Benevolence, as well as prudence
In difficult times, it is the responsibility of philanthropy to be there for those in need.
The current crisis on Wall Street and reverberating in markets worldwide is creating significant problems and challenges in every corner of the global economy, and philanthropy is no exception. Many foundations and endowments are experiencing sharp and substantial decreases in the value of their long-term investments, thereby imperiling the amounts they may have available for future distribution.
Sharply reduced corporate profits, lower stock prices and corporate bankruptcies are also problematic, particularly when they mean well-intentioned but cash-strapped companies may no longer be able to make good on philanthropic commitments made when they were in better financial shape. And the loss of jobs and general despair caused by the contracting economy threatens to make smaller contributors less able and/or less inclined to provide annual support at their usual levels. For philanthropies in Israel, currency fluctuations add another layer of concern.
Yet, as frightening and overwhelming as times like these may be, it is important to remember that the non-profit and NGO world has been in similar situations before and has always managed to survive, and even thrive, by adapting to a changed world.
After deep plunges in both 1987 and 2001, U.S. stocks fought their way back to previous levels in less time than many expected. Even if the underlying fundamentals of the current financial crisis are different than what led to the other precipitous declines, the lessons previously learned are still quite helpful.
Then, as now, the key to emerging from the current turbulence bruised but unbroken was to be both socially and fiscally responsible.
For both large and small contributors, social responsibility is a motivating force, one we know remains present even in times of financial stress. It is reassuring to remember in times like these that the small savers and investors upon whom charities rely for the bulk of their support are committed to giving as part of the fabric of their lives, and will continue to contribute to the causes most dear to them. (In 2006, 83 percent of total contributions in the United States came from donations from individuals, including bequests.)
Fortunately, too, many American endowment funds and foundations learned from past experience and have prepared themselves for precisely these kinds of market conditions.
One way many endowment funds and public charities have chosen to address market volatility is by adopting spending policies based on an average of the value of their assets over a period of years, as opposed to distributing funds each year based solely on the value of their assets at that particular moment in time.
In practice, this means that a year in which a fund with a "rolling average" spending policy makes little or, as is likely in 2008, actually loses money, the amount it will distribute the following year should not be significantly less than what it distributed in the prior year.
And while most private foundations operate under different distribution requirements, many approach market fluctuations with a similar mindset and adjust their annual giving accordingly. This practice introduces some "rationality" into the distribution process, and helps both the grantors and recipients of philanthropic support to avoid having to make huge changes in the operations on an annual basis.
Of course, many philanthropic institutions will do even more to help. They will recognize the severity of the situation, and they will dig deeper into their pockets and increase their spending - either because their existing spending policy allows for such exceptions or because their commitment to supporting their grantee partners outweighs their allegiance to their existing spending policy.
And, for those foundations that are actually spending down their principal rather than preserving it for perpetuity, this is an especially auspicious moment to increase contributions to the non-profit sector.
There is no doubt that these are very difficult times, and particularly so for those individuals directly affected by failures, takeovers and layoffs. Hard-working people of all income brackets are suddenly and unexpectedly watching their careers come to an end, finding themselves out of what they thought was a solid job and having difficulty making ends meet. Retirees and pensioners are suffering as they watch their retirement funds lose value, causing fear, insecurity and despair.
And while these are issues that foundations and large endowments cannot prevent or address alone in times of financial crisis, it is incumbent upon us to show leadership and provide hope. In today's global economy, fueled by a 24-hour Internet news cycle, we clearly must be prepared for new challenges and new spurts of volatility. We should step up to the challenge, and use our funds and expertise to give support to organizations and individuals experiencing financial challenges not of their own making. We need to be prudent, realistic and, most important, patient. That means keeping our long-term perspective and avoiding a drastic change in our behavior by reacting to short-term fluctuations.
As Israel's founding prime minister, David Ben-Gurion, once remarked: "Difficult things we do quickly. The impossible takes a little longer." While Ben-Gurion probably never envisioned an Israeli economy like today's, let alone the global economy in which we all live, his thoughts remind us of why we are in the philanthropy business in the first place.
In difficult times, it is the responsibility of philanthropy to be there for those in need. That's why we should examine the situation cautiously so we understand the nature of the current market crisis.
Then, we can reallocate our portfolios, modify our expectations and adjust our spending in ways that assist, rather than exacerbate, an already challenging fund-raising environment. But, as philanthropists, we must also remain committed to a vision that is as much about benevolence as it is about prudence.
Sanford R. Cardin is president of the Charles and Lynn Schusterman Family Foundation and Schusterman Foundation-Israel.