In my last post I pointed out that although Americans in general love their foundations, the US Congress seems to hate them. I based this conclusion on the long series of punitive laws passed against foundations, beginning with the Tax Reform Act of 1969 and extending up to the present day.

Granted, there have been occasional abuses by foundations – with 80,000 of them out there, how could it be otherwise? But compared to other sectors of the American polity the best word for these carryings-on would be “trivial.” Setting aside ideological attacks from left and right, it’s fair to say that more damage has been done to the US tax coffers by sketchy home office deductions than by foundation shenanigans.

Still, not everyone loves foundations. On the political far left, where envy of the rich is endemic, foundations are despised. And on the populist right, foundations are often perceived as bastions of irresponsible privilege that give capitalism a bad name. Amusingly, people on the right are often furious about the left-leaning proclivities of most of the large foundations,(1) while people on the left sputter in inarticulate fury on the rare occasions when a large foundation leans rightward.(2)

Congress has its fair share of foundation-haters, among whom Sen. Chuck Grassley (R. Iowa) has probably been the most energetic over the years. And Grassley’s position on the Senate Finance Committee gives him leverage over legislation targeted at foundations.

Still, anti-foundation types in Congress aren’t particularly more numerous, percentage-wise, than they are in the general population. We can imagine the Grassleys of the world blocking positive legislation in favor of foundations, but how in the world can this tiny, extreme minority pass punitive legislation over and over again?

The answer is that foundations are simultaneously impotent and isolated in Congress. Their impotence arises out of the no-lobbying rule I mentioned in my last post. Virtually alone in the US, private foundations can’t “petition the Government for a redress of grievances,” the First Amendment not withstanding. Indeed, if a foundation officer happened to stop by his local Congressional Representative’s office to say hello, the foundation could theoretically be sanctioned (taxed) for violating the no-lobbying rule.(3)  As a result, individual foundations have virtually no voice in Congress.

Instead, the foundation community has left its fate in the hands of the Council on Foundations, a nonprofit membership association in Washington, DC.(4) The COF is supported by member dues, and since the huge majority of dues is paid by a small handful of the country’s largest foundations, COF is dominated by and beholden to those organizations. Indeed, if it weren’t for large grants from the Rockefeller and Ford Foundations in the late 1950s and early 1960s, the COF would not even exist in its current configuration (it began as an association of community foundations).

In other words, of the 80,000 foundations in the US, only about 1,700 are members of COF and, of those, only about 100 matter. Recognizing its impotence in Congress, the COF focuses on flaunting so-called “best practices” in the foundation world, somehow imagining that this will curry favor with Congress. Many of these practices are innocuous enough, but some verge on the over-the-top Politically Correct, a process that sucks up to the left-leaning giants who pay the dues but that antagonizes everyone else. One of the glories of the American foundation world is its quirkiness, something COF does its best to squelch.

The foundation world is also extremely adept at isolating itself from everyone else, including its natural allies. The reason seems to me to have something to do with foundation executives’ discomfort rubbing shoulders with people who might ask them for a grant.(5) This is understandable, given that the answer will almost always have to be “No,” but unfortunately this allergy both isolates foundations from potential friends and annoys the hell out of everyone. And even when a foundation executive does sit down with a potential grantee, no one will ever tell him or her the truth about anything.(6)

Here are two anecdotes illustrating foundations’ knack for shooting themselves in the foot:

  • Many years ago, when we were organizing the Pittsburgh RAG,(7) we engaged in long and rather bitter discussions around the question whether the local community foundation (the Pittsburgh Foundation) could be a member. The trouble with the community foundation was that it not only made grants, it also raised money – including, possibly, from us! Yet, how idiotic it would have been to exclude the community foundation.
  • I once worked at a foundation that refused to publish its address or phone number. If you managed to ferret out the phone number and had the intrepidity to call us, you didn’t get connected to a nice person who asked how they could help you. No, the phone was answered by a surly guard – yes, a guard! – who merely barked out the last four digits of the number you’d dialed. Maybe you somehow tracked down our address and submitted a proposal. You heard nothing for many months. No nice acknowledgement, no polite request for additional information. As far as you knew, your proposal had been lost in the mail. Finally, after a long time (the foundation’s board met only twice a year), you received a one-sentence letter saying, “No.” Talk about quirky!

One alternative for the foundation world is to keep doing what it’s doing – and eventually  get legislated out of business. That’s been the approach of the foundations since at least 1969. According to COF’s own version of its history, in 1969 “Shock waves go through the foundation field as … the Tax Reform Act of 1969 … for the first time levies serious restrictions on private foundations.”(8) COF viewed this as a wake-up call, but really it was firm notice that the foundation field was asleep-at-the-switch.

And the field continued to snore away. In 1970 the report of the Committee on the Foundation Field, chaired by John W. Gardner, made several recommendations:

  • developing and implementing standards of good practice;
  • improving communications with government agencies;
  • strengthening the influence of grantmakers in national policymaking;
  • increasing public understanding of foundations; and
  • merging COF with the Foundation Center.(9)

The first recommendation has been followed – with a vengeance – but the rest were largely ignored.(10)

But there’s an alternative path. Foundations could say to themselves, “OK, we’ve ridden the best-practices nag to death for the last forty-five years and where’s it got us? It’s time to lock and load.”

Of course, the very notion of the foundation world going to war, even to save its own skin, is almost too funny for words. Still, if war is the only answer, here’s how I see the battle plan forming up:

  • Start by eliminating the no-lobbying rule. Here there are attractive potential battlefields both in Congress and in the courts. As I noted in my first post, the US Supreme Court looks askance at restrictions on First Amendment rights.
  • Once foundations can lobby, they need to establish a well-funded “government relations” group headed by some heavyweight who knows his or her way around Congress.
  • Finally, foundations need to prioritize the restrictions they want modified or eliminated. Personally, I would start with the 5% spending rule and work backward from there, but each to his own.

Marginalized philanthropoids of the world, let’s roll!


(1) The right is especially outraged when a foundation abandons the beliefs of its conservative founders and lurches sharply to the left, as memorably happened at Ford and MacArthur.

(2) See, e.g., the New York Times front page article on the Walton Family Foundation’s support for charter schools, which came out between my last post and this one. A Walmart Fortune, Spreading Charter Schools, New York Times, April 25, 2014, p. 1. The Times would also have many fewer pages if it didn’t have the Koch brothers to rage about.

(3) The Council on Foundations notes that, “Private foundations … may meet with legislators and legislative staff, but must use caution when considering topics to discuss with legislators.” COF web site at, accessed 4/29/14.

(4) Full disclosure: I’ve served on several COF committees over the years.

(5) Definition of a foundation: “A large pile of money surrounded by sucking sounds.” (Dwight McDonald, I think.)

(6) “When you become a foundation president you’ve had your last bad meal and your last honest conversation.”

(7) I.e., a “regional association of grantmakers.” The one in Pittsburgh is called Grantmakers of Western Pennsylvania.

(8) COF web site at, accessed 4/29/14.

(9) Ibid.

(10) The important report of the Filer Commission came out in 1975, but the Commission (technically, the Commission on Private Philanthropy and Public Needs) was launched and funded by John D. Rockefeller III, not COF.

Next up: You Can’t Get There from Here

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Please note that this post is intended to provide interested persons with an insight on the capital markets and is not intended to promote any manager or firm, nor does it intend to advertise their performance. All opinions expressed are those of Gregory Curtis and do not necessarily represent the views of Greycourt & Co., Inc., the wealth management firm with which he is associated. The information in this report is not intended to address the needs of any particular investor.