toward that end
was investment in research. They had a long-term strategy,
hoping to find deep solutions to big problems, and they tended
to support investigators who had strong research programs of
their own design. Think of the Rockefeller investments in
public health, both abroad and in the American South, and the
large and long-term Carnegie financing of Gunnar Myrdal's
study An American Dilemma: The Negro Problem and American
Democracy.
In the 1990s, however, a mood of impatience and frustration
with that approach emerged. Strictly speaking, a private
philanthropic foundation must donate at least 5 percent of its
assets each year or pay an excise tax, and most foundations give
at a rate higher than 5 percent. The larger the foundation,
therefore, the greater its required annual payout. But it is not
just a question of total giving. The larger the foundation's
assets, the larger its average grants tend to be, partially because
big foundations tend to think big. That has been notably true of
the Gates foundation, which tends to make a relatively small
number of very large grants. While the traditional foundations
worried about what they termed "scatteration" (the
multiplication of small grants), they always made a considerable
range of grants. And they were seldom in the position to make
the sort of overwhelming "bets" the Gates foundation can.
More significant, for the most part the new foundations (whose
leadership is frequently drawn from business) have turned to
"strategic" grant-making geared to "effectiveness." Traditional
grant-giving was unfocused, meandering, and ineffective, they
believe. Philanthropy has therefore increasingly been
reconceptualized as something akin to venture capital investing.
4. Accordingly, grantees are required to specify measurable
outcomes that can be achieved over the short term. Foundations
have tended to reduce the number of program areas in which
they give funds, to be more precise and detailed in their
program objectives, to restrict project time frames, to establish
benchmarks for continued financing, to evaluate grantees in a
more precise manner, and to form partnerships with grantees in
managing their projects. Paul Brest, the very able president of
the William and Flora Hewlett Foundation, has summarized the
new position: "The fundamental tenets of strategic philanthropy
are that funders and their grantees should have clear goals,
strategies based on sound theories of change, and robust
methods for assessing progress toward their goals."
There are, of course, exceptions among the large foundations.
The Andrew W. Mellon Foundation, founded in its present form
in 1969, remains a classic learned foundation, focused
particularly on the role of the humanities in American life. The
Robert Wood Johnson Foundation, established on the basis of
the Johnson & Johnson fortune in 1972, concentrates on
problems in public health and has valued research and stuck
with those concerns. There has also been some public pushback
against the concept of strategic grant-making. A little over a
year ago, Susan Berresford, a former president of the Ford
Foundation, asked, "What's the Problem With Strategic
Philanthropy?" in The Chronicle of Philanthropy. She noted,
"Most strategic-philanthropy planning exercises involve using
benchmarks to measure progress. But sometimes data
miniaturize ambition because they focus on what can be
measured in the near-term, not what might be the most
important long-term goals."
However, under new leadership, both the Ford and the
Rockefeller foundations have now significantly changed their
organization and behavior. Rockefeller, led by Judith Rodin, a
former president of the University of Pennsylvania, has
completely accepted the ideas of strategic philanthropy, and
Ford, now led by Berresford's successor, Luis Antonio Ubiñas, a
5. former McKinsey media executive, is moving in the same
direction. I think it is fair to say that most of the newer and
larger foundations see themselves as operating in the strategic
mode.
What has been particularly interesting to note has been the
commitment of the newer foundations to overt policy advocacy,
which they see as a logical outcome of their strategic stance. It
is not clear to me how aware they are of the historic reluctance
of the learned foundations to acknowledge that they played a
public-policy role. That hesitancy grew out of the intense public
opposition to the potential political influence of philanthropic
organizations that had been founded by the robber barons. The
early foundations mostly danced around public policy and
denied that they sought policy influence, and that remained
characteristic until the mid-20th century, when the overtly
policy-oriented behavior of the Ford Foundation, under the
leadership of McGeorge Bundy, evoked the congressional
backlash of the Tax Reform Act of 1969. After that episode, the
major foundations were once again ostentatiously careful about
taking strong positions on matters of political contention.
All that has changed in the 21st century. The new strategic
foundations behave as though they are entitled to make public
policy, and they are not shy about it. Perhaps the most obvious,
and important, example of the new philanthropic aggressiveness
is the financing of organizations and projects concerned with
the reform of public elementary and secondary education.
As Diane Ravitch, a historian of education and policy analyst,
has pointed out in her book The Death and Life of the Great
American School System (Basic Books, 2010), in 1998 the four
largest outside contributors to elementary and secondary
education were the Annenberg Foundation, the Lilly
Endowment, the David and Lucile Packard Foundation, and the
W.K. Kellogg Foundation, providing 30 percent of all the funds
given by the top-50 donors. But by 2002, the top two were the
Gates Foundation and the Walton Family Foundation, and they
were soon joined by other foundations created by the new class
6. of billionaires--the Broad Foundations, the Robertson
Foundation, and the Michael & Susan Dell Foundation. Ravitch
notes that the nouveau education granters converged in
significant ways on their policy preferences--for charter
schools, rigorous assessment of teacher effectiveness, strong
leadership in school buildings, data-based decision-making,
high-stakes student testing, administrative efficiency, mayoral
control of schools, and against teacher tenure and unions.
The foundations (especially Gates, Broad, and Walton) have
supported existing organizations and have helped to create new
501(c)(3) ones devoted to their research agendas. Examples
include Teach for America, New Leaders for New Schools, the
New Teacher Project, the KIPP Foundation. The sums involved
are not trivial. The Foundation Center database for "elementary
and secondary education" reveals that in 2010 the top 50
foundations spent nearly $983-million on schools. That included
new foundations like Gates (No. 1), Walton (No. 2), Dell (No.
4), the Robertson Foundation (No. 6) and Broad (No. 9). The
historic leaders in elementary- and secondary-school grant-
making were Ford (No. 15), Kellogg (No. 3), and Carnegie (No.
7). Added to that, in 2010 the Facebook founder Mark
Zuckerberg pledged $100-million worth of company stock to
establish his foundation, Education, and which he plans to
donate over five years. The foundation will support programs to
improve public schools in Newark, N.J. While the details are
not known, city and state school officials are known to support
many of the reform proposals.
Note, too, that the foundations' school-reform agenda has been
incorporated into the Obama administration's Department of
Education policies under Secretary of Education Arne Duncan,
who was supported by some of the same foundations as the
superintendent of schools of Chicago, and has appointed leading
Gates-foundation program officers to his department staff.
(Margo Rogers, from Gates, was Duncan's first chief of staff,
and the former Gates officer James H. Shelton III runs the
department's Office of Innovation and Improvement.) Federal
7. adoption of philanthropically supported policies has long been a
dream of activist foundations, and that dream has now
substantially become a reality in the Obama White House.
"With so much money and power aligned against the
neighborhood public school and against education as a
profession, public education itself is placed at risk," worries
Ravitch. She is not alone. In one of the few journalistic exposés
of what is happening, last year Joanne Barkan, in Dissent,
traced the influence of the new foundations. Taking the news
media to task for handling big donors with kid gloves, she
warned, "The cozy environment undermines all players--
grantees, media, the public, and the foundations themselves.
Without honest assessments, funders are less likely to reach
their goals." Indeed, as Barkan noted, to date the results of the
government-foundation programs in terms of student
achievement have been far from stellar. School reformers,
presidents among them, love to cite statistics, warning us how
poorly American students score on reading, writing, and
mathematics tests compared with students in other countries.
Yet for all our measurements, money, and makeovers, American
students' academic progress has been, at best, slow--again,
compared with significant gains abroad.
Turn now to higher education. It's too early to make any final
judgments about how deeply the megafoundations are
influencing higher education. To date, surprisingly little has
been written on the subject. But it might serve us well to heed
the experience of elementary and secondary education.
The Foundation Center database on "grants for higher
education" shows that the top 50 foundations together gave
slightly more than a billion dollars to higher education in 2010.
For once the Gates foundation is not the largest donor. That
honor belongs to the Walton Family Foundation, which awarded
$111,566,772, not much more than the No. 2 Duke Endowment
($103,850,000). The Lilly Endowment (No. 4) gave about $62-
million, Mellon (No. 5) about $44-million, and Gates came in at
No. 8 with $39-million.
8. Those are not, in themselves, small numbers, but unlike the
situation in elementary and secondary education, they need to
be compared with the existing institutional wealth in higher
education. There, the wealthiest university (Harvard) has an
endowment worth more than $31-billion (for the fiscal year
ending June 30, 2011), and 75 North American universities have
endowments of least one billion dollars. Furthermore, it is
certain that the foundation investment in higher education is
much larger than the billion dollars in the Foundation Center
table, since that must exclude many grants for research and
other purposes that are categorized elsewhere in the database.
More important, since "higher education" is not broken down
into subcategories, one cannot tell how the money was actually
invested in particular educational, research, or other activities.
In other words, universities are receiving considerable support
from foundations, much of it from family foundations of their
wealthiest alumni. And at least the wealthiest among them also
have significant internal resources of a sort not available in the
elementary and secondary sector. How much that can insulate
them from the pressure of advocacy we have seen in the schools
is an open question.
While it is difficult to extract figures for private-foundation
research investments, it is fairly clear that the shift from
learned foundations to strategic foundations has substantially
reduced direct foundation investment in university research,
previously the largest single category of investment.
Disillusioned with the slow pace of most university research,
grant makers are redirecting their research investments to
nonacademic centers, think tanks, and the like, which depend on
that revenue and are more likely than universities to produce
what is wanted, and on time. Since World War II, STEM
research financing has also become predominantly the
responsibility of the federal government, so that private
philanthropic support is less significant than it was 50 years
ago.
Nevertheless, several of the new large foundations have
9. developed higher-education programs. What seems to
characterize them is their strategic focus on broadening the
access and impact of postsecondary education for those
Americans who have not traditionally attended college. The
announced goals of many of the programs are to create more
economic opportunity for poorer Americans and to expand the
American economy. Recall President Obama's Michigan speech.
It is true that some of the new megafoundations also invest in
university research, but normally only insofar as that research
serves their immediate strategic interests. Prominent among
those, again, is access, raising degree-completion rates,
shortening time to degree, enhancing student learning through
the use of educational technology (especially online),
strengthening the data collection necessary to track educational
performance, improving the openness of higher-education
institutions, and reducing both college costs and student
indebtedness.
Such strategic programs deal with the process of higher
education. By and large, the new foundations are not much
interested in the content of undergraduate education--except
insofar as curriculum relates to the paradigm of "school to
work." Their major focus is in getting previously excluded
Americans into and through college so that they can become
productive workers and earners.
Those themes recur in the higher-education programs of some of
the largest new foundations. Gates currently has five programs
in postsecondary education. Its interest is not new, since more
than a decade ago the foundation "pledged $1-billion to fund
college scholarships to deserving students." But in contrast, the
current Gates programs focus on ways to improve college
performance by previously underserved students, including
through remedial education, better financial aid, and new
technology to help meet the needs of more students at a lower
cost. The programs are committed to the support and
improvement of the two-year college system, in which so many
underserved students begin their postsecondary education.
10. The new foundations also stress methods that are fully in line
with the emphases of strategic philanthropy: In explaining its
focus on increasing graduation rates, Gates, for example,
stresses that "our investments are aligned with proven or
promising practices" and that "progress is effectively
measured." Accountability means that institutions should be
judged by student results (degree completion) rather than by
raising the number of students enrolled. "Until recently reform
efforts and national policies have focused on increasing access
to higher education for more students, particularly among low-
income and minority populations," a foundation release
proclaimed a few years ago. "But access means little if students
never earn the credential that will open the door to high-paying
jobs and a better life." As a result, Gates, like other new
foundations, is seeking accurate information from colleges on
degree-completion and job-placement rates and other concrete
indexes of educational success.
This is a very coherent approach, consistent with current federal
policies, and in line with the thoroughly instrumentalist attitude
that most grant makers, politicians, and, perhaps, Americans
have toward college education.
A second example of this approach is the Kresge Foundation.
Kresge is an old (created in 1924), Michigan-based foundation
that until recently devoted its funds to campaigns for capital
projects like libraries, hospitals, and community centers. But in
2007, the foundation joined the strategic philanthropy sector
and abandoned its historic mission in favor of partnerships with
"those committed to the needs of poor individuals and
communities: small, midsize, and large nonprofit organizations;
intermediaries; and the public and private sectors." Kresge
decided to limit grants to "seven narrowly defined programs,"
among them, education. Three of the education programs deal
with domestic higher education, focusing on "underserved
students" and "institutions that focus primarily on the needs of
low-income and underrepresented students." Kresge seeks "a
more efficient, productive higher-education system" so that
11. students can have "more opportunity to launch productive
careers." It strives to "remove barriers to access and success."
Those goals lead the foundation to be concerned with issues of
accreditation, community engagement, leadership training, and
"student persistence." And, like Gates, it is impressed by the
potential of digital and communications technology "to build
efficiencies into new ways of teaching, advising, and
evaluating."
A third large higher-education grant maker is new and quite
different--the Lumina Foundation for Education. Unlike the
traditional foundation created by a single donor (or family),
Lumina is a "conversion" foundation, created in 2000 when the
USA Group (one of the largest organizations in the student-loan
business) was sold to Sallie Mae and the proceeds were used to
create an endowment dedicated to education. Lumina, which
operates only in higher education, has recently emerged, along
with Gates, as a dominant philanthropic policy player in higher
education.
It has a straightforward institutional purpose (referred to as the
Big Goal): "to increase the percentage of Americans with high-
quality degrees and credentials to 60 percent by the year 2025."
Lumina asserts that there are "three critical outcomes" that will
lead to the achievement of the Big Goal--preparing high-school
students for success in college; significantly improving college-
completion rates; and increasing the productivity of higher
education to "expand capacity and serve more students."
Lumina's Web site uses much the same language that President
Obama has used to criticize the current performance of colleges,
and its strategies are mostly those of policy advocacy.
It wants to "promote the alignment of K-12 and higher
education systems," "expand national postsecondary access
outreach and action campaigns," support "sustainable, high-
quality student service and advocacy networks," further policies
that "support low income students." One research-based strategy
is, like those in strategic philanthropy, instrumental: to find
"innovative approaches to support low-income students." In all
12. of this, Lumina understands that putting its preferred policies
into effect "will require immediate efforts to build public and
political will for policy change."
Mind you, I applaud the efforts of the megarich to give their
wealth to philanthropy. Moreover, the Obama and
megafoundation strategy makes both political and educational
policy sense, although I confess that I find it deficient in its
understanding of the content of undergraduate education
necessary to achieve its goals. But that is a different essay.
What interests me here is another matter. It is how we make the
decisions about those goals--and how to achieve them. Those
are questions about how to make democracy work under current
world conditions.
Here are three very different and very large foundations, among
today's biggest philanthropic investors in higher education, that
share not only a common programmatic agenda (making college
degrees accessible and affordable for all Americans, especially
for those previously excluded from college) and a common set
of strategies to put them into effect. They all openly assert that
they seek to shape public policy. Gates is more focused on the
federal level, whereas Lumina has a strong interest in state
higher-education policies. But they see their role as articulating
policies and financing 501(c)(3) intermediate organizations to
assist them in policy formulation, advocacy, and execution.
What is obvious to me, as a historian of the emergence of
private philanthropic foundations almost exactly a century ago,
is how far we have traveled from the fears of the first
foundations that they would be perceived as antiegalitarian and
threatening to the democratic process. For years Rockefeller and
Carnegie pussyfooted around financing economic and social
efforts that might be perceived as politically sensitive. Ford got
into trouble with Congress when it immersed itself in school
reform in New York City and had to back down. But while
Gates is often seen as antiunion and pro-charter school--
politically contestable positions--it shows no signs of hesitating
to push its overtly political agenda. Gates and Lumina are
13. clearly untroubled to be, and to be seen as, players in education
policy.
Universities--and their associations--have been silent on this
development, perhaps reluctant to bite the hands that feed them.
But shouldn't we all be concerned when public officials defer to
private institutions when reforming higher education? Are we
outsourcing parts of our education policy to the private
philanthropic sector? I think so.
~~~~~~~~
By Stanley N. Katz
Stanley N. Katz directs the Center for Arts and Cultural Policy
Studies at Princeton University's Woodrow Wilson School.
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