posted on: Wednesday, July 30, 2008

Below is a copy of the speech given by Christine Ahn, senior fellow at the Korea Policy Institute and member of NCRP's board, during a session on foundation giving trends at the "Raising Change: A Social Justice Conference" sponsored by the Grassroots Institute for Fundraising Training (GIFT) and the Grassroots Fundraising Journal.

Christine also wrote "Democratizing Philanthropy: Challenging Foundations and Social Justice Organizations" in the fall 2007 issue of Responsive Philanthropy, NCRP's quarterly publication.


Thank you for inviting me to be on the panel. I always feel like an imposter talking about philanthropy since I have never worked at a foundation. But as someone who has worked in the citizen sector for over 15 years, I have certainly written my fair share of grant proposals and received ample rejection letters (and the occasional acceptance letter). I have also served on the board of the National Committee for Responsive Philanthropy (NCRP) for over 4 years. But my real claim to knowing anything about philanthropy is my having been mentored by the infamous Pablo Eisenberg when I was a graduate student at Georgetown. He’s without a doubt the toughest critic of philanthropy today, and although many of you may not agree with his approach, it’s hard to dispute his unshakeable positions.

So, here we are. It’s the second GIFT biannual conference and there are more and more people interested in figuring out the 12-step plan to being free from the nonprofit industrial complex. I’m still in remission but trying to be part of the cure. And as with any search to find a cure, we need to get to the root causes and understand the landscape. With that said, let’s take a step back and put some trends in context.

• There is much grumbling among social justice activists that 501c3 nonprofit organizations are more concerned today about longevity than achieving true, systemic change.
• Many young people are leaving the nonprofit sector after working a few years due to burnout and low-pay. We as a sector are facing a crisis in leadership since many baby boomers that founded and headed nonprofit organizations must hand over the mantle of leadership, and fewer and fewer younger folks want to take over as executive directors because of the endless responsibility to raise funds.
• Most foundation dollars remain in the realm of elite institutions. Studies show that in the last 30 years, despite the doubling in the number of foundations, the quadrupling of foundation assets, and the increase in foundation grantmaking by 425%, grant support for those most in need (unemployed, homeless, low-income people) received disproportionately less than other broad program areas.
• We are in bad shape as a nation. We are in a war, in a recession, and hundreds of thousands of low and middle-income families have lost their homes to foreclosures caused by deregulation of the banking and financial services industry. The poor are poorer than they were since 1975 with over one-third of adults living in poverty among the working poor. This is against the backdrop of global warming, an energy crisis, and a global food crisis.

Given this scenario, social justice activists have been having more systematic conversations about whether 501c3 nonprofits have become a barrier or a vehicle to achieving social justice. In 2005, INCITE organized the "Revolution Will Not be Funded" conference at UC Santa Barbara, then the Raising Change conference held a debate in 2006, and then the US Social Forum held workshops by INCITE timed with the release of its book. In every setting, the room was packed and the heat on. As more and more funding goes to providing direct services as public services are slashed, there is less money to fund organizing—at a time when more civic engagement and community organizing is needed.

On the one hand, there are people who are so disgusted with the whole world of institutionalized philanthropy and the lack of accountability by foundations. They don’t see much hope for positive reform. Many of these are our friends here who espouse grassroots fundraising as the answer, and their critique is spot on that we need to think about building grassroots political power independent of tainted money. And trust me, I have experienced the difficulty of raising money for a Korea policy thinktank and running into all the challenges of trying to raise money from foundations largely run by white people who largely fund organizations largely run by white people. So I hear the grassroots fundraising people when they say enough is enough. And then on the other hand are those who say let’s take the money and run! We’re just playing the game and while we know that the game isn’t fair, we have to suck it up and play nice so that we can do the real work. The problem is that this conversation is very immobilizing. We need to do more than just walk away from foundation money, and we need to more than just take the money and run. We need to start democratizing institutionalized philanthropy through education, organizing and advocacy. And if there is resistance to accountability and transparency, then we need to reform the tax laws that gave the super-rich this public benefit in the first place.

So let’s think about the super-rich and the tax benefits they get. In 2006, Warren Buffet donated $30 million to the Bill and Melinda Gates Foundation. Three trustees—Bill, Melinda and Mr. Buffett—along with Bill Senior and now the new President of the Foundation—will decide how to allocate $3 billion-plus that the foundation is required to payout each year (Plus because Buffet mandated that his funds be spent down). Mr. Buffet gets huge tax write-offs, the Gates Foundation a huge infusion, and the public? We get to see how the Gates Foundation will invest in solving social problems.

The danger that this poses was seen in 2006 when the Gates and Rockefeller Foundations committed $150million to the Alliance for a Green Revolution in Africa (AGRA). The way that the Gates Foundation cast this biotechnology initiative as “attaining the best yields in the diverse environments of Africa and work to make sure these high-quality seeds are delivered to farmers who need them the most.” In the view of the Gates Foundation, agricultural biotechnology is the silver bullet to solve hunger and malnutrition in Africa. Just because the Gates Foundation believes the solution to problems of low agricultural productivity rests on technology doesn’t mean it’s the one shared by millions of peasant farmers whose lives and livelihoods will be affected most by the Green Revolution in Africa. At the 2007 World Social Forum in Nairobi, 70 African civil society organizations from 12 African countries issued a statement that, “AGRA is putting over $150 million towards shifting African agriculture to a system dependent on expensive, harmful chemicals, monocultures of hybrid seeds, and ultimately genetically modified organisms” and “under-represent the real achievements in productivity through traditional methods, and will fail to address the real causes of hunger in Africa.”

Even Michael Edwards from the Ford Foundation writes that philanthrocapitalism, a term coined by the Economist to describe the harnessing of business and the market to the goals of social change, is dangerous. He writes, “The increasing concentration of wealth and power among philanthrocapitalists is unhealthy for democracy. It’s time for more accountability.”

And so the Greenlining Institute’s recent push to pass California Bill AB 624 to try to push for greater transparency and information of how foundation dollars are being allocated is a prime example of how much resistance there is from foundations to being held more publicly accountable. But the fundamental problem is that these institutions see themselves as private. But are they?

According to the Joint Committee on Taxation, charitable deductions cost the Treasury Department $40 billion in lost tax revenue in 2006. In fact, it is estimated that at least 45 percent of the $550 billion dollars in assets that foundations have belong to the American public. As Akash Deep at Harvard and Peter Frumkin at University of Texas note, “When a foundation is created, the burden of lost tax revenue is borne by citizens today in the form of a tax expenditure” with the promise that it will be paid out in the future. The realization that foundations are partially public dollars is starting to raise the ire of more elected officials.

In an interview with Rick Cohen, former executive director of NCRP, California Congressman Xavier Becerra from Los Angeles and member of the House Ways and Means Committee said, “If you’re getting a tax subsidy, another taxpayer must make up for what you’re not paying. That subsidy should serve a good purpose. What are we getting for some $32 billion in lost revenues lost to the federal treasury in paid taxes? Is it serving a good public purpose? Statistics I’ve seen suggest that only 1 in every 10 dollars are serving poor people or disadvantaged people. I have to wonder where the other 9 dollars are going.”

While this signals potentially greater oversight over foundations, when push comes to shove, I don’t think Congressman Becerra or the current Congress have the courage to push for philanthropic reform. But that says less about what is the right and just course of action and more about the cozy relationship today between Washington and Wall Street.

Here in California, despite their valiant effort, AB 624 ended with a statement signed by 10 foundations promising to build the capacity and increase technical assistance support to minority-led and grassroots community based organizations that serve primarily minority and low-income communities. It was a good step, but it still leaves the monitoring to foundations. And it doesn’t resolve the issue of the government’s right to know about diversity or other matters related to the public good. Even universities are mandated to report to Congress how more diverse students are beneficiaries of these public institutions.

That’s why it’s really incumbent upon all of us, not just the Greenlining Institute, which played a catalyzing role, to challenge this lack of democratic accountability among foundations. AB 624 was a litmus test of how much resistance there is among foundations to transparency and public accountability and how far we are from being the strong, independent and courageous nonprofit sector we need to be. As we set off on the long and arduous path to rebuild all the damage that has been wreaked upon our nation and world over the last few decades, we must not look away from the essential challenge to democratize philanthropy.

Do you agree with Christine that social justice activists should engage foundations more than they are doing now? Do you agree with her assessment of the danger posed by mega-gifts? What do you think are the effective ways to address the lack of "democractic accountability" among foundations?

posted on: Tuesday, July 22, 2008

By Gary Snyder


This is an article that may have consequences…bad ones. In many instances the donation that results from that telephone call that you receive from a professional fundraiser is not going to the organization to which you intended.

It seems that for-profit fundraisers can take your money with impunity. Its all legal and the Supreme Court has limited lawmakers from interfering by upholding the free-speech rights of fundraisers and charities.

Recently, public confidence has been stunned by news that for-profit fundraisers used by police ad firefighters have been little more that shells that enriched themselves and executives.

The little confidence that is left will be further shaken by an investigative story in the Los Angeles Times that found that only 54 cents of every dollar raised ended up in the charities coffers. Further, of the 5800 campaigns studied, commercial fundraisers, in many instances, do not even file the required reports. Why not? The law is not aggressively enforced because of limited staffing by California’s attorney general.

As one would expect, the fundraising business is growing. More than 300 fundraisers are registered in California alone.

Among The Times findings:

• “More than 100 charities raised $1 million or more from commercial appeals but netted less than 25 cents per dollar. Fundraisers got the rest.
• In 430 campaigns, charities got nothing: All $44 million donated went to fundraisers. In 337 of those cases, charities actually lost money, paying fees to fundraisers that exceeded the amount raised.
• In hundreds of other campaigns, charities apparently entered into contracts that limited their share of donations to less than 20%, no matter how successful the campaign.


• Groups with strong emotional or patriotic appeal---those supporting animals, children, veterans and public safety workers---often fared worse. Missing children charities received less than 15% of more than $28 million raised on their behalf.”

The questionable behavior of fundraisers is not limited to the nonprofit world. Dr. Ada Fisher doesn't have much good to say about BMW Direct, the Washington political firm that raised money on behalf of her 2006 bid for a North Carolina House seat. BMW Direct raised more than $400,000 for Fisher during the last election cycle, but only about $30,000 made it back to her to use in her campaign. That same firm raised about $731,000 for Massachusetts Republican Charles Morse. The only problem? Morse wasn't even on the ballot, and his campaign only saw 4 percent of that haul, the Boston Globe recently reported.

One charity fundraising campaign reflects the magnitude of the problem. Over a three-year period, the American Breast Cancer Foundation raised $5.8 million from its donors. It netted only $700,000. In 2006, just 2.5% of its budget went to research and 10.5% to mammograms or other services unrelated to fundraising. In all of its promotional material it listed research as a priority. An interesting twist: the charity founder’s son and two of his friends were paid an average of almost $3 million annually for the fundraising. That’s not illegal but violates conflict of interest policies used by many large agencies. The agency was rated poorly by two watchdog agencies.

With the pervasiveness of these fundraising firms and with all the big charity money on the charitable table, one would hope that board members and executives would stop giving hard-earned dollars to these shady scoundrels and stop compromising the charity’s hard-won reputations.


Gary Snyder is managing partner of Nonprofit Imperative and author of Nonprofits: On the Brink and Nonprofit Imperative. He can be reached at http://gary.r.snyder@gmail.com. His website is: www.garyrsnyder.com.

posted on: Monday, July 21, 2008

By Aaron Dorfman

A couple of weeks ago, the New York Times revealed in a piece by Stephanie Strom that the Association of Community Organizations for Reform Now (ACORN) kept secret for eight years the embezzlement of nearly $1 million .The embezzler was Dale Rathke, the brother of ACORN founder Wade Rathke.

As an outrageous breach of the public’s trust, ACORN’s case is a textbook example of horrendously weak governance combined with extremely poor judgment. While the National Committee for Responsive Philanthropy (NCRP) serves primarily as a watchdog of foundations and other grantmaking institutions (not of all nonprofits), this case is certainly worthy of comment due to the scope of the issues involved.

In the interest of full disclosure, I should point out that ACORN is a member of NCRP, that I worked for the organization from 1992 to 1997, that a senior ACORN executive served previously on NCRP’s Board of Directors, and that current NCRP board members are executives with foundations that fund extensively ACORN and its affiliates. Additionally, NCRP is currently working on new research that documents the positive impact of policy advocacy, community organizing, and civic engagement, and ACORN’s work will be included in that research.

Despite these connections between ACORN and NCRP, it is important to stress that no organization should be arrogantly allowed to take the public’s trust for granted.

ACORN’s first mistake in weak governance and poor judgment came in allowing the brother of the organization’s founder to be in charge of finances for so many years. What were they thinking? The board should never have allowed that kind of arrangement to go on for so long. Nepotism never serves nonprofits well. In spite of the fact that dozens of staff members regularly objected to the arrangement, Wade Rathke insisted on keeping his brother running the finances for decades and the board never forced him to do otherwise.

The second mistake, related to the first, was the board’s consistent failure to exercise its fiduciary responsibility and engage in sufficiently rigorous oversight. From my understanding, the board did not have an audit committee and the auditors were answering to Wade Rathke, not to the organization’s board. This is absolutely inexcusable for a nonprofit whose annual budget, when combined with its affiliate organizations, was more than $40 million in 2000.

Once the theft was uncovered, there were several acts that were clearly unethical and just plain boneheaded. First, the auditors followed Wade’s instruction to record the theft as a “loan,” which may make them criminally negligent in this matter. The staff who allowed Wade to keep the matter a secret bears a significant amount of blame too. These are people who show a tremendous amount of backbone everyday in their campaigns against injustice but who lacked spinal fortitude at precisely the moment when it was needed the most to protect the long-term interests of their organization and its constituency. As difficult as it would have been to stand up to the organization’s founder, they should have insisted on full transparency and accountability eight years ago.

While Wade’s argument for protecting the organization from those that would like to harm it has some merit, no organization should think it can operate outside of the basic principles of integrity and transparency. Every time a nonprofit is involved in this kind of wrongdoing, it hurts the entire sector; we cannot take the public’s trust for granted.

ACORN’s funders have made it clear they are willing to continue supporting the organization if ACORN overhauls its management and governance structures. In fact, some funders were pushing ACORN to address these internal issues long before news of the embezzlement leaked. While a foundation should not be in the business of telling nonprofits how to run their organization, it’s proper and necessary for funders to push the issue when basic accountability and governance are lacking.

ACORN does some fantastic work locally and nationally. [For a full description of that work, along with some insightful analysis of the current crisis, please read Peter Dreier’s recent piece in the Huffington Post.] But the fact that they do some great work doesn’t excuse how they handled this situation. All nonprofits need to function with the highest standards of integrity. To their credit, ACORN’s board acted quickly and decisively in removing both Rathkes from their posts once the story became known to them. Additionally, Bertha Lewis has now been named interim chief organizer and seems absolutely dedicated to fixing the underlying governance issues, not just in glossing over the public relations nightmare it has caused.

Out of this crisis comes an opportunity for ACORN to improve its operations. If they get it right, I expect that the organization will thrive in the coming years, that donors will maintain or increase their support of ACORN and its affiliates, and that the public will benefit as a result. If they don’t take this opportunity to improve their operations, I expect that their fundraising will suffer. Other nonprofits should use this case to examine their own commitment to accountability and transparency. Proper governance goes a long way to preventing abuses in our sector.

Aaron Dorfman is the executive director of the National Committee for Responsive Philanthropy (NCRP).

posted on: Tuesday, July 15, 2008

By Lisa Ranghelli

In late June Charlotte’s WCNC-TV and The Charlotte Observer broke a story that the board of directors of United Way of Central Carolinas (UWCC) approved a compensation package for its president that topped $1.2 million in fiscal year 2007. This represented a jump of more than $800,000 to the executive’s employee pension plan, reportedly to retroactively provide increases promised since 2001.

NCRP’s executive director, Aaron Dorfman, commented in The Charlotte Observer, “Nonprofit executives deserve fair compensation packages, but this is outrageous. Why do people believe that we can retain the trust of the public when we pay people at outrageous levels like this?”

The Charlotte news outlets subsequently reported that many local United Way donors were outraged and pledged to stop supporting the organization.

In a message to NCRP, Charlotte resident Steve Hofstatter urged continued attention to this issue. “Charlotte is a caring community where conformance and group think is overwhelming, particularly when it comes to workplace giving and accepting the foibles of a routinely reckless United Way agency,” he wrote. “I wish there was something more I could do beyond writing letters to the editor and consoling my many corporate-employed friends who are coerced to pledge more and more by their overzealous employers.”

Whether or not the compensation package given to the UWCC president was justified, Steve raises an important point—many people who give through the workplace have no alternative to the United Way.

Luckily, this is not always the case. A Columbus Dispatch article by Rita Price, which was published only a few days after the UWCC scandal broke the news, reported on the alternative workplace giving options available in Central Ohio. A handful of federations in Central Ohio are competing with the United Way for charitable donations and are experiencing growth, while United Way donations are down. These include Earth Share and Community Shares. Earth Share donations go to environmental causes, and Community Shares typically distributes funds to organizing, advocacy, and activist groups. These regional federations help increase resources for charities that are often denied the opportunity to become a United Way partner agency or are underrepresented in United Way because they are not traditional social service agencies.

As NCRP recounted in its 2007 report, Charitable Fundraising in the Workplace:

“Many of the early workplace funds were set up in a time of movement building
when the groups that were going to benefit from the funds raised were not as
easily marketable as most mainstream social service organizations. These pioneer
funds were created to raise money for specific communities of color, for civil
and human rights work, for environmental causes, for women’s rights and
pro-choice organiza­tions, for gay/lesbian/bisexual/transgender
popu­lations, and for groups promoting social justice, community organizing
or advocacy.”

These types of organizations continue to suffer from underfunding. Despite the growth of alternative workplace giving options, these funds raise less than 10% of the total raised by United Way affiliates. And foundation support for social justice causes accounts for only 11% of all grants.

As the Charlotte story suggests, having a monopoly on workplace charitable giving may be bad for governance, but it is also bad for society – locking out many important constituencies and causes from needed resources.

So if you’re looking to support nonprofits through payroll contributions but would like an alternative to United Way, you might want to visit Our Giving Community, which lists various alternative workplace giving funds. Encourage your employer to consider partnering with OGC and ask your friends to do the same.

Lisa Ranghelli is a senior research associate at the National Committee for Responsive Philanthropy (NCRP).

posted on: Thursday, July 03, 2008

By Niki Jagpal

The issue of appropriate levels of compensation for nonprofit executives and CEOs is making headlines once again after investigative reports by WCNC-TV and The Charlotte Observer. The United Way of Central Carolinas’ (UWCC) president and CEO Gloria Pace King will receive more than $1.2 million, following the addition of $822,507 to her retirement plan. As the two media outlets have noted, the increase in Pace King’s benefits package places her level of compensation above that of many other United Way executives in different parts of the country.

UWCC board chair Graham Denton defended Ms. Pace King’s compensation, saying she deserved the package given to her.

The Chronicle of Philanthropy’s 2007 survey of executive compensation, however, shows that among the various chapters of the United Way, Pace King’s compensation relative to her organization’s fundraising is significantly higher than that of her counterparts in similar-sized United Way chapters. The Charlotte Observer provides the following examples of other United Way CEO salaries compared to their annual fundraising in FY 2007:

• UWCC raised a record $44 million and Pace King’s salary was $365,000 (excluding benefits).
• In metropolitan Atlanta, the United Way chapter raised nearly $79 million; their outgoing CEO was paid a lump sum of nearly $1.6 million when he retired, on top of a salary of $352,611.[1]
• The United Way of Greater St. Louis raised close to $69 million; the CEO was paid $254,487.

The Observer also highlights a 2002 study it conducted in which the newspaper’s investigations revealed that Pace King was the fifth-highest paid executive of the 50 chapters they analyzed. Her current compensation package places her third among the nation’s 42 United Way chapters as noted by WCNC. These figures raise many questions, including to what extent should the level of fundraising be tied to CEO compensation? And if Denton defends Pace King’s salary on the basis of her fundraising, why is there no consistency in the pay rates of other UW CEOs who out-fundraised her?

So, what are the appropriate ratios to determine a ‘fair’ level of compensation for nonprofit executives? NCRP received a note defending UWCC, highlighting the small percentage of the UWCC budget that comprises Pace King’s compensation. Based on the organization’s 2006 990 form, according to the note, Pace King’s salary was 1.25 percent of her organization’s total operating budget. The writer compared this figure to NCRP’s 2006 990, which showed its executive director’s salary at 15.47 percent.

S/he raised a valid point for consideration in the discussion of what constitutes an appropriate level of compensation and what factors are considered to determine it. For example, while a CEO’s salary may only account for a fraction of an organization’s total budget, is there an absolute figure after which this statistic becomes irrelevant? What of the nonprofit operating with a very small budget that employs only one person who has the title of ‘CEO’? Surely this person’s compensation would comprise a significant proportion of her or his budget, perhaps even 50 percent, give the “multiple hats” the CEO wears in this scenario. In short, is the CEO’s salary as a percentage of the overall budget a valid measure to determine appropriate levels of compensation?

The author of the comment also pointed out that NCRP’s overhead costs in 2006 (17.1 percent) were higher than UWCC’s (13.6 percent). The rate and what constitutes overhead or administrative costs[2] that keep an organization functional vary from organization to organization. It can cover not just staff salaries and benefits but also other costs that enable an organization to work and thrive, such as rent, technology infrastructure, staff training and unplanned program expenses. Moreover, the transaction costs of conducting business in different parts of the country make the local context far too important to ignore. Keeping a small nonprofit in the greater DC metropolitan area functional, paying employees competitive wages based on the local market and cost of living will affect a nonprofit’s overhead.

Finally, the comparison of NCRP with the UWCC assumes that a nonprofit that depends largely on foundation grants should have the same metrics for reasonable compensation as an organization that receives majority of its income from individual donors through workplace giving programs. If this is the case, then what about private foundations, which receive minimal, if any, contributions from individuals?

So how do we select the criteria that ought to determine appropriate levels of executive compensation? Is it realistic to expect foundations to account for local and regional variability in the costs of living when determining how much money to allocate for compensation? Is it fair for a nonprofit executive of an organization funded largely by individual as opposed to institutional grantmakers to disclose how much of the public’s contribution will go toward compensation versus the actual business of the nonprofit? The answers to all the above questions will certainly vary by organization, mission, strategy and personal values. If nothing else, the UWCC case highlights the need to discuss these difficult issues to ensure philanthropy serves the public good and not private interests.

[1] The salary figure was taken from the Chronicle of Philanthropy's 2007 survey.
[2] NCRP recognizes the importance of providing nonprofits with adequate general operating dollars to be truly effective in achieving their organizational missions. It has been urging foundations to increase funding general operations and provide more funding for administrative overhead costs in programmatic grants.

Niki Jagpal is research director at the National Committee for Responsive Philanthropy (NCRP).