Balancing Purpose and Profit
Three alumni at major brands share how they weigh social values against financial goals.
Balancing Purpose and Profit
Philanthropy Must Increase Resources, Interrogate Its Practices, Share and Shift Power, Leaders Say
In 2020, demands for racial justice will not be denied. Can philanthropic organizations meet the moment?
- By
- November 02, 2020
- Rustandy Center for Social Sector Innovation
Julia Stasch is the philanthropy executive in residence at Chicago Booth’s Rustandy Center for Social Sector Innovation and immediate past president of the John D. and Catherine T. MacArthur Foundation.
Amid urgent calls for racial justice, every major institution, policy, and program must be interrogated—and be willing to change.
Racial inequity has been “baked in” from the beginning of American history, leading to disparate treatment, lack of opportunity, and limited prospects in virtually every aspect of American life.
Philanthropy has been a player, sometimes large, sometimes small, in every major move forward in American society. Again today, philanthropy has the power and responsibility to lead. The stakes are high. Anti-Black racism continues to shape American society, leading to an enormous loss of human potential that this country needs, and making the case for sustained leadership and innovation.
To address this topic, I recently moderated “Innovating for Social Equity: New Approaches in Philanthropy,” an event featuring three field leaders: La June Montgomery Tabron, president and CEO of the W.K. Kellogg Foundation; John Palfrey, president of the John D. and Catherine T. MacArthur Foundation; and Thomas Tierney, chairman and cofounder of The Bridgespan Group.
The event, hosted by the Rustandy Center for Social Sector Innovation at the University of Chicago Booth School of Business, was the first in its new series examining efforts across the philanthropic and private sectors to tackle the seemingly intractable barriers to a society and economy that work for all. Here are four highlights of the conversation about what philanthropy can do to meet the moment.
Increase the Flow of Capital
The currency of philanthropy is money and urgent social change requires more of it. According to Tom Tierney, there are two types of big-dollar donors: heavily staffed, professional grant-making institutions and ultra-high net worth individuals and families with little ability to source, vet, and award large grants to organizations they do not know. The first are often constrained by longstanding practices, an aversion to risk, and adherence to the IRS 5 percent annual payout rule. According to Bridgespan research, for the latter, delay is easy and large-scale support for museums, universities, and hospitals is familiar and virtually risk-free.
“[There are] exciting new models that help enable capital flow. That’s the good news. The bad news is that it’s still a rounding error compared to the capital that’s out there.”
— Tom Tierney
To reach ultra-high net worth donors, Tierney pointed to the MacArthur affiliate, Lever for Change, whose mission is to move money off the sidelines—to unlock significant capital to tackle big problems. Other examples of such innovative philanthropic platforms that support large-scale donors and bring them together include The Audacious Project, and Blue Meridian Partners. “These are exciting new models that help enable capital flow,” he said. “That’s the good news. The bad news is that it’s still a rounding error compared to the capital that’s out there.” So, scaling is the next step.
John Palfrey urged reconsideration of the 5 percent rule with an approach to spending that conserves resources when investment returns are high so that support for organizations does not diminish in years when returns are low. He also reported on the recent pathbreaking effort among five foundations to make $1.7 billion in new resources available over the next three years to help stabilize and sustain the sector and to meet the demand for action to reduce racial inequities. This is possible in part by the innovative issuance of philanthropic social bonds, which take advantage of historically low interest rates to issue debt rather than reduce liquidity and the opportunity for endowment growth over time.
Look Inward
La June Montgomery Tabron and Palfrey highlighted how racial equity requires an examination of an organization’s own internal structure and practices. Tabron reported on the Kellogg Foundation’s efforts to become an anti-racist organization, including looking at the composition of the staff and leadership and how the investment portfolio is managed. She said the 95 non-grant-making percent of the portfolio should “work as hard” as the 5 percent. To make that happen, the foundation allocated a portion of the portfolio to mission-driven investments, focused on emerging investment managers, and created special funds for organizations and leaders that historically have been excluded from full participation in the financial services sector. The latest step in the process has been a request that the foundation’s investment management firms examine their own practices and consider how bias may be a factor in their investment decisions.
Palfrey shared the story of how MacArthur staff took a critical look at the foundation’s longstanding arts and culture program and saw that over time it had contributed to inequities and disproportionate support for major, white-led organizations. This eyes-wide-open examination led to the creation of a new program, Culture, Equity, and the Arts, which supports a creative network that is fully reflective of Chicago’s diverse voices.
Share and Shift Power
Demands for social and racial equity include the urgent call that foundations share and shift the power that comes from substantial resources. Palfrey explained that MacArthur’s new program was also an experiment in participatory grant-making, which shifts decision-making to members of the community, based in this instance on criteria that focus on racial equity.
“Sustainable success will happen when you step back from [a] canned approach and dig deep in community. ... You must learn from those who are leading the way to make change for themselves, their families, and communities.”
— La June Montgomery Tabron
Tabron revealed that the Kellogg Foundation’s simple theory of change is based on the belief that the answer lies in communities. That theory embraces cooperative planning, shared knowledge, leading to group action. “Sustainable success will happen when you step back from [a] canned approach and dig deep in community,” she said. “…You must learn from those who are leading the way to make change for themselves, their families, and communities.”
Acknowledge the Past
Tabron closed the session with an observation that the moment may have finally come for a program, Truth, Racial Healing & Transformation, initiated by the Kellogg Foundation in 2016. Often considered a risky and uncomfortable undertaking, its basic premise—that an understanding of the factors and conditions that support racial hierarchy is a prerequisite to healing the wounds of racism and making progress—is resonating widely.
This conversation was hosted by the Rustandy Center for Social Sector Innovation, Chicago Booth's destination for people committed to tackling social and environmental problems. Watch a full recording of the event, and learn more about the Rustandy Center here.
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