The modern foundation was invented by 20th century industrialists who had made their fortunes by commanding large, hierarchical, and often highly centralized institutions. Later business leaders copied the model when they turned to giving, and that trend continued up through the late 1990s as some of today's biggest foundations were brought to scale, most notably the Hewlett, Packard, Open Society, and Gates foundations.
Lately, though, things have been changing. More large new foundations are lean operations, and over time this will become the norm. In time, too, many legacy foundations are likely to change how they do grantmaking—and downsize their organizations as a result.
All of which will be a very good thing.
I'll get to the upsides of the shift in a minute, but first let's look at why it's happening and is bound to accelerate.
You Don't Need a Big Organization to Practice Big Philanthropy
The argument for a large professionalized foundation is predicated on the idea that, if you're insanely rich, you need to hire an army of smart people to give away loads of your money. Of course, that's not true, and a growing number of insanely rich people are rejecting this idea. Just the other day, I wrote about Herb Sandler, a high-impact donor who has given away $700 million in recent years with the help of his two children and just two staff. We've also written a lot about John and Laura Arnold, who run a sophisticated funding effort with a small staff, and about the Susan Thompson Buffett Foundation, one the largest funders in the U.S., right after Ford, but with a relatively tiny staff. There are many other examples.
Some donors have engaged in large scale, high-impact philanthropy without creating a staffed foundation at all. Last year, we ran an article about how tech entrepreneur Ed Scott was "Silicon Valley's most effective global giver." Ever heard of the Ed Scott Foundation? No, you haven't, because it doesn't exist. But you have heard of some of the places that Scott helped start with his large fortune, most notably the Center for Global Development and the ONE Campaign.
These and other top donors don't need a flock of staffers because they provide large chunks of general support to a handful of organizations they think can achieve change—as opposed, say, to doling out an endless stream of small program grants to hundreds of nonprofits every year.
Now, to be sure, a few funders really do need lots of smart people to help figure things out given the complexity of the challenges they're tackling. The Simons Foundation has around twenty Ph.D.s on its staff, many hired in recent years as the foundation has scaled up to spend a vast hedge fund fortune to advance knowledge of mathematics and life sciences. Most issue areas, though, are more straight forward and it's easier for funders to identify effective nonprofits they can pump a lot of money into—as hedge funder Stanley Druckenmiller has done by giving over $100 million to build the Harlem Children's Zone. That's the same Druckenmiller, by the way, who gave away $74 million in 2013 without the help of a staffed foundation.
Today's Mega Donors See Organizations Differently
Plenty of people still get rich by building large and centralized businesses. But many billionaires preside over companies that are extremely lean relative to their revenues and market valuation. Consider Facebook, which is worth $200 billion and has around 9,000 employees. Coca-Cola, with a similar market cap, has 130,000 employees. Oracle, an earlier generation tech company with a similar valuation, has 122,000 employees.
Do you think Mark Zuckerberg will one day create a large and bureaucratic place like the Gates Foundation to give away his fortune? That seems unlikely, and in fact, he and Priscilla Chan are already moving big money with the help of just a few staff at their de facto foundation, Startup:Education. The couple will have to add staff over time as they step things up, but their operation will probably remain lean.
Donors from the finance world are used to getting big things done with even fewer people. Ray Dalio runs the world's largest hedge fund, which manages $157 billion in assets. He has just 1,200 people working for him. And while the Dalio Foundation does spread its money pretty thinly to numerous nonprofits, unsurprisingly its staff is negligible. My guess is Dalio will stick with a lean approach as he begins to give away more of his $15.4 billion fortune. That's certainly been true of retired hedge funder Julian Robertson, whose foundation gives out over $100 million a year with a staff that is minimal relative to that figure. Of course, John Arnold and Stanley Druckenmiller, too, made their money in hedge funds.
Quite apart from changes in how wealth is generated, the thinking around organizations has greatly changed in recent decades. Centralized and hierarchical institutions are seen as stifling to creativity, in contrast to empowering people in more flexible arrangements. And there's an often repeated mantra is that organizations should focus on their core competencies and outsource other functions.
It's not hard to see how such ideas translate to philanthropy: You don't create big hierarchical foundations to figure out problems; you write large checks that empower other people to solve those problems, and try to keep your micromanaging to a minimum.
It's Easier to Outsource
One reason why the "lean startup" model has swept the tech world in recent years is that it's now possible to build a lean company using off-the-shelf technologies and services. Want to send lots of emails, talk to MailChimp. Want a comments system for your website, see Disqus. And so on.
Philanthropy is now a sector where funders can outsource functions that in earlier times they had to build themselves. Donor-advised funds are the best example: Why would Mark Zuckerberg build his own foundation when staff at the Silicon Valley Community Foundation can deal with most of the paperwork and headaches? (Actually, there are still good reasons to build your own foundation, but my point holds, and helps explain the explosion of DAFs.)
Also, why hire all your own smart people nowadays when you can rent as many you need from the consulting world? That world now caters to philanthropists as never before, not just because top firms have added or expanded nonprofit practices, but because there are so many more small shops or one-person outfits around that help the wealthy part with their money.
Another reason to avoid staffing up is that more funding intermediaries exist that can do the heavy lifting of sifting through funding proposals, making grants, and managing grantees. NEO Philanthropy is a great example. That place—which used to be called Public Interest Projects—is far larger than it used to be as more funders have turned to it to move their money. The Robin Hood Foundation is a different kind of example. It's not a foundation, name aside; it's a place that saves masters of the universe the trouble of having to start their own foundations.
At Some Point, Big Foundations Will Seem Out of Step
If you're a tech or hedge fund billionaire looking to give away a lot of money, whose lead are you going to follow: That of Bill Hewlett, who's been dead for years, or someone like Mark Zuckerberg or John Arnold?
As fewer emerging philanthropists establish big foundations... fewer emerging philanthropists will establish big foundations. Meanwhile, places like Ford will start to feel more out of step with the mainstream of philanthropy, a sharp change from a past era when big foundations embodied state-of-the-art grantmaking.
That self-consciousness by itself may not trigger reorganization and downsizing, but something else might: The spreading idea that lumbering legacy foundations, with their program support models, are doing things wrong and underperforming as a result.
For years, it's been easy for foundations to ignore the endless calls to shift their funding to general support. Now, it's harder to turn a deaf ear because this is the strategy of a growing number of new and powerful funders, many of whom are achieving major impact—or at least making a major splash.
Downsizing Staff May Become Inevitable
Unless big foundations can affirm their operating model in fresh ways, a new conventional wisdom may take hold: That doing effective philanthropy means placing fewer, bigger bets and mainly giving general support.
Because they are accountable to no one and have no real bottom line, legacy foundations will be free to ignore the competition (and snickering) and continue business as usual. Many may choose that path. And, in those places, the job of program officer will remain what it has been for decades: a cushy sinecure.
Elsewhere, though, program staff at big foundations will get a taste of life in the rest of our disrupted economy. Because, after all, if foundations really did stop nickel and diming the nonprofit world with endless program grants, they wouldn't need so many program officers— the people who make make those grants.
If you work at a foundation, I can't imagine you like this scenario one bit. Nobody wants to lose their job, especially if fewer institutions are hiring people like them.
Otherwise, the demise of the big foundation will be a very good thing. The lean funders of tomorrow will be grantmaking in a way that truly meets the needs of nonprofits, which have been begging from time immemorial for large general support grants and multi-year funding.
But make no mistake: The world of nonprofits will face disruption, too, since lean funders are often also mean funders, in the sense that they don't sprinkle their money around to ensure that all mouths stay fed. Mike Bloomberg is a great example: When he announced a new $53 million push into ocean conservation, it meant zilch for dozens of smaller nonprofits in this space, because Mike put all that money into exactly three grantees, with the bulk going to Oceana.
As I argued recently, the nonprofit sector is filled with a staggering level of duplication and waste—enabled in no small part by how legacy foundations spread their money thinly through program grants to nonprofits that, in many cases, should be merged into other groups or never started to begin with. One reason such places survive is because foundations are filled with lots of program officers who all have their own pet causes, favorite organizations, and friends outside the building. The more people a foundation has giving out its money, the harder it is to say "no."
So there you have one vision for the future: Philanthrosaurus Rex won't be wiped out by a meteor strike, but rather will become extinct in a more gradual fashion. The end of the big foundation, moreover, is likely to result in a long overdue consolidation of the nonprofit sector.
Some readers are sure to strongly question if this will happen, and I'd love to hear thoughts in the comments section.
Personally, I think it's more a matter of when. I also think that some version of this scenario answers the perennial question of what can possibly force change in a foundation sector so famously insulated from real world pressures.
- Control: Why So Many Funders Fear General Support and Can't Stop Micromanaging
- There Are Way Too Many Nonprofits. What Are Funders Going to Do About That?
- It's a Myth that Funders from the Business World Are Obsessed with Metrics
- The Sandler Way: Where Big Philanthropy Meets the Art of Common Sense
David Callahan is founder and editor of Inside Philanthropy (email@example.com)