Introduction: Sarah's Story

Sarah Chen starts each day by checking her email before her first cup of coffee. Today, she finds a message from the Hartford Community Foundation. They want her to review this quarter's grant ideas. Sarah moved from Hartford's North End and became a software engineer. She never thought she would help decide how to spend hundreds of thousands of dollars on local nonprofits. But after three years in the community foundation's emerging leaders group, she now feels ready to review grant proposals. She can judge whether the grants match the foundation's mission and meet community needs.

Sarah's story happens all across America. Millions of people are learning that charitable foundations aren't just toys for billionaires. They are real tools that work well and help both small and large communities. A tech worker in Connecticut can start a scholarship fund. A retired teacher in Kansas can do the same. Regular Americans have learned they don't need a trust fund to make big changes in charity work.

This shift represents a big change in how we think about charity in America. Yes, the Gates and Bezos families still make headlines with their huge donations. But the real story lies in thousands of smaller foundations starting up in suburbs, small towns, and city neighborhoods. People are rolling up their sleeves to tackle problems they see every day. The numbers tell part of the story. Over 86,000 foundations now work in the United States. They hold combined assets of more than $800 billion. But numbers don't capture what really matters. Like the family in Detroit that turned their grief over losing a child to gun violence into a foundation. That foundation has now helped dozens of at-risk kids find better choices than street life. Or the group of suburban moms in Phoenix who got frustrated with their school district's arts cuts. They launched a foundation that now funds music programs across three counties.

Beyond the Famous Names: Different Types of Foundations

Walk into any coffee shop in America and mention "charitable foundation." Most people will think of Gates, Ford, Rockefeller, and a few other famous names. These are household names that have done amazing work. But looking only at these groups is like judging American restaurants by only McDonald's and Starbucks. You miss most of the good stuff.

Community Foundations

Take community foundations, for example. These local groups have become the Swiss Army knives of American charity work. In Tulsa, the Community Foundation has quietly changed how the city deals with homelessness. They bring together oil executives and social workers around the same table. They don't just write checks. They bring people together, make plans, and get their hands dirty with the real work of change.

Corporate Foundations

Corporate foundations work in a completely different way. When Hurricane Harvey hit Houston, FEMA and the Red Cross weren't the only ones helping. The Walmart foundation had trucks moving supplies within hours. Their shipping skills helped coordinate relief efforts in ways that no government agency could match. Many groups gave money for disaster relief. But the company's foundation actually donated what the company does best.

Family Foundations

Family foundations might be the most interesting type of all. These aren't just wealthy families either. I know a family in Wisconsin. They were dairy farmers who did well during the farm boom of the early 2000s. They started a foundation with $300,000. Twenty years later, they've funded everything from rural internet projects to farm safety programs. Their yearly family meetings changed from arguing about Thanksgiving seating to serious talks about farm policy and rural growth.

Easy Access and Technology

The access part keeps surprising people. Yes, most financial advisors suggest starting a private foundation with at least $1 million. This makes the paperwork costs worth it. But donor-advised funds at community foundations can get you started for $5,000 or even less. It's like the difference between buying a house and renting an apartment. Both give you shelter, but one is much easier to start.

Technology has really changed things. Platforms like Giving Tuesday and Facebook's fundraising tools show people they can add up small donations into serious money. Some foundations are taking notice. They're trying crowdfunding campaigns that let regular donors join forces with big funders on specific projects.

How Foundation Money Really Works

Here's something that might shock you. Most foundation grants aren't the life-changing windfalls you see in movies. The average grant from a private foundation is around $25,000. That's not "quit your day job" money. But it's enough to keep a small nonprofit's lights on for months. Or help a larger group launch a test program.

The Multiplier Effect

The magic happens in the multiplier effect. The Robert Wood Johnson Foundation decided to fund a small study on childhood obesity in rural Arkansas. They probably didn't expect much beyond some interesting data. That $150,000 grant ended up building strong evidence for policy change. It changed school lunch programs across America. Suddenly, their $150,000 led to changes in how millions of kids eat lunch.

Networks and Trust

Smart foundations have learned their true power isn't their money. It's their networks and trust. When a foundation puts its name on your group, it can open doors for you. Government funders take you more seriously. Other foundations want to know what you're doing. Corporate sponsors return your calls. It's like getting a good credit score for your nonprofit.

I've seen this while serving on the board of a small education nonprofit in Baltimore. We struggled for years to get meetings with the school district. We had solid programs and happy parents. Then the Abell Foundation decided to fund our after-school tutoring program. We were no longer just another community group asking to be noticed. We became an "Abell grantee." This opened conversations we had been trying to have for years.

Business-Style Charity

The trend of venture charity has brought Silicon Valley ideas into charitable giving. The results have been mixed but interesting. Some foundations now work like investment firms. They have detailed research processes and performance measures that would make a business consultant proud. This approach has improved accountability and results measurement across the field. But it's also created some weird problems.

Nonprofits spend huge amounts of time writing grant proposals that read like business plans. They include detailed financial predictions and impact measures that nobody really believes. Meanwhile, some of the most effective community groups get overlooked. These are the ones run by passionate locals who know their neighborhoods inside and out. They get passed over because they can't make glossy PowerPoint presentations.

The best foundations have learned to balance strictness with flexibility. They want to see evidence that their money will be used well. But they also understand that social change is messy and unpredictable. Some problems can't be solved with logic models and quarterly reports.

Tax Rules: Why Foundation Rules Matter More Than You Think

Every year, thousands of wealthy Americans get pitched on starting private foundations. Financial advisors promise massive tax benefits. Yes, the tax advantages are real. You get immediate deductions, tax-free investment growth, and permanent removal of assets from taxable estates. For someone facing high tax rates on income and capital gains, a foundation can save serious money.

The Fine Print

But here's what those slick presentations don't always stress. Foundations come with strings attached that can strangle the unwary. The IRS doesn't just hand out tax breaks and walk away. They expect foundations to act like real charities, not personal piggy banks for rich families.

The 5% minimum giving requirement sounds simple. But try sitting in a foundation board meeting trying to figure out how to give away $500,000 responsibly. This gets hard when you only know three nonprofits well enough to trust them with serious money. Some foundations solve this by hiring professional staff. But that creates overhead costs that eat into the money available for grants. Others partner with community foundations or other middle groups. But that means giving up some control over funding decisions.

Self-Dealing and Following Rules

The ban on self-dealing catches people off guard too. You can't use foundation money to buy a table at your kid's school fundraiser if you're on the school board. You can't hire your unemployed nephew to run the foundation's social media, even if he's actually qualified. You can't even pay yourself back for foundation-related travel without jumping through paperwork hoops that would make a Fortune 500 CFO cry.

I experienced the strict tax-exempt rules of a private family foundation. The founder used the foundation's credit card to host "charitable" meals. He claimed these people had a good chance to be future grant recipients. Some meals involved potential grant recipients who were mostly just golf buddies. Others were called "charitable meals" in expensive restaurants costing more than $200 per meal. The IRS completely rejected that description. At the end of their investigation, the legal fees to resolve the questioned charges were much higher than the total questioned amounts.

Public Charities and Donor-Advised Funds

Public charities have their own issues too. Like private foundations, they need to spread out their revenue sources. They don't usually feel urgent about this until the economy changes and three of their top five donors cut their funding. They have more flexibility in political activity, but it's not unlimited. The legal definitions about what's educational versus what's forbidden campaigning aren't as easy to understand as you might think. There has been lots of discussion about donor-advised fund activity that could be seen as policy discussions.

Critics attack people for being able to take tax deductions while some do nothing. These people let money sit in an advised fund for years without giving it to an operating charity. Supporters say donor-advised funds made charitable giving more democratic. They were very valuable during crises like COVID.

Some recent laws wanted donor-advised funds to pay out some percentage every year. This would be similar to what private foundations must do. The charity sector is split on these ideas. Some see them as needed accountability measures. Others worry about government overreach into charity decision-making.

Strategy vs. Spray-and-Pray: How Smart Foundations Create Real Change

The difference between effective and ineffective foundations often comes down to focus. I've seen foundations that try to tackle poverty, education, healthcare, and environmental protection all at once. Their yearly budgets wouldn't fund a single program well in any of those areas. Meanwhile, other foundations choose narrow focus areas. They develop skills that make them real partners to their grant recipients rather than just funding sources.

Examples of Strategic Focus

The Edna McConnell Clark Foundation provides a masterclass in strategic focus. Instead of spreading money across hundreds of youth groups, they do exhaustive research. They identify a handful of programs with strong evidence of success. Then they give multi-year funding to focus on growing geographically and serving more young people. It's the difference between watering your whole yard with a watering can or watering your prize roses with a drip line.

This takes patience that is difficult for many donors. Who wants to wait two years researching potential grant recipients when homeless shelters could use the money now? But EMCF's approach has helped scale programs that now serve hundreds of thousands of kids. These kids might otherwise have aged out of foster care into homelessness or jail.

Systems Change Approach

The Annie E. Casey Foundation takes a different but equally strategic approach to improving outcomes for children and families. Instead of funding direct services, they invest heavily in changing the systems that affect kids' lives. Their focus on juvenile justice reform meant they funded research to document the problems of youth jails. They supported advocacy groups pushing for policy change and helped states make reforms. They provided technical help to states working toward reform.

This systems-change approach can be extremely frustrating compared to funding a soup kitchen or scholarship program. You can't easily point to a certain child who was helped by a certain grant at a given time. But when Casey's work helps convince a state to close youth prisons and invest in community-based alternatives, the impact affects thousands of kids over many years.

Working Together

Working together has become increasingly popular as foundations recognize that most social problems are too complex for any single group to solve. The Blue Meridian Partners collaboration brings together some of America's wealthiest givers to fund proven interventions at unprecedented scale. Rather than individually pursuing their own pet projects, they pool their resources and align their strategies.

The collaboration funded national expansion of the Nurse-Family Partnership. This program pairs new mothers with nurses who provide support during pregnancy and early childhood. Individual foundations supported NFP at the local level for years. But working together as a collaboration meant they could expand to serve an additional 50,000 families each year. That's the kind of scale that can only happen when foundations stop competing and start cooperating.

Innovation Funding

Innovation funding has unique challenges because you're backing approaches that might not work by definition. The most sophisticated foundations tend to have portfolio approaches. These include both high certainty investments and calculated risks. For example, the Skoll Foundation focuses on social entrepreneurship. They assume that some of their investments will completely fail while others will be breakthrough successes that transform entire sectors.

Their investment in Kiva, the microlending platform, is a case in point. When Kiva started, most traditional funders considered peer-to-peer microlending a curious gimmick that could perhaps scale. Skoll was willing to fund them early on when they were refining their model and trying to build trust with other funders. Today Kiva has issued out more than $1.5 billion in loans to entrepreneurs in over 80 countries.

The Grassroots Giants: Why Community Foundations Have Big Impact

Community foundations might be American charity's best kept secret. While private foundations get lots of media coverage, community foundations largely provide the charitable infrastructure for thousands of cities and regions across the country without much attention. They're like the electrical grid for charitable giving. Largely invisible until you need them, but totally necessary to keep everything running.

Easy Access and Local Knowledge

Community foundations are a brilliant model because they make charity accessible to people who would never consider starting their own foundation. A retired factory worker in Akron, Ohio can start a $10,000 scholarship fund that honors his wife's memory and sends kids to college. A group of artists in Santa Fe can come together to support emerging creatives. In rural Montana, ranchers and small business owners contribute to funds that keep their local hospital and volunteer fire department running.

These donor-advised funds at community foundations offer most of the benefits of private foundations without the administrative headaches. Donors get the same tax deductions and the satisfaction of directing grants to causes they care about. But they don't have to worry about IRS filing requirements, investment management, or staff oversight.

More importantly, community foundations understand their regions in ways that distant private foundations never could. The Greater Milwaukee Foundation doesn't just know that the city has racial gaps in educational outcomes. They know which neighborhoods are most affected, which schools are trying innovative approaches, and which community leaders have the trust and credibility to drive change. That local knowledge makes their grant making more impactful than the generic education funding national foundations provide.

Democratic Leadership

The democratic leadership structure of most community foundations ensures plenty of community representation in important funding decisions. Board members typically represent different sectors of the community. Business, nonprofits, government, education, and regions served by the foundation. This leadership model helps ensure public confidence in their funding priorities as representative of the community rather than just amplifying the donors.

COVID-19 Response

There is no better stress test for community foundations than COVID-19, and many got passing grades. When the pandemic started, community foundations across the country quickly set up emergency response funds. They raised and gave out millions of dollars to food banks, homeless shelters, and other frontline groups. The relationships they had built with local nonprofits over time built trust in what their communities faced. As a result, they could respond decisively in a time frame larger institutions could not.

For example, Central Ohio Community Foundation set up an emergency fund that raised $25 million for pandemic relief in six weeks. They funded everything from emergency childcare for healthcare workers to technology support for students learning remotely. They could act quickly because they didn't have to wait months for plans and feasibility studies. They could act in real-time, based on what they knew about their community.

Place-Based Solutions

The geographic focus of community foundations lets them respond to place-based issues that cross traditional sector boundaries. For example, a community foundation might fund workforce development programs, small business incubation, and affordable housing initiatives at the same time. They understand that these seemingly separate issues depend on each other. To respond to them effectively, they should be addressed together.

The community foundation in Fresno, California, has been working for many years connecting education, workforce development, and economic development initiatives. This is part of their efforts to address persistent poverty in the region. Rather than treating these as separate program areas, they've built funding strategies that recognize how success in one area depends on progress in others.

When Business Gets Personal: Corporate Foundations Finding Their Voice

Corporate foundations occupy an interesting middle ground between business strategy and charitable mission. Done well, they help companies build real relationships with communities while addressing real social problems. Done poorly, they become expensive public relations exercises that satisfy nobody and change nothing.

Aligning Skills with Mission

The most effective corporate foundations align their giving with business skills without compromising their charitable mission. Target's foundation focuses heavily on education because the company recognizes that community health affects their stores' success. But also because retail requires workers with strong basic skills. Their financial investments in early childhood education align with both business and social goals without being cynical or exploitive.

Employee Engagement

Employee engagement has become a key part of corporate foundation strategy. More companies consider it important to tell employees, especially younger employees, that they want employers who share their values. They want to provide those employees with opportunities to get involved and participate in their community in ways that really count. Corporate foundations can help deliver a way for employees to engage their interests and skills for the benefit of local communities.

Microsoft's employee giving program lets workers direct corporate foundation grants to nonprofits where they volunteer. This amplifies the impact of both employee time and company money. The program has funded thousands of groups that employees care about while building stronger connections between the company and communities where workers live.

Disaster Relief Excellence

Disaster relief showcases corporate foundations at their most effective. In times of disaster, corporate foundations can use their companies' operational abilities and supply chain connections to provide help in ways that pure grant-making foundations cannot.

Walmart's foundation has developed a reputation in disaster response that combines cash grants with logistics and supply chain help. After Hurricane Katrina, Walmart made $20 million in cash donations and quickly reopened their stores to serve affected communities. They also sent colleagues to operate the stores and worked with relief groups to provide supplies. While Walmart funded long-term recovery efforts through its foundation, it was the company's operational abilities that helped the most when people needed it most.

Corporate Social Responsibility Integration

Corporate social responsibility (CSR) has transformed foundation work from side charitable activities into core business strategy. Consumers want to engage with companies that show real attention to social and environmental issues. Top talent values the opportunity to work for employers that hold similar values. Corporate foundations help companies respond to those desires in the form of measurable social impact.

Challenges and Independence

Corporate foundations also face many challenges private foundations never had to deal with. Corporate downturns can happen just when community needs are emerging. Corporate leadership or strategic direction changes can change the approval process of a foundation and disrupt long-term relationships with grant recipients. This is especially true if the last thing the new leadership wants is funding from a charity.

Many critics will ask any corporate foundation if it's viable. This is particularly problematic when issues involve environmental regulation or labor rights. How do you maintain independence from business decisions? The leading successful corporate foundations generally work through transparent leadership structures and established eligibility definitions, policies, and concerns. This ensures charitable decisions are not potentially driven by other business decisions.

They develop endowments that provide stability in uncertain economic conditions. They create grant making programs that relate to corporate priorities without being narrow-minded about business. For example, JPMorgan Chase's foundation has a very healthy tension of business connection and charitable independence. The foundation's stated priority areas, economic development and workforce preparedness, link directly to the bank's interests. However, the funding decisions made by the foundation staff are based on the community needs and what could be an appropriate intervention. Not what they hope would bring some kind of benefit to the bank.

Future Growth

Some current statistics show corporate foundations will have a greater and greater role over time in addressing social issues. Corporate charity is participating in a greater share of the available charitable resources. This is because government budgets are constrained and individual giving is showing stagnant growth. Corporations that see their foundations as strategically relevant, rather than good P.R., will have the greatest opportunity to create meaningful good while also creating sustainable long term competitive advantages.

Keeping It in the Family: Foundations across Generations

Family foundations may be among the more durable institutions of American charity work. They also have the most muddled family dynamics. Family foundations can be great vehicles for passing values through generations and creating family unity for a common cause. More frequently they can turn nasty, where Thanksgiving dinner feels more like an international diplomatic summit.

Historical Example: The Ford Foundation

The Ford Foundation could serve as a case study of the potential and pitfalls of family charity work. Founded by Edsel, the son of Henry Ford, the foundation began as a way to address issues in their local Detroit community. It grew to be one of America's largest charitable institutions. Each generation of Ford family members has brought different priorities and perspectives to the group. Sometimes this led to hostile boardroom discussions over grant-making focus, investment strategy, and fundraising tactics.

Setting Clear Values

Typically, the successful family foundation is launched with clear discussion of priority values and charitable philosophy. This ultimate mission statement serves as a guiding star for decision making as family members join the board or other changes take place over time. Without at least some connecting document with shared values and other guiding principles, family foundations can quickly turn from places of valuable collaboration to sites of family conflict. This happens when family members disagree on funding priorities, investment strategies, or organizational direction.

Leadership Example: The Kresge Foundation

The Kresge Foundation provides useful examples of how to consider leadership of a family foundation. Founded in 1924 by Sebastian Kresge, a retail entrepreneur who wanted to promote good fellowship, the foundation has been able to include multiple generations of family members in its leadership. They also encourage opportunities for individuals who are low-income to make permanent changes in their situations. Having the advantage of family members who provided clear succession planning and professional management, the Kresge Foundation has pursued its goal without losing mission focus, even during family transitions over time.

Balancing Family and Professional Management

Effective leadership structures balance family control while inviting professional management and outside expertise into their institution. Many family foundations take the approach of rotating family members into leadership roles on the board while relying on professionals to manage the day-to-day operations. Independent board directors or professional board members can provide detached views and expertise on strategic issues. This is helpful in complex tasks such as developing impact measures or evaluations or improving investment management practices.

Next Generation Education

The most innovative family foundations dedicate financial and human resources to educate younger generations about charity and non-profit management. This could be providing funding for internships at grant recipient groups, supporting family members attending charitable conferences, or setting up junior advisory committees to allow young adults to grant funds with small amounts.

Some families set up family foundations as "giving together" foundations and include several family branches or even close friends with similar values. These networks can have significant funding and multiple perspectives while allowing continued relationships that bring such enjoyment during family charity work.

Mixed Leadership: The Packard Foundation

The Packard Foundation is an interesting mix of a family foundation with skilled independent directors who are not family. David Packard, co-founder of Hewlett-Packard, set up the foundation with his family and invited independent directors with appropriate expertise. This has enabled the foundation to balance the enduring family connection in charity work mixed with outside, valuable perspectives on complex issues such as population growth and environmental conservation.

Generational Changes

As legacy foundations have raised the number of next generation charitable givers, their approach to work for family foundations is decidedly different than their predecessors. The younger generation tends to emphasize diversity and inclusion, demand better and more rigorous measures of impact, and are more engaged in working to address systemic inequities with their grant-making. They have realized their influence in the charity landscape is changing the practices of the family foundations primarily established.

Perpetual vs. Spend-Down Debate

The perpetual versus spend-down debate points to larger questions that cut to the heart of fairness between generations and foundation effectiveness. For their family foundations, some families are prioritizing the full use of the legacy/established foundation assets. They make a conscious decision to give away the assets within a generation or two because they judge that current societal needs compel them to diminish the endowments for maximum impact. Other families have perpetuating endowments to enable themselves to deal with future challenges and invite them and their descendants to participate.

The Atlantic Philanthropies is a pioneering "giving while living" foundation that started the "spend-down" approach by giving away its established $8 billion endowment in 40 years. Its founder, Chuck Feeney (co-founder of Duty Free Shoppers), founded the Atlantic Philanthropies and in one project sought to fund health problems in a population he was once part of. Considering his charitable approach, Feeney championed "giving while living," arguing that existing societal problems deserve immediate attention, rather than await the preservation of some permanent institution. The foundation's final grants in 2020 supported everything from healthcare initiatives in Vietnam to criminal justice reform in the United States.

The Numbers Game: Why Measuring Foundation Impact Is So Hard

Anyone who's ever tried to measure the "success" of a family vacation knows that some of the most meaningful experiences resist measurement. How do you measure the value of a spontaneous conversation with a stranger, or the way a beautiful sunset shifts your perspective on life? Foundation impact measurement has similar challenges, except with millions of dollars and some vulnerable communities on the line.

Beyond Simple Measures

Traditional measures like "number of people served" or "number of programs funded" do not adequately capture complete stories about foundation effectiveness. One foundation may fund programs that engage thousands of people in healthy programs that do not lead to lasting change. Another, with a smaller investment in changes to public policy, builds the momentum to shift the lives of an entire population - millions of people. The puzzle is how to develop measurement approaches that can count outputs completed and changes made without getting bogged down in the weeds of statistics.

Learning from Robert Wood Johnson Foundation

The Robert Wood Johnson Foundation got a hard lesson in this during their first bunch of investments in childhood obesity prevention. They granted some money for programs that worked and engaged kids in healthy activities, and some that educated families on healthy eating and nutrition. Evaluation reports showed high participant satisfaction and increased knowledge about healthy eating. But childhood obesity rates didn't budge. The foundation realized they were measuring activities and awareness rather than actual behavior change and health outcomes.

Theories of Change

The rise of "theories of change" has helped foundations think more systematically about how their grants are supposed to create impact. These logic models map out the chain of activities, outputs, outcomes, and impacts that connect foundation investments to desired social changes. A theory of change for reducing homelessness might specify that foundation grants will fund supportive housing programs, which will house chronically homeless individuals, who will then achieve housing stability and improved health outcomes, ultimately reducing the overall homeless population.

Advanced Impact Assessment

With the improved capacity for data collection and feedback analysis in the past few years, foundations now have more criteria to assess their results than before. The Robin Hood Foundation has taken advanced impact assessment beyond where it once was. They are trying to actually measure the various combinations of "poverty-fighting power" from different solutions and different combinations of interventions in the context of the NYC community. They even permit independent assessments to their grants, are increasingly applying cost-benefit analyses to their own spending decisions, and asking grant recipients to examine cost-benefit where appropriate.

Challenges of Measuring the Unmeasurable

Of course often the biggest changes are often the hardest to measure. This includes the value of advocacy work to stop things from going really sideways, the value to prevent some nasty policy that could have easily got executed, measuring the value of arts programs that foster new cultural vibrancy and enrichment of community life. When most automatically assume it has zero outcomes on the economic dimensions, it is a challenge to explain to the CEO "but they are paying taxes" and then in that, think about how a foundation would recognize and evaluate a grant's potential benefits alongside many unforeseen and unmeasurable elements?

Avoiding Measurement Overload

I've seen foundations treat themselves cruelly as they start to implement new and fancy measuring methods that are always big drains on staff time and always consume far too much grant recipient time. But they nearly always will not yield permitted decisions about how to evolve programming. I'm familiar with one foundation that requested its grant recipients to submit a quarterly report with 47 specific data points. Then of course they didn't analyze grant recipient submissions in any more depth than what it took for them to ask for the reports and run the numbers. This most definitely misses many of the stories about the unintended consequences of grant funded work and community connections that makes it difficult to strictly measure in numbers too.

Developmental Evaluation

Leading foundations are starting to take "developmental evaluation" methods that care more about learning and adjusting than judging based on imposed criteria. Developmental evaluation creates space for foundations to learn - to understand what they're already doing that works, and why it works. They also realize that the methods of inquiry by which they got those results may change over time. Instead of viewing evaluation as a form of a report card, these groups use data and feedback to improve their theories of change and update their grant funding.

Innovation in Measurement

It is perfectly reasonable for a program funded by a foundation to fail to provide tangible social change, as the "evaluation challenge" has stimulated innovation in measurement tools and approaches. Social return on investment (SROI) calculations try to put dollar values on social benefits, and outcome harvesting techniques help funders discover unexpected results from their grants. Participatory evaluation approaches involve members of a community and the recipients of grants in the design and implementation of the evaluation. This helps determine that the measurement systems are consistent with the perspectives of the people it is contributing to social change.

Systems Thinking

Some foundations are trying "systems thinking" to help them account for connections of social problems. Rather than simply measuring the impact of one grant, these foundations want to measure their contributions to changes in the systems around social problems. This could mean changes in public opinion, the adoption of new practices in institutions, or new relationships between groups that work in similar space.

For example, the Hewlett Foundation has used a systems perspective in measuring their work in conflict resolution. Rather than just considering the number of mediation sessions funded or disputes resolved, they look at indicators of real change such as increased cooperation between adversarial groups, changes in policy around the root causes of conflict, and the development of local capacities to sustain conflict prevention.

Taking Risks That Others Will Not: Where Foundations Really Shine

In the summer of 2010, one summer evening as the sun set over Berkeley, California, a handful of foundation program officers sat in a coffee shop and talked about a crazy idea. Suppose they brought together resources to fund research to study psychedelic therapy? Not to glorify drug abuse, but study use in mental health conditions? Professional suicide was the thought. Acceptable foundations do not fund drugs that other people, individuals, or groups could dismiss as hippy nonsense.

Yet in the prior year they had been reading about the beginnings of early research showing that hallucinogenic substances like psilocybin and MDMA could potentially help provide treatment for trauma after a persistent disorder like PTSD, depression, or addiction had gone unmitigated by standard therapies.

Jump ahead to 2023, and those "crazy" investments helped fund early radical research that is now gaining ground and attention from pharmaceutical companies and medical institutions. The Heffter Research Institute and the MAPS (Multidisciplinary Association for Psychedelic Studies) turned to foundations willing to fund risky controversial research that government agencies or venture capitalism were not interested in being a part of.

Foundations as Risk-Takers

This external context of experimentation of taking risks where other funders will not or cannot, is one of the great strengths of foundations. Government agencies cannot spend with abandon to taxpayers and elected officials. Earned revenue requires demonstrated demand in the marketplace. Foundations fund experimental approaches, unpopular causes, and provide funding to secure long-term strategies that take years or decades to demonstrate value.

Community Health Centers Example

The development of community health centers provides another example of foundation risk-taking that later became standard practice. In the 1960s, when most healthcare was delivered through private doctor practices and hospitals, the Office of Economic Opportunity wanted to experiment with community-controlled health centers. These would serve low-income neighborhoods. Traditional funders balked at supporting an unproven model that challenged established healthcare delivery systems.

In the beginning, the recommended early funding support from the Ford Foundation and other charitable groups helped to establish and refine the community health center model. Currently there are over 1400 federally qualified health centers annually caring for over 30 million patients with primary care in those underserved communities, or where patients would otherwise not have access to care. What began as a high-risk investment of a foundation became a manifestation and one of the tenets of the health care safety net of America.

Business-Style Charity Model

The venture charity movement essentially formalizes foundations' innovation role, largely by adopting private sector investment practices and models of venture charity practices of actively undertaking grants on behalf of funders. As one of the pioneer groups in venture charity, New Profit undertakes extensive research on grant recipients, provides multi-year funding opportunities, and offers intensive technical assistance. Their goal is for grant recipients to be able to scale successful programs. Similar to a venture capitalist, no one expects every grant to pay off. However, all parties want the enduring ability to reap large benefits that come from time to time when a breakthrough is achieved.

Their early involvement with Teach for America (TFA) was an example of their venture charity model. When TFA founder Wendy Kopp proposed to recruit recent college graduates to teach for two years in high need schools, most postsecondary educators in America compared Kopp's concept to torture. Fortunately for Kopp, New Profit ultimately provided the early funding and strategic support that impacted TFA's ability to better hone the model and showcase its community health impact. Today, TFA has employed over 60,000 teachers in high-need schools, while there is still some lively debate about TFA.

Technology-Enabled Innovation

Technology has created new opportunities for foundation innovation that would have been impossible even a decade ago. Digital platforms enable foundations to crowdsource solutions to complex problems, while data analytics help identify promising intervention points within complicated systems. Some foundations are experimenting with blockchain technology to create transparent, efficient grant distribution systems, while others use artificial intelligence to identify potential grant recipients and predict program outcomes.

The Knight Foundation has taken a prominent role in funding technology-enabled solutions to civic and community challenges. Their investment in Code for America helped foster a movement of technologists working to improve government services, and their support for platforms such as Neighborland helps community members identify challenges that must be tackled in the group.

Alternative Funding Methods

The most innovative foundations also experiment with other funding methods, moving away from traditional forms of giving through grants. Program-related investments (PRIs) provide below-market-rate loans to nonprofits or social enterprises that can generate both financial returns and social impact. The Ford Foundation has committed $1 billion to mission-related investments over ten years, funding everything from affordable housing development to clean energy projects in developing countries.

Social impact bonds create pay-for-success contracts that reward service providers only when they achieve predetermined outcomes. These arrangements can attract additional capital from investors who receive returns based on measurable social improvements. The Goldman Sachs Social Impact Fund has financed programs ranging from recidivism reduction to early childhood education using this model.

Accepting Failure as Learning

However, innovation requires accepting failure as part of the learning process. The most successful foundations maintain portfolios that balance proven approaches with experimental strategies. They create organizational cultures that treat failures as opportunities for learning rather than sources of shame. This requires board members and staff who recognize that breakthrough social innovations will stem from many failed attempts.

Systems Change Charity

The past several years have seen increasing interest in "systems change" charity that seeks to change underlying conditions that lead to social problems rather than only addressing the symptoms of those problems. Systems change charity requires patience, collaborative work, and a smart understanding of how complex systems operate. Foundations pursuing systems change might fund research, advocacy, grassroots organizing, and direct service approaches, and align those investments to achieve more impact as a whole.

The work of the David and Lucile Packard Foundation on climate change is a good example of a systems approach. They don't fund only renewable energy projects or only environmental education but fund everything in between: clean technology, climate science, policy advocacy, and community organizing. They understand that addressing climate change requires coordinated effort across sectors and scales.

Crystal Ball Gazing: What Lies Ahead for American Charity

Each December, leaders from foundations gather at conferences across the country to make predictions about what the next year brings. Most of the predictions from these conferences turn out to be wrong. But the predictions reveal important information about trends and tensions in the field. As someone who has attended several, and probably more than I want to admit, of these conferences, I can tell you there are three themes at the forefront of the conversation: generational change, technological disruption, and increasing accountability.

Generational Change

The generational change in charity work is already fundamentally altering foundation practices. Younger donors will put much greater priority on diversity, equity, and inclusion issues than their predecessors. They will hold those they fund accountable to be more transparent and responsible than their predecessors. They are more comfortable with technology, they are more skeptical of traditional groups, and they are more willing to upend existing power structures.

The charitable approach of MacKenzie Scott demonstrates this generational difference. MacKenzie Scott does not start traditional charity work with carefully articulated, complex leadership structures and grant recipient applications submitted through a multi-stage grants process. She has been providing huge, unrestricted donations directly to groups, often led by people most impacted by the conjunction of problems. She emphasizes trust over control. She emphasizes speed over deliberation. And she emphasizes community ownership of the process over expert opinions.

Technology's Impact

Technology will continue transforming how foundations operate and measure impact, but probably not in the ways most people expect. Artificial intelligence won't replace foundation program officers any time soon. But it will help them identify promising grant opportunities and predict program outcomes with greater accuracy. Blockchain technology might create more transparent, efficient systems for tracking grants and measuring results, but only if it actually works better than existing systems rather than just sounding more impressive.

Donor-Advised Funds Growth

The rise of donor-advised funds represents broader democratization patterns that are making charity work more accessible to middle-class Americans who previously had no formal giving vehicles. On the one hand, these funds have the potential to challenge traditional foundation models and practices as they continue to develop, because they provide possibilities for flexibility with lower administrative costs. Alternatively, increased discussion and questions related to accountability and distributions requirements will likely generate regulatory scrutiny that could create changes in the ways these vehicles operate.

Climate Change Challenges

Climate change poses both challenges and opportunities for the foundation sector that most groups are just beginning to understand. Environmental foundations are mobilizing unprecedented resources to address greenhouse gas emissions and climate adaptation. But other foundations must consider how climate change affects their own program areas. A foundation focused on education might need to address how extreme weather events disrupt schooling, while healthcare foundations grapple with climate-related disease outbreaks and mental health impacts.

Political Polarization

Political polarization is also creating additional challenges for foundations that focus on systemic change. Issues that were previously considered bipartisan (such as support for education reform and invest in infrastructure) now invoke partisanship which may limit their work. Some foundations are exploring bridging strategies to bring together political stakeholders with increasingly polarized views while other foundations are focusing on local or non-political issues that diminish the influence of political dynamics at those national levels.

COVID-19 Pandemic Effects

The COVID-19 pandemic accelerated trends that had already been at play affecting foundations. By going remote, foundations improved their accessibility to nonprofits in both rural and disenfranchised spaces and proved that virtual meetings can either enhance the in-person price tag or exist entirely. The economic shift due to the COVID-19 pandemic alerted everyone to the significance of unrestricted funding for nonprofit actors engaging in agile change making.

Diversity and Inclusion

The recent calls for more diversity and inclusion have raised fundamental challenges in foundation structure, management, and grantmaking practices. Some critics pointed out that chairs of boards and talent for groups in the corporate foundation space are still predominantly white and wealthy, while most of the foundation fund markets flow to groups with white executive directors. Some foundations are changing their boards to include more diverse representatives. Some are shifting power to align with the voices of the community. And some are funding grassroots groups that may have been overlooked or ignored.

Asset Growth and Scrutiny

We can expect more growth in foundation assets and giving in the next decade driven in part by technology entrepreneurs extracting their wealth from global financial markets and the patterns of wealth accumulation from other generations of wealth in America. Growth may be followed by increased scrutiny of foundation policies and practice, and enhanced requests for accountability from the foundations to make necessary changes. Foundations that accept transparency, authenticity, and collaboration while also being supportive of adaptive learning practices will be much better positioned to move through the pressures of deliberating their charitable mission.

International Giving

International giving presents another frontier for American foundations. As global challenges like climate change, migration, and technological disruption transcend national boundaries, foundations are grappling with how to support solutions that require international cooperation. Some are forming partnerships with foundations in other countries, while others are funding American groups working on global issues.

Effective Altruism

The emergence of "effective altruism" has encouraged some foundations that are mindful of impact to be focused on only supporting interventions that have the biggest measurable impact on the basis of cost data. As a result, many of these interventions are supporting global health and development programs in low-income countries. This has led to many beneficial ideas in terms of being aware of best cost-effective interventions. However, this also raises some important discussions on whether foundations should use their money optimally on global impact, versus focusing on local community needs.

The Bottom Line: Why Foundations Still Matter

After spending the better part of two decades working in and around foundations, I've seen enough dysfunction and ego to fill several books. I've watched wealthy donors treat foundations like personal hobby funds. I've seen program officers reject brilliant proposals because they came from groups that didn't fit narrow criteria. I've watched boards make funding decisions based more on member preferences than community needs.

But I've also seen magic happen when foundations get it right. I've seen a $50,000 grant transform a struggling community group into a regional leader. I've watched foundation funding catalyze policy changes that improved thousands of lives. I've been in meetings where foundation leaders put aside their egos and institutional interests to collaborate on solutions bigger than any single group could achieve.

The Hopeful Experiment

Charitable foundations in America are one of humanity's most hopeful experiments. The hope that private resources can be mobilized to meet public problems and build fairer, more equitable communities. For more than a century, these institutions have financed pioneering medical research, financed social movements, invested in educational systems, and provided responses to countless urgent crises with speed and agility that the other sectors simply can't offer.

Diversity as Strength

The biggest asset in the foundation sector of our economy is not just the scale of its resources, valuable as they are, but its variety and flexibility. Large private foundations can take on global challenges that require a sustained investment for twenty to thirty years. Community foundations can act on hyperlocal challenges with intimate knowledge and experience around what works in very particular places. Family foundations enable multiple generations to act together based on shared values and corporate foundations allow businesses to act as better partners in the community.

The Third Sector

This diversity of institutional forms reflects broader American traditions of pluralism and voluntary association. Instead of relying solely on government programs or market action, foundations offer a third sector that can act quickly and take risks to meet needs that other markets or social services could not. They can act as laboratories for social innovation and channels for creating systemic change.

Rising Accountability

The increasing pressures, from accountability demands to questions of democratic legitimacy and complications in measuring social impact, that foundations are addressing today, speak of the increasing legitimacy of the foundation sector rather than its decline. As foundations control more charitable resources and take on increasingly bold objectives, they will face more scrutiny and more expectations. The best foundations view these as opportunities for improvement, not threats to their independence. They are open and honest about what they are doing and the outcomes they achieve. They collaborate with other funders and with the communities they serve. They try new things while learning from what works and what does not. They rely on one another to build a larger circle of goodwill.

A Powerful Vehicle

For those Americans who are considering their own charitable journeys, foundations are powerful vehicles through which they can help efforts to create lasting impact. By thinking about their generosity through the lens of foundations, either by creating new ones, continuing to support pro-social work of existing foundations, or merely trying to comprehend how foundations operate, Americans will find their engagement with the foundation sector connects their individual generosity to larger efforts for collective action to create good in society.

Looking Forward

How foundation practice in America continues to evolve to changing social expectations, while retaining the core functions of innovation, taking risks, and enduring time, will shape the future of charity work in America. Foundations that thrive will not forget that they are not here to sustain themselves as institutions, but to serve as conduits of our largest ambitions of building the most compassionate, fair, and thriving communities.

When serious challenges abound from climate change, economic inequality, technological disruption, and democratic backsliding, we need charity work to be effective, accountable, and innovative. For all of their imperfections, American charitable foundations are still among our most formidable levers for mobilizing private resources for the public good.

The question is not whether foundations matter. The question is whether we can make them work better. That is a challenge worthy of all of our best thinking, all of our deepest commitment, and, yes, all of our most generous giving. Because at the end of the day, foundations are just tools. What matters is how we use them to build the world we want to leave for our children.