posted on: Thursday, November 20, 2008

Nonprofit Crisis-A Terrible Thing to Waste
Gary Snyder

The news seems to be all bad. There is much talk about an implosion of the charitable sector. Some prognosticators believe that the heady days of the $300 billion in donations are coming to an end. Then there is the daunting data, which the New York Times cited recently:
• the Center on Philanthropy that show that households with annual income of less that $50,000 are likely to stop giving as
a result of the downturn.
• charitable funds saw contributions fall by 43%.
• with a downturn in returns on their investments, foundations payouts will drop.
• corporate donations from the largest companies will diminish.

Many want to believe that the weakening trend line is solely a result of the poor economy. Unfortunately, there has been a movement toward smaller total contributions (in absolute dollars) for several years. There are a number of reasons that have put the sector in increasing low esteem.

Study after study has indicated that the trust in the sector has been plummeting. Only about 14% of those studied believe that the sector spends its money wisely. The perception that executives are getting paid extraordinary salaries further exacerbates a poor opinion.

The explosion in the amount of embezzlements, at all sizes and types of charities, has further intensified the public’s lack of confidence. A much-touted study estimates that theft could amount to tens of billions of dollars and at a rate higher than the for-profit sector.

And the leadership, as studies have shown, has lead the lapse in ethical standards---aside from fraud---with nearly 20% of employees said that their own organization had weak ethical controls.

The nonprofit sector that has so long enjoyed a better reputation with regard to its ethics, now exhibits many of the shortcomings in its companion surveys of the public and private sectors

The good news that this is an opportunity to fix that which was gone wrong, clear up the sector’s tainted reputation and protect the charitable sector’s return to its place as a credible and transparent American institution.

Over the decades, the leadership of the charitable sector has emanated from the inner sanctum of the largest foundations and nonprofits. Many of the practices that are currently under scrutiny are an outgrowth of those carried on behind closed doors. In recent years a cloud of suspicion has grown from some close viewers, including donors, taxpayers and small and medium charities. While the elite decision makers ply their trade to protect and benefit themselves, they do so at the peril of the charity sector’s tax-exemption and oversight by the IRS and Congress.

As the culture of the charitable sector is compromised, virtually all leaders have passively sat by with no intervention. They have exercised the power of denial. Some observers believe that they don’t have a handle on what the problems are. This has been effective in contributing to the uncertainty about the future of charities. With no organization that serves the needs of the small and medium charities, there is a lack any direction in confronting the fundamental elements of needed change. Still unanswered is how or if the leadership will step up… or even if they have thought about change.

These are challenging times in all sectors. Congress has historically encouraged bad behavior. They supported the bad behavior of AIG and numerous banks, brokerage firms, and Freddie Mac and Fannie Mae. The reason for the support…they are too large to fail. Every day the line to get the government’s largess is growing.

We see a similar scenario being played out in the charitable sector. Despite ongoing fraud, poor governance and a total indifference, the Congress has given the Smithsonian and the American Red Cross in excess of $100 million. The reason for the support…they are too large to fail. Others charities that evidence poor decision-making are now holding out their hands also.

These concessions set a poor example for the medium and small agencies (or corporations) that are, in large measure acting good, but struggling.

Should the Congress be in the nonprofit bailout business? Should the cash spigot be closed until there are accountability at all levels?

There is little evidence that the government subsidization has helped. After years of tremendous scrutiny and much contrition by the American Red Cross, the eighth CEO in just twelve years showed poor judgment and was fired. This stalwart organization is still under a cloud of controversy with a court order to improve the way it collects blood handling. This has been going on for more than a decade with millions of dollars in fines. Despite a yearlong inquiry and repentance, the Smithsonian bad news continues with one former director recently reimbursing the Institution for lavish spending and more allegations of no-bid deals.

It should be the leaders that show us out of this morass. The most important task is to restore the public’s flagging confidence in our nation’s charitable sector. They need to articulate to the American people the underlying strengths of the sector. Wishful thinking needs to stop and leaders must speak to the realities on the ground. Over the past decade, charity leaders have mishandled this issue.

We should be afraid of the indecisiveness and indifference of the past. Senator Grassley and his staff should be congratulated for focusing on the weaknesses as well as the strengths of the nonprofit sector. This, however, is too important an issue for one Congressman to carry. The regulators seem to be stumbling over the for-profit sector problems and failing to give a comprehensive look at the weakness of the nonprofit sector.

Politics have hardly caused the crisis, but Congressional priorities have certainly exacerbated them. The Congressional patchwork approach has certainly not instilled confidence.

Rebuilding confidence might seem like a small matter; it is not. The denial by the charitable sector’s leadership has compromised a wonderful and magnanimous history. This country is not used to feeling bad about charities. Steering away from the current quagmire with no one steering, leaves little likelihood that it will go in the right direction. Steering the sector necessitates facing the facts and facing down the fears.

Its not just the charitable sector’s future on the line, it’s the millions of people’s lives that it serves. The objective is to have a sector that functions well for all sized charities as well as those that they serve.

Cheer up. This is a great opportunity to right the wronged ship.



Gary R. Snyder is the author of Nonprofits: On the Brink. He is a frequent lecturer and author of articles in numerous publications and blogs. His email is gary.r.snyder@gmail.com; website: www.garyrsnyder.com, phone: 248.324.3700.

posted on: Wednesday, November 19, 2008

By Aaron Dorfman

Discussions about strategic philanthropy are all the rage these days.

Paul Brest, president of the William and Flora Hewlett Foundation, has just released a new book on the subject and has become the most visible proponent of foundations being strategic in their giving. He advocates having clear goals and a sound, step-by-step plan to achieve those goals.

Brest and William Schambra held a debate last week at the Philanthropy Roundtable conference about whether or not foundations should be strategic in their giving. Schambra is the Director of the Hudson Institute’s Bradley Center for Philanthropy and Civic Renewal. In his prepared remarks, Schambra argued that foundations would be better off just getting the money into the hands of local grassroots nonprofits who are trying to do good work. He was critical of the social engineering that he sees at heart of strategic philanthropy and of the hoops foundations make nonprofits jump through to qualify for grants.

Tactical Philanthropy, a thoughtful blog on relevant issues in the sector, will be hosting an offline forum with Brest and Bill Somerville, president of the Philanthropic Ventures Foundation. Somerville’s recent book argues for a grantmaking process centered on finding great people and investing in them, rather than on having a strategy that drives foundation decisions.

I was asked to weigh in on these issues for a session a few weeks ago at the Ohio Grantmakers Forum annual conference. The challenge for the session was to figure out how grantmakers can be both strategic and responsive.

In my opening remarks for the session, I said, “I actually agree with about 80 or 90 percent of Brest’s book. When foundations are NOT strategic, they waste some of the precious resources with which they have been entrusted. … But here’s where I differ with Paul Brest. … When taken to its extreme, strategic philanthropy becomes overwhelmingly controlling. It’s as if the foundation is a puppet master, pulling the strings of nonprofits in order to produce a desired result. In the extreme, strategic philanthropy reduces nonprofits to being contractors working to achieve the vision put forward by the foundation. This type of control, I believe, leads to less impact from philanthropy, not greater impact.”

So what’s the solution? Foundations can do four things to be both strategic and responsive: 1) Prioritize giving to marginalized communities; 2) Invest in funding community organizing, advocacy and civic engagement; 3) Give in ways that promote nonprofit effectiveness; and 4) Add grantee perspective to foundation boards. Read my remarks for more on these ideas that bring together the best of both worlds.

Are there other ways you think foundations can do to be both responsive and strategic in their grantmaking?

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

posted on: Thursday, November 13, 2008

By Aaron Dorfman

According to an article published on October 23, 2008 in the New York Times, former chairman of the Federal Reserve Alan Greenspan “admitted on Thursday that he ‘made a mistake’ in trusting that free markets could regulate themselves without government oversight.”

If there is a silver lining to the current economic crisis, it is the new consensus emerging that government regulation, in proper proportions, is absolutely necessary. The lesson is applicable to all sectors, not just in the country’s financial industry.

NCRP has long held the position that self-regulation is insufficient, and that proper amounts of government oversight and regulation are needed to ensure that philanthropy and nonprofits are accountable to the public and serve the common good. It seems likely that those who do not share this view will have a tougher time making their case in the coming months and years, given how deregulation has been thoroughly discredited in the financial sector.

On November 7th, I debated Heather Higgins, president of The Randolph Foundation, at the Philanthropy Roundtable’s annual conference in Naples, Florida. The session description was as follows:

Public Accountability for Private Foundations: What Is the Role of Government in Policing Our Boardrooms? What kind of public accountability is appropriate for private foundations? Is favorable tax treatment for foundations a “tax subsidy,” or, as one Congressman put it, an “earmark”? Are foundation assets “the public’s money”? Should foundations be subject to political direction in how they govern themselves and where they give away their money? Or should foundations remain private organizations, and, so long as they use their assets for genuinely charitable purposes, should they be free to make their own governance and charitable decisions, with minimal regulation and requirements for disclosure?

The debate, in front of approximately 200 foundation leaders, was spirited and thought-provoking. Ms. Higgins and I found some common ground, but we also had profound disagreement in some areas. The Chronicle of Philanthropy wrote up a short summary of the debate.

As I said in my remarks: “Foundation dollars are partially public dollars, and the public is therefore entitled to know that its contributions are being used wisely. In a free society, all people should enjoy full liberty to donate to whatever causes they choose. But that doesn’t mean the government should subsidize all types of spending or giving. The subsidies provided to foundations create a strong rationale for proper regulation of philanthropy.” The full text of my opening remarks for the debate can be found by clicking here. I argued for three regulatory changes that are needed to prevent abuses of philanthropy for personal gain and to improve the practice of grantmaking in this country.

posted on: Wednesday, November 12, 2008

Advocacy, Organizing and the Special Role of Philanthropy

By Niki Jagpal

In a recent blog post, Drummond Pike, founder and CEO of the Tides Foundation, Center and Shared Spaces, makes an excellent point about the role of nonprofits engaged in advocacy.

I couldn’t agree more with Pike’s strong support of advocacy, which demonstrates broad impact and a high return on investment for institutional philanthropy. Moreover, engaging in advocacy, community organizing and civic engagement are some of the most effective strategies to bring the authentic voices of ordinary citizens directly into policymaking that impact communities. If more foundations and institutional grantmakers adopt these strategies, the net benefit ripples across the U.S. society, advancing opportunities for all and making positive contributions that move us toward an inclusive and participatory democracy.

In the coming weeks, NCRP will release a report on the impacts of this work in New Mexico. The first in a series of reports that documents the impacts of advocacy, organizing and civic engagement across different parts of the country, the New Mexico report found a high aggregate return on investments associated with such work. Importantly, the benefits have already contributed to advancing state-wide opportunities for all citizens of New Mexico. NCRP found impacts in myriad issue areas, including living wages; immigrant rights; healthcare; and leadership development.

NCRP looks forward to contributing to these important discussions about the unique role of advocacy and organizing as tools for the civil society sector to increase its impact and maintain a civically engaged population. As Pike notes in his post, “NOW is the time to make clear what we hold to be critical, and the ideas we have been working on for how best to address those things.” I couldn’t agree more and hope that our reports documenting the impacts of advocacy help the nonprofit sector as a whole to work on the critical issues that strengthen communities nationwide.

Niki Jagpal is the research director of the National Committee for Responsive Philanthropy.

posted on: Monday, November 03, 2008

By Niki Jagpal

On October 10th, the Council on Foundations posted an open letter to its members outlining three recommendations for grantmakers impacted by the global “challenges of our times.” Authored by Ralph Smith, Chair of the Board, and Steve Gunderson, the Council’s President and CEO, the letter acknowledges that “even if fully implemented, these three recommendations do not constitute a sufficient response.” The Nonprofit Quarterly offers excellent insight into the deficiencies of the recommendations and suggests an alternative approach that would help foundations take the right steps towards making their response more sufficient.

Nonprofit Quarterly speaks to many of NCRP’s longstanding core beliefs and underscores the vital role that civil society in the United States must play in supplementing government efforts to address the current global economic crisis. Now is not the time for foundations to pull back funds. Instead, it’s time for them to maximize the impact of their payout requirements, which economic turmoil isn’t going to exempt them from. The nonprofit sector must continue to receive foundation funds if grantmakers want to keep their tax-exempt status.

As noted by the Quarterly, now is the time for increase in overall grantmaking, core support grants, program-related and mission-related investments, support for nonprofit advocacy, and commitment to the nonprofit sector. Now is the time for foundations to acknowledge their reliance on their grantees to carry out their charitable purpose and help the U.S. and the world recover from this global crisis. The Quarterly wants to hear from us all – take a minute to read their excellent letter and join the discussion.

Share your ideas on how foundations can be more responsive to the needs of lower-income and other marginalized communities through support of those nonprofits that serve these groups, especially in tough economic times.

Niki Jagpal is research director of the National Committee for Responsive Philanthropy.