NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Monday, August 24, 2015

These are interesting times in the philanthrosphere. Lots of new mega-donors are arriving on the scene, and they’re both shaking up key issue areas, as well as philanthropy overall.

Amid this ferment, top legacy foundations risk losing influence as they're bypassed by newer funders who are giving more—and often in more dynamic ways.

Consider the relative decline of Rockefeller and Carnegie, which for decades were among the most august leaders of American philanthropy. Nowadays, neither foundation is among the top 25 U.S. foundations in terms of annual giving.

Or look at MacArthur, which remains one of the biggest foundations in the U.S., with over $6 billion in assets. In practice, though, Mike Bloomberg’s outfit moves more money every year in grants, as does the Susan Thompson Buffett Foundation and the Walton Family Foundation—funders that barely registered a decade ago.

Now, you might ask the obvious question: Who cares about influence or relative position? Philanthropy isn’t a competition, after all. It’s about making the world a better place.

In fact, though, influence does matter in this business: If your foundation can elevate certain causes or strategies, other funders are more likely to put money in the same place—which means you’ve leveraged your own resources. In key ways, philanthropy is a game of follow the leader. And the leaders tend to be the most dynamic funders having the most impact.

There’s not much that legacy foundations can do about the big new money coming into philanthropy, and how it’s eroding their relative power. But these funders have made things worse for themselves by embracing ineffective operating strategies. Many legacy foundations disperse their money too widely—working on too many issues and backing too many grantees. Even worse, this model is hugely expensive, often soaking up over a fifth of their annual budgets in overhead.

So a key question I’ve wondered about is this: Can the legacy foundations escape institutional calcification—becoming leaner, more dynamic funders that take more risks, place bigger bets, and have more impact?