posted on: Monday, August 20, 2007

by Yna Moore

Throughout the years, NCRP has worked with many newspaper reporters who bring to our attention malfeasance and questionable practices among a number of foundations (e.g. Abramoff's Capital Athletic Foundation, Sarasota Family YMCA, D&K Family Foundation, and the Leavitt Family Foundation to name a few).

In a recent article in the Chronicle of Philanthropy (Aug. 23 issue), Pablo Eisenberg brings home the important role that these newspapers play in the fight for more accountability in the philanthropy and nonprofit sectors. Eisenberg points out that the ability of the media to be effective accountability watchdogs is threatened by widespread budgetary cuts among the nation's newspapers.

He writes, "The reason that this is worrisome for nonprofit groups, donors, and citizens who depend on charitable institutions is that for the last decade newspapers have been the only major force in holding nonprofit organizations and foundations publicly accountable. Broadcasters and online journalists have made important contributions, but nothing like the powerful effect of the investigative articles that have appeared in newspapers." Read more

Yna Moore is communications associate at the National Committee for Responsive Philanthropy

posted on: Friday, August 17, 2007

By Gary R. Snyder

A surprise took place a week or so ago. We saw the nonprofit sector depart from its solid position of just a few years ago. Call it a 180. Call it a new awakening. Call it a reincarnation.

The Independent Sector, the presumptive nonprofit sector leader, has taken up the mantle of representing the charitable world on matters before Congress and federal regulators. IS seems to have drastically changed its position on partnering with government.

Let Us Control Our Own Destiny

Self-regulation has been a committed cause in the charitable sector for decades. But the sector has been under condemnation for years. With the 1992 United Way of America scandal and several others of high media visibility, many charitable leaders in the U.S. became concerned that the public, especially donors, would lose their confidence in the good of charitable organizations. There were outcries at the Fall, 1994 conference of the Independent Sector to clean up cheats. They feared that regulars and lawmakers would “punish all charities collectively for the transgressions of a few”. In 1997 the New Era Philanthropy Foundation took $135 million from seniors; in 1998 $78 million was diverted from the Alleghany Health, Education and Research Foundation; in 1999 Greater Ministries International absconded with $353 million; and, in 2002 the Baptist Foundation took $570 million from its trusting contributors. At all junctions where there were regulatory inquiries, the cry from the sector leadership was ‘trust us, we can regulate our own’.

Throughout the 1990s and early to mid 2000s concerns were expressed that scandals would erode the public’s trust in the critically important nonprofit sector.

The $20+ million Independent Sector was the nonprofit’s sector’s point-organization as well as the leading proponent for self-regulation. In 2005 when outsiders wanted a peek at the charitable sector, IS conducted town hall meetings in 15 locales where speakers rallied the followers around the concept of no government involvement. They spoke about the need to prevent the intrusion of government regulation and police themselves. At the Southfield Michigan meeting, speakers attributed the desire for Congress’ involvement to the 3 R’s---reelection, regulation and recompense. The approached worked and the troops rallied around the self-regulation banner.

Oop…here’s the deal

The media attention to nonprofit sector scandals in the 1990s had increased the sector’s discussion about regulation, self-regulation and transparency. Existing governmental regulation and self-regulation wasn’t effective in preventing the high profile scandals. Independent watchdog organizations were inadequate and only monitored less than 10% of the charities. As late as mid-2007, state nonprofit agencies are still proposing self-regulatory guidelines in the wake of recent scrutiny at both the state and federal level.

It was not until several of the sector’s stalwart agencies got into trouble did Congress, state attorneys general and the Internal Revenue Service say enough is enough. They saw a voluntary sector out of control. They saw the American Red Cross, the United Way, Natures Conservancy, and hundreds of others misbehaving. The headlines screamed of billions of donors’ dollars stolen or wasted and hundreds of agencies not fulfilling their charitable mandate. The abuses that caught the outsiders’ attention were principally perpetrated by the sector’s largest agencies.

With billions of the contributor’s dollars lost just last year, it continues in 2007….with the Smithsonian Institution (poor management and virtually no governance and a multitude of firings) or the EduCap ($11 million diversion of student loan funds to the executive’s husband’s ventures) or the America’s Clean Water Foundation ($25+ million embezzlement with the EPA wanting its money back).

No one wanted to go on record to condemn this malfeasance.

Wow...a marriage

In response and in lockstep, the leadership of the Senate Finance Committee, the House Ways and Means Committee, the IRS and others wanted to know what was going on. The protectionist charitable sector balked initially but soon converted and began to covet a partnership with the lawmakers and regulators. Congress gave the nonprofit leadership, through the efforts of the Independent Sector Panel on the Nonprofit Sector, the opportunity to change public opinion and work toward significant reforms by self-regulating.

The sector admitted it needed assistance from the government. In 2005 the Independent Sector produced a document; Strengthening Transparency Governance and Accountability of Charitable Organizations acknowledged that executives and boards are not aware of their ‘expectations and requirements’ without government help. It further pleaded for the government to closely collaborate with the sector in addressing a multitude of reforms.

With the increasing abuse, the sector leadership is relying on the government to jump-start regulatory measures to avoid the risk of the loss of the faith and support that the public has always given to the charitable community. The IS asked for government assistance in educating board members and professional leaders because both are not aware of the expectations and requirements imposed upon them. Further, they asked the government for sufficient resources to facilitate full implementation and new regulations to prevent abuses. They asked Congress to authorize additional resources to the IRS for overall tax enforcement and for improved oversight of charitable organizations as well as audits and investigations. The report wants the Internal Revenue Code to impose penalties on board members and other managers of charitable organizations who approve of self-dealing or excess benefit transactions, including excessive compensation, not only if they knew that the transaction was improper but also if they “should have known” that it was improper. It suggested increasing reporting requirements. It wanted a more disclosure such as travel, entertainment, gift and car expenses. It wanted board reform including size as well as additional requirements for board participation.

And now, in recent testimony, the IS President cemented the nonprofit-government relationship with a request to create the equivalent of the federal Small Business Administration to implement new stipulations put on the sector.

A flawed plan?

Some felt betrayed by the nonprofit sector’s requests for help from the government. They were troubled by its vacating its long time belief that a strong system of self-regulation and education is critical if the people making up the nonprofit community -- boards, staff, volunteers, and donors -- are to ensure that their organizations are living by the highest ethical standards.

There is very little argument that the sector needs to promote good housekeeping. Cleansing the sector to rid itself of further abuses and poor practices is critical. Finding an appropriate balance between regulation and self-regulation is essential.

A highly regulated sector has its consequences. The IS efforts represented the thinking of big foundations and nonprofits, leaving 70% of the sector---the small and midsized agencies---with potentially being encumbered with time consuming regulatory requirements. With small-medium charity executives already taxed to the limit, many are already looking to leave their charities in the next couple of years. The sector’s challenge is to maintain a quality stable of executives not chase them out.

Few disagree with the leadership of the sectors belief that board members need help in understanding their roles and responsibilities. The sector should build upon the existing, albeit somewhat disjointed, learning network, organizations rather than create another. Boards need to learn how to perform or face a policing system will be not to their liking. Similar to executive counterparts, board members are currently in very high demand. There is an acute leadership shortage. Board improvements must be delicately addressed or we could intensify the current exodus.

Hopefully the nonprofit sector will go down the road that will win the sector’s confidence and regain the public’s trust

Gary Snyder is the Managing Director of Nonprofit Imperative in West Bloomfield, MI..
He can be reached at gary.r.snyder@gmail.com

posted on: Friday, August 10, 2007

Positive and Negative Assumptions have adverse effects, nonprofit directors say

Traditional families. Family farms. Safe communities. These are just a few of the nostalgic perceptions of rural life perpetuated by American culture and society. But they have adverse effects on foundation giving to rural areas, nonprofit directors say. According to one rural nonprofit director interviewed in Rural Philanthropy, “There’s a Normal Rockwell picture of rural America … . A great deal of that is true, but poverty is not seen in rural areas. Behind all those things, there is a great deal of poverty … and a lack of opportunity.”

NCRP’s latest report concludes that these “overwhelmingly positive notions of rural life” have “actually deter[ed] foundations from considering rural groups … as potential candidates for funding.” And if positive perceptions of rural America were not enough, negative images of rural life also have taken their toll.

Associating rural landscapes with the “sticks” or the “boonies” also may cause foundations to treat rural America with almost fatalist-like attitude. For example, as one rural Mississippi contributor said in Rural Philanthropy, “I think there’s this historic perception of Mississippi as backwater… . There’s this ‘giving up’ attitude when it comes to this state.”

How do you think perceptions of rural America impact grantmaking behavior? How do you keep those historical perceptions from undermining giving levels?

Download the report for free.

posted on: Friday, August 03, 2007

On Thursday, the Senate voted overwhelmingly to pass the Honest Leadership and Open Government Act of 2007, the same bill that was passed in the House earlier this week. By a vote of 83-14, the Senate voted for the measure that would provide the first substantive effort in years to reform the ethics procedures in Congress.

The bill is now headed to the desk of President Bush, where it will either be vetoed or signed into law. With enough votes in both chambers to override any possible veto, the prospects for passage of the bill remain highly promising.

The bill would force lawmakers to detail on a quarterly basis where donations are coming from by making the information accessible on the Internet. In addition, “pork projects,” or funds that are appropriated with more respect to Congressmen and their district rather than actual need, would face stronger scrutiny and disclosure measures. The bill also prevents Congressmen from receiving certain perks, including discounted rides on private planes, and would prohibit members of Congress from receiving gifts from lobbyists.

We are calling on President Bush to sign the legislation into law, to bring about a significant and long-overdue change to the ethical procedures of Congress.

The Honest Leadership and Open Government Act of 2007 is one of the bills NCRP supports that is up for debate in the 110th Congress. For an overview of the bills that directly affect NCRP and the non-profit sector as a whole, click here.

In the past year alone, there have been dozens of news articles and opinion pieces on the topic of aligned investing and foundation investment policies, in both mainstream news outlets and sources focusing on philanthropy and the nonprofit section. As hot as the topic may seem to philanthropoids, many leaders actually doing the heavy lifting in nonprofits across the country may find it too arcane, or simply too far removed from the grant making practices of foundations. They might well think “sure, I support socially responsible investing generally, and I’m glad more foundations are looking at it, but how is that actually going to help the people I serve? To be honest, I’d rather have more grants.”

This is a serious consideration for an organization like NCRP that seeks to encourage more grantmaking to progressive organizations working in social and environmental justice, civil rights and community development, among others. How much energy should a group like NCRP put into advocating for more aligned investing by foundations?

The numbers tell the story. How foundations invest their money may be even more important than grants to low income and minority communities (if not to the grantees that serve them, however.) In 2005, private foundations in the U.S. gave $36.4 billion in grants, but they managed $550.5 billion in investments, according to Foundation Center. Even if they were to take only 5% of those funds into an aligned investment approach, that would be huge change. Further, depending on how aligned investment policies are structured, the majority of those $25 billion or more in funds – roughly 2/3 the total value of foundation grants - could be directed to investment in vitally important infrastructure and economic development in poor communities and threatened environments throughout the U.S. – in things like child care centers, preschools, affordable housing, transportation infrastructure, green development, and the like. In fact, the share of the aligned investment funds going to these causes may be much more than the share they currently receive of grant funds. Imagine what good could come if one of the screens foundations used was a preference for investment in low income areas, akin to what the Community Reinvestment Act sets forth.

Beyond the sheer numbers, several other things make the push for aligned investing a promising strategy to help vulnerable communities, and a smart one for groups like NCRP. First, there is already high momentum within the foundation community for it. Major funders like Ford, MacArthur, Rockefeller and Mott are already pursuing it. Second, unlike efforts to apply new standards to all foundations, most of the impact can come from changing the behavior of a small proportion of foundations – the top 100 foundations alone account for over $225 billion in assets, nearly half the total for all foundations, according to Foundation Center data. Third, this trend could bring some unusual allies into play - investment firms looking to offer aligned investment products may bring their power (and greed) to the debate (strange bedfellows, indeed) become allies of such a push (strange bedfellows), and may offset or overwhelm opponents.

Of course, “God is in the details”, and there are many thorny issues to be worked out. How to do aligned investing, how to measure it’s impact, and in the case of any legal or regulatory requirements, how to define what qualifies as aligned investing are very complex questions. We may not yet be ready to handle billions of dollars flowing in new directions, as Sean Stannard-Stockton cautions. That shouldn’t make us hesitate, though, to push for changes in tax law that might provide incentives to really increase that flow, as Lucy Bernholz, among others, has suggested. The financial markets are very fluid and respond well to demands for service from massive amounts of money – we shouldn’t worry that systems won’t adjust if aligned investing suddenly becomes the norm (wouldn’t that be a good problem to have?). Further, a tax or regulatory change may have the secondary effect, of legitimizing the aligned investing approach, and hand foundation staff some leverage to use in their internal debates with board members. In this way the monetary value of the incentive might be less important, though it must be real, not simply symbolic.

So perhaps the NCRP gloss on promoting aligned investing should be something like this: (1) we want to encourage funders to be as creative as possible in pursuing benefits for the vulnerable people NCRP cares about, (2) a key way we want to do that is by highlighting and praising those who do this well, and (3) tax and regulatory changes can offer important incentives both to reward those who do this well and encourage those who are hesitant. What do we think?

(For an excellent and concise overview of aligned investing strategies and the practical ways they may benefit low income communities, read this paper by Blueprint R+D and Monitor Consulting Group.)

Peter Manzo is an NCRP board member and the Director of Strategic Initiatives for the Advancement Project, a civil rights advocacy organization based in Los Angeles and Washington, D.C. pmanzo@advanceproj.org

posted on: Thursday, August 02, 2007

The gap in foundation giving to urban areas compared to rural ones is staggering. In 2001 and 2002, for example, “only 184 foundations made grants that the Foundation Center categorized as ‘rural development’ grants.” And yet, “a larger percentage of children live in poverty in rural America than in urban America,” reports NCRP’s latest report, Rural Philanthropy: Building Dialogue From Within.

Understanding that disparity, however, is difficult. After all, grantmaking behavior, nonprofit operations and the spatial economy interact in complex ways, especially in rural parts of the country.

Rural Philanthropy tackles those complexities and recommends ways to boost charitable giving to rural America. It focuses primarily on foundations’ perceptions of rural areas and nonprofits, rural nonprofits’ access to grantmakers, and population constraints on such areas.

More discussion points will be provided during the next couple of weeks. NCRP invites readers to join in the dialogue on issues regarding rural philanthropy.

Download the report for free.

posted on: Wednesday, August 01, 2007

Yesterday the House of Representatives passed a comprehensive and sweeping ethics reform package that is now headed for the Senate, where support for the measure looks promising. The first substantive ethics package in years, the Honest Leadership and Open Government Act of 2007 is designed to curb the influence of lobbyists and special interests in Washington, and is strongly supported by NCRP.

Designed to curb the impact of lobbyists and special interests in Washington, the bill, which passed by a vote of 411-8, would force lawmakers to detail, on a quarterly basis, where donations are coming from by making the information accessible on the Internet. In addition, “pork projects,” or funds that are appropriated with more respect to Congressmen and their district than actual need, would face stronger scrutiny and disclosure measures. These earmarks, which cost taxpayers tens of billions of dollars every year, would be readily available for scrutiny before passage of any bill that includes them.

As the bill heads to the Senate, we hope that both political parties can come together and vote for the legislation.

The Honest Leadership and Open Government Act of 2007 is one of the bills NCRP supports that is up for debate in the 110th Congress. For an overview of the bills that directly affect NCRP and the non-profit sector as a whole, click here.