If you’re looking for one good thing to come out of 2020, I would nominate the remarkable philanthropy of MacKenzie Scott.
Scott, a novelist, philanthropist, and former wife of Amazon CEO Jeff Bezos, and one of the richest people in the world, donated six billion dollars to charity in 2020. This a stunning amount of giving from one individual in a single year – but the dollar amount is not what’s most noteworthy about Scott’s philanthropy. Rather, it’s the way she did it that should get our attention and our praise. Scott is the model by which philanthropists should be measured.
The first way in which Scott is an exemplar: She actually has given her money away outright to operating charities, rather than dumping the funds into foundations or donor-advised funds.
In recent years, assets in foundations and donor-advised funds have swollen to over $1.3 trillion. According to Gilded Giving 2020, a report from the Institute for Policy Studies, roughly 25 percent of all charitable donations now go into foundations and donor-advised funds rather than to operating charities. That’s nearly triple the percentage of only a few years before.
The reason this is a problem is that while foundations and donor-advised funds hold enormous assets, the stream of grants to charities from foundations and donor-advised funds is hardly robust. Most foundations dedicate only the federally mandated five percent of their assets each year to charitable purposes, and that amount includes many internal expenses for running the foundations. Donor-advised funds on average give at a higher level than foundations. That said, as Professors Ray Madoff and James Andreoni show in their recent working paper, the actual average annual distribution rate from DAFs is less than 15%, or about 2/3 of what the DAF industry usually claims. Meanwhile, these are averages, and averages deceive: Individual donor-advised funds are not required to make charitable distributions in a given year – or ever.
MacKenzie Scott, by contrast, did not contribute her assets to a foundation or a DAF. No: She gave six billion dollars to actual charitable organizations doing good work. (My understanding is that Scott does utilize DAFs, but only to receive and liquidate her stock holdings, and then to cut checks to her grant recipients.) Scott is putting her money to use now, not hoarding it for some future rainy day.
The second way in which Scott is a model: The organizations she has supported provide critical services to individuals, families, and communities with few resources, particularly those that serve and are led by people of color.
Most eight- and nine-figure donations in America go to the Harvards and Stanfords of the world: deeply endowed and prestigious universities. Other huge donations go to hospitals, medical research institutions, and elite cultural organizations. MacKenzie Scott has not taken this route. She’s supporting organizations doing gritty work, and she has demonstrated a commitment to helping those on the front lines of battling racial inequity. Her gifts to higher education are going to historically black colleges and universities and community colleges serving indigenous peoples. Other recipients include food pantries, organizations helping individuals deal with medical debt, and regional Meals on Wheels, Goodwill Industries, and Easterseals. It’s hardly a list of glamorous causes.
As Scott writes, her team of advisors “took a data-driven approach to identifying organizations with strong leadership teams and results, with special attention to those operating in communities facing high projected food insecurity, high measures of racial inequity, high local poverty rates, and low access to philanthropic capital.” Her clear intention was to make transformational gifts to critically important, under-resourced organizations supporting under-served people.
MacKenzie Scott is taking an entirely logical approach to national crisis. It’s refreshing. It’s smart. It’s strategic. And it’s rare.
The third way in which Scott is a model: Her gifts have been unrestricted, with minimal required reporting.
Typically, major gifts – and many smaller ones – come with significant strings. The use of funds is carefully delineated. Donors expect that schools, buildings, scholarships, or programs be named after them. There are restrictions on how much of the grant can go for salaries, or overhead, or whatever. There are, additionally, expectations for extensive reporting back to the donors on the use of the funds and the impact, and those reports often require the creation of special processes, tracking, and forms.
But that’s not the way MacKenzie Scott is doing it. Her grants are completely unrestricted. She trusts the organizations to use her gifts for the best possible impact, without interference or onerous paperwork.
I spoke with one recipient, John Sayles, Executive Director of the Vermont Foodbank, who described getting an email one day in December asking for a phone meeting. The next day, Sayles learned his organization was getting a $9 million gift from MacKenzie Scott. The only restriction was that the organization could not publicize the gift for a couple of weeks, until all the gifts in that grantmaking tranche were announced by Scott. And the only required report will be a letter at the end of each year about how the organization used the funds.
You may be familiar with the ancient story of the Gordian Knot, where the city of Gordius (in modern day Turkey) could only be ruled by a person who could untie the intricate knot at the city’s gate. According to legend, Alexander the Great considered the challenge, and then simply took his sword and slashed through the knot – done!
MacKenzie Scott has just cut through the Gordian Knot of philanthropy. With one swing, she showed that billionaire donors do not need to hoard their charitable assets in foundations or donor-advised funds, do not need to focus their large gifts on elite institutions, and do not need to burden recipients with restrictions. Scott clearly wants to have impact where it matters, and she trusts and respects the charitable organizations to manage her gifts effectively. She is not paralyzed into inaction by worries that a fraction of her money will be misspent. Rather, she’s driven to get funds in the right hands to do the right things – right away!
MacKenzie Scott’s generosity is not going to solve the problems roiling the nation. The Covid pandemic is spiking. Racial inequity and entrenched systemic racism remain in place. The economic recovery, if and when it comes, will be slow and dreadfully uneven. And the events of the last few weeks – and certainly the past few days – underscore the frightening fragility of democracy itself.
The huge wealth divide that made Scott’s philanthropy possible is only widening during the pandemic. In fact, my back-of-the-envelope arithmetic leads me to believe that MacKenzie Scott is wealthier today than before she gave away the six billion dollars. (After her divorce, Scott became owner of four percent of Amazon, whose share price went up 73% in 2020.) But if, sadly, we’re going to have a nation of billionaires and paupers, and if philanthropy is one way to even out the disparities, MacKenzie Scott sets a sterling example of exactly how to do that the right way. Let’s hope she’s the first of many.
Copyright Alan Cantor 2021. All rights reserved.