COVID-19 Crisis: Philanthropy faces a major dilemma as need increases but endowments shrink

 

Elika Roohi and Charles Keidan

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As COVID-19 rapidly spreads through the world, it has created in its wake a pressing need from almost every segment of society. The world of philanthropy has made donations both large and small to fight coronavirus and its effects. But facing the possibility that the current situation is one that will last for months – perhaps up to two years – some foundations are asking themselves how they can offer sustainable support.

‘What nonprofits need most right now is more money,’ asserted a recent joint statement from seven leading US philanthropy support organisations, including the Council on Foundations, and published by the Center for Effective Philanthropy.

‘Without rapid and meaningful infusions of additional resources, many organizations will have to dramatically pare back programs and services or fold their operations entirely – and the results for the economy, vulnerable populations, communities, and progress on crucial issues will be devastating.’

However, coronavirus is presenting an economic threat on a scale many believe will go far beyond the 2008 recession. And already, many foundations that rely on endowments have taken a ten to 20 per cent hit in the last several weeks according to Max Rutherford of the UK’s Association of Charitable Foundations. ‘Even maintaining spending at previously expected levels is equivalent to a substantial increase in spending relative to endowment value,’ he noted.

Charities may also be facing a decrease in donations from other sources too. According to Savanta research conducted at the end of March, 42 per cent of people said COVID-19 has already decreased their disposable income, a rise of five percentage points in the span of a week.

Susan Pinkney, Head of Research at Charities Aid Foundation, noted: ‘Unsurprisingly, working age people reported that they will be giving less money to charity and are the most likely to say they are very worried about their finances.’

This prevailing uncertainty may help to explain why not all foundations have been rushing to allocate additional funding to tackle the crisis facing charities and communities, even though the need is great. While there have been foundations offering additional support, many appear to be leaning toward assuring flexibility for their grantees rather than increased financial assistance. A pledge inspired by the Ford Foundation calling for loosening grant restrictions has been signed by almost 650 foundations. And a similar call in Europe coordinated by the EFC and Dafne has received support from over 160 foundations.

Can a plan for a recession meet the challenges of a pandemic?

Alongside rousing calls for solidarity across the sector, Larry Kramer, President of the William and Flora Hewlett Foundation recently delivered a more pessimistic assessment. In a sobering message to Hewlett’s grantees and partners, he confirmed that existing commitments will be honoured but that the Foundation’s grantmaking budget will face significant cuts in 2021 from funds it would have included as unallocated.

‘For our part, we want to do as much as we can to support our nonprofit partners, consistent with both immediate and long-term needs. But I cannot sugarcoat the matter, because no one is immune from what’s happening. The impact of the economic shutdown on our endowment’s value has already been significant, and we must be prepared for difficult times and the prospect of a slow or erratic recovery.’

After the recession in 2008, the Hewlett Foundation adopted a plan for weathering future economic downturns, guided by two considerations, which today may pull in different directions: the welfare of its current grantees and the long-term condition of its endowment. ‘Solving the problems we seek to address takes time and depends on efforts that pay off slowly,’ Kramer wrote.

Conversely, the Wallace Global Fund announced this week that it would be paying out 20 per cent of its $100 million endowment in 2020 in response to COVID-19 – a significant increase over the five per cent minimum required by US law. It will also be making immediately available $1.2 million in grants to organisations working to solve the public health and economic crisis.

‘Now is no time for foundations to stand by or to shelter endowments that exist to serve the public good,’ said Wallace Global Fund Executive Director Ellen Dorsey. ‘After the 2008 market collapse, philanthropic gifts dropped by more than 15 per cent. That simply cannot be the case again – it is both immoral and a failure to honour the mandate that foundations have to serve society.’

The needs created by COVID-19 are likely to be different as well as greater than those created by a recession – a reality that many foundations around the world are contemplating as they formulate their current response.

‘On the one hand, many German foundations feel currently reminded of the financial crises in 1987 and 2008,’ said Managing Director of German consultancy Wider Sense, Michael Alberg-Seberich. ‘On the other hand, COVID-19 is different, and therefore the leadership of foundations are still observing and talking to their advisors.’

Now is precisely the moment for foundations to cast aside their traditional norms and approaches, the joint statement published by CEP asserted. The statement concludes with this call: ‘Unprecedented challenges require unprecedented responses.’

An ongoing situation and an ongoing conversation

In a situation as far-reaching and fast moving as coronavirus, the best choice in most situations is unclear.

‘The conversation in foundation boardrooms will be ongoing,’ said CEP President Phil Buchanan. ‘Foundations will be monitoring their situations and that of their grantees and the issues and communities they care about. The assessment of what is the best path forward may be different in one or two or three months than it is today.’

Alberg-Seberich echoed a similar sentiment: ‘So far no foundation has announced publicly cuts of grants and there is a growing willingness to get involved in relief and recovery efforts. Still, there is a growing sense of being cautious. Since some of Germany’s largest foundations own companies, this can be an advantage or disadvantage at this time.

‘Overall, it is still calm in the sector and we will have to see how the next weeks, months develop for foundations and their investments.’

Buchanan noted that he had seen most of the largest foundations use their unallocated funds to respond to COVID-19 rather than go beyond their initial budgets; however, he thinks the conversation – and the decisions – are likely to be evolving.

‘This is an extraordinary time, and the cost of operating by conventional norms in an extraordinary time are high,’ Buchanan said.

‘What is the cost to communities of organizations that have built up trust with people for decades not being able to make it through this time? What actually is the right way for a foundation board to demonstrate fidelity to mission?

‘My sense is that we will see some of the larger foundations decide that this moment requires a different response.’

Elika Roohi is digital editor at Alliance magazine, and Charles Keidan is executive editor.

Tagged in: Coronavirus


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