Are charitable foundations real catalysts for change?

At a time of year when people traditionally assess how they can help those in need, charitable foundations would also do well to ask themselves some searching questions: Are they still valuable institutions - or have they outlived their usefulness? Is the spirit of charitable foundations still willing, but the structure weak?

Over the next few years, foundations certainly will have the resources to make an impact. By the year 2010, the assets of American foundations are projected to grow to $800 billion, roughly a fourfold increase since 1994. This fall, the House of Representatives overwhelming passed the Charitable Giving Act, which will further provide charitable foundations with tax advantages.

But despite this progress, are charitable foundations really helping to improve society? Collecting and disbursing money is something that government, a United Fund, or an individual patron can do. But foundations fulfilling charitable goals should not just be a matter of showing generosity. At the very least, foundations should be leaders in innovation, experts in identifying challenges and opportunities, and willing servants in the catalyst for change.

The charitable foundation has entrepreneurship in its bloodlines. It was created at the turn of the 20th century by captains of industry who had devised or adopted new technologies and production methods to build railroads, manufacture goods, and marshal resources on an unprecedented scale.

The new capitalist class applied the same innovative mind-set to sharing their wealth that they had used in creating it - and broke taboos while doing so. Leland and Jane Stanford, for instance, applied the principles of seeding and leveraging when they founded Stanford University in the 1890s. From the start, the university admitted women - in contrast to most elite schools of that time. Other early philanthropists took risks, such as the Sarah Mellon Scaife Foundation when it backed Jonas Salk's use of a live virus to develop a polio vaccine.

Over the years, charitable foundations have also introduced management innovations. When Andrew Carnegie gave the money to build and stock 2,500 libraries around the world, in almost every case the municipalities had to bear operating and maintenance costs - entrenching the concept of free public libraries. The present day Silicon Valley practice of "renting" CEOs for start-ups was introduced over 30 years ago by the Robert Wood Johnson Foundation, when it needed proven administrators for short-term pilot programs in healthcare.

So how can today's charitable foundations embody this same entrepreneurial spirit?

First, a foundation must be driven by a quest to shape the future. Entrepreneurship is not just responding faster, better, or cheaper to a market that already exists. It is often a matter of creating a market. Carnegie was not responding to a groundswell demanding books for the masses. And later, few parents realized their preschoolers needed a TV show to help them learn their ABCs until the Carnegie Corporation supported a study that led to the development of "Sesame Street." Great grants are not always responses to apparent problems or voiced needs.

Second, an entrepreneurial foundation must recognize the possibilities of a world in flux and have the ability to assemble the talent and capital to bring forth something great. That is what the Rockefeller Foundation did in 1915 when it launched a successful 30-year campaign to eradicate yellow fever. Typically, entrepreneurs favor great gain over incremental change, born of a determination to change the future.

Third, foundations must recognize that those who lead an entrepreneurial organization must have entrepreneurial experience. To manage his giving, John D. Rockefeller hired someone who had played a lead role in launching the University of Chicago.

Much of the asset growth that grant-giving foundations are now experiencing is coming from a new generation of entrepreneurs in fields such as computing, biotechnology, telecommunications, and venture capital. Microsoft billionaire Bill Gates, for example, has recently pledged a $200 million grant for AIDS prevention programs in India. Philanthropists like these are applying the same principles they pursue in business: competitive strategies, financial discipline, risk-taking, and learning from failure.

During a season when people feel a desire to invite others to their table, it makes sense to remind charitable foundations of an underlying question: What unique value are you bringing to the table of social betterment? The same spirit that can drive the American economy can again steer American philanthropy, and help ensure that our material progress is matched by social progress.

Carl J. Schramm is president of the Ewing Marion Kauffman Foundation, which supports educational achievement and entrepreneurship throughout the United States.

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