Editorial – Philanthropy in Perpetuity

Blog, Ontario Hub

Is perpetuity the default setting for grantmaking foundations in Canada? This special edition on perpetuity challenges this assumption. It is, however, not an easy topic for the booming sector of philanthropy in this country, as it raises a deep structural issue, whereby grantmaking foundations could be part of the problem they wish to solve. In other words, it questions the very reason behind their existence and their will, for some, to become a permanent fixture in the ecosystem. The relevant question to ask in such context: how can a traditional form of investment seeking measurable financial returns not sacrifice its positive social or environmental outcomes?

Part of the relevancy for the topic is following a consultation[1] on disbursement quota by the Minister of Finance of Canada due on September 2021 and reactions to it.[2] Many reactions expand their comments, not only on disbursement quota (rate, calculations), but also on much larger issues, such as data for the non-profit sector, governance, diversity and inclusion, grantmaking practices, purposes of registered charities and reform of the sector.

The idea of perpetuity points inevitably to social justice and welfare. For example, could endowment money work faster and better in the public’s interests if it was redistributed rather than dribbling three to five percent each year?[3] Sidorovska’s report in this edition presents the notable Pledge to GIVE5 initiative by various Canadian foundations (2020). It is contrasted by the ACCS (2021) and the AFP (2021) documents arguing that based on the T3010, foundations in Canada already disburse above 6% of invested assets, but a cluster of organization are around 3.5%, the actual set minimum disbursement quota established by the government.

At the other end of the spectrum, in valuing perpetuity in philanthropy, perhaps it calls for better scrutiny, such as where these organizations are spending, for what purpose, and for whom? Large endowments planned in perpetuity prompts more questions, one that is centred around the political and economic power occupied by these grantmaking foundations in our democratic system.[4] Are they rather creating more political vulnerabilities, and economic dependency between granters and grantees?

Corporate philanthropy may contrast with family foundations, as the latter may challenge the idea of perpetuity. Our special edition is a testimony that the topic is indeed complex, as at times it involves deep moral and emotional issues. The will of the donor, spending while living, or rather spending to the benefit of later generations, comes to mind.[5] The notion of leaving “something” behind for countless generations. For some, however, this is a testimony to the failures of our redistributive welfare programs and ongoing social injustices. The phenomena illustrate how governments rely on these foundations to complement its social safety nets.

Each piece in this edition engages the reason behind why a funding organization would want to disappear, survive, or thrive indefinitely. For example, Lynda Masson, MAVA Foundation, explains how they have established a “sunset process”, indicating that the foundation will cease its operation at some point this year, and closing administratively next year in 2023. In the ecosystem, this is known as a “limited life foundation”. Since the 1990s, the philanthropic sector has witnessed an increase in “limited life” strategic initiatives and defining an endpoint of the foundations’ operations.[6] Lars Boggild in this edition goes further and argues that “limited life foundations” ensure greater social impact when they spend their resources instead of guarding its endowments in perpetuity. Aligned with this position is CFC’s “Moving beyond the disbursement quota towards transformative change” (2021). Here, resting on the unprecedented social impact of the pandemic, the call is for a philanthropic systemic change with six recommendations grouped in three large themes: government and management; endowment and investments; and finally, grantmaking practices. In their words, let’s rethink what is possible, as the disbursement quota is an insufficient tool of redistribution for a just recovery. Some propositions are reforming the T3010, as well as Bill S-222 among others. CFC wishes to open a conversation on the role and regulatory relationship the philanthropic system holds with the government.

The short article by FPLG points to the challenges in transitioning to a sunsetting plan for foundations. This is known for its impacts on local organizations which relies heavily on yearly generous donations and support to provide social services to its community’s vulnerable population. Interestingly, the article points to the role played by sunsetting foundations in establishing the next generations of charitable organizations. They are supporting and accompanying emerging new philanthropic entities where goals are determined by a new generation of partners and money, to envision a socially sustainable impact.

Now to be fair to the complexity behind the topic, our edition gives space to the argument in favour of perpetuity, with Parachin’s “Charities and the rule against perpetuities” (2008) and with Kathy Hawkesworth in “Point/Counterpoint: Limited life foundations ensure greater social impact” (2017). Both give plenty of views in why an endowment should be able to evolve in perpetuity. Hawkesworth’s views are not in support of a status quo, and they come with plenty of helpful examples on how endowments’ terms are problematic.

In sum, the special edition provides a consensus: if the disbursement quota is a tool, it is itself an insufficient one. This is clearly articulated at the policy levels by two documents in this edition (ACCS 2021; AFP 2021). The authors are all in support to reform the disbursement quota. Hilary Pearson argues to tread gently, for as the “temporal dimension of philanthropy is a matter of life and death” (2020). Perhaps this is not such a dramatic thought after all, as proposed by Lynda Mansson (Mava Foundation), since new generations of philanthropists could determine new agendas better aligned with emerging challenges such as the ones presented by climate change and social justice. Whichever side you wish to explore, this special edition on the topic will give you a succinct tour of the complexities around the need to reform the system and to modernize our Canadian public policy regulatory regime (CFC 2021). It advocates for new holistic philanthropic models to meet the needs of communities.