posted on: Tuesday, November 24, 2009

by Julia Craig

Last week, NCRP Executive Director Aaron Dorfman, Senior Research Associate Lisa Ranghelli and I attended the 38th Annual ARNOVA conference in Cleveland, Ohio. During the opening plenary on Thursday evening, David Abbott, CEO of the George Gund Foundation and chairman of the Fund for our Economic Future of Northeast Ohio, told the inspiring story of the Fund’s work collaborating with nonprofit and foundation partners to improve economic opportunity in the Cleveland region.

Together, the Fund’s nearly 70 members raised more than $60 million to address the structural economic problems in particularly hard-hit post-industrial northeast Ohio. Each member contributing more than $100,000 over three years has one vote in the decision-making process, a governance structure that means, as Abbott noted, no member always gets its way, which is a novel concept for many foundations. The Fund came about because a number of foundations wanted to better address the crisis nonprofits were facing and effectively respond to their partners’ needs.

Abbott gave a few examples of how this has played out, such as by helping nonprofits respond to new federal funding opportunities and brokering collaboration among nonprofits in the human services field. But, he said, this is not the real opportunity for funders. “To me, the real opportunity is to marshal our philanthropic resources to make a difference in the underlying conditions that put nonprofits and our communities in peril. That is especially true in the older industrial communities of America where the market forces that have stripped us of much of our capacity have not recovered… because the issues are deep-seated and structural.”

The Fund has taken a regional approach to the problem and focused on increasing northeast Ohio’s relevance in the global economy. The Fund has leveraged its investments in start-up ventures with nonprofit partners into greater venture capital for high-growth companies. The Fund has even drawn attention to the ways in which local government structure contributes to economic costs, prompting citizen involvement in advocacy to change decision-making structures.

Abbott told the story of a highly successful philanthropic collaboration, but he also recognized the precariousness of the partnership. Foundations are not used to giving up their individual power to collective will, and as Abbott said, “The individual response to need makes us feel good – especially if we ignore the inadequacy of that response.”

Abbott recognized that current members of the fund may lose interest and it may lose its ability to respond to the economic structural problems of the region in a meaningful way. He also noted that philanthropists tend to be overly optimistic about what they are achieving because they usually operate in a world of “isolation and adulation” that doesn’t always reflect reality. Collaboration, then, is a risk: it involves stepping out of that bubble and potentially “foregoing effusive praise.” This is an important message for funders to hear and understand.

The Fund represents something unique in philanthropy, as does Abbott’s perspective as a foundation leader. He recognized the temptations of individual action and the challenges of taking the long view. He also acknowledged that some have questioned whether it is the role of private philanthropy to make investments in economic development and structural change, but pointed out that one of the main reasons for the Fund’s genesis was that its members saw a void. Abbott ended his talk on an upbeat note, hoping that other regions will see the success of the Fund and develop their own meaningful funder collaborations. His message of the urgency for collective action was one that resonates with NCRP’s values.

Aaron, Lisa and I were excited to hear a philanthropic leader expressing these ideas. What do you think? If you were at ARNOVA, what did you take away from Abbott’s speech? Are foundations doing enough to address the problems of the recession? Does the Fund for our Economic Future represent a viable solution for other regions? Leave your thoughts in the comments.

Julia Craig is research associate at NCRP.

posted on: Tuesday, September 29, 2009

According to recent survey data from The Chronicle of Philanthropy, the median pay increase for charity executives in 2008 was seven percent. This information comes with a host of caveats: nearly one-third of respondents indicated that executives accepted pay cuts, and many of the salaries were set before the full force of the current recession was anticipated. Nonetheless, the data on foundation executive salaries bears examining, particularly given that many foundations are informing their nonprofit partners that the state of the economy is forcing grantmaking cutbacks.

As noted above, the median pay increase in 2008 among large charities and foundations was seven percent. In 2008, inflation averaged 3.8 percent over the course of the year; a full percentage point higher than the average in 2007. In this way, it doesn’t seem that charity leaders were necessarily putting their own interests above their charitable missions. Yet, given the intractable socioeconomic problems that the recession has exacerbated, now more than ever foundations must commit themselves to their missions and invest in their nonprofit partners. Of the 29 percent (57 of 195) of the set that indicated they either received no increase or took a pay cut, the median amount of the cut was ten percent. Most foundations on the list of those taking no salary increase or pay cuts were community foundations. Several nonprofits and foundations also made cuts affecting staff other than the CEO. The median CEO salary for the 148 foundations in the set was $458,461. A handful of large foundation executives earned upwards of $1 million. Additionally, 30 large nonprofit top staff – mostly hospital, university and arts organizations - earned between $1 and $4.7 million.

In the Ethics chapter of Criteria for Philanthropy at its Best, NCRP states that foundations should adopt policies and practices that support ethical behavior, including establishing reasonable, not excessive compensation. Many factors are important when determining appropriate compensation, including the size of the organization, the scope of the executive’s duties, remaining competitive with the private sector, the geographic location of the work, and so forth. However, the new information from the Chronicle’s survey seems to indicate that despite the need to scale back grantmaking at nearly every foundation in the country, many executives are not personally feeling the effects of endowment losses. Even the perception that executives are overpaid leads to the loss of public trust: a crucial element of foundation and nonprofit success.

The pieces related to the data published by The Chronicle indicate that most in the sector expect more pay cuts and fewer raises in the coming year, given that foundations are still reeling from endowment losses sometimes topping 35 percent. Earlier this year, NCRP board member Pablo Eisenberg wrote in The Chronicle about rising nonprofit executive pay. He suggested caps on nonprofit executive pay; not an outrageous idea, considering recent agreement at the G20 summit to regulate pay at financial institutions to prevent abuse.

Are you concerned that foundation and nonprofit executives are risking the public trust with their behavior? How do we determine reasonable, not excessive compensation, given all of the factors described above? I’d love to hear your thoughts in the comments.

Julia Craig is research assistant at the National Committee for Responsive Philanthropy

posted on: Thursday, August 13, 2009

By Muzna Ansari

A recent article by Paul Sullivan in The New York Times cited the feeling of entitlement many young, wealthy adults feel and consequently, their parents’ apprehension in light of the recession. The article posits the question, “How can parents help children with a healthy sense of entitlement adjust to the new economic reality?” It proceeds to offer recommendations ranging from emotional reassurance to financial planning. Specifically, the article highlights instilling values of financial responsibility in young adults that would have been inheritors of wealth, sans the economic recession.

While teaching the current and next generations the importance of earning money and spending responsibly (to ideally avoid future financial crises), the current recession gives us a golden opportunity for deeper evaluation. If the parents of affluent young adults are concerned for their children’s futures, what can be said about those on the opposite end of the economic spectrum? Limited career opportunities for those on the highest levels of the ladder hint at far greater restrictions for those on the lower rungs. The U.S. Census Bureau found that the national poverty level in 2007 was 12.5%; with such a high pre-recession statistic, we can only imagine what poverty levels are during and will be following the recession.

Ultimately, the crisis we are engulfed in allows us to step back and critically re-assess the very society we live in. While parents may focus on teaching their offspring more effective ways to spend money during recessionary times, they also can think critically about training their children to lead lives of significance that extend beyond individual consumption. Philanthropy is a key part of such a re-assessment. Whether or not these young adults will one day inherit or earn considerable amounts of wealth, they can always make a difference in the world around them. Instilling financial principles is one part of a larger moral project: one where young adults learn that what they contribute will be far more important than what they consume.