Who Said Big Foundations Can’t Change? Four Takeaways from MacArthur’s Makeover

These are interesting times in the philanthrosphere. Lots of new mega-donors are arriving on the scene, and they’re both shaking up key issue areas, as well as philanthropy overall.

Amid this ferment, top legacy foundations risk losing influence as they're bypassed by newer funders who are giving moreand often in more dynamic ways.

Consider the relative decline of Rockefeller and Carnegie, which for decades were among the most august leaders of American philanthropy. Nowadays, neither foundation is among the top 25 U.S. foundations in terms of annual giving.

Or look at MacArthur, which remains one of the biggest foundations in the U.S., with over $6 billion in assets. In practice, though, Mike Bloomberg’s outfit moves more money every year in grants, as does the Susan Thompson Buffett Foundation and the Walton Family Foundationfunders that barely registered a decade ago.

Now, you might ask the obvious question: Who cares about influence or relative position? Philanthropy isn’t a competition, after all. It’s about making the world a better place.

In fact, though, influence does matter in this business: If your foundation can elevate certain causes or strategies, other funders are more likely to put money in the same placewhich means you’ve leveraged your own resources. In key ways, philanthropy is a game of follow the leader. And the leaders tend to be the most dynamic funders having the most impact.

There’s not much that legacy foundations can do about the big new money coming into philanthropy, and how it’s eroding their relative power. But these funders have made things worse for themselves by embracing ineffective operating strategies. Many legacy foundations disperse their money too widelyworking on too many issues and backing too many grantees. Even worse, this model is hugely expensive, often soaking up over a fifth of their annual budgets in overhead.

Related: Top Philanthropoids Are Paid Over $600 Million a Year. Is That Too Much?

So a key question I’ve wondered about is this: Can the legacy foundations escape institutional calcificationbecoming leaner, more dynamic funders that take more risks, place bigger bets, and have more impact?

Without any real bottom line or outside accountability, you might think such change would be unlikelythat the default would be toward business as usual. But in an article earlier this year, I predicted that legacy foundations would change. All institutions worry about their positions vis-a-vis their peers. And all foundation leaders (one hopes) are always questioning whether they are maximizing impact. Now, with old grantmaking models being challenged by new heavyweights in the philanthrosphere, the impact question is coming up with fresh urgency.

Related: Philanthrosaurus Rex: Why the Age of Big Foundations Is Almost Over

All of which brings me to the big changes unfolding at MacArthur. Last week, the foundation announced a major streamlining of its priorities; this week it gave a glimpse of how it would operate by unveiling a “big bet” on curbing climate change.

It’s been impressiveand inspiringto watch MacArthur reinvent itself. Here are four takeaways from this makeover worth spotlighting, along with one question to ponder.

With the Right Leadership, Big Changes Can Happen Fast

Anyone who’s worked in any institution knows that change is really hard. And that can be particularly true at sizeable foundations. Why? Because such places accumulate a lot of mouths to feed, and it can be wrenching to cut off vital support. It’s especially painful when you’re talking about nonprofits or fields that were scaled up to begin with by a foundation. How do you then turn around and pull the plug in this situation? Beyond that, there’s the usual problem of institutional resistance. Whether at the Pentagon or a foundation, key stakeholdersstaff, board, external allieswill fight hard to protect their favored priorities.

But the rapid changes at MacArthur remind us that of all the key institutions in U.S. society, it’s foundations that really should be able to turn on a dime. Apart from a sense of obligation to grantees, they really don’t have to worry much about outsiderswhether stockholders or legislative overseers or media critics. Foundations have enormous freedom to act, assuming they have forceful leadership. And while the board dynamics in MacArthur’s case aren’t clear, one lesson in regard to Julia Stasch is that a well-placed insider can be a super-effective change agent in a foundation setting, where the institutional culture can be hard for outsiders to navigatemuch less overhaul. (Stasch ran U.S. programs at MacArthur for many years before being tapped as its chief.)

Related: At MacArthur, a Foundation Chief Who Favors Big Bets and Is Handy With an Ax

In a study of foundation presidents last year, Fay Twersky found that most foundations tend to hire leaders from outside philanthropy. Well, here’s some advice to boards that want to shake things up: Look for tough inside operators like Julia Stasch.

General Support Is Hot and Getting Hotter

While nonprofits have been saying for years that they need more general support, foundations have been ignoring them for just as longwith data showing that the majority of grants still take the form of program support.

One reason things go this way is that foundations like putting themselves in the driver’s seat, and targeted funding is a way to do that, as I’ve argued in this article.

But no less a figure than Darren Walker recently called out the foundation community on its thirst for control, and Walker has been hailed as a hero for pledging that Ford would give more general support.

Related: He May Be Popular Now, But Darren Walker Has a Tough Message for the Nonprofit World

Now it turns out that Julia Stasch is on the same page. In announcing its new climate program this week, MacArthur revealed it was making millions of dollars in general support grants to top environmental groupswith more likely to come.  

While the cuts at MacArthur, and the push into climate, have gotten all the attention, the new focus on general support is also a big part of this story.

“So much of our work in the past has been project driven,” Jorgen Thomsen told Inside Philanthropy. “We are now seeking partnerships and will definitely include general operating support at a significant level as part of our repertoire.”

Is the tide finally changing on general support? It’s too early to say, but the shifts in this direction by two top foundations are a major deal.

There’s More Interest in Big Bets

One of the biggest contrasts between legacy foundations and top emerging funders is how ambitiously they focus their resources. A place like Bloomberg Philanthropies exemplifies how newer funders like not only to give big for very specific goalslike, say, shutting down coal plants—but to invest in just one or two first-in-class organizations to get the job done.

In contrast, legacy foundations can seem like doddering gardeners, watering hundreds of grantees with modest grants working across multiple issues. That diversified portfolio strategy certainly can achieve impact, and I wrote recently about the successes that the Ford Foundation has enjoyed this year, for example, on worker rights. But it can just as easily result in lots of cakes that never quite rise.

A focus on big bets is a key part of MacArthur’s new strategy. Beyond its climate work, it recently announced a $75 million push to reform U.S. jails. Stasch has said that MacArthur will make a new $100 million bet every three years. She wrote that such bets will “strive toward transformative change in areas of profound concern. This is not a search for quick fixes or easy wins, but an all-in, timely commitment—of talent, resources, time, and reputation—to real change that matters for many, many people.”

Related: As the Odds Improve, MacArthur and Other Funders Step Up Fight for Criminal Justice Reform

Of course, hefty initiatives from foundations are hardly new. The Robert Wood Johnson Foundation, for example, is now in the middle of a billion-dollar bet that it can reduce rates of childhood obesity. But Stasch’s focus on the big score is the kind we see a lot among the newer fundersnot just Bloomberg, but outfits like the Pershing Square, Arnold, and Sandler foundations. Are these players actually exerting influence over legacy funders? That’s hard to say. But the debate over operating models is definitely changing. It will be interesting to see if other legacy foundations start to move in the same direction that Stasch has charted, in terms of betting bigger on key initiatives.

Lean Grantmaking Is Gaining Traction

If you’re not doling out myriad program grants to myriad nonprofits, across multiple issues, just how many staffers does your foundation really need? Maybe not that many. And one appeal of betting big with general support grants is that foundations can run leaner and free up more resources for grantmaking.

To many new funders, all this seems elementary, and quite a fewlike Mark Zuckerbergare moving big money without building large organizations. Can legacy foundations follow suit, here, too, slimming down and making do with fewer staff?

Well, MacArthur’s makeover offers hints on this front, particularly in how it’s setting up its new climate program. As we wrote Wednesday:

Rather than hiring a program director from outside, staffing up and charting a course, MacArthur’s climate giving will instead gather its direction from the foundation’s existing staff and from grantees and other partners.

And Jorgen Thomsen told IP : “We are also opening this up for much more external input than perhaps some of our programs have in the past.”

Hah, fancy that: A big foundation resisting the temptation to stock itself with expert staff and call the shots. Could this be a glimpse of a future with less foundation overreach and more deference to grantees? Let’s hope so.

Related: MacArthur is the Next Big Climate Funder. Here's What to Expect

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All in all, what’s happened at MacArthur is super-encouraging, in terms of the ability of legacy foundations to reinvent themselves and have more impact. This matters, given the size of the endowments they’re sitting on.

But here’s a question raised by MacArthur’s new strategy: How does change really happen?

Julia Stasch and Mac’s board seems to believealong with many of the newer funders like Bloombergthat change happens by making a big push for a specific goal. Meanwhile, Darren Walker and Ford, along with other funders, seem to embrace a more long-term visionnamely, that you set  a direction and push that way for years on end.

So what’s the better path?

Well, we’re not going to resolve that question today, nor is this really an either/or choice. Maybe the best answer is that it depends on the issue.

If society is far along in debating a problem, and strong solutions have been identified, then betting on a big final push can make lots of sense. That’s arguably the case in regard to both bets that MacArthur is making, on climate and criminal justice. These issues are ripe to move.

In contrast, one could think of plenty of other issues where a breakthrough isn’t right around the corner. In these cases, a more patient, long-term effort to build up a movement or field often makes sense, investing in a few different approaches to see what works. Hewlett is doing this right now to tackle the cybersecurity challenge.

So here’s a question going forward about MacArthur’s new strategy: Is the foundation mainly going to be a “closer,” trying to push things over the finish line? Or will it also take on challenges at a much earlier stage?

I guess we’ll see.

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