By Charlene Seidle
Are donor advised funds merely a tax shelter for the reluctantly philanthropic? This seems to be the overriding premise of “How Tech Billionaires Hack Their Taxes with a Philanthropic Loophole” published in The New York Times on August 3, 2018.
The article cited several examples of wealthy tech entrepreneurs “parking” their assets at community foundations and commercial donor advised funds, receiving acclaim for their generosity, and not doing much with the funds. The piece was curious in that it completely omitted the perspective of community foundations, save the Silicon Valley Community Foundation highlighted mostly for its recent leadership scandals and organizational culture challenges.
One of the first things I did after reading the NYT article was pull out and re-read the recent study by Jack Wertheimer Giving Jewish: How Big Funders Have Transformed American Philanthropy.
That study released in March is an outstanding overview of the landscape of mega-funders giving to Jewish causes. It is far different from the NYT article in that it offers a great deal more insight, nuance, data and complexity. However, certain components of that study reminded me of the NYT article. One element is the broad-stroke approach that both pieces use when describing the motivations of those with donor advised funds (DAFs) around their giving. Indeed a footnote on page 15 of the Wertheimer study contends, “DAFs also differ from foundations in that they cannot tie their funding to benchmarks … they have far less oversight over the way their funds are used than do foundations with staff members who can monitor grantees. In short, DAFs are for writing checks, not for engaging in partnerships with grantees.”
Neither this DAF description by Wertheimer nor the description of the DAF as essentially a tax shelter in the NYT piece resonate with my professional experience over 18 years of working with scores of donor families at the Jewish Community Foundation of San Diego (JCFSD) and for more than a decade at an independent private foundation, the Leichtag Foundation (some of that time overlapping). Those who established funds (which ranged in balance from $1,800 to $50 million+) sought to create change and achieve impact. Most had an envisioned “theory of change” even if many wouldn’t have used that precise jargon. Once trusting relationships had been established which involved a lot of discipline, excellent service and value accountability, these philanthropists of all ages welcomed data, educational materials, analysis and counsel to help inform their giving. And give they did. For my last several years at JCFSD, and after I left, the JCFSD has been the largest grantmaker in San Diego County (though is not the largest foundation in terms of asset size).
Indeed, if one looks across the field, the public good done by most DAFs far outweighs the personal benefit. Very few individuals pursue this option for personal gain. When one looks at the distribution rates of the vast majority of community foundations, they far exceed the distribution requirements of private foundations, as they certainly did, and continue to do, at JCFSD.
So with this in mind, and looking back at both the article and the study, the question becomes how do we best amplify the impact of donor advised funds and how do we best provide these donors and others with the resources, knowledge and counsel they need to make informed giving decisions?
Wertheimer describes the growth of staffed private foundations – and the numbers of professionals who work in such foundations – as a highly consequential development in the field of American Jewish philanthropy with major resonance for priority and programmatic decision making. According to Wertheimer, “funders and boards rely upon their staff to educate them not only about the issues that the Foundation seeks to impact but also about best practices in philanthropy and developments in the fields that the Foundation supports”.
I believe that we have a big opportunity to leverage the expertise, knowledge and competencies of private foundation and community foundation professionals to a greater number of funders of varying sizes no matter which philanthropic vehicle they employ. Foundation professionals should be seen as being accountable to fields of impact rather than solely to the foundations that employ them. In concert with this, we must take note of Wertheimer’s recommendations around greater transparency and accountability in the field of Jewish philanthropy as a potentially transformative opportunity as well.
What would it look like if the staff resources of Jewish private foundations and the knowledge that is being amassed by both private foundations and community foundations were radically open sourced and available to donors of all kinds according to their interest areas? As Wertheimer points out in part, the staff of Jewish foundations whose numbers have exponentially increased in the last decade or so often bring a strong focus on strategy and impact; wield access to deep networks of other funders, local and national; and possess issue-specific knowledge as well as local, national, global, and Israel knowledge. Foundation staff are more likely to be women, more likely to be young and more likely to embrace risk than staff of other organizations in our Jewish ecosystem, according to the Wertheimer study. These are of course highly generalized trends, but it is also worth pointing out that, from financial and independence perspectives, foundations have more capacity to invest in talent, tie those investments to specific results, and better mandate sharing rather than hoarding of knowledge. Additionally, if foundations are aggressive in recruiting a more diverse staff base, they can bring more robust networks and different personalities that may appeal to a greater spectrum of donors. In this age, the determined democratization of information may be our greatest opportunity for social change.
The Andrea and Charles Bronfman Philanthropies (ACBP) recognized this opportunity more than 15 years ago when it created 21/64, a spinoff consulting firm which took ACBP’s considerable staff expertise, research and experience in NextGen philanthropy and spread it to philanthropic professionals across the Jewish world and beyond. Today, 21/64 has trained 600+ advisors and family members; produced abundant resources used by many organizations and funders; worked closely with 150 families on their giving; facilitated hundreds of workshops, family meetings, one-on-one consulting sessions, and more.
The 21/64 model exemplifies how influence can extend far beyond the walls of an individual foundation. What would it look like if we expected private and community foundation professionals to use their knowledge, connections and networks to build trusting relationships with donors of all kinds in their local communities and beyond in order to expand impact and resources in strategic areas of alignment? What if we saw private and community foundations as true centers for local community data, as connectors to the best and brightest social change agents, and as resources for personalized and easy-to-access tools for funders to assess how their investments could best make a difference? What if private foundation staff performance was measured, in part, by interaction with and influence on local funders and other funders with minimal staffs?
At the Leichtag Foundation, we are deeply rooted in our local community with longstanding, trusting relationships. We also frequently interact with national and international funder colleagues on common areas of interest including our work in Jerusalem. As we have built our strategies over the last decade, awarded grants of more than $100 million during the same period and hired staff, we have been experimenting around just such ideas. At the initial requests of several funders, we have been invited to consult with (often minimally staffed) family foundations, community foundations and individual givers to share funding opportunities, good practices for grantmaking, and educational content-rich presentations about shared strategic areas of interest. Sometimes, these funders have also requested that we consult with their favorite grantees in order to develop their capacity in a variety of areas including program design, evaluation, and resource development. We have been invited to support and staff giving circles and funding consortiums.
We’ve begun to implement metrics in these service areas around “philanthropic leverage,” that is the dollar amount the Foundation can inspire and influence to advance our broad strategic change areas beyond our own grantmaking. To date, in this initial limited phase of experimentation, that number exceeds $15 million. Now that the beta testing is well underway, we are developing the second phase of this plan and setting increasingly ambitious goals for philanthropic leverage. It is my hope that we will soon report philanthropic leverage that is many multiples the scale of what we could do alone. Imagine the potential for influence and bigger bets if this kind of approach could be replicated by just a few other foundations which already have a grantmaking infrastructure with program expertise. The impact could be substantial!
Of course, all of this takes talented foundation and funder professionals who remain on the cutting edge of trends and adhere to best practices of service, knowledge and trust. The issues of professional accountability and transparency for the field that were appropriately raised in the Wertheimer study must be well addressed. In his study response, “Actions to Be Taken: Insights on Giving Jewishly,” the ever-wise Dr. Chip Edelsberg calls the question of whether it is time to introduce standards of practice, criteria and training that are well understood for professionals who work for Jewish funders. Not only do I believe it is time, but I also believe that by not doing so, we as funders or representatives of funders act in a way that undermines much of the “advice” we give to our nonprofit partners. What would our field look like if every single foundation professional were significantly experienced in soliciting gifts and crafting program information aimed at making the case for support? How would that experience being on the other side of the funder/nonprofit table affect the power dynamic? What if we had a commonly accepted code of practice for our response time to social entrepreneurs and nonprofits, length of time for decision-making, judicious approaches to offering opinions and counsel, and the right balance of talking vs. listening at funder/nonprofit meetings or funder/consumer meetings? What if there was a commonly accepted and credentialed training program that taught the highest standards of excellence and customer service to Jewish foundation employees? What if we had Diversity Equity Inclusion (DEI) programs and practices that we didn’t only demand of our grantees, but also applied to our own staffs? This could help to resist the dangers of staff conformity against which Wertheimer rightly warns.
Raising the bar on professional accountability and excellence means that both private foundations and community foundation boards must invest the necessary resources in talent development and hold their foundation professionals highly accountable to using their knowledge to build influence. Board members and principals must see both of these leadership responsibilities as essential parts of annual budgets.
Wertheimer contends that Jewish big giving is “the risk capital of our time.” He describes a division of labor where the staffed foundations are taking such risks and local funders (and others who presumably give at a lower scale or without staffs of their own) are sustaining institutions and proven initiatives. While theoretically, this division of labor could be appealing, I do not believe that it is actually playing out in our philanthropic ecosystem. Donors at local or smaller levels take plenty of risk and many major foundations have very low risk tolerance. Indeed, in many cases, local funders are better positioned to take bigger risks because of the ability to go deep in relationships and learning on the local level and course correct more nimbly in real time. By spreading the knowledge capital of philanthropic professionals, primarily professionals at staffed foundations who, according to Wertheimer’s study, tend to be more risk-tolerant because of the nature of their roles, we can match the risk comfort level of the individual investor/donor. By leveraging knowledge across an ecosystem, more resilient and customized matches can be effected between donor and initiative. If a staff person who is working actively on the national level is also working closely to assist and inform the local funder and has a deep knowledge of their local context, then local pilots can much more easily be brought to scale nationally. Reciprocally, outstanding programs from other communities could be scaled and customized according to the unique attributes of new cities.
Back to the New York Times article. In my experience working with funders, the vast majority are excited to pursue their philanthropic goals if they receive customized, meaningful and relevant counsel, content, and follow-up. This is all the more true of donor advised funds and other vehicles where the funds have already been committed to social good. During the Great Recession, at a time when dipping endowments led a number of private foundations to reduce their giving, granting by Jewish Community Foundation of San Diego donor advised funds and supporting foundations shot up and exceeded every prior grantmaking record. When we asked why, donors responded that the educational content and personalized, trusted advice we provided about community trends and needs during the economic downfall stimulated them to give more because they understood that the needs were significant and out of the ordinary. In fact, many described this as their best philanthropic investment, akin to buying low and selling high. Imagine if the expertise held by the professionals at those private foundations that were pulling back was redeployed to assist other donors like the ones we were able to help. That could have had profound and far-reaching effects. We must use all the knowledge at our disposal. Let’s invert the canopy. The needs of our time demand it.
Charlene Seidle is the Executive Vice President of the Leichtag Foundation, an Encinitas, California and Jerusalem based funder igniting and inspiring Jewish life, advancing self-sufficiency and stimulating social entrepreneurship in coastal North San Diego County and Jerusalem.