The following is a conversation between William Foster and Darren Isom of the Bridgespan Group, and Denver Frederick, the Host of The Business of Giving.

Denver: The very first endowed chairs were established by the Roman emperor and Stoic philosopher, Marcus Aurelius, in Athens all the way back in 176 AD. He created one endowed chair for each of the major schools of philosophy.

Today, nonprofit endowments are all too rare, especially for social change organizations led by people of color, whose endowments are nearly four times smaller than those of white-led organizations. This, according to a new Bridgespan Group analysis, and here from the Bridgespan Group to discuss it with us are William Foster and Darren Isom

Welcome to The Business of Giving, William and Darren.

William Foster and Darren Isom of the Bridgespan Group

Darren: Thanks for having us. Great to be here.

Denver: Let me begin, William, by asking you: What’s the case for endowments? I just mentioned they’ve been around since 176 AD, and there are so many new and creative financial vehicles out there. Why endowments?

William: Well, you know, Denver, we think it’s a stodgy tool for a radical purpose. It’s been around forever, but isn’t deployed in the most interesting, and I might argue, important places in philanthropy, like social change organizations, like organizations led by proximate leaders. 

And one of the things in Darren’s and my work is that we actually see both– obviously nonprofits want more money, but there are a lot of philanthropists that are frustrated that they feel they can’t give away more. And it’s  a math thing, right? Where there may not be a ton of organizations that can absorb $50 million and spend it in the next three years, but if you structure it as an endowment, there’s a lot of organizations that could deploy two and a half million dollars a year for years and years to come doing great work. And it’s just a fun thing when the dominant form of gift giving to universities is that, and it’s almost non-existent with social change nonprofits and particularly those led by people of color. 

Denver: In addition to universities, what are the kind of institutions, William, that are most frequently endowed?

William: So universities, medical research, major cultural institutions, whether it’s paying for a building or literally giving to an endowment, a faculty chair, we’ve done some studies on big bets, and over 80% of the big bets, $10 million plus gifts to those kinds of organizations are endowments and perpetuities of one form or another. And for all other kinds of nonprofits, it’s under 5%, and there’s no logic to that;  it’s just habit.

Denver: The title of your article, Darren, in the Stanford Social Innovation Review is “Endow Black-Led Nonprofits.” So let’s examine the disparity in these endowments starting with colleges. What’s the difference in the size of the endowments between historically Black colleges and universities as compared with non-Black institutions of Higher Ed?

Darren: Yeah, it’s great to look at that. And we looked at those numbers actually while we were writing the article. It was pretty jarring, Denver, as you can imagine. So we looked at Howard, which my alma mater, HU, as being both one of the most well-known historical Black colleges and actually the most endowed Black college. Their endowment is close to $700 million. The second biggest endowment for a historical Black college would be Spelman at $300 million, followed by Hampton at $200 million– $280, $250 million, something like that. You look at the numbers of the top white colleges, if you will, or historically white institutions as they’re called, or predominantly white institutions. Those numbers are just ridiculously different. Harvard is $53 billion, Yale is at $42 million, Stanford at $37 million, Duke is at $12.7 billion.

Denver: These are billions, right?

Darren: All billions, right, $53 billion, $42 billion, $37 billion, $12.7 billion. And so I say all the time, I joke all the time. And this, as an American, we have a poor sense of numbers, but like a billion dollars is a thousand millions.

Harvard’s out here working with $53,000 millions, and Howard’s close to 700. And when you look at the numbers, that becomes even more jarring when you imagine the fact that all 107 HBCUs, their total endowments are less than the amount that Amherst is endowed.

Denver: Oh, wow. 

Darren: I think at $2.7 billion. And so I think when you see the numbers, you just see the huge gap. And that speaks in many ways to the lack of trust, that organizations that are led by people of color, if you use, you know, that historical college as a proxy. These are organizations in schools that are clearly doing amazing work, graduating great students, and definitely fill a void in the national narrative of, “They just don’t have the funds.” 

Denver: Yeah, well, you frame those numbers very well.

William: They are on board for a hundred years or more, right? They’re not new kids on the block.

Denver: So let’s move to social change organizations, Darren. What do those endowments look like now that we’ve moved on from universities? Disparity is probably not as great, but I would imagine it’s pretty significant there as well.

Darren: Well, it’s pretty significant, definitely. So as William teed up already, social change organizations aren’t likely to have endowments to start. And so you’re working with a smaller set of folks, and there are just a lot of legacy organizations, Black-led social change organizations that have no endowments at all. So these NAACP, the Equal Justice Initiative, and Community Change, very prominent, well-established, and critical institutions working with no endowment.

But then you look over to the 56 social change nonprofits that we investigated to get a sense of their numbers and what their endowments look like– organizations like Southern Poverty Law Center, Planned Parenthood Federation of America, the Innocence Project, and even The Children’s Defense Fund. We found that on average, the endowment organizations led by people of color were nearly four times smaller than those led by the white-led organizations. So critical institutions with proven track records are already four times smaller. And their average percentage of revenue was less than half. So the endowments were so small that they actually weren’t able to make up a critical part of the revenue and almost seen as a distraction when it comes to trying to develop funds and getting money.  

“…give funders who really want to not only create change, but sustain change and opportunity to get a lot of money out the door in a way that’s meaningful and offers some long-term impact.”

Denver: One more question on this, Darren, and that is, do we know how much institutional philanthropy funding goes to Black-led organizations in the United States? 

Darren: So we don’t necessarily have a working number in that sense, and we have published a piece on Black-led change and funding Black-led organizations, and clearly there’s a gap, Denver.

So this is something that we’re very well aware of. We know that to some degree there’s been a desire overall within philanthropy and equitable philanthropy particularly to be more thoughtful about funding Black-led change by BIPOC organizations, particularly within the past two years, understanding the critical nature and the term in point that we are within an organization itself.

And so you know, Black-led organizations are highly underfunded, respective of historical grantmaking. And so this is where endowments become a huge way, in some ways, to level the playing field from a funding perspective.

And as William spoke, give funders who really want to not only create change, but sustain change and opportunity to get a lot of money out the door in a way that’s meaningful and offers some long-term impact.

Denver: Well, that leads me to this question, William, and that is, let’s examine some of the obstacles or hesitations that some donors might have about making an endowment gift to a Black-led organization, starting with most nonprofits, especially those that are led by people of color. They just lack the capacity to absorb a large gift and use it effectively. What would you have to say about that? 

William: Yeah, and Denver, that really is one of the things we hear, and we hear it from ambitious, incredibly well-intended donors, and they talk about the absorptive capacity. And I guess I would say there’s sort of two aspects to it. One is really just the numbers, right?

Donors don’t often want to be the biggest gift anyone’s ever received. They worry about a financial cliff. Three, four years later, if you give a big gift, then you know, and you don’t necessarily guarantee you’ll continue. Will they go off a cliff? And of course it’s a little bit of a self-fulfilling prophecy. But this is where endowments really are magical, where it  changes the equation from what’s the ceiling to what’s the floor, where it has to be relevant. You know, all of a sudden if you’re worried that a $5 million a year organization can’t absorb $10 million or something like that…$10 million bucks would throw off, half a million a year.

And all of a sudden you have to ask yourself the question, “Could they take more?” So it really flips the logic of absorptive capacity. The other thing folks see is they’ll say, “Gosh, when I go think about giving to Harvard, there’s a whole staff of development department/ finance people in suits, people that used to work in major financial institutions. I feel like they’re so well-prepared for this and you know what, an arts organization that’s in a community… or a civil rights organization, or any kind of community organizations, particularly those led by people of color might not have the finance suite that a major university has.” But, of course, one begets the other, right? Like the biggest barrier to being well-resourced is being well-resourced. And so anyhow..

Denver: Yeah, I would imagine there’s some people who probably think they have the financial savvy. I mean, they made all this money after all,that exceeds that of the institutions they’re going to give it to. So why don’t I just manage it, you know? 

Darren: Yeah. And just to jump in there, I think there’s a space for a bit longer conversation, Denver, when it comes to this idea of absorptive capacity. We see in many ways, and I use the term as a New Orleans boy, this concept of philanthropic sharecropping, where in many ways organizations have these relationships with funders that’d give them just enough to get by for the next year. And you have this problematic conversation where funders are sitting around saying, “Well, we can only give them a grant that’s as big as their biggest grant in the past.” They get stuck in a cycle of $50,000 grants, $100,000  grants when they’re giving million dollar or even billion-dollar grants out the door on the other side of the table.

And so there’s a space for endowments in many ways to kind of open up the amount of funds an organization can receive and allow them to actually build the organization that mirrors in many ways the impact they’re creating within the community.

Denver: William, I’m sure you’ve heard this as well: “Nonprofits should work themselves out of business.”

Aren’t we in the age of solving problems and not mitigating them? How would you respond to that? 

William: Yeah, well, guess first of all, we should be so lucky. Darren and I have worked really hard. You’ve interviewed a lot of people. I haven’t noticed sort of social problems, like falling off the list left and right where it’s all disappearing, right?

So it is true though, Denver, I mean you pointed out, it’s a big thing where someone says “Gosh, we’ve given an endowment, this is going to last for decades. How do we know there are still going to be problems for decades?” And you know, sadly, most of the kinds of things people wrestle with, whether it’s economic mobility or racism or public health, I think that civil society is improving things and can make things better. 

But, I guess, it shouldn’t be really on everyone’s shortlist of worries that like all the world’s problems are going to, like, disappear and if it is, okay. So the money, you should be so lucky…

“And so I think, using an analogy that we can all agree with or understand now, we realize that so many of the social issues we have, they aren’t pandemics, they’re endemic. And they really don’t give a vaccine that can stymie the growth of the issue, but definitely a whole bunch of boosters that are administered over time to really push the issue back.”

Denver: Yeah, that’s a money warehouse and an endowment because the problem went away. Wouldn’t that be grand? I think everybody would be happy. 

Darren, this is a question I’m really curious about, and that is, how much of an endowment is needed to make a real difference for an organization? What does it have to throw off? 

Darren: Definitely. So before I jump into that question, I definitely want to piggyback on William’s earlier comment and just say, I joke all the time we talk about this, we should be able to solve a problem. And my uncle always said that racism and oppression in this country, they’re quite clever. 

And so I think, using an analogy that we can all agree with or understand now, we realize that so many of the social issues we have, they aren’t pandemics, they’re endemic. And they really don’t give a vaccine that can stymie the growth of the issue, but definitely a whole bunch of boosters that are administered over time to really push the issue back.

And so this is who we are, making sure we have those institutions. From a numbers perspective about that question here you know, I think that what we’ve established is that ultimately, that 5% draw should be close to 60% of the organization’s annual budget. So it should be a fairly large amount. It shouldn’t be so small that it actually becomes a distraction. As close as you can get to 100 of the actual current revenue the better. From that 5% draw, I think it allows you to actually be able to do a lot with that money, and be able to really unlock Black genius. 

Because when you’re not sitting here trying to play the strategic telephone game with your funder, or trying to figure out where you’re gonna get your next funds, you can actually be creative and think about centering your community.

So it should be high enough to really get at 60% of the annual revenues for the organization. 

Denver: You know, Darren, you guys are fairly persuasive. So you got me thinking maybe this is going to be a pretty good idea to do something like this. What qualities should a funder look for in, let’s say, an endowable nonprofit?

Darren: So I can jump in with some thoughts there and would love William’s thoughts. And interesting enough, we’ve been having conversations with nonprofits to help them think about how they position themselves to lead that funder conversation when it comes to endowments. And there’s some things that we suggest for them.

One is definitely an organization having a number in mind, however bold. So understanding what number it takes, and that shows both an understanding of the cause and understanding of worth. And that shows a sense of boldness and organizational capacity. That’s really important. 

I think another is really, demonstrating your relationship with community as an asset. So I think funders should be looking to those organizations who are well-respected within the communities that they serve, who are able to really understand those community assets as issue assets, and are able to elevate those assets to drive solutions in a way that funders can’t, or that other organizations that are more national can’t. So really understanding that critical role that organization has played within the community and the trust that the organization has from folks within that community and the proximity there is really important. 

And I think finally, you know, one other piece I would add is the importance of organizations that are thinking about and can demonstrate their worth and their value past a short-term tenure. These organizations that you want to see folks that are thinking about what the issue is going to look like 10 years from now, 20 years from now, as racism and oppression and their clever way as they shift and shape, who’s able to demonstrate a capability of understanding the issues and really responding in a way that’s critical and leverages all the community assets in a way that’s powerful and meaningful.

Denver: What would you add to that, William?

William: I do think on what Darren said… It really flips how you think about an organization from what will be the measurable accomplishments in the next few years, to:  how will this organization become an anchor or pillar or grow more powerfully into an anchor or a pillar of civil society addressing this issue, whether it’s in one city or broader? And that kind of logic clip really unleashes these things. And so what Darren… and I’d emphasize what Darren said… about the respect and trust from the community about their sort of long-term vision. And I would look to fundamental things like:  Do they have a really talented team and an ability to attract talent? You know those kinds of things are probably where an endowment can really unleash a lot and be safe.

Denver: Let me close with this for both of you, and I’ll start with you, William, and that is: what’s happening? Is this idea gaining traction? Are there people beginning to think about this and step up, and beginning to provide endowed funds for social change organizations led by people of color?

William: Well, Denver, the article is getting a lot of attention. And so we’re getting phone calls, both from donors and nonprofits about this. And in some ways the timing seems to be positive and that wealth is growing so much and the desire to give is growing so much. So I think it’s too early to tell whether we’re actually going to see an uptick here, but we’re hopeful that this seems to be resonating across donors and doers. 

“As we chart this new sun and cast this new sun, which is endowment to some degree, making sure that it’s valid to everyone and used to its full potential, I think it becomes really important, and conversations like this one are a way to change the narrative in a way that allows that to happen.”

Denver: Resonated with me.  Darren, you have any thoughts on that? What needs to happen? What would you like to see happen here in the next year or so in terms of people beginning to take a step forward?

Darren: Yeah, Denver, thank you, one, for having us here to talk with you, because I think part of the work is just really normalizing conversations like this. I think that part of this work is making sure that people understand this as an option. This is a tool that they can use and the more that’s normalized and the more people both ask for it, the more people talk about it in boardrooms and conversations, the more of an option it is for organizations.

And I think this is where, for me, I’m reminded all the time of a wonderful quote by Octavia Butler who says, “There’s nothing new under the sun, but there are new suns.” 

As we chart this new sun and cast this new sun, which is endowment to some degree, making sure that it’s valid to everyone and used to its full potential, I think it becomes really important, and conversations like this one are a way to change the narrative in a way that allows that to happen.

Denver: Yeah. You guys have co-authored a wonderful groundbreaking article. For those who want to learn more about it, William, is there a place they can go to get the full article? 

William: They can go to the Bridgespan website, We have a whole section, Research and Publications that has this article and other wonderful articles as well.

Denver: You certainly do. Well, thank you, William and Darren for being here today. You make a nice tag team match, and it was a real pleasure to have you on the program. 

William: Thank you, Denver.

Darren: Thanks, Denver.

Denver Frederick, Host of The Business of Giving serves as a Strategic Advisor and Executive Coach to NGO and Nonprofit CEOs and Board Chairs. His Book, The Business of Giving: The Non-Profit Leaders Guide to Transform Leadership, Philanthropy, and Organizational Success in a Changed World, will be released in the spring of 2022.

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