Foundations

Foundations are nonprofit, nongovernmental organizations whose funds are managed by their own trustees and directors. Independent, corporate, operating and community foundations are formed for different reasons and serve varied purposes in their missions and communities.


Definition

A foundation is a nonprofit, nongovernmental organization with its own funds, managed by its own trustees and directors. It maintains or aids charitable, educational, religious or other activities serving the common good, primarily by making grants to other nonprofit organizations. Simply put, a foundation is a fund of private wealth established for charitable purposes. The word foundation is thought to originate in medieval language: foundacioun or endowe(n).

As a result of the Tax Reform Act of 1969, private foundations must pay out annually a minimum of 5% of their total assets through awarded grants. Foundations are required to file a 990-PF informational form with the Internal Revenue Service each year.

There are four types of foundations:

  • An independent foundation is a grantmaking organization established to aid social, educational, religious or other charitable purposes. The Ford Foundation is an example of an independent foundation.
     
  • A corporate foundation is an independent grantmaking organization with close ties to the corporation providing its funds. Examples of corporate foundations include the Motorola Foundation and the Domino's (Pizza) Foundation.
     
  • An operating foundation uses its resources to conduct research or to provide a direct service. The J. Paul Getty Trust which runs the Getty Museum is an operating foundation.
     
  • Community foundations are publicly sponsored organizations that make grants for social, educational, religious or other charitable purposes in a specific community or region. The New York Community Trust is a community foundation.

The first three types are private foundations and subject to more scrutiny from the IRS. The community foundation is a public foundation.

Foundations may not engage in certain activities. For example, they may not: control a business, make risky investments, influence elections or the legislative process, or accumulate assets without distributing them for charitable purposes.


Historic Roots

Foundations have existed in one form or another since the days of the ancient civilizations. Egyptians, Greeks and Romans had endowments for religious, educational and social purposes. Early foundations included Plato's Academy in Greece and the library in Alexandria, Egypt. The Muslim world introduced the custom of the waqf or endowment as early as 700 CE. During the Middle Ages, the church created endowments to support monasteries, universities and hospitals. The 1601 Elizabethan Statute of Charitable Uses is considered the legal framework for the concept of foundations as we know them today; the statute's preamble lists accepted charitable purposes.

Benjamin Franklin's Will provided for the establishment of two early American foundations in Boston and Philadelphia. Begun in 1791, the foundations were meant to assist "young married artificers of good character" (Bremner 1988, 219). Later, in 1867, George Peabody established the Peabody Education Fund to help the South recover from the Civil War.

As a result of industrialization and economic expansion, early 20th century America witnessed the development of large general purpose foundations. In 1907, Mrs. Russell Sage established the first foundation of this type "for the improvement of social and living conditions in the United States" (Smith 1999, 38). Andrew Carnegie and John Rockefeller established foundations in 1911 and 1913. Rockefeller's foundation was intended "to promote the well-being of mankind throughout the world" (ibid., 38). These new philanthropists applied principles of efficiency and scientific thought to their foundation work.


Importance

By the year 2000, there were more than 47,000 foundations in America; however, foundation giving represents only 10.4% of total donations for the year 1999. In 1999, their assets were worth $448.6 billion and their allocated grants totaled more than $27.6 billion. Yet, it was giving by individual Americans that comprised nearly 76% of the year's donations.

Still, the impact of foundation giving is tremendous because it is distinct. Foundations are independent of citizen involvement and the political systems, they can identify controversial and difficult social needs. For example, the Ford Foundation supported voter registration efforts in the American South during the 1960s Civil Rights movement. Sometimes, foundations tackle issues that are too divisive for the government; yet, if the funded pilot project proves successful, the government has adopted its practices. American foundations of the last hundred years have served valuable roles as leaders to effect social change (e.g., the Civil Rights movement), to conquer disease (e.g., the Rockefeller Foundation and yellow fever, the Bill and Melinda Gates Foundation and HIV in Africa) and to develop more community-based change.

The influence of foundations derives more from the power of ideas and momentum of cooperation than from their size. Foundations serve as clearinghouses for ideas and information. Sometimes they serve as catalysts to engage interested partners in dialogue. At the least, modern foundations provide a variety of aid to nonprofit organizations including: general support, capital support, program support, technical assistance, research, student aid funds, emergency funds, and program evaluation.


Ties to the Philanthropic Sector

Foundations are an integral part of the "giving" sector. While foundations ranked second behind individuals in giving in 1999 (10.4% to 75.6%), the level of foundation giving has nearly doubled in the last fifteen years. Foundations are supportive and innovative. They fund short-term and long-term projects. They focus on research and delivery of needed services. They enhance the philanthropic sector with their flexibility, risk-taking and the pluralistic nature of their decision-making.


Key Related Ideas

Foundations are also called endowments, trusts, funds, charities, institutions and libraries, as reflected by the following examples: Lilly Endowment, New York Community Trust, and Pew Charitable Trusts. Organizations with these names function like foundations.


Important People Related to the Topic

Mrs. Russell Sage (Margaret Olivia Slocum Sage; 1828-1918) established the Russell Sage Foundation in 1907 with $15 million in assets accumulated by her husband through banking, railroad and telegraph companies. She was the first American philanthropist to dedicate her resources to social action.

Andrew Carnegie (1835-1919) came to America in 1848 and transferred his success in the steel industry to his many philanthropic interests. In his 1889 article, "The Gospel of Wealth," he advocated for the wealthy to create places where rich and poor alike would come together (i.e., libraries, public parks, lecture halls, and universities). Among his many charitable projects, Carnegie is well-known for his establishment of 1,676 libraries in the United States.

John D. Rockefeller (1839-1937), founder of the Standard Oil Company, dedicated his vast resources to a variety of philanthropic efforts including creation of the University of Chicago in 1892. This act was the first of a number of large philanthropic gifts before the formal founding of the Rockefeller Foundation in 1913.


Related Nonprofit Organizations

The Cleveland Foundation , established in 1914 by Frederick Harris Goff, was the first community foundation. Still in existence today, the foundation served as an inspiration to the founding of over 600 community foundations worldwide.

The Council on Foundations was established in 1949 to promote and strengthen organized philanthropy. The council's website, https://www.cof.org/, includes an excellent glossary of terms related to foundations.

The Foundation Center was created in 1956. It is "a leading authority on institutional philanthropy and serves grant seekers, grantmakers, researchers, policy makers, the media, and the general public" (https://candid.org/?fcref=lr).

INDEPENDENT SECTOR , founded in 1980, is "a coalition of leading nonprofits, foundations and corporations strengthening not-for-profit initiative, philanthropy and citizen action" (https://independentsector.org/).

The National Center for Family Philanthropy was founded in 1997 to "encourage families and individuals to create and sustain philanthropic missions" (http://www.ncfp.org/).


Bibliography and Internet Resources

Abramson, Alan J. and Jeri Spann. Foundations: Exploring Their Unique Roles and Impacts on Society. Washington, D.C.: The Aspen Institute, 1998. ISBN: 0898432308.

Bremner, Robert H. American Philanthropy. 2nd ed. Chicago: University of Chicago Press, 1988. ISBN: 0-226-07325-4.

Jacobs, David G. (Ed.). Foundation Directory 2001 Edition. 23rd ed. New York: The Foundation Center, 2001. ISBN: 0-87954-944-0.

Kiger, Joseph C. Philanthropic Foundations in the Twentieth Century. Westport, Connecticut: Greenwood Press, 2000. ISBN: 0-313-31223-0.

Nielsen, Waldemar A. Golden Donors: A New Anatomy of the Great Foundations. 1985. Somerset, New Jersey: Transaction Publishers, 2002. ISBN: 0765809125.

Smith, James Allen. "The Evolving Role of American Foundations." In Philanthropy and the Nonprofit Sector in a Changing America, edited by Charles T. Clotfelter and Thomas Ehrlich, 34-51. Bloomington, Indiana: Indiana University Press, 1999. ISBN: 0253335213.

This paper was developed by a student taking a Philanthropic Studies course taught at the Center on Philanthropy at Indiana University. It is offered by Learning To Give and the Center on Philanthropy at Indiana University.