Show Summary Details

Updated to reflect the latest statistical information on charitable foundations. Bibliography and citations have also been updated.

Updated on 3 September 2013. The previous version of this content can be found here.
Page of

PRINTED FROM the Encyclopedia of Social Work, accessed online. (c) National Association of Social Workers and Oxford University Press USA, 2016. All Rights Reserved. Under the terms of the applicable license agreement governing use of the Encyclopedia of Social Work accessed online, an authorized individual user may print out a PDF of a single article for personal use, only (for details see Privacy Policy and Legal Notice).

Subscriber: null; date: 22 July 2018

Charitable Foundations

Abstract and Keywords

Foundations are private institutions for public benefit. With a long history that reaches back to antiquity, foundations are experiencing a renaissance and increased attention paid to them by policy makers. Already by the mid-1980s, observers had begun to report the end of the relative decline in the overall size and importance of the foundation sector—a trend that had characterized the previous decades. Some analysts suggest the possibility of a new, third “foundation wave,” after a first growth period in the late Middle Ages, alongside the rise of commerce and finance, and a second period of growth in the late 19th century, following the industrial revolution. Political stability, an increase in demand for social, educational, and cultural services of all kinds, and economic prosperity are certainly significant factors behind this growth. Yet a more immediate reason is the way in which foundations have been suggesting themselves as instruments of welfare state reform in the broadest sense.

Keywords: charity, philanthropy, nonprofit sector, grant-making foundations, operating foundations, community foundations

History

Foundations are private institutions for public benefit. Foundations have a long history, reaching back to antiquity, and with equally long traditions in most world cultures. Despite this long heritage, the modern foundation is often associated with the rise of the large grant-making foundation in the United States in the early 20th century, and its replication in other parts of the world, in particular in Europe after the Second World War. In terms of numbers and material wealth, the foundations of most developed market economies are a product of the period since the 1970s, having benefited from prolonged economic prosperity, political stability, and, in many countries, more favorable legislation. In this sense, as nonprofit institutions, foundations are both old and recent phenomena.

In the United States, the political theory that most clearly defines a place for foundations and other nonprofit organizations is pluralism. The U.S. nonprofit sector came with the separation of church and state and with the 19th-century development of autonomous corporations. Foundations were a late addition to the U.S. nonprofit sector. As stewards of significant charitable funds, U.S. foundations can reinforce pluralism by devoting resources to the interests of minorities of many kinds—be they religious or cultural, those demanding educational or artistic excellence, minorities concerned with a rare disease, or those with an unusual hobby. But foundations may also act to reduce pluralism, if they disproportionately privilege only certain kinds of causes or needs.

Definitions

In its most basic form, the foundation idea is based on the transfer of property from a donor to an independent institution whose obligation it is to use such property, and any proceeds derived from it, for a specified purpose or purposes over an often undetermined period of time. Since this process involves the transfer of property rights, most countries provide a regulatory framework that usually also holds some measure of definition.

Under common law, foundations typically take the form of a trust, which is, legally speaking, not an organization but a relationship between property and trustees. Most common law countries use this rudimentary legal definition, and leave the actual development of foundation law to case law. One exception is the United States, which, in 1969, established a precise, though negative, definition: Foundations are tax-exempt organizations under section 501(c) (3) of the International Revenue Code that are neither public charities nor otherwise exempted organizations. This means that under American tax law, foundations are those charitable organizations that receive most of their resources from one source and are as such considered to be donor controlled. By contrast, in civil law countries, the essence of a foundation, as a legal personality, is the presence of an independent endowment. The emphasis on endowment puts foundations apart from the other major type of nonprofit organization in civil law systems: the membership-based association. In other words, while foundations are endowments, associations are based on membership.

A basic definition sees foundations as private assets that serve a public purpose, with five core characteristics (see Anheier & Daly, 2007):

  1. 1. Nonmembership-based organization based on an original deed, typically signified in a charter of incorporation or establishment that gives the entity both intent of purpose and permanence

  2. 2. Private entity institutionally separate from government, and “nongovernmental” in the sense of being structurally separate from the public sector

  3. 3. Self-governing entity equipped to control its own activities in terms of internal governance procedures

  4. 4. Nonprofit distributing by not returning profits generated by either use of assets or the conduct of commercial activities to its owners, members, trustees, or directors

  5. 5. Serving a public purpose that goes beyond a narrowly defined social group or category, such as members of a family, or a closed circle of beneficiaries.

Typology

The nature of the assets can be stock and other shares in business firms, financial, real estate, patents, and so on. There are basic categories that group the most common types of foundations according to type of activity and type of founder.

Type of activity

  1. 1. Grant-making foundations, that is, endowed organizations that primarily engage in grant making for specified purposes.

  2. 2. Operating foundations, that is, foundations that primarily operate their own programs and projects.

  3. 3. Mixed foundations, that is, foundations that operate their own programs and projects and engage in grant-making on a significant scale.

Other types include the family foundation, grant-seeking foundation, church foundations, fund-raising foundations, and political foundations, among others.

Type of founder

  1. 1. Individual, that is, foundations founded by an individual, group of individuals, or family whereby donors bring their private assets into the foundation, for example, the Rockefeller Foundation in the United States or the J.R. Rowntree Foundation in the United Kingdom.

  2. 2. Corporate foundations, such as the company-related or company-sponsored foundation based on corporate assets, vary by the closeness to the parent corporations in terms of governance and management, for example, the Vodafone Foundation or the Toyota Foundation.

  3. 3. Community foundations, that is, grant-making and operating foundations that pool revenue and assets from a variety of sources (individual, corporate, public) for specified communal purposes, for example, the Cleveland Foundation or the California Community Foundation.

  4. 4. Governmentally linked foundations, that is, foundations that either are created by public charter or enjoy high degrees of public sector support for endowment or operating, for example, the German Environmental Foundation.

Over 76,545 U.S. foundations had assets of $590.2 billion and paid out $45.8 billion in 2009 (Foundation Center, 2011). Nearly 9 out of 10 U.S. foundations are independent grant making, and 6% are operating foundations. Community foundations make up only a relatively small segment of U.S. foundations (1%), as do corporate foundations with 3.6%. However, in terms of assets, community foundations are relatively larger, commanding 8.44% of total assets. Over time, the composition of the U.S. foundation sector has not changed much, although community foundations and corporate foundations have become relatively more numerous. Like the United States, Europe experienced a veritable foundation boom, with the majority of its estimated 80,000-110,000 foundations, on an average of about 4,500 per country, having been created in the last two decades of the 20th century (Anheier, 2001; Anheier & Daly, 2007). Specifically, there is an estimate 15,000 in Germany, around 14,000 in Denmark, approximately 10,000 in Switzerland, 6,000 in Spain, 3,008 in Italy to lows of 600 in Austria, 601 in Estonia, some 400-600 foundations in Portugal (excluding foundations registered under canonical law), 500 in Greece, and 107 in Ireland (Anheier & Lam, 2012).

Functions

A major distinction is made between charity, as the alleviation of suffering, and philanthropy, which refers to a longer-term, deeper commitment to public benefit that seeks to address the roots of social problems. This distinction was important in the emergence of the modern philanthropic foundation that emerged in the United States in the early 20th century, with the Rockefeller Foundation and Carnegie Corporation as prime exemplars.

Through the first half of the 20th century, many of the best-known foundation leaders emphasized a “scientific approach.” They hoped that strategic investments in scientific, medical, and even social research would yield solutions to many human problems. They also hoped new research universities and reformed institutions of collegiate and secondary education would produce researchers who would find solutions and effective innovators who would put solutions into practice. The philanthropy model sees foundations as enabling institutions and as social entrepreneurs. It is important to note that many donors continued to favor the charity model, and that their numerous foundations continued ancient traditions of support for immediate relief and for religious and other cultural institutions.

In recent years, analysts have further specified the various roles associated with either charity or philanthropy, and although some overlap exists among them, they are distinct enough and lead to different implications for foundation impact and policy (Anheier & Hammack, 2010).

Charity

  1. 1.Complementarity, whereby foundations serve otherwise under-supplied groups under conditions of demand heterogeneity and public budget constraints.

  2. 2.Substitution, whereby foundations take on financial functions otherwise or previously supplied by the state, particularly local government. In this role, foundations substitute for state action, and foundations become funders of public and quasi-public good provision.

Philanthropy

  1. 1.Innovation and the promotion of innovation in social perceptions, values, relationships, and ways of doing things has long been a role ascribed to foundations. We note that innovation can yield both positive and negative outcomes and impacts. Some innovations are not only controversial but become generally accepted as unfortunate or worse, while others yield sustained and positive change.

  2. 2.Social and policy change, whereby foundations promote structural change, give voice, fostering recognition of new needs, and seek empowerment for the socially excluded.

Other roles suggested in the literature that cut across the charity versus philanthropy distinction and that are less relevant in the U.S. context are

  1. 1.Preservation of traditions and cultures, whereby foundations preserve past lessons and achievements that are likely to be “swept away” by larger social, cultural, and economic forces, or forgotten.

  2. 2.Redistribution, whereby foundations engage in, and promote, voluntary redistribution of primarily economic resources from higher- to lower-income groups.

  3. 3.Asset protection, whereby a foundation keeps funds for use by other institutions that cannot protect or manage their own assets due to political factors, a perceived lack of financial capability, or some other reason.

In the field of social welfare, U.S. foundations have provided funding to help meet social, economic, educational, and health needs by supporting organizations and individuals, and also by influencing social policies. In the United States, foundation support for social welfare has traditionally ranked third in terms of funder priority behind education and health, although at times has been the highest priority among leading funders such as the Lilly Endowment, the Annie E. Casey, Charles Stewart Mott Foundation, or the Ford Foundation. The role of foundations in social welfare evolved from a more charitable role (offering short-term solutions on case-by-case basis) in the 19th century, to a more philanthropic role (investing in research, helping to create collaborations, and focusing on ways to increase self-sufficiency of grantees) in the mid-20th century to that of policy advocate in recent decades.

Although foundations are not large enough to replace government funding or to redistribute wealth in a significant way, they sometimes do seek to act in these ways, and can have some stabilizing, even self-empowering impact on local communities and in fields with severe public budget problems (for example, taking care of welfare functions in select communities and for select causes such as low-income housing).

Trends

Current discussions of the need for a new philanthropy tend to focus on ways and means to capture more private money for public good, on using such funds more efficiently (Frumkin, 2006), and on becoming more transparent and accountable (Fleishman, 2011). With endowment values at historically high levels in most developed market economies since the late 1980s, foundations have been exploring new ways to gain greater leverage and impact. What is more, both nationally and internationally, new forms of philanthropy are emerging, with donor-advised funds, donor-designated funds, and e-philanthropy, that is, the use of the Internet for making donations, as prime examples. These new forms are likely to add new momentum to philanthropy.

References

Anheier, H. (2001). Foundations in Europe: A comparative perspective. In A. Schlueter et al. (Eds.), Foundations in Europe (pp. 35–81). London/Gütersloh: Directory of Social Change/Bertelsmann Foundation.Find this resource:

    Anheier H. K., & Daly, S. (Eds.). (2007). Politics of foundations: A comparative analysis. New York, London: Routledge.Find this resource:

      Anheier, H., & Lam, M. (2012). "Foundations and the third sector in international perspective - an overview." In The Europa International Foundation Directory, 21st edition. London and New York: Routledge.Find this resource:

        Anheier, H., & Hammack, D. (Eds). (2010). American foundations: Roles and Contributions. Washington, DC: Brookings Institution Press.Find this resource:

          Fleishman, J. (2011). The foundation: A great American secret—how private wealth is changing the world. Durham, NC: Duke University Press.Find this resource:

            Foundation Center. (2011). http://foundationcenter.org/gainknowledge/research/pdf/fy2011_highlights.pdf

            Frumkin, P. (2006). Strategic giving: The art and science of philanthropy. Chicago and London: The University of Chicago Press.Find this resource: