The Ford Foundation and the Fierce Urgency of Now
Ford’s plan to borrow $1 billion to give away today has won acclaim. Is it a wise move?
Speaking at New York’s Riverside Church in 1967, the Rev. Martin Luther King Jr. argued that the time had come to stop the war in Vietnam and end the oppression of poor blacks and whites in the US. Famously, King declared:
These are revolutionary times. All over the globe men are revolting against old systems of exploitation and oppression and out of the wombs of a frail world new systems of justice and equality are being born….
We are confronted with the fierce urgency of now.
Not long after, McGeorge Bundy, the president of the Ford Foundation, which had been a leading funder of the civil rights movement, faced demands that the foundation spend money from its endowment to provide additional funds to fight poverty and racism. Bundy refused. He said, in effect, that there was no reason to believe that the needs of the future will be less important than the needs of today.
Had Bundy spent more then, Darren Walker, the president of the Ford Foundation, today would preside over a foundation with diminished resources. But Walker, when facing similar claims on Ford’s wealth, just made a different choice: Last week, Ford said it would double its grant-making for the next two years and raise the money to do so by selling $1 billion worth of bonds, in a “historic, unprecedented action” taken “in response to the existential threat caused by Covid-19 to nonprofit organizations.”
Ford’s decision is indeed historic and unprecedented: Never before has a foundation sold 30-year and 50-year bonds to pay for today’s needs. By borrowing, Ford can spend more without taking capital from its endowment — a no-no for most big grant-makers. But is it wise for a foundation to take on debt to pay for today’s needs? We’ll address that in a moment, but first let’s briefly explain what Ford is doing.
It’s not complicated. Governments, companies and families borrow all the time, particularly to pay for capital projects — airports and highways for governments, factories or acquisitions for companies, a home or a car for an individual. This makes sense. While the costs of these capital goods must be paid off over time, the benefits are long-lasting as well.
Borrowing to pay today’s expenses is different. It’s more like you or me running up a credit card bill to cover the costs of an unexpected setback, such as the loss of a job. It’s not advisable, except in an emergency.
Covid-19 has created just such an emergency for philanthropy, Walker argues. “We must respond in unprecedented ways,” he says, “to sustain organizations that are advancing the fight against inequality at a time when the need is more pressing than ever.”
The net proceeds of the bond sale will enable Ford to pay out more than 10 percent of the value of its endowment this year and next, double the level of grant-making required by law.
The thing is, that $1 billion will have to be paid back, with interest, and with fees to Wells Fargo Securities and Morgan Stanley, the investment banks leading the bond offering. Wells Fargo is a curious choice for what is being called a Social Bond: This is the same Wells Fargo that earlier this year agreed to pay $3 billion to settle criminal charges and a civil action stemming from its widespread mistreatment of customers over a 14-year period, as The New York Times reported.
In any event, Ford will have to make principal and interest payments for the next 30 or 50 years to its lenders while paying fees to the bankers who put the deal together. That’s money that otherwise could have been spent on future grantees.
As John Palfrey, the president of the John D. and Catherine T. MacArthur Foundation, which is floating a $125 million bond offering of its own, told reporters: “There’s no free lunch, and there’s a point at which we will have to pay this back.”
“A once-in-a century crisis”
So why would Ford and MacArthur want to borrow now and pay later?
Several possible reasons come to mind. The first — the one made explicit — is that today’s troubles are worse than anything foundations will confront in the years ahead. This stance has made Walker a hero to nonprofits, to most voices in establishment philanthropy and to his own program officers, all of whom are clamoring for spending. “We are facing a once-in-a-century crisis,” Walker says.
But is this worse than what’s ahead? Perhaps, but it’s easy to imagine otherwise. Consider what a second Trump term might mean for the poor, immigrants and democracy. A cascade of climate tipping points could make the world less habitable, sending refugees fleeing. A more deadly virus, natural or bioengineered, could ravage the earth.
A second possible reason for borrowing is that investing in social-change advocacy now, as Ford does, will deliver compound benefits, reducing the need for social change in the future. The excitement we are seeing now around Black Lives Matter could lead to a wave of reforms to deal with inequality, Ford’s core issue. It has already set off a surge in funding for such Ford-backed nonprofits as the NAACP Legal Defense and Education Fund and Color of Change, which quadrupled its membership from 1.7 million to 7 million people in recent days, The Times reports. Not all nonprofits are facing an “existential threat,” it seems.
A third possible reason for granting more now is that Walker and his colleagues are confident they will spend Ford’s money as well or better than their successors would. Otherwise, why not save the money for later, until foundations and nonprofits get better at what they do? Foundations and nonprofits say they are “learning organizations.” On its most recent tax returns, Ford reported that it spent more than $5 million on learning and evaluation in 2017 and 2018. Maybe tomorrow’s Ford will be smarter than today’s.
Foundations live forever
Finally, there’s the belief that the Ford Foundation must endure for all time, at more or less its current size, or bigger. (With an endowment valued at $13.7 billion at the end of 2019, Ford is the US’s 2nd biggest foundation, behind the Bill & Melinda Gates Foundation.) The question of whether foundations should spend down or exist in perpetuity is a matter of ongoing debate (here, here and, most recently, here). Lots of constituencies have incentives to protect the endowment — trustees and presidents (because there’s more status to running a bigger foundation), staff and, not incidentally, the asset managers who collect fees based on how much they invest. Most big foundations plan to live forever, although there are exceptions. The Gates Foundation has said it will spend all of its assets within 20 years of the death of its longest living founder.
Ford is not going anywhere. It recently spent $205 million on a major renovation of its New York headquarters. To manage its assets, it pays untold millions to outside asset managers and annual salaries ranging from $1.3 to $2.5 million to four top-paid employees in its investment office, all of whom earn more than Darren Walker. It’s a big institution that’s not cheap to run: In 2018, it spent $136m on operating and administration expenses (including its own programming and convening) and it made $534m in grants. That means it spent about $1 in house for every $3.92 in grants that flowed out the door. Overhead is not a bad thing, but foundations, lacking competition or meaningful regulation, have little reason to run efficiently.
All of this suggests that deciding how much to spend now — and where to find the money — is not an easy call. According to The Times, Walker asked 10 foundations to join Ford in pledging to spend more and four agreed — MacArthur and the Doris Duke Foundation, which also intends to issue bonds, and the W.K. Kellogg Foundation and Andrew W. Mellon Foundations, which have not disclosed their financing plans. Others, including the Rockefeller and Hewlett Foundations, evidently declined.
My own take? This may well be the moment to step up and do more. The needs are great. So are the opportunities to drive change. We should remember, even during these strange and difficult times, that the world, by most metrics, is becoming a better place. Extreme poverty, hunger and child mortality are declining; people are living longer, getting more education and enjoying more freedom. Giving effectively now can accelerate all those trends. If the world continues to improve, there may be fewer opportunities to do good in the future — an optimist’s view, but there you have it.
Whether to borrow money to spend now and pay later is a tougher call. It’s possible, even likely, that Ford’s investment returns on its endowment will exceed its borrowing costs. But they may not. And there’s no good reason, at least none that’s apparent to me, for foundations to exist in perpetuity. There’s scant evidence that foundations become more effective as they age. If anything, they are likely to become more bureaucratic. My unscientific impression is that much of the energy and innovation in philanthropy comes from younger entrants like Gates, the Open Philanthropy Project and Arnold Ventures. New fortunes are made all the time.
That said, no one wants to preside over a declining institution. We go to great lengths to avoid losses, even irrationally so, behavioral economics has taught us. It may be that McGeorge Bundy erred by not pouring more money into the struggle for civil rights and equality, particularly if he could have influenced others to do so as well. Maybe, just maybe, there would have been less need for Black Lives Matter today. As King put it in 1967: “There is such a thing as being too late.”