Philanthropic foundations: black boxes that must become more transparent

Penny for their thoughts. Big city by Shutterstock

Charitable giving is big business, with many organisations handling millions in revenue. But big charities have come under fire for issues from bad accounting to actually doing more harm than good. In our short series on The Problem with Big Charity, Tobias Jung looks at how foundations work – or not.

A philanthropic foundation and an octopus have much in common. Their non-rigid forms mean that they are both flexible and able to squeeze into areas that are inaccessible to others. Both are seen as great problem-solvers and have tentacles that are far-reaching. However, understanding their movements is difficult, and they have a spectrum of defence mechanisms against potential enemies. While studying the octopus can be left to natural scientists, foundations warrant closer social and political examination.

Foundations are essentially independent charitable organisations. It is important to realise that there is no such thing as a typical foundation, as data from the US and Europe shows. Some foundations, such as the Ford Foundation in the US or the Wellcome Trust in the UK have enormous wealth – the majority don’t. Some foundations, as illustrated by the cases of the Clinton Foundation in the US or the Shane Warne Foundation in Australia, raise serious questions about appropriate and acceptable foundation practices – most foundations don’t. Some foundations might be used as fronts for illegal or clandestine activities – most foundations aren’t.

Defining a foundation is therefore difficult. Many countries don’t make a legal distinction between foundations and other forms of charitable organisation. Even labels can be misleading: few would consider the British Heart Foundation to be a “foundation”, and yet the Carnegie Corporation of New York and the Henry Smith Charity in London both qualify. As independent charities, foundations can be “grantmaking”, concentrating on the distribution of funds to achieve their goals, or “operating”, running their own programmes to achieve their goals.

Their wealth can come from diverse sources, such as individual endowments or corporate wealth; their activities span the whole geographic and charitable spectrum. Even where legal distinctions between foundations and other charities do exist, it is often easier for statutory agencies to highlight what disqualifies an organisation from constituting a foundation than to pinpoint their specific characteristics.

This fluidity, combined with the private nature of foundations, offers great potential for achieving positive social impact. They can address issues, and work in locations and fields, where governmental, political or corporate organisations either face substantial obstacles or are not welcomed at all. However, this along with wealth, ambition and a vision for social change offers rich opportunities for different types of abuse. Pursuing individual gains, interests and agendas are just some examples.

Mysterious workings

So do foundations live up to their promise? Are they innovators, risk takers and catalysts for positive social change? How do they achieve their aims? At what costs? Who benefits most? These questions are hard to answer. Foundations increasingly may encourage formal evaluations and assessments of the work they fund, but they remain notoriously difficult to research. As an organisational type, they largely continue to be black boxes: their internal workings are often opaque and academic research access is difficult to obtain.

Inputs and outputs, but what’s inside? Black boxes by Shutterstock

From the glimpses that we do have, there are indications that foundation rhetoric and reality do not always coincide. There are concerns that foundations can focus on symbolic and legitimising actions, and emphasise ameliorative practices instead of challenging or changing the status quo.

Critics point to the evident use of foundations as veils for advancing neoliberal and capitalist agendas in areas such as education, agriculture and international development, and a world where elite and relatively closed networks of influence and decision-making can silence critical voices by being brought into the fold or through funding dependencies. Then there is the issue that with a wider move towards social investment and emphasis on achieving “total impact”, foundations might be encouraged to be risk-averse investors rather than risk-takers.

In the absence of a stronger research base on foundations, the extent of these issues remains unclear. This is especially so outside North America, with its longer history of “big” foundations, their role in shaping society, and the challenges this can cause.

Good works and glass pockets

It is very easy to criticise foundations. Giving away money effectively, addressing and dealing with complex social and political issues, and achieving positive change are all difficult and time-consuming. Great ambitions are often accompanied by epic failures. Social expectations of what foundations can achieve need to be realistic. Philanthropy’s history and the nature of “gifts” also highlight that social control and reciprocity have always been central to philanthropic action.

It is important to remember, though, that this works both ways. Tax gifts granted to foundations from the public purse, the social impacts and costs that led and lead to foundations’ wealth, and questions around democratic principles in private organisations working for the public good mean that much stronger critical engagement with foundations is needed.

Foundations are aware of these problems. They acknowledge the need for better foundation classifications and for a more transparent and accountable foundation sector. Various initiatives have been put in place. They range from the publication of “failure reports”, which share lessons on what does and what does not work, to the Glasspockets initiative, which is intended to encourage and provide transparency on foundations and the public good they provide.

Despite this, the governance and funding structures for most of these initiatives reveal that these are foundation initiatives, driven and funded by foundations themselves. So while having glass pockets is a nice idea, more transparent bodies that would allow us to get a better understanding of the internal workings of foundations would be much better.