As the pandemic and its restrictions strangled businesses large and small, an estimated 8 million more Americans fell into poverty from June to November last year, increasing the rate to almost 12 percent, or 22 percent for those without a college education. Meanwhile, the bank balances of the 600-plus American billionaires rose by more than $1 trillion in the 11-month period ending in mid-February, inflated by record-breaking stock markets. Elon Musk’s theoretical piggy bank is now $158 billion heavier than it was in March of last year, while Jeff Bezos became $76 billion richer, despite ceding a quarter of his Amazon stake to his ex-wife, MacKenzie Scott.
Yet it would be unfair to characterize America’s billionaire class as dragons sleeping out the crisis atop their glittering treasure mounds. Some have been stirred to action by the aggregate effect of Covid, extreme political dysfunction and stark inequalities in wealth, health and race. Scott best encapsulated the new mood of urgency by putting her divorce windfall to good use, donating nearly $6 billion to about 500 nonprofits over the course of last year, an unprecedented rate and scale of philanthropy. Scott, in effect, threw down the gauntlet to her fellow billionaires.
The pressure is now on, not only to give but to give fast, rather than endow a perpetual foundation that exists, at least in some part, to burnish the legacy of its founder after death. But is faster really better? And if it is, why do so many find it so hard to do?
In the US, charity attempts to supply a safety net “which government is not designed to provide,” says Sampriti Ganguli, CEO of Arabella Advisors, one of America’s leading philanthropy consultancies. “Its underpinnings come from a religious background, and the majority of giving still goes through religious institutions.” The ability to deduct up to 100 percent of adjusted gross income from one’s tax bill is another driver.
Yet rapid, large-scale giving remains rare. The robber barons struggled with it as much as today’s plutocrats do. In 1906 the world’s first billionaire, John D. Rockefeller, was warned by his philanthropic consultant, Frederick Gates, that if he did not distribute his fortune faster than it grows, “it will crush you, and your children, and your children’s children!”
Yet most captains of industry have traditionally preferred judiciously incremental donations, endowing their wealth to private foundations, such as those minted by the Rockefeller, Ford, Getty, Lilly, Johnson, Kellogg and Mellon dynasties. Those foundations are all still going strong, enjoying a range of tax benefits in return for a minimum annual payout equivalent to 5 percent of the endowment. As some business expenses also count toward that modest dispersal, the actual sum donated to charity can be even smaller.
Another popular vehicle is the donor-advised fund (DAF), a flexible charitable investment account that has no payout minimums at all. More than $1 trillion is currently sitting in DAFs and foundations, according to John Arnold, a former Enron trader and hedge-fund manager whose foundation, Arnold Ventures, is campaigning to place a time limit on DAFs in order to accelerate the pace of donation.
Arnold and Scott represent the new, reform-minded wing of the billionaire class, who believe that traditional philanthropy is inadequate. Scott’s approach has been simply to give as much away—and as quickly—as possible. To that end, she hired Bridgespan, one of a new breed of philanthropy consultants (the others include Arabella Advisors and FSG) that share an emphasis on structural social change as opposed to old-school charity.
Scott rejected the usual donor approach of asking her grantees to measure return on investment. Often, the cost of this reporting process is not included in the donation and therefore comes out of a nonprofit’s administrative costs, to which philanthropists don’t typically contribute. Scott has said she instead instructed Bridgespan to undertake due diligence—both data-driven and qualitative input from a range of experts—in advance and then gave without restriction.
The aim, Scott said in a December blog post on Medium, when her giving spree went public, was “not only to identify organizations with high potential for impact, but also to pave the way for unsolicited and unexpected gifts given with full trust and no strings attached. . . . Not only are non-profits chronically underfunded, they are also chronically diverted from their work by fundraising, and by burdensome reporting requirements that donors often place on them.”
Scott’s other innovation was to select for leadership diversity. In an earlier blog, published in July, she wrote that, of the nonprofits receiving her first tranche of funding, “91 percent of the racial equity organizations are run by leaders of color, 100 percent of the LGBTQ+ equity organizations are run by LGBTQ+ leaders, and 83 percent of the gender equity organizations are run by women, bringing lived experience to solutions for imbalanced social systems.” In a reversal of the traditional paternalistic model, she opted to trust organizations that elevate leaders from within the marginalized communities they serve to make their own funding decisions.
Scott is a signatory of the Giving Pledge, the campaign that was founded by Bill and Melinda Gates and Warren Buffett and that asks fellow billionaires to commit to giving away the majority of their wealth either during their lifetimes or in their wills. The pledge now has more than 200 signatories, but, according to Nicholas Tedesco, who helped set up the campaign in 2010, there remains a “gulf between intent and action.”
Chris Oechsli, president and CEO of the Atlantic Philanthropies—the foundation established by duty-free shopping magnate Chuck Feeney that spent down its entire $8 billion endowment in 38 years—points to a Bridgespan study that said American families with more than $500 million donated only 1.2 percent of their assets to charity in 2017. This rate, according to the study, “falls considerably short of average, long-term investment returns on assets.” Bridgespan concluded that such families would need to increase their giving nearly 10-fold, to more than 11 percent of their assets annually, to spend down half their wealth in 20 years. Feeney, though an inspiration for and signatory of the Giving Pledge, considered it to be unambitious, according to Oechsli.
The problem is the foundation escape clause. When Gates invited the hedge-fund titan Robert Wilson to sign up in 2010, he declined, according to e-mails published by Buzzfeed days after his death in 2013, saying, “Your ‘Giving Pledge’ has a loophole that renders it practically worthless, namely permitting pledgees to simply name charities in their wills. I have found that most billionaires… hate giving large sums of money away while alive and instead set up family-controlled foundations to do it for them after death. And these foundations become, more often than not, bureaucracy-ridden sluggards. These rich are delighted to toss off a few million a year in order to remain socially acceptable. But that’s it.”
Tedesco, who, after a period as a philanthropy adviser to clients of J. P. Morgan Private Bank, is now president and CEO of the National Center for Family Philanthropy (NCFP), says that many philanthropists struggle “to effectively deploy their capital at scale,” and cites three reasons: a lack of time, a lack of expertise and “a desire to keep the infrastructure lean.” Other experts, however, say a small team can be highly effective and a large one unnecessary or even obstructive.
Without good advice, most agree, would-be donors often fall into the trap of treating charities like businesses with easily quantifiable returns. “Twenty years ago, people said nonprofits should be more like businesses,” says Phil Buchanan, president of the Center for Effective Philanthropy and author of a guide to strategic donating, Giving Done Right. “Well, what kind of business—Apple, or your local dry cleaner’s, or Enron? Uber thinks about a zero-sum equation in terms of its position relative to Lyft. In philanthropy it’s completely different. Many organizations have to work together to make a difference.”
According to Ganguli, there has been a recent “pendulum swing” away from the “ROI framework.” Her consultancy, Arabella Advisors, serves the very top tier of philanthropists, but community foundations provide a more approachable expert advisory service. They act as intermediaries between nonprofits and local donors, says Peter Panepento, a spokesman for the Community Foundation Public Awareness Initiative, an advocacy group. “It’s worth noting that MacKenzie Scott directed quite a number of her gifts in her most recent announcement through community foundations,” he adds.
One such gift went to the San Diego Foundation. Mark Stuart, its president and CEO, recalls receiving “a curious e-mail” in the fall from someone who “talked about representing a significant philanthropist. Did I have time for a call?” Stuart had time. On the call, he was told that Scott “had been watching what we were doing… and that $8 million was coming to our fund, unrestricted,” he said. “I just broke down.”
All the experts interviewed for this article were enthusiastic about Scott’s approach. “The combination of speed and size is unusual,” said Panepento. “Donating billions in the course of a calendar year using a very thoughtful approach, reaching hundreds of organizations nationally, is a rapid-response deployment that she’s hoping will impact almost every community in the country.”
Still, oddly enough, giving billions away in a matter of months, according to Panepento and Buchanan, can present a challenge to some of the organizations on the receiving end. Unaccustomed to such unrestricted largess, they can find managing the funds and staying effective difficult. Buchanan says the organizations shouldn’t be pressured to spend the money just as quickly, noting there remains “a need for philanthropy that takes a longer view and requires longer-term support.”
The tension between long-and short-term support lies at the heart of the “giving while living” movement. According to the NCFP, 63 percent of family foundations have left open the possibility of imposing a limited life span on their philanthropy to accelerate the pace of giving. Only 9 percent have committed to it.
The giving-while-living idea is best personified by Feeney, who turns 90 this month and who set up his spend down foundation with the explicit purpose of parting with his entire fortune during his lifetime. The Atlantic Philanthropies closed last year, having successfully distributed its billions to causes ranging from higher education to the Irish peace process and Vietnamese health care. Warren Buffett has described Feeney as “my hero.”
Feeney was inspired by robber baron turned philanthropist Andrew Carnegie’s decree that “the man who dies thus rich dies disgraced.” Oechsli, who oversaw the dispersal of Feeney’s final grants, says the philanthropist had never considered giving his children more than a “modest provision,” in addition to a separate charitable foundation for them to manage.
He also insisted on anonymity. Grants “were accompanied by very strict confidentiality agreements,” says Oechsli. The foundation was incorporated in Bermuda in part to avoid US disclosure requirements, which would have revealed Feeney’s identity, and his donor status was made public only in 1997 as part of a court case.
Feeney’s secrecy served several purposes, Oechsli says. “He’s not comfortable being the center of attention, and also, publicity around wealth is not always helpful to families.” He avoided unsolicited requests, and because his grants were secret, beneficiaries could continue to attract donations, including those bestowed in exchange for naming rights, from other sources. For a while, Oechsli says, “I worked from an office in London called Gerard Atkins, which was just a meaningless name taken from the phone book. My kids thought I worked for the CIA.”
Oechsli admires Scott, whom he describes as “extraordinary and terrific,” and predicts her gifts will be “transformational.” “You don’t have to drag it out over 20, 30, 50 years,” he says. “She made smart investments immediately—like historically Black colleges and universities—that will have lasting impact in what they do. There may be an immediacy to the funding, but the impact will be long term. It’s not about ending soon. It’s about starting soon.”
Some activists accuse wealthy “philanthro-capitalists” of using their donations to launder their reputations and ill-gotten gains. “Guilt is a motivator for giving,” says Ganguli, though she prefers the phrase “restorative justice.” The catalyst is often “a deep examination of how wealth was generated. People begin to unpack the family story and think maybe this isn’t quite right. They are often using a lens of 2020 to look back at 1950, and that’s not always the right lens. But for example, people now do recognize that communities may have been harmed by resource extraction. There’s a desire to repair.”
Donor motivations are complex, she says. Often, her client is the grandchild of someone who amassed a fortune. “We call them G3, the third generation,” she says. “G1 creates the family business and originates the wealth—the patriarch. G2 is siblings and children, then G3 is the one that inherits the wealth and is tasked with giving it away. There are foundations today where we’re on to G6.”
A potential problem for G3 is that its politics and attitudes tend to differ pretty sharply from those of G1. In the case of Thompson Fetter, an 86-year-old California gasoline retailer and RV dealer, grandparental devotion has prevented disagreements. Fetter and his wife, Jane Trevor Fetter, set up a DAF with the San Diego Foundation and told their seven grandchildren they could make annual donations to causes of their choice, as long as they weren’t what the Fetters consider political. “The foundation does not do politics, and neither do I,” says Thompson, adding, “They are on the left, and I am on the right!”
The grandchildren, who range in age from 19 to 30, picked causes “that I’d never heard of and would have never come up with,” he says. “An Indian tribe was one.” One granddaughter, he says, “is very worried about global warming, and it’s a little bit of a conflict because I sell gasoline.” This discrepancy doesn’t cause problems, he says. “As long as I give her a little bit of money, she’s quiet.”
The imperative felt by a younger generation to atone for the significant environmental sins of the father is familiar to Katherine Lorenz, of the Cynthia & George Mitchell Foundation. George Mitchell, Lorenz’s grandfather, was an oil magnate who pioneered commercial fracking. A Giving Pledge signatory, he and his wife, Cynthia, set up the family foundation, which is now chaired by Lorenz, before his death in 2013.
Lorenz, who is interested in sustainability, is acutely aware of the inherent conflict in the idea of a philanthropic foundation that perpetuates itself for its own sake instead of spending its capital. But she simultaneously sees the benefits of caution. “Accumulating more wealth while not giving to the public good is a huge disservice,” she says, but “why spend down when you can continue to do good in perpetuity with all those assets? You can leave a huge void that doesn’t necessarily get filled.” On the other hand, “with climate change many people argue a dollar spent now is worth more than a dollar spent in the future. I feel it’s all a balance.”
Thompson Fetter is not so sure. “In my mind, the reaction to Covid is a short-term deal, and it’s not something that should change your long-term view of philanthropy,” he says. The Fetters couldn’t be happier with the results of their family foundation so far. “We got our first distribution list from them at Christmas,” says Jane. “They saved it up for then. We are absolutely thrilled.” Her husband agrees: “We are terribly excited about it, and I would urge everyone to do it. It brought tears to our eyes on Christmas morning. We are not Bill and Melinda Gates, but it has been very rewarding. And I really like the tax deduction!”
Tedesco hopes the crises of 2020 will embed permanent change in the way we give. Last year “was in many ways the perfect storm,” he says. “You had historic wealth creation and transfer, an unprecedented interest in philanthropy— unrealized because of a lack of time and expertise—so a lot of pent-up energy.” When “the world paused in March, donors were called to action, and many answered that call with- out hesitation, and what we witnessed from the response is something absolutely incredible—a shedding of habits and patterns of behavior” that had previously been ineffective. “We saw a shift and an urgency that practices needed to adjust to better meet the moment.”
Donors are now reflecting on “what it means to serve as a steward,” Tedesco says. “That is an important shift in the mind of philanthropists. They are de-linking the capital from themselves personally and understanding that they are the stewards of this capital for the greater good.” This sentiment was encapsulated by Scott’s statement in July that “anyone’s personal wealth is the product of a collective effort, and of social structures which present opportunities to some people, and obstacles to countless others.”
Some of the largest private foundations are now increasing their payout rates above the 5 percent legal minimum. The Ford Foundation announced last year that it would offer $1 billion in bonds to help increase its grant-making to over 10 percent of the value of its endowment in 2020 and 2021. Others, including the Doris Duke Charitable Foundation, MacArthur Foundation, W. K. Kellogg Foundation and Andrew W. Mellon Foundation, are following suit in a collective effort to increase funding by $1.8 billion above normal payouts over the next few years.
While this boost was primarily an emergency response to Covid, other foundations—such as the multibillion-dollar Barr Foundation in Boston, which is raising its payout rate by 25 percent this year—are increasing their commitments to longer-term structural issues such as racial inequality. The question is whether these efforts will fizzle post-pandemic. To keep up the momentum, a group led by the Institute for Policy Studies and the Patriotic Millionaires, an organization of 1 percenters in favor of wealth redistribution, is lobbying Congress to raise the legal payout minimum for foundations from 5 to 10 percent for the next three years—and to make that threshold applicable to DAFs, too.
Ganguli believes the new tendency to give more, faster, will endure beyond the pandemic. “Giving is increasing across every segment and platform,” she says. “The coming decade proffers us the opportunity to see generosity at its best.” And as Oechsli says, “Why wait?”