Strategic Philanthropy in Tough Times

In the several weeks since Hal Harvey and I wrote about the role of philanthropy in the current economic crisis, the effect of the economic downturn on foundations has become clearer. Ian Wilhelm estimates that their endowments are down about 30% -- about the same as most of our retirement accounts. The Council on Foundation has started a new website for grant makers to share solutions.

Wherever we have given talks about Money Well Spent: A Strategic Guide to Smart Philanthropy, Hal and I have been asked how the strategic philanthropist should respond to this nearly unprecedented situation. Here are a few thoughts.

First, in the spirit of "shoemaker, stick to your last," we shouldn't be too quick to abandon well-considered goals and strategies. Immediate needs will understandably pull at our heartstrings, and we're not suggesting that anyone play the part of Scrooge this Christmas. But we shouldn't let immediate needs divert us from long-term problems in areas such as education, health, systemic poverty, and civil rights, which will persist well beyond the recession. And we shouldn't feel embarrassed to continue supporting the arts, whose aesthetic and spiritual nourishment is important in tough times as well as easier ones.

Second, we need to ensure that the best organizations -- those that are delivering real outcomes -- weather the storm. We're not going to be able to salvage them from the bottom of the sea after the storm is over. On the other hand, we shouldn't use precious assets to keep poorly managed organizations afloat either.

Third, while we will rightly stretch to nurture our best grantees, we must acknowledge that grantmaking budgets can't continue indefinitely at last year's levels. We need to let our grantees know our plans so that they too can plan. And we should consider our spending policies in terms of our goals. For example, dollars spent today to address issues like global warming can do more good than dollars spent in ten years, when mitigating climate change will certainly be much more expensive if it is even possible. Even a foundation intended to last forever needn't strive to maintain its current level of endowment. That is to say, it may be highly strategic for a foundation to partially spend down its endowment now to solve a timely problem, leaving a smaller foundation to exist in perpetuity.

Finally, while this is a time to scrutinize administrative expenses and cut out any excesses, we must nevertheless understand the value that some administrative expenses create. A staff member who ensures that grant dollars go to highly effective organizations is well worth his or her salary. On the other hand, this may be a good time, especially for small foundations, to consider the possibility of riding the coattails of trusted foundations or other organizations rather than doing their grantmaking in house. It's not a bad idea, as Warren Buffet has done, to pick an excellent organization and let them do the due diligence in determining whom to fund.

Strategic philanthropy is all about making the most difference. In difficult times, clarity about goals and thoughtfulness about how best to achieve them become all the more important.