posted on: Monday, March 15, 2010

By Aaron Dorfman

“If I were running the country, I would …” We’ve all thought of this phrase at least once in our lives.

On Tuesday and Wednesday, hundreds of grantmakers will converge on our nation’s capital to educate Members of Congress and their staffs on the critical role that philanthropy plays in our society, and to advocate on key issues that affect the sector. The Foundations on the Hill (FOTH) event is organized by the Council on Foundations and the Forum of Regional Associations of Grantmakers.

I hope that legislators and their staffers will use this opportunity to learn what they can about the important and varied ways that philanthropy is serving communities across the country. There is, no doubt, some great philanthropy being practiced: some funders are creatively supporting direct services during the recession, others are investing in research to solve important problems, and still others are building nonprofit capacity so organizations can be more effective at meeting the needs of our communities.

But we all know that there are many ways that foundations fall short of their potential, too. So FOTH got me thinking: If I were a legislator or Hill staffer meeting grantmakers from my district or state, what questions would I ask?

I invited several colleagues to share their questions.

From Akaya Windwood, president and CEO of Rockwood Leadership Institute, a nonprofit that provides training on leadership and collaboration to individuals, organizations and networks for social change:

• Legislators have feedback mechanisms called elections. If politicians don't meet the needs and expectations of their constituencies, they tend to lose their jobs. What are the feedback mechanisms by which foundations insure that the needs and expectations of their consituencies are met?


• If philanthropists are the venture capitalists of the social sectors, what are ways in which foundations can become bold and nimble enough to support risky but potentially breakthrough ideas?

From Daniel Dodd, executive director of Step Up Savannah, a collaborative of organizations, businesses, and government agencies that seeks to move families toward economic self sufficiency:

• How are foundations working to ensure that grantees are involving low income individuals and minorities into the decision making process when developing poverty reduction strategies or programs?
  
• How are foundations ensuring that funds are being allocated evenly geographically across the country? (It has been our experience that the South is particularly overlooked.)

From Steven Mayer, director of Effectiveness Communities LLC, and architect of Justphilanthropy.org, a website that presents six pathways for philanthropy to be more intentional in its support of racial and social justice:

• Using a metaphor to present an opportunity for exploring the role of philanthropy… If it’s raining cats and dogs and you discover that society’s roof is leaking, do you believe foundations and nonprofits have a role in fixing the roof, or should they be concerned only with cleaning up the mess? Should they (or shouldn’t they) partner with local or national government in their response?
  
• What percentage of a foundation’s or nonprofit’s endowment should be invested in ways consistent with its charitable purposes? (or at least not inconsistent with it)?

From Bill Watanabe, executive director of the Little Tokyo Service Center, a neighborhood-based social service nonprofit that serves Asians and Pacific Islanders of L.A. County:

• How do you define success in the effective use of your foundation grant dollars? Some foundations seem to think that funding systemic change is the ultimate success and direct services is only "band-aid."

From Jan Masaoka, editor of Blue Avocado, an online magazine for community nonprofits:

• Why is that you foundations always talk about all the public good you do in the world, but the main thing that gets you riled up with Congress is when we talk about changing estate taxes, charitable contribution taxes, and other things that would basically tax the rich people that control foundations? Are you more about the public good you say you do, or the private good that you actually advocate for?

These terrific questions speak to the concerns that many of us have on the critical role that philanthropy plays in our society. The points raised by Akaya, Jan, Bill, Daniel and Steven allude to the critical rights and responsibilities of foundations and other institutional funders, and the difficult but necessary task of striking a balance between the two when developing grantmaking strategies.

Bill’s question on the value of direct services, juxtaposed with Steven’s question about fixing the roof, serves as an important reminder that foundations need to look at ways to meet the immediate needs of vulnerable communities while also working towards more lasting solutions to complex social problems.

Both of Daniel’s questions give voice to the frustration felt by those who get left out, and who aren’t often the beneficiaries of philanthropic giving.

Jan’s question speaks to the real frustration that many have with how foundations position themselves when advocating on the Hill.

Here are 3 questions I would add:

• How has your foundations responded to the economic crisis? Did you maintain a steady grants payout, or did you increase or decrease your giving? Why?
  
• How do you think about diversity at your institution? How diverse is your board and staff?
  
• Do you provide your grantees multiyear and general operating support? Why or why not?

What do you think of the questions posed in this commentary?

If you were a legislator or congressional staffer meeting with foundation executives, what questions would you ask?

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

Photo by Danilo Rizzuti/Freedigitalphotos.net

posted on: Tuesday, February 09, 2010

By Aaron Dorfman

I’ve been trapped in my house since Friday night due to the recent blizzard here in the national capital region. And even with all the time spent shoveling and playing in the snow, I managed to make time to catch up on some philanthropy-related items.

Ten days ago, the Foundation Center launched an important new initiative meant to encourage greater transparency among foundations, and one thing I did while snowed in was play around on the site. In a blog post announcing the project, Foundation Center President Brad Smith wrote:

“With the launch of a new public Web portal, www.glasspockets.org, the Foundation Center reaches back to its founding values. We believe strongly in philanthropic freedom, the kind of independence that allows foundations to be innovative, take risks, and work on long-term solutions to some of the world’s most vexing problems. But the best way to preserve philanthropic freedom is not to hide behind it; rather, foundations increasingly need to tell the story of what they do, why they do it, and what difference it makes.

“Why transparency? Foundations use private wealth to serve the public good for which they receive a tax exemption in return. While some have argued that the tax exemption does not legally compel foundations to behave in any particular way, foundations' challenges are more perceptual than legal. No sector -- government, church, business, or charitable -- gets a free pass in the world of 24/7 media, blogs, YouTube, Twitter, crowdsourcing, and digital everything. Why should foundations? Collectively, America's foundations control more than $500 billion in assets, spend some $46 billion a year in grants and on programs, and, in some localities and on some issues, are the major players. And as foundations strive to become more strategic and effective, their impact and influence will grow -- as will the curiosity, praise, criticism, and scrutiny they attract.”

The site provides a clear assessment of whether or not individual foundations make certain information available to the public. For example: does the foundation make available on its website its 990PF return? Does the foundation provide information about its diversity practices? Does the foundation have a mechanism in place to get feedback from grantees? In all, the site tracks 22 difference practices and provides direct links to the information on the foundation’s website.

I found the site fascinating, and I am hopeful that it will create additional pressure for foundations to adopt some of these practices and become more transparent. In perusing the site, I found myself wondering about a few notable philanthropic giants:

Why doesn’t the Hewlett foundation provide information about its diversity practices? Surely they must be sensitive to how they are regarded on issues of race, considering the often contentious debate over AB 624 in California. Why not proactively communicate about these issues with the community?

Why doesn’t the Ford Foundation have any way to get feedback from grantees? Considering the major overhaul they gave to their grantmaking programs recently, one would think the foundation would want to have a way to systematically get feedback from its nonprofit partners.

Why doesn’t the Gates Foundation share information about its executive compensation process? Their new CEO earns nearly one million dollars per year, yet he was already extremely wealthy before taking the job as head of the foundation. The former Gates Foundation CEO took only $1 in annual compensation. Wouldn’t it be a good idea for the foundation to explain publicly the process it uses to set executive compensation?

In writing this blog post, I wanted to spread the word and encourage others to explore the GLASSPOCKETS site. And I also wanted to find out what readers of NCRP’s blog think. Will the site put additional pressure on foundations to adopt some of these practices? If so, why – and is that a good thing? If not, why not?

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

Photo credit: Suat Eman / FreeDigitalPhotos.net

posted on: Monday, June 29, 2009

By Yna C. Moore

Bernard Madoff received a 150-year sentence from a federal court in New York today. He was given the maximum sentence, but for many individuals and organizations that have lost an estimated of more than $13 billion to his Ponzi scheme, this brings little consolation.

Among Madoff’s victims were nearly 150 foundations, 105 of which lost between 30 to 100 percent of their assets to Madoff. What can other foundations learn from their mistakes and hopefully avoid being scammed by the next slick operator?

In today’s The Huffington Post, Aaron Dorfman summarizes the findings of Learning from Madoff: Lessons for Foundation Boards. He noted that more than 80 percent of those foundations that showed poor judgment by investing heavily on Madoff had four or fewer individuals serving on their boards. There was also a marked homogeneity among the trustees.

The results of the study puts into question the ability of these small, homogenous groups to make the best decisions for their organizations.

According to Aaron and the study, foundations need to have at least five trustees with a diversity of perspectives to serve on the board. In addition, trustees must implement and maintain conflict of interest and investment policies, and disclose demographic information of the institution’s board and staff.

Were you surprised about the findings regarding board size and diversity among the foundations victimized by Madoff? What do you think about the recommendation to have a minimum of at least five individuals serving on a foundation’s board?

Yna C. Moore is communications director at the National Committee for Responsive Philanthropy.

posted on: Thursday, June 11, 2009

By Julia Craig

Jeff Raikes, the new CEO of the Bill & Melinda Gates Foundation, gave the Associated Press an interview last week in which he acknowledged the importance of experimentation and innovation in philanthropy.

For eight years, the foundation invested $2 billion in the U.S. to test the theory that smaller schools would produce higher graduation rates. Many of the foundation-supported schools did see an increase in graduation rates; however, overall student achievement and college readiness remained about the same. Following a study on the L.A. Unified School District that found a teacher having a certificate did not impact student achievement, the foundation shifted course and is now focusing on individual teacher quality.

Raikes highlighted this as an example of the foundation’s willingness to experiment and adapt. “Almost by definition, good philanthropy means we're going to have to do some risky things, some speculative things to try and see what works and what doesn't,” he told the AP.

The Gates Foundation has been criticized for its heavy reliance on technological solutions in the developing world in healthcare and agriculture. However, the willingness of the foundation to acknowledge and learn from mistakes is crucial; doing so helps build the knowledge and experience of the philanthropic sector as a whole. As Raikes noted in his interview, social innovation is largely the purview of the nonprofit sector. “We're going to try some things and I'm quite confident that some things will succeed and I'm quite confident that some things will fail,” he said.

Given the complexity of the challenges of education, health, development, and so forth, foundations being willing to experiment and take risks is a key to finding innovative solutions. Do you think the Bill and Melinda Gates Foundation has been sufficiently willing to take risks and to learn from their mistakes? If you ran the foundation, what new approaches would you want to test out?

posted on: Monday, March 09, 2009

NCRP’s new Criteria for Philanthropy at Its Best has sparked lively (and sometimes heated) discussions in philanthropic circles since we released it last week.

Criteria is a set of guidelines for grantmakers so they can operate more ethically and increase their impact on the world today.

According to Criteria, a foundation serves the public good by …

Criterion 1: Values
… contributing to a strong, participatory democracy that engages all communities.

a. Provides at least 50 percent of its grant dollars to benefit lower-income communities, communities of color and other marginalized groups

b. Provides at least 25 percent of its grant dollars to advocacy, organizing and civic engagement to promote equity, opportunity and justice in our society

Criterion 2: Effectiveness
… investing in the health, growth and effectiveness of its nonprofits.

a. Provides at least 50 percent of its grant dollars for general operating support

b. Provides at least 50 percent of its grant dollars as multi-year grants

c. Ensures that the time to apply for and report on the grant is commensurate with grant size

Criterion 3: Ethics
… demonstrating accountability and transparency to the public, its grantees and constituents.

a. Maintains an engaged board of at least five people who include among them a diversity of perspectives—including the communities it serves—and who serves without compensation

b. Maintains policies and practices that support ethical behavior

c. Discloses information freely

Criterion 4: Commitment
… engaging a substantial portion of its financial assets in support of its mission.

a. Pays out at last 6 percent of its assets annually in all grants

b. Invests at least 25 percent of its assets in ways that support its mission

You can view the full report, individual chapters, and executive summary for free at http://www.ncrp.org/paib.

Join the conversation—we’d love to hear from you! Tell us what you think about Criteria.

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: Tuesday, October 28, 2008

by Pete Manzo

How foundations should adapt their grantmaking to help nonprofits in this environment has been a hot topic in the philanthropic world in recent weeks, and going as far back as last spring.

Foundation funding won't drop as sharply as the Dow, thankfully. Overall, foundation giving is likely to stay flat or decline slightly, as the Foundation Center’s review of giving through several past downturns indicates. Of course, for some subset of foundations, grantmaking may decline considerably.

Far more importantly for human services nonprofits, however, government funding is almost certain to fall sharply over the next year or two. At the same time, service providers are likely to see demand for their services rise at the same time their resources fall.

There have been many suggestions among the philanthropy commentariat of different things foundations can do to help nonprofits get through the hard times. I’ve tried to read as many of them as I could, and no doubt I’ve missed many. Here are a few samples:

• Chronicle of Philanthropy listing of articles on nonprofits and economic pressures
• COF open letter on how foundations can respond to the financial crisis
• COF survey report on foundation responses to downturn (May 2008)

One suggestion I haven’t seen, though, is a call to release restrictions on grants, and proactively contact grantees and invite them to reprogram the use of restricted grant funds. This might be the quickest, most powerful way for foundations to help their grantees.

The for-profit financial world, ironically, began doing this nearly a year ago, as the dimensions of the subprime mortgage crisis became more clear. Countrywide, for example, began contacting mortgagee’s last fall and offering to modify their loans, to reduce the risk of default from adjustable rate mortgages. They are now on their second or third round of doing so, a massive undertaking described in this Los Angeles Times article.

Taking this strategy would pay more than just financial dividends. The added flexibility may be critically important to enabling grantees to weather the storm. Speed is also an important virtue here – existing grant funds can be reprogrammed much faster than new funds can be sought, or disbursed.

Perhaps just as important, the work involved in contacting grantees and offering to modify grant terms would promote a number of important goals, including:

• Increasing a foundation's understanding of the impact on their grantees, and providing grantees information about how the foundation is being affected and reacting at its end, which will help both parties plan for the future;
• Sharing information about options and opportunities that may be helpful to the foundation, the grantee and their respective partners and allies; and
• Strengthening relationships between a foundation and its grantees.
  

It also could lay the groundwork for increased trust and openness between foundations and nonprofits in the future. During the 2002 downturn, I participated in several panels on how nonprofits could deal with the economic slump, and I gave similar advice – that they should take stock of the alignment between what they thought they did best, what they thought their clients needed, what would best help the organization address those two factors, and what their funding allowed, and then they should go to their funders and make a pitch for reprogramming the funding they already had in hand. It was unrealistic, though, to expect many nonprofits to actually try this tack, both because of the power differential between nonprofits and their funders, and because of the uncomfortable “Sophie’s Choice” position it might put nonprofits in – they might not want to go on record with outsiders saying they think one of their programs is more important, or more effective, than others. Reaching out to grantees and offering to release restrictions can reduce those barriers and create a different dynamic for future conversations.

Is this a crazy idea? Just impractical? Other suggestions?

Pete Manzo is director of strategic initiatives at the Advancement Project.

posted on: Wednesday, October 22, 2008

Donors As Beneficiaries
By Gary Snyder


A recent article brings to our attention, once again, that corporate citizens and other donors are generously giving to charities that benefit political insiders and ostensibly, themselves.. The New York Times cites among others, the support for the symphony orchestra in Johnston, Pa, the beloved charity of Representative John Murtha.

There is typically a close relationship between the contributor and the politician. In this case, the major sponsors to the Congressman’s charity are two giant defense contractors ---General Dynamics and Northrop Grumman. Murtha’s Congressional committee hands out lucrative defense contracts.

There are other types of relationships. Representative Joe Barton, a Texan established a charitable foundation and hands out grants within his district. An influential member of the Committee on Energy and Commerce, the Joe Barton Family Foundation has a big donor, a major nuclear energy company, Exelon Corporation. The congressman’s daughter-in-law is the executive director of the foundation.

Over the years, we’ve seen U.S. Representative Alan Mollohan use donors and federal dollars--- at least $202 million--- to fund five nonprofits in Mollohan’s district, most of which were under his control. House Majority Leader Steny Hoyer has joined in steps to clean up pork barrel spending…apparently everybody else’s. The congressman has tucked $96 million worth of pet projects into next year's federal budget, including $450,000 for a campaign donor's foundation. Hoyer inserted into a 2008 education-spending bill for InTune Foundation Group, who’s Web site describes it as a music-education nonprofit group.
We’ve seen this practice at all levels of government. For example, Pennsylvania State Senator Vincent J. Fumo use of money from a nonprofit for personal and political purposes with some $17 million is in question.

Another example is Gov. Arnold Schwarzenegger, of California, who set up a little-known nonprofit group that has paid for many of his international trips. Donations paid for his and aides' journeys to Israel, China, Japan, Canada and Europe on trips, described by the governor's office as trade missions, costing hundreds of thousands of dollars. Schwarzenegger solicited the $435,000 in gifts for the protocol foundation at a fundraiser. Only after ongoing inquiries did the Governor revealed for the first time the names of donors to the secretive nonprofit group.

The practice of unregulated contributions is pervasive. The one bad deed deserves another axiom seems to apply to the cozy relationship between politicos and their corporate and lobbying donors and benefactors. This seedy practice certainly needs further scrutiny.


Gary R. Snyder is the author of Nonprofits: On the Brink. His email is gary.r.snyder@gmail.com; website: www.garyrsnyder.com, phone: 248.324.3700.

posted on: Wednesday, September 24, 2008

By Aaron Dorfman

It’s time for funders to resume funding ACORN, and to consider major new investments in the organization in the coming year. In times like these, the country needs ACORN back at full strength.

I wrote a critical blog posting about ACORN’s embezzlement scandal a few months ago, and I’ve been following the situation ever since. I’ve been extremely impressed with the openness and leadership of Bertha Lewis, their new Interim Chief Organizer and I am convinced that ACORN is systematically addressing the problems that led it into such trouble.

Has ACORN fixed everything in 90 days that needed fixing? Of course not. But it’s clear that the organization is committed to solving the problems and they are well on their way to doing so.

The most important development is that the organization’s board is much more engaged than it ever was under the leadership of Wade Rathke. When they finally learned about what happened, they took decisive action, and they are now attempting to fulfill their proper roles of governance and oversight. They’ve identified their weaknesses and are seeking training in the areas where they need help. There is still some controversy on the board, and it’s going to be a messy process, to be sure. But my overall assessment is that funders should have confidence that the board is now properly engaged and that the ship is sailing in the right direction.

Another important development is that mid-level staff – the ones who really make the campaigns happen at ground level – are excited and hopeful about the future of the organization under Ms. Lewis’ leadership. She has been sharing information openly with staff of all levels, which is a welcome culture change for the organization.

The country needs ACORN back at full strength as soon as possible, and that will require serious investment by foundations. The financial markets are in turmoil, and ACORN’s track record shows that it can be one of the most effective voices for ensuring that the interests of those most at risk in any economic downturn, including the hundreds of thousands of low and middle-income homeowners caught up in the foreclosure crisis and financial market meltdown, are protected in bailout discussions. Most importantly, a new administration will take office in January, and the American people need ACORN at the table fighting for communities that so often get left out. They have the capacity to have major impact, but they’ll need funding to make it happen.

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

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: 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).

posted on: Thursday, May 22, 2008

by Yna Moore

The appointment of Bradford K. Smith as the Foundation Center’s new president beginning in October is welcome news (view press release here). He was strongly supportive of social justice grantmaking when he led the Ford Foundation’s Peace and Social Justice Program. There is much reason for optimism that under his leadership, the Foundation Center will continue its efforts to shed light on the amount of foundation dollars that go toward meeting the needs of the many marginalized groups in the country.

Kristina ("Yna") Moore is communications director at the National Committee for Responsive Philanthropy (NCRP).

posted on: Wednesday, April 30, 2008

by Yna Moore

The debate over California's AB 624 legislation continues. The bill would require the state's largest foundations to disclose diversity information regarding their board, staff, grantees and vendors.

Many foundations and their trade associations have strongly opposed the bill, arguing that their decision to fund an organization is based solely on their likelihood of achieving the most impact.

However, “improving the societal impact of foundations and improving their support for diverse communities need not be mutually exclusive propositions,” said Aaron Dorfman in a recent posting on this issue. “In fact, there is growing evidence that diversity and effectiveness go hand in hand.”

In a recent commentary on the Chronicle of Philanthropy (Foundations Should Be Required to Disclose Data on Charity, May 1), Pablo Eisenberg[1] notes that despite being “poorly crafted,” the legislation’s purpose—to require foundations to disclose race and gender information of their boards and grantees—is fundamentally sound. The bill will “provide the public and the foundations, at least in California, with a more accurate picture of the extent of diversity at foundations and their grantees,” said Eisenberg. “Armed with this information, as well as their growing awareness of the problem, foundations hopefully will begin to take much more seriously their responsibility for adequately supporting what has now become the majority of Americans.”

In a separate article (California’s Legislation Won’t Achieve True Diversity At Foundations), Mark Rosenman argues for foundations to truly reflect on their missions and how they translate this into practice. Beyond the numbers, the issue of diversity is about redistribution of power among foundations and nonprofits.

In an earlier post on this blog, Pete Manzo suggests that we’ll need better information than what AB 624 mandates to improve how philanthropy responds to the needs of underserved communities. He proposes a system that allows us to view where foundation dollars are going, the demographic attributes of those places, and information on the subsets of people being served by those grants.

Do you think it’s necessary to have legislation like AB 624 requiring foundation disclosure of diversity information? Why or why not? Do you think AB 624 is an effective way to channel more foundation funding to nonprofits serving communities of color and other marginalized groups? If not, how might this legislation be improved (assuming that you think legislation is needed)? Are there other ways to go about measuring and disclosing more accurately and effectively the current state of diversity in foundation practices and grantmaking? Tell us what you think!


[1] Pablo Eisenberg is a co-founder and former board chair of the National Committee for Responsive Philanthropy.

Yna Moore is communications director at the National Committee for Responsive Philanthropy.

posted on: Friday, April 25, 2008

by Niki Jagpal

This week Project Streamline, a joint effort of grantmaking and receiving organizations to improve reporting and application procedures, released a new report Drowning in Paperwork, Distracted From Purpose. The report identifies ten ways that current application and reporting systems inhibit nonprofit effectiveness including insufficient net grants and lack of trust between nonprofits and funders. The report makes four recommendations for grantmakers based on the study’s findings.

Project Streamline’s report comes at an opportune time; a recent article in the Chronicle of Philanthropy (subscription required) highlights efforts by the Internal Revenue System (IRS) to increase the effectiveness and efficiency of charitable organizations. Steven T. Miller is the current commissioner of the IRS’s tax-exempt and government-entities division. As the Chronicle notes, he made a series of remarks at a conference on tax-exempt organizations convened by Georgetown University Law Center Continuing Legal Education Department this week. One strategy Miller suggests is for the IRS to “create and enforce a standard to ensure that organizations spend in line with their resources.” While monitoring is not currently the purview of the IRS, Miller said that the IRS would be “more aggressive” in keeping a watch over the “efficiency and effectiveness” of charitable organizations.

If nonprofits are to be truly empowered to achieve their missions by focusing on effectiveness and efficiency, it is clear that cumbersome application and reporting procedures have to be addressed. But the process of grant applications and reports is only part of the solution; as Miller states “[…] every charity should be make responsible and appropriate use of its resources to achieve its charitable purposes. That is what the tax-exempt subsidy is for.” [emphasis added]

Moreover, while the Chronicle article and Miller’s remarks discuss revisions to the IRS’s 990 form, the publicly available informational tax returns filed by nonprofit grant recipients, the same standard of effectiveness and efficiency ought to apply to the form 990-PF, the IRS’s tax form filed by private foundations. While efforts to include “efficiency indicators” in the revised 990 forms failed, the new forms will include questions about nonprofit governance and management policies. Miller sees the link between increased transparency and enforcement: “the question is no longer whether the IRS has a role to play in [governance] but rather what that role will be.”

Project Streamline’s work is commendable and adds value to sector-wide attempts to improve the grantmaker-grantee relationship. Now, imagine what the charitable sector would look like if we had simple criteria on the 990 PF forms for measuring philanthropic management and governance to support Miller’s vision of more effective and efficient charitable organizations?

Niki Jagpal is the research director at NCRP.

posted on: Thursday, April 17, 2008

A California Assembly bill is causing quite a stir in the philanthropic and nonprofit worlds. Spurred by a series of studies by the Greenlining Institute, the bill, AB 624, sponsored by 23^rd District Assembly Member Joseph Coto (D-San Jose), would require California foundations with assets over $250,000,000 to collect and make public information about:

• the ethnicity, gender and sexual orientation of foundation board and staff members;
• the number of grants and grant dollars awarded to organizations reporting that 50% or more of their board or staff members are ethnic minorities;
• “the number of grants and grant dollars awarded to “organizations specifically serving African-American, Asian-American, Pacific Islander, Caucasian, Latino, Native American, and Alaskan Native communities, lesbian, gay, bisexual, and transgender communities and other underrepresented communities”
• “the number of grants and grant dollars awarded to predominantly low-income communities"; and
  
• "the number and percentage of business contracts awarded to African-Americans, Asian-Americans, Pacific Islanders, Caucasians, Latinos, Native Americans, and Alaskan Natives."

The current draft of the bill is available here.

The problem is, if the ultimate result sponsors hope to achieve is increased benefits from philanthropy flowing to either communities of color, or low income communities[1], compliance with the bill, as written, looks very unlikely to accomplish that.

First of all, complying with the bill would not be easy, both because of the fairly vague or uncertain definitions of the information to be collected, and also because of the amount of energy that would go into collecting that information, both at the foundations and on the part of their grantees. The bill is imperfectly drafted, so much so that the Nonprofit and Unincorporated Organizations Committee of the California Bar Association’s Business Law Section, a group of attorneys expert on exempt organization law, have issued a statement of opposition raising numerous objections, and concluding that the bill is “fatally flawed.”

The problem I see in the bill is that it does not require information be collected that would establish who is served by grant dollars (more on the feasibility, and wisdom, of trying to establish that below). Rather, it simply requires foundations to tally up the numbers, grant dollars and percentages and publish those. In its current form, a foundation could simply publish the aggregate figures (e.g., “300 grants, in the amount of $400 million, to organizations specifically serving communities of color”, or “250 grants, in the amount of $300 million, predominantly low income communities.” While it would be interesting to track whether those numbers go up or down, they are practically useless, otherwise, for advocates. The data likely wouldn’t provide any evidence that philanthropic support to low income people of color living in particular regions or geographic communities is rising or falling, or how the distribution of grant funds within those communities is shifting over time. (Also, the data likely would not be aggregated somewhere, so to get the bigger picture, advocates would have to cull information from dozens of foundation sites.)

As Aaron Dorfman, NCRP’s Executive Director, has pointed out in this space, if diversity in grantmaking is important, it should be measured. Opponents of the bill actually agree on this point, but object that the challenge will be how to measure it completely, and how to measure it in ways that are most useful to advocates for more responsive grantmaking. The leaders of The California Endowment, The William & Flora Hewlett Foundation and The James Irvine Foundation all have published op-eds or letters to the editor opposing the bill. Ironically, these three foundations are among the handful of large foundations with statewide reach most prominent in pushing policy advocacy and systems change to benefit low income communities of color. The controversy over AB 624 seems to be an example of what a friend of mine calls “heated agreement,” where people who basically agree and should be pulling in the same direction instead divide and argue over minor points.

As Dr. Ross of the Endowment observes, for all the debate about transparency, “the real issues are: poverty, equity and opportunity in communities of color and other underserved communities.” If the purpose is to improve the use of philanthropy to tackle those challenges, we’ll need better information than AB 624 mandates, and advocates for more responsive grantmaking and leaders of foundations like the Endowment, Hewlett and Irvine should be able to come up with much better solutions by working together.

A better place to start would be making visible the flow of grant dollars to specific places, the demographic and other attributes of those places, and even the specific subsets of people served in those places. (Another irony: the specific reach of grants for policy advocacy or systems change will be harder to define, but this challenge can be solved, as I will explore in a future post). To do so, we’ll need to make the grants data already disclosed by foundations more accessible to advocates, and supplement that with data about the geographic and demographic reach of those grant funds. This would mean bringing the grants databases out from behind the firewalls of services like the Foundation Center or Foundation Search, or paying the costs of providing free public access to that data. It also would entail beginning to map the reach of grants. With a modest investment of time and resources, we can determine which census tracts are served by which organizations, and show the amount of grant dollars relative to the numbers of people living in an area or, more specifically, the particular characteristics of people actually served. This is not a technological pipedream, it can definitely be done[2], and likely for far less cost and effort than compliance with AB 624 would entail. The design and development of such a system, however, is something that can’t very well be done in advance through legislation.

In the end, AB 624 is unlikely to become law anytime soon (It has a rough road ahead in the California Senate, and if it passes both houses, Governor Schwarzenegger is likely to veto it.) That should give all supporters of responsive philanthropy, within foundations and the broader community, plenty of time to develop approaches more targeted to improving results for low income communities of color.

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. His opinions are his own and do not necessarily reflect those of NCRP or the Advancement Project.

[1] 1) Oddly, there is no such straightforward statement on Greenlining Institute’s Web site that this is the purpose, as opposed to more generically making foundations more “effective and efficient.”
[2] 2) HealthyCity.org, a partnership of nonprofits in Los Angeles sponsored by the Advancement Project, already has built tools and methods for making the flow of grant dollars visible, for public agencies and private funders, to help them assess their grants in Los Angeles County and throughout California. (Full disclosure: I am a proud co-founder of HealthyCity.org.).

posted on: Tuesday, April 15, 2008

A Compromised Charitable Sector
By Gary R. Snyder

If anyone thought that the bright light on nonprofit misdeeds was going to fade with the change in Senate Finance Committee leadership they are grossly underestimating the festering problem. Granted the loss of Dean A. Zerbe as a principal staff point person on this matter to Ranking Member Senator Charles Grassley is a significant blow. The direction may have changed but the intense interest in setting the nonprofit sector straight has not subsided.

The Senate Finance Committee’s ongoing concern in nonprofit ineptitude was joined by the House Oversight and Government Reform Committee, which held hearings. Among the embarrassing issues was how veterans’ charities gave small proportions of revenue to veterans and their families. An article in the Chronicle of Philanthropy stated that committee members used terms such as “immoral”, “fraud” and “sickening betrayal” with a promise to have additional hearings as the issues unfold.

These terms of endearment are consistent with the donor’s diminishing confidence in the charitable sector. Heightened scrutiny has resulted in increased stories in the media with the recent study on $30-40 billion annual nonprofit fraud (Greenlee, Gordon) being unveiled in an arresting New York Times (March 29, 2008, Report Sketches Crime Costing Billions: Theft From Charities) article. The cumulative effect of the focus of the public attention on charity malfeasance is still unknown, but certainly isn’t going to play well in Congress or at the local nonprofit agency.

The problems continue to center on the abuses by the board, executive and volunteers. All have failed to be diligent in exercising their fiduciary duties. As the Independent Sector notes, few know what their responsibilities are. Even if they did understand what their role is supposed to be, few have the skills to adequacy address the misdeeds.

This is underscored by the Independent Sector’s Panel on the Nonprofit Sector request for government assistance in educating board and professional leaders because both are not aware of the expectations and requirements imposed upon them.

While tens of billions of dollars are taken from those to which it is intended, sector leaders continue to say that it is a “few bad apples”. Last year, the General Accounting Office noted that nearly 55,000 tax-exempt organizations had almost $1 billion in unpaid taxes with some owing tens of millions of dollars.

The fallout in loss in the nation’s misdeeds from charities is profound. According to the National Priorities Project----a $20 billion loss is equivalent to any of the following:

• healthcare to 7.721 million people, or
• 438,768 public safety officials, or
• 1861 new elementary school, or
• 3.1 million Head Start places for children, or
• 290,081 elementary school teachers, or
• 299,496 port container inspectors
or, $54,794,520 per day

Leadership at the local, state, and national levels is virtually nonexistent. The use of words such as transparency and accountability have become jargon—buzzwords---that fail to be meaningful without substance behind them.

The sole of the charitable world is under scrutiny. Integrity, credibility and effectiveness are proxy measures of the soundness of any organization. Without those, the sector is severely compromised


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: http://garyrsnyder.com, phone: 248.324.3700.

posted on: Monday, March 17, 2008

By Aaron Dorfman

Last week, six hundred foundation leaders from across the nation were in San Francisco, Calif. for a conference on grantmaker practices that improve nonprofit results while a major controversy involving foundations continues to brew in the California Legislature.

The conference marked the tenth anniversary of Grantmakers for Effective Organizations (GEO), a coalition of funders focused on maximizing the impact of their grants. GEO is the place where foundation leaders come together to share resources and ideas that help them most effectively contribute to the success of their grantee organizations. When the grantees achieve their missions, the foundations also achieve theirs.

The legislative controversy is about AB 624, a bill that would require the largest California foundations to disclose diversity data about their boards, staffs, grantees and vendors. The bill passed the California Assembly and is making its way through the Senate. Assembly Member Joe Coto introduced the bill because he feels that foundations aren’t meeting the needs of his constituents and other communities of color in California.

With any rigorous review of the available data, it is clear that communities of color benefit from institutional philanthropy at rates far lower than one would expect. Nationally, less than nine percent of grant dollars are classified as intending to benefit racial or ethnic minorities. As a percentage of total grants, that figure has been declining over time. And while the available evidence suggests that foundations have been making real progress diversifying their staffs at the middle levels of seniority, chief executives and trustees of foundations remain overwhelmingly white.

But foundations exist for the purpose of having impact on the issues and causes they were founded to address, not to provide grants or hire staff based on race or ethnicity. Opponents of AB 624 argue that they make their funding decisions based solely on which grantees are most likely to achieve maximum impact and that race shouldn’t enter into the equation.

So are we at an impasse? Must grantmakers choose between being effective or embracing racial equity and diversity? Not at all.

Improving the societal impact of foundations and improving their support for diverse communities need not be mutually exclusive propositions. In fact, there is growing evidence that diversity and effectiveness go hand in hand.

A recent book, The Difference: How the Power of Diversity Creates Better Groups, Firms, Schools and Societies, by University of Michigan professor Scott E. Page shows convincingly that diverse organizations actually outperform more homogenous ones. “Diverse boards of directors make better decisions, the most innovative companies are diverse,” he states in an interview with the New York Times.

Foundation leaders who want results should consider seriously Page’s research. Grantmakers should embrace both diversity and effectiveness, and they should persistently seek to improve on both fronts. They need to go beyond race/gender/sexual orientation and should also include class to ensure that elites of different races aren’t the only voices listened to in philanthropy.

For the past decade, foundations have been advancing their ability to measure the impact of their work and that of their grantees. They’re getting better at knowing whether or not they’re making a difference. They should continue their efforts on this front.

But we also need better data on diversity in philanthropy. Improving diversity will help foundations increase their impact, but we won’t be able to tell if they’re making progress if they don’t measure and report on key diversity metrics. When the only diversity data that is available clearly shows that communities of color are getting shortchanged, elected officials can and should start raising questions. After all, foundations’ tax exempt status means these grantmakers are spending quasi-public dollars.

There are flaws with AB 624, but there is no question that foundations should embrace both diversity and effectiveness to ensure maximum public benefit from the valuable and limited resources that are entrusted to them.

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

posted on: Wednesday, May 16, 2007

No doubt, donor-advised funds can be extraordinary vehicles for millions of Americans to get involved in philanthropy. But this cannot overshadow the glaring need for increased transparency, disclosure and mandatory payout rates to ensure that nonprofits and the public get the charitable benefit they deserve from foundations and donor-advised funds.

What is Transparency and Accountability Worth?

A common argument by those against mandating disclosure for donor-advised funds is that such a requirement would be administratively burdensome and costly. This is the same argument foundations used prior to the advent of public accessibility of the 990PF.

The public has a right to know who or what is exactly is getting supported by charitable donor-advised funds. The public has a right to know who is benefiting from the foregone tax revenues it has entrusted to donor-advised funds to distribute.

For well-intentioned fund managers, the kind of review, analysis, and reporting that would be required with increased transparency will help them weed out donors hiding behind the anonymity of donor-advised funds to do things that might not be all that charitable. In an era where the Council on Foundations is asking for a public discussion of the substance of philanthropy, such substantive accountability should apply to the billions of dollars held by donor-advised funds as well as foundations.

Exceptions to the Rule Don’t Make Regulation Unnecessary.

A number of people have cited exceptions to the rule to justify the continued minimal regulation of donor-advised funds—or even to roll back much of the Pension Protection Act. They claim that entities like the Domini Global Fund or some of the small donor-advised funds set up by community residents for community improvement projects that might be adversely affected by a 6 percent mandatory payout or by disclosure requirements.

To protect those worthwhile examples of donor-advised funds by allowing the thousands of others to go along their ways is upside-down policy-making. There are vehicles for charitable giving that exist or can be created, not to mention the opportunity to make sure there are built-in safeguards in future regulatory policies, to allow these worthwhile entities to function and continue without giving carte blanche to the ones that do not quite exhibit the same community or redistributive benefit.

Legal Doesn’t Mean Right.

A spokesperson for the Council on Foundations noted that most donor-advised funds have lawyered up to stay this side of legal. Of course everyone has lawyered up. How else can the continued operations of the National Heritage Foundation, profiled in the summer 2005 issue of Responsive Philanthropy, be explained after several IRS legal assaults? As the Boston Globe’s Fall 2003 Spotlight Team series on foundations [1] amply demonstrated, some egregious foundation behavior failed to attract what the then head of the Council referred to as “perp walks” because the foundations were well lawyered to operate through the lacunae of laws and regulations. The notion that DAFs have also sought legal advice to operate “legally” doesn’t make some of their grantmaking and operations necessarily right, especially in an environment of weak regulations and even weaker IRS oversight.

Be Wary of the Average.

As the Chronicle of Philanthropy’s recent study on donor-advised funds noted, many officials from donor-advised funds claim that there’s no need to minimum distribution requirements because the distribution rate for these funds averages above the current 5 percent mandatory payout rate for private foundations.

However, the high payout rates reported by some donor-advised funds managers are not the equivalent of private foundation payouts; they are the averaged payouts of dozens, sometimes hundreds of funds. Therefore, the reported payout rates of 10, 15, or close to 20 percent really reflect the existence of some very high payout funds in the portfolio covering up funds that are paying out sometimes well less than 5 percent.

Also, there is a lesson to be learned in foundations’ own payout history: their annual payout increased when the government increased their minimum distribution requirement. The payout rate should be increased to 6 percent for both private foundations and donor-advised funds to make more funding accessible to the nonprofit sector that continues to be in dire need of financial support.

Donor-advised funds can be effective instruments for charitable giving. But the nation need not rely in all cases on blind faith to assume that what these funds do is automatically always charitable. Wearing the toga of charity does not obviate the need for strong standards and government oversight to ensure that nonprofits and the public get the charitable benefit they deserve from foundations and donor-advised funds.

[1] The Boston Globe, “Some Officers of Charities Steer Assets to Selves,” Oct. 19, 2003; “Charity Money Funding Perks,” Nov. 9, 2003; “Foundations Veer Into Business,” Dec. 3, 2003; “Foundation Lawyers Enjoy Privileged Position,” Dec. 17, 2003; “Philanthropist’s Millions Enrich Family Retainers,” Dec. 21, 2003; “Foundations’ Tax Returns Left Unchecked,” Dec. 29, 2003.