Editors’ Note: Sam Gill provides an outline of a new theory of the general purpose foundation, adapted from a recently published article in The Foundation Review, “Why Foundations? The Theory and Strategy of the General-Purpose Foundation.”
Much of the important theorizing about general-purpose foundations over the history of this strange animal in the American institutional landscape has been functionalist, focused on what foundations do rather than what they are.[1] This line of inquiry hews to a time-honored pragmatic tradition in U.S. political theory and legal jurisprudence, a tradition that treats the American variant of the liberal project as quite literally a project—one that we make up as we go.
There are good reasons to examine general-purpose foundations in context. Historically, foundations emerged from a highly particular and localized set of circumstances. It’s also true that general-purpose foundations are intrinsically bound up with specific individuals. They are, after all, a form of estate.
These facts of the matter do not, however, preclude a more general analysis of what a foundation is. Despite their inherent variations, general-purpose foundations are not the proverbial million flowers blooming, each in its own way. Because general-purpose foundations legally inscribe private intentions into our social regime, they must have a mode that is categorically general—the thing that the law permits (or facilitates).
As I recently explored at length in The Foundation Review,[2] I believe a stronger theoretical grounding of general-purpose foundations—one that also yields a more expansive and useful account of how foundations should behave—derives from conceiving of foundations as a mode of capital. This is ultimately the way our legal regime recognizes foundations: as tax exempt endowments subject to minimal distribution requirements. As I wrote in that article:
As a capital mode, philanthropy coalesces into a single institutional form two distinct logics. From the perspective of capital aggregation, a foundation is a creature of the market. The foundation owns securitized assets traded in capital markets to harness the time value of money to achieve growth. From the perspective of capital distribution, a foundation is a creature of the state — not in the sense that it is formally connected to the state, but in the sense that it is morally accountable to the same thing the state is: the common good. A foundation is fundamentally and essentially public serving in the way that a private corporation is not.
Recognizing that foundations embody this duality of liberal spheres (market and state) has profound consequences for what we understand foundations to be.
Let’s start with the market.
As creatures of the market, foundations are exceptional in their lack of external owners or constituents, beholden to little aside from the intent of the founder. This makes foundations radically independent on the one hand and, on the other, strikingly partial. Foundations are accountable to no one (other than themselves) and yet bound to focus on some issues rather than others, as dictated by the founder.
In addition, foundations as creatures of the market must seek to maximize the use of their resources. This is because the legal incorporation of foundations as a mode of capital enables them to confiscate capital from the market (via the proportion of net assets devoted to charitable purposes) and from the state (in the form of foregone tax revenue). This implies that general-purpose foundations must demonstrate that they have more efficiently allocated capital toward the production of social value than either public expenditure or taxable private expenditure.
In essence, general-purpose foundations can be held accountable for one thing: efficiently optimizing their overall unaccountability.
Now let’s move to the state.
Few theorists articulate as lucidly the democratic justification for foundations as Stanford political scientist Rob Reich. In his essential essay “On the Role of Foundations in Democracies,” Reich boils the democratic value of foundations down to two “arguments” on behalf foundations: the “pluralism argument” points to how foundations can fill gaps in the production of public goods (a core state function) by funding things the state either will not (due to popular opinion) or cannot (due to the necessary tradeoffs); the “discovery argument” points to how the intrinsic independence of general-purpose foundations enables them to take risks in exploring new ways of addressing social problems that the state cannot reasonably justify.
Looming behind the dual logics of market and state that inhere within foundations is a third and implicit characteristic: the essentially limited quantity of capital within any one general-purpose foundation (or, indeed, the sector of philanthropy as a whole). As I wrote in The Foundation Review, “This reality fatally undermines almost any pretensions foundations may have to replace or even supplement public and private expenditure. If foundations are seeking to ‘solve’ major societal challenges at this scale and under these conditions, then they are implicitly seeking to somehow adjust, directly or indirectly, flows of public and private capital.”
When adding up these three characteristics of foundation as a capital mode, a new picture of foundations’ democratic function begins to resolve. Foundations are independent, partial, social value maximizers (market logic) who support neglected public goods and illuminate new solutions (state logic), while constrained by limited resources.
Taken together, these attributes make foundations demonstrators. Due to their limited resources, foundations must work on one corner of a problem, whether that means physically locally or conceptually narrowly. But they must do so in a way that maximizes the social value of their investments.
(And, as I discuss at greater length in The Foundation Review, I would argue that a modal view of foundations ultimately collapses the distinctions between Reich’s pluralism and discovery arguments into one: whether demonstrating a different possible allocation of public goods or a new way of ordering the society, foundations simply demonstrate alternative social, political and economic configurations).
All of this implies that foundations ultimately need to connect intervention at a microscopic plane with impact at a macroscopic plane. The missing link between these two distinct altitudes is demonstration: the illumination and illustration of what social goods matter, the nature of those goods, and ways to produce them (or to address their absence). This demonstration can then inspire the public or private provision of valuable social goods at a societal scale. This is made possible by the way in which foundations, through demonstration, have adjusted the risk profile of action.
Put more simply, foundations demonstrate the things that capital operators at scale, whether public or private, cannot do today in order to shape and influence what capital allocators at scale can (and ideally will) do tomorrow. They do this by undertaking localized action that produces new social knowledge—or ideas—about how to realize what matters in the liberal polity.
The role of the general-purpose foundation in a democratic society is to expand our collective imagination—to think the collective thoughts that we cannot conjure within the dominant cultural and institutional logic of our democracy at any given moment in time.[3]
Importantly, this understanding of the general-purpose foundation does not merely improve the theoretical prospects of foundations within the liberal project. It also commends a specific strategic doctrine, one comprised of five principles:
- Pursue Leverage
- Account for Opportunity Costs
- Optimize the Totality of Assets
- Seek New Ideas
- Differentiate
First, the imperative to maximize suggests the pursuit of “leverage.” In finance, leverage describes the acquisition of third-party assets in order to achieve a significant multiplier in the total return profile of an investment. If foundations are demonstrators seeking to maximize their impact, then they should be making investments that have the potential to produce social value beyond the initial point of intervention.
This leverage could be financial, such as enabling greater public or private investment in the production of some social good. But it could also be intangible, such as by attracting greater public attention to some issue or by enabling some intervention to live beyond the initial foundation investment.
Second, maximization also requires accounting for opportunity costs. By definition, nearly everything and anything a foundation might do is “good,” at least by someone’s lights. The question for foundations is whether a grant or other activity is better than the next best use of their capital, whether by themselves or by someone else. Foundations should always seek the highest and best use of each dollar. That something is merely morally praiseworthy is insufficient to justify the capital confiscation foundations represent. The allocation of foundation capital must be morally superior to what the market or state might have done with the same quantity of resources.
Third—also demanded by the axiom of maximization—is the importance of putting all of a foundation’s assets to work. As a mode of capital, foundations are not just the grants they make, but a whole set of tangible assets (endowment, people, physical plant, etc.) and intangible assets (expertise, reputational capital, convening power) that can all be devoted to impact, at least theoretically.
Most institutions, whether public or private, tend to be organized around the thing that is produced. For foundations, grants are often implicitly regarded as the “product” to which all other activities are subordinated. While grants remain an important lever for social change, today foundations are demonstrating other ways their assets can be put to work. The now mainstream movement for impact investing, which seeks to mobilize endowment capital in service to mission aims through return-seeking investments, is one example.
But foundations are picking up other tools as well, including non-grant charitable operating activities, such as thought leadership, convening and partnerships. All of these activities are socially salient if the real object of production for philanthropy is new ideas.
The fourth principle is to expressly seek new ideas through strategies designed to fill key gaps in social knowledge. The greatest impediment to the application of capital is uncertainty. Is something important enough to command the attention of the constituencies that properly drive public and private investment? Do we understand enough about a problem to tackle it effectively? Are there known solutions with the requisite track record?
As a strategic doctrine, foundations should organize their activities to pursue meaningful answers to these questions because, by definition, they proffer the potential for leveraged social returns. And, just as in the hard sciences, null results—while disappointing—are useful. Knowing what definitively cannot result in the desired production of a social good is not as helpful as knowing what does. But it’s a step in the right direction.
Fifth, foundations should seek to differentiate. This doctrine is borrowed from business, in which competition arbitrates the allocation of economic rents. Philanthropy and civil society more generally are typically more collaborative than competitive, more reciprocal than adversarial.
But the point here is not to differentiate in order to dominate but to be additive. The marketplace for ideas is crowded and noisy. Attention is in short supply. To make a contribution to new social knowledge that is not distinct is, in a sense, an inefficient use of limited resources.
This strategic doctrine flows from and reflects in concrete terms the logic of the general theory drawn from the longer treatment in The Foundation Review and advanced in this essay.
The theory was:
Foundations are independent, partial social value maximizers (market logic) who support neglected public goods and illuminate new solutions (state logic), while constrained by limited resources.
The corresponding strategic doctrine is:
Foundations should seek to maximize their impact by investing in the production, distribution, and adoption of new knowledge through a differentiated portfolio of activities that optimizes the use of their assets.
Importantly, this approach to understanding what philanthropy is (a particular mode of capital) and therefore what philanthropy should do (produce new knowledge in distinct ways) suggests a different mental model than the one commonly understood within the walls of many major foundations.
Rather than conceiving of foundations as definitionally in the grantmaking business, this mental model locates foundations in the ideas business. Grants were once nearly the totality of that business—and they still have the leading role in the story. But they are no longer the whole story.
What changed?
It’s not because contemporary program officers are cleverer than their forbears. It’s because the world has changed and, in particular, the world of ideas has changed.
For most of the first 120 or so years foundations existed, the people who ran and worked in them were of the same socioeconomic milieu as those who walked the other corridors of power in U.S. society. Happily, that is ever less the case.
The institutions of power themselves are becoming more diverse, however sclerotic and halting the progress. Major foundations especially now reflect in their boards, leadership and staff a much greater degree of diversity by gender, race and ethnicity. This has had a demonstrable impact on how foundations work—and, most especially, the focus of their work.
The landscape of ideas has also become more complicated, confused and fractious. Some of this is to be celebrated. Many voices previously consigned to the margins can now bypass the legacy gatekeepers of old. But so can those who seek to confuse or pollute our public culture. And, even among those operating in good faith, the mix of media used to bring ideas into discussion and contest are less and less amenable to the degree of nuance invariably required to manage the production of social goods in a complex, democratic society.
Theory has roles that are both retrospective and prospective. Retrospectively, this theory can help us make sense of why we allow the private wealth aggregation and allocation to the degree embodied by American general-purpose foundations. We do so because we recognize the value of an institution that can challenge the limits of our collective democratic imaginations.
Prospectively, this theory can help us understand how foundations can fulfill that function in a changed and changing world. The constitution of our societal imagination is radically changed in a more diverse, complex and digitally-mediated society. To keep up, the tools devoted to expanding that imagination must become richer, more diverse and more ingenious in their application.
-Sam Gill
Samsher (Sam) Singh Gill is the President and CEO of the Doris Duke Foundation.
[1] See generally: Peter Frumkin, Strategic giving: The art and science of philanthropy (Chicago: University of Chicago Press, 2006); Waldemar Nielsen, The big foundations (New York: Twentieth Century Foundation, 1972); Rob Reich, “On the role of foundations in democracies,” in Reich, Chiara Cordelli, & Lucy Bernholz (Eds.), Philanthropy in democratic societies: History, institutions, values (Chicago: University of Chicago Press, 2016); Emma Saunders-Hastings, Private virtues, public vices: Philanthropy and democratic equality. (Chicago: University of Chicago Press, 2022); Warren Weaver, U.S. philanthropic foundations: Their history, structure, management, and record (New York: Harper and Row, 1967).
[2] This essay adapts in large part that article: Why Foundations? The Theory and Strategy of the General-Purpose Foundation. The Foundation Review, 15(4). https://doi.org/10.9707/1944-5660.1680
[3] At the Doris Duke Foundation, for example, we have pursued concentrated efforts intended to demonstrate within our specific areas of interest the social potential of alternative approaches. For example, our recently launched initiative OPT-IN for Families explores through four demonstration sites how the child protection system might shift from a reactive approach to a preventative approach to issues of child abuse and neglect. Similarly, our Performing Arts Technologies Lab has been designed to explore how digital technology could reshape the production, distribution and consumption of the performing arts.
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