Q: We were thinking of creating a discretionary grant policy where each board member could make some grants in their own areas while keeping the majority of the foundation’s grantmaking in our parents’ home state. How many other families do this and is this a good idea?
A: Many family foundation boards allow discretionary grantmaking, that is, grants made largely at the discretion of authorized individuals, usually trustees. As with any other private foundation grant, the board of directors as a whole is still legally responsible for approving discretionary grants, ensuring the grantee is an eligible 501(c)3 organization, and abiding by the self-dealing rules—even if the grant does not go through the foundation’s typical review process.
According to the Council on Foundations’ Foundation Management Series, 53.8 percent of family foundation respondents permit this kind of grantmaking. The Association of Small Foundations found that 28 percent of respondents to its Foundation Operations and Management Survey allow board members to make discretionary grants.
Many families favor this kind of grantmaking because they feel it encourages individual philanthropy and participation. Other families are concerned that discretionary grants will turn their family foundation in to a mere collection of individual funds.
To strike a balance between encouraging both individual and collective philanthropy and to prevent individual grantmaking from overwhelming the family’s vision and mission, many foundations place a cap on the collective amount of discretionary grantmaking, usually a percentage of total annual grantmaking.
Others forgo discretionary grantmaking and opt to encourage individual charity and volunteering with matching programs. Individual financial donations can be matched by the family foundation up to an agreed-upon sum. Board or family members’ volunteer hours can be monetized and matched as well.
The success of your own discretionary grantmaking program will principally depend on creating a clear, fair policy for making such grants (e.g., establishing who can make them, for how much, how it will work, and whether these grants must fit within the foundation’s grantmaking guidelines).
For more information, consult the National Center’s Discretionary Grants: Encouraging Participation…or Dividing Families?