Today’s Crisis, Tomorrow’s Challenges

Hilary Pearson

This has been an extraordinarily hard year for communities; the urgency of present needs has intensified the pressure on philanthropy to provide more resources, more flexibly, to more diversified recipients. It is certainly true that endowed foundations can act as counter-cyclical sources of funds to ease the strain on struggling organizations and charities. And a very great number of foundations have acted over the past 12 months. Data collected by Philanthropic Foundations Canada and other researchers suggests that a significant number of the larger private foundations in Canada have increased their grants in 2020, as well as granting more flexibly. Even before the pandemic, many foundations were granting annually more than the minimum required by law. 

But the call to give more continues to resonate both in Canada and across the border. An interesting recent report by Benjamin Soskis, a U.S. philanthropy historian, reveals how giving norms and narratives related to timeliness are shifting to an “emphasis on “distributive immediacy”, the commitment of many large-scale donors to get funds out the door as quickly as possible; and the spread of crisis-based giving and a concomitant ethic of responsiveness.” In Canada, as in the United States, this shift has been accompanied by louder calls on government to increase the mandated minimum annual payout, which is now set at 3.5% of invested assets.

This seems a simple solution. You can mandate foundations to spend even more. Setting an annual percentage on disbursements is an easily measurable standard for foundation giving. But it’s more complicated than that. This solution focuses on quantity. But what about quality and time? Yes, this crisis has created urgency. But forcing more spending today does not resolve anything other than urgent need. And forced spending of larger amounts does not guarantee that those most in need receive it. After all, a simple quantity target can be met by sending bigger cheques to larger charities.

Let me ask a different question. How best do endowed foundations create social value? What can they do that donors, governments and businesses cannot or won’t?  They can fund the innovative, the risky or the long term. They balance the urgency of now with the problem lying over the horizon. To do that, they manage their capital to pay into the future.  

To create the most value to society, foundations must spend thoughtfully, and well. This takes time, effort and care.  The key is to manage resources to mission. Some foundations do spend more to help the neediest in the present. Others support the work that will change systems for the better in the future. While some issues and needs can be solved with large infusions in the present, other issues take sustained investments into the future. Climate change, global health, migration and settlement, mental health and addiction -- these are issues that take long, collective and creative effort to solve.  

I believe that foundation rates of spending should depend on the goals and strategies of individual foundations. To achieve their mission, some foundations will choose to spend far beyond the minimum annual disbursement set by law. Others will choose to conserve capital, disburse prudently and spend over many years to work on issues that will take years to resolve.

Larry Kramer, the leader of the Hewlett Foundation, in a thoughtful recent essay, suggested that “the question of how to spend over time—how best to help civil society do its work, and how best to innovate for good in ways that have lasting impact—is instrumental and pragmatic and depends on circumstances, strategies, and goals.” The blunt instrument of a one size fits all increase in mandated disbursements will remove some of that pragmatic ability to adjust to circumstances and strategies. Using the tool of regulation to remove discretion may result in net loss rather than net gain to society.

If the goal of public policy is to ensure that charitable endowments supported by public incentives are spent on public purposes, the minimum floor of a disbursement quota helps to do that. Should the state go further and in effect take a position against the future, against the very idea of a charitable endowment, by forcing endowed foundations to spend down? Some may spend down quickly. But it should be a choice. An aggressive, even temporary, increase in the disbursement minimum to 7% or 10% may get more money out the door for three years but will jeopardize disbursements well into the future. By forcing a disbursement that exceeds the annualized real returns on a typical foundation investment portfolio (according to recent US research these are not greater than 5% to 6%, historically or projected), the state would be saying that the needs of the future are less important. 

This is a matter of choices about today’s crisis versus tomorrow’s challenges. Are foundation assets best spent down as quickly as possible? Perhaps, if your mission is to relieve the urgent needs of more people. But what if, like the Ivey Foundation of Toronto, it’s to build a network of institutions to think about complex policy issues such as sustainable growth over time? What if, like many private foundations in Montreal, including McConnell, Chagnon, Saputo, Molson, Webster and Trottier, it’s to build neighbourhood resilience for collective problem solving? What if, like the Max Bell and Muttart Foundations in Alberta, it’s to help train more leaders of charities to become skilled in contributing to public policy?  Is this work going to be more effective if done with more money in a shorter timeframe? Capital spent prudently, with the help of skilled paid staff, and with adequate funds for convening, research and communications, is more effective in pursuing these missions. The pandemic crisis has highlighted the cracks and gaps in the systems of our society. But more money alone, while important, won’t fix them. Endowed foundations, using their flexibility, can also apply their knowledge, create networks, build capacity, and deploy resources to help develop the long-term solutions. This is an answer to the complex problems of today, and to the inevitable crises in our future.

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