Private Foundations - International Development Committee Contents

3  Concerns about foundations

Single-issue interventions

34. Foundations can make independent decisions about what to fund. They often choose focused, "problem-oriented" interventions that produce fast results. For smaller foundations, adopting a single-issue approach is often the easiest approach, as Sarah Lock of the Nuffield Foundation told us:

    It is much easier for us to focus on specific issues rather than addressing everything, but those single issues still fit into the big jigsaw […] Having a single issue helps keep trustees on board and it also helps people who are applying for funding from us to know where to go.[63]

35. However, critics argue that a 'quick win' approach means that foundations may fail to recognise structural and political impediments to development. Rather than taking a holistic approach, critics say, foundations focus on isolated problems and devise 'vertical' interventions to deal with them—for example, developing vaccines for a single infectious disease without strengthening health systems (by training staff, improving clinic facilities or helping patients access care). It is argued that foundations risk creating parallel structures that could further undermine the effectiveness of public sector provision. One critic, Michael Edwards, has stated:

    New loans, seeds and vaccines are certainly important, but there is no vaccine against the racism that denies land to 'dalits' (or so-called "untouchables") in India, no technology that can deliver the public health infrastructure required to combat HIV, and no market that can re-order the dysfunctional relationships between different religions and other social groups that underpin violence and insecurity.[64]

36. Further, critics claim that foundations' preference for innovation and flexibility can mean following development "fads" rather than focusing on trusted development interventions such as clean water provision and building schools and clinics. It has been argued that foundations focus "too much on glamorous science and long-term technology bets and not enough on putting boots on the ground in places like Africa."[65] Dr Noshua Watson of IDS told us that foundations needed to build more local partnerships in developing countries:

    When you look at those partnerships, the foundations that are giving are very recognisable names—Rockefeller, Gates, Hewlett and so on—but their partners are still largely think-tanks, academic organisations and NGOs in the US and Canada. Only about a fourth of their partners are abroad in, say, India, Kenya and so on and, even then, they are largely other think-tanks or academic institutions, so there is still a lot of work to be done in terms of building up the links and partnerships between foundations and with NGOs or civil society organisations on the ground.[66]

She also highlighted a key risk with single-issue interventions:

    If you are creating a monoculture of approach to a certain problem, particularly when that approach might not necessarily be empirically proven or state of the art in development practice, it becomes a problem.[67]

37. The problems caused by focusing on 'vertical', single-issue interventions instead of whole development sectors are demonstrated by recent comments made by Babatunde Osotimehin, the executive director of the UN Population Fund (UNFPA). In a recent interview, Dr Osotimehin said that "efforts to expand family planning services in the developing world stalled for a decade while global health organizations turned their energies to fighting HIV/AIDS." He said "We made a mistake. We disconnected HIV from reproductive health. We should never have done that because it is part and parcel".[68]

38. When we put criticisms about foundations' single-issue focus to Jeff Raikes, Chief Executive Officer of the Gates Foundation, he defended the Foundation and said it sought to do both the "low tech" and the "high tech"; that is, that it committed substantial resources to strengthening health systems in poor countries by, for example, building pit latrines and providing anti-malarial bednets, as well as funding "high tech" immunisation initiatives.[69]

39. As we have said, DFID has provided generous support to GAVI, a single-issue vaccine and immunisation intervention. We asked the DFID Minister to respond to criticisms about vertical funds of this kind. He denied that by supporting GAVI, DFID was neglecting broader health projects in its partner countries. He said he had "asked this question robustly in the Department" and felt "genuinely that what GAVI and Gates are doing complements and supplements and does not displace".[70] DFID has a large bilateral budget, spending the same in one year on the health sector—£830 million in 2010-2011, its largest expenditure for any sector—as on GAVI over five years.[71] Systems strengthening is a key priority for the Department: within Whitehall, DFID is lead (with the Department of Health) on the 'Health systems and delivery' pillar of the new cross-Government 'Outcomes Framework for Global Health 2011-2015'.[72] DFID also works with the Rockefeller Foundation on their Transforming Health Systems initiative.[73]

40. Critics have argued that the focused, 'problem-oriented' interventions followed by many foundations can risk focusing on isolated issues rather than wider obstacles standing in the way of development such as inequality, conflict and poverty. However, equally, for small foundations, choosing a single issue gives a focal point around which trustees and grant-seekers can unite. As we noted in a previous recommendation, DFID has contributed generously to the Global Alliance for Vaccines and Immunisation—a classic 'vertical' intervention—but this is just one of a wide range of DFID health inputs, many of which focus instead of strengthening wider health systems. To avoid the risk of too many parallel, single-issue interventions springing up in the health sector, DFID should seek to engage foundations with global development structures such as the Paris Agenda, and use these fora to highlight the importance of sector-wide and 'systems strengthening' approaches.

The education sector: left behind by foundations?

41. Education receives less attention from foundations than health. Data suggests that education represents around 5% of the global US$9 billion philanthropic financial commitment, compared with over 80% for health. Additionally, much of the finance provided through corporate philanthropy for education is directed towards middle-income countries.[74] This means the education sector in the poorest countries misses out on much-needed funding. There are approximately 67 million primary school-age children out of school worldwide, along with over 70 million adolescents. Many millions more are in school but receiving an education of extremely low quality. Girls are often hardest hit, in terms of attendance and learning outcomes. Failure to make progress on getting children into school is holding back progress on other Millennium Development Goals, especially those on child survival, poverty reduction and gender equality.[75]

42. Kevin Watkins of the Brookings Institution partly attributes philanthropy's relative neglect of the sector to the fact that education "lacks a strong multilateral core" and that there is no counterpart to the Global Funds of the health sector, which have provided a "financing window" for philanthropists and private sector actors. Watkins suggests the establishment of a Global Fund for Education, which—as well as catalysing finance for the education sector generally—could act as "a platform through which companies can deliver finance, technology and support to some of the world's most disadvantaged children."[76]

43. Encouragingly, we heard from several witnesses that a number of foundations were beginning to move into education, especially girls' education.[77] DFID has a high profile collaboration with the Nike Foundation, which invests exclusively in projects for adolescent girls in the developing world (including a focus on girls' education). The Foundation has opened the 'Nike Girl Hub' in DFID's offices in London. In addition to the Palace Street base, the Girl Hub operates through DFID country offices in Ethiopia, Nigeria and Rwanda. DFID states in its written submission:

    The Nike Foundation's deep expertise in girls as well as communications combined with the reach, scale and knowledge of DFID creates a powerful partnership in the Girl Hub joint venture that is capable of transforming girls' lives.[78]

DFID gave us some specific examples of outputs from the partnerships, such as the national rollout of an adolescent girl health programme with the Rwandan Ministry of Health and DFID Rwanda. In addition, DFID says the Girl Hub has supported DFID's top management group in redesigning its gender strategy to ensure girls and women are a key priority for every country.[79] We asked DFID whether it could look at extending Girl Hub activities into the Democratic Republic of Congo (DRC), which we visited this summer and learned of the terrible situation facing girls and women in the country, particularly in conflict-affected eastern DRC. The Department replied that "having a Girl Hub in neighbouring Rwanda means that [the Hub] are learning about the potential to reach girls at scale in this region."[80]

44. Education in poor countries receives far less support than the health sector from foundations. DFID should encourage foundations to move into education sector, especially girls' education, in line with DFID's prioritisation of girls and women. It should look at either strengthening the Global Partnership for Education (formerly the Education for All Fast Track Initiative), or helping set up a new independent Global Fund for Education—either of which could help facilitate increased funding from foundations.

45. The Nike Girl Hub is an innovative approach that has scope to be scaled up, and possibly replicated in other sectors. We recommend that DFID extend Girl Hub activities to eastern DRC, where many girls and women face extreme hardships—especially gender-related violence—on a daily basis. Initially, a DRC Girl Hub could operate out of the Hub's base in Rwanda, but the long-term aim should be for an independent Hub in DRC operating within DFID's expanded programme there.


46. Foundations differ from official development agencies in that, instead of being accountable to the taxpaying public, they answer to their boards and/or to their benefactor(s).[81] As we have said, this comes with advantagesnotably that it can enable them to take more risks.[82] Yet at the same time this weakened accountability poses a challenge, as academics from the Institute of Development Studies told us:

    There are serious issues around private foundations' lack of legitimacy due to the private and undemocratic nature of their decision-making processes. These processes need to be inclusive and actively seek to engage with local communities as well as other donors, NGOs and civil society organisations.[83]

47. Foundations and trusts are administered by trustees. Dr Noshua Watson of IDS emphasised that "within better governed foundations you find a separation between the trustees who determine the strategic direction of the foundation as a whole, and then the programme officers or programme managers who are subject specialists and actually make the funding decisions." She said "when you have the trustees themselves making the funding decisions, they may not necessarily go in the direction they need to go or select the appropriate programme."[84] She and other witnesses highlighted the importance of building the capacity of trustees with limited experience of international development (for instance, by getting advice from academics, donors and NGOs and working in partnership with more specialist organisations, as many foundations already do).[85] Improving monitoring and evaluation (M&E) is another route towards strengthened accountability. A recent study found that only 43% of US-based foundations formally evaluated the work financed by their grants. There is evidence that the larger foundations are improving their M&E: for example, the Gates Foundation now has an Impact Planning and Improvement Unit.[86]

48. A recent paper by Michael Edwards, co-author of Philanthrocapitalism,[87] detected an "accountability deficit" within the philanthropy sector, giving the example of the Gates Foundation, which, he asserts, controls a quarter of global spending on public health and yet "has a board of three family members plus Warren Buffet—a model that is unlikely to be effective in governance terms and is sure to raise more questions in the future."[88] However, he concedes that, like other foundations, Gates is taking steps to improve accountability by using 'advisory panels' of various kinds. Edwards suggests a number of other ways in which foundations could strengthen their own accountability: by channelling funds through structures that are governed by a broad cross-section of stakeholders at the national and international levels, such as the Global Fund to Fight AIDS, Tuberculosis and Malaria, which has formal civil society representation on its board; diversifying their boards of directors; strengthening feedback from their grantees and other independent voices; increasing coordination with host country governments; channelling more resources through public structures; and "fostering a culture of self-criticism to produce a 'social science of philanthropy' from which everyone can gain".[89]

49. DFID collaborates with private foundations on accountability and transparency through the Transparency and Accountability Initiative (TAI), which aims to empower citizens to hold governing institutions to account. TAI was launched in March 2010, is co-chaired by DFID and the George Soros Open Society Foundations and is funded by a consortium of four foundations.[90] One of TAI's aims is to bring together the major private donors to stimulate further innovation in major areas of development work (such as climate change financing, natural resource governance, aid and budget transparency).[91]

50. The fact that foundations are accountable only to their board members and trustees, rather than to the public, brings both advantages and disadvantages. Poor accountability limits co-operation between foundations and official donors, and thus it is in the interests of DFID and other agencies to support foundations to strengthen accountability. We recommend that DFID offer its skills and experience to build the capacity of the trustees within smaller, UK-based foundations, who may have limited exposure to the international development sector. This training could emphasise other ways to strengthen accountability such as: setting up decision-making structures that involve local grantees and funding partners; increasing co-ordination with partner country governments; and improving monitoring and evaluation.


51. The precise volume, distribution and targeting of foundation spending are currently unclear. Compared to official donors, foundation reporting is weak. This is especially true in Europe; the US foundation sector is more established and subject to more stringent regulations.[92] US regulations are set out in the Tax Reform Act of 1969 which exempts grant-making foundations from paying most taxes on their income from endowments. However, the Act requires a grant-making foundation to pay out at least 5% of the value of its endowment each year to charitable purposes. The Act also requires foundations to file annual returns that are publicly available with detailed financial and programmatic information, and to list every grant made.[93]

52. Currently, all that is required of foundations in England and Wales is the filing of annual reports and accounts with the Charity Commission (or in Scotland, the Office of the Scottish Charity Regulator, or in Northern Ireland, the Charity Commission for Northern Ireland). Foundations' reports must demonstrate how they are carrying out their charitable objectives and providing public benefit.[94] However, many foundations told us that they exceeded these requirements by voluntarily reporting a wide range of information about their spending on their websites.[95]


53. Steps are underway to improve transparency of foundations' spending. Some of the initiative is being taken by foundations themselves. For example, the Gates Foundation has begun reporting its health sector spending to the OECD Development Assistance Committee. It plans to extend this to all its international development spending as soon as possible.[96] Donors, too, are working to help ensure that reporting improves. DFID has taken a leading role in securing international support for the International Aid Transparency Initiative (IATI), which was launched in September 2008 as a voluntary, multi-stakeholder initiative aiming to make aid easier to track. Whilst so far it is mainly traditional donors (including DFID itself) that are making their reporting IATI-compliant—that is, conforming to the IATI Standard, which was agreed in February 2011 and lays out recommended data items for organisations to report on, including an agreed electronic format for reporting this data, enabling data from different organisations to be easily compared[97]—the Hewlett Foundation has also signed up.[98] The Initiative was given a strong boost at the Busan High Level Forum on Aid Effectiveness in November 2011 following the US's announcement that it will become IATI-compliant. NGOs are also moving towards compliance: in March 2011, DFID announced that all NGOs receiving DFID funding though Programme Partnership Arrangements, Global Poverty Action Funds and Civil Society Challenge Funds would be required to be IATI-compliant by April 2013.[99] 75% of global Official Development Assistance now falls under IATI.[100]

54. The Gates Foundation has not committed itself to compliance but is, according to the submission from the NGO Development Initiatives, taking steps to "publish more detailed and timely data consistent with IATI standards".[101] When we asked Jeff Raikes whether the Foundation was moving towards compliance, he said "we have chosen to publish our global health information in that format and we are working towards doing that with global development" but that it took "a little bit of time to get the data, reformat it into the appropriate categories". He stressed that he thought IATI was "a good initiative for the world aid community".[102]

55. Matthew Bishop and Michael Green recommended that the UK could tighten regulation further by introducing a 5% 'payout' rule for foundations to ensure that "these tax-subsidised vehicles deliver real public benefit rather than being 'warehouses of wealth.'"[103] The DFID Minister cautioned against increasing regulation in this way, saying that encouraging IATI compliance was one thing, but that asking UK foundations in the development sector to conform to a completely different set of rules to other UK-based charities was problematic.[104]

56. Witnesses expressed concern that smaller foundations might struggle to achieve IATI compliance. Sarah Lock of the Nuffield Foundation said increased regulation might deter smaller foundations from funding international development work.[105] Noshua Watson of IDS agreed, saying "we do not want to create onerous bureaucracy that stifles innovation and stifles the ability of foundations to be flexible". She stressed that currently the sources of data on foundations were largely private (in the UK, New Philanthropy Capital; in the US, the Foundation Center; and in Europe, the European Foundation Centre).[106] She said that mandating a public organisation such as the OECD DAC to collect data "would certainly benefit not only philanthropy but also development", as this would enable the collection of aggregated philanthropic spending, which currently did not exist.[107] The DFID Minister also welcomed the idea.[108] As we have said, the Gates Foundation has already begun reporting its health sector spending to the OECD DAC and plans to extend this to all its international development spending as soon as possible.[109]

57. The volume, distribution and targeting of foundation spending is currently unclear. Compared to traditional donors, foundation reporting is weak, especially within Europe. In the US, foundations are required to list every grant made and pay out 5% of the value of their endowment each year to charitable purposes. Improved transparency amongst foundations would help pre-empt the need to move to this kind of mandatory regulation in the UK. DFID deserves credit for its leading role in setting up the International Aid Transparency Initiative (IATI). The Department has taken steps to ensure that the NGOs it funds are becoming IATI-compliant. It is encouraging that the Hewlett foundation has also achieved compliance. DFID must now seek compliance from other foundations, including the Gates Foundation, which has already taken the step of voluntarily reporting its health sector data to the OECD Development Assistance Committee. DFID should encourage other, smaller foundations to report their spending to the DAC as a precursor to full IATI compliance. This would recognise the limited capacity within some smaller foundations to increase their reporting burden, and would facilitate a phased move towards increased reporting requirements.

63   Q 9 Back

64   Michael Edwards, Just another emperor: the myths and realities of philanthrocapitalism (Demos, 2008), cited in Robert Marten and Jan Martin Witte, 'Transforming Development? The role of philanthropic foundations in international development co-operation' (Global Public Policy Institute Research Paper Series No.10, 2008). Back

65   'The side effects of doing good', The Economist, 21 February 2008. Back

66   Q 6 Back

67   Qq 10-11 Back

68   'Focus on HIV/AIDS cost family planning a decade, says UN population chief', The Guardian, 24 October 2011 Back

69   Q 72 Back

70   Q 101 Back

71   At the GAVI pledging conference in June 2011, DFID committed £163m per year for the next five years (DFID, 'What we do: Immunisation', online at  Back

72   HM Government, 'Health is Global: An outcomes framework for global health 2011-2015', p.15 Back

73   Ev 57 Back

74   Kevin Watkins, 'Corporate philanthropy and the Education For All agenda', Briefing Summary of commissioned paper for The Bellagio Initiative, November 2011, p.1 Back

75   Ibid., p.1 Back

76   Ibid, p.2 Back

77   Foundations with education sector programmes include: Hewlett Foundation; Children's Investment Fund Foundation; MacArthur Foundation; Elmo Philanthropies; ARK (a philanthropic organisation in India); Pearson; the Soros Foundation Open Society Institute; the Qatar Foundation; and the Aga Khan's Foundations((Ev 57-58 and 61-62).  Back

78   Ev 57-58 Back

79   Ev 60 and Ev 57-58 Back

80   Ev 63 Back

81   There are some exceptions to this, such as Comic Relief, which is different to many other private foundations in that its income is generated primarily through public fundraising rather than endowments. It says this makes it a unique case with an enhanced sense of accountability to the UK public (Ev w14) Back

82   Ev w19 Back

83   Ev w47 Back

84   Q 13 Back

85   Noshua Watson, Sarah Lock and David McNair, Q 13 Back

86   Cited in Marten and Witte (2008), p.21 Back

87   Matthew Bishop and Michael Green, Philanthrocapitalism: How the Rich Can save the World and Why We Should Let Them (London: A&C Black, 2008) Back

88   Michael Edwards, 'The role and limitations of philanthropy' (commissioned paper for The Bellagio Initiative, November 2011, online at , p.12 Back

89   Ibid., p.2 Back

90   The Open Society, Ford, William and Flora Hewlett and Pierre Omidyar Foundations. Hivos (a Dutch international NGO) and two global civil society networks (International Budget Partnership and Revenue Watch Institute) also provide support.  Back

91   Ev 56-57 Back

92   Ev w15 and Erik Lundsgaarde, 'Global philanthropists and European Development Co-operation', EDC 2020 Policy Brief no.8 (February 2011), p.2 Back

93   Ev 37 Back

94   Ev 34 Back

95   For example, Baring Foundation (ev w3); Wellcome Trust (ev w43); Gates Foundation (ev 38) Back

96   Ev 38 Back

97  Back

98   Organisations that are currently IATI-compliant include: DFID, the World Bank, the European Commission, the Hewlett Foundation and two NGOs. Back

99   Ev w17 Back

100   'Busan has been an expression of shifting geopolitical realities', Jonathan Glennie, The Guardian 2 December 2011 Back

101   Ev w16 Back

102   Q 86 Back

103   Ev w25. According to the latest survey, by the Cass Business School, in aggregate the 100 biggest foundations in the UK (by donations) paid out 4% of the value of their endowments in 2007 (see 'The five per cent solution', Matthew Bishop and Michael Green, April 2010. Online at Back

104   Q 124 Back

105   Q 24 Back

106   New Philanthropy Capital describes itself as a "consultancy and thinktank dedicated to helping funders and charities achieve a greater impact." The US Foundation Center provides data, analysis and training to foundations, and maintains the most comprehensive database on US foundations. The European Foundation Center is an international association of foundations and corporate funders aiming to support the sector and document its activities. Back

107   Q 25 Back

108   Q 126 Back

109   Ev 38 Back

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© Parliamentary copyright 2012
Prepared 20 January 2012