Philanthropy Must Evolve

For too long, philanthropy has hidden behind the twin gatekeepers of fiduciary duty and perpetuity to avoid giving more when communities need it most. Last year, the Marguerite Casey Foundation provided a one-time fivefold increase in funding to meet a deepening moment of crisis. We learned this was a lifeline to many organizations facing increasing attacks and whose funders were pulling back from supporting racial and economic justice organizing.

The damage we’re seeing—from cuts to essential government services and ICE raids to a corrupt federal government orchestrating the largest transfer of wealth from the poorest people to the richest in our nation—will have impacts for a generation. Philanthropy must provide resources at a scale and with a fervor that meaningfully responds to the reality of the world around us.

Yet, at a time when funders should be doing more, The Center for Effective Philanthropy recently documented a stunning disconnect: the vast majority of philanthropic leaders believe everything is fine, while the nonprofit sector is suffering job losses, burnout, and uncertainty. To address this gap between foundation comfort and community suffering, our sector must evolve how we move money.

A foundation more concerned with preserving its endowment than in meeting its mission must question whether it is living into its charitable purpose.

The traditional philanthropic model limits annual giving to 5% of a foundation’s total assets. A commonly cited reason for this approach is fiduciary duty. Foundation trustees and leaders invoke fiduciary duty to shut down conversations about increased payout: "We can't give more than 5% of our assets because we have to exercise fiduciary responsibility."

But after a series of deep conversations with our board, examining legal frameworks and sharpening our definitions, we arrived at a different conclusion: fiduciary duty is a duty to mission. So if our mission is to transform the government so it delivers on the promise of a good life for all people then right now is precisely when we need to make the deepest commitment we possibly can. Increasing our annual grantmaking by 50% to a minimum of $500M over the next decade is how we’re putting into practice our sharpened understanding of fiduciary duty to mission.

The second assumption we examined was the unexamined belief that foundations must exist forever by growing their endowments at any cost, even when that cost is investing in corporations that work at cross-purposes to our mission. Perpetuity, often written directly into a foundation's bylaws, is the second gateway where conversations about increased payout often go to die.

The logic sounds reasonable on its face: to last forever, a foundation must preserve and grow its endowment infinitely. But a foundation more concerned with preserving its endowment than in meeting its mission must question whether it is living into its charitable purpose. We hope that our commitment to give $500M over ten years will serve as a powerful proof point for our sector that a vastly increased payout and perpetuity can and must coexist.

If our mission is to transform the government so it delivers on the promise of a good life for all people then right now is precisely when we need to make the deepest commitment we possibly can.

Through rigorous investment stress testing, we found that most foundations can, in fact, drastically increase their payout even while adhering to a commitment to perpetuity. When we took a closer look at our own bylaws, it became clear that our perpetuity clause doesn’t define “perpetuity” as endless upward growth of the endowment. Instead, perpetuity simply means lasting forever—it says nothing about getting larger forever. Our sector has confused endless growth with existing over the long-term. At MCF, we’re untangling the two and showing how a foundation can last indefinitely while also spending down its endowment to a predetermined level. The two are not in conflict.

Instead of a grantmaking formula determined by a rigid percentage of total assets, we now operate from a sharpened approach: fiduciary duty centers mission, and perpetuity means building durable community power, not endlessly growing our own money for an unpromised tomorrow. We are not alone in this realization or practice. Many of our philanthropic partners have been giving above and beyond the 5%, realizing that "forever" has become an excuse for "not now."

The crises we’re facing are too big for business as usual. Our invitation to foundation leaders reading this: let’s evolve our practice of fiduciary duty and perpetuity so we can move the money to the community organizers, scholars, municipal leaders, and meaning-makers creating a future worthy of living.