American Foundations: Roles and Contributions

1. American Foundations: Their Roles and Contributions to Society

3 1 American Foundations: Their Roles and Contributions to Society david c. hammack and helmut k. anheier What have independent grant-making foundations contributed to the United States? What roles have foundations played over time, and what distinctive roles—if any—do they fill today? Are new roles for foundations currently emerging? This volume presents the product of a three-year effort to answer these questions. America’s grant-making foundations are significant by many measures. They numbered more than 112,000 in 2008, held more than $627 billion in assets, and had grown substantially over more than two decades. They command substantial resources even in the midst of the 2008–09 financial crisis.1 Entitled to considerable tax benefits and exemptions, and free from direct responsibility to shareholders and voters, foundations enjoy exceptional independence. They can invest the assets they hold, subject to modest restrictions and to an annual tax, generally 2 percent of investment income. So long as they give a minimum amount each year for “charitable purposes” defined in very broad terms, avoid enriching their donors or staffs, and do not directly support candidates for political office or lobby directly for specific legislation, American foundations can largely do as they please. 1. Number and total assets of foundations from the National Center for Charitable Statistics (nccsdataweb.urban.org/PubApps/profileDrillDown.php?state=US&rpt=PF [July 28, 2007]). The global financial crisis of 2008–09 is a reminder that as holders and investors of charitable funds, foundations are not exempt from external market forces. 4 david c. hammack and helmut k. anheier American law and practice define charity in wide terms. As the Internal Revenue Service puts it, “The term charitable is used in its generally accepted legal sense,” which “includes relief of the poor, the distressed, or the underprivileged ; advancement of religion; advancement of education or science; erecting or maintaining public buildings, monuments, or works; lessening the burdens of government; lessening neighborhood tensions; eliminating prejudice and discrimination ; defending human and civil rights secured by law; and combating community deterioration and juvenile delinquency.”2 Unlike an operating charity such as a school, hospital, research institute, social service agency, or museum, a foundation’s board may, in almost all U.S. states, shift funds from one activity to another at any time.3 And foundation grants add up to a considerable total: the Foundation Center has estimated that in 2007, American foundations gave away more than $42 billion.4 Among all industrial societies, the United States has long granted the most scope to philanthropy. While foundations exist in many countries—most prominently in Germany, the United Kingdom, Italy, the Netherlands, and Japan— the United States stands out: in no modern society are foundations more numerous , and nowhere have they become so prominent and visible. Compared with 2.See“ExemptPurposes:InternalRevenueCode501(c)(3),”January2009(www.irs.gov/charities/ charitable/article/0,,id=175418,00.html). 3. Many organizations call themselves foundations, including hospitals and other operating charities (such as the Cleveland Clinic Foundation); supporting organizations controlled by state universities, public schools, and operating charities; and annual fund-raising entities (such as the March of Dimes Birth Defects Foundation). This book focuses on the three thousand larger independent grant-making foundations that have paid staffs and take the legal form of a nonprofit corporation (or, rarely, a legal trust) established to give money for purposes deemed “charitable” under U.S. law, either indefinitely or over a specified period; compare the Foundation Center’s definition at “What Is a Foundation?” (http://foundationcenter.org/getstarted/faqs/html/foundfun. html [November 12, 2009]). We include foundations created by force of law, including conversion foundations created when profit-seeking firms purchase nonprofit health insurers or hospitals or, more rarely, under other circumstances. Under U.S. law independent foundations are selfgoverning and institutionally separate from government. These foundations are also independent of business firms and are distinct from “company foundations” in holding their own substantial assets, in the autonomy of their governing boards, and in their complete separation from the obligation to help a sponsoring firm make a profit. Under federal law, a foundation may not be used for the “private inurement” of a donor, trustee, or staff member or of members of their families. Thus we are not considering the special foundations that are allowed to hold family assets in some European nations. Most foundations receive all of their donated assets at...