The Giving Review: Power, wealth, and growing distrust of private foundations

This article first appeared in the Giving Review 

In July, Independent Sector released its seventh annual report on how the American public views nonprofit and philanthropic organizations. One of the key measures in this survey of “3,000 U.S. adults and politically representative online focus groups” is the extent of public trust in these organizations to strengthen or “do what is best” for society. While nonprofit organizations retain high trust in 56% of those surveyed, high trust in private foundations and high-net-worth individual donors lags well behind at 34% and 24%, respectively. Looking at the trust gap, Independent Sector concludes, “This year’s findings show that nonprofits remain a rare point of common ground.”

To maintain that level of trust, the report reveals, “Americans want nonprofits to be transparent about their funding and operations, accountable to the communities they serve, open to direct participation, and cautious and forthcoming when using artificial intelligence.” Conversely, the significantly lower level of high trust in high-net-worth individuals (representing a 5% drop since 2025) is attributed by Independent Sector to “concerns over philanthropists’ motivations for giving and a perceived disproportionate influence over nonprofit operations.”

Standing between nonprofit organizations and wealthy donors are private foundations, whose trust level has fallen by 4% since 2025. Independent Sector offers no commentary on that decline other than to note, “A significant gap (27 points) persists between trust in nonprofits and trust in philanthropy.” One explanation for such a gap may well be the inclination for those surveyed to focus heavily on the large foundations frequently in the public spotlight—Gates, Rockefeller, Ford, etc. Still, considering the attributes that apparently drive the higher level of trust in nonprofits, one might expect private foundations to fare better, particularly in the matter of transparency.

Both nonprofits and private foundations—which are a particular kind of nonprofit, of course—must file annual tax returns revealing revenue and expenses and the names of officers, directors, trustees, and highest compensated employees. Both are subject to conflict-of-interest rules. Private foundations, however, are also subject to strict self-dealing rules that carry hefty penalties if violated. Private foundations are also required to reveal their sources of revenue, specific investment information, and grant recipients on the publicly available Internal Revenue Service (IRS) Form 990-PF. The sources of funding for nonprofits, however, are—and should be—available only to the IRS, as the Schedule B is meant to maintain donor privacy.

Does the considerable transparency required of private foundations also satisfy the public’s expectation of local accountability? The trust ratings suggest otherwise. Proximity alone is not likely to engender trust if a foundation pays little attention to the needs of its home community. At the same time, foundations may have donor-directed missions that commit them to causes and geographies beyond their home community, and those obligations cannot be ignored in a quest for popularity.

 In these instances, foundations can—and frequently do—adopt three key practices:

• Communicating clearly and consistently about their missions and core principles to further local nonprofits’ understanding of their grantmaking parameters.

• Maintaining respectful relationships with community leaders who can keep them informed about local issues and challenges because they may occasionally find an unexpected match with their missions.

• Being open to making emergency grants when an unexpected crisis threatens the welfare of their host communities. In the face of a recession, natural disaster, or pandemic, this is not the time to remind nonprofits and neighbors of the obligation to “protect the foundation’s corpus.”

What of those foundations that are truly “place-based”? These are the funders who spend decades forming and maintaining strong—and trusting—relationships with charitable organizations and their leaders. They are familiar with local needs and assets and are typically more likely to go beyond support for direct services and fund improved capacity in a nonprofit’s operations as well. They build partnerships with local faith, business, and political communities to bring about needed change. Yet the significant impact of even these private foundations fails to reduce the trust gap between funders and the nonprofits they support. Why?

Openness and participation, control and criticism, and philanthropic freedom

Returning to the factors listed in the Independent Sector report as contributing to the far-greater public trust of charitable nonprofits, there is one final expectation—that these organizations will be “open to direct participation.” Nonprofits demonstrate this openness in a variety of ways. They utilize volunteers to help deliver direct services or provide pro bono accounting or legal assistance. They recruit all trustees from the immediate community. They organize participatory events like clean-up or food-donation days. They host public forums to get feedback on their work. They hold public fundraising events like races, fairs, and concerts. And they mobilize supporters to advocate for regulatory or legislative change.

In contrast, private foundations are likely to hire only paid professionals and recruit mission-aligned trustees regardless of residence. They may (or may not) solicit feedback from grantees and peers, but likely not in the public eye. They can legally fundraise, but rarely do so. And they are prohibited by law from engaging in any grassroots lobbying and are allowed to lobby only in self-defense.

The call for trust-based philanthropy (TBP), which originated with the Whitman Foundation in 2014, focused on encouraging foundations to adopt better grantmaking practices to address the power imbalance between funder and recipient and create mutual trust. In 2020, the chaos caused by COVID strengthened the case for simpler application and report formats, multi-year and unrestricted grants, and consideration of capacity-building support. And in response, many foundations and individual donors willingly suspended their stated missions, usual procedures, and customary payout rates. Employing a racial-equity lens in grantmaking was also added to TBP at the time, and “addressing the power imbalance” evolved into redistributing power from donors and foundations to “communities.”

In September 2023, Shaady Salehi, executive director of the Trust-Based Philanthropy Project, cautioned philanthropists, “It’s not about checking the boxes of the six practices [we recommend], but rather committing to the iterative work of aligning power consciousness and equity across your organizational culture, structures, leadership and practices.”

Much of the rhetoric around trust-based philanthropy now revolves around the claim that donors exert too much control in making their grantmaking decisions, and this imbalance between donors and grantees can be remedied only by arrangements that “democratize” power. One of the recommendations is participatory grantmaking, which Cynthia Gibson has described as “the practice of ceding decision-making power about funding—including the strategy and criteria behind those decisions—to the very communities that funders aim to serve.”

The power imbalance between foundations and their grantees is real, and I have never doubted that some grantmakers abuse that power. Some—not all. And at the same time, a foundation’s trustees have a fiduciary responsibility that cannot be transferred to others. Foundations may certainly select community members for their boards, join donor collaboratives, hire expert consultants, or utilize donor-advised funds to expand and enhance their philanthropic reach. In these instances, foundation boards and staff benefit from the knowledge of outsiders on local needs or specific issue areas while fulfilling their obligation to stay on mission and honor donor intent.

Increasingly, distrust of power is linked with distrust of wealth. And if foundations’ critics are comfortable with “the oft-cited truism that philanthropic money is generally twice stolen in that it’s frequently derived from worker exploitation, race-based oppression or countless other unethical means—and then taken out of our tax streams,” as Gibson and two co-authors put it in 2024, then there is little hope that private foundations will see much improvement in their “trust rating.” There will continue to be demands that these foundations spend beyond the required 5%, abandon perpetuity in favor of spending out, restrict their use of donor-advised funds, and utilize participatory grantmaking. Some foundations may voluntarily adopt some—perhaps all—of those practices, but many will not.

It’s likely there will also be continued calls for new regulatory and legislative rules to mandate such changes. For those who champion philanthropic freedom, trading that freedom for a higher level of public trust is not a wise bargain.