If your life overlaps with the world of fundraising even a little bit, you’ve doubtless encountered the phrase Trust Based Philanthropy. Although the origins of the practice––which describes a grantee-focused style of institutional giving, predate the onset of the COVID-19 pandemic, its popularity has increased exponentially since 2020.
It is now virtually impossible to interact with content from many big funders, including the Ford and Robert Wood Johnson Foundations, without encountering numerous mentions of Trust and its role in their relationships with grantees. But what exactly is Trust-Based Philanthropy and are there any analogs among foundations for whom grantmaking is a very small, or even nonexistent, part of their activities? (I’m speaking here of private operating foundations, of which the Robert Schalkenbach Foundation (RSF) is an example.)
This three-part series first explores the origins and evolution of nonprofit foundations in the United States, then focuses on the changing and expanding role of trust in their conception and operations. Finally, the interplay of trust, RSF’s mission, and the organization’s private operating status are explored with an eye toward two areas of the Foundation’s activities: its climate-focused work and its Progress of Ideas Scholarship Program.
In the Beginning: The Gospel of Foundation Giving
Many of today’s largest and most familiar foundations can trace their origins to America’s Gilded Age, when their benefactors and namesakes, men like Carnegie and Rockefeller, made millions (billions in today’s dollars) as titans of industry. This extreme concentration of wealth in the hands of a few families stood in stark contrast to the lived experience of the millions of Americans (many of them children) who labored on the railroads, steel mills, and coke refineries controlled by the wealthy few.
This juxtaposition of “progress and poverty” led Henry George to write his seminal work of the same title, stirring millions of his fellow Americans to call for a just tax structure, in the form of Land Value Taxation, that would help level the playing field. The wealthy “robber barons” of the time, in contrast, tired of managing one-off requests for support from less fortunate organizations and individuals, embraced philanthropy.
Carnegie’s now famous “Gospel of Wealth,” is often credited as providing the bedrock on which modern American philanthropy was built, heralding the dawn of the philanthropic foundation (and reinforcing his reputation as a “Social Darwinist) in the process. In his Gospel, Carnegie articulated a vantage point on charitable giving characterized by a particular type of trust. The rich have a duty to use their “excess wealth” to benefit society, he argued, but the manner in which they provide these benefits should remain squarely under the control of wealthy donors, who must be careful not to encourage “the slothful, the drunken, the unworthy.”
“Thus is the problem of Rich and Poor to be solved.” Carnegie wrote, continuing. “[T]he millionaire will be but a trustee for the poor; entrusted for a season with a great part of the increased wealth of the community, but administering it for the community far better than it could or would have done for itself.” Clearly, trust in the wisdom of millionaires, not in the wisdom or lived experiences of the recipients of their donations, was the starting point for institutional giving in this country.
Inspired by Carnegie’s ideals, many of today’s largest and most familiar foundations were founded by wealthy individuals and families in the early part of the 20th century as 501(c)(3)s, legally indistinguishable from the host of public-society benefit organizations providing programs and services directly to communities and public constituents. And in the lax regulatory environment of the time, many foundations engaged in activities that would now be seen as self- dealing, political manipulation, and even tax evasion to benefit their rich benefactors. For some, philanthropic activities were virtually nonexistent, eventually spurring passage of the Tax Reform Act of 1969, which differentiated foundations from other public charities and set up now familiar legal requirements for private foundations, such as payment of excise taxes, a prohibition on lobbying, and mandatory payout levels.
In their efforts to comply with the requirements of the 1969 Act, organizations now classified as “private foundations” more enthusiastically embraced grantmaking, their awards guided by missions that center various issue areas. Today’s grant seekers, many of whom are community-based and community-serving nonprofits, can likely rattle off the institutional donors in their issue space. Do you care about health? Chances are the Robert Wood Johnson Foundation is either a current donor to your organization or a sought after prospect. Is your climate change work your focus? The Kresge Foundation is likely on your shortlist of funding sources. And so on.
In addition to private foundations, for whom grantmaking became a mandated norm, the 1969 Act also created another class of foundations, private operating foundations (POFs), “that actively conduct their own charitable, educational, or other exempt programs and activities.” Similar to other foundations in that they are incorporated with a financial corpus from which to draw, POFs can otherwise appear functionally indistinguishable from other charitable organizations. Organizational types most likely to be structured as POFs include museums, research institutes, zoos, and libraries.
Grantmaking may represent a small percentage of a POF’s expenditures, but they are expressly forbidden from giving away too much money, lest they risk losing their tax status. A POF founded in 1925, RSF’s programming includes a library and research center. The provision of a small number of philanthropic external research grants and scholarships represent a permissible portion of the Foundation’s annual spending.
Conclusion
Private foundations, the first of which were borne of the extreme wealth of the Gilded Era, have a complicated relationship with the trust. Having historically centered their own Trust in the views and priorities of their rich benefactors, many also behaved in ways that did little to engender the trust of lawmakers or the tax paying public. The Tax Reform Act of 1969 fundamentally changed the foundation landscape, legally differentiating foundations from other public charities, compelling them to give away a portion of their assets annually, forbidding them from lobbying to limit their influence on public policy, and creating a particular foundation structure, the private operating foundation, whose corpus must be used primarily to support the organization’s own work.
The next piece in this series explores the continuing evolution of the trust in the foundation world, focusing on the kind of trust-based philanthropy now embraced by a number of organizations working to effect change at the local or community level. By centering the lived experiences and priorities of those most impacted by the challenges foundation grants are intended to address, the trust-based model offers an appealing alternative to the view, codified in Carnegie’s Gospel of Wealth, that the keys to creating a better, more equal society should be held firmly by those with the most economic privilege.
